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Notes to financial statements.

(dollars in thousands)


The California Society of Certified Public Accountants (CalCPA) is a nonprofit incorporated membership organization whose purpose is to advance the profession of accountancy in the State of California. CalCPA provides its members with general and technical resources through its chapters and committees. California Certified Public Accountants Education Foundation (Foundation) is a nonprofit public benefit corporation organized to provide continuing professional education to Certified Public Accountants (CPAs) and other interested parties. Revenues for both CalCPA and the Foundation are derived primarily from CPAs in California. CalCPA and the Foundation share some administrative functions. Such costs are incurred by CalCPA, which charges the Foundation for its estimated share.


The Board of Trustees of the Foundation consists of members of CalCPA who are elected by the governing Council of CalCPA. Because of common control, the accompanying financial statements reflect the consolidation of CalCPA and the Foundation. Material transactions between the entities have been eliminated in consolidation.


The financial statements are presented in conformity with Statement of Financial Accounting Standards (SFAS) No. 117, Financial Statements of Not-For-Profit Organizations.


Membership dues are recognized as revenue in the membership period. Peer review registration fees are recognized over the calendar year. Peer review processing and review fees are recognized as review engagements are completed. Revenues from professional education programs are recognized in the periods the programs are held. Revenues collected in advance are deferred until earned.


For financial statement purposes, CalCPA and the Foundation consider all investments with a maturity at purchase of three months or less to be cash equivalents.


Investments are stated at market value.


Property and equipment are stated at cost and depreciated using the straight-line method over estimated useful lives of 3 to 10 years.


Intangible assets represent the cost of trademarks and goodwill associated with the Foundation's acquisition of the Western Schools professional education materials. The Foundation is phasing out the Western Schools trade name over a three-year period ending April 30, 2005; accordingly, the Foundation is charging the intangible assets to expense over that period.


Rent expense is recognized on a straight-line basis over the lives of the leases. Deferred lease costs represent rent expense recognized in excess of rental payments made.


Direct response advertising consists primarily of catalogs and brochures for educational seminars and other events. Direct response advertising costs are capitalized as other current assets and charged to expense in the period the events occur. Other advertising costs are expensed as incurred.


Members of CalCPA donate their time to various activities of CalCPA and the Foundation, including the leadership of the organizations, committees, chapters, and member events. The value of this donated time is not reflected in the accompanying financial statements since it does not meet the criteria for recognition.


CalCPA and the Foundation are exempt from income taxes under Internal Revenue Code (IRC) Sections 501(c)(6) and 501(c)(3), respectively, and related California code sections. However, the organizations are subject to income taxes from activities unrelated to their tax-exempt purposes. The Foundation is considered a publicly supported organization.


The costs of providing the program services and supporting services have been summarized on a functional basis in the statements of activities and of functional expenses. Accordingly, certain costs have been allocated among the program services and supporting services based on estimates of employees' time incurred and on usage of resources.


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 certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates.


CalCPA shares certain administrative functions with CAMICO Mutual Insurance Company (CAMICO) and Group Insurance Trust (GIT). CalCPA charges GIT and is charged by CAMICO for estimated shares of related expenses. CalCPA also sells services to CAMICO and GIT.

CAMICO provides professional liability insurance for CalCPA members and is endorsed by CalCPA. Since CAMICO is not under common control with CalCPA and the Foundation, the financial statements do not reflect consolidation of CAMICO. Balances of $16 and $7 due from CAMICO as of April 30, 2004 and 2003, respectively, are included in CalCPA's other accounts receivable. Services purchased by CAMICO, net of expenses allocated from CAMICO, totaled $178 for 2004 and $156 for 2003.

GIT is a multiple-employer welfare arrangement formed to provide health and welfare insurance plans to CalCPA members at favorable group rates. CalCPA's Council exerts control over the nomination process for the Board of Trustees of GIT. However, since regulatory agencies limit CalCPA's control of GIT's activities, the financial statements do not reflect consolidation of GIT. A balance of $64 due from GIT is included in CalCPA's other accounts receivable as of April 30, 2004. A balance of $13 due to GIT is included in CalCPA's accounts payable as of April 30, 2003. Services purchased and expenses allocated for GIT totaled $277 for 2004 and $255 for 2003.


