“This new accounting standard will have a tremendous impact on the nonprofit field because it increases the transparency of donor-restricted endowment funds,” explains Terry Fraser, nonprofit and government principal with LarsonAllen.

The FSP provides guidance on the net asset classification of donor-restricted endowment funds for a nonprofit organization that is subject to an enacted version of UPMIFA. (More than 20 states have enacted some version of the provisions of UPMIFA.) It also establishes disclosure requirements for all nonprofit organizations regarding both donor-restricted and board-designated endowment funds.

Organizations affected
Even if your organization is not yet subject to an enacted version of UPMIFA, all non-profits are required by the FSP to disclose information to enable users of financial statements to understand the net asset classification, net asset composition, changes in net asset composition, spending policies, and related investment policies of both donor-restricted and board-designated endowment funds.

Key reporting changes
Tax-exempt organizations will continue to classify a portion of a donor-restricted endowment fund of perpetual duration (as distinguished from term endowments) as permanently restricted net assets; however, the amount classified as permanently restricted may change with this guidance.

The amount classified as permanently restricted should be the amount of the fund:
(a) that must be retained permanently in accordance with explicit donor stipulations, or
(b) that in the absence of such stipulations, the organization's governing board determines must be retained (preserved) permanently consistent with the relevant law.

The portion of the fund that is not classified as permanently restricted net assets should be classified as temporarily restricted net assets (time restricted) until appropriated for expenditure by the organization.

A number of clients with permanently restricted net assets will see movement from unrestricted net assets to temporary restricted with this new guidance.

The adoption of this FSP is retroactive to the year UPMIFA is first effective and will be a separate line outside of any performance or operating measurement.

Steps to take before December 15
Prior to December 15, 2008, nonprofit financial leaders need to review their investment, spending, and gift acceptance policies in light of these new accounting and disclosure requirements.

How we can help
We can help you understand and comply with FAS 117-1. Through articles, seminars, and tools, such as examples of disclosures, LarsonAllen plans to offer nonprofits tips on how to prepare for FAS 117-1 regulatory compliance and reporting.

For additional information, contact us or or read the new standard.