Financial Statements For the period ended June 30, 2015

Transcription

1 Financial Statements For the period ended June 30, 2015 DRAFT for discussion purposes only

2 Financial Statements For the period ended June 30, 2015 Contents Page Independent Auditor's Report 3 Statement of Financial Position 5 Statement of Operations and Changes in Fund Balances 6 Statement of Cash Flows 7 Notes to Financial Statements 8 Schedule 1 - Opening Statement of Financial Position 15 Schedule 2 - Statement of Financial Position of 16 Ontario Association of Christian Schools Foundation as at June 26, 2015 DRAFT for discussion purposes only 2

3 Independent Auditor's Report Grant Thornton LLP 5026 King Street Beamsville, ON L0R 1B0 T F To the Board of Directors of Christian School Foundation (Canada) Inc. We have audited the accompanying financial statements of Christian School Foundation (Canada) Inc., which comprise the statement of financial position as at June 30, 2015, and the statements of operations and changes in fund balances and cash flows for the period then ended, and a summary of significant accounting policies and other explanatory information. Management's responsibility for the financial statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with Canadian accounting standards for not-for-profit organizations, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor's responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with Canadian generally accepted auditing standards. Those standards require that we comply with ethical requirements and plan and perform the audit 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 auditor's 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 foundation'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 foundation's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of 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 qualified audit opinion. Audit Tax Advisory Grant Thornton LLP. A Canadian Member of Grant Thornton International Ltd 3

4 Independent Auditor's Report (continued) Basis for qualified opinion In common with many charitable organizations, Christian School Foundation (Canada) Inc. derives revenue from donations the completeness of which is not susceptible to satisfactory audit verification. Accordingly our verification of these revenues was limited to the amounts recorded in the records of Christian School Foundation (Canada) Inc. and we were not able to determine whether any adjustments might be necessary to donation revenue, excess of revenues over expenses, changes in fund balances, and cash flows from operations for the period ended June 30, As set out in Note 1 the Foundation was founded on July 18, 2014 as a result of the merger of three predecessor foundations. The opening statement of financial position of the Foundation, as at that date was not audited. We are unable to determine the affect, if any, of any misstatements in the opening statement of financial position on the statement of operations and cash flows for the period ending June 30, Qualified opinion In our opinion, except for the possible effects of the matter described in the Basis for qualified opinion paragraphs, these financial statements present fairly, in all material respects, the financial position of Christian School Foundation (Canada) Inc. as at June 30, 2015 and the results of its operations, changes in fund balances and its cash flows for the period then ended in accordance with Canadian accounting standards for not-for-profit organizations. Beamsville, Canada Chartered Accountants Licensed Public Accountants Audit Tax Advisory Grant Thornton LLP. A Canadian Member of Grant Thornton International Ltd 4

5 Statement of Financial Position June 30, 2015 July 18, 2014 (unaudited) (Note 1) ASSETS Current assets Cash and cash equivalents $ 226,179 $ 116,518 Accounts receivable 10,835 22,401 Prepaid expenses 1, , ,919 Capital assets (Note 4) 932,172 1,087 Cash surrender value of life insurance (Note 5) 83,722 79,654 Investments (Note 6) 3,792,898 3,582,480 $ 5,047,479 $ 3,802,140 LIABILITIES AND EQUITY FUNDS Current liabilities Accounts payable and accrued liabilities $ 60,213 $ 52,112 Unearned rent 10,012-70,225 52,112 Callable debt scheduled to be paid after one year (Note 7) 550, ,225 52,112 Net assets Unrestricted Fund 146,060 29,226 Internally Restricted Funds - General Reserve Fund 175, ,965 Capital Assets Fund 193,837 1,087 Restructuring Fund - 48,237 Curriculum Development Fund 184,654 - Scholarship Fund 3,680 - Externally Restricted Funds 3,723,240 3,551,513 4,427,254 3,750,028 On behalf of the Board of Directors: $ 5,047,479 $ 3,802,140 Chair Director DRAFT for discussion purposes only See accompanying notes and schedules to the financial statements 5

