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City of Paris August 10, 2004 Page 3 Management Responsibilities (Continued) uncorrected misstatements aggregated by us during the current engagement and pertaining to the latest eriod presented are immaterial, both individually and in the aggregate, to the [mancial statements taken as a whole. Additionally, as required by OMB Circular A-B3, it is management's responsibility to follow up and take corrective a tion on reported audit findings and to prepare a summary schedule of prior audit findings and a corrective action pia. The summary schedule of prior audit [mdings should be available for our review prior to issuing our tentative draft. Management is also responsible for preparation of management's discussion and analysis, Audit Procedures - General An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the [m ncial statements; therefore, our audit will involve judgment about the number of transactions to be examined and the areas 0 be tested. We will plan and perform the audit to obtain reasonable rather than absolute assurance about whether the [m ncial statements are free of material misstatement, whether caused by error or fraud, As required by the Single Audit Ac Amendments of 1996 and OMB Circular A-B3, our audit will include tests of transactions related to major federal aw rd programs for compliance with applicable laws and regulations and the provisions of contracts and grant agreements, B cause an audit is designed to provide reasonable, but not absolute assurance and because we will not perform a detailed amination of all transactions, there is a risk that material errors, fraud, other illegal acts, or noncompliance may exist an not be detected by us, In addition, an audit is not designed to detect immaterial errors, fraud, or other illegal acts or illeg I acts that do not have a direct effect on the financial statements or to major programs, However, we will inform the ap ropriate level of management of any material fraud that comes to our attention, Any fraud that involves senior manage ent or is material to the financial statements that comes to our attention will be reported directly to the City Council. W will also inform you of any other illegal acts that come to our attention, unless clearly inconsequential. We will include s ch matters in the reports required for a Single Audit. Our responsibility as auditors is limited to the period covered by 0 audit and does not extend to 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 ccounts and may include tests of the physical existence of inventories and direct confmnation of receivables and certa' other assets and liabilities by correspondence with selected individuals, creditors, and [mancial institutions. We wi I request written representations from your attorneys as part of the engagements, and they may bill you for responding 0 this inquiry. At the conclusion of our audit, we will also request certain written representations from you about the fi ancial statements and related matters, Audit Procedures - Internal Controls If engaged, in plarming and performing our audit, 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 0 opinions on the City's general purpose financial statements and on its compliance with requirements applicable to major rograms, We will obtain an understanding of the design of the relevant controls and whether they have been pI ced in operation, and we will assess control risk. Tests of controls may be performed to test the effectiveness of certain controls that we McCLANAHAN AND HOLMES. LLP