The Sassawinni First Nation is located adjacent to a town in northern Saskatchewan. The Nation is under the jurisdiction of the federal government's Aboriginal Affairs and Northern Development Canada, and for years has received substantial funding from that department. The money has been used mainly to fund housing construction on the reserve and to provide maintenance payments to families that do not have a source of income. The houses are the property of the Sassawinni First Nation, and the band council allocates them to families on the basis of need.
In addition to the housing, the band has been able to build a recreational centre, which also contains the band's council chamber and administrative offices.
A few years ago, some council members with an entrepreneurial flair persuaded the Nation's members to build a shopping centre containing a large grocery store and several small specialty stores. The shopping centre is located on reserve land, and the band provided approximately 20% of the financing, with the balance coming from a provincially guaranteed bank loan. The shopping centre operates under the name Great Northern Centre Inc., and the Sassawinni First Nation owns 100% of its outstanding common shares. The centre has been a financial success, drawing a large proportion of its business from the adjoining town and surrounding agricultural area. Not only has it been a source of employment for First Nation families, but it has also generated enough cash to keep its loan payments current and has recently been able to declare and pay a dividend.
Flushed with its success, the Sassawinni First Nation has submitted to the provincial government a business plan to construct a gambling casino on band property. It will be an incorporated entity and will be under the complete control of the Nation, subject only to provincial government gambling regulations.
Up to the present time, the band has provided stewardship reports to the Department of Indian Affairs and Northern Development that outline the funds received from the federal government and the manner in which they have been spent. Government auditors have verified these statements, but no formal audit reports have been considered necessary. Now, with all of this new business activity taking place, proper audited financial statements will be required for the next fiscal year. You are employed by Fox, Fox, and Jameson, the public accounting firm that is the auditor of Great Northern Centre Inc. Your firm has just been appointed auditor of Sassawinni First Nation, and this will be the firm's first audit of an organization of this nature. Jane Fox, the managing partner in charge of this audit, has asked you to provide her with a written report outlining the specific accounting principles that will be applicable in this case. "I am going to have to catch up quickly," she said. "I am aware that there have been some changes in GAAP recently, but because our firm has not been involved with audits of this nature I have not paid much attention to what has been going on. One of the benefits of hiring new university grads like yourself is that you provide us with up-to-date technical knowledge."
You have just returned from interviewing the band chief, Joe Sullivan. "I am absolutely certain that we are going to get this casino," he said. "The announcement will be made by the premier within two weeks, and I have received information from a knowledgeable insider that we will be on the list of First Nations to be granted casino licenses. It will be a financial godsend to our people, employing well over 100 band members and providing us with substantial profits, a portion of which will have to be devoted entirely to accommodations in accordance with the licensing agreement. This will allow us to build more housing for our members, but with all the jobs that we now have, we will probably start charging rent for housing provided to those with jobs. Not only that, we have three permanent employees who have been with us for a while, and council has instructed me to investigate the possibility of providing a pension plan for them as well as for the permanent employees in our business enterprises."
When asked about the band's accounting records, Sullivan responded, "We have a very good bookkeeper, and the government auditor has always complimented her on the accuracy of her records. She provides timely statements showing us how much we have to spend. Our records are all here and go back at least 20 years. I would just as soon carry on the way we have been doing things, but with this new casino we'll have to provide audited financial statements to the two governments-and, of course, to our members."
Required:
Prepare the report requested by your firm's managing partner.