FINANCIAL MANAGEMENT FOR

GEORGIA LOCAL UNITS

OF ADMINISTRATION

Date Effective Section Title:

Issued Date

August 2008 August 2008 IV Financial Reporting

Revision Date Chapter Title:

No. Revised

N/A N/A 22B Auditor’s Reports

NATURE AND PURPOSE

This chapter will discuss the different kinds of audit reports and the financial statements covered
by the auditor’s opinion.

AUDIT REPORT AND FINANCIAL STATEMENTS

The first component of the financial section of the Comprehensive Annual Financial Report
(CAFR) is the auditor’s report. The auditor’s opinion is issued on the basic statements and does
not extend to either supplementary or Required Supplementary Information (RSI). The basic
statements are comprised of the government-wide statements, fund level statements, and notes to
the financial statements. Required Supplementary Information includes the Management’s
Discussion and Analysis and the budgetary comparison schedule. Although an opinion is not
issued on RSI, the auditor is required to review the other information and comment on it.
However, the review of the RSI doesn’t affect the opinion on the basic statements.

ELEMENTS OF THE AUDIT OPINIONS

The audit opinion is expressed by an independent auditor following generally accepted

governmental auditing standards issued by the Auditing Standards Board. Standard elements of
audit reports include –

 title of the audit report includes the word “Independent”,

 statement that an audit was conducted,
 statement that the financial statements are the responsibility of management,
 statement that auditor’s responsibility is to include an opinion on the statements,
 statement that the audit was conducted following generally accepted governmental
auditing standards for the United States,

IV-22B-1
  statement that auditor must plan and perform the audit to obtain reasonable assurance the
financial statements are free of material misstatements,
 statement that an audit includes examining on a test basis evidence supporting the
amounts and disclosures in the financial statements, assessing significant estimates and
accounting principles used by management, and evaluating the overall financial statement
presentation,
 statement that the auditor believes the audit provides a reasonable basis for the opinion,
 opinion as to whether the financial statements present fairly in all material respects the
financial position and results of operations
 manual or printed signature of the auditor
 date of audit report

TYPES OF AUDIT OPINIONS

There are four different types of reports an auditor may issue: unqualified, qualified, adverse, and
disclaimer. Each of these reports will be discussed below.

Unqualified Opinion

An unqualified audit opinion will include all of the elements of audit reports discussed above and
the following opinion –

“The financial statements present fairly, in all material respects, the financial
position and results of operations in conformity with generally accepted accounting
principles.”

A sample unqualified opinion for a local unit of administration is shown in Exhibit IV-22B -1.
See italics for the opinion.

EXHIBIT IV-22B-1

IV-22B-2
Honorable Nathan Deal, Governor
Members of the General Assembly
Members of the State Board of Education
and
Superintendent and Members of the
[1] Board of Education

INDEPENDENT AUDITOR'S COMBINED REPORT ON BASIC FINANCIAL STATEMENTS

AND SUPPLEMENTARY INFORMATION - SCHEDULE OF EXPENDITURES OF
FEDERAL AWARDS

Ladies and Gentlemen:

We have audited the accompanying financial statements of the governmental activities, [the
business-type activities, the aggregate discretely presented component units,] each major fund,
and the aggregate remaining fund information (Exhibits A through __) of the [1] Board of
Education, [a component unit of the _________________________________________,
Georgia] as of and for the year ended June 30, 2011, which collectively comprise the Board's
basic financial statements as listed in the table of contents. These financial statements are the
responsibility of the [1] Board of Education's management. Our responsibility is to express
opinions on these financial statements based on our audit.

We conducted our audit in accordance with auditing standards generally accepted in the United
States of America and the standards applicable to financial audits contained in Government
Auditing Standards, issued by the Comptroller General of the United States. Those standards
require that we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes consideration of
internal control over financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the [1] Board of Education's internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audit provides a reasonable
basis for our opinions.

