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Engagement Objectives <br />Our primary objective is to conduct our audit in accordance with auditing standards generally accepted in the United <br />States of America which may enable us to express an opinion as to whether the financial statements are fairly <br />presented, in all material respects, in accordance with accounting principles generally accepted in the United States <br />of America. Our audit is planned to provide reasonable, not absolute, assurance that the financial statements are <br />free of material misstatement, whether caused by error, fraudulent financial reporting or misappropriation of assets. <br />Because the determination of abuse is subjective, Government Auditing Standards do not expect us to provide <br />reasonable assurance of detecting abuse. We will also conduct an audit so as to satisfy the requirements of <br />Government Auditing Standards issued by the Comptroller General of the United States as well as the audit <br />requirements imposed by the Single Audit Act and the U.S. Office of Management and Budget ("OMB") Circular No. <br />A-133 and the State Single Audit Implementation Act of North Carolina. We have provided you with a copy of our <br />arrangement letter and the Local Government Commission "Contract to Audit Accounts" with the County, which are <br />enclosed. <br />Audit Planning Process <br />Our audit approach places a strong emphasis on obtaining an understanding of how your entity functions. This <br />enables us to identify key audit components and tailor our procedures to the unique aspects of your entity. The <br />development of a specific audit plan will begin by meeting with you and with management to obtain an understanding <br />of business objectives, strategies, risks and performance. <br />We will obtain an understanding of internal control to assess the impact of internal control on determining the nature, <br />timing and extent of audit procedures, and we will establish an overall materiality limit for audit purposes. We will <br />conduct formal discussions among engagement team members to consider how and where your financial statements <br />might be susceptible to material misstatement due to fraud or error. <br />We will use this knowledge and understanding, together with other factors, to first assess the risk that errors or fraud <br />may cause a material misstatement at the financial statement level. The assessment of the risks of material <br />misstatement at the financial statement level provides us with parameters within which to design the audit procedures <br />for specific account balances and classes of transactions. Our risk assessment process at the account-balance or <br />class-of-transactions level consists of: <br />An assessment of inherent risk (the susceptibility of an assertion relating to an account balance or class of <br />transactions to a material misstatement, assuming there are no related controls); and <br />An evaluation of the design effectiveness of internal control over financial reporting and our assessment of control <br />risk (the risk that a material misstatement could occur in an assertion and not be prevented or detected on a timely <br />basis by the County's internal control). <br />We will then determine the nature, timing and extent of tests of controls and substantive procedures necessary given <br />the risks identified and the controls as we understand them. <br />The Concept of Materiality in Planning and Executing the Audit <br />In planning the audit, the materiality limit is viewed as the maximum aggregate amount of misstatements, which if <br />detected and not corrected, would cause us to modify our opinion on the financial statements. The materiality limit is <br />an allowance not only for misstatements that will be detected and not corrected but also for misstatements that may <br />not be detected by the audit. Our assessment of materiality throughout the audit will be based on both quantitative <br />and qualitative considerations. Because of the interaction of quantitative and qualitative considerations, <br />misstatements of a relatively small amount could have a material effect on the current financial statements as well as <br />financial statements of future periods. At the end of the audit, we will inform you of all individual unrecorded <br />misstatements aggregated by us in connection with our evaluation of our audit test results. <br />2 <br />