Report to the Ohio Department of Transportation

REPORT TO THE OHIO DEPARTMENT OF TRANSPORTATION

Prepared by Ray G. Stephens, Ohio Center for Professional Accountancy December 13, 2007

It is understood that the requirements concerning the reports and attestations currently required by the Department of Transportation (“ODOT”) under Administrative Rules Sections 5501:2-3-02(B) and (C) were prepared prior to certain changes in auditing and review standards that have occurred since the year 2000.

The issues to be addressed here are:

First, the currently required reports under Sections 5501:2-3-02(B) and (C) do not address the differences between review or audit reports for (1) a single entity report, (2) an entity where the only required consolidation is under Financial Accounting Standards Board Interpretation 46(R) (“FIN 46R”), (3) an entity which is the parent entity under Financial Accounting Standards Board Statement of Financial Accounting Standards No. 141 (“SFAS 141”), and (4) an entity which is a subsidiary entity under SFAS 141 or FIN 46R.

Second, the currently required reports do not provide for the different professional requirements which apply to the (a) financial statements, (b) the consolidating financial statement when required by ODOT, and (c) supplementary information beyond the consolidating financial statement required by ODOT. The standards for consolidating financial statements and other information in documents containing audited financial statements were revised in 2002.

Third, the currently applicable review and auditing standards differ for different types of entities. The currently applicable review standards also differ between issuers (company’s required to provide information to the Securities and Exchange Commission – in older terminology this was call publicly-held entities) and non-issuers (in older terminology this was call non-public or privately-held entities). The reason is that issuers always require an audit and reviews are only for interim statements for issuers. Thus, issuers would not be able to provide review reports except on an interim basis. Interim financial statements do not appear to be what is desired by ODOT, but the current analysis provides for situations where ODOT allows interim statements. The currently applicable auditing standards also differ between issuers (where the standards are set by the Public Company Accounting Oversight Board (“PCAOB”)) and non-issuers (where the standards are set by the Auditing Standards Board (“ASB”)). The standards were exactly the same when the PCAOB came into existence in 2002 with the passage of the Sarbanes-Oxley Act, but differences now exist as the two standard setters address different issues both in the performance and reporting for audits and in applicable independence standards. These differences are not such that there would be an impact under Administrative Rules Sections 5501:2-3-02(B) and (C) except in the reports.

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Review Reports

A review report on the financial statements of a non-issuer1, a subsidiary of an issuer which is not itself an issuer,2 or an issuer3 for either a single company or a company whose only consolidation is only under FIN 46R does not require under existing generally accepted accounting principles (GAAP) a consolidating statement. A review report must contain the disclosures required by GAAP or provide a GAAP exception, which should not be acceptable to the Ohio Department of Transportation. GAAP requires a note to the financial statements which already provides the same relevant information that would be available from a consolidating statement when the consolidation is under FIN 46R.

GAAP requires that the only general purpose financial statement for a parent company is the consolidated financial statement under SFAS 94. A review report on the consolidated financial statements where consolidation is required by GAAP under SFAS 1414 does not require a consolidating statement under GAAP. Under review standards, the consolidating financial statement required due to ODOT Administrative rules is treated as supplementary financial information. However, the materiality for the consolidating financial information is the materiality of the consolidated statement, not the materiality of any consolidated entity.

A review report on a subsidiary included in a set of consolidated financial statements under either SFAS 141 or FIN 46R can be prepared. The materiality for the subsidiary is the materiality of the consolidated statements unless a separate reporting engagement on the subsidiary exists. GAAP allows a separate financial statement for a subsidiary to be prepared where the materiality of the subsidiary is used when a separate review reporting engagement is undertaken.

A review report already contains the information in the second sentence of the report pursuant to Section 5501:2-3-02(B) and while this is redundant, it should not create an issue since it is already required by Statements of Standards for Accounting and Review Services (“SSARS”) No. 1 codified as AR 100.35.

