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Honorable Mayor and Members of the City Council City of Lino Lakes Other information in documents containing audited financial statements Our auditors' opinion, the audited financial statements, and the notes to financial statements should only be used in their entirety. Inclusion of the audited financial statements in a client prepared document, such as an annual report, should be done only with our prior approval and review of the document. Our responsibility for other information in documents containing the City's financial statements and our auditors' report does not extend beyond the financial information identified in our auditors' report. We have no responsibility for determining whether such other information is properly stated and do not have an obligation to perform any procedures to corroborate other information contained in such documents. Planned scope and timing of the audit We performed the audit according to the planned scope and timing previously communicated to you in our meeting about planning matters on January 18, 2011. Significant audit findings Qualitative aspects of accounting practices Management is responsible for the selection and use of appropriate accounting policies. The significant accounting policies used by the City are described in Note 1 to the financial statements. No new accounting policies were adopted and the application of existing policies was not changed during 2010. We noted no transactions entered into by the City during the year for which there is a lack of authoritative guidance or consensus. All significant transactions have been recognized in the financial statements in the proper period. Accounting estimates are an integral part of the financial statements prepared by management and are based on management's knowledge and experience about past and current events and assumptions about future events. Certain 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 sensitive estimates affecting the financial statements were: Estimated useful lives of depreciable capital assets — Management's estimate of useful lives for depreciable assets is based on guidance recommended by authoritative accounting literature and past experiences. The useful life of a depreciable asset determines the amount of depreciation that will be recorded in any given reporting period as well as the amount of accumulated depreciation that is reported at the end of a reporting period. Estimated year -end valuation of investments at fair value — Management's estimate of the fair value of investments is based on published market values at December 31, 2010. We evaluated the key factors and assumptions used to develop the above estimates in determining that it is reasonable in relation to the financial statements taken as a whole. Difficulties encountered in performing the audit We encountered no significant difficulties in dealing with management in performing and completing our audit. (6)