Endowment Reporting Under UPMIFA

By Julie McNeal, CPA, CSCPA Technical Activities Director

On August 6, the Financial Accounting Standards Board (FASB) issued FSP FAS 117-1, Endowments of Not-for-Profit Organizations: Net Asset Classification of Funds Subject to an Enacted Version of the Uniform Prudent Management of Institutional Funds Act, and Enhanced Disclosures for All Endowment Funds. The title is quite a mouthful, but the intent is fairly straight forward.

In Connecticut, as in 22 other states and the District of Columbia, endowment funds are subject to the Uniform Prudent Management of Institutional Funds Act of 2006 (UPMIFA). As state legislatures adopted UPMIFA, certain language in the Act caused some in the not-for-profit community to request guidance on how temporarily and permanently restricted funds should be interpreted and disclosed. Concerns were raised about the potential of board, or perhaps state mandated requirements to retain the inflation-indexed purchasing power rather than the (old UMIFA) historic-dollar value of endowment funds.

Net Asset Classification Guidance

Under the FSP and consistent with FAS 116 and 117, perpetual duration endowment funds are classified as permanently restricted net assets. Perpetual duration restrictions may emanate from either explicit donor restrictions, or, if there are no such restrictions, board restrictions required by applicable state law. Also, consistent with FAS 116 and 117, unless required by state law, board-designated endowments are not classified as permanently restricted net assets.

Until state case law is settled, the FASB suggests that not-for-profit organizations look to each state’s discussions in relevant legislative committees, announcements from attorneys general, and judicial rulings.

Under the FSP, the accounting guidance for net asset classification of donor-restricted endowment funds is:” A not-for-profit organization shall classify the portion of the (donor-restricted endowment) fund that is not classified as permanently restricted as temporarily restricted net assets (time restricted) until appropriated for expenditure by the organization” (emphasis added).

The FSP elaborates on the term appropriated for expenditure. “Approval for expenditure may occur through different means within and across organizations. For example, expenditures could be approved as part of a formal, annual budget. Expenditures also could be approved during the year as unexpected needs arise (such as for emergency relief efforts).”

New Disclosures

In paragraphs 10 and 11, the FSP described the enhanced disclosures for endowment funds required whether or not the organization is subject to UPMIFA through state law. The FSP also includes illustrative examples of endowment disclosures.

FASB Staff Position (FSP) FAS 117-1 is effective for fiscal years ending after December 15, 2008. To download the full FSP log on to the FASB website at: http://www.fasb.org/pdf/fsp_fas117-1.pdf.