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Getting Prepared to Prepare Your Own Financial Statements

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Getting Prepared to Prepare Your Own Financial Statements Powered By Docstoc
					Are You Audit Ready?

           Presented by
          Donna Collins
Milestone Professional Services
        Are you Audit Ready?
• Things that make this process difficult
  – Limited staff
     • Budget cuts - fewer people
     • Availability of personnel to assist with audit prep
  – Limited technical ability
     • Within key Finance positions
     • May be in support areas that impact audit
          Are you Audit Ready?
• Things that make this process difficult
  – Demanding nature of the process within
    relatively tight timeframe
     •   Auditors generally want to start ASAP
     •   Council/Commission expectations
     •   GFOA certificate program deadline
     •   Filing due within 9 months versus 12
        Are you Audit Ready?
• Things that make this process difficult
  – Information outside of the control of the
    Finance Department
     • Valuations (pension, OPEB)
     • Landfill closure (engineer reports, FDEP
       compliance)
  – Interpretation and expectation differences
     • Auditor/Government understanding of technical
       standards
     • Governing body expectations
        Are you Audit Ready?
• Things that make this process difficult
  – Coordination with other departments
     • Information for accruals
     • Project status for construction projects
     • Grant information from operations
       Are you Audit Ready?
• Keys to smoother audit season
  – UNDERSTANDING OF THE OBJECTIVES
  – PLANNING MEETING
  – COORDINATION
  – FOLLOW THROUGH
  – COMMUNICATION
  – PATIENCE
     Are you Audit Ready?
      Our focus for today
• The process within the
  government
• Understanding the auditor’s
  perspective
    Process within the Government
•   Coordinate with outside organizations
•   Coordinate with internal departments
•   Update documentation
•   Perform closing procedures
•   Perform year-end account analysis and
    propose necessary journal entries
    Process within the Government
•   Prepare for a single audit (if applicable)
•   Prepare auditor requested items
•   Prepare financial statements
•   Complete a GAAP disclosure checklist
•   Prepare Annual Financial Report
      Coordinate with Outside
          Organizations
• Identify the items needed from others
  – OPEB Valuation
  – Pension Valuations
  – Self-Insurance Certification
  – Swap Effectiveness Calculation (GASB 53)
• Make sure authority to contract has been
  given at the appropriate level.
     Coordinate with Outside
         Organizations
• Communicate deadlines clearly and make
  sure they are incorporated into the
  contract.
• Know the key contact personnel for follow
  up or questions.
• Coordinate with auditors regarding timing
  of audit and due dates for financial
  statements.
      Coordinate with Internal
      Departments - General
• Many items needed to prepare for the
  audit are provided by other departments
  within the government.
• Make a list of these items that is complete.
• Add requested by dates and make sure
  they will meet your needs and be
  reasonable for the department that must
  provide the items.
      Coordinate with Internal
           Departments
• Plan to Plan
  – Have a meeting with all key players.
  – If you need something from a department,
    include them in the meeting.
  – Do this timely. Early August is not too early.
  – Be organized and prepared. Set up system
    that works for your department.
      Coordinate with Internal
           Departments
• Send email or memo to all participants of
  planning meeting that:
  – Summarizes what was discussed and who is
    responsible (responsibility chart)
  – Requires acknowledgement of receipt
  – Allows for their input if something missing
      Coordinate with Internal
           Departments
• Communicate with Departments
  – Payable cut-off and system lock out dates
  – Inventory dates and count procedures
  – Final Budget adjustment needed
  – Make sure to include key support personnel in
    the communication
    • Financial personnel
    • Operational personnel
    • Administrative assistants
        Coordinate with Internal
             Departments
• Communicate needs with Departments
  – Schedules and assistance that will be needed
    from that department
    •   audit or year-end close schedules or reports
    •   identification of CIP projects completed
    •   access to files for auditors
    •   footnote information
      Coordinate with Internal
           Departments
• Don’t forget to coordinate with the
  Information Technology Department
  – Reports needed
  – Internal Control document updates
  – P.O. roll over procedures
  – Input of new budget
  – Actual roll over of old year
      Coordinate with Internal
           Departments
• Document your plan including all
  significant tasks, responsible individual
  and due date
  – Matrix
  – Checklist
  – Narrative
     Coordinate with Internal
          Departments
Communication should be:
Early
Complete
Effective
      Coordinate with Internal
           Departments
• Follow up is generally necessary
  – Finance deadlines don’t necessarily correlate
    with internal department processes.
