Appendix 2: Summaries of the non-standard audit reports issued in 2014

Local government: Results of the 2013/14 audits.

The information contained in this Appendix is extracted and summarised from the audit opinions issued.

Modified audit opinions – Disclaimers of opinion

Vbase Limited (Christchurch City Council) Year ended 30 June 2014 We were unable to obtain sufficient appropriate audit evidence for: Carrying value of insurance receivable of $147.9 million The company has not made any allowance for any amount that may not be recoverable, which needs to be recognised as an expense if the full amount is not recovered in the future years. Further, the company has recognised an expense of $28.991 million for a reduction in the nominal value of the insurance receivable because it will be received in future years. Revaluation of CBS Arena Because we could not obtain sufficient appropriate audit evidence to support the carrying values of the CBS Arena, the audit reports for in the 30 June 2012 and 30 June 2013 financial statements were qualified. If there was any misstatement of the 2012 and 2013 carrying values of the CBS Arena, then a corresponding amount of the devaluation expenses in the statement of comprehensive income should have been recognised in those years, and the 2014 expense would have been overstated by that amount. Current and deferred tax Any misstatements in the company's financial statements arising from the above matters would have a consequential effect on the company's current and deferred tax asset and liability. Further, we are unable to determine whether the current and deferred tax balances are materially correct until such time as the company decided to change what the company has assumed, for tax purposes, that Lancaster Park stadium is irreparable and a replacement stadium will be built. Our audit of the statement of service performance was also limited because we could not get sufficient appropriate audit evidence to support "financial performance targets" section of the statement of service performance.
Counties Power Limited and Group Years ended 31 March 2013 and 31 March 2014 We were unable to form an opinion on two performance measures that are used to measure the network reliability performance – the System Average Interruption Duration Index (SAIDI) and System Average Interruption Frequency Index (SAIFI) – in the statement of service performance because we could not confirm the completeness and accuracy of all the SAIDI and SAIFI outages due to: no independent evidence being available to support the completeness and accuracy of recorded faults used to measure the company and Group's achievement against the SAIDI and SAIFI performance targets adopted for the years ended 31 March 2014, 31 March 2013, and 31 March 2012; and limited control over the completeness and accuracy of interconnection point (ICP) data representing individual customer connections to the network included in the SAIDI and SAIFI calculations throughout the three years. We could not provide assurance on the comparative information presented in the 31 March 2013 and 31 March 2014 statement of service performance because we issued a disclaimer of opinion on company and Group's previous year's statement of service performance due to the same limitations in independence evidence and controls over the outage and ICP data. The company was issued an unmodified opinion on the financial statements and other performance measures in the statement of service performance for the years ended 31 March 2013 and 31 March 2014.
Electricity Invercargill Limited and Group Year ended 31 March 2014 We were unable to form an opinion on two performance measures that are used to measure the network reliability performance – SAIDI and SAIFI – in the statement of service performance because we could not confirm the completeness and accuracy of all the SAIDI and SAIFI outage due to: no independent evidence being available to support the completeness and accuracy of recorded faults used to measure the company and Group's achievement against the SAIDI and SAIFI performance targets adopted for the years ended 31 March 2014 and 31 March 2013; and limited control over the completeness and accuracy of interconnection point data representing individual customer connections to the network included in the SAIDI and SAIFI calculations throughout the period. The company was issued an unmodified opinion on the financial statements and other performance measures in the statement of service performance for the year ended 31 March 2014.
Network Waitaki Limited and Group Year ended 31 March 2014 We were unable to form an opinion on two performance measures that are used to measure the network reliability performance – SAIDI and SAIFI – in the statement of service performance because we could not confirm the completeness and accuracy of all the SAIDI and SAIFI outage due to: no independent evidence was available to support the completeness and accuracy of recorded faults used to measure the company and Group's achievement against the SAIDI and SAIFI performance targets adopted for the years ended 31 March 2014 and 31 March 2013; and limited control over the completeness and accuracy of interconnection point data representing individual customer connections to the network included in the SAIDI and SAIFI calculations throughout the period. The company was issued an unmodified opinion on the financial statements and other performance measures in the statement of service performance for the year ended 31 March 2014.