In our opinion, the financial statements referred to above present fairly, in all material respects,
the respective financial position of the governmental activities, [the business-type activities, the
aggregate discretely presented component units,] each major fund, and the aggregate remaining
fund information of the [1] Board of Education, as of June 30, 2011, and the respective changes
in financial position [and cash flows] thereof for the year then ended in conformity with
accounting principles generally accepted in the United States of America.

[The [1] Board of Education has not presented Management's Discussion and Analysis that
accounting principles generally accepted in the United States of America has determined is

IV-22B-3
necessary to supplement, although not to be part of, the basic financial statements.]

In accordance with Government Auditing Standards, we have also issued our report dated [2], on
our consideration of the [1] Board of Education's internal control over financial reporting and on
our tests of its compliance with certain provisions of laws, regulations, contracts and grant
agreements and other matters. The purpose of that report is to describe the scope of our testing
of internal control over financial reporting and compliance and the results of that testing, and not
to provide an opinion on the internal control over financial reporting or on compliance. That
report is an integral part of an audit performed in accordance with Government Auditing
Standards and should be considered in assessing the results of our audit.

[Management's Discussion and Analysis and] the Schedule of Revenues, Expenditures and
Changes in Fund Balances - Budget and Actual, as presented on [pages i through __ and] page
___ [respectively], are not a required part of the basic financial statements but are supplementary
information required by the accounting principles generally accepted in the United States of
America. We have applied certain limited procedures, which consisted principally of inquiries of
management regarding the methods of measurement and presentation of the required
supplementary information. However, we did not audit the information and express no opinion
on it.

Our audit was conducted for the purpose of forming opinions on the financial statements that
collectively comprise the [1] Board of Education's basic financial statements. The
accompanying supplementary information which consist of Schedules __ through __, which
includes the Schedule of Expenditures of Federal Awards as required by U. S. Office of
Management and Budget Circular A-133, Audits of States, Local Governments, and Non-Profit
Organizations, are presented for purposes of additional analysis and are not a required part of the
basic financial statements. Such information has been subjected to the auditing procedures
applied in the audit of the basic financial statements, and in our opinion, is fairly stated, in all
material respects, in relation to the basic financial statements taken as a whole.

A copy of this report has been filed as a permanent record in the office of the State Auditor and
made available to the press of the State, as provided for by Official Code of Georgia Annotated
section 50-6-24.

Respectfully submitted,
State Auditor

Qualified Opinion

A qualified opinion includes an “except for” clause. The “except for” means that the financial
statements are fairly presented except for certain matters which the qualification will describe.
Reasons for issuing a qualified opinion include a lack of sufficient competent evidential matter
for forming an unqualified opinion or restrictions on the scope of the audit. Scope restrictions
result when an auditor is not able to perform required procedures considered necessary. In
addition, a qualification may be issued when the auditor believes, on the basis of his or her audit,

IV-22B-4
that the financial statements contain a departure from generally accepted accounting principles,
the effect of which is material (significant). When the auditor expresses a qualified opinion, one
or more separate explanatory paragraph(s) should disclose all of the substantive reasons for the
qualification in paragraphs preceding the opinion of the report.

A sample qualified opinion for a local unit of administration is shown in Exhibit IV-22B -2.

EXHIBIT IV-22B-2
Honorable Nathan Deal, Governor
Members of the General Assembly
Members of the State Board of Education
and
Superintendent and Members of the
[1] Board of Education

INDEPENDENT AUDITOR'S COMBINED REPORT ON BASIC FINANCIAL STATEMENTS

AND SUPPLEMENTARY INFORMATION - SCHEDULE OF EXPENDITURES OF
FEDERAL AWARDS

Ladies and Gentlemen:

We have audited the accompanying financial statements of the governmental activities, [the
business-type activities, the aggregate discretely presented component units,] each major fund,
and the aggregate remaining fund information (Exhibits A through __) of the [1] Board of
Education, [a component unit of the _________________________________________,
Georgia] as of and for the year ended June 30, 2011, which collectively comprise the Board's
basic financial statements as listed in the table of contents. These financial statements are the
responsibility of the [1] Board of Education's management. Our responsibility is to express
opinions on these financial statements based on our audit.

