Report of Independent Auditors

Academe, Nov/Dec 2004

AMERICAN ASSOCIATION OF UNIVERSITY PROFESSORS

WE HAVE AUDITED the accompanying statements of financial position of the American Association of University Professors (the Association) as of December 31, 2003 and 2002, and the related statements of activities and changes in net assets and of cash flows for the years 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 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 an audit to obtain reasonable assurance about whether the financial statements are free of material misstatcmcnt. 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 audits provide 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, 2003 and 2002, and the changes in its net assets and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

CALIBRE CPA GROUP, PLLC

April 23, 2004

NOTES TO FINANCIAL STATEMFNTS

DECEMBER 31, 2003 AND 2002

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 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 earned at cost. The Association capilalizes 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, 2003 and 2002. The Association is not a private foundation.

Revenue Recognition

Contributions received with donor stipulations limiting the use of the donated assets are recorded as iemporarily 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. Grant and contract funds are reported as revenue and expenses as costs are incurred. Funds received prior to being expended are reported as a liability on the statement of financial position until expended

Postretirement Benefits

Post-retirement 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.

Reclassification

Temporarily restricted net assets at December 31, 2002 were increased by $96,725 to correct a misallocation of market value adjustments and unrestricted net assets were decreased by the same amount.

3. TEMPORARILY RESTRICTED NET ASSETS

Temporarily restricted net assels are available for the following purposes: