Report of Independent Auditors

Academe, Nov/Dec 2003

AMERICAN ASSOCIATION OF UNIVERSITY PROFESSORS

WE HAVE AUDITED the accompanying statement of financial position of the American Association of University Professors (the Association) as of December 31, 2002, and the related statements of activities and changes in net assets and of cash flows for the year then ended. These financial statements are the responsibility of the Association's management. Our responsibility is to express an opinion on these financial statements based on our audit. The financial statements of the Association as of December 31, 2001, were audited by other auditors, whose report thereon dated February 22, 2002, expressed an unqualified opinion on those statements.

We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform an audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by the Association's management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the American Association of University Professors as of December 31, 2002, and the changes in its net assets and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.

CALIBRE CPA GROUP, PLLC

April 4, 2003

NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2002 AND 2001

1. ORGANIZATION AND TAX STATUS

The American Association of University Professors (the Association) is operated exclusively as a not-for-profit, charitable, and educational membership organization exempt from federal income taxes under Internal Revenue Service Code Section 501(c)(3). The purpose of the Association is to facilitate more effective cooperation among teachers and research scholars in universities and colleges, and in professional schools of similar grade, for the promotion of the interest of higher education and research, and generally to increase the usefulness and advance the standards, ideals and welfare of the profession.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The following is a summary of the Association's significant accounting and reporting policies. The summary is presented to assist in understanding the financial statements.

Method of accounting

The accompanying financial statements are prepared using the accrual basis of accounting.

Cash and cash equivalents

For purposes of the statement of cash flows, cash and cash equivalents includes demand deposits and amounts held in repurchase agreements with financial institutions.

Investments

Investments are carried at fair value. Money market funds are carried at cost which approximates fair value. Investment pool participants share in the income and losses on pooled investments based on their percentage holdings. The participation is adjusted, on a monthly basis based on market value of the investment, at the beginning of each month.

Furniture and equipment

Furniture and equipment are carried at cost. The Association capitalizes all items above $750. Depreciation of furniture and equipment is computed on the straight-line basis over estimated useful lives of five to ten years.

Income taxes

The Association is exempt from federal income tax under Section 501(c)(3) of the Internal Revenue Code, except for income taxes on its unrelated business income. The Association was liable for income taxes on advertising income and commissions received from certain member benefit programs for the years ended December 31, 2002 and 2001. The Association is not a private foundation.

Revenue recognition

Contributions received with donor stipulations limiting the use of the donated assets are recorded as temporarily restricted net assets. These assets are then reclassified to unrestricted net assets whenever the restrictions are satisfied. Restricted support that is expended during the fiscal period it is received is reported as unrestricted.

Postretirement benefits

Postretirement benefit expense is recognized ratably over the employee's service period.

Use of estimates

In preparing financial statements in conformity with generally accepted accounting principles, management is required to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results may differ from those estimates.

5. COMMITMENTS AND CONTINGENCIES

The Association's lease for office space was effective January 1, 1994, and expires December 31, 2008. Base annual rent was initially approximately $154,000, with annual increases and additional increases based on increases in real estate taxes, building operating expenses, and the Consumer Price Index. Rent expense is being recognized equally in each year of the lease agreement. Rent abatements for the full amount of rent for the months of January 1994 and 1995 are being amortized over the life of the lease.