6 Statement of Operations and Changes in Fund Balances For the period July 18, 2014 to June 30, 2015 Unrestricted Internally Restricted Funds Externally Total Fund Restricted General Capital Restructuring Curriculum Scholarship Funds Reserve Assets Development Revenues Donations - seed funding 294, ,500 Donations - other gifts 44,498 67, , , ,998 67, , ,237 Revenues from member schools Membership fees 22, ,776 Management fees 21, ,361 Other fees 6, ,248 50, ,385 Investment income - 9, , ,023 RDA investor pool income 12, ,752 24,153 Interest ,720 76, ,076 1,109,734 Expenses Salaries, contract positions and benefits 198, ,555 Office 18, ,505 Communications 11, ,299 Investment administration fees - 1,120 53,562 54,682 Consulting 22, ,537 Fund development 15, ,149 Legal and audit 17, ,982 Membership fees 6, ,292 Rent 7, ,680 Promotion 7, ,599 Amortization ,598 1, , ,727 Excess (deficiency) of Revenues over Expenses 97,122 75,818 (447) , ,007 before Other Receipts (Disbursements) Other Receipts (Disbursements) Net assets (liabilities) received (assumed) on combination with Ontario Association of Christian Schools Foundation (Note 2) (12,158) - 184, ,654 3, ,467 Donations to member schools (403,287) (403,287) Donations to other charities (27,461) (1,500) (28,961) Excess of Revenues over Expenses 57,503 75, , ,654 3, , ,226 Fund balances, beginning of period 29, ,965 1,087 48, ,551,513 3,750,028 Transfers between funds (Note 8) 59,331 (20,000) 8,906 (48,237) Fund balances, end of period 146, , , ,654 3,680 3,723,240 4,427,254 DRAFT for discussion purposes only See accompanying notes and schedules to the financial statements 6

7 Statement of Cash Flows For the period July 18, 2014 to June 30, 2015 Operating Activities Excess of revenue over expenses $ 677,226 Items not affecting cash: Amortization of capital assets 447 Net assets assumed from OACSF (Note 2), net of cash included in assets assumed and land transfer tax paid (357,548) Increase in cash surrender value of life insurance (4,068) 316,057 Changes in non-cash working capital items, net of affects of combinations: Accounts receivable 11,644 Prepaid expenses (1,673) Accounts payable and accrued liabilities (4,518) 5,453 Cash flow from operating activities 321,510 Investing Activities Purchase of capital assets (1,431) Investments (210,418) Cash flow from (used by) investing activities (211,849) Increase in cash 109,661 Cash - beginning of period 116,518 Cash - end of period $ 226,179 DRAFT for discussion purposes only See accompanying notes and schedules to the financial statements 7

8 Notes to Financial Statements Period Ended June 30, FORMATION OF CHRISTIAN SCHOOL FOUNDATION (CANADA) INC. The Christian School Foundation (Canada) Inc. (the Foundation) was established on July 17, 2014 by way of formal amalgamation of three predecessor foundations, the Central Ontario Christian Education Foundation (COCEF), the Foundation for Niagara & Hamilton area Christian Schools (FNHCS) and the Grand River Advancement of Christian Education (GRACE) Foundation. The Foundation is incorporated under the Canada Corporations Act as a not-for-profit organization, and is registered as a public charitable foundation under the Income Tax Act and, accordingly, is not subject to income taxes. The vision of the Foundation is to make Christian education excellent and accessible for everyone who wants it. The purpose of the Foundation is to receive and maintain funds and to apply these funds and the investment income earned thereon to member independent Christian schools and their affiliated organizations that are also registered charities under the Income Tax Act, to advance Christian education. The Foundation currently consists of 24 member schools in the Province of Ontario, and is governed by a board of directors which includes a representative director from each member school, plus four at-large directors. Canadian generally accepted accounting principles for not for profit organizations, as set out in Part III of the CPA Canada Handbook ( the Handbook ), do not address combinations of not for profit organizations. Section 1101 of Part III of the Handbook recommends that when the Handbook does not contain guidance on a particular accounting issue, the organization should consider applying guidance contained in secondary sources of generally accepted accounting principles (GAAP), including, if appropriate, guidance issued by accounting bodies in other jurisdictions. The Foundation has elected to apply the principles set out in Topic of the United States Financial Accounting Standard Board (FASB) Accounting Standards Codification ( the Codification ). In determining that it is appropriate to apply Topic of the Codification, the Foundation determined that the guidance contained therein met the criteria set out in Section 1101 for applying secondary sources of GAAP. Topic of the Codification classifies combinations as either mergers or acquisitions. A merger is a combination in which the governing bodies of two or more not-for-profit entities cede control of those entities to create a new not-for-profit entity. An acquisition is a combination in which a not-for-profit acquirer obtains control of one or more non-profit activities or businesses. The Foundation has determined that the combination of FNCHS, GRACE and COCEF was a merger. Accordingly, as prescribed by Topic of the Codification, these financial statements have been prepared by applying the carryover method under which the combined entity s initial financial statements carry forward the assets and liabilities of the combining entities at their carrying amount. See Schedule 1 for the unaudited opening Statement of Financial Position of the Foundation as at July 18, COMBINATION WITH ONTARIO ASSOCIATION OF CHRISTIAN SCHOOLS FOUNDATION On June 26, 2015, the Foundation concluded a merger agreement with the Ontario Association of Christian Schools Foundation (OACSF). OACSF was established in 2005 as a registered charity under the Income Tax Act to promote Christian education, provide educational support programs to Christian schools and to DRAFT FOR DISCUSSION PURPOSES ONLY 8

