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Introduction to Reading and Understanding Your Audit

Introduction to Reading and Understanding Your Audit. Presented by C. Michelle Blackstock, CPA/CITP Partner, Grau & Associates. Why do we have to have an audit anyway?. State Audit Requirement. Pursuant to Section 218.39(1), Florida Statutes :

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Introduction to Reading and Understanding Your Audit

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  1. Introduction to Reading and Understanding Your Audit Presented by C. Michelle Blackstock, CPA/CITP Partner, Grau & Associates

  2. Why do we have to have an audit anyway?

  3. State Audit Requirement Pursuant to Section 218.39(1), Florida Statutes : • All counties, school districts, charter school or technical center. • All municipalities or special districts based on revenues or expenditures

  4. Single Audit Requirement If the local government expends $500,000 or more in either Federal Awards or State Financial Assistance programs

  5. Know the Rules

  6. What is the Purpose of an Audit? • Obtain reasonable assurance that the financial statements are free of material misstatements. • Includes examining on a test basis evidence supporting the amounts and disclosures in the financial statements.

  7. Planning • Gain an understanding of the internal controls • Preliminary analytics • Fraud inquiry • Materiality • Develop a plan

  8. Fieldwork Auditors execute the audit plan and perform substantive procedures

  9. Completion • Wrap up open items from the fieldwork • Final discussions on any significant deficiencies, material weaknesses, compliance issues or other findings • Review all potential audit adjustments • Complete the financial statements and audit reports • Issue report and complete all filings

  10. GASB 54: Transparency in Fund Balance

  11. Nonspendable Fund Balance Amounts that cannot be spent because: • Not in a spendable form or • Legally or contractually required to be maintained intact

  12. Restricted Fund Balance Amounts restricted for specific purposes where the use of the resources are: • Externally imposed by others or • Imposed by law through constitutional provisions or enabling legislation

  13. Committed Fund Balance Amounts to be used for a specific purpose pursuant to formal action of the highest level of decision making authority of the government unless removed or changed by the same type of action (i.e.: resolution or ordinance).

  14. Assigned Fund Balance Amounts that are constrained by the intent to be used for specific purpose but are neither restricted or committed. Intent should be by the governing body itself or a body or official delegated with the authority to assign the amounts.

  15. Unassigned Fund Balance Fund balance that has not been assigned to other funds and not restricted. The general fund should be the only fund with a positive unassigned fund balance.

  16. HOW TO READ AND UNDERSTAND AN AUDIT REPORT

  17. Governmental Funds • General fund is the operating fund. • Special revenue funds are used for specific revenues legally restricted for expenditures for specified purposes. • Debt service funds are used for the accumulation of resources and the payment of long-term debt.

  18. Governmental Funds • Capital projects funds are used to account for financial resources to be used for the acquisition/construction of major capital facilities. • Permanent funds are used to report legally restricted resources.

  19. Proprietary Funds • Enterprise funds may be used for activities where a fee is charged to external users for goods or services. • Internal service funds are used to report activities that provide goods or services to other funds or governments on a cost-reimbursement basis.

  20. Fiduciary Funds • Pension trust funds are used to report resources that are required to be held in trust for employee benefit plans. • Investment trust funds are used to report external investment pools or specific investments held for others.

  21. Fiduciary Funds • Private-purpose trust funds are used to report trust arrangements that benefit individuals, private organizations, or other governments. • Agency funds are used for situations where the government’s role is custodial and do not involve a formal trust agreement.