We conducted our audit in accordance with auditing standards generally accepted in the United
States of America and the standards applicable to financial audits contained in Government
Auditing Standards, issued by the Comptroller General of the United States. Those standards
require that we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes consideration of
internal control over financial reporting as a basis for designing audit procedures that are

IV-22B-5
appropriate in the circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the [1] Board of Education's internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audit provides a reasonable
basis for our opinions.

As discussed in Note 2 to the basic financial statements, management has not recorded current
year capital assets additions or deletions in governmental activities and, accordingly, has not
properly recorded current year depreciation expense on capital assets or accumulated
depreciation. Accounting principles generally accepted in the United States of America require
that capital assets be capitalized and depreciated, which would increase the assets, net assets and
expenses of the governmental activities. The amount by which this departure would affect the
assets, net assets and expenses of the governmental activities is not reasonably determinable.

In our opinion, except for the effects of not properly recognizing capital assets and depreciation
expense in the governmental activities as described in the preceding paragraph, the financial
statements referred to above present fairly, in all material respects, the financial position of the
governmental activities of the [1] Board of Education, as of June 30, 2011, and the changes in
financial position thereof for the year then ended in conformity with accounting principles
generally accepted in the United States of America.

In addition, in our opinion, the financial statements referred to above present fairly, in all
material respects, the respective financial position of the [the business-type activities, the
aggregate discretely presented component units, each major fund, and the aggregate remaining
fund information] of the [1] Board of Education, as of June 30, 2011, and the respective changes
in financial position [and cash flows] thereof for the year then ended in conformity with
accounting principles generally accepted in the United States of America.

[The [1] Board of Education has not presented Management's Discussion and Analysis that
accounting principles generally accepted in the United States of America has determined is
necessary to supplement, although not to be part of, the basic financial statements.]

In accordance with Government Auditing Standards, we have also issued our report dated [2], on
our consideration of the [1] Board of Education's internal control over financial reporting and on
our tests of its compliance with certain provisions of laws, regulations, contracts and grant
agreements and other matters. The purpose of that report is to describe the scope of our testing
of internal control over financial reporting and compliance and the results of that testing, and not
to provide an opinion on the internal control over financial reporting or on compliance. That
report is an integral part of an audit performed in accordance with Government Auditing
Standards and should be considered in assessing the results of our audit.

[Management's Discussion and Analysis and] the Schedule of Revenues, Expenditures and
Changes in Fund Balances - Budget and Actual, as presented on [pages i through __ and] page
___ [respectively], are not a required part of the basic financial statements but are supplementary

IV-22B-6
information required by the accounting principles generally accepted in the United States of
America. We have applied certain limited procedures, which consisted principally of inquiries of
management regarding the methods of measurement and presentation of the required
supplementary information. However, we did not audit the information and express no opinion
on it.

Our audit was conducted for the purpose of forming opinions on the financial statements that
collectively comprise the [1] Board of Education's basic financial statements. The
accompanying supplementary information which consist of Schedules __ through __, which
includes the Schedule of Expenditures of Federal Awards as required by U. S. Office of
Management and Budget Circular A-133, Audits of States, Local Governments, and Non-Profit
Organizations, are presented for purposes of additional analysis and are not a required part of the
basic financial statements. Such information has been subjected to the auditing procedures
applied in the audit of the basic financial statements, and in our opinion, is fairly stated, in all
material respects, in relation to the basic financial statements taken as a whole.

A copy of this report has been filed as a permanent record in the office of the State Auditor and
made available to the press of the State, as provided for by Official Code of Georgia Annotated
section 50-6-24.

Respectfully submitted,
State Auditor

Adverse Opinion

An adverse opinion states that the financial statements do not present fairly the financial position
or the results of operations in conformity with generally accepted accounting principles. When
the auditor expresses an adverse opinion, a separate explanatory paragraph(s) should precede the
opinion paragraph of the report. The explanatory paragraph should include all the substantive
reasons for the adverse opinion, and the principal effects of the subject matter of the adverse
opinion on financial position and results of operations if possible. If the effects cannot be
reasonably determined, this should be stated in the report.

