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2013-002 Preparation of financial statements <br />Condition: <br />We were requested to draft the audited financial statements and related footnote disclosures as part <br />of our regular audit services. Ultimately, it is management's responsibility to provide for the <br />preparation of your statements and footnotes, and the responsibility of the auditor to determine the <br />fairness of presentation of those statements. However, based on recent auditing standards, it is our <br />responsibility to inform you that this deficiency could result in a material misstatement to the <br />financial statements that could have been prevented or detected by your management. Essentially, <br />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: 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 with <br />organizations of your size. <br />Effect: The effectiveness of the internal control system relies on enforcement by management. The effect of <br />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 with <br />this condition because of cost and other considerations. We have instructed management to review a <br />draft of the auditor prepared financials in detail for accuracy; we have answered any questions that <br />management might have, and have encouraged research of any accounting guidance in connection <br />with the adequacy and appropriateness of classification of disclosures in your statements. We are <br />satisfied that the appropriate steps have been taken to provide you with the completed financial <br />statements. While the Organization is reviewing the financial statements we recommend a disclosure <br />checklist is utilized to ensure all required disclosures are presented and the Organization should <br />agree its financial software to the numbers reported in the financial statements. <br />Management response: <br />For now, the Organisation's management accepts the degree of risk associated with this condition and thoroughly <br />reviews a draft of the financial statements. <br />-3- <br />People <br />+Process. <br />Going <br />Beyondthe <br />Numbers <br />