The remainder of the ODOT required “Report of Independent Accountant – Review of Financial Statements” is a report on supplemental information under current review standards. Rather than requiring the information within the ODOT wording, it is suggested that ODOT require a separate review report on supplemental information to cover any required consolidating statement and supplemental schedules. This would eliminate any confusion about the accountant’s relationship, procedures performed, and 1 The applicable standard is SSARS No. 1 as revised. 2 SSARS Interpretation No. 27 permits applying SSARS rather than SAS in this situation. 3 Auditing Codification Section AU 722 is applicable for reviews where the auditor performs the review. This could be used for issuers if ODOT is willing to accept interim financial information. 4 This also applies to situations where consolidation includes subsidiary information where both SFAS 141 and FIN 46R consolidation is required. Report to Ohio Department of Transportation December 13, 2007 Page 3 of 18 responsibility for the consolidating statement and other supplemental schedules that are submitted as part of the Qualification Application. Further, it would not created wording issues in the ODOT report if future changes in SSARS or SAS take place since these would not create a change in the review reports but only in the report forwarded.

In effect, the ODOT review report would be a report by the independent accountant forwarding the review report in the financial statements, indicating the type of entity being reported, and a report by the independent accountant forwarding the review report on the supplemental information. The review report on the supplementary information would be restricted by the independent accountant to ODOT under SSARS Codification AR 100.49 to 100.52 (especially the latter paragraph) and Auditing Codification Section AU 532. Sample review reports are included in Appendix A for each of the two situations below.

Situation 1

The suggested “Report of Independent Accountant – Review of Financial Statements” for non-issuers or subsidiaries of issuers which are not issuers would read: 5

Our review report in accordance with Statements on Standards for Accounting and Review Services dated ______on the review of the ______financial statements of ______as of ______and for the ______then ended is included with this Qualification Application.

The entity is (check applicable):

_____ Entity where no consolidation is required (includes entities which are subisidiaries where a separate review engagement is performed). _____ Entity where consolidation only under FASB Interpretation 46R is required. _____Entity where consolidation under SFAS 141 is required (includes entities with both SFAS 141 and FIN 46R is required). A consolidating statement is required. _____ Entity is a subsidiary in a consolidated statement. A consolidating statement is required.

Our review report in accordance with Statements on Standards for Accounting and Review Services on the supplementary information on pages 15-20 of dated ______required for the purposes of the Qualification Application is included with this Qualification Application.

5 This removes the two redundant sentences currently in the report by referring to SSARS in the body of the report. It also adds a blank to allow inserting “consolidated” where applicable before financial statements. Report to Ohio Department of Transportation December 13, 2007 Page 4 of 18

Situation 2

The suggested “Report of Independent Accountant – Review of Financial Statements” for issuers would read: 6

Our review report in accordance with Standards of the Public Company Accounting Oversight Board dated ______on the review of the ______financial statements of ______as of ______and for the ______then ended is included with this Qualification Application.

Our review report in accordance with Standards of the Public Company Accounting Oversight Board on the supplementary information on pages 15-20 of dated ______required for the purposes of the Qualification Application is included with this Qualification Application.

Audit reports

An audit report on the financial statements for either a single company or a company whose only consolidation is only under FIN 46R does not require under existing generally accepted accounting principles (GAAP) a consolidating statement. An audit report must contain the disclosures required by GAAP or provide a GAAP exception, which should not be acceptable to the Ohio Department of Transportation. GAAP requires a note to the financial statements which already provides the same relevant information that would be available from a consolidating statement when the consolidation is under FIN 46R.

