Finding Text
Material Adjustments
Criteria: Management is responsible for preparing financial statements in accordance with the modified cash basis of accounting.
Condition: Insufficient controls over financial reporting. Material audit adjustments were required to prevent the financial statements from being materially misstated.
Cause: Management relied on auditors to propose entries and had not recorded all entries needed at the time of the audit.
Effect: Could result in undetected errors and irregularities and misstated interim financial reports. Some audit adjustments were due to insufficient internal controls over financial reporting, or lack of knowledge with the modified cash basis of accounting to properly make the required adjustment(s). The risk with this condition is that necessary adjustments to the financial statements to record material misstatements may be missed and there is no control in place to detect and correct this condition.
Questioned Costs: None noted.
Recommendation: Improve internal controls to prevent these types of adjustments. Document which accounting procedures are needed to be completed on a recurring basis to detect material adjustments. Management should provide training to make personnel more knowledgeable about their responsibility for the financial statements.
Views of Responsible Officials and Planned Corrective Actions: Management, with the inclusion of Butler CPA firm, will incorporate financial reporting internal controls to detect material adjustments, prevent materially misstated financial statements and increase the accuracy of the interim financial reports used by management.