HomeMy WebLinkAbout03 - Exhibit 2 Sample Contract for Services - engagement letter
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On firm Letter Head
City of Winter Springs, Florida
The following represents our understanding of the services we will provide the City of Winter Springs.
You have requested that we audit the governmental activities, the business-type activities, each major
fund, and the aggregate remaining fund information of City of Winter Springs, as of September 30,
20XX and for the year then ended and the related notes, which collectively comprise City of Winter
Springs' basic financial statements as listed in the table of contents. In addition, we will audit the
City's compliance over major federal award programs and state projects for the year ended September
30, 20XX. We are pleased to confirm our acceptance and our understanding of this audit engagement
by means of this letter. Our audits will be conducted with the objectives of our expressing an opinion
on each opinion unit and an opinion on compliance regarding the City's major federal award programs
and state projects.
Accounting principles generally accepted in the United States of America (U.S. GAAP,) as
promulgated by the Governmental Accounting Standards Board (GASB) require that certain required
supplementary information (RSI), such as management's discussion and analysis (MD&A), be
presented to supplement the basic financial statements. Such information, although not a part of the
basic financial statements, is required by the Governmental Accounting Standards Board, who
considers it to be an essential part of financial reporting for placing the basic financial statements
in an appropriate operational, economic, or historical context. As part of our engagement, we will apply
certain limited procedures to the required supplementary information (RSI) in accordance with auditing
standards generally accepted in the United States of America. These limited procedures will consist
primarily of inquiries of management regarding their methods of measurement and presentation, and
comparing the information for consistency with management's responses to our inquiries. We will not
express an opinion or provide any form of assurance on the RSI. The following RSI is required by
accounting principles generally accepted in the United States of America. This RSI will be subjected
to certain limited procedures but will not be audited:
1. Management's Discussion and Analysis
2. Supplementary Pension Schedules
3. Supplementary OPEB Schedules
Supplementary information other than RSI will accompany City of Winter Springs' basic financial
statements. We will subject the following supplementary information to the auditing procedures
applied in our audit of the basic financial statements and perform certain additional procedures,
including comparing and reconciling the supplementary information to the underlying accounting and
other records used to prepare the financial statements or to the financial statements themselves , and
additional procedures in accordance with auditing standards generally accepted in the United States
of America. We intend to provide an opinion on the following supplementary information in relation to
the financial statements as a whole:
1. Combining non-major fund financial statements
2. Individual non-major fund schedule.
Also, the document we submit to you will include the following other additional information that
will not be subjected to the auditing procedures applied in our audit of the financial statements:
1. Statistical Section
2. Introductory Section
Schedule of Expenditures of Federal Awards and State Financial Assistance
We will subject the schedule of expenditures of federal awards and state financial assistance to
the auditing procedures applied in our audit of the basic financial statements and certain
additional procedures, including comparing and reconciling the schedule to the underlying
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accounting and other records used to prepare the financial statements or to the financial
statements themselves, and additional procedures in accordance with auditing standards
generally accepted in the United States of America. We intend to provide an opinion on
whether the schedule of expenditures of federal awards and state financial assistance is
presented fairly in all material respects in relation to the financial statements as a whole.
Data Collection Form
Prior to the completion of our engagement, we will complete the sections of the Data Collection
Form that are our responsibility. The form will summarize our audit findings, amounts and
conclusions. It is management's responsibility to submit a reporting package including financial
statements, schedule of expenditure of federal awards, summary schedule of prior audit findings
and corrective action plan along with the Data Collection Form to the federal audit clearinghouse.
The financial reporting package must be text searchable, unencrypted, and unlocked. Otherwise,
the reporting package will not be accepted by the federal audit clearing house . We will assist
you in the electronic submission and certification. You may request from us copies of our report
for you to include with the reporting package submitted to pass-through entities.