6 This presumes that ODOT would accept interim statements for issuers. It also means that the independent accountant would issue a review report under the auditing standard of the Public Company Accounting Oversight Board rather than simply performing the interim statement review. This removes the two redundant sentences currently in the report by referring to applicable auditing standards in the body of the report. Report to Ohio Department of Transportation December 13, 2007 Page 5 of 18

GAAP requires that the only general purpose financial statement for a parent company is the consolidated financial statement under SFAS 94. An audit report on the consolidated financial statements where consolidation is under SFAS 1417 does not require a consolidating statement. Under auditing standards, the consolidating financial statement required due to ODOT Administrative rules is treated as a special type of supplementary financial information under Auditing Codification AU 551.18-19 (adopted as interim standards by the PCAOB). However, the materiality for the consolidating financial information is the materiality of the consolidated statement, not the materiality of any consolidated entity unless an additional engagement is undertaken in accordance with Auditing Codification AU 551.20.

An audit report on a subsidiary included in a set of consolidated financial statements under either SFAS 141 or FIN 46R can be prepared. The materiality for the subsidiary is the materiality of the consolidated statements unless a separate reporting engagement on the subsidiary exists (Auditing Codification AU 551.18-.20).

The other supplementary information required by ODOT in the Qualification Application is covered under Auditing Codification AU 550.07 with reporting contained in AU 551.14 with a particular modification that would make it clear that only analytical procedures and inquiry were performed very similar to the wording in AU 551.15.

Suggested wording would be:

The supplementary information on pages 15-20 is not a required part of the basic financial statements but is supplementary information prepared by management and required by the Ohio Department of Transportation. We have applied certain limited procedures, which consisted of analytical review and inquiries of management, regarding the methods of measurement and presentation of the supplementary information. We are not aware of any material modifications that should be made thereto for such information to be in conformity with accounting principles generally acceptable in the United States of America when considered in relation to the Balance Sheet taken as a whole. However, we did not audit the supplementary information and express no opinion on it.

The paragraph on the consolidating information from AU 551.19, when applicable, would be added to the audit report. The review report would be a restricted use report by the auditor under AU 532.

The changes here clearly separate standards for audits from standards for reviews and state clearly the responsibility of the auditor in accordance with applicable standards. In effect, the ODOT audit report would be a report by the independent accountant forwarding the review report in the financial statements, indicating the type of entity being reported, and a report by the independent accountant forwarding the review report

7 This also applies to situations where consolidation includes subsidiary information where both SFAS 141 and FIN 46R consolidation is required. Report to Ohio Department of Transportation December 13, 2007 Page 6 of 18 on the supplemental information. The review report on the supplementary information would be restricted by the independent accountant to ODOT under Auditing Codification Section AU 532 (adopted as interim standards by the PCAOB). Sample audit and review reports are included in Appendix B for each of the two situations below.

Situation 3

The suggested “Report of Independent Accountant – Audit of Financial Statements” for non-issuers would read:

Our audit report in accordance with Statements on Auditing Standards dated ______on the audit of the ______financial statements of ______as of ______and for the ______then ended is included with this Qualification Application.

Our review report in accordance with Standards on Auditing Standards on the supplementary information on pages 15-20 of dated ______required for the purposes of the Qualification Application is included with this Qualification Application. Report to Ohio Department of Transportation December 13, 2007 Page 7 of 18

Situation 4

The suggested “Report of Independent Accountant – Audit of Financial Statements” for issuers would read:

Our audit report in accordance with Standards of the Public Company Accounting Oversight Board dated ______on the audit of the ______financial statements of ______as of ______and for the ______then ended is included with this Qualification Application.

Our review report in accordance with Standards of the Public Company Accounting Oversight Board on the supplementary information on pages 15-20 of dated ______required for the purposes of the Qualification Application is included with this Qualification Application.

