FASB Addresses UPMIFA and Endowment Reporting

January 23, 2008

At its January 16, 2008 meeting, the FASB reached decisions on a proposed FASB Staff Position (FSP) on not-for-profit endowments and the Model Uniform Prudent Management of Institutional Funds Act of 2006 (UPMIFA). In the fall of 2007, the FASB staff asked the Board to add to its agenda a short-term project to issue a FSP with guidance concerning the effect of UPMIFA on the net asset classification of donor-restricted endowment funds by not-for-profit organizations. This matter has widespread importance to independent colleges and universities. NACUBO’s Accounting Principles Council (APC) and staff have been providing feedback to the FASB throughout the project. Although NACUBO had positive comments on two of the proposed disclosures, the FASB is proposing five disclosures. NACUBO is currently reviewing the “fatal flaw” proposed FSP. After receiving comments from NACUBO and other constituents, we expect the FASB to release the proposed FSP in mid to late February 2008.

The proposed FSP:

Would be effective for fiscal years ending after June 15, 2008, with early adoption permitted as long as an organization has not already issued its financial statements.
Will have a 60 day comment period
Would require five new additional financial statement disclosures:
1. Disclosure A: Net Asset Composition by Type of Endowment Fund
  Each period for which a statement of financial position (balance sheet) is presented, an organization should present the composition of its endowment by net asset class, in total and by type of endowment fund, showing donor-restricted endowment funds separately from funds designated by the organization to function as endowment (that is, be invested long term). The organization should also indicate the cumulative amount of investment return, if any, contained in the permanently restricted net asset class because of the organization’s interpretation of relevant law, beyond the amount required by any explicit donor stipulations.
2. Disclosure B: Endowment Roll Forward
  Each period for which a statement of activities is presented, an organization should present a reconciliation of the beginning and ending balance of its endowment, in total and by net asset class, including, at a minimum, the following line items (as applicable): investment return, separated into investment income (interest, dividends, rents) and net appreciation or depreciation of investments; contributions; distribution of endowment return to other funds (spending); reclassifications; and other changes (specified as necessary). The organization should also indicate how much, if any, of the additions of investment return to permanently restricted net assets are the result of the organization’s interpretation of relevant law, as opposed to explicit donor stipulations.
3. Disclosure C: Endowment Spending Policy(ies)
  The organization should describe its policy(ies) on the appropriation of endowment assets for spending (its endowment spending policy).
4. Disclosure D: Planned Endowment Distributions
  The organization should indicate its planned distribution of endowment return to other funds (spending) for the next year, if known.
5. Disclosure E: Endowment Investment Policies and Strategies
  The organization should describe its endowment investment policy(ies). Such a description should include, at a minimum:

The organization’s return objectives and risk parameters

How those objectives relate to the organization’s endowment spending policy(ies)

The strategies employed for achieving those objectives.

Resources:

NACUBO Website - www.nacubo.org/accounting

FASB Action Alerts – www.fasb.org/action

Sue Menditto, Director, accounting policy – smenditto@nacubo.org