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I CITY OF ARDEN HILLS, MINNESOTA NOTES TO FINANCIAL STATEMENTS DECEMBER 3 I, 2002 .- I Notel: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A. Reporting Entity The City of Arden Hills operates nnder 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 Conncil Members. The Council exercises legislative authority and detennines 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 nnits for which it is financially accountable, and other organizations for which the nature and significance of their relationship with the City are such that exclusion would cause the City's financial statements to be misleading or incomplete. The Governmental Accounting Standards Board (GASB) has set forth criteria to be considered in determining fmancial accountability. These criteria include appointing a voting majority of an organization's governing body, and (1) the ability of the primary government to impose its will on that organization or (2) the potential for the organization to provide specific benefits ta, or impose specific financial burdens on the primary government. The City has the following component unit. I . . Blended component nnits, although legally separate entities, are, in substance, part of the City's operations and so data from these units are combined witb data of the primary government. The blended component nnit has a December 31 year end. I Blended Component Units I The Economic Development Authority (EDA) of the City was created pursuant to Minnesota statutes 469.090 through 469.108 to carry out economic and industrial development and redevelopment consistent with policies established by the Council. It is comprised of the members of the City Conncil. The EDA activities arc blended and reported in a separate special revenue fund. Separate fll1ancial 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 acconnts. Fnnd acconnting segregates funds according to their intended purpose and is used to aid management in demonstrating compliance with finance- related legal and contractual provisions. The minimum number of fimds are maintained consistent with legal and I managerial requirements. Account groups are a reporting device to account for certain assets and liabilities of the govemmental funds not recorded directly in those funds. Revenue resulting from exchange transactions, in which each party gives and receives essentially equal value, is I recorded on the accmal basis when the exchange takes place. On a modified accrual basis, revenue is recorded in the year in which the resources are measurable and become available. Non-exchange transactions, in which the City receives value without directly giving equal value in return, include I property taxes, grants, entitlement and donations. On an accrual basis, revenue from property taxes is recognized in the year for which the tax is levied. Revenue from grants, entitlements and donations is recognized in the year in which all eligibility requirements have been satisfied. Eligibility requirements include timing requirements, I which specify the year when the resources are required to be used or the year when use is first permitted, matching requirements, in which the City must provide local resources to be used for a specified purpose, and expenditure requirements, in which the resources are provided to the City on a reimbursement basis. On a I modified accrual basis, revenue from non-exchange transactions must also be available before it can be recognized. Deferred revenue arises when assets are recognized before revenue recognition criteria have been satisfied. Grants and entitlements received before eligibility requirements are met are also recorded as deferred revenue. On the modified accrual basis, receivables that will not be collected within the available period have also been reported as deferred revenue. .' I -11- ,