Financial Statements Sept 30, 2020 - Craigflower Housing Co-operative

INDEPENDENT AUDITORS' REPORT

To the Directors of Craigflower Housing Co-operative

Opinion

We have audited the financial statements of Craigflower Housing Co-operative (the Entity), which comprise:

• the statement of financial position as at September 30, 2020
• the statement of operations for the year then ended
• the statement of changes in fund balances for the year then ended
• the statement of cash flows for the year then ended
• and notes to the financial statements, including a summary of significant accounting policies

(hereinafter referred to as the “financial statements”).

In our opinion, the accompanying financial statements present fairly, in all material respects, the financial position of the Entity as at September 30, 2020 and its results of operations and its cash flows for the year then ended in accordance with the financial reporting provisions of the agreement between the Entity and Canada Mortgage and Housing Corporation (“CMHC”).

Basis for Opinion

We conducted our audit in accordance with Canadian generally accepted auditing standards. Our responsibilities under those standards are further described in the “Auditors’ Responsibilities for the Audit of the Financial Statements” section of our auditors’ report.

We are independent of the Entity in accordance with the ethical requirements that are relevant to our audit of the financial statements in Canada and we have fulfilled our other ethical responsibilities in accordance with these requirements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Emphasis of Matter – Financial Reporting Framework

We draw attention to Note 1 in the financial statements, which describes the basis of accounting.

The financial statements are prepared to assist the Entity to comply with the reporting provisions of the agreement referred to above. As a result, the financial statements may not be suitable for another purpose.

Our opinion is not modified in respect of this matter.

Emphasis of Matter – Comparative Information

We draw attention to Note 2 to the financial statements (“Note 2”), which explains that certain comparative information presented for the year ended September 30, 2019 has been restated.

Note 2 explains the reason for the restatement and also explains the adjustments that were applied to restate certain comparative information.

Our opinion is not modified in respect of this matter.

Other Matter – Comparative Information

As part of our audit of the financial statements for the year ended September 30, 2020, we also audited the adjustments that were applied to restate certain comparative information presented for the year ended September 30, 2019. In our opinion, such adjustments are appropriate and have been properly applied.

Responsibilities of Management and Those Charged with Governance for the Financial Statements

Management is responsible for the preparation and fair presentation of the financial statements in accordance with the financial reporting provisions of the agreement with CMHC, 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.

In preparing the financial statements, management is responsible for assessing the Entity’s ability to continue as a going concern, disclosing as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Entity or to cease operations, or has no realistic alternative but to do so.

Those charged with governance are responsible for overseeing the Entity’s financial reporting process.

Auditors’ Responsibilities for the Audit of the Financial Statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion.

Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Canadian generally accepted auditing standards will always detect a material misstatement when it exists.

Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial statements.

As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise professional judgment and maintain professional skepticism throughout the audit.

We also:

• Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
• Obtain an understanding of internal control relevant to the audit 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.
• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.
• Conclude on the appropriateness of management's use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Entity's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditors’ report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditors’ report. However, future events or conditions may cause the Entity to cease to continue as a going concern.
• Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation.
• Communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

Chartered Professional Accountants Victoria, Canada January 22, 2021

CRAIGFLOWER HOUSING CO-OPERATIVE

Statement of Financial Position

September 30, 2020, with comparative information for 2019

See accompanying notes to financial statements.

CRAIGFLOWER HOUSING CO-OPERATIVE

Statement of Operations

Year ended September 30, 2020, with comparative information for 2019

See accompanying notes to financial statements.

CRAIGFLOWER HOUSING CO-OPERATIVE

Statement of Changes in Fund Balances

Year ended September 30, 2020, with comparative information for 2019

See accompanying notes to financial statements.

CRAIGFLOWER HOUSING CO-OPERATIVE

Statement of Cash Flows

Year ended September 30, 2020, with comparative information for 2019

See accompanying notes to financial statements.

CRAIGFLOWER HOUSING CO-OPERATIVE

Notes to Financial Statements

Year ended September 30, 2020

Craigflower Housing Co-operative (the "Co-operative") was incorporated under the Cooperative Association Act of British Columbia on September 22, 1982 for the purpose of owning and operating a not-for-profit 50 unit housing project providing accommodation for low and moderate income families and individuals, the majority of whom are members of the Co-operative. The Co-operative is a non-taxable not-for-profit organization.