  – Reminders of the dates items are needed and
    the impact they have on the audit flow may be
    helpful.
  – Make sure to communicate with support
    personnel. They often can facilitate your
    request.
   Coordinate with Internal
        Departments
•Be patient, but ask
 early
       Update Documentation
• Internal Control Narratives
  – Existing procedures
  – New processes or controls
  – Key personnel changes
  – Make sure that documentation agrees with
    actual process being followed by staff
      Update Documentation
• Information Technology flowcharts
  – New software and impact on internal
    processes
  – Upgrades to software
  – Changes in key personnel or information flow
  – Additional physical safeguards put in place
  – Risk assessment of any new technology
    purchased and controls in place
       Update Documentation
• Significant contracts and agreements
• New major grants
• Risk assessment for the government
  – Identify potential risks and controls that
    address the concern
  – Evaluate fraud risk specifically
• Consideration of new technical standards
  and a plan for implementation
   Perform Closing Procedures
• Make sure duties are outlined on planning
  document created earlier in this process.
• Remember that certain reports may only
  be run on 9/30 due to system limitations
  – A/R and A/P detail
  – Deposit detail
  – Purchase orders carried forward
  – Sick/Vacation (Accrued Leave Report)
       Cash and Investments
• Timing – can be done early in the year-
  end process
• Bank Reconciliation is key – get this done
  timely, fill in deposit footnote piece
• Pooled cash equity - reconcile to equity in
  each fund
       Cash and Investments
• Investments – reconcile to trustee
  statements (best if done monthly) to
  ensure all transactions are properly
  recorded including interest
• Footnotes for investments can be
  prepared once 9/30 transactions recorded
  (effective duration by investment type,
  concentration of asset by type, etc.)
                    Payroll
• Many general ledger software packages
  can handle accrual automatically.
  – Find out if your software has this option
  – Test the accrual in “train mode” if possible
• Propose accrual (and reversing entry) as
  part of processing the last payroll of the
  year.
                 Payroll
• Prepare the reconciliation for the auditors
  at the time the 941 is filed
• Run leave reports (vacation and sick) after
  the last payroll for the year. Compensated
  absence schedules, footnote and accruals
  can be done shortly after the last payroll
  run.
    Perform Year-end Account
            Analysis
• Include all major funds and accounts with
  high risk. Begin at TB level but also review
  G/L detail where necessary.
• Make sure all “negative” account balances
  are reclassified (negative assets moved to
  liability, etc.)
• Document results of analysis
         Account Analysis
        General Suggestion
• Consider monthly reconciliation for all
  balance sheet accounts (Black book).
• Document findings during monthly budget
  to actual comparisons for use in year end
  fluctuation analysis work.
• Book the reversing entry when you book
  an accrual.
 Account Analysis -Receivables
• For State Revenues/Receivables:
  – Prepare FLAIR reconciliation
  – Book accruals
  – Reverse prior year accrual
  – Add amounts to Due from Other Government
    audit workpaper (and footnote, if applicable)
FLAIR Reconciliation
 Account Analysis -Receivables
• For other revenues/receivables:
  – Agree subledger to general ledger
  – Print detail report of subledger balances.
    (Report can be spooled for later printing or
    review. )
  – If clean up is needed, propose the entry then
    and rerun report or prepare a reconciliation to
    the G/L.
