What is in an auditor's opinion?

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A Newsletter by the City of Saco, Maine	January, 2005	Return to newsletter index

Annually, following the completion of the City of Saco's fiscal year end (June 30th), the City is independently audited by a firm of certified public accountants. An audit is a methodical examination of the utilization of resources. An audit is a test of management's accounting system to determine the extent to which internal accounting controls are both available and being used. It concludes with a written report of the certified public accountant's findings, otherwise known as the auditor's opinion.

If an auditor is able to obtain sufficient competent evidential matter, he or she must express an opinion on the financial statements. If the auditor concludes that the financial statements do present fairly financial position and results of operations in conformity with Generally Accepted Accounting Principles (GAAP), he or she expresses and unqualified opinion. An unqualified opinion should be the objective of every government. If the auditor is unable to express an unqualified opinion, he or she will express either an adverse or a qualified opinion depending on the seriousness of the audit exceptions. An adverse opinion is one in which the auditor states that the financial statements do not present fairly financial position and results of operations in conformity with GAAP. A qualified opinion is one in which the auditor states that the financial statements are presented fairly "except for" certain audit exceptions. Reasons for adverse or qualified opinions include the application of accounting policies which are inconsistent with GAAP, inconsistent application of accounting policies from one period to the next, and instances of failure on the part of government officials to take certain required actions. The City of Saco has received an unqualified opinion on their audited financial statements for the last 5 fiscal years. Prior to that, the City received a qualified opinion.

GAAP encompasses the conventions, rules, and procedures necessary to define accepted accounting practice at a particular time. They include not only broad guidelines of general application, but also detailed practices and procedures. They provide a standard by which to measure financial presentations. GAAP provide guidelines for the preparation of external financial statements whose contents are intended to provide sufficient, reliable, and accurate financial information to meet the needs of the range of persons and groups with legitimate interests in the financial affairs of the government. Every government should prepare and publish financial statements in conformity with GAAP. The City of Saco prepares and publishes a Comprehensive Annual Financial Report (CAFR). The CAFR is comprehensive in the depth and breadth of its reporting detail, providing full disclosure even beyond the requirements of GAAP and applicable legal requirements. It is also comprehensive in that it covers all funds of the government and all financial transactions during the year. The contents and method of presentation of the CAFR must be sophisticated enough to prevent incompleteness, inaccuracy, and delays in making the facts available. The City of Saco's CAFR has won a Certificate for Excellence in Financial Reporting from the Governmental Finance Officer's Association of the United States and Canada for the last 3 fiscal years.