Review FAS 117-1 and Auxiliary Organization Supplemental Template Presented by:

1. Review FAS 117-1 and Auxiliary Organization Supplemental Template Presented by: Lily Wang, COAUDIT

2. Agenda • Review FSP FAS 117-1 • Auxiliary Organization Supplemental Template Year-End GAAP Training

3. Review FAS 117-1 • On August 6, 2008, FASB issued FASB Staff Position (FSP) FAS 117-1, 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 for All Endowment Funds. • The FSP does primarily two things: • Changes the accounting for donor-restricted endowments, in general requiring the unexpended portion of the endowment that exceeds the original corpus be reflected as temporarily restricted net assets instead of unrestricted net assets as previously reported. • Significantly expands the disclosures relating to endowments. Year-End GAAP Training

4. Effective Date FAS 117-1 • Required to be adopted for June 30, 2009 financial statements. • Applicable to all FASB auxiliary organizations that have endowments (both donor-restricted endowments and board designated ‘quasi’ endowments). Year-End GAAP Training

5. Net Asset Classification FAS 117-1 • Classify a portion of a donor-restricted endowment fund of perpetual duration as permanently restricted net assets. • The portion of a donor-restricted endowment fund that is classified as permanently restricted net assets is not reduced by losses on the investments of the fund, except to the extent required by the donor. Likewise, the amount of permanently restricted net assets is not reduced by an organization’s appropriations from the fund. • Classify the portion of the fund that is not classified as permanently restricted net assets as temporarily restricted net assets (time restricted) until “appropriated for expenditure”. • Appropriation for expenditure: • Occurs upon approval for expenditure (e.g., annual budget, or during the year as unexpected needs arise such as for emergency relief efforts). • If approval is for a future period, appropriation occurs when that period is reached. • Financial statement reclassifications required: • Upon appropriation for expenditure, the time restriction expires to the extent of the amount appropriated and, in the absence of any purpose restrictions, results in a reclassification of that amount to unrestricted net assets. • If fund is also subject to a purpose restriction, the reclassification of that amount to unrestricted net assets would not occur until that purpose restriction is met, in accordance with the provisions of ¶ 17 of Statement 116. Year-End GAAP Training

6. Net Asset Classification FAS 117-1 Year-End GAAP Training

7. Enhanced Disclosures for All Endowment Funds FAS 117-1 • Not-for-Profit organizations, whether or not subject to UPMIFA, shall 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 its endowment funds (both donor-restricted and board-designated) Year-End GAAP Training

8. Enhanced Disclosures for All Endowment Funds FAS 117-1 • At a minimum, organization shall disclose the following information in its financial statements: • Description of governing board’s interpretation of the laws that underlie the organization’s net asset classification of donor-restricted endowment funds. • Description of organization’s policies for the appropriation of endowment assets for expenditure (its endowment spending policies). • Description of organization’s endowment investment policies (include return objectives and risk parameters; how they relate to the organization’s endowment spending policies; and strategies employed for achieving those objectives). • Composition of 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. • Reconciliation of the beginning and ending balance of organization’s endowment, in total and by net asset class, including, at a minimum, (as applicable): Investment return, separated into investment income (e.g., interest, dividends), and net appreciation or depreciation of investments; contributions; amounts appropriated for expenditure; reclassifications, and other changes. Year-End GAAP Training

9. Enhanced Disclosures for All Endowment Funds FAS 117-1 • Organization also shall provide information about the net assets of its endowment funds, including: • Nature and types of permanent restrictions or temporary restrictions (¶ 14 and 15 of Statement 117). • Aggregate amount of deficiencies for all donor-restricted endowment funds for which fair value of the assets is less than the level required by donor stipulations or law. • Below is an illustrative example of the Disclosures from FAS 117-1 Year-End GAAP Training

10. Errors and Omissions FAS 117-1 • Findings from review of FASB Foundation Financial Statements with endowments: • Notes referenced new FSP, but it is apparent entity did not implement any of the requirements. • Disclosure with internal inconsistencies • Financial statements showed no cumulative effect of adoption when it is clear from statements that there should have been a cumulative effect. • Auditor opinions don’t reflect implementation of new FSP. • Underwater endowment determined by netting positive endowments with negative ones. Should be done on an individual endowment basis, with positive endowments reflected in temporarily restricted net assets and negative endowments in unrestricted net assets. Year-End GAAP Training

11. Errors and Omissions FAS 117-1 • Board designated endowment funds that total a negative number.? • Note disclosures with different amounts than amounts reflected as cumulative effect on face of statement of activities. • Missing required minimum disclosures. • One disclosure states that Board has interpreted the law to require all earnings from endowment are to be preserved. Why take endowment if income earned can’t be spent … • Omission of all or virtually all of the required elements of the FSP. • GASB foundations that mentioned adoption of FAS 117-1. Year-End GAAP Training

12. Errors and Omissions FAS 117-1 • Some of the errors will likely require net asset restatements/reclassifications to correct. Year-End GAAP Training

13. Changes to Notes Auxiliary Organization Supplemental Template • Note 2 - Investments Year-End GAAP Training

14. Changes to Notes Auxiliary Organization Supplemental Template • Note 3 - Capital Assets Year-End GAAP Training

15. Changes to Notes Auxiliary Organization Supplemental Template • Note 8 - Transactions with Related Entities Year-End GAAP Training

16. Changes to SNA Auxiliary Organization Supplemental Template • Schedule of Net Assets Year-End GAAP Training

17. Template Auxiliary Organization Supplemental Template • Always use the template issued from the current year GAAP manual in Chapter 8. http://www.calstate.edu/SFSR/Workshops/index.shtml Year-End GAAP Training

18. Resources • Year-End Training Website (PowerPoint) • http://www.calstate.edu/SFSR/Workshops/index.shtml • FAST-ED Portal (Audio Recording) • https://coweubr101.calstate.edu/portal/page/portal/IP_SITE_74 Year-End GAAP Training