Part 11: Details of the non-standard audit reports issued in 2012

Local government: Results of the 2011/12 audits.

11.1
We issued 647 audit reports for local government entities in 2012. Of these, 559 audit reports were standard, and 88 were non-standard. This Part is a summary of the 88 non-standard audit reports.

Unmodified opinions with "emphasis of matter" paragraphs

11.2
We drew attention to disclosures in the financial statements of Kaipara District Council (for 2010/11) about:

  • Kaipara District Council having going concern issues and risks to financial viability, because it was dependent on the continuing financial support of bankers and getting enough development contribution revenue to help service debt, addressing legal matters associated with past targeted rates, adopting and putting into effect its 2012-22 long-term plan, and being able to collect all rates levied so as to manage its cash flows;
  • legal matters associated with targeted rates that lacked proper statutory authority, given errors in the way they were set and the contingent liability that would crystallise should any legal challenge result in Kaipara District Council having to refund rates to the ratepayers;
  • the restatement of comparative information relating to the Mangawhai Community Wastewater Scheme that affected 2007/08, 2008/09, and 2009/10;
  • the Auditor-General agreeing to proceed with an inquiry into Kaipara District Council's preparing, building, and overseeing the Mangawhai Community Wastewater Scheme; and
  • the Minister of Local Government appointing a review team in June 2012 to review Kaipara District Council's governance processes and financial management, resulting in the appointment of Commissioners to take over the functions and duties of the Council. The Minister was yet to announce the appointment of Commissioners.

11.3
Kaipara District Council breached the law by failing to meet the statutory reporting deadline. We completed our audit and issued our audit report on Kaipara District Council's 2010/11 annual report on 29 August 2012.

11.4
We drew attention to disclosures in the financial statements of Tararua District Council and Group (for 2010/11) outlining what Tararua District Council had done to resolve matters identified in the audit report on its 2009-19 long-term plan, which contained a qualified opinion because we could not get enough information to support forecast expenditure and service for water and waste infrastructure. We were satisfied that Tararua District Council had resolved the matters and that the forecasts and performance framework contained in the long-term plan provide an appropriate basis for a meaningful assessment of Tararua District Council's performance.

11.5
We drew attention to disclosures outlining that deficiencies that had previously been identified in the performance frameworks contained in the long-term plans had been resolved and that the enhancements to the performance frameworks should be used to assess the performance of:

  • Central Otago District Council (for 2011/12); and
  • Tararua District Council and Group (for 2011/12).

11.6
We drew attention to the serious financial difficulties and resulting uncertainties about the appropriateness of the use of the going concern assumption in our audit reports on:

  • Inframax Construction Limited (for 2011/12), which is a subsidiary of Waitomo District Council; and
  • Pulse Utilities New Zealand Limited and Group (for 2011/12), which is a subsidiary of Buller Electricity Limited.

11.7
We drew attention to disclosures in the financial statements (for 2011/12) of Linework and Stones Limited. The company is a subsidiary of Electra Limited. The financial statements referred to the approval to sell the company's electrical contracting and the Wellington linework business units and the merger of the company with its parent company after the end of the year.

11.8
We drew attention to disclosures in the financial statements (for 2011/12) of Dunedin City Holdings Limited and Group, a subsidiary of Dunedin City Council, which referred to the uncertainties resulting from the company's investment in a subsidiary company.

11.9
We drew attention to disclosures that set out the fundamental uncertainties about the validity of the going-concern assumption for two entities:

  • Central Plains Water Trust (for 2011/12), which is a trust set up by Selwyn District Council and Christchurch City Council; and
  • Ruawhata Public Hall Board (for 2010/11 and 2011/12).

11.10
We drew attention to disclosures about outstanding claims provision and reinsurance, and the appropriateness of the going concern assumption for two entities:

  • New Zealand Mutual Liability Riskpool (for 2011/12); and
  • New Zealand Local Authority Protection Programme Disaster Fund (for 2011/12).

11.11
We drew attention to the disclosures outlining that 12 entities had appropriately not used the going concern assumption because they were or were about to be disestablished:

