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I I SECTION III - SPECIFIC AUDIT APPROACH Phase I - Strategic Planning I A thorough understanding of your organization and its operating environment is essential for the development of an audit plan for an efficient, cost effective audit. During this phase, the engagement partner and audiUmanager will meet with appropriate personnel to obtain and document our understanding of your operations and, at the same time, give you the opportunity to express your expectations with respect to the services that we will provide. Our work effort will be coordinated so that there will be minimal disruption to your staff. I During this phase we will perform the following activities: I · Review the regulatory, statutory and compliance requirements within which the City operates. This will include a review of applicable federal laws, the City's ordinances, state statutes, County and City requirements and resolutions, debt instruments, contracts, other agreements, and minutes of meetings of the commission and various committees. · Review major sources of information such as budgets, organization charts, procedures manuals, financial systems, and management information systems. · Determine the procedures necessary with regard to opening balances, and obtain reasonable assurance concerning the consistency of application of accounting principles between the year being audited and the preceding year. . Review the working papers of the predecessor auditor. . Obtain and document an understanding of the City's internal control structure, including making an assessment of audit risk. · Consider the methods that the City uses to process accounting information which influence the design of the internal control structure. This understanding includes knowledge about the design of relevant policies, procedures, and records, and whether they have been placed in operation by the City. · Develop audit programs to incorporate the consideration of financial statement assertions, specific audit objectives, and appropriate audit procedures to achieve the specified objectives. . Identify and resolve accounting, auditing, and reporting matters. I I I I I Phase II - Execution of Audit Plan I The audit team will complete a major portion of transaction testing and audit requirements during this phase. The procedures performed during this period will enable us to identify any matter that may impact the completion of our work or require the attention of management. Tasks to be performed in Phase II include, but are not limited to the following: . I · Analytical procedures are applied in this stage of the audit to assist in planning the nature, timing, and extent of auditing procedures used to obtain evidential matter for specific account balances or classes of transactions. · Perform substantive tests of account balances and transactions. Samples will be drawn of major transaction systems, including cash disbursements, cash receipts, purchases, and payroll. · Perform tests of compliance with laws, regulations, contracts, and grants. · Review test results and preliminary conclusions. I I I I I I I 16