Modified audit opinions – Adverse opinions

Tararua District Council and Group Year ended 30 June 2014 We disagreed with the Council not preparing consolidated financial statements that incorporate the financial position of its subsidiary, Infracon Limited, and the results of its operations and cash flows. This is because the subsidiary has been placed into liquidation before issuing audited financial statements for the year ended 30 June 2014. These are departures from New Zealand International Accounting Standard 27 (PBE): Consolidated and Separate Financial Statements, which requires an entity to consolidate its investment in subsidiaries. The subsidiary had prepared draft financial statements but they do not reflect the liquidated value of the assets nor do they include all of the liabilities that may arise as a result of the liquidation. We also drew attention to the disclosures in the financial statements about the Council's decision to write-down the value of its investment in the subsidiary to nil, and the uncertainty over the valuation of that investment because the outcome of the liquidation process is uncertain.
Southland Museum and Art Gallery Trust Board Incorporated (Gore District Council, Invercargill City Council, and Southland District Council) Year ended 30 June 2014 The Trustees did not recognise the Trust Board's museum collection assets or associated depreciation expense in the financial statements. This is not in keeping with New Zealand Equivalent to International Accounting Standard No.16: Property, Plant and Equipment, which requires the recognition of assets and depreciation in financial statements.
Canterbury Museum Trust Board Year ended 30 June 2014 The Trustees did not recognise the Trust Board's museum collection assets or associated depreciation expense in the financial statements. This is not in keeping with New Zealand Equivalent to International Accounting Standard No.16: Property, Plant and Equipment, which requires the recognition of assets and depreciation in financial statements.
Safer Papakura Trust (Auckland Council) Year ended 30 June 2013 We disagreed with the Trust preparing its financial statements on a going-concern basis when a decision had been made by the Trustees to disestablish the Trust.
The Hauraki Rail Trail Charitable Trust Year ended 30 June 2013 The Board of Trustees did not report performance information that reflected the Trust's achievements, as measured against performance targets. This is because the Board of Trustees did not prepare a statement of intent that covered the reporting period. In addition, our audit was limited because we could not get enough assurance over commission revenue because of limited controls over that revenue. Finally, we drew attention to the disclosures in the financial statements outlining that the Trust had departed from the Local Government Act 2002 because it did not prepare a statement of intent for the next reporting period.
West Coast Rural Fire Authority Years ended 30 June 2007 and 30 June 2008 The Authority did not report performance information that reflected the Authority's achievements, as measured against performance targets. This is because the Authority did not prepare a statement of intent for the reporting years. We drew attention to the disclosure in the financial statements that outlined the Authority had departed from the Local Government Act 2002 because it did not prepare a statement of intent for the next reporting periods.
Southland Regional Heritage Committee (Gore District Council, Southland District Council, and Invercargill City Council) Year ended 30 June 2014 The Committee did not report performance information that reflected the Committee's achievements, as measured against its performance targets. This is because the Committee did not prepare a statement of intent for the year. We highlighted that the Committee had departed from the Local Government Act 2002 because it also did not prepare a statement of intent for the next reporting period.

