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I I. Note 1: I I I I I I I I- I I I I I I I. I I CITY OF ARDEN HILLS, MINNESOTA NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2001 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A. Reporting Entity The City of Arden Hills operates under the "Optional Plan A" form of government as defined in the State of Minnesota Statutes. Under this plan, the government of the City is directed by a Council composed of an elected Mayor and four elected Council Members. The Council exercises legislative authority and determines all matters of policy. The Council appoints personnel responsible for the proper administration of all affairs relating to the City. The City has considered all potential units for which it is financially accountable, and other organizations tor which the nature and significance of their relationship with the City are such that exclusion would cause the City's [mancial statements to be misleading or incomplete. The Governmental Accounting Standards Board (GASB) has set forth criteria to be considered in determining financial accountability. These criteria include appointing a voting majority of an organization's governing body, and (I) the ability of the primary government to impose its will on that organization or (2) the potential for the organization to provide specific benefits to, or impose specific financial burdens on the primary government. The City has the following component unit. Blended component units, although legally separate entities, are, in substance, part of the City's operations and so data from these units are combined with data of the primary government. The blended component unit has a December 31 year end. Blended Component Units The Economic Development Authority (EDA) of the City was created pursuant to Minnesota Statutes 469.090 through 469.108 to carry out economie and industrial development and redevelopment consistent with policies established by the Council. It is comprised oflhe members of the City Council. The EDA activities are blended and reported in a separate special revenue fund. Separate financial statements are not issued for this component unit. B. Measurement Focus, Basis of Accounting and Basis of Presentation The accounts of the City are organized and operated on the basis of funds and account groups. A fund is an independent fiscal and accounting entity with a self-balancing set of accounts. Fund accounting segregates funds according to their intended purpose and is used to aid management in demonstrating compliance with fmance- related legal and contractual provisions. The minimum number of funds are maintained consistent with legal and managerial requirements. Account groups are a reporting device to accOlmt for certain assets and liabilities of the governmental funds not recorded directly in those funds. The City has the following fund types and account groups: Governmentalfunds are used to account fOT the City's general government activities. Governmental fund types use the flow of current [mancial resources measurement focus and the modified accrual basis of accounting. Under the modified accrual basis of accounting, revenues are recognized when susceptible to accrual (i.e., when they are "measurable and available"). "Measurable" means the amount of the transaction can be determined, and "available" means collectible within the current period or soon enough thereafter to pay liabilities of the current period. The City considers all revenues available if they are collected within 60 days after year end. Expenditures are recorded when the related fund liability is incurred, except for unmatured interest on general long-term debt which is recognized when due, and certain compensated absences and claims and judgments which are recognized when the obligations are expected to be liquidated with expendable available [mancial resources. Property taxes, franchise taxes, licenses, interest and special assessments are susceptible to accrual. Other receipts and taxes become measurable and available when cash is received by the govenunent and are recognized as revenue at that time. The preparation of general purpose financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. -11-