Does your nonprofit have a donor-restricted endowment fund or a board-designated endowment fund? Are you hoping to get or create one? Effective for fiscal years ending after December 15, 2008, nonprofit organizations with donor-restricted and board-designated endowment funds are facing changes in financial statement reporting and disclosure requirements.
In August 2008 the Financial Accounting Standards Board (FASB) 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.”
With this extremely long and cumbersome name the objectives are:
- 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 whether or not the organization is subject to UPMIFA.
First, let us talk about what UPMIFA is. In general, UPMIFA changes the way boards invest and manage donor-restricted endowment funds. Rather than focusing on the spending of only the earnings from donor-restricted endowment funds, UPMIFA requires that boards now consider both the original amount and the earnings on those invested funds when making investment decisions or setting spending policies. For more on it try this here (link opens a PDF document).
Excerpted from the Nonprofit Times piece:
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. That amount must be kept permanently in accordance 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.
This differs from previous guidance that considered earnings on donor-restricted endowments unrestricted unless otherwise restricted by donors or by specific relevant law. The portion of donor-restricted endowment funds that are 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.
Shoot me an email or post a comment if you have questions, I’m going to come up with a nonprofit accounting glossary page* in the weeks to come as I realize this post has some terms that may not be familiar to everybody.
*I didn’t need to put one together because a good one already exists.
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