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Business and Policy Areas
Business and Policy Areas

GASB Equity Interest Proposal Considers Endowment Funds

December 7, 2017

The Governmental Accounting Standards Board (GASB) issued a proposal in November designed to improve reporting consistency when a government holds a majority equity interest in a legally separate organization. The requirements of the proposal would be effective for FY20 financial statements for the vast majority of public institutions and applied retroactively.  

The primary objective of the proposal is to clarify circumstances in which a government should report a majority equity interest in a legally separate organization as an investment or a component unit. The Board believes that an investment, by definition, is held primarily to generate income. Consequently, it determined that governments should first consider whether a majority equity interest in a legally separate organization meets the definition of an investment. 

According to the exposure draft, a holding that meets the definition of an investment should be measured using the equity method unless the investment is held by an endowment (including permanent and term endowments), a permanent fund, or a fiduciary fund; holdings in these funds would be measured at fair value. If the holding is other than an investment, public institutions (and other governmental entities) would report the legally separate organization as a component unit.  

It is important to note that the proposal separately mentions endowments and permanent funds. Permanent funds (per Statement 34) are always restricted. However, permanent funds can be a subset of an endowment pool and, because endowment funds can include permanent endowments, NACUBO believes that the Board’s intention was for endowments to include board-designated funds functioning as endowments. NACUBO will request clarification in comments to GASB, which are due January 18, 2018. NACUBO encourages public institutions to comment directly to GASB or to contact us with thoughts and observations for the industry comment letter.


Sue Menditto
Director, Accounting Policy