Office of the Comptroller No Longer Accepting Audits of Local Government Financial Statements Prepared on the Cash Basis of Accounting


Regulatory Update
July 2017

The Illinois Office of the Comptroller recently notified the Illinois CPA Society that the office’s Local Government Division is no longer accepting audits of local government financial statements prepared on the cash basis of accounting. 

Units of local government that have submitted audited financial statements prepared on the cash basis of accounting will be notified by the Comptroller’s Local Government Division that the submitted audits are not in compliance with Illinois law, but will be accepted and posted on the Comptroller’s Warehouse website with a notation that the audits are not in compliance.  Attached is a notification letter from the Comptroller’s Office that is in the public domain for background on this issue. (Note:  Annual Financial Reports that qualify for submission on the Comptroller's provided forms without an audit do not need to be GAAP compliant.)

The basis of the Comptroller’s change in practice is their interpretation of the Contents of the Audit Report sections of the Local Government Audit Act, Counties Code and Municipal Code and the reference to “[g]enerally accepted accounting principles” (GAAP).  Even though the statute permits an auditor to plan and perform his or her audit on a set of financial statements prepared on either an accrual or cash basis of accounting, it is the Comptroller’s Office position that the reference to GAAP in the statutes requires units of local governments to prepare their financial statements in accordance with GAAP in all instances, including adoption of GASB Statement No. 34.  
  
The Illinois CPA Society Government Relations Office has expressed concern to the Comptroller’s staff over the retroactive change in practice and the lack of timely notice to units of local governments and their respective auditors.  Additionally, the Society’s Government Executive Committee has provided feedback to the Comptroller’s staff on the technical and practical steps and impact of converting from a cash basis of accounting to an accrual basis of accounting. There are legal issues with the Comptroller's statutory interpretation of the applicable audit statutes. The Chair of  House Cities & Villages Committee has requested an official opinion from the Illinois Attorney General's Office on the Comptroller's authority with regards to local government audits.  

The Illinois CPA Society Government Relations Office will continue working with the Comptroller’s Office and other stakeholder organizations on this issue and to minimize the impact on units of local government.

If you would like to receive updates on our progress with the Comptroller’s Office, please contact the government relations office at governmentrelations@icpas.org to be added to the special issue email distribution roster.