Are Users of Government Financial Statements Well Served By Existing Financial Reporting and Auditing Standards: A Case Study

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In 2004, City of Gardena was unable to meet its obligations on $26 million in debt. The authors examined City of Gardena financial reporting as of June 30, 2004 and 2003 to determine if the publicly available financial reports adequately disclosed the situation. Information about the long-term debt was properly displayed in the financial statements and disclosed in notes. There was no mention of the situation in the MD&A either year. The auditors’ did not include an explanatory paragraph highlighting the debt, nor did they issue a ‘substantial doubt about the ability to continue to exist as a going concern’ report. This paper examines existing accounting and auditing standards to determine their adequacy to protect the public interest.