01-24-2012 Engagement Letter McMahan and AssociatesAsa
To: Honorable Mayor and Town Council
Thru: Larry Brooks, Town Manager
Legal: Eric Heil, Town Attorney
From: Scott Wright, Asst. Town Manager — Finance
Date: January 12, 2012
Re: 2011 Audit Engagement Letter
Town of Auon
Initials
An engagement letter with McMahan and Associates for the 2011 calendar year audit is
included in the Town's consent agenda. The engagement letter is in the standard form
recommended by the AICPA for local government engagements. The 2011 audit will take
place the first week of April and will be billed to the Town based on actual hours spent at
standard rates with a not -to- exceed cost of the 2010 fee of $28,530 + CPI.
1I-`
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CMAHAN AND AssocIATES, L.L.C.
Certified Public Accountants and Consultants
WEB SITE: WWW.MCMAHANC AA.COM
CHAPEL SOUARE, BLDG C MAIN OFFICE: (970) 8458800
245 CHAPEL PLACE, SUITE 300 FACSIMILE: (970) 845-8 108
P.O. Box 5850, AVON, CO 8 152o E-MAIL: MCMAHAN gMCMAHANCPA.COM
January 10, 2012
Town of Avon, Colorado
F.O. Box 976
Avon, CO 81620
We are pleased to confirm our understanding of the services we are to provide Town of Avon, Colorado for
the period or year ended December 31, 2011. We will audit the financial statements of the governmental
activities, the business -type activities, each major fund, and the aggregate remaining fund information,
which collectively comprise the basic financial statements of Town of Avon, Colorado as of and for the
period or year ended December 31, 2011. Accounting standards generally accepted in the United States
provide for certain required supplementary information ( "RSI "), such as management's discussion and
analysis ( "MD&A "), to supplement Town of Avon, Colorado's basic financial statements. Such information,
although not a part of the basic financial statements, is required by the Governmental Accounting
Standards Hoard 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 MD&A in accordance with auditing standards generally accepted
in the United States of America. These limited procedures will consist of inquiries of management
regarding the methods of preparing the information and comparing the information for consistency with
management's responses to our inquiries, the basic financial statements, and other knowledge we obtained
during our audit of the basic financial statements. We will not express an opinion or provide any assurance
on the information because the limited procedures do not provide us with sufficient evidence to express an
opinion or provide any assurance. The following RSI is required by generally accepted accounting
principles and will be subjected to certain limited procedures, but will not be audited:
1) Management's Discussion and Analysis
RSI other than MD&A, such as budgetary schedules for the General Fund and major special revenue
funds, and supplementary information other than RSI, such as combining statements, also accompany
Town of Avon, Colorado's financial statements. We will subject the following RSI and supplementary
information to the auditing procedures applied in our audit of the basic financial statements and certain
additional procedures, including comparing and reconciling such information directly to the underlying
accounting and other records used to prepare the financial statements or to the financial statements
themselves, and other additional procedures in accordance with auditing standards generally accepted in
the United States of America and will provide an opinion on it in relation to the financial statements as a
whole:
1) Budgetary schedules for the General Fund and major special revenue funds
2) Budgetary schedules for all other funds
3) Combining statements
4) Local Highway Finance Report
5) Debt Schedule
Vle, ??ber American (,astitlitz Of Certir�icd Public AccountOWS
D. JERRY MCMAHAN, C.P.A
PAUL J. BACKES, C.P.A.
DANIEL R. CUDAHY, C.P.A.
MICHAEL N. JENKINS, C.A., C.P.A.
AVON ASPEN FRISCo
(970) 845 -8800 (970) 544 -3996 (970) 668 -348 1
Town of Avon, Colorado
January 10, 2012
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The following additional information accompanying the basic financial statements will not be subjected to
the auditing procedures applied in our audit of the financial statements, and for which our auditor's report
will disclaim an opinion.
1) Introductory information
2) Statistical information
Audit Objective
The objective of our audit is the expression of opinions as to whether your basic financial statements are
fairly presented, in all material respects, in conformity with generally accepted accounting principles and
to report on the fairness of the additional information referred to in the second paragraph when
considered in relation to the financial statements taken as a whole. Our audit will be conducted in
accordance with U.S. generally accepted auditing standards and will include tests of the accounting
records and other procedures we consider necessary to enable us to express such opinions. If our
opinions on the financial statements are other than unqualified, we will fully 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.
Management Responsibilities
Management is responsible for the basic financial statements and all accompanying information as well
as all representations contained therein. You are also responsible for making all management decisions
and performing all management functions; for designating an individual with suitable skill, knowledge, or
experience to oversee our assistance with the preparation of the financial statements and any other
nonattest services we provide; and for evaluating the adequacy and results of those services and
accepting responsibility for them.
Management is responsible for establishing and maintaining internal controls, including monitoring
ongoing activities; for the selection and application of accounting principles; and for the fair presentation
in the financial statements of the respective financial position of the governmental activities, the business -
type activities, each major fund, and the aggregate remaining fund information of the Town of Avon,
Colorado and the respective changes in financial position and where applicable, cash flows, in conformity
with U.S. generally accepted accounting principles.
