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> Type and extent of analytical procedures to be used in the engagement Understanding financial relationships is crucial to planning and evaluating the results of analytical procedures and requires knowledge of the City. The full extent to which analytical procedures are utilized is based upon the auditor's professional judgment and the overall risk assessment results. Statement of Auditing Standards on Analytical Procedures provides guidance on the use and extent of analytical procedures in all audits. Analytical procedures are required in the planning and overall review stages of the audit, and will be used in the following areas: Audit Planning 1 Analytical procedures provide great insight in our planning. These analyses can enhance our understanding of transactions and events that have occurred during the year under audit. Analytical procedures in the planning phase are also performed to identify any unusual and unexpected relationship 1 that may warrant further investigation. For example, if revenue does not change directly with changes in rates and usage. Fieldwork Analytical procedures are used as effective substantive tests in certain circumstances. For example, testing certain payroll related expenditures, such as payroll taxes, which are a specific percent of wages. During the course of our year end fieldwork we utilize analytical procedures to support the results of our other audit procedures. Overall Review Analytical procedures used at the conclusion of the audit are designed to assess the conclusions reached and evaluate the overall financial statement presentation. For example, we will review the financial statements and compare the numbers to prior year and see if variances make sense based upon the work performed. We would determine if sufficient work was done in a particular area. Any variances would need to be substantiated. While the SAS's do not specify any particular analytical procedures, our audit approach utilizes procedures that focus on the overall relationships within the basic financial statements. We obtain a complete understanding of the entity and a larger comprehensive approach at the financial statement level. > Approach to be taken to gain and document an understanding of the City's internal control structure Governments today are increasingly reviewing their roles and responsibilities of internal control functions to respond to the increasing expectations of the City's stakeholders. Control activities are procedures and policies that help ensure that management's directives are being carried out and the City's objectives are being met. Grau believes the internal control segment is the foundation for the entire audit and involves an extensive understanding and evaluation of operating and management information systems and all related internal controls. The results of this evaluation will influence the nature, timing and extent of our substantive audit procedures. This approach ensures that we achieve maximum efficiency and provides valuable feedback to management regarding the effectiveness of controls being relied upon throughout the year. ' > Approach to be taken in determining laws and regulations that will be subject to audit test work Due to the special nature of governments, the traditional audit scope has been broadened to encompass determination of what laws and regulations have a direct and material impact on the financial statements. I19