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Mayfield Village Engagement Letter August 3, 2010 Page 2 Our Responsibilities: The Summary of Services above describes our responsibilities for the Village's basic financial statements. We will plan and perform the audit to reasonably assure that the financial statements are free of material misstatement, whether caused by error or fraud. However, there are inherent limitations in auditing that prevent an auditor from providing absolute assurance on the fair presentation of the financial statements. For example, we may limit certain procedures to selective testing of data. Therefore we might not detect material error and fraud if it exists. It is not cost-efficient to design procedures to detect immaterial error or immaterial fraud. Also, because of the characteristics of fraud, including attempts at concealment through collusion and forgery, a properly designed and executed audit may not detect a material fraud. We will communicate all instances where we believe fraud may exist to you. These would include instances where we: • Have persuasive evidence that fraud occurred. • Determined fraud risks exist and were unable to obtain convincing evidence to determine that fraud was unlikely. Similarly, illegal acts may have occurred. However, our audit provides no assurance that illegal acts generally will be detected and only reasonable assurance that we will detect illegal acts directly and materially affecting the determination of financial statement amounts. We will inform you regarding material error or illegal acts that come to our attention. If we find indications of abuse, we will expand our tests to determine its financial statement effect. Government Auditing Standards defines abuse as behavior which while not necessarily a legal violation, is behavior a prudent person would deem improper or deficient. Because this determination is subjective, Government Auditing Standards does not expect auditors to provide reasonable assurance of detecting abuse. If for any reason we are unable to complete the audit or are unable to form an opinion, we may disclaim an opinion on your financial statements. In this unlikely event, we will communicate the reason for terminating the audit to you, and to those charged with governance, in writing. Your Responsibilities: Management and those charged with governance are responsible for: 1. Preparing the financial statements and other financial information, including related disclosures and selecting and applying accounting principles. 2. Reporting fraud and illegal acts of which you are aware to us. 3. Reviewing drafts of the audited financial statements, footnotes, any supplemental information, auditor's reports and any findings; and informing us of any edits you believe may be necessary. 4. You are responsible for designing and implementing programs and controls to prevent and .detect fraud. You should not rely on our audit as your primary means of defecting fraud. Compliance with Laws and Regulations Our Responsibilities As part of reasonably assuring whether the financial statements are free of material misstatement, we will test the Village's compliance with certain provisions of laws, regulations, contracts, and grants if