8.5.1 Audited Financial Statements

A public agency’s audited financial statements are the foundational disclosure concerning its financial condition. Financial statements are provided to the market as statements by the public agency when included in an OS or an annual continuing disclosure report. Financial statements must be prepared and audited in accordance with the highest accounting standards.

From a securities law perspective, audited financial statements contain inherent risks:

Financial statements include qualitative as well as quantitative information, especially the interpretations in the management’s discussion and analysis. A public agency should have its audited financial statements reviewed by its financial and legal team for statements that may be incorrectly read or improperly relied upon by securities market participants.
Financial statements are not the complete story. Although they are generally an important component of an issuer’s disclosure to investors, it is rare that the issuer’s audited financial statements contain all of the information required to make an informed investment decision. Issuers providing financial statements to the market must determine what additional information is necessary to provide a full picture.
Balance sheets address a situation on a historical date and revenue statements address activity during a historical period. An issuer providing audited financial statements must determine whether balance sheets and revenue statements must be accompanied by more current information to avoid being misleading. Material developments since the end of the period covered by the financial statements could indicate a weakening of the issuer’s financial position (e.g., closure of a facility owned by a major tax payer; a major carrier withdrawing from an airport).