The financial statements of CalCPA include the operations of the Peer Review Program, which administers the American Institute of Certified Public Accountants Peer Review Program in California, Arizona, and Alaska. Peer review expenses are included in other activities in the statements of activities and of functional expenses. Revenues, expenses, and net assets for the division are summarized as follows:
 2004 2003

 Registration fees $ 725 $ 738
 Processing and review fees 202 175
 Total peer review fees 927 913
 Interest income 6 10
 Other income 13 13
 Total revenue 946 936
 Reviewer costs and
 operating expenses 916 904
Increase in net assets 30 32
Net assets, beginning of year 492 460
Net assets, end of year $ 522 $ 492


Investments consist of the following:
 CalCPA Foundation Consolidated

Debt securities $ 3,160 $ 2,155 $ 5,315
Equity securities 4,909 3,392 8,301
Total $ 8,069 $ 5,547 $ 13,616

U.S. government
 obligations $ 911 $ 911
GNMA mortgage pool 194 194
Other debt securities $ 2,080 925 3,005
Equity securities 4,091 3,031 7,122
Total $ 6,171 $ 5,061 $ 11,232

Investment income (loss) consists of the following:
 CalCPA Foundation Consolidated

Interest and dividends $ 247 $ 187 $ 434
Net realized and
 unrealized gains 1,158 236 1,394
Investment income 1,405 423 1,828
Less investment
 expenses (22) (55) (77)
 income, net $1,383 $ 368 $ 1,751

Interest and dividends $ 209 $ 198 $ 407
Net realized and
 unrealized losses (158) (330) (488)
Investment income (loss) 51 (132) (81)
Less investment
 expenses (35) (71) (106)
 income (loss), net $ 16 $ (203) $ (187)


Property and equipment consist of the following:
 CalCPA Foundation Consolidated

Equipment $ 1,147 $ 549 $ 1,696
Software 645 497 1,142
Furniture 265 56 321
Leasehold improvements 673 673
Total 2,730 1,102 3,832
Less accumulated
 depreciation and
 amortization (1,961) (761) (2,722)
Property and
 equipment, net 769 341 $ 1,110

Equipment $ 982 $ 609 $ 1,591
Software 665 661 1,326
Furniture 263 131 394
Leasehold improvements 656 94 750
Total 2,566 1,495 4,061
Less accumulated
 depreciation and
 amortization (1,884) (913) (2,797)
Property and
 equipment, net $ 682 $ 582 $ 1,264


Deferred revenues consist of the following:
CalCPA: 2004 2003

 Dues $ 4,450 $3,396
 Peer review registration fees 539 593
 Advertising 224 143
 Annual meeting fees 17 11
 CalCPA total 5,230 4,143
 Registration fees, including
 Value Pricing (VP) program 1,671 1,793
Consolidated $ 6,901 $ 5,936


CalCPA and CAMICO lease office space for their corporate headquarters under non-cancelable operating leases expiring in July 2010. GIT and the Foundation sublease a portion of the office space for their corporate headquarters under non-cancelable sublease agreements with CalCPA and CAMICO, respectively, also expiring in July 2010. Sublease payments are based on square footage occupied.

CalCPA also leases office space in Sacramento and Glendale under non-cancelable operating leases expiring in February and November of 2008, respectively.

