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Compliance <br /> As part of obtaining reasonable assurance about whether the financial statements are free of material misstatement,we performed tests <br /> of compliance with certain provisions of laws,regulations,contracts and grants,noncompliance with which could have a direct and <br /> material effect on the determination of financial statement amounts.However,providing an opinion on compliance with those <br /> provisions was not an objective of our audit.The results of our tests disclosed no instances of noncompliance or other matters that are <br /> required to be reported under statutes set forth by the State of Minnesota. <br /> Qualitative Aspects of Accounting Practices <br /> Management is responsible for the selection and use of appropriate accounting policies.The significant accounting policies used by <br /> the Utilities are described in Note 1 to the financial statements.The Utilities changed accounting policies during 2016 related to fair <br /> market value and application(GASB 72),accounting and financial reporting for pension and related assets not within the scope of <br /> GASB 68,including amendments to certain provisions GASB Statement No.67 and No.68(GASB 73),and certain external <br /> investment pools and pool participants(GASB 79).We noted no transactions entered into by the Utilities during the year for which <br /> there is a lack of authoritative guidance or consensus.All significant transactions have been recognized in the financial statements in <br /> the proper period. <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 affecting <br /> them may differ significantly from those expected.The most sensitive estimates affecting the financial statements were depreciation <br /> on capital assets,payroll related expenses,the liability for the Utilities' Other Post-Employment Benefits(OPEB),and the liability for <br /> the Utilities' pensions. <br /> • Management's estimate of depreciation is based on estimated useful lives of the assets.Depreciation is calculated using the <br /> straight-line method. <br /> • Allocations of gross wages and payroll benefits are approved by the Board within the Utilities' budget and are derived from <br /> each employee's estimated time to be spent servicing the respective functions of the Utility.These allocations are also used in <br /> allocating accrued compensated absences payable. <br /> • Management's estimate of its OPEB liability is based on several factors including,but not limited to,anticipated retirement <br /> age for active employees,life expectancy,turnover,and healthcare cost trend rate. <br /> • Management's estimate of its pension liability is based on several factors including,but not limited to,anticipated investment <br /> return rate,retirement age for active employees,life expectancy,salary increases and form of annuity payment upon <br /> retirement. <br /> We evaluated the key factors and assumptions used to develop these accounting estimates in determining that it is reasonable in <br /> relation to the financial statements taken as a whole.The disclosures in the financial statements are neutral,consistent,and clear. <br /> Certain financial statement disclosures are particularly sensitive because of their significance to financial statement users. <br /> Difficulties Encountered in Performing the Audit <br /> We encountered no significant difficulties in dealing with management in performing and completing our audit. <br /> Corrected and Uncorrected Misstatements <br /> Professional standards require us to accumulate all known and likely misstatements identified during the audit,other than those that <br /> are trivial,and communicate them to the appropriate level of management.Management has corrected all such misstatements.In <br /> addition,none of the misstatements detected as a result of audit procedures and corrected by management were material,either <br /> individually or in the aggregate,to each opinion unit's financial statements taken as a whole. <br /> Management Representations <br /> We have requested certain representations from management that are included in the management representation <br /> letter dated March 30,2017. <br /> People <br /> +Process. <br /> Going <br /> Beyond the <br /> -2- Nuiiibers <br /> 68 <br />