Part 8: Non-standard audit reports issued in 2007

Local government: Results of the 2006/07 audits.

8.1
In this Part, we report on the non-standard audit reports issued during the 2007 calendar year on the annual financial statements of entities within the local government portfolio of audits.1

Why are we reporting this information?

8.2
An audit report is addressed to the readers of an entity's financial statements. However, all public entities are ultimately accountable to Parliament for their use of public money and their use of any statutory powers or other authority given to them by Parliament. Therefore, we consider it important to draw Parliament's attention to the matters that give rise to non-standard audit reports.

8.3
In each case, the issues underlying a non-standard audit report are drawn to the attention of the entity and discussed with its governing body.

What is a non-standard audit report?

8.4
A non-standard audit report2 is one that contains:

  • a qualified opinion; and/or
  • an explanatory paragraph.

8.5
An auditor expresses a qualified opinion because of:

  • a disagreement between the auditor and the entity about the treatment or disclosure of a matter in the financial statements; or
  • a limitation in scope because the auditor has been unable to obtain enough evidence to support, and accordingly is unable to express, an opinion on the financial statements or a part of the financial statements.

8.6
There are three types of qualified opinions:

  • an “adverse” opinion (see paragraph 8.10);
  • a “disclaimer of opinion” (see paragraph 8.14); and
  • an “except-for” opinion (see paragraph 8.17).

8.7
The auditor will include an explanatory paragraph (see paragraph 8.21) in the audit report to emphasise a matter such as:

  • a breach of law; or
  • a fundamental uncertainty.

8.8
Auditors are required to ensure that an explanatory paragraph is included in the audit report in such a way that it cannot be mistaken for a qualified opinion.

8.9
Figure 8.1 outlines the decisions to be made when considering the appropriate form of audit report.

Adverse opinions

8.10
An adverse opinion is expressed when the auditor and the entity disagree about the treatment or disclosure of a matter in the financial statements and, in the auditor's judgement, the treatment or disclosure is so material or pervasive that the report is seriously misleading.

8.11
An adverse opinion is the most serious type of non-standard audit report.

8.12
During 2007, adverse opinions were expressed for seven entities. Where an entity is directly or indirectly controlled by one or more city or district councils, we have listed them in brackets:

  • Pukaki Trust;
  • Hawke's Bay Cultural Trust (Hastings District Council and Napier City Council);
  • Far North Regional Museum Trust (Far North District Council);
  • The Museum of Transport and Technology Board;
  • The Canterbury Museum Trust Board (Christchurch City Council);
  • Otago Museum Trust Board (Dunedin City Council); and
  • Nelson Creek Recreation Reserve Board.

8.13
Details of the adverse opinions are set out in the Appendix.

Disclaimers of opinion

8.14
A disclaimer of opinion is expressed when the scope of an auditor's examination is limited, and the possible effect of that limitation is so material or pervasive that the auditor has not been able to obtain enough evidence to support an opinion on the financial statements. The auditor is accordingly unable to express an opinion on the financial statements or on part of it.

8.15
During 2007, disclaimers of opinion were expressed for the following entities, which are indirectly controlled by Invercargill City Council:

  • Bendigo Construction Limited; and
  • Bond Contracts Limited and Group.

8.16
Details of the disclaimers of opinion are set out in the Appendix.

Figure 8.1
Deciding on the appropriate form of audit report

Figure 8.1: Deciding on the appropriate form of audit report.

Except-for opinions

8.17
An except-for opinion is expressed when the auditor reaches one or both of the following conclusions:

  • The possible effect of a limitation in the scope of the auditor's examination is (or may be) material, but is not significant enough to require a disclaimer of opinion. The opinion is qualified by using the words “except for the effects of any adjustments that might have been found necessary” had the limitation not affected the evidence available to the auditor.
  • The effect of the treatment or disclosure of a matter with which the auditor disagrees is (or may be) material, but is not significant enough to require an adverse opinion. The opinion is qualified by using the words “except for the effects of” the matter giving rise to the disagreement.

8.18
An except-for opinion can be expressed when the auditor concludes that a breach of statutory obligations has occurred and that the breach is material to the reader's understanding of the financial statements. An example of this is where a local authority subsidiary has breached the requirements of the Local Government Act 2002 because it has not prepared a Statement of Intent. The subsidiary is therefore unable to prepare performance information that reflects its achievements measured against performance targets.