9 Notes to Financial Statements Period Ended June 30, 2015 establish a fund to assist Christian schools. Under the terms of the agreement between the Foundation and OACSF, the assets, liabilities, obligations and operations of OACSF have been assumed by the Foundation, and OACSF will be dissolved. Applying the principals of Topic of the FASB Accounting Standards Codification (See Note 1), the Foundation has determined that this combination is an acquisition for accounting purposes. Accordingly, as prescribed by Topic this combination has been recorded by applying the acquisition method, under which the assets and liabilities of OASCF have been recognized by the Foundation at their fair value and the variance between them has been recognized as a contribution received. See Schedule 2 for the Statement of Financial Position of OACSF as at June 26, As at June 26, 2015, OACSF did not have sufficient cash or marketable securities to enable it to pay for $188,334 of anticipated curriculum development and scholarship activities in accordance with the corresponding internally restricted funds it had established for these purposes. OACSF intended to finance these activities from a future sale of its land and buildings. Similarly, it is the intention of the Foundation to fund these amounts from the net proceeds of the future sale of the land and buildings after repayment of related debts and expenses. Should the net proceeds be insufficient to fund the full amount of these internally restricted funds, the internally restricted funds will be reduced accordingly. 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of presentation These financial statements have been prepared using Canadian accounting standards for not-for-profit organizations. Fund accounting The Foundation has established the following funds to account for and to report on separate activities or objectives of the Foundation. Unrestricted Fund All revenues, expenditures, assets and liabilities relating the day to day operations of the Foundation are reported in the Foundation s Unrestricted Fund. Internally Restricted Funds General Reserve Fund From time to time, the Foundation receives donations intended to ensure the long-term viability of operations, or donations received with no purpose specified. The Foundation maintains these funds in a general reserve, using them to fund operations as required form time to time, at the discretion of the Board of Directors. Capital Assets Fund The Capital Assets Fund reports the assets, liabilities, revenues and expenses related to the Foundation s capital assets. DRAFT FOR DISCUSSION PURPOSES ONLY 9

10 Notes to Financial Statements Period Ended June 30, 2015 Restructuring Fund The Restructuring Fund was established in 2014 to complete the merger referred to in Note 1. With the merger completed as of the start of this current fiscal period, the Restructuring Fund was wound up in to the Unrestricted Fund. Curriculum Development Fund The Curriculum Development Fund was assumed as part of the combination with OACSF (Note 2), and is intended to fund programs and activities related to developing learning materials for Christian schools. Scholarship Fund The Scholarship Fund was also assumed as part of the combination with OACSF (Note 2), and is intended for financial assistance to students and teachers of Christian schools. Externally Restricted Funds Resources contributed to the Foundation for the benefit of member schools are reported as externally restricted funds. The Foundation maintains funds for a variety of purposes, according to the wishes of donors. Certain funds are designated as benefiting specific member schools, while others are designated as benefiting all member schools. Investment income earned on externally restricted funds is reported as revenue of those funds. Revenue recognition The Foundation uses the restricted fund method of accounting for revenue. Under this method contributions designated for the benefit of one or more member schools and investment income earned on such funds are recognized as revenue of the Externally Restricted Funds. Unrestricted contributions, membership fees and investment income earned on unrestricted funds are recognized as revenue of the Unrestricted Fund. Donations received for a specific purpose for which an externally restricted fund has not been established are recognized as revenue when the funds have been expended on the purpose specified. Unrestricted and restricted fund contributions, revenues from member schools and other income are recognized as revenue when received or receivable, if the amount to be received can be reasonably estimated and collection is reasonably assured. Donations in-kind consist of life insurance policies and marketable securities. The donation of a life insurance policy is recognized as revenue in the period in which legal ownership of the policy is transferred to the Foundation, in the amount of the cash surrender value at that time. Subsequent changes in the cash surrender value are recognized annually as they occur. Donations of marketable securities are recognized as revenue in the period in which the Foundation receives the securities, based on the quoted market value of the securities at that time. DRAFT FOR DISCUSSION PURPOSES ONLY 10