1. Significant accounting policies:

(a) Basis of accounting:

These financial statements have been prepared in accordance with the significant accounting policies set out below to comply with the operating agreement with Canada Mortgage and Housing Corporation (“CMHC”). The basis of accounting used in these financial statements materially differs from Canadian accounting standards for not-for-profit organizations because:

(i) amortization is not provided on capital assets purchased from loans recognized by CMHC over the estimated useful lives of these assets but rather at a rate equal to the annual principal reduction of the mortgage. Original land, buildings, furniture and equipment were amortized at this rate; (ii) capital assets purchased from the replacement reserve are charged against the replacement reserve account, rather than being capitalized on the statement of financial position and amortized over their estimated useful lives; (iii) a reserve for future capital replacements is appropriated annually from operations and recorded as an expense; (iv) minor capital purchases funded by general operations are expensed to operations in the year acquired.

(b) Fund accounting:

The Co-operative follows the restricted fund method of accounting for contributions. Accordingly the transactions of the Co-operative are recorded in three funds as follows:

(i) Operating Fund: The Operating Fund reports the Co-operative’s rental activities. (ii) Tangible Capital Asset Fund The Capital Fund reports the Co-operative's capital assets. (iii) Replacement Reserve Fund: A replacement reserve fund has been established in accordance with the Co-operative’s operating agreement with CMHC. The fund shall only be used, unless otherwise approved by CMHC, to pay for the cost of replacements outlined in the agreement including ranges and refrigerators, roofs, plumbing, heating equipment and other items of a capital nature approved by CMHC. Interest earned on replacement reserve funds is allocated to the reserve and not considered operating income. (iv) Subsidy Surplus Fund: A subsidy surplus fund has been established in accordance with the Co-operative’s compliance with National Housing Act, Section 95. The fund is established from unused subsidy assistance received for income tested members to a maximum of $25,000 (50 units at $500 per unit) plus interest. The fund is used to meet future subsidy requirements of income-tested occupants over and above the federal assistance available. Interest earned on subsidy surplus funds is allocated to the fund, and not considered operating income. Subsidy surplus funds in excess of $25,000 are required to be refunded to CMHC.

(c) Amortization:

Under the terms of the operating agreement between the Co-operative and Canada Mortgage and Housing Corporation, amortization on original land, buildings, furniture and equipment was provided annually in amounts equal to the principal reduction of the CMHC mortgage. Capital replacements (consisting mainly of the roof replacement) are being amortized over their estimated useful lives of 25 years. Amortization on assets under construction will commence when the assets are put into service. The assets under construction in the building renewal project will be amortized over their estimated useful lives of 30 years.

(d) Revenue recognition:

The Cooperative follows the restricted fund method of accounting for contributions. Unrestricted contributions are recognized in the year received or receivable if the amount can be reasonably estimated and collection is reasonably assured. Revenue from housing charges is recognized as accommodation is provided.

Restricted subsidy related to general operations is recognized as revenue in the year the subsidy is used for income tested members. Interest income is recognized in the fund in the period that the interest is earned.

(e) Financial instruments:

Financial instruments are recorded at fair value on initial recognition. Investments that are quoted in an active market are subsequently measured at fair value. All other financial instruments are subsequently recorded at cost or amortized cost, unless management has elected to carry the instruments at fair value. The Co-operative has not elected to carry any such financial instruments at fair value.

Transaction costs incurred on the acquisition of financial instruments measured subsequently at fair value are expensed as incurred. All other financial instruments are adjusted by transaction costs incurred on acquisition and financing costs, which are amortized using the straight-line method.

Financial assets are assessed for impairment on an annual basis at the end of the fiscal year if there are indicators of impairment. If there is an indicator of impairment, the Co-operative determines if there is a significant adverse change in the expected amount or timing of future cash flows from the financial asset. If there is a significant adverse change in the expected cash flows, the carrying value of the financial asset is reduced to the highest of the present value of the expected cash flows, the amount that could be realized from selling the financial asset or the amount the Co-operative expects to realize by exercising its right to any collateral. If events and circumstances reverse in a future period, an impairment loss will be reversed to the extent of the improvement, not exceeding the initial carrying value.

(f) Use of estimates:

The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenditures during the year. Actual results could differ from those estimates.

2. Change in accounting policy:

In 2014, the Co-operative took out a mortgage with CCEC to finance the replacement of the roof. To date, the roof has been amortized at a rate equal to principal repayments on the CCEC mortgage, consistent with the amortization policy under the CMHC special purpose reporting framework as described in note 1(a(i)). During 2020, the Co-operative paid off its mortgage with CCEC using proceeds from the new Vancity mortgage (note 5). Since the Vancity mortgage is financing both the roof project and the building renewal project, it is not practicable to allocate the principal repayments to the respective projects to determine annual amortization.