Summary

This report to the Ohio Department of Transportation provides reporting standards to meet the Ohio Department of Transportation Administrative Rules that meet the current standards for review and audit reports affecting certified public accountants. This report was prepared by the Ohio Center for Professional Accountancy at the request of the Accountancy Board of Ohio. Personnel of the Accountancy Board of Ohio and the Ohio Center for Professional Accountancy stand ready to meet with the Ohio Department of Transportation concerning issues raised in this report and suggested changes in the Ohio Department of Transportation reports for the Qualification Questionnaire and reports thereunder. Report to Ohio Department of Transportation December 13, 2007 Page 8 of 18

APPENDIX A

Situation 1

Language for Report on Financial Statements:

Board of Directors Company Name Address

We have reviewed the accompanying balance sheet of ______as of ______, and the related statements of income and retained earnings and cash flows for the year then ended, in accordance with Statements on Standards for Accounting and Review Services issued by the American Institute of Certified Public Accountants. All information included in these financial statements is the representation of the management of ______.

A review consists principally of inquiries of Company personnel and analytical procedures applied to financial data. It is substantially less in scope than an audit in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our review, we are not aware of any material modifications that should be made to the accompanying financial statements in order for them to be in conformity with generally accepted accounting principles.

/s/Independent Accountant

Date Report to Ohio Department of Transportation December 13, 2007 Page 9 of 18

Appendix A (continued) Situation 1 (continued)

Language for Report on Supplementary Information required by ODOT where no consolidating financial statement is included:

Our report on our review of the basic financial statements of ______for ______and for the ______then ended has been included with the material submitted with this Qualification Application. That review was made for the purpose of expressing limited assurance that there are no material modifications that should be made to the financial statements in order for them to be in conformity with generally accepted accounting principles. The information included on pages 15-20 of the Qualification Application is presented only for supplementary analysis purposes. Such information has been subjected to the inquiry and analytical procedures applied in the review of the basic financial statements, and we are not aware of any material modifications that should be made thereto.

This report is intended solely for the information and use of the board of directors of ______and the Ohio Department of Transportation and should not be used for any other purpose. The restriction is not intended to limit the distribution of this report, which is a matter of public record.

Language for Report on Supplementary Information required by ODOT where consolidating financial statement is included:

Our report on our review of the basic financial statements of ______for ______and for the ______then ended has been included with the material submitted with this Qualification Application. That review was made for the purpose of expressing limited assurance that there are no material modifications that should be made to the financial statements in order for them to be in conformity with generally accepted accounting principles. The consolidating financial statements and the information included on pages 15-20 of the Qualification Application is presented only for supplementary analysis purposes. Such information has been subjected to the inquiry and analytical procedures applied in the review of the basic financial statements, and we are not aware of any material modifications that should be made thereto.

Appendix A (continued)

Situation 2

Language for Report on Financial Statements:

We have reviewed the accompanying balance sheet of ______as of ______, and the related statements of income and retained earnings and cash flows for the year then ended, in accordance with Standards of the Public Company Accounting Oversight Board (United States). All information included in these financial statements is the representation of the management of ______.

A review consists principally of inquiries of Company personnel and analytical procedures applied to financial data. It is substantially less in scope than an audit in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our review, we are not aware of any material modifications that should be made to the accompanying financial statements in order for them to be in conformity with generally accepted accounting principles.

Language for Report on Supplementary Information required where consolidated financial statements are not included:

Our report on our review of the basic financial statements of ______for ______and for the ______then ended has been included with the material submitted with this Qualification Application. That review was made for the purpose of expressing limited assurance that there are no material modifications that should be made to the financial statements in order for them to be in conformity with generally accepted accounting principles. The supplementary information on pages 15-20 is not a required part of the basic financial statements but is supplementary information prepared by management and required by the Ohio Department of Transportation. We have applied certain limited procedures, which consisted of analytical review and inquiries of management, regarding the methods of measurement and presentation of the supplementary information. We are not aware of any material modifications that should be made thereto for such information to be in conformity with accounting principles generally acceptable in the United States of America when considered in relation to the Balance Sheet taken as a whole. However, we did not audit the supplementary information and express no opinion on it.