A sample adverse opinion for a local unit of administration is shown in Exhibit IV-22B -3.

EXHIBIT IV-22B-3

Honorable Nathan Deal, Governor

Members of the General Assembly
Members of the State Board of Education
and
Superintendent and Members of the
[1] Board of Education

IV-22B-7
INDEPENDENT AUDITOR'S COMBINED REPORT ON BASIC FINANCIAL STATEMENTS
AND SUPPLEMENTARY INFORMATION - SCHEDULE OF EXPENDITURES OF
FEDERAL AWARDS

Ladies and Gentlemen:

We have audited the accompanying financial statements of each major fund and the aggregate
remaining fund information (Exhibits A through __) of the [1] Board of Education, [a component
unit of the _________________________________________, Georgia] as of and for the year
ended June 30, 2011, which collectively comprise a portion of the Board's basic financial
statements required by accounting principles generally accepted in the United States of America.
These financial statements are the responsibility of the [1] Board of Education's management.
Our responsibility is to express opinions on these financial statements based on our audit.

We conducted our audit in accordance with auditing standards generally accepted in the United
States of America and the standards applicable to financial audits contained in Government
Auditing Standards, issued by the Comptroller General of the United States. Those standards
require that we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes consideration of
internal control over financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the [1] Board of Education's internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audit provides a reasonable
basis for our opinions.

Management has not presented district-wide financial statements to display the financial position
and changes in financial position of its governmental activities. Accounting principles generally
accepted in the United States of America require presentation of district-wide financial
statements. The amounts that would be reported in district-wide financial statements for the [1]
Board of Education's governmental activities is not reasonably determinable.

In our opinion, because of the effects of the matter discussed in the preceding paragraph, the
financial statements referred to above do not present fairly, in conformity with accounting
principles generally accepted in the United States of America, the financial position of the [1]
Board of Education, as of June 30, 2011, or the changes in financial position [and cash flows] for
the year then ended.

In accordance with Government Auditing Standards, we have also issued our report dated [2], on
our consideration of the [1] Board of Education's internal control over financial reporting and our
tests of its compliance with certain provisions of laws, regulations, contracts and grant
agreements and other matters. The purpose of that report is to describe the scope of our testing
of internal control over financial reporting and compliance and the results of that testing, and not

IV-22B-8
to provide an opinion on the internal control over financial reporting or on compliance. That
report is an integral part of an audit performed in accordance with Government Auditing
Standards and should be considered in assessing the results of our audit.

The Schedule of Revenues, Expenditures and Changes in Fund Balances - Budget and Actual, as
presented on page ___, is not a required part of the basic financial statements but is
supplementary information required by the accounting principles generally accepted in the
United States of America. We have applied certain limited procedures, which consisted
principally of inquiries of management regarding the methods of measurement and presentation
of the required supplementary information. However, we did not audit the information and
express no opinion on it.

Our audit was conducted for the purpose of forming opinions on the financial statements that
collectively comprise the [1] Board of Education's basic financial statements. The
accompanying supplementary information which consist of Schedules __ through __, which
includes the Schedule of Expenditures of Federal Awards as required by U. S. Office of
Management and Budget Circular A-133, Audits of States, Local Governments, and Non-Profit
Organizations, are presented for purposes of additional analysis and are not a required part of the
basic financial statements. Such information has not been subjected to the auditing procedures
applied in the audit of the basic financial statements and, accordingly, we express no opinion on
it.

A copy of this report has been filed as a permanent record in the office of the State Auditor and
made available to the press of the State, as provided for by Official Code of Georgia Annotated
section 50-6-24.

Respectfully submitted,
State Auditor

Disclaimer

An auditor issues a disclaimer of opinion when the auditor does not express an opinion on the
financial statements. When the auditor is unable to form or has not formed an opinion as to the
fairness of presentation of the financial statements in conformity with generally accepted
accounting principles a disclaimer should be issued. If the auditor disclaims an opinion, the
auditor's report should give all of the substantive reasons for the disclaimer. A disclaimer may be
issued when the auditor is unable to perform an audit sufficient in scope to form an opinion on
the financial statements. If based on audit work performed, the auditor determines there are
material departures from generally accepted accounting principles; a disclaimer should not be
issued. Rather a qualified or adverse opinion is appropriate. When a disclaimer is issued, the
report should not identify the procedures that were performed nor include the paragraph
describing the characteristics of an audit. In addition, the auditor should also disclose any other
reservations regarding fair presentation of the financial statements in conformity with generally
accepted accounting principles.

