ERMUSR FINIANCIALS 04-17-2008 - Laserfiche WebLink

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Elk River Municipal Utilities April 7, 2008 Page 3 A material weakness is a significant deficiency, or combination of significant deficiencies, that result in more than a remote likelihood that a material misstatement of the fmancial statements will not be prevented or detected by the entity's internal control We believe the following deficiency constitutes a material weakness. 2007-2 Material Audit Adjustments Condition: During our audit, adjustments were needed to correct recording of accounts payable, accumulated depreciation, depreciation expense, and restricted cash. Criteria: The fmancial statements are the responsibility of the Utilities' management. Cause.• The Utilities has, in the past, relied on the audit for specific adjustments. Effect: This indicates that it would be likely that a misstatement may occur and not be detected by the Utilities' System of internal control. The audit firm can not serve as a compensating control over this deficiency. Recommendation: We recommend that management review each journal entry, obtain an understanding of why the entry was necessary and modify current procedures to ensure that future corrections are not needed. Compliance As part of obtaining reasonable assurance about whether the financial statements are free of material misstatement, we performed tests of compliance with certain provisions of laws, regulations, contracts and grants. However, the objective of our tests was not to provide an opinion on compliance with such provisions. We noted no instances ofnon-compliance during our audit. Planned Scope and Timing of the Audit We performed the audit according to the planned scope and timing. Qualitative Aspects of Accounting Practices Management is responsible for the selection and use of appropriate accounting policies. In accordance with the terms of our engagement letter, we will advise management about the appropriateness of accounting policies and their application. The significant accounting policies used by the Utilities 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 the year ended December 31, 2007. We noted no transactions entered into by the governmental unit during the year for which there is a lack of authoritative guidance or consensus. There are no significant transactions that have been recognized in the financial statements in a different period than when the transaction occurred. Accounting estimates are an integral part of the fmancial 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 fmancial statements and because of the possibility that future events affecting them may differ significantly from those expected. The most sensitive estimate affecting the financial statements was capital asset basis and depreciation. Management's estimate of these accounting estimates is based on estimated or actual historical cost and the estimated useful lives of capital assets. We evaluated the key factors and assumptions used to develop these accounting estimates in determining that it is reasonable in relation to the fmancial statements taken as a whole. The disclosures in the fmancial statements are neutral, consistent, and clear. Certain fmancial statement disclosures are particularly sensitive because of their significance to fmancial statement users. 952.835.9090 Fax 952.835.3261 www.aemcpas.com