CORNERSTONE SCHOOLS ASSOCIATION Detroit, Michigan

Transcription

1 Detroit, Michigan FINANCIAL STATEMENTS Including Independent Auditors' Report

2 TABLE OF CONTENTS Independent Auditors' Report 1 Financial Statements Statements of Financial Position 2 Statements of Activities and Changes in Net Assets 3 Statements of Cash Flows 4 Statements of Functional Expenses 5 Notes to Financial Statements 6-15

3 INDEPENDENT AUDITORS' REPORT Board of Directors Cornerstone Schools Association Detroit, Michigan We have audited the accompanying financial statements of Cornerstone Schools Association (the "Association"), which comprise the statements of financial position as of July 31, 2016 and 2015, and the related statements of activities, cash flows, and functional expenses for the years then ended, and the related notes to the financial statements. Management's Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditors' Responsibility Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors' judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Association as of July 31, 2016 and 2015, and the changes in its net assets and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America. Southfield, Michigan April 13, 2017 Page 1

4 STATEMENTS OF FINANCIAL POSITION As of July 31, 2016 and 2015 ASSETS CURRENT ASSETS Cash and cash equivalents $ 354,686 $ 540,376 Receivables, net of allowances Tuition receivable - 17,435 Contributions receivable 415, ,505 Other receivable 35,619 31,128 Accounts receivable charter schools 5, Prepaid expenses 14, ,775 Other current assets 3,750 2,815 Total Current Assets 828,909 1,276,909 PROPERTY AND EQUIPMENT, NET 9,484,098 10,009,960 OTHER ASSETS cash and cash equivalents 667, ,065 Contributions receivable, net of current, net of allowance 978,738 1,379,346 TOTAL ASSETS $ 11,959,370 $ 13,026,280 LIABILITIES AND NET ASSETS CURRENT LIABILITIES Short-term debt $ 177,083 $ 302,083 Accounts payable 229, ,700 Accrued payroll 66,395 80,803 Deferred tuition, special event revenue and fees 163, ,161 Current maturities of long term debt 186, ,000 Current maturities of related party note payable - 55,000 Other current liabilities 79,192 14,000 Total Current Liabilities 902,153 1,416,747 LONG-TERM LIABILITIES Long-term debt - net of current portion - 906,200 Related party note payable, net of current portion - 220,000 Total Liabilities 902,153 2,542,947 NET ASSETS Unrestricted 7,536,423 6,555,932 Temporarily restricted 2,853,169 3,567,336 Permanently restricted 667, ,065 Total Net Assets 11,057,217 10,483,333 TOTAL LIABILITIES AND NET ASSETS $ 11,959,370 $ 13,026,280 See accompanying notes to financial statements. Page 2

5 STATEMENTS OF ACTIVITIES AND CHANGES IN NET ASSETS For the Years Ended July 31, 2016 and 2015 Unrestricted Temporarily Permanently Total Unrestricted Temporarily Permanently SUPPORT AND REVENUE Student tuition and fees, net $ 1,737,226 $ - $ - $ 1,737,226 $ 2,414,251 $ - $ - $ 2,414,251 Special events 1,131, ,131,038 1,081, ,081,269 Contributions and other support 3,526,660 1,299, ,560 5,133,627 3,815, ,153 33,151 4,381,576 Investment income Support services revenue 355, , , ,532 Auxiliary activities and other 170, , , ,754 Loss on sale of fixed assets (27,021) - - (27,021) Other 5, , Net assets released from restrictions 2,013,635 (2,013,635) ,691 (660,691) - - Total Support and Revenue 8,912,947 (714,167) 307,560 8,506,340 8,774,769 (126,956) 33,151 8,680,964 EXPENSES Educational and auxiliary costs 6,639, ,639,914 7,092, ,092,829 General and administrative 222, , , ,390 Development and fundraising activities 1,070, ,070,090 1,352, ,352,515 Total Expenses 7,932, ,932,456 8,897, ,897,734 Total CHANGE IN NET ASSETS 980,491 (714,167) 307, ,884 (122,965) (126,956) 33,151 (216,770) NET ASSETS - Beginning of Year 6,555,932 3,567, ,065 10,483,333 6,678,897 3,694, ,914 10,700,103 NET ASSETS - END OF YEAR $ 7,536,423 $ 2,853,169 $ 667,625 $ 11,057,217 $ 6,555,932 $ 3,567,336 $ 360,065 $ 10,483,333 See accompanying notes to financial statements. Page 3