 Account Analysis -Receivables
• Grants – when submitting reimbursement
  request, add any accruals to Due from
  Other Governments schedule (prepared
  for auditors and footnote, if applicable)
• Look for 12 months of receipts for routine
  payments
• Revenue recognition policy affects
  accruals
 Account Analysis - Receivables
• For significant interlocal agreements,
  check revenue against contract to see if
  receivable needs to be accrued. Do this
  when recording the last receipt prior to
  9/30.
• Don’t forget to reverse prior year accruals.
• Prepare reversing entry for 10/1 at the
  time you prepare the 9/30 accrual.
   Account Analysis - Revenue
• Perform analytics that compare current
  year to prior year and current year to
  budget. Make sure explanations make
  sense in connection with other known
  trends. (This will be useful in MD&A.)
     Account Analysis - Debt
• Can be done early
• When you make last payment for the year,
  update the debt progression schedule for
  the audit and footnotes.
• Be diligent in keeping a file for all new
  debt issues and lease arrangements.
  When you obtain or run amortization
  schedules, add to audit file and footnote
  schedules.
     Account Analysis - Debt
• For proprietary debt, ensure that ending
  balance per progression agrees to general
  ledger
• Premiums and deferred amounts can be
  amortized and then added to debt
  progression shortly after year-end.
• Make sure ending balances agree to G/L
 Account Analysis - Expenditure
           Accruals
• Consider performing a Search for
  Unrecorded Liabilities
  – Set scope below auditor’s scope
  – Perform for at least 3 months across all funds
  – Document reasons for not accruing
    transactions
 Account Analysis - Expenditure
           Accruals
• Look at major contracts for retainage and
  necessary accruals and go ahead and
  draft commitment footnote.
• Perform analytics that compare current
  year to prior year and current year to
  budget. Make sure explanations make
  sense in connection with other known
  trends. (This will be useful in MD&A.)
   Account Analysis - Accounts
            Payable
• Run detail at 9/30 at your cut off date and
  keep this report for auditors to use for tie
  in for their Search for Unrecorded
  Liabilities
• Make sure this detail agrees to TB for
  each fund.
    Account Analysis - Capital
             Assets
• Reconcile capital outlay monthly
• Consider monthly review of all R&M and
  Small Tools accounts
• Document reasons for not-capitalizing any
  6000 account.
• Prepare a reconciliation for all 6000
  accounts to asset additions
   Capital Asset Reconciliation
• Sample City
    Account Analysis - Capital
             Assets
• Identification of CIP completed can begin
  before year end.
  – Can be time consuming.
  – Make requests early.
• Don’t forget about intangible assets.
     Account Analysis – Fund
            Balance
• Prepare progression of fund balance
  amounts (by fund)
• Ensure classifications from prior year are
  still accurate.
• Identify new description needed within
  nonspendable, restricted, committed or
  assigned categories
• Update footnote
    Prepare for a Single Audit
• Centralized vs. decentralized accounting
  for grants will impact this area.
• Decentralized grant management will
  require earlier coordination/communication
  with each department that has a grant for
  the fiscal year.
     Prepare for a Single Audit
• Practical suggestions include:
  – Make sure you have a separate folder for
    each significant grant that includes:
     • the grant agreement
     • the relevant compliance supplement (that the
       auditors will use to determine testing required)
     • Council/Commission acceptance of the grant
     • CFDA or CSFA number
     Prepare for a Single Audit
• Practical suggestions include:
  – Make sure you have a separate folder for
    each significant grant that includes:
     • all reports submitted to the agency
        – Financial and operational
        – Reconcile financial reports to the g/l
        – Attach receipt documentation to request so that date of
          receipt is easily identified
        – Support for all accruals/deferrals
        – Documentation of FFATA reporting performed
     Prepare for a Single Audit
• Practical suggestions include:
  – Make sure you have a separate folder for
    each significant grant that includes:
     • Monitoring documentation for subrecipients
        – Copy of entity’s financial statements and audit reports
        – Documentation of intended use of the funds received
        – Documentation that funds were used for purpose that
          pass through grant was awarded
Prepare Auditor Requested Items
• Generally the auditors will provide a list of
  requested schedules during their interim
  field work. If they do not provide a “client
  assistance list”, request this document.