The Data Collection Form is required to be submitted within the earlier of 30 days after receipt
of our auditors' reports or nine months after the end of the audit period, unless specifically
waived by a federal cognizant or oversight agency for audits. Data Collection Forms submitted
untimely are one of the factors in assessing programs at a higher risk.
Auditor Responsibilities
We will conduct our audit in accordance with auditing standards generally accepted in the United
States of America (U.S. GAAS), the standards applicable to financial audits contained in
Government Auditing Standards, issued by the Comptroller General of the United States of
America; the audit requirements of Title 2 U.S. Code of Federal Regulations (CFR) Part 200,
Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal
Awards (Uniform Guidance); and Chapter 10.550, Rules of the Auditor General. Those
standards require that we plan and perform the audit to obtain reasonable assurance about
whether the basic financial statements are free from material misstatement. An audit involves
performing procedures to obtain audit evidence about the amounts and disclosures in the basic
financial statements. The procedures selected depend on the auditor's judgment, including the
assessment of the risks of material misstatement of the financial statements, whether due to
error, fraudulent financial reporting, misappropriation of assets, or violations of laws,
governmental regulations, grant agreements, or contractual agreements.
An audit also includes evaluating the appropriateness of accounting policies used and the
reasonableness of significant accounting estimates made by management, as well as evaluating
the overall presentation of the financial statements. If appropriate, our procedures will therefore
include tests of documentary evidence that support the transactions recorded in the accounts,
tests of the physical existence of inventories, and direct confirmation of cash, investments, and
certain other assets and liabilities by correspondence with creditors and financial institutions.
As part of our audit process, we will request written representations from your attorneys, and
they may bill you for responding. At the conclusion of our audit, we will also request certain
written representations from you about the basic financial statements and related matters.
Because of the inherent limitations of an audit, together with the inherent limitations of internal
control, an unavoidable risk that some material misstatements (whether caused by errors,
fraudulent financial reporting, misappropriation of assets, or violations of laws or governmental
regulations) or noncompliance may not be detected exists, even though the audit is properly
planned and performed in accordance with U.S. GAAS and Government Auditing Standards of
the Comptroller General of the United States of America. Please note that the determination of
abuse is subjective and Government Auditing Standards does not require auditors to detect
abuse.
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In making our risk assessments, we consider internal control relevant to the City's preparation and
fair presentation of the basic financial statements in order to design audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the City's internal control. However, we will communicate to you in writing
concerning any significant deficiencies or material weaknesses in internal control relevant to
the audit of the financial statements that we have identified during the audit. Our responsibility
as auditors is limited to the period covered by our audit and does not extend to any other periods.
We cannot provide assurance that unmodified opinions will be expressed. Circumstances may
arise in which it is necessary for us to modify our opinions or add emphasis-of-matter or other-
matter paragraphs. If our opinions on the basic financial statements are other than unmodified,
we will discuss the reasons with you in advance. If, for any reason, we are unable to complete
the audit or are unable to form or have not formed opinions, we may decline to express opinions
or to issue a report as a result of this engagement.
In accordance with the requirements of Government Auditing Standards, we will also issue a
written report describing the scope of our testing over internal control over financial reporting
and over compliance with laws, regulations, and provisions of grants and contracts, including
the results of that testing. However, providing an opinion on internal control and compliance
over financial reporting will not be an objective of the audit, and therefore, no such opinion will
be expressed.
Compliance with Laws and Regulations
As previously discussed, as part of obtaining reasonable assurance about whether the basic
financial statements are free of material misstatement, we will perform tests of City of Winter
Springs' compliance with the provisions of applicable laws, regulations, contracts, and
agreements. However, the objective of our audit will not be to provide an opinion on overall
compliance and we will not express such an opinion.
Audits of Major Program Compliance
Our audits of City of Winter Springs' major federal award programs and state projects compliance
will be conducted in accordance with the requirements of the Single Audit Act, as amended; the
Uniform Guidance; and the Florida Department of Financial Services, State Projects Compliance
Supplement; and will include tests of accounting records, a determination of major programs in
accordance with the Uniform Guidance and State Projects Compliance Supplement, and other
procedures we consider necessary to enable us to express such an opinion on major federal
award program and state project compliance and to render the required reports. We cannot
provide assurance that an unmodified opinion on compliance will be expressed. Circumstances
may arise in which it is necessary for us to modify our opinion or withdraw from the engagement.
