Tilting at Windmills? The Quest to Improve Financial Reports of Indiana’s Local Governments

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Abstract

This field study assesses the financial reports and associated audits of two local governments in Indiana, a county and a special district, from 1991 to 2012. This study finds a gradual deterioration away from generally accepted accounting principles (GAAP) and an accompanying deterioration in the audit opinions issued on the financial reports. The unfavorable audit opinions were often based on the definition of the reporting entity rather than choice of specific accounting methods. The situation revealed in this study raises two fundamental question: Do audits of these local governments matter? And, Do GASB standards on the reporting entity confuse even well-meaning officials who seek to comply with the standards?
The most recent audit reports for both entities include contrasting audit opinions: auditors issued an Adverse opinion and an Unqualified opinion on the same report. These contrasting opinions reflect the dilemma facing auditors in a state that encourages local governments to report on a non-GAAP basis. Recommendations include changing state policy to require local governments to report their financial information according to GAAP as established by GASB. Without such reform, auditors and other officials who seek to improve financial reporting of local entities will simply be tilting at windmills.

Author

• Larita J Killian, Indiana University - Purdue University - Columbus