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2009-2 Preparation of Financial Statements <br />Condition: <br />Vadnais Lake Area Water Management Organization <br />March 24, 2010 <br />Page 3 <br />We were requested to draft the audited financial statements and related footnote disclosures as <br />part of our regular audit services. Ultimately, it is management's responsibility to provide for <br />the preparation of your statements and footnotes, and the responsibility of the auditor to <br />determine the fairness of presentation of those statements. However, based on recent auditing <br />standards, it is our responsibility to inform you that this deficiency could result in a material <br />misstatement to the financial statements that could have been prevented or detected by your <br />management. Essentially, the auditors cannot be part of your internal control process. <br />Criteria: Internal controls should be in place to provide reasonable assurance over financial reporting. <br />Cause: <br />From a practical standpoint, we both prepare the statements and determine the fairness of the <br />presentation at the same time in connection with our audit. This is not unusual for us to do <br />with organisations of your size. <br />Effect: The effectiveness of the internal control system relies on enforcement by management. The <br />effect of deficiencies in internal controls can result in undetected errors in financial reporting. <br />Recommendation: It is your responsibility to make the ultimate decision to accept this degree of risk associated <br />with this condition because of cost and other considerations. We have instructed management <br />to review a draft of the auditor prepared financials in detail for accuracy; we have answered <br />any questions that management might have, and have encouraged research of any accounting <br />guidance in connection with the adequacy and appropriateness of classification of disclosures <br />in your statements. We are satisfied that the appropriate steps have been taken to provide you <br />with the completed financial statements. While the Organization is reviewing the financial <br />statements we recommend a disclosure checklist is utilized to ensure all required disclosures <br />are presented and the Organization should agree its financial software to the numbers reported <br />in the financial statements. <br />Management Response: For now, the Organization's mJ gement accepts the degree of risk associated with this <br />condition and thoroughly reviews a draft of the financial statements. <br />952.835.9090 • Fax 952.835.3261 <br />www.aemcpas.com <br />