• Review the list and ask questions on any
  items that may not be clear.
Prepare Auditor Requested Items
• Remember that the auditors are looking
  for the information requested. It may be
  readily available in another format utilized
  internally by the government. Ask if this
  will be acceptable. It can save time and
  effort.
Prepare Auditor Requested Items
• Audit Preparation – Schedules and
  requested items
  – Detail account schedules to be prepared
    •   Cash transfers schedule
    •   Investment detail with market values
    •   Detail of Receivables
    •   Due to/from Other Governments
    •   Schedule of Due to/from other funds
    •   Fund Balance analysis
Prepare Auditor Requested Items
• Audit Preparation – Schedules and
  requested items
  – Footnote progressions to be updated
    • Debt progression (including compensated
      absences, OPEB)
    • Capital Asset progression
    • OPEB and Pensions
    • Self insured funds
Prepare Auditor Requested Items
• Audit Preparation – Schedules and
  requested items
  – Gather general documentation for new
    transactions/processes
    • New debt (bonds and notes) and leases
    • New accounting standards and implementation
    • Documentation of new software programs, IT
Prepare Financial Statements
– Prepare Fund level statements
  • Can be done by staff
  • Make sure review process occurs
     –   New accounts and funds properly grouped
     –   Numbers input accurately
     –   Excel formulas correct and no hidden rows/columns
     –   Review may need to be done by Finance Director
  • Begin as soon as TB closed
Prepare Financial Statements
– Schedules for conversion amounts to be
  updated. Make sure to coordinate with
  footnote preparation and auditor requested
  schedule preparation to gain efficiencies.
– Examples include:
  • Debt – bonds and notes
  • Other long term liabilities
  • Capital Assets
Prepare Financial Statements
– Schedules for conversion amounts to be
  updated. More examples:
  •   Accrued interest
  •   Pensions (NPO) and OPEB
  •   Deferred revenue/Unearned revenue
  •   Inventory balances
Prepare Financial Statements
– Top Level Statements to be completed
  • Utilize conversion schedules
  • Incorporate each item into Statement of Net Assets
    and Statement of Activities concurrently
  • Complete reconciliation statements as you address
    each conversion item.
  • Make sure statements agree. Be careful of $1
    differences
Prepare Financial Statements
– Footnotes need to be done
  • Make sure to coordinate efforts with other parts of
    the audit preparation process.
  • Agree to Financial statement draft and correct
    rounding differences in the footnotes as prepared.
  • Examples include: SSAP, Cash and Investments,
    Debt, Capital Assets, Interfund transactions,
    Pensions, Commitments, Fund Balance
    composition, etc.
  Prepare Financial Statements
• Management Discussion and Analysis
  should be updated
  – Make sure amounts articulate with amounts in
    the financials
  – Analysis should be informative and not old
    “canned” topical discussions
Prepare Financial Statements
– Statistical Section data to be gathered (if you
  prepare a CAFR)
   • Begin process early
   • Make sure first four tables agree with final CAFR
   • Review Auditor General desk review results to
     ensure common errors have not been made.
   • Don’t forget appropriate footnotes for each table.
   Complete GAAP Disclosure
           Checklist
• Purpose: ensure correct application of
  standards and completeness of document
• Several sources to obtain a current
  checklist
  – GFOA
  – PPC from auditors
  – AICPA
  – Other
   Complete GAAP Disclosure
           Checklist
• Make sure to complete all sections
• Utilize technical references if you are
  unsure of standard application to your
  entity
Prepare Annual Financial Report
• Annual Financial Report due to
  Department of Financial Services 45 days
  after delivery of audit but no later than 9
  months after fiscal year.
• Must be complete prior to audit release so
  that auditors can compare to financial
  statements.