Future minimum lease payments under these agreements, net of minimum sublease receipts from GIT, are as follows:
Year ending April 30: CalCPA Foundation Consolidated

2005 649 359 1,008
2006 673 374 1,047
2007 692 389 1,081
2008 678 404 1,082
2009 536 420 956
Thereafter 626 547 1,173
Total $ 3,854 $ 2,493 $ 6,347

Rent expense, recorded net of the portion of CalCPA's lease paid by GIT, is as follows:
 2004 2003

 CalCPA $ 671 $ 682
 Foundation 366 365
Consolidated $ 1,037 $ 1,047


CalCPA sponsors a funded defined benefit pension plan for substantially all full-time employees of CalCPA and the Foundation hired on or before June 1, 2002. Effective May 31, 2003, the plan has been frozen, and is therefore closed to further benefit accrual or new participants. The plan provides defined benefits based on years of service and final average salary accrued through the effective date of plan freeze. The following information is based on computations by the plan actuary:
 2004 2003

Net periodic pension expense:
 CalCPA $ 35 $ 435
 Foundation 11 148
 Total $ 46 $ 583
Employer contributions $ 927 $ 626
Benefits paid $ 87 $ 82

The plan's funded status and balance recognized are as follows:
 2004 2003

Fair value of plan assets
 as of April 30 $ 5,187 $ 3,737
Projected and accumulated benefit
 obligation as of April 30 (5,829) (5,616)
Funded status $ (642) $ (1,879)
Accrued pension liability
 included in the statements
 of financial position $ (749) $ (1,630)

The following weighted average assumptions were used in the actuarial computations:
 2004 2003

Benefit obligation at April 30:
 Discount rate 6.25% 6.00%
 Rate of compensation increase N/A N/A
Net periodic pension expense
for years ended April 30:
 Discount rate 6.00% 7.00%
 Expected long-term return
 on plan assets 8.00% 9.00%
 Rate of compensation increase N/A 6.00%

The expected long-term rate of return on plan assets was developed by adding the weighted average historical risk premiums on the asset classes held in the plan to the long-term expectation of inflation.

The plan's primary investment objective is a balance among capital appreciation, preservation of capital, and current income, with a goal of attaining a 9% annual rate of return net of fees. To meet this objective, the plan is expected to maintain between 50% and 70% of its assets in marketable equity securities and the remainder mostly in marketable debt securities. The current investment policy was implemented during 2004. The actual and projected asset allocations for the plan are as follows:
 Target Actual Actual
Asset Category 2005 2004 2003

Marketable equity securities 60% 59% 71%
Marketable debt securities 38% 39% 26%
Cash equivalents 2% 2% 3%
Total 100% 100% 100%

Expected employer contributions are $340 for 2005. Expected benefit payments for the next ten years are as follows:
2005 $ 108 2008 $ 286
2006 157 2009 329
2007 222 2010-2014 1,931


CalCPA and the Foundation sponsor a defined contribution plan under IRC Section 401(k). All employees at least 21 years of age who have completed one year of service are eligible to participate. Effective May 1, 2003, CalCPA and the Foundation enhanced the plan and began making matching contributions up to 4% of salary. In addition, all employees, regardless of participation, earn an employer contribution equal to 3% of salary. Employer contributions for 2004 totaled $237 for CalCPA and $125 for the Foundation; there were no employer contributions for 2003. All employer contributions vest at a rate of 20% per year.

CalCPA maintains a deferred compensation plan under IRC Section 457. Deferred compensation assets consist of investments reserved for future payment of deferred compensation liabilities.


The Foundation's direct response advertising consists primarily of catalogs and brochures for events. Other current assets include capitalized advertising costs of $161 and $135 as of April 30, 2004 and 2003, respectively. Advertising costs charged to expense are as follows:
 2004 2003

CalCPA $ 208 $ 190
Foundation 565 541
Consolidated $ 773 $ 731


As of April 30, 2004 and 2003, the net assets of the Foundation include approximately $621 and $481, respectively, that is temporarily restricted for scholarships by CalCPA chapters. Temporarily restricted net assets increased $140 for 2004 and $70 for 2003. Except for this balance, the net assets of CalCPA and the Foundation are unrestricted.

CalCPA has designated $2,000 of its net assets to a building fund as of April 30, 2004.


CalCPA and the Foundation maintain a majority of their cash in money market accounts that are not federally insured and in bank deposit accounts that, at times, may exceed federally insured limits. The organizations have not experienced any losses in such accounts. Management believes the organizations are not exposed to any significant credit risk related to cash.
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Publication:California CPA
Geographic Code:1U9CA
Date:Sep 1, 2004
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