Blue Print to Prepare for your Annual Audit

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Blue Print to Prepare for your Annual Audit

• Jill E. Gilbert, CPA
• Partner Trout,Ebersole and Groff, LLP
• Matt Przywara, CPA
• Chief Financial Officer School District of
  Lancaster

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Presentation Overview

• Preparing for an Audit- Auditor Perspective
• Client Perspective
• Questions

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What benefit does an audit have?

• Good auditors will familiarize themselves with
  the business and operations of a School District
  and share valuable advice that may lead to more
  cost-effective ways to operate.

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What Benefit does an Audit have?

• May become aware of and recommend ways that the
  entity can improve its internal controls over
  financial reporting or profitability.
• Suggestions of ways to improve the detection and
  prevention of fraud

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What is an Audit?

• Provides an independent assessment of and
  reasonable assurance about whether an entity's
  reported financial condition, results, and use of
  resources are presented fairly.

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What is an Audit?

• Financial audits performed in accordance with
  Government Auditing Standards also includes
• reports on internal control
• compliance with laws and regulations, and
• provisions of contracts and grant
  agreements as they relate to financial
  transactions, systems, and processes.

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What is an Audit?

• Financial audits under the GAO's Government
  Auditing Standards incorporate additional
  requirements
• More restrictive independence standards
• More restrictive continuing education
  requirements
• More requirements relating to communication
  during the planning stage
• More requirements for considering the results of
  previous audits and attestation engagements.

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What is an Audit

• Government Auditing Standards (Continued)
• The audit organization and the individual auditor
  must be free impairments to independence.
• Auditors must use professional judgment in
  planning and performing audits and in reporting
  the results.
• The staff assigned to perform the audit must
  collectively possess adequate professional
  competence for the tasks required.
• Each audit organization performing audits in
  accordance with Government Auditing Standards
  must establish a system of quality control and
  have an external peer review.

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Planning is the Key!!!

• He who fails to plan, plans to fail
• Planning is bringing the future into the present
  so that you can do something about it now
• Expect the best, plan for the worst, and prepare
  to be surprised.

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Planning

• Generally accepted auditing standards require
  auditors to use information gathered about the
  entity and its environment to
• Identify and assess the risks of material
  misstatement.
• Determine the nature, timing, and extent of
  further audit procedures needed to respond to
  those risks.

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Planning

• During the planning process, the auditor gains
  sufficient knowledge of the client to
• Identify risky audit areas.
• Determine the procedures necessary to
  address identified risks.

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Planning

• For lower-risk areas, the auditor determines
  what limited procedures will be necessary.
• The additional time spent applying risk
  assessment during the planning process may be
  more than offset by efficiencies gained from
  limiting procedures in lower-risk areas.
• Because the auditor is focusing his or her
  efforts on higher-risk areas, the audit approach
  is more effective.

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Planning

• Entrance Meeting- items for client to consider
• Discuss blocks of vacation or illness time.
• Inform staff of the impending audit.
• Explain the audit process and timing to staff.
• Designate key contact personnel.
• Review and sign the engagement letter.

   
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Planning

• Client Suggested Procedures
• Review the general ledger for any journal entries
  that need to be posted.
• Examine the balance sheet for any uncollected
  receivables
• Update the capital asset inventory.
• Update the District's accrued sick and vacation
  liability.
• Review prior year audit findings and ensure that
  corrective action was taken.
• Assemble a central file of audit information.
• Ensure that receipts and expenditures are posted
  to the correct general ledger accounts.

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Planning

• Information Request List 
• Review the information request list and determine
  if the items requested are available.
• Inform the auditor if any of the items requested
  are not available.

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Planning- GASB 54

• GASB 54
• Only applies to the five governmental funds.
• No changes to the reporting of net assets for
  government-wide and proprietary statements.
• Effective for financial statements for periods
  beginning after June 15, 2010.