11 Notes to Financial Statements Period Ended June 30, 2015 Capital assets Capital assets are stated at cost less accumulated amortization. Capital assets are amortized over their estimated useful lives at the following rates and methods: Computer equipment 3 years straight-line method Furniture and fixtures 5 years straight-line method Building 40 years straight-line method Amortization expense is reported in the Capital Asset Fund. The Foundation tests for impairment whenever events or changes in circumstances indicate the carrying amount of an item of property, plant and equipment may not be recoverable. The recoverability of longlived assets is based on the net recoverable amounts determined on an undiscounted cash flow basis. If the carrying amount of an asset exceeds its net recoverable amount, an impairment loss is recognized to the extent that fair value is below the asset's carrying amount. Fair value is determined based on quoted market prices when available, otherwise on discounted cash flows over the life of the asset. Use of Estimates The preparation of financial statements in accordance with Canadian accounting standards for not-forprofit organizations requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenditures for the year. Actual results could differ from those estimates as additional information becomes available in the future. These estimates are reviewed periodically and adjustments are made to net income as appropriate in the year they become known. Items subject to significant management estimate include the estimated useful life of capital assets. Financial instruments The Foundation initially measures its financial assets and liabilities at fair value. The Foundation subsequently measures all its financial assets at amortized cost, except for investments in equity instruments that are quoted in an active market which are measured at fair value and investments in equity instruments that are not quoted in an active market which are measured at cost less any reduction for impairment. Changes in fair value are recognized in net income. Financial assets and liabilities measured at amortized cost include cash, accounts receivable, investments, accounts payable and accrued liabilities, and mortgage payable. Financial assets measured at cost are tested for impairment when there are indicators of impairment. Previously recognized impairment losses are reversed to the extent of the improvement provided the DRAFT FOR DISCUSSION PURPOSES ONLY 11

12 Notes to Financial Statements Period Ended June 30, 2015 asset is not carried at an amount, at the date of the reversal, greater than the amount that would have been the carrying amount had no impairment loss been recognized previously. The amounts of any writedowns or reversals are recognized in net income. 4. CAPITAL ASSETS 5. CASH SURRENDER VALUE ON LIFE INSURANCE The Foundation is the assignee and owner of life insurance policies with death benefits totalling $412,000 and cash surrender values totalling of $83,722. The cash surrender value of these policies has been included in these financial statements. 6. INVESTMENTS All of the Foundation s investments are currently held under Revocable Deposit Agreements (RDA s) with Christian Stewardship Services (CSS). CSS is a registered charity under the Income Tax Act, and is a certified member of the Canadian Council of Christian Charities. CSS promotes Christian principles of giving and stewardship, and serves as an investment portfolio manager which provides mortgages to qualified Christian organizations and manages funds on behalf of investors. The Foundation s RDA s are held within a restricted portfolio maintained by CSS. Investment income earned thereon, less an administration fee, is credited to the Foundation s account on a monthly basis. DRAFT FOR DISCUSSION PURPOSES ONLY 12

