HomeMy WebLinkAbout08-ATTACHMENT 2 (MANAGEMENT LETTER)Attachment No. 2
Management Letter
To the Honorable Mayor and
Members of the City Council
City of Tustin
Tustin, California
We have audited the financial statements of the governmental activities, business -type activities, each
major fund, and aggregate remaining fund information of the City of Tustin (the City) for the year
ended June 30, 2014. Professional standards require that we provide you with information about our
responsibilities under generally accepted auditing standards as well as certain information related to
the planned scope and timing of our audit. We have communicated such information in our
engagement letter on July 1, 2014 and in our letter on planning matters to you dated June 30, 2014.
Professional standards also require that we communicate to you the following information related to
our audit.
Significant Audit Findings
Qualitative Aspects of Accounting Practices
Management is responsible for the selection and use of appropriate accounting policies. The significant
accounting policies used by the City are described in Note 1 to the financial statements. No new
accounting policies were adopted and the application of existing policies was not changed for the year
ended June 30, 2014. We noted no transactions entered into by the City during the year for which
there is a lack of authoritative guidance or consensus. All significant transactions have been recognized
in the financial statements in the proper period.
Accounting estimates are an integral part of the financial statements prepared by management and are
based on management's knowledge and experience about past and current events and assumptions
about future events. Certain accounting estimates are particularly sensitive because of their
significance to the financial statements and because of the possibility that future events affecting them
may differ significantly from those expected. The most sensitive estimates affecting the City's
financial statements are as follows:
a. Management's estimate of the fair market value of investments is based on market
values provided by outside sources.
b. Management's estimate of the value of capital assets (infrastructure assets) is based on
industry standards.
c. The estimated useful lives of capital assets for depreciation purposes are based on
industry standards.
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2875 Michelle Drive, Suite 300, Irvine, CA 92606 • Tel: 714.978.1300 • Fax: 714.978.7893
Offices located in Orange and San Diego Counties
Significant Audit Findings (Continued)
Qualitative Aspects of Accounting Practices (Continued)
Sensitive Estimates (Continued)
d. The funded status and funding progress of the public defined benefit plan with
Ca1PERS which are based on actuarial valuations.
e. The annual required contribution and actuarial accrued liability for the City's Other
Post - Employment Benefit Plan is based on certain actuarial assumptions and methods
prepared by an outside consultant.
f. The claims liability for workers' compensation and general liabilities are based on
estimates by the claims administrator.
We evaluated the key factors and assumptions used to develop these estimates in determining that they
were reasonable in relation to the financial statements taken as a whole.
Certain financial statement disclosures are particularly sensitive because of their significance to
financial statement users. The most sensitive disclosures affecting the financial statements were
reported in Note 9 regarding the defined benefit pension plans, Note 10 regarding the City's other
post - employment benefit plan, Note 12 regarding the claims payable, and Note 18 regarding the recent
changes in legislation affecting California Redevelopment Agencies.
The financial statement disclosures are neutral, consistent, and clear.
Difficulties Encountered in Performing the Audit
We encountered no significant difficulties in dealing with management in performing and completing
our audit.
Corrected and Uncorrected Misstatements
Professional standards require us to accumulate all known and likely misstatements identified during
the audit, other than those that are clearly trivial, and communicate them to the appropriate level of
management. Management has corrected all such misstatements. The following material misstatement
as a result of audit procedures was corrected by management:
a. Adjustment to accrue the final reimbursement amount due to Vestar.
Disagreements with Management
For purposes of this letter, a disagreement with management is a financial accounting, reporting, or
auditing matter, whether or not resolved to our satisfaction, that could be significant to the financial
statements or the auditors' report. We are pleased to report that no such disagreements arose during the
course of our audit.
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Significant Audit Findings (Continued)
Management Representations
We have requested certain representations from management that are included in the management
representation letter dated December 15, 2014.
Management Consultations with Other Independent Accountants
In some cases, management may decide to consult with other accountants about auditing and
accounting matters, similar to obtaining a "second opinion" on certain situations. If a consultation
involves application of an accounting principle to the City's financial statements or a determination of
the type of auditor's opinion that may be expressed on those statements, our professional standards
require the consulting accountant to check with us to determine that the consultant has all the relevant
facts. To our knowledge, there were no such consultations with other accountants.
Other Audit Findings or Issues
We generally discuss a variety of matters, including the application of accounting principles and
auditing standards, with management each year prior to retention as the City's auditors. However,
these discussions occurred in the normal course of our professional relationship and our responses
were not a condition to our retention.
Other Matters
We applied certain limited procedures to management's discussion and analysis and schedules of
funding progress, which are required supplementary information (RSI) that supplements the financial
statements. Our procedures consisted of inquiries of management regarding the methods of preparing
the information and comparing the information for consistency with management's responses to our
inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic
financial statements. We did not audit the RSI and do not express an opinion or provide any assurance
on the RSI.
The General Fund budgetary comparison schedule, which is required supplementary information (RSI)
that supplements the financial statements, has been subjected to the auditing procedures applied in the
audit of the basic financial statements and certain additional procedures, including comparing and
reconciling such information directly to the underlying accounting and other records used to prepare
the basic financial statements of the City or to the basic financial statements themselves, and other
additional procedures in accordance with auditing standards generally accepted in the United States of
America.
We were engaged to report on the combining and individual non -major fund financial statements and
schedules (supplementary information), which accompany the financial statements but are not RSI.
With respect to this supplementary information, we made certain inquiries of management and
evaluated the form, content, and methods of preparing the information to determine that the
information complies with accounting principles generally accepted in the United States of America,
the method of preparing it has not changed from the prior period, and the information is appropriate
and complete in relation to our audit of the financial statements. We compared and reconciled the
supplementary information to the underlying accounting records used to prepare the basic financial
statements or to the basic financial statements themselves.
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Other Matters (Continued)
We were not engaged to report on the introductory section and statistical section, which accompany the
financial statements but are not RSL We did not audit or perform other procedures on this other
information and we do not express an opinion or provide any assurance on them.
Restriction on Use
This information is intended solely for the use of the City Council and management of the City of
Tustin and is not intended to be and should not be used by anyone other than these specified parties.
Irvine, California
December 15, 2014