Part 3: The audit reports we issued in 2016
In this Part, we discuss the modified opinions we issued and the audit reports that drew attention to important disclosures.
During 2016, we issued 408 audit reports on the financial statements and performance information of local authorities and their subsidiaries, and entities associated with, or related to, local authorities (see Figure 7).9
Through these reports, we assure the readers of public entities' financial statements and performance information that they can rely on the information about how public money is spent and how well public services are performed.
Audit reports issued on local authorities and subsidiaries, and entities associated with, or related to, local authorities
|Non-standard audit reports|
|Standard audit reports issued with unmodified opinion||Total number of audit reports issued*||Unmodified opinion and "emphasis of matter" paragraph||Modified opinion (disclaimer)||Modified opinion (adverse)||Modified opinion (qualified)|
|Energy companies and subsidiaries (owned by local authorities)||10||1||11|
|Airports and subsidiaries||19||1||2||1||23|
|Port companies and subsidiaries||35||1||36|
|Other local government organisations||62||10||2||2||76|
*Multiple audit reports might be issued if unfinished audits from previous years are completed during the same year.
Of the 408 audit reports, 388 had unmodified opinions. This means that we had no concerns about the information reported, although we drew attention to important disclosures in 31 of those audit reports. The remaining 20 audit reports contained modified opinions, meaning that either we disagreed with how the entity reported information or we could not get the information we needed.
Appendix 2 summarises the matters included in the non-standard audit reports.
Disclaimers of opinion
We are sometimes unable to obtain the information we need from an entity, and the lack of information can fundamentally affect our view of the financial statements and performance information.
This usually occurs when the entity is dealing with circumstances outside its control, such as responding to natural disasters. In such situations, we disclaim an opinion, meaning that we do not have the information to form an opinion on the financial statements or performance information.
During 2016, we issued two disclaimers of opinion on the 2015 financial statements. Both were for council-controlled organisations of Hamilton City Council – Titanium Park Joint Venture and Titanium Park Limited. The most significant aspect of each organisation's financial statements was a development property.
Neither organisation could give us enough evidence to support the value of the development property as stated in the financial statements. Because of the significance of the development property to the financial statements, we could not provide assurance on the statements.
Sometimes, we disagree with the way an entity applies accounting standards, and the effect of the disagreement is fundamental to the financial statements or performance information. During 2016, we issued four adverse opinions.
Two opinions related to Sicon Limited and Geotech Limited Joint Venture (a council-controlled organisation) for 2012/13 and 2013/14. The joint venture had not reported performance information for either of these periods, as it was required to. That information is fundamental to understanding how well the joint venture's services are being performed.
The other two adverse opinions related to Otago Museum Trust Board Incorporated for 2015/16 and Canterbury Museum Trust Board for 2014/15. The collection assets of these museums are integral to what they do.
Canterbury Museum Trust Board does not recognise these assets or the associated depreciation expense in their financial statements.
Otago Museum Trust Board Incorporated recognises collection assets purchased since 2001. Collection assets acquired before 2001 have not been recognised or depreciated.
For a number of years, these two museums have expressed concern with assigning financial values to collection assets.
We qualify an opinion where an aspect of an entity's financial statements or performance information that is not fundamental either does not comply with accounting standards or is unable to be supported because the entity cannot provide us with the necessary supporting information. During 2016, we qualified 14 opinions. Appendix 2 sets out the reasons for the qualifications.
Christchurch City Council was one of the entities that received a qualified opinion for 2015/16. Christchurch City Council was significantly affected by the 2010 and 2011 Canterbury earthquakes.
For 2010/11, the level of uncertainty in the information reported by Christchurch City Council, particularly about water, wastewater, sewerage, and roading network assets, meant that we issued a disclaimer of opinion. Since then, Christchurch City Council has worked hard to get reliable information about the state of such assets. As a result, the modifications to our audit opinions have lessened.
Unmodified opinions with "emphasis of matter" paragraphs
At times, public entities report matters in their financial statements and performance information that is so important that we draw attention to the matter in our audit report. During 2016, 31 sets of financial statements contained information that we emphasised in our audit report. We did this to draw attention to important disclosures the entity made in its financial statements.
For example, if an entity has decided to cease operation, that decision will affect the way that financial statements are prepared and how assets are valued. The financial statements will need to contain disclosures about this. These disclosures are important to readers' understanding of the financial statements. Therefore, we normally draw attention to the entity's disclosures about ceasing operation.
9: Local authorities, most council-controlled organisations, airports, port companies, and other local government organisations have a 30 June balance date. Energy companies have a 31 March balance date. Some council-controlled organisations and other local government organisations have a balance date in March, August, October, or December.