6 STATEMENTS OF CASH FLOWS For the Years Ended July 31, 2016 and CASH FLOWS FROM OPERATING ACTIVITIES Change in Net Assets $ 573,884 $ (216,770) Adjustments to reconcile change in net assets to net cash flows from operating activities Depreciation 528, ,402 Bad debt expense 322, ,685 Discount for contribution receivable (188,806) 405,024 Loss on sale of asset 27,201 - contributions (307,560) (33,151) Changes in assets and liabilities Tuition receivable 17,435 - Contributions receivable (597,375) (668,449) Other receivable (4,491) 10,398 Accounts receivable charter schools (4,320) 3,868 Prepaid expenses 166,410 11,283 Other current asset (935) (1,312) Accounts payable (108,959) (159,317) Deferred tuition, special event revenue and fees, net (545,292) (418,048) Accrued payroll (14,408) 22,718 Other current liabilities 65,192 (4,342) Net Cash Flows from Operating Activities (70,911) (186,011) CASH FLOWS FROM INVESTING ACTIVITIES Purchase of property and equipment, net (29,779) (24,410) Change in restricted cash and cash equivalents (307,560) (33,151) Net Cash Flows from Investing Activities (337,339) (57,561) CASH FLOWS FROM FINANCING ACTIVITIES Payments on short-term debt (125,000) (180,000) Payments on long-term debt - (240,000) Proceeds from related party 40,000 - Proceeds from restricted contributions 307,560 33,151 Net Cash Flows from Financing Activities 222,560 (386,849) Net Change in Cash and Cash Equivalents (185,690) (630,421) CASH AND CASH EQUIVALENTS - Beginning of Year 540,376 1,170,797 CASH AND CASH EQUIVALENTS - END OF YEAR $ 354,686 $ 540,376 Supplemental cash flow disclosures Cash paid for interest $ 9,644 $ 14,076 Noncash investing and financing activities Forgiveness of long-term debt by related party $ 960,000 $ 97,934 Forgiveness of contributions receivable from related party $ 960,000 $ 97,934 See accompanying notes to financial statements. Page 4

7 STATEMENTS OF FUNCTIONAL EXPENSES For the Years Ended July 31, 2016 and Program Management and General Fundraising 2016 Total Program Management and General Fundraising 2015 Total Salaries, wages and benefits $ 3,067,451 $ 69,644 $ 575,666 $ 3,712,761 $ 3,715,552 $ 151,026 $ 774,498 $ 4,641,076 Contract personnel 406,344 14,040 72, , ,352 4,796 74, ,223 Food program 208, , , ,485 Athletics expense 51, , Professional services 243,491 31, , ,249 24, ,980 Office supplies 39,571 2,424 10,708 52,703 42,904 2,267 15,160 60,331 Textbooks and classroom supplies 93, , , ,911 E-Learning 48, , Utilities 251,976 15,829 13, , ,785 56,203 8, ,635 Hiring, development and retention 23,530 2,863 2,375 28,768 18,599 1,017 7,522 27,138 Student admission and collections , ,514 Bad debt expense 322, , , ,685 Other 96,537 6,348 7, , ,374 5,550 13, ,224 Certification and dues 14,551 1, ,204 21,272 1, ,258 Hardware, software and IT supplies 74,385 7,780 23, ,692 88,922 8,859 19, ,128 Field trips and campus events 125, , ,799-1, ,596 Repairs and maintenance 258,262 16,235 14, , ,748 59,616 9, ,836 Fundraising and event 13, , ,267 7, , ,465 School marketing 92, , , ,690 Insurance and security 167,156 10,501 9, , ,898 36,612 5, ,143 Grants 448, , , , ,356 Interest 14, ,502 17,738 26,181 1,389 5,244 32,814 Depreciation 472,902 29,706 25, , ,173 98,132 15, ,402 In-kind 102,659 13, , ,844 6,844 Total Expenses $ 6,639,914 $ 222,452 $ 1,070,090 $ 7,932,456 $ 7,092,829 $ 452,390 $ 1,352,515 $ 8,897,734 See accompanying notes to financial statements. Page 5