Language for Report on Supplementary Information required where consolidated financial statements are included:

Board of Directors, Company Name, and Address

Our report on our review of the basic financial statements of ______for ______and for the ______then ended has been included with the material submitted with this Qualification Application. That review was made for the purpose of expressing limited assurance that there are no material modifications that should be made to the financial statements in order for them to be in conformity with generally accepted accounting principles.

The consolidating information is presented for purposes of additional analysis of the financial statements rather to present the financial position, results of operations, and cash flows of the individual companies. We have applied certain limited procedures, which consisted of analytical review and inquiries of management, regarding the methods of measurement and presentation of the consolidating information. We are not aware of any material modifications that should be made thereto for such information to be in conformity with accounting principles generally acceptable in the United States of America when considered in relation to the consolidated financial statements taken as a whole. However, we did not audit the supplementary information and express no opinion on it.

The supplementary information on pages 15-20 is not a required part of the basic financial statements but is supplementary information prepared by management and required by the Ohio Department of Transportation. We have applied certain limited procedures, which consisted of analytical review and inquiries of management, regarding the methods of measurement and presentation of the supplementary information. We are not aware of any material modifications that should be made thereto for such information to be in conformity with accounting principles generally acceptable in the United States of America when considered in relation to the Balance Sheet taken as a whole. However, we did not audit the supplementary information and express no opinion on it.

APPENDIX B

Situation 3

Language for report on financial statements where consolidating financial information is not included:

We have audited the accompanying balance sheets of ______as ______, and the related statements of income, retained earnings, and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America. These standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of ______as of ______, and the results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.

Appendix B Situation 3 (continued)

Language for report on financial statements where consolidating financial information is included:

We conducted our audits in accordance with auditing standards generally accepted in the United States of America. These standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

Our audit was conducted for the purpose of forming an opinion on the consolidated financial statements taken a whole. The consolidating information is presented for purposes of additional analysis of the financial statements of the consolidated financial statements rather than to present the financial position, results of operations, and cash flows of the individual companies. The consolidated information has been subjected to the auditing procedures applied in the audit of the consolidated financial statements, and in our opinion, is fairly stated in all material respects in relation to the consolidated financial statements taken as a whole.

Appendix B (continued)

Situation 4

Language for report on financial statements where consolidating financial information is not included:

We conducted our audits in accordance with standards of the Public Company Accounting Oversight Board (United States). These standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

Appendix B Situation 4 (continued)

Language for report on financial statements where consolidating financial information is included:

We conducted our audits in accordance with standards of the Public Company Accounting Oversight Board (United States). These standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

Our audit was conducted for the purpose of forming an opinion on the consolidated financial statements taken a whole. The consolidating information is presented for purposes of additional analysis of the financial statements of the consolidated financial statements rather than to present the financial position, results of operations, and cash flows of the individual companies. The consolidated information has been subjected to the auditing procedures applied in the audit of the consolidated financial statements, and in our opinion, is fairly stated in all material respects in relation to the consolidated financial statements taken as a whole.

Appendix B (continued) Situations 3 and 4

Language for Report on Supplementary Information:8

Our report on our audit of the basic financial statements of ______for ______and for the ______then ended has been included with the material submitted with this Qualification Application. Our audit was conduced for the purpose of forming an opinion on the financial statements taken as a whole. The supplementary information on pages 15-20 is not a required part of the basic financial statements but is supplementary information prepared by management and required by the Ohio Department of Transportation. We have applied certain limited procedures, which consisted of analytical review and inquiries of management, regarding the methods of measurement and presentation of the supplementary information. We are not aware of any material modifications that should be made thereto for such information to be in conformity with accounting principles generally acceptable in the United States of America when considered in relation to the Balance Sheet taken as a whole. However, we did not audit the supplementary information and express no opinion on it.

8 Note that consolidating information, which is supplementary information for review reports, is covered in the audit report rather than in the review report. Thus, the same supplementary review report will work for all audited entities.