Endowments Of Not-For-Profit Organizations
FASB codification 958-205-65-1, formally FASB Staff Position 117-1, provides guidance on the net asset classification of donor-restricted endowment funds for organizations that are subject to UPMIFA and enhanced disclosures relating to endowment funds whether or not the organization is subject to UPMIFA.
Not-for-profit organizations that are subject to an enacted version of UPMIFA shall classify a portion of donor-restricted endowment funds of perpetual duration as permanently restricted net assets. The amount classified as permanently restricted is in accordance with the explicit donor stipulation or in the absence of such stipulation the organization’s governing board determines what must be retained permanently, consistent with relevant laws.
For all donor-restricted endowment funds for which the restriction described in subsection 4(9) of UPMIFA is applicable, not-for-profit organizations shall classify the portion of funds that are not classified as permanently restricted net assets as temporarily restricted net assets (time restricted) until appropriated for expenditures by the organization.
A not-for-profit organization, whether or not subject to an enacted version of UPMIFA, shall disclose information that enables users of financial statements the ability to understand net asset classification, net asset composition, changes in composition, spending policies and investment policies of its endowment funds.
At a minimum, an organization should disclose the following for each period for which the organization presents financial statements:
- A description of the governing board’s interpretation of the law(s) underlying the organization’s net asset classification of donor-restricted endowment funds.
- A description of the organization’s policies for the appropriation of endowment assets for expenditure (its endowment spending policy(ies)).
- A description of the organization’s endowment investment policies. The description shall include the organization’s return objectives and risk parameters; how those objectives related to the organization’s endowment spending policies; and the strategies employed for achieving those objectives.
- The composition of the organization’s endowment by net asset class at the end of the period, in total and by type of endowment fund, showing donor-restricted endowment funds separately from board-designated endowment funds.
- A reconciliation of the beginning and ending balance of the organization’s endowment, in total and by net asset class, including, at a minimum, the following line items (as applicable): investment return, separated into investment income (for example, interest, dividends, rents) and net appreciation or depreciation of investments; contributions; amounts appropriated for expenditure; reclassifications; and other changes.
In addition, the organization shall also provide information about net assets of its endowment fund in accordance with current standards:
- The nature and type of permanent or temporary restrictives
- The aggregate amount of deficiencies for all donor restricted endowment funds for which the fair value of the assets at the reporting date are less than the level required by donor stipulations or law
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