8 NOTE 1 - Summary of Significant Accounting Policies Nature of Activities Cornerstone Schools Association (the "Association") was incorporated under the laws of the State of Michigan on May 15, 1991 to provide educational programs for the benefit of students in the greater Detroit metropolitan area. Cash and Cash Equivalents The Association considers all highly liquid investments purchased with a maturity of three months or less to be cash equivalents. The Association periodically may have deposits with various banks which may exceed the federally insured limit of $250,000. The Association has not experienced losses in such accounts and believes it is not exposed to significant credit risk related to its cash and cash equivalent deposits. Cash The Association received cash with donor-imposed restrictions which is held by the Association and is part of permanently restricted net assets, and as such, was separately classified from cash that was unrestricted and available for current use. Tuition Receivable The Association records tuition receivable at net collectible value. The allowance for doubtful accounts was $337,107 and $217,283 at July 31, 2016 and 2015, respectively. An allowance for doubtful accounts is established based on the prior years' analysis of collection rates as a percentage of net tuition revenue. All amounts deemed uncollectible are charged against income for that school year. Property and Equipment Property and equipment are stated at cost if purchased or fair value at date of the gift if donated. All acquisitions of property and equipment in excess of $2,000 and all expenditures for improvements and betterments that materially prolong the useful lives of assets are capitalized. Maintenance, repairs, and minor improvements are expensed as incurred. When assets are retired or otherwise disposed of, their costs and related accumulated depreciation are removed from the accounts and resulting gains or losses are included in income. Property and equipment are depreciated using the straight-line method over their estimated useful lives. Impairment of Long-Lived Assets The Association reviews long-lived assets, including property and equipment and intangible assets, for impairment whenever events or changes in business circumstances indicate that the carrying amount of an asset may not be fully recoverable. An impairment loss would be recognized when the estimated future cash flows from the use of the asset are less than the carrying amount of that asset. To date, there have been no such losses. Page 6

9 NOTE 1 - Summary of Significant Accounting Policies (cont.) Tuition Revenue Registration and tuition revenues applying to services to be rendered in future periods are recorded as deferred revenue when received and reflected as revenue in the year when the fees are earned. Contributions Contributions of cash and other assets, including unconditional promises to give in the future, are measured at fair value and reported as revenue when received. Donor promises to give in the future are recorded at the present value of estimated future cash flows. Contributions with donor-imposed time or purpose restrictions are reported as restricted support. All other contributions are reported as unrestricted support. When a donor restriction expires, that is, when a stipulated time restriction ends or purpose restriction ends or purpose restriction is accomplished, temporarily restricted net assets are reclassified to unrestricted net assets and reported in the statements of activities as released from restrictions. An allowance for uncollectible contributions is determined based upon experience. Support Services Revenue Support services revenue is reported at the estimated net realizable amount from Cornerstone Charter Schools for services rendered. Scholarships Discounts and Financial Aid Educational and general revenues in the statements of activities reflect the Organization's normal tuition rates less scholarships, discounts, and financial aid given on the basis of financial need. Scholarships, discounts, and financial aid given during the years ended July 31, 2016 and 2015 were $1,306,447 and $579,935, respectively. Expense Allocation The costs of providing the various programs and other activities have been summarized on a functional basis in the statements of activities. Accordingly, certain costs have been allocated among the programs and supporting services benefited. The Association adheres to generally accepted accounting principles in reporting expenses by their functional classification. The method of allocation used is reasonable, but other methods could produce different results. Page 7

10 NOTE 1 - Summary of Significant Accounting Policies (cont.) Net Assets Net assets, revenues, gains, and losses are classified based on the existence or absence of donorimposed restrictions. Accordingly, net assets of the Association are classified and reported as follows: Unrestricted Net Assets - Net assets that are not subject to donor-imposed stipulations. Temporarily Net Assets - Net assets subject to donor-imposed stipulations that either expire by passage of time or can be fulfilled and removed by actions of the Association pursuant to those stipulations. Permanently Net Assets - Net assets subject to donor-imposed stipulations that they be maintained permanently by the Association. Earnings, gains, and losses on restricted net assets are classified as unrestricted unless specifically restricted by the donor or by law. Advertising Advertising costs were expensed as incurred. Advertising expense for the years ended July 31, 2016 and 2015 was approximately $93,000 and $219,000, respectively. Tax-Exempt Status The Association is a nonprofit corporation and is exempt from income taxes under provisions of Internal Revenue Code Section 501(a) relating to nonprofit organizations, such as an organization described in Internal Revenue Code Section 501(c)(3). Accounting principles generally accepted in the United States of America require management to evaluate tax positions taken by the Association and recognize a tax liability if the Association has taken an uncertain position that more likely than not would not be sustained upon examination by the IRS or other applicable taxing authorities. Management has analyzed the tax positions taken by the Association and has concluded that as of July 31, 2016 and 2015, there are no uncertain positions taken or expected to be taken that would require recognition of a liability or disclosure in the financial statements. The Association is subject to routine audits by taxing jurisdictions; however, there are currently no audits for any tax periods in progress. Management believes it is no longer subject to income tax examinations for years prior to Reclassification For comparability, certain 2015 amounts have been reclassified to conform with classifications adopted in The reclassifications have no effect on reported amounts of net assets or change in net assets. Page 8