The Uniform Guidance and State Projects Compliance Supplement require that we also plan and
perform the audit to obtain reasonable assurance about whether the City has complied with
applicable laws and regulations and the provisions of contracts and grant agreements applicable
to major federal award programs and major state projects. Our procedures will consist of
determining major federal programs and performing the applicable procedures described in the
U.S. Office of Management and Budget OMB Compliance Supplement and the State Projects
Compliance Supplement for the types of compliance requirements that could have a direct and
material effect on each of the City's major programs. The purpose of those procedures will be to
express an opinion on the City's compliance with requirements applicable to each of its major
programs in our report on compliance issued pursuant to the Uniform Guidance and State Projects
Compliance Supplement.
Also, as required by the Uniform Guidance and State Projects Compliance Supplement, we will
perform tests of controls to evaluate the effectiveness of the design and operation of controls that
we consider relevant to preventing or detecting material noncompliance with compliance
requirements applicable to each of the City's major federal award programs and major state
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projects. However, our tests will be less in scope than would be necessary to render an opinion
on these controls and, accordingly, no opinion will be expressed in our report.
We will issue a report on compliance that will include an opinion or disclaimer of opinion regarding
the City's major federal award programs and major state projects, and a report on internal controls
over compliance that will report any significant deficiencies and material weaknesses identified;
however, such report will not express an opinion on internal control.
Management Responsibilities
Our audits will be conducted on the basis that management acknowledge and understand
that they have responsibility:
1. For the preparation and fair presentation of the financial statements in accordance with
accounting principles generally accepted in the United States of America;
2. For the design, implementation, and maintenance of internal control relevant to the
preparation and fair presentation of financial statements that are free from material
misstatement, whether due to error,
3. For identifying, in its accounts, all federal awards received and expended during the period
and the federal programs under which they were received, including federal awards and
funding increments received prior to December 26, 2014 (if any), and those received in
accordance with the Uniform Guidance generally received after December 26, 2014;
4. For maintaining records that adequately identify the source and application of funds for
federally funded activities;
5. For preparing the schedule of expenses of federal awards (including notes and noncash
assistance received) in accordance with the Uniform Guidance requirements;
6. For the design, implementation, and maintenance of internal control over federal and state
awards;
7. For establishing and maintaining effective internal control over federal awards that provides
reasonable assurance that the nonfederal entity is managing federal awards in compliance
with federal statutes, regulations, and the terms and conditions of federal awards;
8. For identifying and ensuring that the entity complies with federal statutes, regulations, and
the terms and conditions of federal award programs and state projects and implementing
systems designed to achieve compliance with applicable federal statutes, regulations and
the terms and conditions of federal award programs and state projects;
9. For disclosing accurately, currently, and completely the financial results of each federal
award in accordance with the requirements of the award;
10. For identifying and providing report copies of previous audits, attestation engagements, or
other studies that directly relate to the objectives of the audit, including whether related
recommendations have been implemented;
11. For taking prompt action when instances of noncompliance are identified;
12. For addressing the findings and recommendations of auditors, for establishing and maintaining
a process to track the status of such findings and recommendations and taking corrective
action on reported audit findings from prior periods and preparing a summary schedule of prior
audit findings;
13. For following up and taking corrective action on current year audit findings and preparing
a corrective action plan for such findings;
14. For submitting the reporting package and data collection form to the appropriate parties;
15. For making the auditor aware of any significant contractor relationships where the vendor is
responsible for program compliance;
16. To provide us with:
a. Access to all information of which management is aware that is relevant to the preparation
and fair presentation of the financial statements, and relevant to federal award programs
and state projects, such as records, documentation, and other matters;
b. Additional information that we may request from management for the purpose of the audit;
and
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c. Unrestricted access to persons within the City from whom we determine it necessary to
obtain audit evidence.
