Agenda - 10-18-2007-1 - Laserfiche WebLink

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°~~"~°~. State of North Carolina ~~~ .~::~~.~ Department of State Treasurer State and Local Government Finance Division TREASURER and the Local Government Commission DEPUTY TREASURER August 1, 2007 TO: Local Government Board of Directors and Management FROM: Sharon Edmondson, Director Fiscal Management Section Memorandum #1077 SUBJECT: Statement on Auditing Standards No. 112, Communicating Internal Control Related Matters Identified in an Audit, from the Local Governments' Perspective. Summary Beginning with the 2006-2007 fiscal year, auditors, including those that audit local governments, are required to follow a new standard for reporting their findings that relate to the internal control structure of the entity being audited. In order to conduct their audits in accordance with generally accepted auditing standards, all auditors must implement this standard. SAS 112 will change the way the auditor reports any fmdings that he or she may have regarding the internal control structure in a unit of government. As a result, units of government in North Carolina may have more fmdings cited in their audits than in previous years, despite the fact that those units have not changed their methods of operations. The way those findings are reported also has changed. In previous reports, auditors noted findings as being "reportable conditions" while more serious issues were noted as "material weaknesses". SAS 112 expands the scope of what is reported as well as changes the terminology. Findings of control deficiencies will now be called either "significant deficiencies" or "material weaknesses". The definitions for all of these terms can be found in Appendix A of this memorandum. One of the most common concerns that a unit of government may have, particularly a unit with limited fmance staff, relates to fmdings as a result of the unit's auditor preparing the fmancial statements. SAS 112 does not require an auditor to make a fmding simply because the auditor prepares the fmancial statements for the unit of government. However, it is the belief of the LGC staff that many units of government that do not prepare their own financial statements will have a significant deficiency or material weakness reported. This will most likely be a result of the unit of government's limited staff and expertise in preparing financial statements in accordance with generally accepted accounting principles. Finally, the implementation of SAS 112 may cause both the auditor and the unit staff to spend additional time on the audit, particularly this first year. Fees may be increased due to this implementation. The following is a more detailed, technical discussion of the changes brought about by SAS 112. 325 North Salisbury Street, Raleigh, North Carolina 27603-1385 Telephone: (919) 807-2350 Fax: (919) 807-2352 Website: www.nctreasurer.com An Equal Opportunity/Affirmative Action Employer