  • City of Manukau Education Trust, which is a trust controlled by the Auckland Council (for 2011/12);
  • East Otago Community Sports and Cultural Centre Trust (for 2011/12);
  • Hawke's Bay Regional Council Sinking Fund Commissioners (for 2008/09), which was disestablished on 30 June 2009;
  • Metrowater Community Trust (for 2010/11), which was disestablished on 21 December 2011;
  • Northland Regional Council Community Trust (for 2011/12), which was controlled by Northland Regional Council and disestablished on 1 July 2012;
  • Southland Flood Relief Fund (for 2011/12), which was disestablished on 30 August 2011;
  • Taranaki Disaster Relief Trust (for 2011/12), which was expected to be disestablished before 30 June 2013;
  • TDC Holdings Limited and Group (for 2011/12), which is a subsidiary of Taranaki District Council;
  • Trust House Charitable Trust (for 2011/12);
  • The Trusts Charitable Foundation Incorporated (for 2011/12), which is a trust controlled by Trust House Charitable Trust;
  • Wainuiomata Licensing Trust and Group (for the nine years to 31 March 2011 and 2011/12); and
  • Wainuiomata Licensing (Charitable) Trust (for the nine years ended 31 March 2011 and 2011/12), which is a trust controlled by Wainuiomata Licensing Trust.

11.12
We drew attention to the fact that a statement of service performance had not been included in the annual report because the following entities were inactive:

  • Grow Rotorua Limited (for the three months to 30 June 2012), which is a subsidiary of Rotorua District Council;
  • Rotorua District Council Holdings Limited (for 2009/10, 2010/11, and 2011/12), which is a subsidiary of Rotorua District Council;
  • Tauwhareparae Forests Limited (for 2011/12), which is a subsidiary of Gisborne District Council; and
  • Westland Nature Trust (for 2011/12), which is a trust controlled by Westland District Council.

Modified opinions

Disclaimers of opinion

11.13
During 2012, we expressed disclaimers of opinion on the financial or non-financial information of seven public entities.

11.14
We expressed a disclaimer of opinion on the annual report of Christchurch City Council and Group for 2011/12 because we were unable to form an opinion on the Christchurch City Council and Group's financial statements due to the significant damage to Christchurch City Council's assets caused by the Canterbury earthquakes. Christchurch City Council could not account for the effect of the earthquakes because it could not estimate the costs to repair assets. Specifically:

  • we could not get enough assurance that the value of property, plant, and equipment assets (valued at fair value) was correct, because there was no market evidence available to carry out a revaluation in keeping with the requirements of New Zealand Equivalent to International Accounting Standard 16: Property, Plant and Equipment (NZ IAS 16);
  • although there had been a material movement in the replacement costs for infrastructure assets (valued using depreciated replacement cost), no revaluations could be performed and appropriate replacement cost rates could not be worked out reliably enough;
  • the surplus for the year for the Christchurch City Council and Group does not reflect the total losses from writing off irreparable assets, and the other comprehensive income does not reflect the total impairment of damaged but reparable assets and revaluation movements for assets that should be revalued;
  • we could not get enough assurance that the value of property, plant, and equipment of Christchurch City Council‘s subsidiary Vbase Limited was correct, because there was no market evidence available to support a reliable fair value for land and buildings, there was not enough reliable evidence to support impairment loss (which is included in the group financial statements), and the earthquakes significantly damaged Vbase Limited‘s assets; and
  • the comparative information presented in the 30 June 2012 financial statements could not be relied on.

11.15
Although we could not form an opinion on the Christchurch City Council and Group‘s financial statements as a whole, other than the statement of cash flows, we were able to get enough audit evidence for the information included in them, other than:

  • the carrying amount of property, plant, and equipment, asset revaluation reserves, and retained earnings in the balance sheet;
  • the related impairment losses, loss on disposals, and depreciation charged to profit/loss in the statement of comprehensive income; and
  • the related property, plant, and equipment valuation gains/losses and the impairment losses charged to other comprehensive income in the statement of comprehensive income.

11.16
Our audit of the Christchurch City Council and Group was limited because we could not get enough audit evidence to support the "what did it cost" sections of the other information and the associated variance explanations for 2011/12 and the related comparative information. We drew attention to the disclosure in the annual report regarding Christchurch City Council reporting against some levels of service for the year but not against all levels of service in the long-term plan.

11.17
We expressed similar disclaimer of opinions on two subsidiaries of Christchurch City Council because of the effect of the Canterbury earthquakes on land and buildings and investment properties:

  • Tuam Limited for 2011/12; and
  • Vbase Limited and Group for 2010/11 and 2011/12.

11.18
We expressed a disclaimer of opinion on the statement of service performance of Counties Power Limited and Group for 2011/12 because we could not conclude whether the non-financial performance targets gave a true and fair view of the company and group's achievements measured against the performance targets adopted for the year.

