Finding Text
Adjusting Journal Entries and Required Disclosures to the Financial Statements Condition and criteria: During the current year, adjusting journal entries, along with footnote disclosures were proposed by the auditors and accepted by the Water Authority to properly reflect the financial statements in accordance with generally accepted accounting principles. Some of the adjustments and footnotes were related to recording assets and liabilities on the accrual basis of accounting. In addition, a draft of the financial statements was prepared by the auditors. Cause: The Water Authority requires assistance for external financial reporting in accordance with accounting principles generally accepted in the United States of America. Effect: AU-C Section 265 entitled Communicated Internal Control Related Matters Identified in an Audit, issued by the American Institute of Certified Public Accountants (AICPA) considers the need for significant adjusting journal entries and assistance when preparing the financial statements to be indicative of an internal control deficiency. Without this assistance, the potential risk exists of the Water Authority’s financial statements not conforming with Generally Accepted Accounting Principles (GAAP). Auditor’s Recommendations: Although auditors may continue to provide such assistance both now and in the future, under the pronouncement, the Water Authority should continue to review and accept both proposed adjusting journal entries and footnote disclosures, along with the drafted financial statements. Water Authority’s Response: The Water Authority has received, reviewed and approved all journal entries, footnote disclosures and draft financial statements proposed for the current year audit. The Water Authority will continue to review and approve similar information in future years. Further, the Water Authority believes it has a thorough understanding of these financial statements and the ability to make informed judgments on those financial statements. Lastly, the Water Authority considers such assistance provided by the auditors to be the most cost effective manner to prepare such information.