Part 7: The audit reports we issued in 2015

7.1
In this Part, we provide an overview of the audit results for local authorities and other local government entities.

7.2
We issued 720 audit reports on local government entities (see Figure 8).⁴⁵ Of the 720 reports, 637 were standard audit reports and 83 were non-standard audit reports. Appendix 2 contains summaries of non-standard modified audit opinions and unmodified audit opinions with "emphasis of matter" or "other matter" paragraphs.

Figure 8
Audit reports issued on local government entities and licensing trusts

	Total number of audit reports issued*	Standard audit reports	Non-standard audit reports issued
			Modified opinion (disclaimer)	Modified opinion (adverse)	Modified opinion (qualified)	Unmodified but including "emphasis of matter" or "other matter" paragraph/s
Local authorities	80	77	-	-	1	2
Council-controlled organisations	204	175	1	1	8	19
Energy companies and subsidiaries	66	63	2	-	-	1
Airports and subsidiaries	22	21	-	-	-	1
Port companies and subsidiaries	48	48	-	-	-	-
Licensing trusts	45	37	-	-	3	5
Miscellaneous other local government entities	99	85	-	4	3	7
Small entities**	156	131	-	-	17	8
Total	720	637	3	5	32	43

* Public entities can have multiple audit reports issued if unfinished audits from previous years are completed during the same year.
** This category is made up of administering bodies and boards, cemetery boards, fish and game councils, and local authority sinking fund commissioners.

7.3
We compared the results of the audit reports we issued in 2015 with the audit reports we issued in 2014 to look for any emerging patterns. There was no significant difference in the number of standard and non-standard audit reports we issued during 2014 and 2015 for the local government sector as a whole, and no significant changes between years.

Modified audit opinions

Disclaimers of opinion

7.4
During 2015, we expressed disclaimers of opinion on the financial or service performance information of three local government entities.

7.5
We expressed a disclaimer of opinion for Vbase Limited, a subsidiary of Christchurch City Council (for 2014/15). We could not get enough appropriate audit evidence because earthquake damage affected:

• the carrying value of insurance receivables, because it was unclear how much of the insurance receivables will be recovered and when that recovery will take place;
• the carrying value of the current and deferred tax balances that should be recognised in the financial statements and would be affected by how much of the insurance receivables will be recovered and when that recovery will take place; and
• the comparative information presented in the financial statements.

7.6
We were also unable to get enough appropriate audit evidence to support the "financial performance targets" section of Vbase Limited's statement of service performance, but we issued an unmodified opinion on its statement of cash flows.

7.7
We expressed disclaimers of opinion for Counties Power Limited and Group (for 2014/15) and Network Waitaki Limited and Group (for 2014/15) on the completeness and accuracy of network reliability performance reporting. No independent evidence was available to support the completeness and accuracy of fault information, and controls over the completeness and accuracy of data about the customer connections were limited.

7.8
We issued unmodified opinions for those two entities on their financial statements and other performance measures that were not affected by the limitations affecting the completeness and accuracy of the reported performance information about the network's reliability.

Adverse audit opinions

7.9
In 2015, we expressed five adverse opinions on the financial or performance information of four local government entities.

7.10
Because they did not recognise their museum collection assets or the associated depreciation expense in their financial statements, as required by generally accepted accounting practice, we expressed adverse opinions for:

• Otago Museum Trust Board Incorporated (for 2013/14 and 2014/15); and
• Pukaki ki Rotorua Charitable Trust (for 2013/14).

7.11
We also expressed adverse opinions for two entities that had not reported against performance measures and targets in their statements of service performance because they did not prepare a statement of intent for the reporting year. They also failed to comply with the law by not preparing a statement of intent for the next reporting period. The entities were:

• BG Contracting Sicon Ferguson Joint Venture (for 2013/14); and
• He Tini Awa Trust (for 2014/15).

7.12
Our audit of the He Tini Awa Trust was also limited because we could not obtain assurance about hall-hire revenue because of limited controls over that 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 Trust was expected to be wound up within 12 months.

Qualified audit opinions

7.13
During 2015, we expressed 32 qualified opinions on the financial or service performance information of 22 local government 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.

7.14
We expressed a qualified opinion on the financial statements of Christchurch City Council for 2014/15. We could not obtain enough appropriate audit evidence about:

• the carrying value of the Council's roading network, wastewater system, and stormwater system because of a lack of information to quantify the financial effects of earthquake damage on these assets − this matter also affected the comparative information;
• the Council's capital work in progress balance because of the rebuilding activities that are under way − the Council was unable to accurately assign this balance into completed assets, assets still under construction, and operating expenditure; and
• the carrying value of insurance receivables recognised in the Council's financial statements, because it is unclear how much of the insurance receivables will be recovered and when that recovery will take place.