13 Notes to Financial Statements Period Ended June 30, CALLABLE DEBT As a result of its combination with OACSF (Note 2), the Foundation has assumed the mortgage that OACSF had used to finance its land and buildings. June 30, 2015 CRC Community Retirement Savings Plan mortgage, interest adjusted quarterly, current interest rate of 3%, interest only payable monthly. $550,000 The mortgage matures on March 31, During the term of the mortgage, there are no scheduled principal payments. The Foundation may make principal payments at any time, in increments of $1,000. However, the lender has the right to demand payment at any time with 75 days notice. Accordingly, although no principal payments are scheduled or anticipated in the next fiscal year, the mortgage is classified as a current liability. The mortgage is secured by the land and buildings which have a net book value of $925, TRANSFERS BETWEEN FUNDS Transfers between funds represent reallocations of funds between the various funds the Foundation maintains to account for its separate activities or objectives. In the current year $48,237 was transferred from the Restructuring Fund to the Unrestricted Fund to cover initial start-up costs for the Foundation, $8,906 was transferred to the Capital Asset Fund from the Unrestricted Fund to cover the cost of capital asset purchases in the current year and the cost of the land transfer tax on the acquisition of the land from OACSF, and $20,000 was transferred to the Unrestricted Fund from the General Reserve Fund to finance operating expenses. 9. FINANCIAL INSTRUMENT RISKS Interest rate risk Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Foundation is exposed to interest rate risk arising from the possibility that changes in interest rates will affect the value of fixed income denominated investments held within its restricted portfolio maintained by CSS. The Foundation is also exposed to interest rate risk from the possibility that the interest rate on its long term debt may change, since it can be adjusted quarterly. However, the rate has not changed for several years. There was no significant change in the Foundation s exposure to interest rate risk in the period. DRAFT FOR DISCUSSION PURPOSES ONLY 13

14 Notes to Financial Statements Period Ended June 30, 2015 Currency risk Currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. The Foundation is exposed to currency rate risk arising from foreign equities and other investments held within its restricted portfolio maintained by CSS. The risk is mitigated by the relatively low exposure to foreign investments within the restricted portfolio. Market risk Market risk is the risk that the fair value or future cash flows from investments will decline because of changes in market prices or other factors affecting the value of the investments. There was no significant change in the Foundation s exposure to market risk in the period. Liquidity risk Liquidity risk is the risk that the Foundation will encounter difficulty in meeting a demand for cash or fund its obligations as they come due. The rental income on the land and buildings is currently sufficient to cover all or substantially all of the operating costs and principal repayments related to the land and buildings. All of the Foundation s investments are held under RDA s with CSS, which can generally be withdrawn in 30 to 90 days. DRAFT FOR DISCUSSION PURPOSES ONLY 14

15 Schedule 1 Unaudited Opening Statement of Financial Position As at July 18, 2014 Christian FNHCS GRACE COCEF School Foundation ASSETS (Canada) Inc. Current assets Cash $ 91,823 $ 19,245 $ 5,450 $ 116,518 Accounts receivable 21, , ,535 19,245 6, ,919 Capital assets 1, ,087 Cash surrender value of life insurance 61,606-18,048 79,654 Investments 2,149, ,209 1,017,929 3,582,480 $ 2,325,570 $ 434,454 $ 1,042,116 $ 3,802,140 LIABILITIES AND EQUITY FUNDS Current liabilities Accounts payable and accrued liabilities $ 48,315 $ - $ 3,797 $ 52,112 Equity Funds Unrestricted 7,639 19,245 2,342 29,226 Internally restricted - General Reserve 119, ,965 Capital Assets 1, ,087 Restructuring Fund 48, ,237 Externally restricted 2,100, ,209 1,035,977 3,551,513 2,277, ,454 1,038,319 3,750,028 $ 2,325,570 $ 434,454 $ 1,042,116 $ 3,802,140 DRAFT for discussion purposes only 15

16 Schedule 2 Statement of Financial Position of Ontario Association of Christian Schools Foundation As at June 26, 2015 ASSETS Current assets Cash $ 10,394 Accounts receivable 79 10,473 Capital assets 930,100 $ 940,573 LIABILITIES AND EQUITY FUNDS Current liabilities Accounts payable and accrued liabilities $ 12,619 Unearned rent 10,012 22,631 Callable debt scheduled to be paid after one year 550, ,631 Equity Funds Unrestricted - General Fund (12,158) Internally restricted funds Curriculum Development 184,654 Scholarship 3,680 Capital Assets 191, ,942 $ 940,573 DRAFT for discussion purposes only 16