Impact of NSW Local Council Investment Exposures on Audit Opinions

Impact of NSW Local Council Investment Exposures on Audit Opinions

The decline in the sub-prime market in the United States of America in 2007 - 2008 and the corresponding decline in the market values of other financial investments has had a significant financial impact on many of the individuals and organisations who participated in aggressively promoted investment schemes. The New South Wales (NSW) Local Government Councils was one such group of organisations impacted by the decline in value of these types of investments. At the end of the 2006-2007 financial year local councils in New South Wales had invested $590 million dollars in structured financial products such as collateralised debt obligations (CDO). By the end of January 2008, six months later, the market value of these investments dropped $200 million (34%) to $390 million. In response to the decreasing value of the local council investments the NSW State Government commissioned a review of the financial exposures of NSW local councils in structured financial products. The review found that while acting within the parameters of the Local Government Act (1993), local councils had pursued high return high risk investment strategies. This paper reviews and evaluates financial investment exposures of the local councils in NSW and the resulting mix (unqualified/qualified) independent audit opinions issued on their general purpose financial reports. This paper will contribute to the literature on the wide spread impact of the 2008 global financial crisis as well as the quality of Local Government council financial report audits.