Modified audit opinions – Qualified opinions

Christchurch City Council and Group Year ended 30 June 2014 Because of the effects of the earthquakes on the assets owned by the Council and Group, it has been difficult for the Council to prepare financial statements that comply with generally accepted accounting practice and legislation. Our work was limited because we were unable to obtain sufficient audit evidence over: the carrying value of land, buildings, the roading network, the sewerage system, and the stormwater system Based on the best information currently available, the Council was able to report the financial effects of the damage from the earthquakes. However, the Council was not able to estimate the costs of repair for all these assets with sufficient reliability and has not revalued them. As a result, the carrying value and the associated depreciation expense might be materially incorrect. This matter also affected the comparative information. the revaluation of water supply assets relating to prior year reporting periods Although we have obtained audit evidence of the carrying value of the water supply assets at 30 June 2014, we were unable to obtain evidence to confirm the amount of the revaluation increment and the depreciation expense that should have been recognised in the prior reporting periods. As a result, the revaluation increment is likely to be overstated and the depreciation expense understated, as the carrying values of the water supply assets should have been higher in 2013. the carrying value of insurance receivable The Council is still in negotiation with its insurers and has not made any allowance of any amount that may not be recoverable. We were not able to obtain sufficient appropriate audit evidence over the insurance receivables that will be recovered and when that recovery is likely to occur. We were unable to determine whether current and deferred tax balances are materially correct until the time the Council decides the future of the Lancaster Park Stadium, which for tax purposes is deemed to be irreparable and a replacement stadium will be built. This decision is subject to the negotiations between the Council and its insurers. the capital work in progress balance recognised in the financial statements The Council was unable to accurately classify the amount of capital work in progress of $1.105 billion (which is related to work completed by the Stronger Christchurch Infrastructure Rebuild Team) into completed assets, assets still under construction, and operating expenditure that would otherwise be recognised in the statement of comprehensive income. Further, the Council was unable to identify completed assets within the completed work in progress balance and the completed assets have not been depreciated, and the old and damaged assets that have not been replaced have not been written off. Our audit was also limited because we were unable to obtain audit evidence in "what did it cost" sections and the associated variance explanations including the reported comparative information in the statement of service provision. We drew attention to the disclosures about comparative information in the statement of comprehensive income that referred to the deficiencies in rates-setting resolutions between 2004/05 and 2012/13, specifically in how payment dates were set and how rates penalties were charged. A Bill to correct the deficiencies in the rates set between 2004/05 and 2012/13 had its first reading in Parliament on 28 May 2014 and has been referred to the Local Government and Environment Committee.
Vbase Limited (Christchurch City Council) Year ended 30 June 2013 Our audit was limited because we could not provide assurance on the valuation of buildings as the assumptions underlying the company's valuation were subject to uncertainty and there was insufficient market evidence to support a reliable fair value for the buildings as at 30 June 2013. In addition, we could not provide assurance on the comparative information presented in the financial statements of the Council, which was issued a disclaimer of opinion for the year ended 30 June 2012, because of the effect of the Christchurch earthquakes.
Tauranga City Investments Limited and Group (Tauranga City Council) Year ended 30 June 2014 Our audit was limited in respect of the comparative information because, for the year ended 30 June 2013, we were unable to get assurance about the completeness of cash receipts revenue. We drew attention to the disclosures in the financial statements that referred to the disestablishment basis appropriately being used in preparing the financial statements because the company was disestablished on 1 July 2014 and its assets and liabilities transferred to Bay Venues Limited.
