Part 5: The audit reports we issued in 2018

Our 2018 work about local government.

During 2018, we issued 378 audit reports on the financial statements and performance information of councils, their subsidiaries, and organisations associated with or related to councils (see Figure 5).

Figure 5
Audit reports issued on councils and subsidiaries, and organisations associated with or related to councils

Standard audit reports issued with unmodified opinion Non-standard audit reports Total number of audit reports issued*
Unmodified opinion and "emphasis of matter" paragraph Modified opinion (qualified) Modified opinion (disclaimer) Modified opinion (adverse)
Councils 68 3 5 76
Council-controlled organisations 136 15 8 1 160
Energy companies and subsidiaries (owned by councils) 8 8
Airport companies and subsidiaries (owned by councils) 22 2 1 25
Port companies and subsidiaries (owned by councils) 20 5 25
Other local government organisations 70 9 2 2 1 84
Total 324 34 16 3 1 378

* We sometimes issue more than one audit report for an organisation if unfinished audits from previous years are completed during the same year. For an explanation of the different types of audit opinions, see "The Kiwi guide to audit reports" at

Through these audit reports, we inform readers of public organisations' financial statements and performance information about the reliability of that information.

We have identified two main matters out of the non-standard audit reports that we issued. The first is that several councils, including Auckland Council, Carterton District Council, and Whakatane District Council, either could not provide us with sufficient information or had weak underlying systems for reporting on some matters. The second matter was the continuing effect of the November 2016 Kaikōura/Hurunui earthquake, which has resulted in several uncertainties about the extent of damage to organisations that operate significant infrastructure assets affected by the earthquake. Further explanation about these audit reports is outlined below.

Of the 378 audit reports, 358 included unmodified opinions. An unmodified opinion means that we had no concerns about the information reported. However, we drew attention to important disclosures in 32 of those audit reports and referred to certain matters in two audit reports.

The remaining 20 audit reports contained modified opinions. This means that either we disagreed with how the organisation reported information or we could not get the evidence that we needed.

Appendix 2 summarises the matters included in the non-standard audit reports that we issued.

Disclaimers of opinion

Sometimes we cannot obtain the evidence that we need from an organisation. This lack of evidence can fundamentally affect our view of the organisation's financial statements and performance information.

This usually occurs when the organisation is dealing with circumstances outside its control, such as responding to natural disasters. In such situations, we issue a disclaimer of opinion. This means that we do not have the evidence to form an opinion on the financial statements and/or performance information.

In 2018, we issued a disclaimer of opinion for Innovative Waste Kaikōura Limited, a council-controlled organisation of Kaikōura District Council,6 for the year ended 30 June 2017.

We were unable to obtain enough evidence about the service performance information for Innovative Waste Kaikōura Limited, which had its activities disrupted by the November 2016 Kaikōura/Hurunui earthquake. The company also failed to prepare a statement of intent for the year beginning 1 July 2017.

We also issued a disclaimer of opinion for the Gardens Event Trust,7a council-controlled organisation of Christchurch City Council, for the years ended 31 March 2014 and 31 March 2015.

The Gardens Event Trust could not give us enough evidence to verify its income and expenses in the financial statements because it had lost documents. Therefore, we could not provide assurance on the financial statements. The Gardens Event Trust's financial statements were appropriately prepared using a basis other than a going concern because it was about to stop operating.

Adverse opinions

Sometimes we disagree with the way an organisation applies accounting standards. If we consider the disagreement to be fundamental to the financial statements or performance information, we issue an adverse opinion.

In 2018, we issued an adverse opinion for Canterbury Museum Trust Board for 2017/18.

The Museum's collection assets are integral to what it does. However, Canterbury Museum Trust Board does not recognise these assets or the associated depreciation expense in its financial statements.

Canterbury Museum Trust Board is of the view that all of its collection assets cannot be reliably measured.

Qualified opinions

If an aspect of an organisation's financial statements or performance information either does not comply with accounting standards or the organisation cannot provide us with the necessary information to support it, we issue a qualified opinion. In 2018, we issued 16 qualified opinions.

Five of the qualified opinions were for councils, and three of those five concerned performance information. Many organisations are required to report performance information, which is important information about what they have achieved during the year. Organisations report their achievements against objectives and targets that are set before the beginning of the financial year. Performance information, together with financial statements, should provide an integrated story about an organisation's performance.

For Auckland Council, we could not verify that the Council's adjusted performance results for 2017/18 were correct because the Council could not produce accurate recording of processing times for building consents and non-notified resource consents.

Auckland Council reported that 52% of its building consents were processed within the statutory time frames. All other high-growth councils (as defined by the National Policy Statement on Urban Development Capacity 2016) achieved compliance of 93% or higher, except for Whangarei District Council, which reported 73%.

For Carterton District Council and Whakatane District Council, we could not rely on some of their underlying systems for reporting performance information.

Hawke's Bay Regional Council received a qualified opinion because we could not verify the carrying value of the expenditure for developing the Ruataniwha Water Storage Scheme and the tax effects on the development expenditure for the Scheme when it was disposed of.

For Taranaki Regional Council, we could not determine whether the carrying value of Yarrow Stadium was accurate because the Council had not completed its assessment on the repair options to accurately estimate the impairment of the stadium.

We issued four qualified opinions on council-controlled organisations. We could not verify the carrying value of the council-controlled organisations' property, plant, and equipment assets because proper valuation or impairment assessments were not carried out.

Appendix 2 sets out the reasons why we issued qualified opinions.

Unmodified audit opinions with "emphasis of matter" paragraphs

Sometimes public organisations report matters in their financial statements and performance information that are important enough that we draw attention to them in our audit report. We do this by adding an "emphasis of matter" paragraph. That paragraph does not affect our audit opinion, and readers can rely on the financial statements and performance information. In 2018, 32 audit reports contained "emphasis of matter" paragraphs.

The November 2016 Kaikōura/Hurunui earthquake caused significant damage to several organisations' assets. The uncertainties about the extent of this damage affected how the assets were valued and how much insurance the organisations would receive. The financial statements contained disclosures about these uncertainties, which were important to understanding the financial statements. We drew attention to those disclosures in our 2017/18 audit reports.

There were several organisations that decided to cease operations. This affects the way that the financial statements are prepared and how assets are valued. The financial statements contain disclosures about the effect of ceasing to operate. These disclosures are important to understanding the financial statements, so we drew attention to them.

Appendix 2 sets out the list of organisations with "emphasis of matter" paragraphs in their audit reports.

Unmodified audit opinions with "other matter" paragraphs

Sometimes, public organisations do not report matters in their financial statements and performance information that we consider is relevant to readers. As a result, we will include an "other matter" paragraph in the audit report to highlight the matter that we consider relevant, although the financial statements and performance information as it has been presented can still be relied on. This paragraph does not affect our audit opinion and readers can rely on the financial statements and performance information.

We issued no audit reports containing "other matter" paragraphs in 2018.

6: Our opinion for Innovative Waste Kaikōura Limited for 2016/17 was issued on 21 September 2018.

7: Our opinions for Gardens Event Trust for 2013/14 and 2014/15 were issued on 8 August 2018.