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AUDIT COMMENTS <br />Land Held for Resale — The City currently holds a material amount of land for resale in the Housing and <br />Redevelopment Special Revenue Fund, which management reports at the lower of cost or net realizable <br />value. City staff has also prepared a schedule comparing the current carrying value of these properties to <br />estimated market values provided by Anoka County to support these values. We recognize the City is <br />working on an ongoing basis to utilize these assets in the best interest of the City. We recommend that <br />the City continue to review these property values and related internal loans on an ongoing basis to ensure <br />a proper reporting of city assets and fmancial activity between funds is accurately presented. <br />SIGNIFICANT ACCOUNTING POLICIES <br />Management is responsible for the selection and use of appropriate accounting policies. The significant <br />accounting policies used by the City are described in Note 1 of the notes to basic financial statements. <br />For the fiscal year ended December 31, 2012, the City implemented Governmental Accounting Standards <br />Board (GASB) Statement No. 63, Financial Reporting of Deferred Outflows of Resources, Deferred <br />Inflows of Resources, and Net Position. GASB Statement No. 63 changed how governmental entities <br />present a statement of net position, adding two new basic financial statement elements, and replacing "net <br />assets" with "net position" as the terminology used to describe the difference between the other four <br />elements. The two basic financial statement elements added are "deferred inflows of resources" and <br />"deferred outflows of resources." These new elements are differentiated from assets (deferred outflows <br />of resources) and liabilities (deferred inflows of resources), but have similar effects on net position. <br />We noted no transactions entered into by the City during the year for which there is a lack of authoritative <br />guidance or consensus. All significant transactions have been recognized in the financial statements in <br />the proper period. <br />ACCOUNTING ESTIMATES AND MANAGEMENT JUDGMENTS <br />Accounting estimates are an integral part of the financial statements prepared by management and are <br />based on management's knowledge and experience about past and current events and assumptions about <br />future events. Certain accounting estimates are particularly sensitive because of their significance to the <br />financial statements and because of the possibility that future events affecting them may differ <br />significantly from those expected. The most sensitive estimates affecting the financial statements were: <br />• Value of Land Held for Resale — These assets are stated at the lower of cost or net realizable <br />value based on management's estimates. <br />• Depreciation — Management's estimates of depreciation expense are based on the estimated <br />useful lives of the assets. <br />• Net Other Post - Employment Benefit (OPEB) Liabilities — Actuarial estimates of the net OPEB <br />obligation is based on eligible participants, estimated future health insurance premiums, and <br />estimated retirement dates. <br />Management expects any differences between estimates and actual amounts of these estimates to be <br />insignificant. We evaluated the key factors and assumptions used to develop these accounting estimates <br />in determining that they are reasonable in relation to the basic financial statements taken as a whole. The <br />financial statement disclosures are neutral, consistent, and clear. <br />DIFFICULTIES ENCOUNTERED IN PERFORMING THE AUDIT <br />We encountered no significant difficulties in dealing with management in performing and completing our <br />audit. <br />-2- <br />