The World Buskers Festival Trust (Christchurch City Council) Year ended 30 June 2014 The Trust had limited controls over some door donations revenue due to the Trust's limited controls over that revenue, which limited the assurance we could get about the completeness of that revenue.
Parakai Licensing Trust Year ended 31 March 2010 Our audit was limited because we could not get enough assurance over some rental revenue due to the Trust's limited controls over that revenue. We also drew attention to the disclosures in the financial statements that referred to the disestablishment of the Licensing Trust on 10 July 2013 and its operations assets and liabilities were gifted to the Helensville District Health Trust. The Trust's undertakings were vested in the Parakai Community Trust by Order in Council on 12 June 2013. The Trustees' decision not to adjust the financial statements to reflect the disestablishment was appropriate.
Ongarue Hall Society Incorporated Years ended 30 June 2011, 30 June 2012, and 30 June 2013 Our audit was limited because we could not get enough assurance about the completeness of receipts (as the entity had limited controls over those receipts). We drew attention to the disclosures in the financial statements that referred to the disestablishment of the entity and the transfer of its operations, assets and liabilities to the Department of Conservation on 16 September 2013.
Nelson Creek Recreation Reserve Board Period ended 2 March 2011 Our audit was limited because we could not get enough assurance about the completeness of hall hire receipts (as the Reserve Board had limited controls over those receipts). We also drew attention to the disclosures in the statement of accounts that referred to the disestablishment basis appropriately being used in preparing the financial statements because the Reserve Board was disestablished on 2 March 2011 and all functions, assets, and liabilities were transferred to the Nelson Creek Community Society Incorporated on that date.
Te Kauwhata Licensing Trust Year ended 31 March 2014 The Trust had limited controls over public bar, lounge bar and wholesale revenue, which limited the assurance we could get about the completeness of this revenue.
Mapiu Sport and Recreation Committee Year ended 30 June 2011 The entity had limited controls over some receipts, which limited the assurance we could get about the completeness of the receipts.
Waikiekie Domain Board Year ended 30 June 2012 The Board had limited controls over some receipts from leases and other income, which limited the assurance we could get about the completeness of the receipts.
Whatitiri Domain Board Year ended 30 June 2012 The Board had limited controls over receipts other than local authority grants and interest income, which limited the assurance we could get about the completeness of the receipts.
Taurikura Hall Board Year ended 30 June 2013 The Board had limited controls over hall hire receipts, which limited the assurance we could get about the completeness of the receipts.
Kaikoura Enhancement Trust and Group (Kaikoura District Council) Years ended 30 June 2009 and 30 June 2010 Our audit was limited because we could not get enough audit evidence of the carrying value of the Trust's inventory balance and the associated cost of goods sold. This is because the Trust did not perform a stocktake of inventory and there were insufficient records to determine the balance of inventory.
Poukiore Domain Board Year ended 30 June 2013 Our audit was limited because we could not get appropriate audit evidence about the quantities and condition of livestock recognised in the statement of financial position. The Board also had limited controls over donations, which limited the assurance we could get about the completeness of these donations.
Waipu Cove Reserve Board Years ended 30 June 2009 and 30 June 2010 The Board had limited controls over some revenue and expenses that were paid from unbanked revenue due to the Board's limited control over that revenue and expenses, which limited the assurance we could get about the completeness of these items. Our audit was also limited because we could not determine whether the omission of annual leave entitlements had a material effect on the financial statements because the Board did not operate an adequate system to record annual leave balances.
Ohau Hall Board Year ended 30 June 2013 The Board had limited controls over some hall hire and scrap sale revenue, which limited the assurance we could get about the completeness of the hall hire and scrap sale revenue.
Ruapuke Cemetery Year ended 31 March 2013 The Trustees had limited controls over some book sale receipts and books remaining in stock, which limited the assurance we could get about the completeness of the book sale receipts and the carrying value of books remaining in stock.

