Scottsdale annual independent audit defines new asset assumptions

The Scottsdale City Council unanimously approved the fiscal year 2015-16 annual financial audit at its Nov. 28 regular meeting.

The City Charter directs council to designate certified public accountants to perform an independent audit of the city’s annual financial statements. The city’s external auditing firm was Heinfeld, Meech & Co., P.C.

Previously, the city’s audit committee received the fiscal year 2015-16 annual financial audit reports at its Nov. 14 meeting, and recommended the city council accepts the reports in a 3-0 vote. The audit committee meets with the CPA at the beginning and end of the audit period.

“Your agenda materials for this item are about 450 pages of auditor reports,” said City Auditor Sharron Walker during her presentation to the council.

The audit covers eight entities: the city and its seven component units, which includes five community facilities districts, the municipal property corp. and the Scottsdale Preserve Authority.

“For each of these entities, there are two types of reports: the opinion on the financial statements and reports on financial related controls and compliance,” said Ms. Walker.

In order for the city to meet its federal funding requirements, the CPA firm also reports on the city’s expenditures of federal assistance, known as a “single audit” report, according to the city staff report.

Additionally, to meet certain state funding requirements, the CPA firm reports on the city’s compliance with its Highway User Revenue Fund uses, the report stated.

“The audit firm reported what is commonly referred to as a clean opinion, and that means that the financial statements are fairly presented in all material respects,” said Ms. Walker.

One item of note, said Ms. Walker, was a “change in accounting principal” paragraph that the city adopted a newly applicable accounting standard related to the fair value measure of investments.

“This new standard, the changes related to the valuation technique for reporting investments that was a required standard, and so it did not modify the auditor’s opinion,” she explained.

Additionally, the CPA firm’s communication with governance letter for the comprehensive annual financial report summarizes significant changes in accounting practices, which in addition to the newly applicable accounting standard included a $666.6 million prior period adjustment, the staff report stated.

Prior to June 30, 2006, when developers dedicated streets to the city, the entire value was recorded as a street — a depreciable asset — rather than separating out the value of the underlying land (a non-depreciable asset), the staff report states.

This prior period adjustment corrected the valuation categories and removed the prior years’ depreciation on the land value, increasing the capital assets value by $666.6 million.

“At that time, there was an accounting change that occurred and the accounting staff made the decision to apply that prospectively, and this past year the accounting staff did the research necessary to go back and correct those earlier valuations,” Ms. Walker said.

The governance letter also describes sensitive accounting estimates, which the firm found reasonable and makes other required disclosures. This letter does not identify any matters of concern.

The CPA firm provided a management letter to share opportunities for improving controls where the noted issues were not considered significant enough to be included in the formal reports, the report stated.

The three areas noted for improvement were supervisory review of voided cash transactions, recording a construction retainage liability and updating disclosures for an operating lease.

Councilwoman Suzanne Klapp made a motion to approve the audit report. It passed 7-0.

Northeast Valley News Editor Melissa Rosequist can be e-mailed at or can be followed on Twitter at

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