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<br /> <br />City of Hugo <br />Page 3 <br />Qualitative Aspects of the Entity’s Significant Accounting Practices (continued) <br />Significant Accounting Estimates and Related Disclosures <br />Accounting estimates and related disclosures are an integral part of the financial statements <br />prepared by management and are based on management’s current judgments. Those judgments <br />are normally based on knowledge and experience about past and current events and assumptions <br />about future events. Certain accounting estimates are particularly sensitive because of their <br />significance to the financial statements and because of the possibility that future events affecting <br />them may differ markedly from management’s current judgments. <br />The most sensitive accounting estimates affecting the financial statements are: <br />Net Pension Liability and Asset <br />Management’s estimate of the net pension liability and asset are actuarially determined. We <br />have evaluated the estimates used in the actuarial studies and determined they were <br />reasonable in relation to the basic financial statements taken as a whole and in relation to the <br />applicable opinion units. <br /> Depreciation of Capital Assets <br />Management’s estimate of the useful life of purchased, constructed or contributed capital <br />assets is based on the estimated productive life of these assets. We evaluated key factors <br />and assumptions used to develop the estimated useful lives assigned to capital assets and <br />determined that it is reasonable in relation to the basic financial statements taken as a whole <br />and in relation to the applicable opinion units. <br />Financial Statement Disclosures <br />The financial statement disclosures are neutral, consistent and clear. <br />Significant Difficulties Encountered during the Audit <br />We encountered no significant difficulties in dealing with management relating to the performance <br />of the audit. <br />Uncorrected and Corrected Misstatements <br />For purposes of this communication, professional standards also require us to accumulate all <br />known and likely misstatements identified during the audit, other than those that we believe are <br />trivial, and communicate them to the appropriate level of management. Further, professional <br />standards require us to also communicate the effect of uncorrected misstatements related to prior <br />periods on the relevant classes of transactions, account balances or disclosures, and the financial <br />statements as a whole and each applicable opinion unit. The attached schedule summarizes <br />uncorrected financial statement misstatements whose effects in the current and prior periods, as <br />determined by management, are immaterial, both individually and in the aggregate, to the <br />financial statements taken as a whole. Uncorrected misstatements or matters underlying those <br />uncorrected misstatements could potentially cause future-period financial statements to be <br />materially misstated, even though the uncorrected misstatements are immaterial to the financial <br />statements currently under audit.