The Co-operative has changed the accounting policy for amortization of the capital replacements to amortize the assets over their estimated useful life of 25 years. The change in accounting policy has been applied retrospectively.

As a result of the change, capital assets and the Tangible Capital Asset Fund balance as at September 30, 2019 decreased by $58,150 and the amortization expense increased by $9,810 and excess of revenue over expenses decreased by $9,810 for the year ended September 30, 2019. The 2019 opening Tangible Capital Asset Fund balance decreased by $48,340.

3. Cash:

Included in cash is $248,664 (2019 - $nil) in cash held at Vancity restricted for payment of holdbacks payable on the capital renewal project.

4. Capital assets:

5. Deferred charges and due to members:

An obligation to members exists for frozen cost of living adjustments in excess of the actual base share prices, which are paid out upon members’ departing their respective units. The amounts are reported as a liability and deferred charges until paid to departing members. During the year the Co-operative paid $0 to departing members for cost of living adjustments (2019 - $1,133). These payouts are recorded as reimbursements on the statement of operations.

6. Mortgage payable:

On September 16, 2019, the Co-operative signed a commitment letter with Vancity to obtain $5,400,000 in mortgage financing to fund major renovations at in interest rate of prime plus 2%. During the year, $3,426,761 was drawn on the loan, with interest only payments being made monthly. Principal repayment will begin upon completion of the project. In November, 2019, the Co-operative used funds obtained from their agreement with Vancity to pay out the balance of the mortgage owed to CCEC.

7. Federal government assistance and due to CMHC:

The Co-operative has received federal assistance through CMHC pursuant to Section 95 (formerly 56.1) of the National Housing Act which enables the Co-operative to provide housing to low income individuals.

On April 1, 2018, the Co-operative entered into an agreement to amend the operating agreement with CMHC to provide subsidy extensions of $3,394 per month until March 31, 2020. The agreement was further extended to August 31, 2020. Unused subsidy is to be used to fund the subsidy surplus fund up to the maximum per note 1(b(iv)) or to be refunded to CMHC on an annual basis.

Effective September 1, 2020, the Co-operative transitioned to the new Federal Community Housing Initiative - Phase 2 (FCHI-2) Rental Assistance Program. The amount of monthly assistance received during the year for the month of September under this program was $3,580.

8. Membership shares:

9. Commitments:

The Co-operative has committed to capital expenditures of $4,561,159 relating to building envelope rehabilitation with a contractor. The contracted total expenditures are being incurred over an eighteen month period ending in 2021. The expenditures are being funded by the replacement reserve fund and the loan from Vancity (note 5). The total incurred to September 30, 2020 related to this project was $3,460,765.

10. Repairs and maintenance:

11. Financial instruments:

(a) Interest rate risk

The Co-operative's mortgage payable has a variable interest rate during the construction phase of the building renewal project. Upon completion of the project, the terms related to the interest and repayment of the debt will be established.

(b) Credit risk

Credit risk arises from cash held with banks and financial institutions and credit exposure to accounts receivable balances. The maximum exposure to credit risk is equal to the carrying value of the financial assets. The Co-operative assesses the credit quality of the counter parties, taking into account their financial position, past experience, and other factors.

It is management’s opinion that the Co-operative is not exposed to significant credit risk.

(c) Liquidity risk

Liquidity risk is the risk that the Co-operative will be unable to fulfill its obligations on a timely basis or at a reasonable cost. The Co-operative manages its liquidity risk by monitoring its operating requirements. The Co-operative prepares budget and cash forecasts to ensure it has sufficient funds to fulfill its obligations.

There have been no significant changes to the risk exposures from 2019.

12. COVID - 19:

On March 11, 2020, the COVID-19 outbreak was declared a pandemic by the World Health Organization. The situation is dynamic and the ultimate duration and magnitude of the impact on the economy and the financial effect on the Co-operative is not know at this time. As of September 30, 2020, the pandemic has not significantly impacted the revenues or expenses of the Co-operative.

CRAIGFLOWER HOUSING CO-OPERATIVE

Changes in Replacement Reserve Fund - Schedule 1

Year ended September 30, 2020, with comparative information for 2019

The cumulative balance of supplemental transfers from the operating fund is $12,611 (2019 - $12,611).