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Independent Auditor’s Report

 Sections of the Auditor’s Report
 Auditor’s Responsibility
 This section states that the Auditor is responsible for expressing an opinion.
 That the audit is conducted in accordance with Generally Accepted Auditing Standards
    (GAAS) and Governmental Auditing Standards.
 That the audit was planned; risks were assessed; accounting policies evaluated; internal
    controls were considered; that no opinion will be given on the effectiveness of internal control.

Opinions
 If the auditor opinion believes that the financial statements are fairly presented in accordance
    with GAAP this section will tell you this.
 If the auditor does not believe the financial statements are fairly presented the opinion will
    be Qualified.
Qualified Opinions are usually a bad sign and you should understand the qualification.


Management Letter
 At the conclusion of each audit a management letter may issued by the Independent Auditor.
 It is not required if there are no findings that are considered significant.
 It is a good idea to get a copy of recent management letters before you start reviewing the
    actual financial statements.
 The management letter does not provide an opinion but instead deals with the Auditor’s
    evaluation of the Town’s internal control over financial reporting.
 The internal control evaluation is limited and will not identify all weaknesses.
 A deficiency in internal control exists when the design or operation of a control does not
    allow management or employees, in the normal course of performing their assigned functions,
    to prevent or detect misstatements on a timely basis.

A Material Weakness is the most serious finding.
 A material weakness is a deficiency or a combination of deficiencies in internal control, such
    that there is a reasonable possibility that a material misstatement of the entity’s financial
   statements will not be prevented, or detected and corrected on a timely basis.
 One common example is that the Town did not reconcile Cash for the entire year.
 Cash is a material item and an undetected error could lead to a material financial
    statement misstatement.
 Since it was not performed at all the internal control is not timely.

A Significant Deficiency is a level down from a material weakness but is still serious. Significant deficiencies must also be communicated in writing to management.
 A significant deficiency is similar to a material weakness only that the possible financial statement
    error is a low dollar value.
 One example is that the Town did not have an internal control policy on the timeliness of the
    Council on Aging receipts.

An Other Matter is normally a finding that does not have any significant financial impact but it is a best practice recommendation.
 For example, Cash may be reconciled each month but the process is entirely manual and time
    consuming. The suggestion may be to automate the process to be more efficient.
 All of these findings will provide insight into how well your community is managed.

This information is from a presentation by a certified public accountant on financial audits.


posted by Jeff Bennett