©2009 - Noel Snedeker Getting Ready For The Annual Independent Audit S. Noel Snedeker, II CPA...

©2009 - Noel Snedeker

Getting Ready For The Annual Independent Audit

S. Noel Snedeker, II CPAAssistant Superintendent for Business, Taft ISD/

Independent Certified Public Accountant



The Wall Street Crash of 1929, also known as the Great Crash or the Stock Market Crash of 1929, was the most devastating stock market crash in the history of the United States.



• As a result of the Stock Market Crash of 1929 the Securities and Exchange Commission (SEC) was established by the Securities Act of 1933 and the Securities Exchange Act of 1934. New laws were passed by Congress in response to the vast sums lost by investors in the stock market crash of 1929 and the subsequent financial depression.



The American Institute of Accountants (The AICPA’s predecessor organization), authorized the appointment of a standing committee on auditing procedure which issued the first auditing standards in 1939. Two years later, it released a series of statements designed to guide the independent auditor.



• The Governmental Accounting Standards Board (GASB) was created in 1984 as the authoritative body to establish financial reporting standards--generally accepted accounting principles (GAAP)--for state and local governments.



• The Single Audit Act of 1984 (Public Law 98-502) was passed by Congress to improve auditing and management for federal funds provided to state and local governments.

• The act created a single organization-wide financial and compliance audit for state and local governments receiving federal funds equal to or greater than $100,000 in any fiscal year



• On December 6 1994, Orange County, a prosperous district in California, declared bankruptcy after suffering losses of around $1.6 billion from a wrong-way bet on interest rates in one of its principal investment pools. It triggered the largest financial failure of a local government in US history.



• To ensure that what happened in California would not happen here, the Texas Legislature revised the Texas Public Funds Investment Act to place new safeguards on the investment of public funds by governmental agencies.

• After the passage in 1995 of the Public Funds Investment Act revisions, local governments – such as municipalities, water districts, housing authorities, counties and school districts – had to modify substantially their investment policies to conform to the new act.



• The Enron scandal, revealed in October 2001, involved the energy company Enron and the accounting, auditing, and consultancy firm Arthur Andersen. The corporate scandal eventually led to Enron's downfall, resulting in the largest bankruptcy in American history. Arthur Andersen, which was one of the five largest accounting firms in the world, was dissolved.



• Adelphia Communications - April 2002 Collected $3.1 billion in off-balance-sheet loans .

• AOL Time Warner - July 2002 AOL inflated sales by booking barter deals and ads "round-trip" deals with advertisers and suppliers.

• Arthur Andersen - November 2001 Shredding documents related to audit client Enron after the SEC launched an inquiry into Enron

• Bristol-Myers Squibb - July 2002 Inflated its 2001 revenue by $1.5 billion by "channel stuffing,"

• CMS Energy - May 2002 Executing "round-trip" trades to artificially boost energy trading volume



• Duke Energy - July 2002 Engaged in 23 "round-trip" trades to boost trading volumes and revenue.

• Dynegy - May 2002 Executing "round-trip" trades to artificially boost energy trading volume and cash flow

• El Paso - May 2002 Executing "round-trip" trades to artificially boost energy trading volume

• Enron - October 2001 Boosted profits and hid debts totaling over $1 billion by improperly using off-the-books partnerships;

• Global Crossing - February 2002 Engaged in network capacity "swaps" with other carriers to inflate revenue; shredded documents related to accounting practices



• Halliburton - May 2002 Improperly booked $100 million in annual construction cost overruns before customers agreed to pay for them.

• Homestore.com - January 2002 Inflating sales by booking barter transactions as revenue.

• Kmart - January 2002 Anonymous letters from people claiming to be Kmart employees allege that the company's accounting practices intended to mislead investors about its financial health.

• Merck - July 2002 Recorded $12.4 billion in consumer-to-pharmacy co-payments that Merck never collected.



• Mirant - July 2002 The company said it may have overstated various assets and liabilities.

• Nicor Energy, LLC, a joint venture between Nicor and Dynegy - July 2002 Independent audit uncovered accounting problems that boosted revenue and underestimated expenses.

• Peregrine Systems - May 2002 Overstated $100 million in sales by improperly recognizing revenue from third-party resellers

• Qwest Communications International - February 2002 Inflated revenue using network capacity "swaps" and improper accounting for long-term deals.

• Reliant Energy - May 2002 Engaging in "round-trip" trades to boost trading volumes and revenue.



• Tyco - May 2002 Ex-CEO L. Dennis Kozlowski indicted for tax evasion. SEC investigating whether the company was aware of his actions, possible improper use of company funds and related-party transactions, as well as improper merger accounting practices.

• WorldCom - March 2002 Overstated cash flow by booking $3.8 billion in operating expenses as capital expenses; gave founder Bernard Ebbers $400 million in off-the-books loans.

• Xerox - June 2000 Falsifying financial results for five years, boosting income by $1.5 billion

• Editor's Note: The Corporate Scandal Sheet ceased being updated as of September 20



• Between December 2001 and April 2002, the Senate Committee on Banking, Housing, and Urban Affairs and the House Committee on Financial Services held numerous hearings about the collapse of Enron and related accounting and investor protection issues. These hearings and the corporate scandals that followed Enron led to the passage of the Sarbanes-Oxley Act on July 30, 2002.