  22. Component Units • Blended Component Units • Discretely Presented Component Units

  23. Government Wide Statements • Statement of Net Assets • Statement of Activities

  24. Fund Level Statements • Balance Sheet • Reconciliation of Balance Sheet – Governmental Funds to the Statement of Net Assets

  25. Fund Level Statements • Statement of Revenues, Expenditures, andChanges in Fund Balances • Reconciliation of Statement of Revenues, Expenditures, and Changes in Fund Balances Governmental Funds to the Statement of Activities

  26. Required Supplementary Information (RSI) • Management Discussion and Analysis (MD&A) • Schedule of Revenues, Expenditures, and Changes in Fund Balances – Budget and Actual (if not included as a Statement) • Infrastructure condition and maintenance date if using the modified approach

  27. Required Supplementary Information (RSI) • Pension and OPEB trend data (Schedule of Funding Progress and Schedule of Employer Contributions) • Revenue and claims development trend data – public-entity risk pools

  28. Other Information • Notes to the Financial Statements • Introductory Section (only if CAFR prepared) • Combining Statements (non major funds and individual internal service and fiduciary funds) • Statistical Section (only if CAFR prepared)

  29. Hands On Examples

  30. Independent Auditor Reports • Independent Auditor’s Report - Opinion • Internal Control over Financial Reporting and Compliance and Other Matters • Management Letter

  31. Auditor General Reporting If the audit findings in the preceding financial audit report are uncorrected, the auditor must identify those same findings that were included in the second preceding fiscal year financial audit report. Any such findings must be clearly referenced to the corresponding findings included in each of the two preceding financial audit reports.

  32. Single Audit • Report on compliance requirements on each major program and internal control over that compliance • Schedule of expenditures of federal or state awards • Notes to the schedule • Schedule of Findings and Questioned Costs

  33. Annual Financial Report (“AFR”)

  34. Annual Financial Report (AFR) If you are required to provide for an audit then submit the annual financial report (AFR) and a copy of the audit to the Department of Financial Services: • 45 days after the completion of the audit • no later than 9 months after the fiscal year end of the local governmental entity.

  35. Annual Financial Report (AFR) Official website must provide a link to the Department’s website to view the entity’s AFR that was submitted. If there is no official website, then the county government’s website must provide the link for the local government.

  36. FILING REQUIREMENTS

  37. The Florida Department of Financial Services also needs a copy of the financial statements for certification of the AFR submission. You can submit the financial statements electronically as a PDF attachment to localgov@myfloridacfo.com Annual Financial Report

  38. Auditor General Filing • Currently one electronic copy and one paper copy are required to be submitted. • Specific requirements for the electronic filing apply and can be found on the Auditor General’s website: www.myflorida.com/audgen

  39. Other Filing Requirements • Federal Single Audit at harvestor.census.gov/sac • MSRB EMMA • Municipal Police & Firefighters Pension annual report • CAFR submission to GFOA

  40. Financial Condition Assessment

  41. State of Financial Emergency Local governments that meet one or more of the following conditions: • Failure to pay short-term loans or make long-term debt payments when due as a result of lack of funds. • Failure to pay uncontested claims within 90 days due to a lack of funds.

  42. State of Financial Emergency • Failure to timely transfer payroll related obligations due to a lack of funds. • Failure to pay wages, salaries or retirement benefits due to a lack of funds.

  43. State of Financial Emergency No longer a condition: Fund balance deficit in total or portion not classified as restricted, committed, or nonspendable, or a total or unrestricted net assets deficit and for which sufficient resources are not available to cover the deficit.

  44. Financial Condition Assessment • Local governments are required to notify the Governor and the Legislative Auditing Committee when one or more of the conditions have occurred or will occur if action is not taken to assist the entity. • Independent auditors are required to notify the local government of deteriorating financial conditions that may cause a financial emergency.

  45. Vocabulary Test • Audit • Federal Single Audit/SEFA • State Single Audit • Annual Financial Report (“AFR”) • Comprehensive Annual Financial Report (“CAFR”) • Financial Condition Assessment (“FCA”)

  46. Mandatory Reading List • GFOA’s Governmental Accounting, Auditing, and Financial Reporting (the “Blue Book”) • Rules of the Auditor General Chapter 10.550 Local Governmental Entity Audits

  47. Questions? Contact information: mblackstock@graucpa.com

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