Management is also responsible for making all financial records and related information available to us
and for the accuracy and completeness of that information. Management is responsible for adjusting the
financial statements to correct material misstatements and for confirming to us in the representation letter
that the effects of any uncorrected misstatements aggregated by us during the current engagement and
pertaining to the latest period presented are immaterial, both individually and in the aggregate, to the
financial statements taken as a whole.
You are responsible for the design and implementation of programs and controls to prevent and detect
fraud, and for informing us about all known or suspected fraud or illegal acts affecting the government
involving (1) management, (2) employees who have significant roles in internal control, and (3) others
where the fraud or illegal acts could have a material effect on the financial statements. Your
responsibilities include informing us of your knowledge of any allegations of fraud or suspected fraud
affecting the government received in communications from employees, former employees, regulators, or
others. In addition, you are responsible for identifying and ensuring that the entity complies with
applicable laws and regulations. You are responsible for the preparation of the supplementary
information in conformity with U.S. generally accepted accounting principles. You agree to include our
report on the supplementary information in any document that contains and indicates that we have
reported on the supplementary information. You also agree to make the audited financial statements
readily available to users of the supplementary information no later than the date the supplementary
information is issued with our report thereon.
Town of Avon, Colorado
January 10, 2012
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Management Responsibilities (continued)
With regard to the electronic dissemination of audited financial statements, including financial statements
published electronically on your 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.
Audit Procedures — General
An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements; therefore, our audit will involve judgment about the number of transactions to be
examined and the areas to be tested. We will plan and perform the audit to obtain reasonable rather than
absolute assurance about whether the financial statements are free of material misstatement, whether
from (1) errors, (2) fraudulent financial reporting, (3) misappropriation of assets, or (4) violations of laws or
governmental regulations that are attributable to the entity or to acts by management or employees acting
on behalf of the entity.
Because an audit is designed to provide reasonable, but not absolute, assurance and because we will not
perform a detailed examination of all transactions, there is a risk that material misstatements may exist
and not be detected by us. In addition, an audit is not designed to detect immaterial misstatements, or
violations of laws or governmental regulations that do not have a direct and material effect on the financial
statements. However, we will inform you of any material errors and any fraudulent financial reporting or
misappropriation of assets that come to our attention. We will also inform you of any violations of laws or
governmental regulations that come to our attention, unless clearly inconsequential. Our responsibility as
auditors is limited to the period covered by our 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
accounts, and may include tests of the physical existence of inventories, and direct confirmation of
receivables and certain other assets and liabilities by correspondence with selected individuals, funding
sources, creditors, and financial institutions. We will request written representations from your attorneys
as part of the engagement, and they may bill you for responding to this inquiry. At the conclusion of our
audit, we will also require certain written representations from you about the financial statements and
related matters.
Audit Procedures — Internal Control
Our audit will include obtaining an understanding of the entity and its environment, including internal
control, sufficient to assess the risks of material misstatement of the financial statements and to design
the nature, timing, and extent of further audit procedures. An audit is not designed to provide assurance
on internal control or to identify deficiencies in internal control. However, during the audit, we will
communicate to management and those charged with governance internal control related matters that are
required to be communicated under Al CPA professional standards.
Audit Procedures — Compliance
As part of obtaining reasonable assurance about whether the financial statements are free of material
misstatement, we will perform tests of Town of Avon, Colorado's compliance with applicable laws and
regulations and the provisions of 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.
Town of Avon, Colorado
January 10, 2012
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Engagement Administration, Fees, and Other
We understand that your employees will prepare all cash or other confirmations we request and will locate
any documents selected by us for testing.
Paul J. Backes, is the engagement partner and is responsible for supervising the engagement and signing
the report or authorizing another individual to sign it.
Our fee for these services will be at our standard hourly rates plus out -of- pocket costs (such as report
reproduction, word processing, postage, travel, copies, telephone, etc.), except that our gross fee, including
expenses will not exceed the prior year with any changed limited to the Denver Boulder Consumer Price
Index. Our standard hourly rates vary according to the degree of responsibility involved and the
experience level of the personnel assigned to your audit. Our invoices for these fees will be rendered each
month as work progresses and are payable on presentation. In accordance with our firm policies, work may
be suspended if your account becomes overdue and may not be resumed until your account is paid in full.
If we elect to terminate our services for nonpayment, our engagement will be deemed to have been
completed upon written notification of termination, even if we have not completed our report. You will be
obligated to compensate us for all time expended and to reimburse us for all out -of- pocket costs through
the date of termination. Our fees are based on anticipated cooperation from your personnel and the
assumption that unexpected circumstances will not be encountered during the audit. If significant
additional time is necessary, we will keep you informed of any problems we encounter and our fees will be
adjusted accordingly. We want the Town to feel that the value of services provided by our firm is
commensurate with the fee charged.
We appreciate the opportunity to be of service to Town of Avon, Colorado and believe this letter accurately
summarizes the significant terms of our engagement. If you have any questions, please let us know. If you
agree with the terms of our engagement as described in this letter, please sign the enclosed copy and
return it to us. This letter will remain in force until updated or cancelled by either party.
Very truly yours,
McMahan and Associates, L.L.C.
RESPONSE:
This letter correctly sets forth t exanderstanding of Town of Avon, Colorado.
Signature