Positive revenue to expenditure ratios may not always be as favorable as they appear.

In management€™s discussion and analysis accompanying its 2012 financial statements, Tiber County reported that €˜€˜for the fifth consecutive year revenues exceeded expenditures.€™€™ However, a note included in required supplementary information indicated the following:

The county has not been depreciating its infrastructure system.
1. What reservations might you have as to the significance of the county€™s excess of revenues over expenditures in 2012?
2. Suppose that you were the county€™s independent auditor. What reservation might you have as to the county€™s reporting practices?
3. Suppose that the county is required to depreciate its roads. As of year-end 2012, the estimated initial cost of the roads is $100 million, and their estimated useful life is 40 years. How does the change from the modified approach to the standard approach affect the county€™s general fund excess of revenues over expenditures? How does it affect the county€™s government-wide statements?

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County Roads and Highways Comparison of Needed to Actual Maintenance/Preservation Costs (in thousands) Actual $3,400 2012 2011 2010 2009 2008 3,000 2,900 3,100 2,800 Needed $4,200 4,000 3,000 3,100 2,700