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November 10,2006 <br /> City of Pequot Lakes <br /> Page 4 <br /> Audit procedures-internal control <br /> In planning and performing our audit,we will consider the internal control sufficient to plan the audit in order <br /> to determine the nature, timing, and extent of our auditing procedures for the purpose of expressing our <br /> opinion on the City of Pequot Lakes' financial statements. <br /> We will obtain an understanding of the design of the relevant controls and whether they have been placed in <br /> operation, and we will assess control risk. Tests of controls may be performed to test the effectiveness of <br /> certain controls that we consider relevant to preventing and detecting errors and fraud that are material to the <br /> financial statements and to preventing and detecting misstatements resulting from illegal acts and other <br /> noncompliance matters that have a direct and material effect on the financial statements. Tests of controls are <br /> required only if control risk is assessed below the maximum level. Our tests, if performed, will be less in <br /> scope than would be necessary to render an opinion on internal control and, accordingly, no opinion will be <br /> expressed in our report on internal control issued pursuant to Government Auditing Standards. <br /> Our audit will include obtaining an understanding of internal control sufficient to plan the audit and to <br /> determine the nature, timing, and extent of audit procedures to be performed. An audit is not designed to <br /> provide assurance on internal control or to identify deficiencies in internal control. However, during the audit, <br /> we will communicate to you internal control related matters that are required to be communicated under <br /> professional standards. <br /> Audit procedures-compliance <br /> Identifying and ensuring that the City of Pequot Lakes complies with the provisions of laws, regulations, <br /> contracts, agreements, and grants is the responsibility of management. As part of obtaining reasonable <br /> assurance about whether the financial statements are free of material misstatement, we will perform tests of <br /> the City's compliance with the provisions of applicable laws, regulations, contracts, agreements, and grants. <br /> However, the objective of our audit will not be to provide an opinion on overall compliance and we will not <br /> express such an opinion. <br /> As part of our audit, we will also perform the appropriate procedures and reporting as required by the <br /> Minnesota Legal Compliance Audit Guide for Local Government. <br /> Administration <br /> We understand that your employees will prepare all cash or other confirmations we request and will locate <br /> any documents selected by us for testing. <br /> The audit documentation for this engagement is the property of Larson, Allen, Weishair & Co., LLP <br /> ("LarsonAllen") and constitutes confidential information. However, pursuant to authority given by law or <br /> regulation, we may be requested to make certain audit documentation available to the Minnesota Office of the <br /> State Auditor or its designee, a federal agency providing direct or indirect funding, or the U.S. Government <br /> Accountability Office for purposes of a quality review of the audit, to resolve audit findings, or to carry out <br /> oversight responsibilities. We will notify you of any such request. If requested, access to such audit <br /> documentation will be provided under the supervision of LarsonAllen LLP personnel. Furthermore, upon <br /> request, we may provide copies of selected audit documentation to the aforementioned parties. These parties <br />