City Exempt from Generally Accepted A...

City Exempt from Generally Accepted Accounting Principles

Posted in the Independence Forum

oh my

Parsons, KS

#1 Apr 27, 2012
Check out the agenda for the April 25 city commission meeting. On the consent agenda (no action necessary by commission) their was mention of a resolution to exempt the city from using Generally Accepted Accounting Principles. Isn't it necessary for an audit,etc.,to use them? See what the Reporter has about it tonight,if they even report it.

Since: Oct 10

Independence, Kansas

#2 Apr 27, 2012
oh my wrote:
Check out the agenda for the April 25 city commission meeting. On the consent agenda (no action necessary by commission) their was mention of a resolution to exempt the city from using Generally Accepted Accounting Principles. Isn't it necessary for an audit,etc.,to use them? See what the Reporter has about it tonight,if they even report it.
The city commission adopts such a resolution every year as a routine measure and has for many years.

The City's books can still be audited, but some of the accounting principles used aren't the most recent rulings used by accountants.

This resolution won't change the way things are done and it won't affect the transparency of City business. If there are discrepancies in the City books, a competent auditor should be able to point them out and recommend corrective actions so that errors don't occur again.
Watchdog

Princeton, KS

#3 Apr 27, 2012
Indy_Dick wrote:
<quoted text>The city commission adopts such a resolution every year as a routine measure and has for many years.
The City's books can still be audited, but some of the accounting principles used aren't the most recent rulings used by accountants.
This resolution won't change the way things are done and it won't affect the transparency of City business. If there are discrepancies in the City books, a competent auditor should be able to point them out and recommend corrective actions so that errors don't occur again.
At last night's commission meeting, an individual addressed one key concern of the City's not adopting GAAP. Even though her concern should have been a great concern for everyone, the folks at the front table seemed either to know little about it, or not care. Perhaps the entities most interested in a city's participation in GAAP are bond rating companies. If a city wants to issue bonds, those companies check the city's financial condition and then determine a bond rating for the bonds. The better the city's financial condition, the better the city may come out with the interest rates associated with those bonds; the worse the city's financial condition, the poorer the city may come out on the interest rate associated with those bonds. When one of these bond rating companies sees that a city is not conducting its business via GAAP standards, the end result may be that the city may receive unfavorable interest rates for its bonds. The other point the lady made last night that largely went ignored was since the interest rate associated with the City's bonds may already have been negatively impacted by Standard and Poor's downgrade of the City, the GAAP exemption may serve to intensify that problem. From the reaction of members of the board, I got the impression no one had ever looked at the impact NOT participating in GAAP may have on interest rates. If so, they need to take that measure: on a large issue, of long-term bonds, one-fourth of a difference in the interest rate may cost taxpayers far more than GAAP-related expenses.

Since: Oct 10

Independence, Kansas

#4 Apr 27, 2012
Watchdog wrote:
<quoted text>
At last night's commission meeting, an individual addressed one key concern of the City's not adopting GAAP. Even though her concern should have been a great concern for everyone, the folks at the front table seemed either to know little about it, or not care. Perhaps the entities most interested in a city's participation in GAAP are bond rating companies. If a city wants to issue bonds, those companies check the city's financial condition and then determine a bond rating for the bonds. The better the city's financial condition, the better the city may come out with the interest rates associated with those bonds; the worse the city's financial condition, the poorer the city may come out on the interest rate associated with those bonds. When one of these bond rating companies sees that a city is not conducting its business via GAAP standards, the end result may be that the city may receive unfavorable interest rates for its bonds. The other point the lady made last night that largely went ignored was since the interest rate associated with the City's bonds may already have been negatively impacted by Standard and Poor's downgrade of the City, the GAAP exemption may serve to intensify that problem. From the reaction of members of the board, I got the impression no one had ever looked at the impact NOT participating in GAAP may have on interest rates. If so, they need to take that measure: on a large issue, of long-term bonds, one-fourth of a difference in the interest rate may cost taxpayers far more than GAAP-related expenses.
Because the City chooses to expempt itself from the GAAP an auditor may not be able to render an unqualified opinion.

You bring up an interesting point and one that should be addressed if an opinion affected by not adopting GAAP would or does negatively cause rating concerns to lower a bond rating for the City. This raises financing costs for the City.

Thank you for bringing this up.

I would like to know what line of reasoning that is used for the argument NOT to adopt GAAP.

Since: Mar 09

Wichita, KS

#5 Apr 27, 2012
Indy_Dick wrote:
<quoted text>Because the City chooses to expempt itself from the GAAP an auditor may not be able to render an unqualified opinion.

You bring up an interesting point and one that should be addressed if an opinion affected by not adopting GAAP would or does negatively cause rating concerns to lower a bond rating for the City. This raises financing costs for the City.

Thank you for bringing this up.

I would like to know what line of reasoning that is used for the argument NOT to adopt GAAP.
So that they don't have to book assets like the value of water lines, value of streets, tools in the city barn, etc. It would be an expensive undertaking to do that every year with no benefit to the taxpayers or those managing the city government.

I've looked at scores of municipal audits and they are all done that way. It has no impact whatsoever on bond ratings. That is driven primarily by overall debt, debt service requirements, and the valuation within the taxing district.

Since: Oct 10

Independence, Kansas

#6 Apr 27, 2012
Hypocrite Radar wrote:
<quoted text>
So that they don't have to book assets like the value of water lines, value of streets, tools in the city barn, etc. It would be an expensive undertaking to do that every year with no benefit to the taxpayers or those managing the city government.
I've looked at scores of municipal audits and they are all done that way. It has no impact whatsoever on bond ratings. That is driven primarily by overall debt, debt service requirements, and the valuation within the taxing district.
That would also make sense in the case of Independence because the water lines and sreeets are mostly worn out anyway so they have no "value".

Just kidding, but thanks for the explanation; it helps to understand things like that.

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