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City of Lake Elmo <br />February 17, 2006 <br />Page Two <br />Accounting Estimates <br />Accounting estimates are an integral part of the financial statements prepared by management and are based on management's <br />knowledge and experience about past and current events and assumptions about future events. Certain accounting estimates are <br />particularly sensitive because of their significance to the financial statements and because of the possibility that future events <br />affecting them may differ significantly from those expected. The most significant estimate affecting the financial statements was <br />depreciation on capital assets. <br />Management's estimate of depreciation is based on estimated useful lives of the assets. We evaluated the key factors and <br />assumptions used to develop this estimate in determining that it is reasonable in relation to the financial statements taken as a <br />whole. <br />Audit Adjustments <br />For purposes of this letter, professional standards define an audit adjustment as a proposed correction of the financial statements <br />that, in our judgment, may not have been detected except through our auditing procedures. An audit adjustment may or may not <br />indicate matters that could have a significant effect on the City's financial reporting process (that is, cause future financial <br />statements to be materially misstated). In total, we made 57 journal entries. The entries listed below are the result of our testing. <br />The City will get better information as staff eliminates the need for these year end audit and accounting adjustments. There were <br />no unadjusted audit differences. <br />Adjusting Journal Entries JE # 4 <br />To adjust withholding liability to zero against health expense based on <br />% total of unadjusted balance <br />101-000-0000-21706 Medical Insurance <br />101-000-0000-21708 Other Benefits <br />601-000-0000-10100 Cash <br />602-000-0000-10100 Cash <br />101-000-0000-10100 <br />101-410-1320-41300 <br />101-410-1520-41300 <br />101-410-1910-41300 <br />101-420-2220-41300 <br />Cash <br />Health/Dental Insurance <br />Health/Dental Insurance <br />Health/Dental Insurance <br />Health/Dental Insurance <br />101-420-240041300 Health/Dental Insurance <br />101-430-3100-41300 Health/Dental Insurance <br />101-450-5200-41300 <br />601494-9400-41300 <br />602495-9450-41300 <br />Total <br />Health/Dental Insurance <br />HealthlDental Insurance <br />Health/Dental Insurance <br />Debit Credit <br />21,736 <br />3,993 <br />2,528 <br />609 <br />3,137 <br />3,572 <br />1,658 <br />2,985 <br />4,914 <br />3,721 <br />4,221 <br />1,521 <br />2,528 <br />609 <br />$ 28,866 $ 28,866 <br />952.835.9090 • Fax 952.835.3261 <br />w .aemcpas.com <br />