Unmodified audit opinions with "emphasis of matter" paragraphs

Central Hawke's Bay District Council and Group Year ended 30 June 2014 We drew attention to the disclosures in the financial statements that outlined that: the Council's investment in Infracon Limited had been written down to nil value; and the uncertainties that exist over the valuation of that investment in Infracon Limited because the outcome of the liquidation process is uncertain.
Chatham Islands Council Year ended 30 June 2014 We drew attention to the disclosures in the financial statements that outlined the Council, in setting the 2013/14 rates, failed to adopt a rates resolution as required by the Local Government (Rating) Act 2002. The Council was investigating options to address this situation.
Far North District Council and Group Year ended 30 June 2013 We drew attention to the disclosures in the financial statements about the Council spending $2.258 million to date on the Sweetwater Aquifer Scheme, resulting in assets with a carrying value of $0.747 million and operating expenditure of $1.511 million. Up to a further $250,000 was to be paid once the landowner has subdivided their property to enable title to the bore field property to be passed to the Council. We drew attention to the Council's investigation into all aspects of the Scheme, which included a review of the Council's decision-making and project management process relating to the Scheme, and its financial management of the Scheme. We also drew attention to the fact that the Council fail to adopt its annual report within the statutory reporting deadline.
Kaipara District Council Year ended 30 June 2014 We drew attention to the disclosures in the financial statements that referred to the possible significant financial effect if the ruling on the Mangawhai Ratepayers and Residents Association's appeal to the Court of Appeal was not in favour of the Council. This would overturn the High Court's judgment in relation to the Council's ability to use rates revenue, both past and future, to service the debt raised to fund the Mangawhai Community Wastewater Scheme.
Taupō District Council and Group Year ended 30 June 2014 We drew attention to the disclosures in the financial statements that referred to the breach of the Local Government Act 2002 because the Council failed to adopt its long-term plan 2012-22 by 1 July 2012, which is needed for accountability reasons and for setting valid rates under the Local Government (Rating) Act 2002. Because the long-term plan was not adopted until 24 September 2013, the Council applied to the Department of Internal Affairs for an Order in Council to validate the late adoption of the long-term plan as if it had been adopted before 1 July 2012.
Tuam Limited (Christchurch City Council) Year ended 30 June 2014 We drew attention to the disclosures in the financial statements that referred to the uncertainties of the carrying value of the settlement receivable (which was recognised in the trade and other receivables), due to inherent uncertainties in the information on which the carrying value of the asset has been based.
Creative HQ Limited (Wellington City Council) Year ended 30 June 2014 We drew attention to the disclosures in the financial statements that referred to the uncertainties in measuring the fair value of shares in incubator and accelerator companies because of the "early stage" nature of the investments and the absence of quoted market prices.
Inframax Construction Limited (Waitomo District Council) Year ended 30 June 2014 We drew attention to the disclosures in the financial statements that referred to the uncertainties surrounding the going-concern assumption. The validity of the going-concern assumption depends on the company's reliance on the continued financial support from Waitomo District Council and Westpac New Zealand Limited, and its ability to achieve the financial performance and cash flows at forecast levels.
Pulse Energy Limited and Group (formerly known as Pulse Utilities New Zealand Electricity Limited) (Buller Electricity Limited) Year ended 31 March 2013 We drew attention to the disclosures in the financial statements that referred to the company having its liabilities exceeding its assets by $4.1 million and being in breach of certain funding covenants. The validity of the going-concern assumption depended on the company and Group's ability to improve cash flows, renegotiate certain funding facilities, and secure additional equity to fund its activities.
New Zealand Local Government Insurance Corporation Limited and Group – Trading as Civic Assurance Year ended 31 December 2013We drew attention to the disclosures in the financial statements that referred to the going-concern assumption being used in preparing the financial statements, despite the company being in arbitration with its reinsurers relating to the limits of cover under the reinsurance programme. We also drew attention to the uncertainty as to when the company would be able to resume its normal business activities and whether the company would make sufficient profits to allow all of its deferred tax assets to be recovered. The validity of the going-concern assumption depends on the limitation of the company's net outstanding claims liability to $5.0 million.
The Village Pool Charitable Trust (Hastings District Council) Year ended 30 June 2013 We drew attention to the disclosures in the financial statements that referred to the uncertainties surrounding the going-concern assumption. The validity of the going-concern assumption depended on the decision by the Council in its review of local pool trusts as part of its review of aquatic facilities.
Oamaru Licensing Trust Year ended 31 March 2014 We drew attention to the disclosures in the financial statements that referred to the going-concern assumption being appropriately used in preparing the financial statements. The validity of the going-concern basis depended on the Trust being able to obtain ongoing funding as it was required to renew its loans in November 2014 because, at 31 March 2014, it was in breach of one of its banking covenants.
