Budget season is almost here;
Audits:
          Objective
 To review the different reports that are part of the Town’s annual audit.
 Basic Financial Statements
 Management Letter
 Schedule of Federal Awards
To focus on what is important to know
To discuss what cannot be found in the financial statements

Private-Sector versus Governmental Financials
 Private-sector businesses, despite what they sell, share a common goal – Profit.
 The primary goal of governments is to provide Services.
 Service quality, unlike profit, is not a financial concept.
 Because there is no profit motive, the need exists for defining performance measurement
    in the public-sector.
 Governmental financial statements have not played the same role in assessing performance
    as they do in the private-sector.

Who Makes the Rules?
 For Private-Sector financial statements the Financial Accounting Standards Board (FASB)
    is the nationwide body that establishes the form and content of the statements.
 For Governmental financial statements the Governmental Accounting Standards Board
    (GASB) is the nation-wide body that establishes the form and content of the statements.
 The GASB provides the standards on how to prepare financial statements in accordance with
    Generally Accepted Accounting Principals (GAAP).
 Users such as investors and rating agencies rely on the consistent application of GAAP.
 This is the only way users can assess the financial position of one government compared
     to another.
 It is important to remember that the GASB and FASB are independent bodies not associated
    with either the Federal or State governments.
 The standards are not a Federal or State Mandate.
 Massachusetts General Laws along with the Department of Revenue (DOR) establishes the
    accounting standards are unique only to Massachusetts governments.
 The financial statements include budget to actual statements prepared in accordance with
    accounting standards established by the DOR.
 The DOR accounting standards are known as the Uniform Municipal Accounting System
    (Umas).
 Umas is different than GAAP and therefore General Fund Unassigned Fund Balance is
    normally different than Free Cash.

Role of an Independent Auditor
 The Financial Statements are not the “Audit Firm’s” Statements, they are management
    of the Town.
 The audit firm examines the Town’s financial statements for the purpose of rendering
    an opinion on whether the financial statements are fairly presented in accordance with GAAP.

Independent Auditor’s Report
 When you review an audited financial statement this is the first thing to look at.
 This will tell you if there is anything seriously wrong with the financial statements.
 It will also tell you if the statements are OK.
 Look at the DATE of the report as this can be an indication of potential management issues.
 The Independent Auditor’s Report is comprised of several section

Sections of the Auditor’s Report
 Report on the Financial Statements
This defines the statements being audited
Management’s Responsibility for the Financial Statements
This tells the reader that management is responsible for the fair presentation in accordance with
    GAAP; that management is responsible for Internal Controls; and free from material
    misstatement due to error or fraud.


This is part of post on financial audits with regards to public sector or government, municipalities as in cities and towns. There will be more to follow. It is an attempt to provide information to residents of Templeton with regards to audits that have been talked about with some frequency at meetings of the board of selectmen. This material comes from a presentation by an individual who is a certified public accountant at a firm that performs municipal audits.

posted by Jeff Bennett