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~~~ ATTAcHMEN?~IA Page 2 Our examination w~ll be conducted in acnordanee with generally accepted auditing standards. It will also take into considera- tion the Statutes of NOrth Carolina; regulations promulgated by the North Carolina Local Government Commission; the publication of the MUnicipal Finance Officers Association, "Governmental Accounting, Auditing and Financial RepOrting"; National Council on Governmental Accounting Statements and Interpretations; and pronouncements o! the Governmental Accounting Standards Board. Also, in accordance with Attachment P to OMB Circular A-102, (the provisions of which were adopted by Congress and passed into law by the Single Audit Act of 1984), we will conduct a single audit, that is, a financial and compliance examination of all state, federal and local grants and awards. The examination shall be performed in accordance with the General Accounting Office Stan- dards for Audit of Gove__r~ Orsanlzations, Pr__o~_~_ms, 4ctivi- ties and Functions the Guidelines for Financial and Compliance Audits of Federal~ AsSisted Pro~rams., compliance supplements approved by OMB, comPliasce requirements contained in applicable sections of North Carolina ~eneral statutes and ~en~rally accepted auditing standards established by the American Institute of Certified Public Accountants. Under generally accepted audlting standards the independent auditor has the responsibility, within the inherent limitations of the auditin~ process, to plan the examination to search for errors or irregularities (as defined In authoritative profes- sional literature) that would have a material effect on the financial statements. Our search for material errors or irregu- larities ordinarily is accomplished by performln6 those auditing procedures that in our judgment are appropriate in the circum- stances to form an opinion on the financial statements as a whole. Our examination, which is based on the concept of selec- tive testin~ of the data being examined, is sub~ect to the inherent risk that material errors or irregularities, 'if ~hey exist, will not be detected. In conducting our examination, we will be aware of the responsi- bility that illegal acts (as defined in authoritative profes- sional literature) may have occurred that may have a material effect on the financial statements. Examinations conducted in accordance with ~enerally accepted auditing standards are of [imited effectiveness in discovering possible illegal acts and cannot be expected to provide assurance that illegal acts will be detected, although procedures that are performed primarily for the purpose of formin~ an opinion on the financial statements as a whole may also bring possible illegal acts to the auditor's attention.