Management’s Report of Internal Control
Over Financial Reporting
The Corporation’s management is responsible for establishing and maintaining
adequate internal control over financial reporting. This internal control system was
designed to provide reasonable assurance to management and the Board of Directors as
to the reliability of the Corporation’s financial reporting and the preparation and
presentation of financial statements for external purposes in accordance with accounting
principles generally accepted in the United States, as well as to safeguard assets from
unauthorized use or disposition.
An internal control system, no matter how well designed, has inherent limitations.
Therefore, even those systems determined to be effective can provide only reasonable
assurance with respect to financial statement preparation and presentation and may not
prevent or detect mis-statements in the financial statements or the unauthorized use or
disposition of the Corporation’s assets. Also, projections of any evaluation of
effectiveness of internal controls to figure periods are subject to the risk that controls may
become inadequate because of changes in conditions, or that the degree of compliance
with policies and procedures may deteriorate.
Management assessed the effectiveness of the Corporation’s internal control over
financial reporting as of December 31, 2006, based on the criteria set forth by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO) in
Internal Control–Integrated Framework. Based on this assessment and on the foregoing
criteria, management has concluded that, as of December 31, 2006, the Corporation’s
internal control over financial reporting is effective.
Beard Miller Company LLP, an independent registered public accounting firm, has
audited the Consolidated Financial Statements of the Corporation for the year ended
December 31, 2006, appearing elsewhere in this annual report, and has issued an
attestation report on management’s assessment of the effectiveness of the Corporation’s
internal control over financial reporting as of December 31, 2006, as stated in their report,
which is included herein.
William B. Grant
Chairman of the Board and
Chief Executive Officer
Report of Independent Registered
Public Accounting Firm
The Board of Directors and Shareholders
First United Corporation
Oakland, Maryland
We have audited the accompanying consolidated statements of financial condition of First
United Corporation and subsidiaries as of December 31, 2006, and the related consolidated
statements of income, changes in stockholders’ equity, and cash flows for the year then ended.
These consolidated financial statements are the responsibility of the First United
Corporation’s management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audit. The consolidated financial statements of First United
Corporation for the years ended December 31, 2005 and 2004 were audited by other
auditors, whose report dated March 9, 2006, expressed an unqualified opinion on those
statements.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all
material respects, the consolidated financial position of First United Corporation and its
subsidiaries as of December 31, 2006, and the consolidated results of its operations and its
cash flows for the year then ended, in conformity with accounting principles generally
accepted in the United States of America.
As discussed in Note 1 to the consolidated financial statements, the Corporation changed
its method of accounting for its defined benefit pension plan in 2006.
We also have audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the effectiveness of First United Corporation’s
internal control over financial reporting as of December 31, 2006, based on criteria
established in Internal Control—Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO), and our report dated
March 9, 2007, expressed an unqualified opinion on management’s assessment of internal
control over financial reporting and an unqualified opinion on the effectiveness of internal
control over financial reporting.