11 NOTE 1 - Summary of Significant Accounting Policies (cont.) Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Subsequent Events The Association has evaluated events through April 13, 2017, which is the date the financial statements were approved and available to be issued. In March 2017, Cornerstone Schools Association announced that beginning in the Association s Primary and Middle Schools, located on Nevada Street, will be reconfigured to become the Cornerstone Jefferson-Douglass Academy, a Cornerstone Education Group Charter School serving grades K-8. Charter schools receive funding from the district and state according to the number of students attending whereas the Association is funded primarily by tuition and contributions. The Leadership and Business High School of the Association will continue at its current location, with goals geared toward higher enrollment and more academic, extracurricular, and career preparation opportunities for its students. The High School will continue to have the life and teachings of Jesus integrated into its daily curriculum. As always, these programs will emphasize the character attributes of love, peace, patience, kindness, gentleness, self-control, faithfulness, and good citizenship as the foundation of a fulfilling life.the Association High School enrollment is projected at 75 students and the Association PK -12 was approximately 430 students. In , the Cornerstone Jefferson-Douglass Academy will be in a lease arrangement with the Association as the Association will retain ownership of the property at 6861 Nevada St. NOTE 2 - Contributions Receivable Contributions receivable are summarized as follows at July 31: Unconditional promises expected to be collected in: Less than one year $ 500,000 $ 1,141,625 One year to five years 1,142,750 2,143,750 1,642,750 3,285,375 Less: Unamortized discounts (216,218) (405,024) Allowances for uncollectible amounts, less than one year (32,500) (997,500) Net Contributions Receivable $ 1,394,032 $ 1,882,851 Page 9

12 NOTE 2 - Contributions Receivable (cont.) Contributions receivable are discounted at rates ranging from 2.50% to 2.63% at July 31, 2016 and Conditional promises to give are recognized when the conditions on which they depend are substantially met. The Association forgave a related party contribution receivable of $960,000 during 2016 in connection with the forgiveness of debt. NOTE 3 - Accounts Receivable and Transactions with the Charter Schools The Association entered into a licensing and contracted services agreement with Cornerstone Charter Schools (CCS) in The agreement was amended effective August 1, The Association has licensed the Cornerstone name and Cornerstone Schools property to CCS. The license is contingent upon CCS paying licensing fees per the agreement. CCS will pay the Association a fee of $25 per student for each student enrolled in a CCS school. Beyond 1,500 students, CCS will pay $35 per student and beyond 2,225 students; CCS will pay $50 per student. Fees are to be paid in two installments each new school year. Licensing revenue for the years ended July 31, 2016 and 2015, totaled $65,220 and $55,246 respectively, and was included in support services revenue in the statements of activities. The Association may also provide marketing and other services for CCS for which CCS will reimburse associated costs to the Association. Association revenue related to these transactions for the years ended July 31, 2016 and 2015, totaled $239,987 and $189,166, respectively, and was included in support services revenue in the statements of activities. During the fiscal year ended July 31, 2016, the Association contracted with CCS to provide Facility and Food Program management services to the Association. Association expenses related to these transactions for the year ended July 31, 2016 totaled $54,757. This contracted service was based on an initiative to manage the administrative functions across the Cornerstone schools (the Association and the Charter Schools) referred to as One Cornerstone. As of July 31, 2016, this plan was still in transition. Page 10

