California Code of Regulations › Title 2 - Administration › Division 2 - Financial Operations › Chapter 2 - State Controller › Subchapter 5 - Minimum Audit Requirements and Reporting Guidelines for Special Districts › Section 1131.2 - Minimum Audit Requirements

Current through Register 2024 Notice Reg. No. 28, July 12, 2024
(a)
				  The audit shall be made in accordance with generally accepted auditing
				  standards. Various auditing procedures are suggested and described on pages 41
				  through 69 of the American Institute of Certified Public Accountants
				  publication Audits of State and Local Governmental Units. No hard and fast
				  rules can be set down as to the specific procedures that should be taken.
				  Professional judgment must be exercised. Following are general statements that
				  the county auditor or independent accounting firm should consider in preparing
				  an audit program in connection with the audit of a California special district.
(1) A proper study and evaluation of the
				  existing internal control and the financial organizational structure should be
				  made. The extent to which an auditor should go in testing the evidential matter
				  supporting his opinion on the financial statements depends on the effectiveness
				  of the district's system of internal control.
Sufficient competent evidential matter is to be obtained
					 through inspection, observation, inquiries, and confirmations to afford a
					 reasonable basis for an opinion regarding the financial statements under
					 examination.
If the internal control is so deficient that an auditor
					 must disclaim his opinion in this regard, the reason for this disclaimer must
					 be set forth in the audit report.
(2) The auditor should review the laws
				  applicable to the financial transactions of the district. For instance, all
				  special districts are subject to a uniform accounting system prescribed by the
				  State Controller. Should there be indications that the district may have failed
				  to comply with legal requirements, the transactions may be referred to proper
				  legal counsel for interpretation of the applicable law. Noncompliance should be
				  commented upon in the report and, if necessary, the auditor's opinion should be
				  qualified, disclaimed or adverse.
(3) The district's report of financial
				  transactions to the State Controller should be reviewed to see that it agrees
				  with the official records of the district for the period. The State Controller
				  should be informed of any material difference.
(4) A review should be made of the previous
				  audit report workpapers and program if available.
(5) The auditor should ascertain what funds
				  are maintained and by what authority or under what circumstances each fund
				  maintained was created.
(6) The
				  auditor should ascertain the basis of accounting, that is, cash, accrual or
				  modified accrual. Accrual is the basis for enterprise funds and modified
				  accrual is the basis for non-enterprise funds. The cash basis is no longer
				  approved for special districts.
(7)
				  The auditor should take a trial balance of the accounts of each fund and should
				  list both opening and closing balances. The opening balances should be compared
				  with the amounts shown in the audit report for the previous period, if any, and
				  any difference should be investigated and reconciled.
(8) A summary of the financial data included
				  in the minutes or other official records of the proceedings of the legislative
				  body should be prepared. Expenditure authorizations and the appropriations made
				  to cover the authorizations should be confirmed.
(9) The auditor should verify the balance of
				  cash on hand.
(10) The auditor
				  should reconcile bank accounts including cash on deposit with county treasurer
				  as of the balance sheet date and such other times as is necessary. He should
				  obtain confirmation from depositories for (1) all bank accounts, time
				  certificates or savings and loan accounts, and (2) collateral securing such
				  accounts, if applicable. Collateral should be examined or confirmed with the
				  depository holding the collateral as trustee. The auditor should determine the
				  adequacy and propriety of the collateral pledged.
(11) The auditor should test the tax levy,
				  tax collection and delinquencies whether processed by the district or the
				  county.
(12) The collection and
				  recording of all ascertainable revenues should be tested during the period
				  under audit. The test should be sufficient to determine that receipts have been
				  recorded in the proper funds and period.
(13) The auditor should determine:
(A) That the expenditures were properly
				  authorized and incurred and are proper charges to the fund and appropriation
				  against which they have been charged.
(B) That the expenditures are supported by
				  the proper documents and that the documents are so marked as to prevent their
				  reuse. In this connection, it should be ascertained whether noncash
				  expenditures, that is, interdepartmental transactions are supported by adequate
				  documentation and were properly recorded.
(14) A review should be made of nonrevenue
				  receipts and nonexpense disbursements to determine if they were legal and
				  properly recorded.
(15) All other
				  assets such as investments, accounts receivable, inventories, paid expenses,
				  fixed assets and similar items should be verified in accordance with generally
				  accepted auditing standards.
(16)
				  All liabilities such as accounts payable, notes payable, contracts payable,
				  judgments and similar items should be verified in accordance with generally
				  accepted auditing standards. Proper authorities should be contacted to
				  ascertain existence of any possible contingent liabilities.
(17) The auditor should verify the fund
				  balance and reserve accounts of all funds.