• The main provisions of the Sarbanes-Oxley Act included the establishment of the Public Company Accounting Oversight Board to develop standards for the preparation of audit reports; the restriction of public accounting firms from providing any non-auditing services when auditing……………………



• Although the Sarbanes-Oxley Act did not apply directly to local governments or school districts, it did provide a resource for future auditing pronouncements.



• Statement on Auditing Standards No. 99: Consideration of Fraud in a Financial Statement Audit, commonly abbreviated as SAS 99, is an auditing statement issued by the Auditing Standards Board of the American Institute of Certified Public Accountants (AICPA) in October 2002



• SAS 99• Describes fraud and its characteristics• Requires ‘brainstorming’ sessions to discuss how and where the entity’s

financial statements might be susceptible to material misstatement due to fraud.

• Requires the auditor to gather information necessary to identify risks of material misstatement due to fraud by - Making inquiries of management and others within the entity and results of analytical procedures performed in planning the audit.

• Much more…….



• Statement on Auditing Standards (SAS) No. 112, Communicating Internal Control Related Matters Identified in an Audit



• SAS 112 and its interpretive guidance emphasize that management is responsible for establishing and maintaining internal controls, including monitoring, and for the fair presentation in the financial statements of financial position, results of operations, and cash flows, including the notes to financial statements, in conformity with U.S. generally accepted accounting principles.



The bottom line is that how well you prepare for your annual audit and how good your audit documentation is does have material audit opinion implications.



• 1) COPY OF THE BUDGET FOR THE YEAR UNDER AUDIT • 2) COPY OF THE LAST AUDIT • 3) LIST OF SCHOOL BOARD MEMBERS WITH ADDRESSES • 4) COPY OF PERSONNEL POLICY • 5) ORGANIZATIONAL CHART • 6) NAMES AND ADDRESSES OF ATTORNEYS ON FILE • 7) NEED COPY OF ARTICLES OF INCORPORATION • 8) MINUTES OF BOARD MEETINGS HELD DURING YEAR THROUGH

CURRENT DATE • 9) COPY OF TRIAL BALANCE - ASCII FILE • 10) FINANCIAL REPORTS



• 11) ALL BANK STATEMENTS FOR THE FISCAL YEAR WITH BANK RECONCILATIONS - MUST AGREE WITH GENERAL LEDGER

• 12) ALL CD AND INVESTMENT STATEMENTS • 13) ANY PLEDGES ON FILE - AGAINST SECURITIES • 14) GATHER ALL CASH RECEIPTS, JVs & FTs • 15) PREPARE LIST OF ACCOUNTS RECEIVABLE - TOTAL MUST AGREE WITH

GL • 16) PREPARE LIST OF ALL OUTSTANDING DEBT DURING THE YEAR END

AND AT YE • 17) GATHER ALL INSURANCE COVERAGES - INCLUDING WORKMEN'S

COMP. • 18) FIXED ASSET SCHEDULE - COPY OF DEEDS FOR PROPERTIES COPY OF

INVOICES FOR CURRENT YEAR FIXED ASSET ADDITIONS



• 19) SCHEDULE OF ACCOUNTS PAYABLE - MUST AGREE WITH GENERAL LEDGER

• 20) GATHER COPIES OF LEASES/NOTES/CONTRACTS WITH AMORTIZATION SCHEDULES

• 21) COPIES OF BOND STATEMENTS WITH AMORTIZATION SCHEDULES 22) GATHER INFORMATION OF PENSION PLAN(s)

• 23) COPIES OF CONTRACTS RELATED TO ALL CONSTRUCTION PROJECTS • 24) BEGINNING AND ENDING CHECK NUMBERS FOR ALL BANK ACCOUNTS

INCLUDING ACTIVITY FUNDS • 25) BEGINNING AND ENDING RECEIPT NUMBERS • 26) GATHER ALL PAYROLL REPORTS (941, TWC REPORTS, W-2s WITH W-3) • 27) VENDOR LIST OF AMOUNTS PAID DURING THE YEAR 28) LIST OF ALL

EMPLOYEE'S AND SALARY AMOUNTS



• 28) LIST OF ALL EMPLOYEE'S AND SALARY AMOUNTS • 29) LIST OF ALL EMPLOYEES (ACTIVE & INACTIVE) WITH ADDRESS FOR

FISCAL YEAR • 30) COMPENSATED BALANCES (SICK LEAVE, VACATION, ETC.)/ACCRUED

LIABILITIES • 31) GATHER ALL GRANT CONTRACTS FOR CURRENT YEAR • 32) GATHER ALL GRANT AMENDMENTS TO GRANT FOR CURRENT YEAR • 33) GATHER OR SCHEDULE ALL GRANT PAYMENTS RECEIVED FOR

CURRENT YEAR • 34) GATHER ALL QUARTERLY OR MONTHLY GRANT REPORTS FILED



• 35) COPY ALL MONITORING REPORTS ISSUED CONCERNING THE YEAR UNDER AUDIT

• 36) INDIVIDUAL FINANCIAL STATEMENTS FOR EACH GRANT • 37) VERIFY MANDATED EXPENDITURE PERCENTAGES - PRIOR TO FINAL

ASCII • 38) CALCULATE SPECIAL ED MOE COMPLIANCE - PRIOR TO FINAL ASCII



Noel SnedekerThank You!!

S. Noel Snedeker, IICertified Public Accountant

517 GregoryTaft, Texas 78390

361-960-7610 - phone866-599-9860 - fax

[email protected]

©2009 - Noel Snedeker Getting Ready For The Annual Independent Audit S. Noel Snedeker, II CPA...

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