7.15
Because of the limitations in scope affecting our audit, 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 Council's statement of service provision.

7.16
We were unable to get audit evidence for the correct amount of tax expense or tax liability for Destination Coromandel Trust (2013/14) and whether interest or penalties could be charged, because its tax status had not been confirmed with the Inland Revenue Department.

7.17
Our audit of Bay Venues Limited (a subsidiary of Tauranga City Council) was also limited. Comparative information in the 30 June 2014 financial statements included inadequate information from another company, Tauranga City Aquatics Limited. Tauranga City Aquatics Limited had amalgamated with Tauranga City Venues Limited to form Bay Venues Limited. We had previously given Tauranga City Aquatics Limited a qualified audit opinion because it had limited controls over its revenue.

7.18
Because we could not get enough assurance about the completeness of revenue and/or expenditure and/or other items (such as inventory, livestock, annual leave balances, or unpresented vouchers), we expressed qualified opinions for the following public entities:

• World Buskers Festival Trust, a trust controlled by Christchurch City Council (for 2014/15);
• Experience Mid Canterbury, a trust controlled by Ashburton District Council (for 2013/14);
• Kaikoura Enhancement Trust and Group, a trust controlled by Kaikoura District Council (for 2010/11, 2011/12, and 2012/13);
• The Hauraki Rail Trail Charitable Trust (for 2013/14);
• Waipa Community Facilities Trust, a trust controlled by Waipa District Council (for 2013/14 and 2014/15);
• Waimakariri District Libraries Trust Incorporated, a trust controlled by Waimakariri District Council (for 2013/14);
• Parakai Licensing Trust, whose financial statements were appropriately prepared on a disestablishment basis (for 2010/11 and 2011/12);
• Te Kauwhata Licensing Trust (for 2014/15);
• North Canterbury Fish and Game Council (for 2013/14 and 2014/15);
• Mataroa Hall Board (for 2013/14);
• Whatitiri Domain Board (for 2012/13 and 2013/14);
• Oakura Reserve Board (for 2011/12 and 2012/13);
• Ohau Hall Board (for 2013/14);
• Ruakaka Central Domain Board (for 2013/14);
• Awakaponga Public Hall Board (for 2012/13);
• Poukiore Domain Board (for 2013/14);
• Balfour Cemetery Trust (for 2011/12);
• Mangere Lawn Cemetery (for 2010/11 and 2011/12); and
• Calcium Cemetery (for 2011/12, 2012/13 and 2013/14).

Unmodified audit opinions with "emphasis of matter" paragraphs

Local authorities

7.19
We drew attention to disclosures in Kaipara District Council's financial statements for 2014/15 about 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 on the Council's ability to use past and future rates revenue to service the debt raised to fund the Mangawhai Community Wastewater Scheme.

7.20
We drew attention to disclosures in the financial statements of the Chatham Islands Council that referred to the Council failing to adopt a rates resolution when setting the 2013/14 rates. Adopting a rates resolution is required by the Local Government (Rating) Act 2002.

Council-controlled organisations

7.21
We drew attention to the uncertainties in measuring the carrying value of an insurance settlement receivable because of inherent uncertainties in the information on which the carrying value of the asset was based for Tuam Limited, a subsidiary of Christchurch City Council (for 2014/15).

7.22
We drew attention 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. The three entities, which are also subsidiaries of Wellington City Council, are:

• Creative HQ Limited (for 2014/15);
• Grow Wellington Limited and Group (for 2013/14, 2014/15); and
• Wellington Regional Economic Development Agency Limited Group (for 2014/15).

7.23
We drew attention to the uncertainty of the outcome of a review of the Dunedin Venues Limited's and Dunedin Venues Management Limited's operations, including their governance and management structures and their funding model, by their parent entity, Dunedin City Council (for 2013/14). We also drew attention to the financial difficulties these two companies face.

7.24
We drew attention to the disclosures in the 30 June financial statements of Innovation Waikato Limited and Group (a subsidiary of Hamilton City Council) that referred to adjustments made to the closing balances in the 2013 financial statements to correct errors made in 2012.

7.25
We drew attention to the disclosures in the 30 June 2014 financial statements of New Zealand Food Innovation (Waikato) Limited and Waikato Innovation Park (Waikato) Limited and Group (subsidiaries of Hamilton City Council). We drew attention to the disclosures in the financial statements that referred to the 30 June 2013 financial statements not being audited and, therefore, the 2012 comparative information in the 2013 financial statements not being audited.

Other local government entities

7.26
We drew attention to the disclosures in the financial statements of the New Zealand Local Authority Protection Programme Disaster Fund that referred to the Trustees having decided to prepare special-purpose financial statements rather than general purpose financial statements so that members of the Fund could continue to assess the performance of the Fund consistently.