8.19
During 2007, except-for opinions were expressed for 22 entities. Where an entity is directly or indirectly controlled by one or more regional, city, or district councils, we have listed them in brackets:

  • Upper Hutt City Council and Group;
  • Invercargill City Holdings Limited and Group (Invercargill City Council);
  • Inframax Construction Limited (Waitomo District Council);
  • Tasman Bays Heritage Trust Incorporated (Nelson City Council and Tasman District Council);
  • Aurora Energy Limited (Dunedin City Council);
  • Buller Health Trust (Buller District Council);
  • Cranberries New Zealand Limited;
  • Tiromoana Station Limited (Christchurch City Council);
  • Sister Cities New Zealand Incorporated (Hastings District Council);
  • Tourism Dunedin Trust (Dunedin City Council);
  • Tramway Reserve Trust (Selwyn District Council);
  • Westland Holdings Limited and Group (Westland District Council);
  • Marlborough Airport Limited (Marlborough District Council);
  • Varroa Agency Incorporated (Environment Canterbury);
  • Pemberton Construction Limited (Waikato District Council);
  • Auckland Regional Transport Network Limited and Group (Auckland City Council);
  • ARTNL Harbour Berths Limited (Auckland City Council);
  • ARTNL Metro Limited (Auckland City Council);
  • ARTNL Britomart Limited (Auckland City Council);
  • East Otago Community Sports and Cultural Centre Trust (Dunedin City Council);
  • Carparking Joint Venture (Christchurch City Council); and
  • Village Pool Charitable Trust (Hastings District Council).

8.20
Details of the except-for opinions are set out in the Appendix.

Explanatory paragraphs

8.21
In certain circumstances, it may be appropriate for the auditor to include additional comments in the audit report. Through an explanatory paragraph the auditor emphasises a matter that they consider relevant to a reader's proper understanding of an entity's financial statements.

8.22
For example, an explanatory paragraph could draw attention to an entity having breached its statutory obligations for matters that may affect or influence a reader's understanding of the entity. In this situation, the audit report would normally draw attention to the breach only if the entity had not clearly disclosed the breach in its financial statements.

8.23
During 2007, explanatory paragraphs were included in the audit reports for 21 entities. Where an entity is directly or indirectly controlled by one or more regional, city, or district councils, we have listed them in brackets:

  • New Zealand Mutual Liability Riskpool;
  • Whisper Tech Limited;
  • Whisper Tech Joint Venture;
  • Far North Holdings Limited and Group (Far North District Council);
  • Advance Whangarei Limited (Whangarei District Council);
  • Far North Developments Limited (Far North District Council);
  • ARRB Road Info Limited (New Plymouth District Council and South Taranaki District Council);
  • Wellington Regional Economic Development Trust (Wellington City Council, Hutt City Council, and Porirua City Council);
  • America's Cup Village Limited and Group (Auckland Regional Council);
  • Ngā Tapuwae Community Facilities Trust (Manukau City Council);
  • Papatoetoe Licensing Trust;
  • Invercargill Licensing Trust Sports Foundation;
  • Invercargill Licensing Trust – Charitable Trust;
  • Whakatane District Council Sinking Fund Commissioner (Whakatane District Council);
  • Whakatane Airport Authority (Whakatane District Council);
  • Hawke's Bay Tourism Trust (Hawke's Bay Regional Council, Hastings District Council, and Napier City Council);
  • Hawke's Bay Economic Development Agency (Hawke's Bay Regional Council, Hastings District Council, and Napier City Council);
  • Buller Health Trust (Buller District Council);
  • Waikato Quarries Limited (Waikato District Council);
  • Port Westland Limited (Grey District Council); and
  • Tuam Limited (Christchurch City Council);

8.24
The reasons for the explanatory paragraphs are set out in the Appendix.

1: The local government portfolio of audits includes city and district councils, licensing trusts, airports, council-controlled organisations, council-controlled trading organisations, energy companies, port companies, and Sinking Fund Commissioners. We report separately on entities within the central government portfolio, in our yearly report on the results of audits for that sector.

2: A non-standard audit report is issued in accordance with the Institute of Chartered Accountants of New Zealand Auditing Standard No.702: The Audit Report on an Attest Audit.

page top