17. For including the auditor's report in any document containing basic financial statements that
indicates that such basic financial statements have been audited by the entity's auditor;
18. For adjusting the financial statements to correct material misstatements and confirming to us
in the management representation letter that the effects of any uncorrected misstatements
aggregated by us during the current engagement and pertaining to the current year period
under audit are immaterial, both individually and in the aggregate, to the financial statements
as a whole;
19. For acceptance of nonattest services, including identifying the proper party to oversee nonattest
work;
20. For maintaining adequate records, selecting and applying accounting principles, and
safeguarding assets;
21. For informing us of any known or suspected fraud affecting the entity involving management,
employees with significant role in internal control and others where fraud could have a material
effect on compliance;
22. For the accuracy and completeness of all information provided;
23. For taking reasonable measures to safeguard protected personally identifiable and other
sensitive information; and
24. For confirming your understanding of your responsibilities as defined in this letter to us
in your management representation letter.
With regard to the schedule of expenditures of federal awards and state financial assistance and the
supplementary information referred to above, you acknowledge and understand your responsibility:
(a) for the preparation of the schedule and supplementary information in accordance with the
applicable criteria; (b) to provide us with the appropriate written representations regarding the
schedule and supplementary information; (c) to include our report on the schedule and supplementary
information in any document that contains the supplementary information and that indicates that we
have reported on such supplementary information; and (d) to present the schedule and
supplementary information with the audited basic financial statements, or if the schedule and
supplementary information will not be presented with the audited basic financial statements, to make
the audited basic financial statements readily available to the intended users of the schedule and
supplementary information no later than the date of issuance by you of the schedule and
supplementary information and our reports thereon.
As part of our audit process, we will request from management written confirmation concerning
representations made to us in connection with the audit.
We will not assume management responsibilities on behalf of City of Winter Springs. However, we will
provide advice and recommendations to assist management of City of Winter Springs in performing its
responsibilities.
With respect to any nonattest services we perform, such as drafting financial statements and
proposing adjusting journal entries to be reviewed and approved by management, the City of Winter
Springs' management is responsible for (a) making all management decisions and performing all
management functions; (b) assigning a competent individual to oversee the services; (c) evaluating
the adequacy of the services performed (d) evaluating and accepting responsibility for the results of
the services performed; and (e) establishing and maintaining internal controls, including monitoring
ongoing activities.
Government Auditing Standards require that we document an assessment of the skills, knowledge, and
experience of management, should we participate in any form of preparation of the basic financial
statements and related schedules or disclosures as these actions are considered non-audit service.
We will perform the services in accordance with applicable professional standards. This engagement
is limited to the services previously outlined. Our firm, in its sole professional judgment, reserves the
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right to refuse to do any procedure or take any action that could be construed as making management
decisions or assuming management responsibilities, including determining account coding and
approving journal entries.
Reporting
We will issue a written report upon completion of our audit of City of Winter Springs' basic financial
statements. Our report will be addressed to the governing body of City of Winter Springs . We cannot
provide assurance that unmodified opinions will be expressed. Circumstances may arise in which it is
necessary for us to modify our opinions, add an emphasis-of-matter or other-matter paragraph(s), or
withdraw from the engagement.
In accordance with the requirements of Government Auditing Standards, we will also issue a written
report describing the scope of our testing over internal control over financial reporting and over
compliance with laws, regulations, and provisions of grants and contracts, including the results of that
testing . However, providing an opinion on internal control and compliance over financial reporting will
not be an objective of the audit and, therefore, no such opinion will be expressed.
We will also issue a written report on the City's compliance with the requirements of Section 218.415,
Florida Statutes upon completion of our audit.
Other
We understand that your employees will prepare all confirmations we request and will locate any
documents or support for any other transactions we select for testing.
