Part 3: Non-standard audit reports issued in 2008

Local government: Results of the 2007/08 audits.

3.1
In this Part, we report on the non-standard audit reports issued during the 2008 calendar year on the annual financial statements of entities within the local government portfolio of audits.1

Why are we reporting this information?

3.2
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.

3.3
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?

3.4
A non-standard audit report2 is one that contains:

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

3.5
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.

3.6
There are three types of qualified opinions:

3.7
The auditor will include an explanatory paragraph (see paragraph 3.21) in the audit report to emphasise a matter such as:

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

3.8
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.

3.9
Figure 5 outlines the decisions to be made when considering the appropriate form of audit report.

Adverse opinions

3.10
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.

3.11
An adverse opinion is the most serious type of non-standard audit report.

3.12
During 2008, adverse opinions were expressed for eight entities. In this and the following sections, where an entity is directly or indirectly controlled by one or more city or district councils, we have listed the councils in footnotes:

  • Southland Museum and Art Gallery Trust Board Incorporated (for financial years ended 30 June 2007 and 30 June 2008);3
  • The Museum of Transport and Technology Board;
  • The Canterbury Museum Trust Board;
  • Otago Museum Trust Board;
  • Far North Regional Museum Trust;4
  • Hawarden Licensing Trust;
  • Charleston Goldfields Hall Board (for financial years ended 30 June 2006 and 30 June 2007); and
  • Nelson Creek Recreation Reserve Board.

3.13
Details of the adverse opinions are set out in the Appendix.

Disclaimers of opinion

3.14
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 as a whole or on part of them.

Figure 5
Deciding on the appropriate form of audit report

Figure 5: Deciding on the appropriate form of audit report.

3.15
During 2008, disclaimers of opinion were expressed for the following entities.

  • Kaikoura Enhancement Trust (for financial years ended 30 June 2003 and 30 June 2004);5 and
  • Winton Racecourse Reserve Trustees (for statement of accounts for the six years ended 30 June 2004).

3.16
Details of the disclaimers of opinion are set out in the Appendix.

Except-for opinions

3.17
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.

3.18
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.

3.19
During 2008, except-for opinions were expressed for 20 entities:

  • Invercargill City Council and group (for financial years ended 30 June 2005 to 30 June 2008);
  • Invercargill City Holdings Limited (for financial years ended 30 June 2007 and 30 June 2008);6
  • Kaikoura Enhancement Trust (for financial years ended 30 June 2005 and 30 June 2006);7
  • Aurora Energy Limited;8
  • Hawke's Bay Cultural Trust (Incorporated);9
  • Wanganui Incorporated (for period ended 30 June 2006 and financial years ended 30 June 2007 and 30 June 2008);10
  • East Otago Community Sports and Cultural Centre Trust;11
  • Tauranga City Venues Limited;
  • Mapiu Domain Board;
  • Electra Limited;
  • Innovative Waste Kaikoura Limited;12
  • The Southern Rural Fire Authority;
  • Ruapehu-Wanganui-Rangitikei Economic Development Trust (for financial year ended 30 June 2007);13
  • Pemberton Construction Limited;14
  • Southland Flood Relief Fund (for financial years ended 30 June 2007 and 30 June 2008);15
  • Crops for Southland Incorporated (for financial years ended 30 June 2005 to 30 June 2008);16
  • Auckland Regional Transport Network Limited and group;17
  • ARTNL Metro Limited;18
  • ARTNL Britomart Limited;19 and
  • ARTNL Harbour Berths Limited.20

3.20
Details of the except-for opinions are set out in the Appendix.

Explanatory paragraphs

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

3.22
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.

3.23
During 2008, explanatory paragraphs were included in the audit reports for 15 entities:

  • Central Plains Water Trust;21
  • Hawke's Bay Airport Authority;22
  • Cup Village NZ Limited;
  • Cup Village 2000 Limited;
  • Far North Developments Limited;23
  • Rotorua District Council Sinking Fund Commissioners;
  • Ruapehu District Council Sinking Fund Commissioners;
  • Ngā Tapuwae Community Facilities Trust;
  • Mackenzie Holdings Limited;24
  • Cooks Gardens Trust Board (for financial years ended 30 June 2007 and 30 June 2008);25
  • Buller Holdings Limited;26
  • Ruapehu-Wanganui-Rangitikei Economic Development Trust (for financial year ended 30 June 2008);27
  • Pihama Cemetery Trustees;
  • Auckland City Water Limited;28 and
  • Lakes Leisure Limited.29

3.24
The reasons for the explanatory paragraphs are set out in the Appendix.

1: The local government portfolio of audits includes regional, 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.

3: Gore District Council, Invercargill City Council, and Southland District Council.

4: Far North District Council.

5: Kaikoura District Council.

6: Invercargill City Council.

7: Kaikoura District Council.

8: Dunedin City Council.

9: Hastings District Council and Napier City Council.

10: Wanganui District Council.

11: Dunedin City Council.

12: Kaikoura District Council.

13: Ruapehu District Council, Wanganui District Council, and Rangitikei District Council.

14: Waikato District Council.

15: Gore District Council.

16: Southland District Council.

17: Auckland City Council.

18: Auckland City Council.

19: Auckland City Council.

20: Auckland City Council.

21: Selwyn District Council.

22: Hastings District Council and Napier City Council.

23: Far North District Council.

24: Mackenzie District Council.

25: Wanganui District Council.

26: Buller District Council.

27: Ruapehu District Council, Wanganui District Council and Rangitikei District Council.

28: Auckland City Council.

29: Queenstown Lakes District Council.

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