Rimutaka Licensing Trust and Group Year ended 31 March 2013 We drew attention to the disclosures in the financial statements that referred to the uncertainties surrounding the going-concern assumption, which include continued pressure on the Trust's turnover and the options on the future of the Trust. The validity of the going-concern assumption depended on the decisions to be made by the Trustees on the future of the Trust by considering the various options that are available to them.
Ruawhata Hall Board Year ended 30 June 2013 We drew attention to the disclosures in the financial statements that referred to the uncertainties surrounding the going-concern assumption. The Board will be likely to be disestablished and its activities transferred to the Department of Conservation or the Tararua District Council. The Department is yet to decide whether it would approve the disestablishment of the Board.
Christchurch Stadium Trust Year ended 31 December 2013 We drew attention to the disclosures in the financial statements that referred to the going-concern basis appropriately not being used in preparing the financial statements because the Trust had a limited life and had an obligation to decommission the stadium and wind up once Christchurch has a new permanent stadium. We also drew attention to the expected future financial difficulties being forecast, which the Trust will not be able to meet without additional support from external parties.
Delta Investments Limited (Dunedin City Council) Year ended 30 June 2014 We drew attention to the disclosures in the financial statements that referred to the dissolution basis appropriately being used in preparing the financial statements because the company ceased trading and was deregistered on 11 July 2014.
Scope Infrastructure Limited Year ended 31 March 2014 We drew attention to the disclosures in the financial statements that referred to the realisation basis appropriately being used in preparing the financial statements because the company ceased trading.
Cranberries New Zealand Limited Year ended 31 March 2014 We drew attention to the disclosures in the financial statements that referred to the realisation basis appropriately being used in preparing the financial statements because the company ceased trading on 31 January 2014 after the sale of its fixed assets.
Taranaki Provincial Patriotic Council Year ended 30 September 2012 We drew attention to the disclosures in the financial statements that referred to the disestablishment basis appropriately being used in preparing the financial statements because the Council approved in principle the formation of a trust to assume ownership of the assets of the Council and to supersede its functions.
Cooks Gardens Trust Board Year ended 30 June 2013 We drew attention to the disclosures in the financial statements that referred to the dissolution basis appropriately being used in preparing the financial statements because the Trust ceased trading on 31 January 2014 and the Trustees passed a resolution on 12 March 2014 to dissolve the Trust.
Puhoi Cemetery Years ended 31 March 2011, 31 March 2012, and 31 March 2013 We drew attention to the disclosures in the financial statements that referred to the disestablishment basis appropriately being used in preparing the financial statements because the control and management of the Cemetery was transferred to Auckland Council on 20 February 2014.
St James Theatre Limited (Wellington City Council) Year ended 30 June 2012 We drew attention to the disclosure in the financial statements about the company not disclosing performance information because the company was inactive and did not have any performance to report, and that the company failed to comply with the law by not completing a statement of intent for the year beginning 1 July 2011. We drew attention to the disclosures in the financial statements that referred to the realisation basis appropriately being used in preparing the financial statements because the company was wound up and its operations were transferred into Wellington Venues Limited on 1 July 2011.
St James Theatre Charitable Trust and Group (Wellington City Council) Year ended 30 June 2012 We drew attention to the disclosures in the financial statements about the Trust and Group not disclosing performance information because the Trust and Group were inactive and did not have any performance to report, and that the Trust and Group failed to comply with the law by not completing a statement of intent for the year beginning 1 July 2011. We drew attention to the disclosures in the financial statements that referred to the realisation basis appropriately being used in preparing the financial statements because the Trust and Group were wound up and the operations of the St James Theatre Charitable Trust and St James Theatre Limited were transferred into Wellington Venues Limited on 1 July 2011.
Luggate Nominee Limited (Dunedin City Council) Year ended 30 June 2014 We drew attention to the disclosures in the financial statements that referred to the dissolution basis appropriately being used in preparing the financial statements because the shareholders intended to deregister the company after approving the 30 June 2014 financial statements. We also drew attention to the disclosure in the financial statements about the company not having a statement of intent because it is inactive and did not have any performance to report.
Tauwhareparae Forests Limited (Gisborne District Council) Year ended 30 June 2014 We drew attention to the disclosures in the financial statements about the company not having a statement of service performance because it is inactive and did not have any performance to report. The company also did not comply with the law by failing to complete a statement of intent for the period beginning 1 July 2015 by 30 June 2014.
The Hauraki Rail Trail Charitable Trust Period ended 30 June 2012 We drew attention to the disclosures in the financial statements outlining that the Trust failed to comply with the law by not completing a statement of intent for the next reporting period.

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