1. 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

2. Presentation Overview Preparing for an Audit- Auditor Perspective Client Perspective Questions

3. 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.

4. 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

5. 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.

6. 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.

7. 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.

8. 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.

9. Planning is the Key!!! “He who fails to plan, plans to fail”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”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.”Expect the best, plan for the worst, and prepare to be surprised.

10. 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.

11. 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.

12. 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.

13. 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.

14. 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.

15. 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.

16. 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.

17. Planning- GASB #54 GASB #54 Fund Balance Hierarchy: Nonspendable Fund Balance Restricted Fund Balance Committed Fund Balance Assigned Fund Balance Unassigned Fund Balance

18. 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

19. 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

20. Planning: GASB #54 Committed Constraints on use are imposed by formal action of the government’s 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.

21. Planning: GASB #54 Committed (cont’d) 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

22. 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.

23. Planning: GASB #54 Assigned (cont’d) Not required to be the government’s highest level of decision making authority. Nature of the action to remove or modify assignments are not as strict.

24. 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

25. 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.

26. Planning: GASB #54 Must determine if current special revenue funds meet the revised fund definition for such funds. Commited:The formal action to commit fund balance should occur prior to the end of the reporting period- before 6/30/2011!!

27. 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.

28. 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.

29. 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.

30. 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.

31. 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.

32. 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.

33. 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.

34. QUESTIONS ?????????????