Maintaining a Good Relationship with Your Auditor 2009

© 2009 Maze & Associates

MAINTAINING A GOOD RELATIONSHIP

WITH YOUR AUDITOR

September 16, 2009 Presented by

Cory Biggs, CPA and CEO


Objectives

• Maintain Low Tension Levels• Provide A Free Flow Of Information• Provide for Effective And Efficient Audit


Overview

• Understanding The Audit– What Should You Expect from the Process?

• Understanding The Attitude– What Should You Expect From Professional

Requirements?• Understanding The Auditor– What Should You Expect From The Person?


Understanding the Audit• Audit Selection• Types of Audits– Audit Of Financial Statements• Are Financial Statements Free Of Material

Misstatement • Results In Audit Opinion • Communications to Governing Body

– Special Projects - Other types of work• Auditor Evaluation Of Internal Controls


Understanding the Audit (cont.)• Audit Risk Assessment – Typical Test Areas For Treasury:

– Investment Purchases And Sales– Valuations – Fair Values– Safekeeping– Segregation Of Duties– Signatories/Transfer/Wire Controls– IT Security Controls

• Confidential data• Laptops & Off-site exposure

– Cash/Investment Reconciliations– Reporting– Policy Compliance– Government Code Compliance– Debt Indenture Compliance (Restricted Funds)


Understanding the Audit (cont.)• Auditor Verification Of Balances – Confirmation:

• Deposits– Bank Balances– Uninsured & Uncollateralized Deposits

• Collateral:– Requirement Met?– Magnitude Of Pool– Custodian Of Pool

• Signatories

– Confirmation Of Investments• Safekeeping• Trustee• Counterparty Vs. Custodianship Questions


Understanding the Audit (cont.)• Verification Of Disclosures:– Composition - Investments By Type– Valuation - Fair Values– Interest Rate Risk – Highly Sensitive Investments – Credit Risk– Concentration Of Credit Risk– Foreign Currency Risk


Understanding the Audit (cont.)

• Interest Rate Risk Disclosure Methods:– Segmented time distribution - A table is

used to group investments by maturity – Specific identification - Individual

investment maturity dates disclosed– Weighted average maturity - The average

time a group of investments matures – Duration – Simulation model - Very sophisticated



• Highly Sensitive Investments– Terms Should Be Disclosed In The Footnote,

for example:• Coupon Multipliers• Benchmark Indexes• Reset Dates• Embedded Options

– Investment Examples:• Variable-rate investments• Asset-backed investments



• Credit Risk:– Disclose rating agency credit ratings • Aggregate Investments By Type, Then• Credit Rating

– Obligations of the U.S. government / Agencies guaranteed by the U.S. exempt

– If pooled investments are unrated, the footnotes should indicate that fact.



• Concentration Of Credit Risk– Disclose concentration of credit risk for

investments > = 5% total investments • Aggregate Investments By Type, Then• Issuer

– Exempt:• Obligations of the U.S. government/Agencies

guaranteed by the U.S.• Pooled investments – LAIF, Mutual Funds,

Money Markets, etc.



• Foreign Currency Risk: The risk that changes in foreign exchange rates will adversely affect fair values.

• Risk disclosure should also be made for governmental, business-type, individual major, non-major in aggregate, or fiduciary funds when their exposures are significantly greater than that of the primary government


Resources

• CMTA – www.cmta.org• Governmental Accounting Standards Board• CCMA White Paper issued in February 2005• Government Finance Officers Association– Governmental Accounting, Auditing, and Financial

Reporting – “GAFFR” or “Bluebook”– Treasury Management Publications

• CDIAC Investment Guidelines: There are many. Most notable:– Local Agency Investment Guidelines: Update for 2009,

issued in May 2009 [CDIAC #09-06]



• Results Of Audit– Audit Opinion– Reporting To Governing Body• Material Weakness In Internal Controls

– Material Errors– Potential For Future Material Errors

• Material Noncompliance• Significant Deficiencies


Understanding the Auditor• Characteristics of Auditors– Auditor Has To Make A Living– College Educated – BS degree or better– Highly Motivated & Disciplined– New Staff Trying To Become CPAs– Annual Training Requirements– Bound by Professional Standards– Specialized i.e. IT auditor


What makes for a great auditor?

• Knowledgeable In Municipal Audits– Treasury Function

• Communicates Data Needs In Advance• Communicates Potential Issues As They

Arise• Suggests Practical Solutions To Issues • Provide Adequate Time For You To Respond

To Potential Issues• Great Communicator


Understanding the Attitude• Bound By Professional Standards – Audit Standards:

• Test The Data• Document Scope, Tests, Results, Conclusions

– Professional Skeptisim– Objectivity– Independence

• Fact• Appearance

– Confidentiality of clients issues– Government Audit Standards


Understanding the Attitude

• Staffing Structure– New Auditors Perform Work– Audit Supervisor Reviews Work – Auditors Clear Notes– Manager/Partner Reviews Work– Auditors Clear Notes– 2nd Partner Reviews Work


Understanding the Attitude• What makes for a Great Attitude?

– Unbiased– Issues should be about the “System” not the “Staff

Person”– Reasonable Perspective– Willingness To Revise Judgment On Issues Based On Your

Response.– Understands You Have Routine Duties To Perform Too– Reasonable Information Requests – Rifle vs. Shot Gun– Willing To Advise On Issues Before They Become “Issues” – Senior Auditor or Partner Asks You: “How Did My Staff

Perform?”


Understanding the Attitude• Know Your Area – Treasury– Controls And Procedures – Policy – Government Code – Reporting– Financial Statement Disclosure

Requirements• Can you out “GASB” the Auditor?


Understanding the Attitude• Maintain A Productive Attitude– Timely Responsiveness– Full Disclosure Of Relevant Facts– Provide Assistance To Auditors As Needed– Cooperative Attitude – Maintain Strong Credibility– Psychology 101

• Make It Easy For Auditors – (I know Life Isn’t Fair!)• Organize Data - Brilliance vs. Bulk• Be Prepared


Understanding the Attitude• War Stories:

– Don’t Take It Personally – Treasury Staff Background Inquiries– Untrained/Unknowledgeable Auditors - Subcontracted out of

Town Auditors– Blindsiding – Late Communication Of Housing Authority

Findings– Missed Deadlines - Deferral of Audit Wrap-up– Personality Conflicts - The staff “Feeler” and the audit “Doer” – Hostile Attitude - Uncooperative A/P Clerk– Political Positioning - Audit Committee – The Old Guard vs.

The New Guard– Running The Auditor Around The Bases - Passing the Buck


Your War Stories?


Questions

For updates and more presentations go to: http://www.mazeassociates.com/resources

Cory [email protected]

Business

Maintaining a Good Relationship with Your Auditor 2009