By Attorney Kristin Cooper
If you have the opportunity to visit the Moody's website, you will see that they monitor everything from trade tensions to Coronavirus. Rating systems constantly evolve to appropriately monitor and report on credit risk, including that of municipal bonds. To further refine its rating methodology, Moody's has announced a new requirement for local government audits beginning with issuers whose fiscal year ends on or after December 31, 2019. After this date, Moody's will only consider a financial statement audited if the opinion letter is signed. Submitting financial statements with an unsigned Independent Auditor's Report will cause the financial statements to be deemed unaudited. Moody's views unaudited financials as potentially insufficient because of the lack of third-party verified data to support their rating.
The ramifications of having an unsigned audit could be severe for local government entities. Each year Moody's reviews all ratings to determine whether updated financial information contained within the audit supports the current rating. If a signed audit is not available within 18 months after the end of the fiscal year, a rating committee may be convened to determine whether the rating should be withdrawn. This mirrors the standard set by the American Institute of Certified Public Accountants, who require the manual or printed signature of the audit firm. For future audits issuers should verify that their audit contains the signature of the auditor.
If you have questions, please contact disclosure counsel, bond counsel, or your municipal advisor.
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