Current through Register 2024 Notice Reg. No. 38, September 20, 2024
(a) The audit shall be made in accordance
with generally accepted auditing standards. Various auditing procedures are
suggested and described on pages 41 through 69 of the American Institute of
Certified Public Accountants publication Audits of State and Local Governmental
Units. No hard and fast rules can be set down as to the specific procedures
that should be taken. Professional judgment must be exercised. Following are
general statements that the county auditor or independent accounting firm
should consider in preparing an audit program in connection with the audit of a
California special district.
(1) A proper
study and evaluation of the existing internal control and the financial
organizational structure should be made. The extent to which an auditor should
go in testing the evidential matter supporting his opinion on the financial
statements depends on the effectiveness of the district's system of internal
control.
Sufficient competent evidential matter is to be obtained
through inspection, observation, inquiries, and confirmations to afford a
reasonable basis for an opinion regarding the financial statements under
examination.
If the internal control is so deficient that an auditor
must disclaim his opinion in this regard, the reason for this disclaimer must
be set forth in the audit report.
(2) The auditor should review the laws
applicable to the financial transactions of the district. For instance, all
special districts are subject to a uniform accounting system prescribed by the
State Controller. Should there be indications that the district may have failed
to comply with legal requirements, the transactions may be referred to proper
legal counsel for interpretation of the applicable law. Noncompliance should be
commented upon in the report and, if necessary, the auditor's opinion should be
qualified, disclaimed or adverse.
(3) The district's report of financial
transactions to the State Controller should be reviewed to see that it agrees
with the official records of the district for the period. The State Controller
should be informed of any material difference.
(4) A review should be made of the previous
audit report workpapers and program if available.
(5) The auditor should ascertain what funds
are maintained and by what authority or under what circumstances each fund
maintained was created.
(6) The
auditor should ascertain the basis of accounting, that is, cash, accrual or
modified accrual. Accrual is the basis for enterprise funds and modified
accrual is the basis for non-enterprise funds. The cash basis is no longer
approved for special districts.
(7)
The auditor should take a trial balance of the accounts of each fund and should
list both opening and closing balances. The opening balances should be compared
with the amounts shown in the audit report for the previous period, if any, and
any difference should be investigated and reconciled.
(8) A summary of the financial data included
in the minutes or other official records of the proceedings of the legislative
body should be prepared. Expenditure authorizations and the appropriations made
to cover the authorizations should be confirmed.
(9) The auditor should verify the balance of
cash on hand.
(10) The auditor
should reconcile bank accounts including cash on deposit with county treasurer
as of the balance sheet date and such other times as is necessary. He should
obtain confirmation from depositories for (1) all bank accounts, time
certificates or savings and loan accounts, and (2) collateral securing such
accounts, if applicable. Collateral should be examined or confirmed with the
depository holding the collateral as trustee. The auditor should determine the
adequacy and propriety of the collateral pledged.
(11) The auditor should test the tax levy,
tax collection and delinquencies whether processed by the district or the
county.
(12) The collection and
recording of all ascertainable revenues should be tested during the period
under audit. The test should be sufficient to determine that receipts have been
recorded in the proper funds and period.
(13) The auditor should determine:
(A) That the expenditures were properly
authorized and incurred and are proper charges to the fund and appropriation
against which they have been charged.
(B) That the expenditures are supported by
the proper documents and that the documents are so marked as to prevent their
reuse. In this connection, it should be ascertained whether noncash
expenditures, that is, interdepartmental transactions are supported by adequate
documentation and were properly recorded.
(14) A review should be made of nonrevenue
receipts and nonexpense disbursements to determine if they were legal and
properly recorded.
(15) All other
assets such as investments, accounts receivable, inventories, paid expenses,
fixed assets and similar items should be verified in accordance with generally
accepted auditing standards.
(16)
All liabilities such as accounts payable, notes payable, contracts payable,
judgments and similar items should be verified in accordance with generally
accepted auditing standards. Proper authorities should be contacted to
ascertain existence of any possible contingent liabilities.
(17) The auditor should verify the fund
balance and reserve accounts of all funds.
Note: Authority cited: Section
26909(b),
Government Code. Reference: Sections
6505 and
26909(b),
Government Code.
