Casino Accounting and Financial Management: Second Edition

Chapter 12: Casino Auditing, Minimum Internal Control Standards, and Financial Reporting

This chapter describes the current practice and principal problems in the auditing of casino operations, the status of accounting principles as they apply to unique casino balance sheet and income statement items, and current problems regarding the financial reporting and disclosure requirements for the industry . Many of the issues that are discussed in this chapter have been either introduced or discussed in some detail in other chapters. Other ongoing efforts regarding casino accounting and auditing are also discussed. The American Institute of Certified Public Accountants (AICPA) has issued an audit guide covering the casino industry.1 The audit guide, originally published in 1984, constitutes the basis of authoritative accounting principles and auditing procedures for casino operations in the United States. As a result of considerable changes in the business and the growth of gaming into a multijurisdictional industry, the AICPA and the Accounting Standards Executive Committee (AcSEC) appointed a task force to revise the audit guide. The revised audit guide is expected to be completed and published , and would be applicable for audits of casinos beginning in 2009 onward . The later sections of this chapter reflect the current specifications of that audit guide. the casino auditing environment The modern environment of casino auditing is a result of a unique partnership among the following: 1. Casino management, including the casino internal audit department c h a p t e r 1 2 Casino Auditing, Minimum Internal Control Standards, and Financial Reporting 320 Auditing, Taxation, and Management 2. Government gaming control agencies, including tribal gaming regulatory authorities 3. Independent certified public accountants (CPAs), including private- and publiccompany reporting as well as reporting to regulatory authorities Each of these groups has its own unique interests in the integrity of the auditing process. This lack of commonality of interests leads to considerable differences in the audit objectives and procedures used by the different auditing groups indicated above. Within the independent CPA group, the increasing importance of the Public Companies Accounting Oversight Board (PCAOB) and SEC reporting has had a significant impact on how casino auditing for all purposes is conducted. The public-company reporting standards and procedures set the pace for changes, expansions, and improvements in all types of financial reporting for casinos. A second problem arises in the auditing and reporting for tribal or small privately owned casinos, where the overall procedures and standards are sometimes subject to less scrutiny and somewhat less rigorous standards. Some tribal casinos may also be subject to auditing and reporting standards of the Governmental Standards Accounting Board (GSAB). Casino Management and Internal Audit The maintenance of an effective system of internal controls is of paramount importance to the proper operation of the casino. The complex operations of the casino, together with the large amounts of cash and chips in use, create a situation where ironclad controls are essential. Comprehensive systems of checks and balances are required to safeguard the assets of the casino, to assure accurate financial reporting, and ultimately to preserve the goodwill of the customers by maintaining an atmosphere of fair and square dealing within the casino. Maintaining this public perception of efficient and trustworthy operations is also vitally important to the continued existence of the casino industry and the marketing success of the individual casinos. A second important dimension of good controls is that the continuing operation of the casino is only allowed by the regulatory authorities at their pleasure. It is vital that these regulatory authorities grant the authority to operate , continue to allow the casino to operate, and that the gaming license not be placed in jeopardy in any way. The shortest and easiest way to lose a gaming license is to be accused of cheating and to have it proven. Beyond the regulatory control, the overall public perception of the integrity of the casino operation is important in assuring that casino operations continue to be socially tolerated by the large majority of the public. Without this public acceptability , the image of the industry will be degraded, and the continuation of legalized gaming could be challenged. Auditing, Controls, Reporting 321 Internal Audit Departments: It is the responsibility of the internal audit departments of the various casinos to act as top management’s first line of defense in maintaining the integrity of casino operations. They are responsible for ensuring that the following conditions are met: 1. Designed internal control procedures are followed 2. Customers do...