financial reporting

Better Understanding the Financial Statement Audit

For most local governments, the annual financial statement audit is as much a part of the yearly round of public finance as the approval of the operating budget. Despite its routine character, however, the financial statement audit appears to remain something of mystery to most outside the auditing profession. This article will attempt to dispel the cloud of mystery by first briefly reviewing the nature and purpose of the financial statement audit and then examining ten specific points of misunderstanding commonly encountered in practice.

Nature and Purpose

Are You Ready to Implement GASB 45?

By Barbara Reid

The following is a summary of the GASB 45 session presented at the LGC annual conference on November 8, 2007.

Is There a Missing Link in Your System of Internal Controls

The American Institute of Certified Public Accountants (AICPA) issued Statement on Auditing Standards number 112, commonly referred to as SAS 112, in May 2006. SAS 112 will affect all auditees, including local governments—cities, towns, counties and school districts—and is effective for audit periods ending on or after December 15, 2006. SAS 112 defines how auditors will communicate matters related to your entity’s internal controls over financial reporting.

So You Think GASB 45 Doesn’t Apply to Your Town?

State and local governments historically have provided health and life insurance coverage to retirees as a benefit to help in recruiting and retaining qualified employees. Over the past several years these costs have been escalating well beyond inflation and cost of living increases. Because the costs associated with these other post-employment benefits (OPEBs) are not recognized until actually paid, a potentially huge unfunded liability exists for the future costs of these benefits to employers for past and current employees.

Public Sector Audit Committees

A crucial but often overlooked component of an effective internal control framework is the audit committee. Although management is primarily responsible for making sure that the necessary controls are in place to achieve organizational objectives, the governing body ultimately must ensure that management is fulfilling this responsibility. The most effective means of oversight is the audit committee, which helps the governing body oversee the audit of financial statements, ensure that the auditor is independent of management, and address control and compliance weaknesses.

Recognizing Indicators of Fraud

The American Institute of Certified Public Accountants (AICPA) is the national professional organization for certified public accountants. One of the objectives of the AICPA is to adopt uniform standards for CPA’s to follow during the conduct of an audit. Effective in 2003, the AICPA issued Statement on Auditing Standard 99 (SAS 99) addressing the auditor’s responsibility to consider fraud in a financial statement audit.

GASB Statement 45 and Its Impact on Your Financial Statements

After implementing the new financial reporting model prescribed in Statement 34 by the Government Accounting Standards Board (GASB), many municipalities and school districts thought they were home-free in terms of financial statement changes. However, one area not addressed at the time of GASB Statement 34 implementation was the issue of reporting certain employment benefits other than pensions. In 2004, the GASB issued Statement 45 Accounting and Financial Reporting for Post-employment Benefits Other Than Pensions, requiring that these benefits be reported on an accrual basis.

New Municipal Financial Data Tool Enables Historic Comparison

By Betsy McClain

Municipal managers and policy makers have labored over the gathering, analysis and presentation of local government financial data for as long as anyone can remember. Sound historic financial data is the underlying foundation of effective financial forecasting, decision-making and local policy development. Only with a comprehensive understanding of their past and current financial circumstances can municipalities formulate effective policies for navigating the choppy financial waters ahead.