       Auditor’s Perspective
       Interim and Planning
• Procedures Include:
  – Review of internal control documentation
    • Updated for current year
    • Includes all major areas
    • Proper segregation of duties or compensating
      controls if segregation not possible
       Auditor’s Perspective
       Interim and Planning
• Procedures Include:
  – Gathering of agreements and contracts
    • Properly executed
    • Approved in accordance with purchasing policy
    • Compliance elements are included (grants)
        Auditor’s Perspective
        Interim and Planning
• Procedures Include:
  – Testing of controls and transactions
    • Control testing is often dual purpose – financial
      statement and compliance
    • Are controls documented in narratives provided by
      client being followed in actual practice
    • Are transactions properly authorized
       Auditor’s Perspective
       Interim and Planning
• Procedures Include:
  – Review of preliminary Schedule of Federal
    and State Assistance
    • Complies with Rules of Department of Financial
      Services as to format
    • Also complies with requirements of Auditor
      General
    • Includes CFDA and CSFA numbers
        Auditor’s Perspective
              Year-end
• Procedures include:
  – Review of trial balance
    • Ensure risk areas from planning are still accurate
    • Identify balances that require audit procedures
  – Audit of schedules provided by client
    • Accurate, complete and agree to TB
    • Analysis consistent with other data already
      gathered
        Auditor’s Perspective
              Year-end
• Cash Audit Schedules
  – Agree to trial balance
  – Include all cash accounts and properly
    identifies restricted cash and the nature of the
    restriction
  – Proper cut off (includes timely bank
    reconciliation)
  – Footnote information has been included
       Auditor’s Perspective
             Year-end
• Accounts Payable Schedules
  – Includes all accruals
  – Subsidiary agrees to general ledger
  – Clean cut off
  – Identification of retainage amounts
  – Amounts Due to Other Governments have
    been properly identified
        Auditor’s Perspective
              Year-end
• Accounts Receivable Schedules
  – Includes all accounts and agrees to trial
    balance
  – All accruals are made with proper cut off
  – Needed allowances are recorded
  – In governmental funds, balance will be
    received in next year
  – Footnote information available and agrees to
    schedules
        Auditor’s Perspective
              Year-end
• Capital Asset Schedules
  – Beginning balance agree to prior year audited
    numbers
  – Intangible assets have been properly
    identified
  – Depreciation has been correctly calculated
    and the change in A/D makes sense
  – Reconciliation to capital outlay has been done
  – Capitalize interest has been recorded
       Auditor’s Perspective
             Year-end
• Debt Schedules
  – Beginning balance agree to prior year
  – New debt issuances have been properly
    recorded
  – Covenants are identified, tested and have
    been met
  – Outstanding amounts agree to confirmations
       Auditor’s Perspective
             Year-end
• Revenue Schedules
  – Relationships between years make sense
    based on council actions
  – All major revenues have been accrued and
    cut off is clean
  – Grants have been evaluated for revenue
    accruals/deferrals
       Auditor’s Perspective
             Year-end
• Expense/Expenditure Schedules
  – Relationships between years make sense
    based on council actions
  – All major items have been accrued and cut off
    is clean
  – Budget to actual relationships also make
    sense given events during the fiscal year.
        Auditor’s Perspective
              Year-end
• Procedures include:
  – Review of financial statements
    • Statements articulate
    • Footnotes agree to the face of the statements
    • Amounts agree to audited trial balance and
      groupings are accurate
    • All required disclosures are included
    • GAAP followed
    • MD&A and Statistical Sections are consistent with
      CAFR taken as a whole
       Are You Audit Ready?
       Suggested Resources
• Governmental Accounting, Auditing, and
  Financial Reporting by Stephen Gauthier
• Elected Official Guides (GFOA)
  – Audit Committees
  – Internal Control and Fraud
• Small Government Resource Manual
  (FGFOA)
       Are You Audit Ready?
       Suggested Resources
• AICPA Audit Guides
  – Audit Sampling
  – Analytical Procedures
  – Auditing and Accounting
  – Government Auditing Standards and Circular
    A-133 Audits
  – State and Local Governments
Questions?

				
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