13 NOTE 4 - Property and Equipment The major categories of property and equipment at July 31 are summarized as follows: Depreciable Lives Buildings and improvements 7-40 yrs. $ 16,789,195 $ 16,806,619 Machinery and equipment 5-7 yrs. 281, ,959 Office equipment 3-10 yrs. 250, ,636 Furniture and fixtures 5-10 yrs. 334, ,445 Instructional equipment 3-10 yrs. 722, ,049 Total Property and Equipment 18,378,283 18,395,708 Less: Accumulated depreciation (8,894,185) (8,385,748) Net Property and Equipment $ 9,484,098 $ 10,009,960 Depreciation expense was $528,440 and $528,402 for the years ended July 31, 2016 and 2015, respectively. NOTE 5 - Long-term and Short-term Debt Long-term debt consists of the following at July 31 : Unsecured, noninterest-bearing note payable to an unrelated notfor-profit organization. The note is considered long term by the creditor with no specified due date. Management of the Association expects to pay the balance of the note in the next 12 months and as such has classified the note as short term. $ 186,200 $ 186,200 Unsecured, noninterest-bearing note payable to an unrelated party. The note is due in five annual installments of $140,000, commencing in July 2015, maturing in July This debt was assumed by a related party during 2016 and the Association forgave contribution receivables of $560,000 from the related party in connection to the assumption of the debt ,000 Unsecured, noninterest-bearing note payable to an unrelated party. The note is due in five annual installments of $100,000, commencing in July 2015, maturing July This debt was assumed by a related party during 2016 and the association forgave contribution receivables of $400,000 from the related party in connection to the assumption of the debt ,000 Totals 186,200 1,146,200 Less: Current portion (186,200) (240,000) Long-Term Portion $ - $ 906,200 Page 11

14 NOTE 5 - Long-term and Short-term Debt (cont.) During 2013, the Association entered into a demand note payable agreement with a bank, accruing interest at 4% per annum. The outstanding balance as of July 31, 2016 and 2015 was $177,083 and $302,083. Debt is secured by accounts receivable balances and property and equipment and is classified as short-term debt on the statements of financial position. NOTE 6 - Related Party Debt and Transactions The New Common School Foundation (NCSF) was formed in The New Common School Foundation's purpose is to explore the promotion of excellence in education with the expanded use of volunteers and tutors, the development of funding sources, and the transformation of teaching and learning; to provide direct grants and/or other fund assistance to nonprofit organizations to accomplish the foregoing; and to receive and administer funds for such purposes. The Association and NCSF share common board members. The Association owed NCSF outstanding accounts payable of $60,000 and $0 as of July 31, 2016 and In 2016, the NCSF assumed $960,000 of unrelated party debt in connection with the Association's forgiveness of the NCSF's contribution receivable. NOTE 7 - Retirement Plan The Association maintains a tax-sheltered retirement plan qualified under Internal Revenue Code Section 403(b), covering substantially all of its eligible employees. The Association's discretionary employer contribution to the plan totaled $15,197 and $4,400 for the years ended July 31, 2016 and NOTE 8 - Net Assets Temporarily restricted net assets were restricted for the following purposes as of July 31: Music Program $ 36,612 $ 21,832 STEM Program 117,041 94,562 External Scholarship - PwC - 75,000 Renewal of Hope - Capital Campaign 918,423 1,064,985 VOE General Henderson 25,800 - DCCP - Deloitte - 219,907 Leadership and Business High School Internship 320, ,500 DTE Foundation Grant 40,000 50,000 Time restricted 1,394,032 1,882,852 Other Total Temporarily Net Assets $ 2,853,169 $ 3,567,336 Page 12

15 NOTE 8 - Net Assets (cont.) Temporarily restricted net assets were released from donor restrictions by incurring expenses satisfying the restricted purposes or by occurrence of events specified by the donors and were reclassified to unrestricted net assets for operations and programs. Permanently restricted net assets are restricted to investments in perpetuity, the income from which is expendable to support scholarships and operational expenses. NOTE 9 - Endowments The Association's endowment includes only donor-restricted endowment funds. Net assets associated with endowment funds are classified and reported based on the existence or absence of donor-imposed restrictions. Interpretation of Relevant Law The board of trustees of the Association has interpreted the Uniform Prudent Management of Institutional Funds Act ("UPMIFA") as requiring the preservation of the fair value of the original gift as of the gift date of the donor-restricted endowment funds absent explicit donor stipulations to the contrary. As a result of this interpretation, the Association classifies as permanently restricted net assets (a) the original value of gifts donated to the permanent endowment, (b) the original gifts of subsequent gifts to the permanent endowment, and (c) accumulations to the permanent endowment made in accordance with the direction of the applicable donor gift instrument at the time the accumulation is added to the fund. The remaining portion of the donor-restricted endowment fund that is not classified in permanently restricted net assets is classified as temporarily restricted net assets until those amounts are appropriated for expenditure by the Association in a manner consistent with the standard of prudence prescribed by UPMIFA. In accordance with UPMIFA, the Association considers the following factors in making a determination to appropriate or accumulate donor-restricted endowment funds: (1) The duration and preservation of the fund (2) The purpose of the Association and the donor-restricted endowment fund (3) General economic conditions (4) The possible effect of inflation and deflation (5) The expected total return from income and the appreciation of investments (6) Other resources of the Association (7) The investment policies of the Association Page 13

