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<br /> <br />Accounting estimates are an integral part of the financial statements prepared by management and are based on <br />management’s knowledge and experience about past and current events and assumption about future events. Certain <br />accounting estimates are particularly sensitive because of their significance to the financial statements and because of <br />the possibility that future events affecting them may differ significantly from those expected. The most sensitive <br />estimates affecting the financial statements are included below: <br /> <br />• Management’s estimate of depreciation is based on estimated useful lives of the assets. Depreciation is <br />calculated using the straight-line method. <br /> <br />• Allocations of gross wages and payroll benefits are approved by the City Council within the City’s budget and are <br />derived from each employee’s estimated time to be spent serving in the respective function of the City. These <br />allocations are also used in allocating accrued compensated absences payable. <br /> <br />• Management’s estimate of its pension liability is based on several factors including, but not limited to, anticipated <br />investment return rate, retirement age for active employees, life expectancy, salary increases and form of annuity <br />payment upon retirement. <br /> <br />• Management’s estimate of its lease receivable is based on the present value of lease payments expected to be <br />received during the lease term. <br />We evaluated the key factors and assumptions used to develop these estimates in determining that they are reasonable in <br />relation to the financial statements as a whole. The disclosures in the financial statements are neutral, consistent, and <br />clear. Certain financial statement disclosures are particularly sensitive because of their significance to financial <br />statement users. <br /> <br />Difficulties Encountered in Performing the Audit <br /> <br />We encountered no significant difficulties in dealing with management in performing and completing our audit. <br /> <br />Corrected and Uncorrected Misstatements <br /> <br />Professional standards require us to accumulate all known and likely misstatements identified during the audit, other than <br />those that are trivial, and communicate them to the appropriate level of management. Management has corrected all such <br />misstatements. In addition, none of the misstatements detected as a result of audit procedures and corrected by <br />management were material, either individually or in the aggregate, to the financial statements taken as a whole. <br /> <br />Disagreements with Management <br /> <br />For purposes of this letter, professional standards define a disagreement with management as a financial accounting, <br />reporting, or auditing matter, whether or not resolved to our satisfaction, that could be significant to the financial <br />statements or the auditor’s report. We are pleased to report that no such disagreements arose during the course of our <br />audit. <br /> <br />Management Representations <br /> <br />We have requested certain representations from management that are included in the management representation letter <br />dated NEED DATE. <br /> <br />Management Consultations with Other Independent Accountants <br /> <br />In some cases, management may decide to consult with other accountants about auditing and accounting matters, <br />similar to obtaining a “second opinion” on certain situations. If a consultation involves application of an accounting <br />principle to the City’s financial statements or a determination of the type of auditor’s opinion that may be expressed on <br />those statements, our professional standards require the consulting accountant to check with us to determine that the <br />consultant has all the relevant facts. To our knowledge, there were no such consultations with other accountants. <br /> <br />DRAFT <br />4