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City of Little Canada <br />Contract for Auditing Services <br />Page 4 <br />Audit Procedures — General <br />An audit includes examining, on a test basis, evidence supporting the amounts and <br />disclosures in the financial statements; therefore, our audit will involve judgment about the <br />number of transactions to be examined and the areas to be tested. We will plan and perform <br />the audit to obtain reasonable rather than absolute assurance about whether the financial <br />statements are free of material misstatement, whether from (I) errors, (2) fraudulent financial <br />reporting, (3) misappropriation of assets, or (4) violations of laws or governmental <br />regulations that are attributable to the entity or to acts by management or employees acting <br />on behalf of the entity. Because the determination of abuse is subjective, Government <br />Auditing Standards do not expect auditors to provide reasonable assurance on detecting <br />abuse. <br />Because an audit is designed to provide reasonable, but not absolute assurance and <br />because we will not perform a detailed examination of all transactions, there is a risk that <br />material misstatements may exist and not be detected by us. In addition, an audit is not <br />designed to detect immaterial misstatements or violations of laws or governmental <br />regulations that do not have a direct and material effect on the financial statements. <br />However, we will inform you of any material errors and any fraudulent financial reporting or <br />misappropriation of assets that comes to our attention. We will also inform you of any <br />violations of laws or governmental regulations that come to our attention, unless clearly <br />inconsequential. Our responsibility as auditors is limited to the period covered by our audit <br />and does not extend to later periods for which we are not engaged as auditors. <br />Our procedures will include tests of documentary evidence supporting the transactions <br />recorded in the accounts, and may include tests of the physical existence of inventories, and <br />direct confirmation of receivables and certain other assets and liabilities by correspondence <br />with selected individuals, creditors, and financial institutions. We will request written <br />representations from your attorneys as part of the engagement, and they may bill you for <br />responding to this inquiry. At the conclusion of our audit, we will also request certain <br />written representations from you about the financial statements and related matters. <br />Audit Procedures — Internal Controls <br />In planning and performing our audit, we will consider the internal control sufficient to <br />plan the audit in order to determine the nature, timing and extent of our auditing procedures <br />for the purpose of expressing our opinion on the City of Little Canada, Minnesota's financial <br />statements. <br />We will obtain an understanding of the design of the relevant controls and whether they <br />have been placed in operation, and we will assess control risk. Tests of controls may be <br />performed to test the effectiveness of certain controls that we consider relevant to preventing <br />and detecting errors and fraud that are material to the financial statements and to preventing <br />823535.1 <br />