FASB ASU 2016-14: Endowment Funds
In general, endowment funds can be established by either donors or a governing board and must be reported in the statement of financial position based on the existence or lack of donor-imposed restrictions. A donor-restricted endowment fund results from a gift with a stipulation that those resources be invested either for a long, specified period of time or in perpetuity. Endowment funds with donor restrictions are referred to as donor-restricted endowment funds and will be reported on the statement of financial position within the net assets with donor restrictions.
Those without donor restrictions are referred to as board-designated endowment funds. A board-designated endowment fund is created when a governing board designates or earmarks a portion of its net assets without donor restrictions to be invested for a generally long, but not necessarily specified, period of time. Board-designated endowment funds will be reported on the statement of financial position within net assets without donor restrictions.
An underwater endowment fund is a donor-restricted fund whose current fair market value has fallen below the original gift(s) amount or the amount required to be maintained (by the donor or law). Prior to nonprofits adopting ASU 2016-14, accumulated losses are treated as a reduction of unrestricted net assets to present the endowment fund at the amount required (by the donor or law) to be maintained. ASU 2016-14 will require accumulated losses to be included within the related endowment fund as net assets with donor restrictions. This change will improve the disclosures and understandability of underwater endowment funds.
In addition to the new presentation of the underwater endowment funds, ASU 2016-14 will require the following enhanced disclosures:
- The governing board’s interpretation of the ability to spend from underwater endowment funds (in conjunction with relevant state UPMIFA laws),
- The organization’s policy, and any actions taken during the period, concerning appropriation from underwater endowment funds, and
- The aggregate amounts, for all underwater endowment funds, of the following:
- Fair value of the underwater endowment funds
- Original endowment gift amount or level required by donor stipulations or law
- Amount of the deficiencies for each of the underwater endowment funds (i.e., current fair market value less the original gift(s))
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