Exempt - Winter 2008 - (Page 6)

UPFRONT BY MARK J. PISZKO New FASB 117-1 Takes Effect This Month N onproﬁt organizations with donorrestricted endowment funds and board-designated endowment funds are facing changes in ﬁnancial statement reporting and disclosure requirements in the immediate future. Now is the time to ensure that your organization will be ready for these changes. The Financial Accounting Standards Board (FASB) this past August issued FASB Staff Position (FSP) No. FAS 117-1, “Endowments of Not-for-Profit Organizations: Net Asset Classiﬁcations of Funds Subject to an Enacted Version of the Uniform Prudent Management of Institutional Funds Act (UPMIFA), and Enhanced Disclosures for All Endowment Funds.” The FSP’s objective is two-fold: • To provide guidance on the net asset classification of donor-restricted endowment funds for not-for-proﬁt organizations subject to an enacted version of UPMIFA. • To provide increased disclosures about an organization’s endowment funds (both donorrestricted endowment funds and board-designated endowment funds) whether or not the organization is subject to UPMIFA. The provisions of FAS 117-1 are effective for ﬁscal years ending after December 15, 2008, but earlier application is permitted. UPMIFA CHANGES In general, UPMIFA changes the way boards and their investment committees invest and manage donor-restricted endowment funds. Rather than focusing on the prudent spending of only the net appreciation of donor-restricted endowment funds, UPMIFA requires that boards consider both the original gift amounts and the net appreciation on those invested gifts when making investment decisions or setting spending policies. It eliminates the historical-dollar-threshold and establishes prudent spending guidelines that consider both the duration and preservation of the fund. UPMIFA also changes the net asset classiﬁcation of certain of not-for-proﬁt organizations’ donor-restricted endowment funds. Nonproﬁts that are subject to UPMIFA must classify the portion of the donor-restricted endowment fund that is perpetual in duration as permanently restricted net assets. The amount classiﬁed as permanently restricted is the amount that must be retained permanently in accordance with explicit donor restrictions, or if such restrictions are absent, the amount the organization’s governing board determines must be retained permanently consistent with relevant law. Accordingly, permanently restricted net assets may, in certain circumstances, include accumulated earnings on those assets. Subsection 4(a) of UPMIFA states that “unless stated otherwise in the gift instrument, the assets in the endowment fund are donorrestricted assets until appropriated for expenditure by the institution.” This differs from previous guidance under FASB 124 that considered 6 | Exempt | Winter 2008

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Exempt - Winter 2008

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