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PINEWOOD SPRINGS WATER DISTRICT <br /> NOTES TO FINANCIAL STATEMENTS <br /> December 31, 2011 and 2010 <br /> NOTE 1 —SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES <br /> This summary of Pinewood Springs Water District's significant accounting policies is to <br /> assist the reader with interpreting the financial statements and other data in this report. The <br /> policies are considered essential and should be read in conjunction with the accompanying <br /> financial statements. <br /> Form of Organization. Pinewood Springs Water District (the "District"), a quasi- <br /> municipal corporation was organized on April 19, 1978, and is governed pursuant to <br /> provisions of the Colorado Special District Act. The District's service area is located in <br /> Larimer County, Colorado. The District was established to provide water services to the <br /> properties within its service area. <br /> Principles Determining Scope of Reporting Entity. The financial statements of the <br /> District have been prepared in conformity with U.S. generally accepted accounting principles <br /> (GAAP) as applied to government units. The Governmental Accounting Standards Board <br /> (GASB) is the accepted standard-setting body for establishing governmental accounting and <br /> financial reporting principles. The District applies all applicable GASB pronouncements as <br /> well as Accounting Standards Codification, that do not conflict with, or contradict, GASB <br /> pronouncements. <br /> Reporting Entity. For financial reporting purposes, management has considered all <br /> potential component units in defining the District. The basic criterion for including a potential <br /> component unit is the District's ability to exercise significant operational control or financial <br /> accountability with the District. Financial relationship or operational control is determined on <br /> the basis of the District's obligation to fund deficits, responsibility for debt, budgetary <br /> authority, fiscal management, selection of governing authority and/or management, and the <br /> ability to significantly influence operations. <br /> The District is not financially accountable for any other organization, nor is the District a <br /> component unit of any other primary governmental entity. <br /> Basis of Accounting. Basis of accounting refers to the point at which revenues or <br /> expenditures are recognized in the accounts and reported in the financial statements. The <br /> accrual basis of accounting is used by the District, recognizing revenue when earned and <br /> expenses as incurred. <br /> The District operates as an "Enterprise Fund" as prescribed in standards for governmental <br /> accounting systems because the intent of the Board is that costs and expenses (including <br /> depreciation) of providing services to its customers be financed or recovered primarily through <br /> user charges. <br /> Page 13 <br />