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I f'lL~ City of Ardc11 Hills Apn114,2006 Page Two . As part of obtaining reasonable assurance about whether the financial statements. are free of material misstatement, we perfanned tests of compliance with certain provisions of laws, regulations, contracts and grants. However, the objective of our tests \Vas not to provide an opinion on compliance wIth such provisions. We noted one instances of noncompliance wIth Minnesota statutes as follows: Declaration for payment Minnesota statute 471.38 requires that each declaration for payment be signed to the effect that such account, claim, or demand is just and coneel and that no part of it has been paid. The statute IS satisfied jf on the back of City checks is a declaration as defined in Minnesota statute 471.391 reading "] declare under tne penalties of]aw that this account, claim or demand is just and coneet and that no part of it nas been paid:' The Clty did not have the required statement on the back of their check in 2005. Management Response Management understands the fi.nding and 'has since taken steps to correct the noncompliance. Significant Accounting Policies Management has the responsibility for selection and use of apPTOpriate accounting polrcies. In accordance ",nth the terms of our engagement letter, we will advise management about the appropriateness of accounting policies and their application. The significant accounting policies used by the City are described jn Note 1 to the financial statements. The eny implemented the requirements ofGASB Statement No. 40 - Deposit and lnvestmenl l?isk Disclosures - an amendment ofGASB Statement No.3 during 2005. .We noted no transactions entered into by the City during the year that \Vere both signiflcant and unusual, and of whjcn, under professional standards, we are required to jnfonn you, or transactions for which there is a lack of authoritative gUldaiicc OT consensus. . Accounting Estimates Accounting estimates are an integral part of the financial statements prepared hy management and are based on management's knowledge and experience about past and current events and assumphons about future events. Certam accounting estimates are particularly sensitive because of their significance to the financial statements and because of the possibility that future events affecting them may differ significantly from those expected. The most significant estimates affecting the financial statements were capital asset basis and depreciation. Management's estimate of depreciation is based on estimated useful lIves of lhe assets. We evaluated the key factors and assumptions uscd to develop these accounting estimates in detennining that it is reasonable in relation to the financial statements taken as a whole. Audit Adjustments For purposes of this letter, professional standards define an audit adjustment as a proposed correction of the financial statements that, in our judgrnellt, may not have been detected except through our auditing procedures. An audit adjustment mayor may not indicate matters that could have a significant effect on the City's finanCIal reporting process (that is, cause future financial statements to be matelially misstated).]n our judgment, none of the adjustments we proposed, whether recorded or unrecorded by the City, either indiVIdually or in the aggregate, indicate matters that could have a sibrnificant effecl on the City's financial reporting process. vVe did propose 31 journal entries, which \>".'e considered 22 8S year end accounting entries that a City should make in order to have accurate records before an audit begins. We encourage the City to reduce the accounting ennics necessary to adjust year end balances. We reported no uncorrected rmsstatemenTs. . 952.835.90<)0 . fJX 1);}LS:35.:326] WWW.,leJll<.:p,l";.\."OHll