11.19
We expressed a disclaimer of opinion on the financial statements of Hawarden Licensing Trust for 2009/10 and 2010/11 because the Trustees did not prepare the financial statements in keeping with the New Zealand equivalents to International Financial Reporting Standards (NZ IFRS). The Sale of Liquor Act 1989 requires the Trustees to prepare the Trust's financial statements in keeping with generally accepted accounting practice (GAAP) in New Zealand. Because the Trust's financial statements were not prepared in line with NZ IFRS, they did not comply with GAAP and we were unable to form an opinion about whether the financial statements fairly reflected the Trust's financial position as at 31 March 2010 and 31 March 2011 and the results of operations for each of the years ended on those dates.

11.20
We expressed disclaimers of opinion on the financial statements of Matata Cemetery for 2006/07, 2007/08, 2008/09, 2009/10, and 2010/11 because the Trustees had limited controls over some revenue and inadequate supporting documents for payments. As a result, we could not get enough evidence to confirm the completeness of revenue or payments. The Trustees failed to comply with the Burial and Cremation Act 1964 in 2007/08 because money was banked into the Secretary's bank account and not into the Cemetery's bank account.

Adverse opinions

11.21
In 2012, we expressed adverse opinions on the financial or non-financial information of seven public entities.

11.22
We expressed adverse opinions because four public entities did not recognise their museum collection assets or the associated depreciation expense, which is a requirement of generally accepted accounting practice in New Zealand for:

  • (for 2010/11 and 2011/12) The Canterbury Museum Trust Board;
  • (for 2011/12) Otago Museum Trust Board;
  • (for 2009/10 and 2010/11) Far North Museum Trust; and
  • (for 2011/12) Southland Museum and Art Gallery Board Incorporated, which is an entity associated with Gore District Council, Invercargill City Council, and Southland District Council.

11.23
We expressed adverse opinions for three entities that reported against performance measures and targets in their statements of service performance that had not been set out in advance in their statement of intent:

  • (for 2010/11 and 2011/12) Invercargill Venue and Events Management Limited – this subsidiary of Invercargill City Council also broke the law by failing to prepare a statement of intent by 30 June 2011 for the period beginning 1 July 2011;
  • (for 2011/12) Crops for Southland Incorporated Society, an entity associated with Gore District Council, Invercargill City Council, and Southland District Council; and
  • (for 2010/11) The World Buskers Festival Trust, which is a trust controlled by Christchurch City Council.

Qualified opinions

11.24
During 2012, we expressed qualified opinions on the financial or non-financial information of 19 public entities. We express a qualified opinion when there is a disagreement with the treatment or disclosure of an issue in the financial statements or when we cannot get enough audit evidence about a matter.

11.25
We expressed a qualified opinion because we could not get enough evidence to support the reported performance of particular performance measures for Grey District Council (for 2011/12) because the Council did not collect data for these performance measure.

11.26
We expressed a qualified opinion (for 2009/10) because Titanium Park Limited, which is a subsidiary of Waikato Regional Airport Limited, did not report performance information that reflected achievements against performance targets as required by the Local Government Act 2002.

11.27
We expressed a qualified opinion (for 2011/12) because our audit of Alpine Energy Limited and Group, which a subsidiary of Timaru District Council, was limited – we could not get enough assurance about the accuracy of some of the non-financial performance information.

11.28
We expressed a qualified opinion (for 2009/10) because the comparative information for East Otago Community Sports and Cultural Centre Trust, a trust controlled by Dunedin City Council, was limited – in the previous year, we could not verify that all revenue was properly recorded.

11.29
We expressed qualified opinions because we could not get enough assurance about the completeness of revenue and/or expenditure for the following entities:

  • Tauranga City Investments and Group (for 2011/12), which is a subsidiary of Tauranga City Council;
  • Tauranga City Aquatics Limited (for 2011/12), which is a subsidiary of Tauranga City Council;
  • Tauranga City Venues Limited (for 2011/12), which is a subsidiary of Tauranga City Council;
  • The World Buskers Festival Trust (for 2011/12), which is a trust controlled by Christchurch City Council;
  • Te Kauwhata Licensing Trust (for 2011/12);
  • Mapiu Recreation Centre (for 2009/10);
  • Mataroa Hall Board (for 2010/11 and 2011/12);
  • Millerton Hall Board (for 2009/10);
  • Nelson Creek Recreation Reserve Board (for 2007/08);
  • Ohau Hall Board (for 2005/06, 2006/07, 2007/08, 2008/09, 2009/10, 2010/11, and 2011/12);
  • Papanui Hall Board (for 2008/09, 2009/10, and 2010/11);
  • Ruakaka Central Domain Board (for 2010/11);
  • Taurikura Hall Board (for 2010/11);
  • Waikiekie Domain Board (for 2005/06, 2006/07, 2007/08, 2008/09, and 2009/10); and
  • Rai Valley Cemetery Trustees (for 2009/10 and 2010/11).
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