IV-22B-9
A sample of a report disclaiming an opinion for a local unit of administration is shown in Exhibit
IV-22B -4.

EXHIBIT IV-22B-4

Honorable Nathan Deal, Governor

Members of the General Assembly
Members of the State Board of Education
and
Superintendent and Members of the
[1] Board of Education

INDEPENDENT AUDITOR’S REPORT ON PRIMARY GOVERNMENT FINANCIAL

STATEMENTS

Ladies and Gentlemen:

We were engaged to audit the accompanying financial statements of the governmental activities,
business-type activities, each major fund, and the aggregate remaining fund information of the
__________________, as of and for the year ended June 30, 2011, which collectively comprise
the [1] Board of Education’s primary government financial statements (financial statements).
These financial statements are the responsibility of the Board of Education’s management.

The ____ School District did not properly perform reconciliation procedures for cash and cash
equivalents reflected in the accompanying financial statements as of June 30, 2011. In addition,
the ____ School District could not provide adequate supporting documentation for post closing
adjustments to cash and cash equivalents. The condition of the ____ School District’s records
does not permit the application of other auditing procedures to cash and cash equivalents.

The ____ School District did not provide adequate supporting documentation for receivables.
The condition of the ____ School District’s records does not permit the application of other
auditing procedures to accounts receivable and related revenue.

The School District did not provide adequate supporting documentation for capital asset balances
and related activity as of and for the year ended June 30, 2011. The School District could not
provide adequate documentation for additions and deletions as presented in the financial
statements. The condition of the School District’s records does not permit the application of
other auditing procedures.

The School District could not provide evidence to support numerous amounts reflected in the

IV-22B-10
School District’s financial statements. Numerous adjustments made to the general ledger and
between the general ledger and amounts reported in School District’s financial statements could
not be substantiated by the School District . In addition, numerous errors and inconsistencies, as
reflected in the audit findings included in this report, were identified in the School District’s
financial statements. The condition of the records supporting the School District’s financial
statements does not permit the application of other auditing procedures to the financial
statements.

Since the _______________ School District did not provide sufficient evidence to support
material amounts reported in the School District‘s financial statements for: (1) cash and cash
equivalents balances; (2) accounts receivable balances; and (3) capital asset balances and related
current year activity, and since numerous reporting errors and inconsistencies were noted within
the financial statements issued by the School District , and since we were not able to apply other
auditing procedures to satisfy ourselves as to the fair presentation of the above, the scope of our
work was not sufficient to enable us to express, and we do not express, an opinion on the primary
government’s financial statements referred to in the first paragraph.

Management’s Discussion and Analysis as presented on pages 3 through 12 is not a required part
of the basic financial statements but is supplementary information required by the Governmental
Accounting Standards Board. We did not audit the information and express no opinion on it.

Component unit information presented is not part of the primary government financial statements
but was included within the basic financial statements presented by the School District . We did
not audit the information and express no opinion on it.

The combining and individual nonmajor fund financial statements, schedules of capital assets
used in operation of governmental funds and schedules on the quality basic education programs
are presented for purposes of additional analysis and are not a required port of the basic or
primary government financial statements. We did not audit the information and express no
opinion on it.

A copy of this report has been filed as a permanent record in the office of the State Auditor and
made available to the press of the State, as provided for by Official Code of Georgia Annotated
section 50-6-24.

Respectfully submitted,
State Auditor

Summary

Auditor reports focus on the basic financial statements. There are four different types of reports:
unqualified, qualified, adverse, and disclaimer. The unqualified opinion is the preferred report.
It is important to read your audit opinion and be aware of its meaning.

IV-22B-11
IV-22B-12