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Page 1 of] Dolby, Michael From: Rinehart, Phyllis Sent: Thursday, June 14, 2007 7:54 AM To: Joerns, John Cc: Dolby, Michael Subject: response from auditor Mr. Joems, Here are my notes from a telephone conversation with Tom Pedersen with Null-Lairson: City can have the actuarial study done. GASB 45 does not require the City to fund the liability. What will be reported in the audit report as a liability in the government wide financial statements will be the difference between the actuarial annual required contribution and any amounts paid in the current year. This amount will be reported in the government wide financial statements as a liability. No GASB 45 liabilities will be reported on the fund financial statements. The city will most likely then be issued an unqualified opinion. If the city chooses not to have the study done as permitted by State law, then it should follow the rules as set forth by the state comptroller once the law has been passed and the comptroller has established rules. If the city follows the rules promulgated by the Comptroller's Office, then the auditors may issue an unqualified opinion on the financial statements prepared on a regulatory basis of accounting. The opinion would include a paragraph which explains that the financial statements were not prepared in accordance with generally accepted accounting principles. If the City chooses this option and does not follow the rules established by the Comptroller's Office, the auditor's would have to issue either an adverse or qualified opinion. If the City chooses not to implement GASB 45, then there is not any certainty how the City's bond ratings will be affected (if any) or how the city' participation in the GFOA certification program will be affected. Tom Pedersen and Chris Breaux are available for questions and can ::I1so attend the city council if necessary . Phyllis 6/19/2007