Attachment B
Auditors’ Required Communications with the Audit Committee 1 REQUIRED AUDIT COMMUNICATIONS
The Honorable Mayor and
Members of the
City Council
City of Newport Beach
Newport Beach
, California
We have audited the financial statements
of the governmental activities, the business
-
type
activities, each major fund, and the aggregate remaining fund information of the
City of
Newport Beach
(City) as of and for the year ended June 30, 202
5 , and have issued our report
thereon dated
January 28, 2026
.
Professional standards require that we
advise you of the
following matters during our audit.
Our Responsibility in Relation to the Financial Statement Audit
As communicated in our engagement letter dated
Ju
ne 12
, 202
5 , our responsibility, as
described by professional standards, is to form and express opinions about whether the financial statements that have been prepared by management with your oversight are presented fairly, in all material respects, in accordance wit h accounting principles generally
accepted in
the
United States of America.
Our audit of the financial statements does not
relieve you or management of your respective responsibilities.
Our responsibility, as prescribed by professional standards, is to plan and perform our audit to obtain reasonable, rather than absolute, assurance about whether the financial statements are free of material misstatement.
An audit of financial statements includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness
of the entity’s internal control
over financial reporting. Accordingly, as part of
our audit, we considered the internal control of the City solely for the purpose of determining our audit procedures and not to provide any assurance concerning such internal control.
We are also responsible for communicating significant matters related to the audit that are, in our professional judgment, relevant to your responsibilities in overseeing the financial reporting process.
However, we are not required to design procedures for the purpose of identifying other matters to communicate to you.
Planned Scope and Timing of the Audit
We conducted our audit consistent with the planned scope and timing we previously communicated to you.
Compliance with All Ethics Requirements Regarding Independence
The engagement team, others in our firm, as appropriate, and
our firm have complied with
all relevant ethical requirements regarding independence.
We identified self
-
review threats to independence as a result of non
-
attest services provided.
Those non
-
attest services included
assisting in preparation of the financial statements,
recording journal entries detected during the audit process , assisting in updating
The Honorable Mayor and
Members of the
City Council
City of Newport Beach
Newport Beach, California
2 infrastructure
records
,
assisting in preparation of the State Controller’s Report , and
assisting
in
entering City leases into the City’s
software
. To
mitigate the risk, management has
reviewed
the financial statements and compared amounts to the accounting records, reviewed proposed
journal entries to supporting documentation and posted the journal entries to the accounting records.
M
anagement has reviewed the updates to infrastructure records and compared amounts to underlying supporting documentation.
In addition, management has
reviewed the information generated from the lease software, compared amounts to underlying documentation and reviewed and posted the journal entries generated by the software
.
Furthermore, management has reviewed the State Controller’s Report and agreed the amounts to its accounting records.
Significant Risks Identified
We have identified the following significant risks:
The new compensated absences accounting standard, Governmental Accounting Standards Board (GASB) Statement No. 101. As a result, we reviewed the City
’s
calculations and ensured the financial statements and footnotes are accurate and complete.
Compliance with federal grant requirements. We
plan to
review the City’s
S
chedule of
Expenditure of Federal Awards
and select major programs to test for compliance with
federal grant
requirements. This work is
scheduled to begin
in
January
.
Qualitative Aspects of
the City’s Significant
Accounting Practices
Significant Accounting Policies
Management has the responsibility to select and use appropriate accounting policies. A summary of the significant accounting policies adopted by the City
is included in
Note 1
to
the financial statements. As described in Note 7 to the financial statements, during the year, the
City
changed its method of accounting for compensated absences by adopting Governmental Accounting Standards Board (GASB) Statement No. 101, Compensated
Absences
.
Additionally, the City changed accounting policies regarding risk disclosures related to government vulnerabilities due to concentrations and constraints by adopting Statement of Governmental Accounting Standards (GASB Statement) No. 102, Certain
Risk
Disclosures
.
No
matters have come to our attention that would require us, under professional standards, to inform you about (1) the methods used to account for significant unusual transactions and (2) the effect of significant accounting policies in controversial or emerg ing
areas for which there is a lack of authoritative guidance or consensus.
Significant Accounting
Estimates
Accounting estimates are an integral part of the financial statements prepared by management and are based on management’s current judgments.
Those judgments are normally based on
knowledge and experience about past and current events and assumptions about future events.
