01-20-04 Regular Meeting - Laserfiche WebLink

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• How does the independent auditor's responsibility for the financial statements differ from that of management? The financial statements, from first to last, rep- resent management's assertions concerning the government's finances. The auditor's role is strictly limited to providing users of the financial statements with an independent basis for relying upon management's assertions. Even when the auditor plays a role in drafting the financial statements, those statements remain the asser- tions of management. A simple analogy may be instructive. A will pre- pared by an attorney on behalf of a client is pre- sumed to represent the wishes of the client rather than those of the attorney who prepared the document. In the same way, financial state- ments represent management's (not the inde- pendent auditor's) assertions concerning the government's finances, even if the auditor drafted the financial statements. 1~ AN ELECTED OFFICIAL'S GUIDE What are "questioned costs"? When an expenditure under a federal grant does not meet all of the grantor's requirements, the recipient may have to refund the amount to the federal government or accept an adjustment in related future payments from the federal govern- ment. Amounts that the auditor determines may be subject to such a refund or adjustment are known as questioned costs. Sometimes, it is required that governments ob- tain special grantor approval before incurring certain types of expenditures. If the grant recipi- ent fails to obtain such prior approval, the ex- penditure may be questioned because it is unapproved. Other expenditures are expressly prohibited by grant requirements. If govern- ments charge such expenditures to a grant, they may be questioned because they are unallow- able. Sometimes, governments incur allowable expenditures in conjunction with a grant, but fail to maintain proper documentation of these expenditures. In that case, the cost may be questioned as being undocumented. Finally, gov- ernments are expected to demonstrate prudence in their management of federal funds. Extrava- gant expenditures, even if not undocumented or unallowable per se, may still be questioned as be- ing unreasonable (e.g., first-class airfare instead of lowest available fare). While not all findings result in questioned costs, all questioned costs are connected with findings. Questioned costs typically are reported in a Schedule of Findings and Questioned Costs. Also, if a questioned cost is, in fact, ultimately rejected by a grantor, the amount is known as a disallowed cost. TO AUDITING 39