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City of Elk River <br />Required Communication <br />Qualitative Aspects of Significant Accounting Practices (Continued) <br />Significant Accounting Estimates (Continue) <br />Certain accounting estimates are particularly sensitive because of their significance to the basic financial <br />statements and because of the possibility that future events affecting them may differ markedly from <br />management's current judgements. <br />The most sensitive estimates affecting the basic financial statements are: <br />Depreciation and Amortization — The City is currently depreciating or amortizing its capital assets <br />over their estimated useful lives, as determined by management, using the straight-line method. <br />Expense Allocation — Certain expenses are allocated to programs based on an estimate of the benefit <br />to that particular program. Examples are salaries, benefits, and supplies. <br />Total Other Post Employment Benefits (OPEB) Liability, Deferred Outflows of Resources Related <br />to OPEB and Deferred Inflows of Resources Related to OPEB — These balances are based on an <br />actuarial study using the estimates of future obligations of the City for post employment benefits. <br />Net Pension Liability, Deferred Outflows of Resources Related to Pensions and Deferred Inflows of <br />Resources Related to Pensions — These balances are based on an allocation by the pension plans <br />using estimates based on contributions. <br />We evaluated the key factors and assumptions used to develop the accounting estimates and determined <br />that they are reasonable in relation to the basic financial statements taken as a whole and in relation to <br />the applicable opinion units. <br />Financial Statement Disclosures <br />Certain basic financial statement disclosures involve significant judgment and are particularly sensitive <br />because of their significance to financial statement users. The basic financial statement disclosures are <br />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 of <br />the audit. <br />Uncorrected and Corrected Misstatements <br />For the purposes of this communication, professional standards require us to accumulate all known and <br />likely misstatements identified during the audit, other than those that we believe are trivial, and <br />communicate them to the appropriate level of management. Further, professional standards require us to <br />also communicate the effects of uncorrected misstatements related to prior periods on the relevant <br />classes of transactions, account balances or disclosures, and the basic financial statements taken as a <br />whole and each applicable opinion unit. Management did not identify, and we did not notify them of any <br />uncorrected financial statement misstatements. <br />5 <br />