The NonProfit Times - December 1, 2008 - (Page 13)

ACCOUNTING MARK J. PISZKO Donor-Restricted Endowments New FASB 117-1 guidelines take effect this month onprofit organizations with donor-restricted 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 donor-restricted endowment funds and board-designated endowment funds) whether or not the organization is subject to UPMIFA. N 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 ‘‘ 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 Unless stated otherwise in the gift instrument, the assets in the endowment fund are donorrestricted assets until appropriated for expenditure by the institution 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-dollarthreshold and establishes prudent spending guidelines that consider both the duration and preservation of the fund. UPMIFA also changes the net asset 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 donor-restricted assets until appropri- ated for expenditure by the institution.” This differs from previous guidance under FASB 124 that considered earnings on donor-restricted endowments unrestricted (whether or not appropriated for expenditure by the organization) unless otherwise restricted by donors or by specific relevant law. As a result of this change, the portion of donor-restricted endowment funds that is not classified as permanently restricted net assets must now be classified as temporarily restricted net assets (time restricted) until appropriated for expenditure by the organization. FAS 117-1 states that an appropriation for expenditure occurs upon approval for expenditure. Nonprofits affected by this change must restate their financial statements by reclassifying certain amounts previously reported as unrestricted to temporarily restricted net assets to the extent they have not already been appropriated for expenditure. NEW DISCLOSURES All nonprofits with board-designated or donor-restricted endowment funds, Accounting, page 15 Start With Trust ® Donors can give confidently when they see the Better Business Bureau® Charity Seal. It’s assurance that a charity meets 20 rigorous BBB Wise Giving Alliance standards. National charities can initiate a free evaluation and public report by visiting www.bbb.org/charity and clicking on “How Charities Can Enroll.” Visit our Web site also to access over 1,200 national charity reports. DECEMBER 1, 2008 THE NONPROFIT TIMES www.nptimes.com 13 http://www.rwrconference.com http://www.bbb.org/charity http://www.bbb.org/charity http://www.rwrconference.com http://www.nptimes.com

Table of Contents Feed for the Digital Edition of The NonProfit Times - December 1, 2008

The NonProfit Times - December 1, 2008 Contents A Nation of Volunteers Nonprofits Start Franchising Page 4 Tidings Of Good Cheer Donor-Restricted Endowments Membership Revenue Isn’t Free Divining A Skills Set Special Report: 2008 The Year in Review The Revised 990 Giving And The Economy Annual Buyers Guide Advertiser Index NPT Jobs Resource Directory

The NonProfit Times - December 1, 2008

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