16 NOTE 9 - Endowments (cont.) Endowment Net Asset Composition by Type of Fund as of July 31, 2016 Unrestricted Temporarily Permanently Total Donor-restricted Endowment Funds $ - $ - $ 360,065 $ 360,065 Changes in Endowment Net Assets for the Fiscal Year Ended July 31, 2016 Temporarily Permanently Unrestricted Total Endowment net assets - Beginning of the year $ - $ - $ 360,065 $ 360,065 Investment return - Investment income Total Investment Return , ,126 Contributions , ,560 Appropriation of endowment assets for expenditure - (61) - (61) Endowment Net Assets - End of Year $ - $ - $ 667,625 $ 667,625 Endowment Net Asset Composition by Type of Fund as of July 31, 2015 Unrestricted Temporarily Permanently Total Donor-restricted Endowment Funds $ - $ - $ 360,065 $ 360,065 Changes in Endowment Net Assets for the Fiscal Year Ended July 31, 2015 Unrestricted Temporarily Permanently Total Endowment net assets - Beginning of the year $ - $ - $ 326,914 $ 326,914 Investment return - Investment income Total Investment Return , ,496 Contributions ,151 33,151 Appropriation of endowment assets for expenditure - (582) - (582) Endowment Net Assets - End of Year $ - $ - $ 360,065 $ 360,065 Page 14

17 NOTE 9 - Endowments (cont.) Funds with Deficiencies From time to time, the fair value of assets associated with individual donor-restricted endowment funds may fall below the level that the donor requires the Association to retain as a fund of perpetual duration. There were no such deficiencies. Return Objectives and Risk Parameters The Association does not have an investment policy. The Association's assets were invested in cash and cash equivalents as of the years ended July 31, 2016 and Changes in investment strategy are recommended by the investment committee and approved by the board of directors. Spending Policy and How the Investment Objectives Relate to Spending Policy Investment returns on endowment are spent when available, absent any donor restrictions on the use of the investment returns. NOTE 10 - Future Accounting Pronouncements The Financial Accounting Standards Board ("FASB") has issued ASU , Not-for-Profit Entities (Subtopic 958): Presentation of Financial Statements of Not-for-Profit Entities. ASU is intended to simplify and improve current net asset classification requirements and the information presented in financial statements and notes about a not-for-profit entity's liquidity, financial performance, expense classifications and cash flows. ASU is effective for fiscal years beginning after December 15, 2017 with early adoption permitted. Management is currently evaluating the impact of ASU on the Association's financial statements. During May 2014, the FASB issued ASU No , Revenue from Contracts with Customers. ASU No establishes principles for recognizing revenue upon the transfer of promised goods or services to customers, in an amount that reflects the expected consideration received in exchange for those goods or services. During August 2015, the FASB issued ASU No , which defers the effective date of ASU No ASU No is effective for fiscal years beginning after December 15, The Association may elect to apply the guidance earlier, but no earlier than fiscal years beginning after December 15, The amendments may be applied retrospectively to each prior period presented or retrospectively with the cumulative effect recognized as of the date of initial application. The Association is currently assessing the effect that ASU Nos and will have on its results of operations, financial position and cash flows. During February 2016, the FASB issued ASU , Leases. ASU No establishes principles that require a lessee to recognize a lease asset and a lease liability for those leases classified as operating leases under previous accounting principles generally accepted in the United States of America. ASU is effective for annual periods beginning after December 15, 2019, and for interim periods within fiscal years beginning after December 15, The Association is currently assessing the effect that ASU will have on their results of operations, financial position and cash flows. Page 15