Disputes Between The Local Auditee And Their Auditor

Questions:

I have hired a CPA firm to perform my agency’s statutorily required audit. The CPA will not respond to my requests to start the audit. It is getting close to the due date of the report. What should I do?

Contact LLA’s Engagement Manager. LLA’s staff will contact the CPA and instruct him or her to make arrangements with you to begin the audit. If the CPA does not respond to LLA’s requests, the engagement will be cancelled, and you will be asked to retain the services of another CPA firm to perform the engagement, and to file an extension request for the report.

The CPA who is performing my agency’s audit is asking for a lot of information that I don’t think pertains to my financial statements. Must I give these items to him?

A CPA’s main responsibility during an audit is to determine whether an agency’s financial statements are materially correct. In order to make that determination, a CPA will look at information that may not appear to be related to the financial statements. In addition, a CPA performing an audit under Government Auditing Standards is required to test the agency’s compliance with laws and regulations. Because the CPA is the one who is performing the audit and is the one who has to sign the audit report, LLA will generally not overrule the CPA’s professional judgment in choosing the documents he or she chooses to review. The agency is always free to call LLA’s Engagement Manager to discuss any concerns about the performance of the audit.

The CPA who is performing my agency’s audit is asking for information that was not on the list of records he requested when I signed the engagement agreement. Shouldn’t the auditor have known what records he would need before the engagement started?

An auditor should give the agency a list of records and other information he or she needs before the audit begins. However, it is normal for questions to arise during the performance of an audit that make it necessary for the auditor to obtain information that wasn't on the original list. The agency should provide the CPA with the additional records he or she requests in a timely manner.

The CPA is asking me to make adjustments to the financial statements that I don’t want to make. What will happen if I don’t make these adjustments?

The CPA “owns” five components of an agency’s annual financial report –

• The auditor’s opinion; or the accountant’s review or compilation report
• The Independent Auditor’s Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards (Yellow Book report), which is included with an agency’s audit report If the audit is performed under Government Auditing Standards. This is the report in which the auditor summarizes the results of his/her tests of laws and regulations material to the financial statements and internal control over financial reporting. A comparable document in a review/attestation engagement is the independent accountant’s report on applying agreed-upon procedures.
• The Independent Auditor’s Report on Compliance for Each Major Program and On Internal Control Over Compliance Required by the Uniform Guidance (Single Audit Report), which is included with an agency’s annual financial report if the agency expended $750,000 or more in federal funds during their fiscal year. This is the report in which the auditor summarizes the results of his/her tests over federal programs.
• The Schedule of Current Year Findings or Schedule of Findings and Questioned Costs related to findings in the Yellow Book report, Single Audit report, or agreed-upon procedures report
• Management letter and comments related to less material findings that the CPA feels need to be brought to the attention of the agency

The agency owns the rest of the information in its annual financial report. If the agency does not want to make the changes the CPA is proposing to its financial statements it certainly may; but it needs to understand that the CPA may not be able to render a clean auditor’s opinion as a result. In a review/attestation or compilation engagement, the CPA may need to note in the or accountant’s review or compilation report that the agency did not make the proposed adjustments; or may need to withdraw from the engagement altogether. LLA may also ask the CPA to prepare a finding or management letter comment if the agency’s refusal to make an adjustment causes its financial statements not to be in accordance with generally accepted accounting principles.

I don’t agree with a finding the CPA wants to include in my agency’s report. I want him to remove it. Will LLA back me up?

The CPA who performed your agency’s audit, not LLA, performed and evaluated the results of those tests that led to the findings in your agency’s report. For this reason, and for the reasons in the Q&A above, LLA generally will not override a CPA’s professional judgment regarding the findings he or she feels need to be included in a report.

The CPA who performed our agency’s audit said he will be rendering a disclaimer of opinion on our financial statements. I want him to change the opinion to a clean opinion. Will LLA back me up?

The CPA who performed your agency’s audit, not LLA, performed and evaluated the results of those tests that led to the opinion in your agency’s report. For this reason, and for the reasons in the Q&A above, LLA generally will not override a CPA’s professional judgment regarding the opinion he or she feels should be rendered on an agency’s financial statements.

I gave the CPA everything he has requested to complete the audit weeks ago, and he said the report is finished. However, the CPA has not submitted it to LLA. The due date of the report is next week. What should I do?

Call the CPA to verify that he actually does have all of the information needed to finish the audit and submit the report to LLA. If the CPA has all of the information and appears to be unnecessarily holding up the submission of the report to LLA, please call LLA’s Engagement Manager.

We do not want to hire our agency’s prior year CPA firm to perform our next audit. We have not signed a contract with them for the current year. Do we need to notify LLA if we want to change auditors?

A local auditee is generally free to change auditors. When the engagement approval form is submitted to LLA by the new auditor, LLA staff will contact the local auditee and the prior CPA firm to determine the reason for the change in auditors. LLA does this to ensure that the agency is not “opinion shopping,” or hiring a new auditor because the agency did not like the prior auditor’s opinion or findings.

I am a member of the board of a local government that reports to LLA. A misappropriation of funds occurred during the last fiscal year that was not caught by the auditor. I am sure that the auditor is not doing his job during the performance of his annual audit, and I want LLA to perform the audit. How may I request this?

Please refer to the document What is An Audit? There may be legitimate reasons that an auditor did not detect the misappropriation of funds during the course of the audit. An agency may request that LLA perform its annual audit, but due to staffing constraints, LLA may be unable to comply with the request.

We do not want to hire our agency’s prior year CPA firm to perform our next audit. Because of a dispute over the fees, we have not paid them in full. Will it be a problem for us to hire a new CPA firm?

CPA firms are entitled to be paid for the work they have performed. One of the questions LLA asks the prior CPA firm when there is a change of CPA is whether they have been paid in full for the prior audit. LLA will not approve a new CPA firm for the current year audit if the prior CPA firm has not been paid, and a payment plan or waiver of fees has not been worked out between the local auditee and the prior CPA firm.

We do not want to retain our prior year CPA firm to perform our agency’s next audit, but we have a contract with them for one more year. What do we do?

An engagement agreement is a legally binding contract. LLA will not cancel an engagement agreement upon the unilateral request of a local auditee, except when there are extenuating circumstances, such as non-performance of the engagement by the CPA firm. If a local auditee wishes to cancel the engagement agreement, they should meet with the CPA firm to determine if this is acceptable to them. If the CPA firm does not wish to cancel the engagement, it is recommended that the local auditee consult with their legal counsel. See also Cancelling An Engagement.

We are happy with our CPA firm’s audit work, but not with the fees they charge. What is our recourse?

A local auditee should not sign an engagement agreement with a firm if the engagement agreement does not include a not-to-exceed amount. The engagement agreement should also contain a provision that any additional fees will be agreed to, in writing, by the local auditee and the CPA firm, before the additional work is performed. This protects both parties to the engagement.

LLA will not normally intrude upon the fee arrangements between a local auditee and their CPA firm. The local auditee should contact the CPA firm directly to discuss any questions about their fee arrangements.

If the local auditee feels the CPA firm is charging too much for the audit, the local auditee should ask the CPA firm if there is assistance that the agency may provide to the CPA firm during the course of the engagement that would reduce the audit fee. The agency may also wish to contact other agencies of similar size to determine whether the fee their auditor is charging is unreasonably high.

A local auditee should keep in mind that an inexpensive audit is not necessarily a bargain. An auditor who charges more may also be giving the agency valuable advice regarding its operations during the course of the audit.

If after following these steps the local auditee still feels that the auditor charges too much, the agency is always free to engage another CPA firm to perform their audit in subsequent years.