7.27
Also, we drew attention to the uncertainties associated with the gross claim liabilities and the related reinsurance recoveries arising from the Canterbury earthquakes during 2010 and 2011 for the Fund for the years ended 30 June 2014 and 30 June 2015.

7.28
We drew attention to the disclosures in New Zealand Mutual Liability Riskpool's 30 June 2014 financial statements about the uncertainties associated with the outstanding claims liability and reinsurance receivables. There are inherent uncertainties involved in estimating those amounts using actuarial assumptions, including leaky building claims, which are subject to significant uncertainty.

7.29
We drew attention to the disclosures in West Coast Development Holdings and Group's 31 March 2015 financial statements about the uncertainties associated with assessing and measuring any impairment of the carrying value of investments in associates because of deteriorating milk pay-out prices.

Audit opinions and the "going concern" assumption

7.30
We drew attention to disclosures about New Zealand Local Government Insurance Corporation Limited and Group (trading as Civic Assurance) (for 2013/14) preparing its financial statements using the going-concern assumption, despite the company being in arbitration with its reinsurers about the limits of cover under the reinsurance programme.

7.31
We also drew attention to the uncertainty about when Civic Assurance will be able to resume its normal business activities and whether it will make enough profit to allow all of its deferred tax assets to be recovered.

7.32
We drew attention to disclosures in the financial statements for four entities about uncertainties relating to their use of the going-concern assumption:

• Te Horowhenua Trust, a subsidiary of Horowhenua District Council (for 2014/15);
• Northland Fish and Game Habitat Trust (for 2013/14);
• Rimutaka Licensing Trust and Group (for 2013/14 and 2014/15); and
• Ruawhata Hall Board (for 2013/14).

7.33
We drew attention to disclosures in the financial statements of Vision Manawatu about it expecting to cease operations within the next 12 months (for 2014/15).

7.34
We drew attention to disclosures in several other financial statements where the entity was no longer a going concern and where the financial statements had been correctly prepared using an alternative basis of accounting. These public entities were:

• Christchurch Stadium Trust, a trust that had forecast financial difficulties and required additional support from external parties (for 2013/14);
• Auckland Council Property Limited, a subsidiary of Auckland Council (for 2014/15);
• FreightGate Limited (for 2014/15);
• Kauri Finance Limited, a subsidiary of Porirua Community Trust (for 2014/15);
• Mana Community Grants Foundation, a subsidiary of Porirua Community Trust (for 2014/15);
• Taranaki Provincial Patriotic Council (for 2012/13);
• Whanganui District Council Sinking Fund Commissioners (for 2013/14);
• Puhoi Cemetery, which was to be vested in Auckland Council on 20 February 2014 (for 2013/14);
• Blacks Cemetery Trustees, whose functions Central Otago District Council took over in December 2012 (for 2010/11 and 2011/12);
• Taranaki Tree Trust (for 2014/15);
• Tararua Foundation (for 2014/15); and
• Partnership Wellington Trust Incorporated, a subsidiary of Wellington City Council (for 2014/15).

Audit opinions and breaches of the law

7.35
For three public entities, we drew attention to disclosures in the financial statements indicating that these entities did not have a statement of intent because they were inactive and had no performance to report. They failed to comply with the law by not issuing a statement of intent for the next reporting year. The three entities were:

• Canterbury Economic Development Company Limited (for 2014/15);
• Tauwhareparae Forests Limited, which is a subsidiary of Gisborne District Council (for 2014/15); and
• Westland Nature Trust Limited, which is a subsidiary of Westland District Council (for 2013/14).

7.36
We drew attention to the disclosure in the financial statements of Whanganui Gas Limited (a subsidiary of Whanganui District Council) about the company not complying with the law by failing to publish a statement of intent for the year ended 30 June 2015 (although the company was able to report performance information for the year ended 30 June 2015).

Unmodified opinions with "other matter" paragraphs

7.37
We drew attention to the fact that New Zealand Food Innovation South Island Limited (for 2013/14) failed to comply with the law by not completing a statement of intent for 2013/14 by 30 June 2013.

7.38
We drew attention to the fact that two public entities breached the law by failing to meet a statutory reporting deadline. The relevant public entities were:

• Aoraki Development and Promotions Limited, which is a subsidiary of Timaru District Council (for 2014/15); and
• Aorangi Stadium Trust, which is a subsidiary of Timaru District Council (for 2014/15).

---

45: Local authorities, most CCOs, airports, port companies, other local government miscellaneous entities, administering bodies and boards, and local authority sinking fund commissioners have a 30 June balance date. Energy companies and cemetery boards have a 31 March balance date. Fish and game councils have a 31 August balance date, and other entities, including some CCOs and miscellaneous other local government entities, have a balance date in March, August, October, or December.