Taking the Fear Out of Audits and Financial Statements

1
Taking the Fear Out of Audits and Financial
Statements

• Presented by
• Gregory S. Allison

2
Requirements for an Annual Audit

• Required by G.S. 159-34
• Performed by an independent CPA
• Reports must be prepared in accordance with GAAP
• RFPs not required, but encouraged
• Local Government Commission (LGC) approves all
  contracts and payments

3
Purposes of the Annual Audit

• Fulfill trustee responsibilities
• Independent verification
• Compliance with GAAP requirements
• Compliance with grant and similar requirements
• Suggestions for improvements
• Other?

4
Key Audit Concepts

• INDEPENDENCE
• Presented fairly
• Sampling
• Auditor judgment
• Materiality
• Generally accepted accounting principles

5
The LGC

• Oversight body for state and local governmental
  entities
• Established by General Statute
• Unique to North Carolina..product of the
  depression

6
What does the LGC do?

• Monitors fiscal condition
• Approves debt issuances
• Enforces statutory compliance
• Monitors investment practices
• Monitors audit compliance

7
What is fund accounting?

• Definition
• Required by GAAP for governmental entities
• Categories of funds
• Governmental
• Proprietary
• Fiduciary

8
Types of Funds

• Governmental
• General
• Special revenue
• Capital projects
• Debt service
• Permanent

9
Types of Funds (cont.)

• Proprietary
• Enterprise
• Internal service

10
Types of Funds (cont.)

• Fiduciary
• Pension trust
• Investment trust
• Private-purpose trust
• Agency

11
The GAAP Financial Statements

• Basic financial statements
• Government-wide financial statements
• Fund financial statements
• Note disclosures
• Managements Discussion and Analysis (MDA)

12
What is required in NC?

• Basic financial statements
• MDA
• Budgetary compliance information
• Comprehensive Annual Financial Reports (CAFRs)
  are encouraged but not required

13
Government-wide Information

• Government entities collapsed into two broad
  activity categorizations
• Governmental
• Business-type
• Purpose to provide a big picture perspective in
  addition to detailed fund information

14
Fund Information

• Provides detail of the governments fund
  structure
• Governmental
• Proprietary
• Fiduciary
• Unique to the governmental environment

15
How are the two perspectives used?

• Government-wide information provides an overall
  economic assessment of the governments financial
  condition
• Fund information is similar to focus on spending
  only (e.g., cash flow)

16
What is an MDA?

• Managements Discussion and Analysis
• Similar to requirements in the private sector
• Provides an overview of the basic financial
  statements
• Analysis of the current year financial condition
  versus the previous year
• No prospective information included

17
In conclusion.

• External financial reporting required once a year
• Audits are used to give an independent
  verification that the financial statements follow
  GAAP reporting requirements
• Government financial reports used by creditors,
  rating analysts, grantors, and the public