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Business and Policy Areas
Business and Policy Areas

FASB Releases FSP 117-1 addressing UPMIFA and Endowments

August 14, 2008

The Financial Accounting Standards Board (FASB) has issued FASB Staff Position (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 (UPMIFA), and Enhanced Disclosures for All Endowment Funds."  The FSP applies to not-for-profit organizations with donor-restricted endowment funds.  Consequently, the FSP will result in possibly significant net asset category reclassifications for independent institutions and the not-for-profit foundations of public institutions that are in UPMIFA states. In addition, all independent institutions and foundations affiliated with public institutions will be subject to new endowment disclosure requirements - regardless of the status or adoption of UPMIFA in their state.

The provisions of the FSP are effective for fiscal years ending after December 15, 2008, or FY 2009 for the vast majority of independent institutions and foundations affiliated with public institutions.  Consequently, in accordance with auditing pronouncement AU 9410.14 to .18, NACUBO urges independent institutions and the foundations of public institutions in UPMIFA states, as of FY 2008, to disclose the requirements of the FSP that are not yet adopted in their FY 2008 financial statements.  Those organizations where UPMIFA is currently effective should consider the significance or materiality of required net asset category reclassifications.  If material in accordance with AU 9410.14-.18, NACUBO recommends a disclosure of explanatory text or pro forma financial data that give effect to the future reclassification as if it were effective as of the audited financial statement date.

Highlights of the FSP:

  • A not-for-profit organization that is subject to an enacted version of UPMIFA shall classify a portion of a donor-restricted endowment fund of perpetual duration as permanently restricted net assets.
  • For each donor-restricted endowment fund for which the restriction described in subsection 4(a) of UPMIFA is applicable, a not-for-profit organization shall classify the portion of the fund that is not classified as permanently restricted net assets as temporarily restricted net assets (time restricted) until appropriated for expenditure by the organization.
  • Consistent with paragraphs 11 and 12 of FASB Statement No. 124, the portion of a donor-restricted endowment fund that is classified as permanently restricted net assets is not reduced by losses on the investments of the fund, except to the extent required by the donor, including losses related to specific investments that the donor requires the organization to hold in perpetuity. Likewise, the amount of permanently restricted net assets is not reduced by an organization’s appropriations from the fund.
  • If the donor-restricted endowment fund is also subject to a purpose restriction, the reclassification of the appropriated amount to unrestricted net assets would not occur until that purpose restriction also has been met, in accordance with the provisions of paragraph 17 of Statement 116.
  • In the initial application of the guidance contained in paragraphs 8 and 9 of the FSP, any amounts within a donor-restricted endowment fund that were previously considered available to meet a purpose restriction under the provisions of paragraph 17 of Statement 116, but that have never been appropriated for expenditure, shall, like other unappropriated amounts in that fund, be considered unavailable until appropriated, and, therefore, the purpose restriction previously considered fulfilled shall be considered reinstated.
  • A not-for-profit organization, whether or not it is subject to an enacted version of UPMIFA, shall disclose information to enable users of financial statements to understand the net asset classification, net asset composition, changes in net asset composition, spending policy(ies), and related investment policy(ies) of its endowment funds (both donor-restricted and board-designated).
  • When initially applying the net asset reclassification guidance in the FSP, organizations should report the reclassification as a separate line item on the statement of activities for the reporting period.
  • If UPMIFA was effective for an organization in FY 2008 and the organization initially applies the provisions of the FSP in FY 2009 (the effective date of the guidance) - and the organization reports comparative financial information in FY 2009 - the reclassification will also need to be displayed in FY 2008.

The full text of conclusions is available on the action alert section of FASB’s website.

The NACUBO staff resource is Sue Menditto, director, Accounting Policy

Read an earlier bulletin on this topic