Certain accounting estimates are particularly sensitive because of their significance to the financial statements and because of the possibility that future events affecting them may differ markedly from management’s current judgments.
T
he most sensitive accounting
estimates affecting the financial statements are:
The Honorable Mayor and
Members of the
City Council
City of Newport Beach
Newport Beach, California
3
Management’s estimate
of the net
pension liability
.
Management’s estimate
of the
net
OPEB liability.
Management’s
estimates of the claims payable liabilities related to general liability and workers’ compensation claims.
Management’s estimate of the
pension liability, OPEB liability and claims payable liabilit ies
are based on actuarial valuation reports
.
We evaluated the key factors and assumptions
used to
develop the
pension liability, OPEB liability
,
and
claims payable liabilit
ies
a
nd
determined they are
reasonable in relation to the
basic
financial statements taken as a whole
and in relation to the applicable opinion units
.
Financial Statement Disclosures
Certain financial statement disclosures involve significant judgment and are particularly sensitive because of their significance to financial statement users.
The most sensitive
disclosures affecting
the City
’s financial statements relate to
pensions in Note 1
1 and
OPEB
in
Note 12
.
The financial statement disclosures are neutral, consistent, and clear.
Significant Unusual Transactions
For purposes of this communication, professional standards require us to communicate to you
significant unusual transactions identified during our audit.
There were no significant unusual
transactions identified as a result of our audit procedures.
Significant
Difficulties Encountered
During
the Audit
We encountered no significant difficulties in dealing with management relating to the
performance of the
audit.
Unc
orrected and
C
orrected Misstatements
For purposes of this communication, professional standards also require us to accumulate all known and likely misstatements identified during the audit, other than those that we believe are trivial, and communicate them to the appropriate level of manageme nt. Further,
professional standards require us to also communicate the effect of uncorrected misstatements related to prior periods on the relevant classes of transactions, account balances or disclosures, and the financial statements as a whole and each applicable opinion
unit.
There were no uncorrected misstatements
.
Uncorrected misstatements or matters
underlying those uncorrected misstatements could potentially cause future -
period financial
statements to be materially misstated, even though the uncorrected misstatements are immaterial to the financial statements curr
ently under audit.
In addition, professional standards require us to communicate to you all material, corrected misstatements that were brought to the attention of management as a result of our audit procedures.
There were
no material misstatements recorded as a result of our audit procedures.
The Honorable Mayor and
Members of the
City Council
City of Newport Beach
Newport Beach, California
4 D
isagreements with Management
For purposes of this letter, professional standards define a disagreement with management as a matter, whether or not resolved to our satisfaction, concerning a financial accounting, reporting, or auditing matter, which could be significant to the City
’s financial statements or
the auditor’s report.
No such disagreements arose during the course of the audit.
Representations
Requested from Management
We have requested
and received
certain
written
representations from management
, which
are included in
a separate
letter dated
January
28 , 202
6 .
Management Consultations with Other Accountants
In some cases, management may decide to consult with other accountants about auditing and accounting matters.
Management informed us that, and to our knowledge, there were no consultations with other accountants regarding auditing and accounting matters.
Other
Significant Matters Findings, or Issues
In the normal course of our professional association with the City, we generally discuss a variety of matters, including the application of accounting principles and auditing standards, significant events or transactions that occurred during the year, oper ating and regulatory
conditions affecting the entity, and operational plans and strategies that may affect the risks of material misstatement.
None of the matters discussed resulted in a condition to our retention as the City’s auditors.
Other
Information Included in the Annual Comprehensive Financial Report
Pursuant to professional standards, our responsibility as auditors for other information, whether financial or nonfinancial, included in the City’s annual report, does not extend beyond the information identified in the audit report, and we are not require d to perform any
procedures to corroborate such other information.
However, in accordance with such
standards, we have read the information and considered whether such information, or the manner of its presentation, was materially inconsistent with its pr esentation in the financial
statements.
Our responsibility also includes communicating to you any information which we believe is a material misstatement of fact.
Nothing came to our attention that caused us to believe that such information, or its manner of presentation, is materially inconsistent with the information, or manner of its presentation, appearing in the financial statements.
This
report
is intended solely for the information and use of
City Council
and management of
the City
and is not intended to be, and should not be, used by anyone other than these specified parties.
Irvine, California
January 28, 2026