If you intend to publish or otherwise reproduce the basic financial statements and make reference to
our firm, you agree to provide us with printers' proofs or masters for our review and approval before
printing. You also agree to provide us with a copy of the final reproduced material for our approval
before it is distributed.
Regarding the electronic dissemination of audited financial statements, including financial statements
published electronically on your Internet website, you understand that electronic sites are a means to
distribute information and, therefore, we are not required to read the information contained in these
sites or to consider the consistency of other information in the electronic site with the original document.
Provisions of Engagement Administration, Timing and Fees
During the course of the engagement, we may communicate with you or your personnel via fax, e-mail,
or landline/cellular telecommunications, and you should be aware that communication in those
mediums contains a risk of misdirected or intercepted communications.
We expect to begin our audits in October 20XX and to issue our reports no later than March 31, 20XX.
<NAME> is the engagement partner for the audit services specified in this letter. The responsibilities of
the engagement partner include supervising <FIRM’s> services performed as part of this engagement
and signing or authorizing another qualified firm representative to sign the audit report.
Our fee for these services described in this letter will not exceed $X for the audit of the financial
statements, $X each for the federal and state single audits, if required, and $X for assistance with
preparation of the Comprehensive Annual Financial Report, inclusive of all costs and out-of-pocket
expenses, unless the scope of the engagement is changed, the assistance that City of Winter Springs
has agreed to furnish is not provided, or unexpected conditions are encountered, in which case we will
discuss the situation with you before proceeding. Whenever possible, we will attempt to use City of
Winter Springs personnel to assist in the preparation of schedules and analyses of accounts. This effort
could substantially reduce our time requirements and facilitate the timely conclusion of the audit.
Further, we will be available during the year to consult with you on financial management and
accounting matters of a routine nature.
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During the course of the audit, we may observe opportunities for economy in, or improved controls over,
your operations. We will bring such matters to the attention of the appropriate level of management,
either orally or in writing.
You agree to inform us of facts that may affect the basic financial statements of which you may become
aware during the period from the date of the auditor's report to the date the financial statements are
issued.
We agree to retain our audit documentation or work papers for a period of at least five years from the
date of our report.
At the conclusion of our audit engagement, we will communicate to the City Commission and
Mayor the following significant findings from the audit:
Our view about the qualitative aspects of the City's significant accounting practices;
Significant difficulties, if any, encountered during the audit;
Uncorrected misstatements, other than those we believe are trivial, if any;
Disagreements with management, if any;
Other findings or issues, if any, arising from the audit that are, in our professional
judgment, significant and relevant to those charged with governance regarding their
oversight of the financial reporting process;
Material, corrected misstatements that were brought to the attention of
management as a result of our audit procedures;
Representations we requested from management;
Management's consultations with other accountants, if any; and
Significant issues, if any, arising from the audit that were discussed, or the subject
of correspondence, with management.
The audit documentation for this engagement is the property of <FIRM> and constitutes confidential
information. However, we may be requested to make certain audit documentation available to a federal
or state agency providing direct or indirect funding, or the U.S. Government Accountability Office for
purposes of a quality review of the audit, to resolve audit findings, or to carry out oversight
responsibilities , pursuant to authority given to it by law or regulation, or to peer reviewers. If requested,
access to such audit documentation will be provided under the supervision of <FIRM's> personnel.
Furthermore, upon request, we may provide copies of selected audit documentation to the
aforementioned parties. These parties may intend, or decide, to distribute the copies of information
contained therein to others, including other governmental agencies.
Please sign and return the attached copy of this letter to indicate your acknowledgment of, and
agreement with, the arrangements for our audits of the basic financial statements, compliance over
major federal award programs and state projects, including our respective responsibilities.
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We appreciate the opportunity to be your financial statement auditors and look forward to working with
you and your staff.
Respectfully,
<FIRM>
RESPONSE:
This letter correctly sets forth the understanding of the City of Winter Springs.
By: ____________________________________
Title: ____________________________________