FASB Addresses UPMIFA
November 9, 2007
As a result of discussions at its meeting last week, FASB has undertaken a short-term project related to the Uniform Prudent Management of Institutional Funds Act of 2006 (UPMIFA). Early next year, FASB will issue a FASB Staff Position (FSP) to provide further guidance on the net asset classification of donor-restricted endowment funds by not-for-profit organizations. The FSP, expected for release in January, will carry a 30-day comment period.
FASB discussions on UPMIFA included the short-term spending flexibility it affords, diverse views of constituents about its implications, and the need for guidance on the application of the relevant provisions and guidance provided by:
- FASB Statement No. 117, Financial Statements of Not-for-Profit Organizations
- FASB Statement No. 124, Accounting for Certain Investments Held by Not-for-Profit Organizations
- EITF Topic No. D-49, "Classifying Net Appreciation on Investments of a Donor-Restricted Endowment Fund."
The Board agreed that the additional guidance, in the form of an FSP, should:
- Affirm that, consistent with the principle for classifying endowment appreciation in paragraph 22 of Statement 117, in the absence of explicit donor stipulations, a not-for-profit organization should continue to classify a portion of a donor-restricted endowment fund as permanently restricted net assets, which continues to be based on the amount of the donor restriction that, in the long run, remains in force permanently. As noted in Statement 117, that determination ultimately rests with the organization’s governing board and its interpretation of the entity’s accountability to its donor for a restriction of permanent duration based on the donor’s stipulations and relevant state law (including the state’s adopted version of UPMIFA).
- Affirm that an organization should disclose its interpretation of relevant state law in the notes to the financial statements.
- Include additional disclosures that may be necessary to provide sufficient transparency to users in the new UPMIFA environment. (FASB staff will develop those disclosures for further consideration by the Board).
- Affirm the continued applicability of the guidance in paragraphs 12 and 13 of Statement 124 to so-called under water situations and observe that the short-term spending flexibility afforded under UPMIFA does not change an organization’s long-term accountability for a fund of perpetual duration.
- Affirm the continued applicability of the guidance in Topic D-49. The Board observed that contractual or other legally imposed restrictions on particular assets do not necessarily constitute donor-imposed restrictions for accounting purposes. It also noted that a temporary restriction should not be inferred from the "donor restricted assets" language in Section 4(a) of UPMIFA.
- Clarify that, similar to the guidance in Topic D-49, a temporary restriction should not be inferred from the refutable presumption of imprudence provision under some versions of UPMIFA.
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