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Planning- GASB 54

• GASB 54 Fund Balance Hierarchy
• Nonspendable Fund Balance
• Restricted Fund Balance
• Committed Fund Balance
• Assigned Fund Balance
• Unassigned Fund Balance

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Planning GASB 54

• Nonspendable not expected to be converted to
  cash.
• Not in spendable form
• Inventories
• Prepaid
• Long-term notes receivable
• Funds legally or contractually required to be
  maintained intact.
• Corpus of a permanent fund

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Planning GASB 54

• Restricted
• Essentially the same definition as reported for
  restricted net assets under GASB 34.
• Should be restricted when constraints placed on
  the use of resources are either
• Externally imposed by creditors, grantors,
  contributors, or laws or regulations of other
  governments or
• Imposed by law through constitutional provisions
  of enabling legislation

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Planning GASB 54

• Committed
• Constraints on use are imposed by formal action
  of the governments highest level of
  decision-making authority.
• Constraints can only be removed or changed by
  taking the same type of action it employed to
  commit them.

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Planning GASB 54

• Committed (contd)
• Should incorporate contractual obligations to the
  extent that existing resources in the fund have
  been specifically committed for use in satisfying
  those contractual obligations.
• The formal action to commit fund balance should
  occur prior to the end of the reporting period.
• Amount, subject to constraint, may be determined
  in the subsequent period

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Planning GASB 54

• Assigned
• For all governmental funds other than the general
  fund, any remaining positive amounts not
  classified as nonspendable, restricted or
  committed.
• For the general fund, amounts constrained for the
  intent to be used for a specific purpose that is
  narrower than the general purpose of the
  government.
• Cannot assign an amount if it would cause a
  deficit in the unassigned fund balance.

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Planning GASB 54

• Assigned (contd)
• Not required to be the governments highest level
  of decision making authority.
• Nature of the action to remove or modify
  assignments are not as strict.

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Planning GASB 54

• Unassigned
• General fund, amounts not classified as
  nonspendable, restricted, committed or assigned.
  Only fund that would report a positive amount in
  unassigned fund balance.
• Other governmental funds amount expended in
  excess of resources that are nonspendable,
  restricted, committed or assigned

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Planning GASB 54

• Special Revenue Funds
• Proceeds of specific restricted or committed
  revenue sources should be the foundation for the
  fund.
• Specific revenue sources should be expected to
  continue to comprise a substantial portion of the
  inflows.
• Other resources (i.e. investment earnings,
  transfers from other funds) may be reported in
  the fund if those resources are restricted,
  committed, or assigned to the specified purpose
  of the fund.

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Planning GASB 54

• Must determine if current special revenue funds
  meet the revised fund definition for such funds.
• CommitedThe formal action to commit fund balance
  should occur prior to the end of the reporting
  period- before 6/30/2011!!

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Fieldwork

• SAS No. 110 states that the auditor should
  design and perform further audit procedures whose
  nature, timing, and extent are responsive to the
  assessed risks of material misstatement at the
  relevant assertion level.
• The auditor must develop an audit plan in which
  the auditor documents the audit procedures to be
  used that, when performed, are expected to reduce
  audit risk to an acceptably low level.

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Fieldwork

• AICPA Fieldwork Standards
• The auditor must adequately plan the work and
  must properly supervise any assistants.
• The auditor must obtain a sufficient
  understanding of the entity and its environment,
  including its internal control, to assess the
  risk of material misstatement of the financial
  statements and to design the nature, timing, and
  extent of further audit procedures.
• The auditor must obtain sufficient appropriate
  audit evidence by performing audit procedures to
  afford a reasonable basis for an opinion
  regarding the financial statements under audit.

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Fieldwork

• By leveraging the knowledge gained through the
  auditing process, an auditor may also make
  suggestions to management on ways to improve
  internal controls to ensure accurate reporting
  and guard against fraudulent activities.

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Financial Statements

•                                                
• Review the draft of the final audit report.
• Review each section thoroughly
• Ensure each section is accurate and complete.
• Make revisions, if needed, to convey the
  appropriate wording and tone.
• Discuss the draft report with your senior
  management.

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Financial Statements

• During Reporting
• Ensure the auditor makes all proposed revisions
  the report draft.
• If no further revisions are required, a final
  audit report is issued.
• Share the final audit report with your staff so
  they are informed about the results of the audit.
   

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Final Communication

• Management Letters               
• Address and resolve issues proactively
• Ensure the facts are correct.
• Discuss the issue with the auditor and provide
  any information that may be critical to
  understanding the full scope of the issue.
• Obtain supporting documentation to clear or
  resolve a potential finding.

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Final Communication

• Management Letter
• Keep your senior management apprised of the audit
  and any issues that arise.
• Discuss the planned corrective action plan.
• Prepare a written response.

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QUESTIONS

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