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Kenneth
S. Frank, CPA R. A ° MERCER & co., P.C. Revmong A Meret CPA 1831-1083
Roger J. Lis, Ir. CPA
Christopher M. Zera, CPA
Certified290Public Accountants
Center Road
¥
West Seneca, New York 14224
Phone 716-675-4270 Fax 716-675-4272
Www. ramercercpa.cem
February 28, 2026
To the Mayor and Board of Trustees of the
Village of Gowanda
Gowanda, NY
1am providing this memo in my capacity as the external financial statement auditor for the Village of Gowanda
{the “Village”) for the year ended May 31, 2026. As you may be aware, our firm finished the audit of the
Village’s financial statements and issued our opinion on them. All the information necessary for purposes of
complying with applicable laws and regulations is contained in that report. As you may also be aware, we
issued an adverse opinion on these financial statements. This memo, which is not a part of the financial
statements or the financial reporting package in any way, is intended to clarify what this opinion means, why
it was chosen, and what the ramifications are of issuing such an opinion.
The bottom line is the Village’s financial statements are properly stated, the numbers are accurate, items are
being recorded correctly, Traci and her staff and the outside fee accountants (Johnson Mackowiak) are doing
everything right, and there are no changes to the processes and procedures that need to be made.
So, then the question is, why does my audit opinion letter sound scary with mean words like “adverse” on it?
The reasons are more due to technicalities really.
Governmental entities keep their book on what's called the “modified accrual basis of accounting.” This
method of accounting can be viewed as the cash basis of accounting, with certain aspects of accrual accounting
sprinkled in. So, capital assets are expensed when purchased and long-term debtis recorded as revenue when
the proceeds are received. This is sometimes referred to as “fund accounting” and itis used by governmental
entities to, among other reasons, more closely mirror the way governments prepare their budgets to promote
fiscal accountability. So, John and Jane Taxpayer down the street don’t want to hear about the Village
depreciating a vehicle on their books over 7 years, they want to know, ok, how much was budgeted for the
purchase of a truck and how much did the Village pay for the truck. Did they go over budget or were they
under budget, and by how much? This is the way that all towns, counties, cities, keep their books. The City of
Jamestown, Erie County, Cattaraugus County, etc.
So then the federal government comes along with these FEMA and WWIP grants, and the rule is, if an entity
spends more than $750 thousand of federal grant money, the entity has to have an audit conducted of both
the grant expenditures and of the entity’s financial statements themselves. This audit has to be conducted in
accordance with Government Auditing Standards and the auditors’ opinion is based on whether the entity’s
statements conform to generally accepted accounting principles.
Accounting principles generally accepted in the United States require the presentation of government-wide
financial statements on the full accrual basis of accounting. This requires governmental entities to present
their financial statement more in line with how a private business would present their statements. So, instead
of expensing equipment purchased, you show a capital asset and depreciate that over a number of years.
Instead of recorded debt issuance as revenue, you set it up as a long-term liability and reduce it as payments
are made in subsequent years.
Beeisbirag
AICPA)