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CITY OF LINO LAKES, MINNESOTA NOTES TO FINANCIAL STATEMENTS December 31, 2012 35 Note 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The City of Lino Lakes is a public corporation formed under Minnesota Statute 410. As such, the City is under home rule charter regulations and applicable statutory guidelines. The basic financial statements of the City of Lino Lakes have been prepared in conformity with U.S. generally accepted accounting principles as applie d to governmental units by the Gove rnmental Accounting Standards Board (GASB). The following is a summary of the significant accounting policies: A. FINANCIAL REPORTING ENTITY As required by U.S. generally accep ted accounting principles, the financ ial statements of the reporting entity include those of the City of Lino Lakes and its component un its. A component unit is a legally separate entity for which the primary government is fi nancially accountable, or fo r which the exclusion of the component unit would render the financial statements of the primary government misleading. The criteria used to determine if th e primary government is financially accountable for a component unit include whether or not the primary government appoints the voting majority of the potential component unit’s board, is able to impose its will on the potential component unit, is in a relationship of financial benefit or burden with the potential component un it, or is fiscally depended upon by the potential component unit. COMPONENT UNITS In conformity with U.S. generally accepted accounting principles, the financial statements of component units have been included in the fina ncial reporting entity either as blende d component units or as discretely presented component units. Blended Component Units The Economic Development Authority (EDA) of Lino Lakes is an entity legally separate from the City. However, for financial reporting purposes, the EDA is re ported as if it were part of the City's operations because the members of the City Council serve as commission members. The EDA does not issue separate financial statements. The Housing and Redevelopment Authority (HRA) of Lino Lakes is an entity legally separate from the City. However, for financial reporting purposes, the HRA is reported as if it were part of the City's operations because the members of the City Council serve as commission members. The HRA has not yet incurred any financial activity. B. BASIC FINANCIAL STATEMENTS 1. Government-Wide Statements The government-wide financial statements (i.e., th e statement of net position and the statement of activities) display information about the primary gove rnment and its component units. These statements include the financial activities of the overall City gove rnment, except for fiduciary activities. Governmental activities, which normally are supported by taxes and in tergovernmental revenues, are reported separately from business-type activities, which rely to a significant extent on fees and charges to external parties for support. As a general rule, the effect of interfund activity has been eliminated from the government-wide financial statements. Exceptions to this general rule are charges between the City’s enterprise funds and various other functions of government . Eliminations of these charges would distort the direct costs and program revenues reported for the various functions concerned.