*Decisions Reached at the Last Meeting
At the June 4, 2008 meeting, the Board discussed issues raised by respondents to the proposed FASB Staff Position FAS 117-a, 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, and Enhanced Disclosures. The Board made the following decisions, which will be incorporated into the FSP:
- As proposed by FSP FAS 117-a , organizations should continue to classify a portion of a donor-restricted endowment fund as permanently restricted net assets, as determined by the organization’s (governing board’s) interpretation of relevant law.
- As proposed by FSP FAS 117-a, organizations should continue to account for underwater funds as a reduction of unrestricted or temporarily restricted net assets (rather than as a reduction of permanently restricted net assets), which is consistent with the guidance in FASB Statement No. 124, Accounting for Certain Investments Held by Not-for-Profit Organizations.
- The portion of a donor-restricted endowment fund that is not classified in permanently restricted net assets should be classified as temporarily restricted net assets, even in the absence of purpose restrictions. This decision is consistent with the view that UPMIFA extends a donor restriction to the unappropriated portion of an endowment fund, specifically by implying a time restriction.
- The disclosure requirements proposed by FSP FAS 117-a will be retained and incorporated into the final FSP except for the elimination of:
- The proposed disclosure of an organization’s planned appropriation for expenditure, if known, for the year following the most recent period for which the organization presents financial statements
- The proposed supplemental disclosure to the tabular disclosures of the amount added to permanently restricted net assets because of governing board interpretation of the law.
- The final FSP will not address respondents’ requests for additional guidance that are outside the scope of the project.
- The effective date of the FSP will be deferred six months to fiscal years ending after December 15, 2008. Early application of the FSP is permitted.
The Board directed the staff to monitor the implementation of UPMIFA and the application of the FSP in practice. The Board also directed the staff to proceed to a draft of a final FSP for vote by written ballot.
Board/Other Public Meeting Dates
The Board meeting minutes are provided for the information and convenience of constituents who want to follow the Board’s deliberations. All of the conclusions reported are tentative and may be changed at future Board meetings. Decisions become final only after a formal written ballot to issue a final Statement, Interpretation, or FSP.
Below is a list of the FASB Board meetings for the past 12 months. Minutes for meetings generally are posted within two weeks following the meeting. Refer to the IASB website for IASB Board meetings.
History and Background
A donor’s stipulation that a gift be invested by a not-for-profit organization in perpetuity creates a donor-restricted endowment fund. Investment of such endowed funds and use of investment return by a not-for-profit organization is governed by explicit donor stipulation and/or relevant state law. In 46 states and the District of Columbia, that law has been some variation of the model Uniform Management of Institutional Funds Act of 1972 (UMIFA), which is the predecessor of UPMIFA (discussed below).
In states that have followed UMIFA, a key factor in initial and subsequent net asset classification of donor-restricted endowment funds has been the concept of historic dollar value, the amount that UMIFA specifies as being not expendable. The historic dollar value of an endowment fund is defined in UMIFA as the aggregate fair value of:
- An endowment fund at the time it became an endowment fund
- Each subsequent donation to the fund at the time it is made, and
- Each accumulation made pursuant to the direction in the applicable gift instrument at the time the accumulation is added to the fund.
Thus, in those states that have followed UMIFA, the original gift amount(s) and any subsequent earnings that donors explicitly require to be retained permanently are considered not expendable and are classified under GAAP as additions to permanently restricted net assets.
In July 2006, the National Conference of Commissioners on Uniform State Laws (NCCUSL) approved a model UPMIFA as a modernized version of UMIFA. (An annotated text, with the NCCUSL’s comments, can be found at http://www.law.upenn.edu/bll/archives/ulc/umoifa/2006final_act.pdf.) As of October 1, 2007, 13 states had enacted a variation of UPMIFA and several others had announced legislation. (See Appendix I to the October 31, 2007 Board meeting minutes.) Over the next two to three years, most or all of the remaining states that have followed UMIFA likely will enact a variation of UPMIFA.
UPMIFA modernizes the guidance contained in UMIFA, taking into account developments in the management and investment of endowment funds that have occurred over the past few decades, which most sophisticated not-for-profit organizations already utilize. Among other revisions, UPMIFA prescribes a new guideline concerning expenditure of endowment funds (in the absence of overriding, explicit donor stipulations). While UMIFA focused on the prudent spending of net appreciation on a donor-restricted endowment fund, UPMIFA focuses on the fund as whole and eliminates the bright-line historic-dollar-value threshold in favor of a more robust set of guidelines about what constitutes prudent spending, with preservation of the fund at the head of the list of factors to be considered in making spending decisions.
The staff has learned that constituents hold wide ranging views about how a not-for-profit organization should classify the net assets associated with donor-restricted endowment funds under UPMIFA and, to avoid divergent practice, they seek guidance from the FASB or its staff.
