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November 27, 2004 Page 3 of 6 . audit and does not extend to matters that might arise during any later periods for which we are not engaged as auditors. Our procedures will include tests. of documentary evidence supporting the transactions recorded in the accounts, and may include tests of the physical existence of inventories, and direct confirmation of receivables and certain other assets and liabilities by correspondence with selected individuals, creditors and financial institutions. We will request written representations from your attorneys as part of the engagement, and they may bill you for responding to this inquiry. At the cortclusion of our audit, we will also require certain written representations from you about the financial statements and related matters. Identifying and ensuring that the City complies with laws, regulations, contracts and agreements is the responsibility of management. As part of obtaining reasonable assurance about whether the financial statements are free of material misstatement, we will perform tests of the City's compliance with applicable laws and regulations and the provisions of contracts and agreements. However, the objective of our audit will not be to provide an opinion on overall compliance and we will not express such an opinion. Audit Procedures -Internal Control In planning and performing our audits, we will consider the internal control sufficient to plan the audit in order to determine the nature, timing, and extent of our auditing • procedures for the purpose of expressing our opinion on the City's financial statements. An audit is not designed to provide assurance on internal control or to identify reportable conditions. However, we will inform the governing body or audit committee of any matters involving internal control and its operation that we consider to be reportable conditions under standards established by the American Institute of Certified Public Accountants. Reportable conditions involve matters coming to our attention relating to significant deficiencies in the design or operation of the internal control that, in our judgment, could adversely affect the entity's ability to record, process, summarize, and report financial data consistent with the assertions of management in the financial statements. Audit Administration, Fees and Other We understand that your employees will prepare all cash or other confirmations we request and will locate any invoices selected by us for testing. The workpapers for this engagement are the property of Kern, DeWenter, Viere, Ltd. and constitute confidential information. However, we may be requested to make certain workpapers available to regulatory or state agencies pursuant to authority given to it by law or regulation. If requested, access to such workpapers will be provided under the supervision of Kern, DeWenter, Viere, Ltd's personnel. Furthermore, upon request, we may provide photocopies of selected workpapers to regulatory or state agencies. The regulatory or state agencies may intend, or decide, to distribute the photocopies or information contained therein to others, including other governmental agencies. This • engagement letter includes your authorization for us to supply you with electronically formatted financial statements or drafts of financial statements, financially sensitive S8