Getting Ready For The Annual
Independent Audit
S. Noel Snedeker, II CPA
Assistant Superintendent for Business, Taft ISD/
Independent Certified Public Accountant
©2009 - Noel Snedeker
Getting Ready For The Annual Independent Audit
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.
©2009 - Noel Snedeker
Getting Ready For The Annual Independent Audit
• 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.
©2009 - Noel Snedeker
Getting Ready For The Annual Independent Audit
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.
©2009 - Noel Snedeker
Getting Ready For The Annual Independent Audit
• 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.
©2009 - Noel Snedeker
Getting Ready For The Annual Independent Audit
• The Single Audit Act of 1984 (Public Law 98502) 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
©2009 - Noel Snedeker
Getting Ready For The Annual Independent Audit
• 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.
©2009 - Noel Snedeker
Getting Ready For The Annual Independent Audit
• 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.
©2009 - Noel Snedeker
Getting Ready For The Annual Independent Audit
• 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.
©2009 - Noel Snedeker
Getting Ready For The Annual Independent Audit
• 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
©2009 - Noel Snedeker
Getting Ready For The Annual Independent Audit
• 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
©2009 - Noel Snedeker
Getting Ready For The Annual Independent Audit
• 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.
©2009 - Noel Snedeker
Getting Ready For The Annual Independent Audit
• 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.
©2009 - Noel Snedeker
Getting Ready For The Annual Independent Audit
• 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-thebooks 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
©2009 - Noel Snedeker
Getting Ready For The Annual Independent Audit
• 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.
©2009 - Noel Snedeker
Getting Ready For The Annual Independent Audit
• 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……………………
©2009 - Noel Snedeker
Getting Ready For The Annual Independent Audit
• Although the Sarbanes-Oxley Act did not
apply directly to local governments or school
districts, it did provide a resource for future
auditing pronouncements.
©2009 - Noel Snedeker
Getting Ready For The Annual Independent Audit
• 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
©2009 - Noel Snedeker
Getting Ready For The Annual Independent Audit
• 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…….
©2009 - Noel Snedeker
Getting Ready For The Annual Independent Audit
• Statement on Auditing Standards (SAS) No.
112, Communicating Internal Control Related
Matters Identified in an Audit
©2009 - Noel Snedeker
Getting Ready For The Annual Independent 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.
©2009 - Noel Snedeker
Getting Ready For The Annual Independent Audit
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.
©2009 - Noel Snedeker
Getting Ready For The Annual Independent Audit
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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
©2009 - Noel Snedeker
Getting Ready For The Annual Independent Audit
• 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
©2009 - Noel Snedeker
Getting Ready For The Annual Independent Audit
• 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
©2009 - Noel Snedeker
Getting Ready For The Annual Independent Audit
• 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
©2009 - Noel Snedeker
Getting Ready For The Annual Independent Audit
• 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
©2009 - Noel Snedeker
Getting Ready For The Annual Independent Audit
Noel Snedeker
Thank You!!
S. Noel Snedeker, II
Certified Public Accountant
517 Gregory
Taft, Texas 78390
361-960-7610 - phone
866-599-9860 - fax
noelcpa@ymail.com
©2009 - Noel Snedeker