ASC 205-958
Not-for-Profit Entities
205 Presentation of Financial Statements
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ASC 958-205 governs the presentation of a not-for-profit entity's general-purpose financial statements. A complete set consists of a statement of financial position, a statement of activities, a statement of cash flows, and notes (958-205-45-4), with net assets classified in two minimum classes—net assets with donor restrictions and net assets without donor restrictions (958-205-45-2(b)). It also prescribes when donor restrictions expire, how endowment funds (including those under UPMIFA) are classified, and the required endowment and underwater endowment disclosures.
Key points (7)
- A complete set of NFP financial statements includes a statement of financial position at period end, a statement of activities and statement of cash flows for the period, plus accompanying notes (958-205-45-4).
- NFPs must classify and report net assets in two groups—with donor restrictions and without donor restrictions—based on the existence or absence of donor-imposed restrictions; the two classes are a minimum scheme that may be further disaggregated (958-205-45-2(b); 958-205-05-6B).
- All NFPs must report information about all expenses in one location (face of the statement of activities, a note schedule, or a separate statement) in an analysis showing the relationship of functional to natural classifications (958-205-45-6; 958-720-45-15).
- Expiration of a donor-imposed restriction is recognized in the period the restriction expires—when the stipulated time elapses or the stipulated purpose is fulfilled—and where multiple temporary restrictions exist, when the last one expires (958-205-45-9); restrictions on long-lived assets expire when the assets are placed in service (958-205-45-12).
- Under an enacted version of UPMIFA, the original gift, subsequent gifts, and investment returns of a donor-restricted endowment fund are net assets with donor restrictions until appropriated for expenditure by the governing board, at which point the appropriated amount is reclassified if time and purpose restrictions are met (958-205-45-13D through 45-13F).
- Accumulated losses of an underwater endowment fund stay with that fund in net assets with donor restrictions, and the NFP must disclose in the aggregate the fair value, the original gift/required level, and the deficiency (958-205-45-13H; 958-205-50-2).
- Required endowment disclosures include the board's interpretation of relevant law, spending and investment policies, endowment composition by net asset class and fund type, and a beginning-to-ending reconciliation of endowment balances (958-205-50-1A through 50-1B); reporting by fund groups is not required but is not precluded (958-205-45-3).
For students. This is the backbone of NFP reporting and a heavy CPA exam topic: know the three required statements, the two net asset classes, and the functional/natural expense analysis. The classic misunderstanding is endowment classification—under UPMIFA the entire donor-restricted endowment (including accumulated investment return and underwater deficits) stays in net assets with donor restrictions until the board appropriates it, while a board-designated (quasi-) endowment sits in net assets without donor restrictions.
net assets with donor restrictionsnet assets without donor restrictionsdonor-restricted endowment fundboard-designated endowment fundunderwater endowment fundappropriation for expenditurefunctional and natural expense analysisstatement of activities
Machine-generated study aid for ASC 205-958. Check the source paragraphs below.
205-958-00Status
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205-958-00-1
The following table identifies the changes made to this Subtopic.
205-958-05Overview and Background
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205-958-05-1
This Subtopic discusses the presentation of financial statements for not-for-profit entities (NFPs), including the following items:
- aThe objectives of financial reporting by NFPs
- bA complete set of financial statements
- cStatement of functional expenses
- dComparative financial statements
- eExpiration of restrictions
- fReporting endowment funds
- gDisclosures of a general nature that do not belong with other Subtopics.
Purpose of Financial Statements
205-958-05-3
The primary purpose of financial statements is to provide relevant information to meet the common interests of donors, members, creditors, and others who provide resources to NFPs. Those external users of financial statements have common interests in assessing both of the following:
- aThe services an NFP provides and its ability to continue to provide those services
- bHow managers discharge their stewardship responsibilities and other aspects of their performance.
205-958-05-4
More specifically, the purpose of financial statements, including accompanying notes, is to provide information about all of the following:
- aThe amount and nature of an NFP's assets, liabilities, and net assets
- bThe effects of transactions and other events and circumstances that change the amount and nature of net assets
- cThe amount and kinds of inflows and outflows of economic resources during a period and the relation between the inflows and outflows
- dHow an NFP obtains and spends cash, its borrowing and repayment of borrowing, and other factors that may affect its liquidity
- eThe service efforts of an NFP.
A Complete Set of Financial Statements
205-958-05-5
General-purpose external financial statements provided by an NFP include a statement of financial position, a statement of activities, and a statement of cash flows. Individual financial statements provide different information, and the information each statement provides generally complements information in other financial statements.
205-958-05-6
General-purpose financial statements classify and report net assets in two groups—net assets with donor restrictions and net assets without donor restrictions—based on the existence or absence of donor-imposed restrictions and the nature of those restrictions.
205-958-05-6A
The guidance in the Not-for-Profit Entities Topic uses certain statement titles and the terms net assets without donor restrictions and net assets with donor restrictions. Other titles and other labels may also be used, as illustrated in paragraphs 958-205-55-2 and 958-210-55-3.
205-958-05-6B
The two required net asset classes (with donor restrictions and without donor restrictions) are a minimum classification scheme, if they are applicable. An NFP can choose to further disaggregate the two net asset classes. For example, an NFP may wish to disaggregate net assets with donor restrictions between those expected to be maintained in perpetuity and those expected to be spent over time or for a particular purpose. However, paragraph 958-210-45-1 does require that the amounts for each of the two classes of net assets and the total of net assets be reported in a statement of financial position.
205-958-05-7
The Not-for-Profit Entities Topic does not use the terms fund balance or changes in fund balances because in current practice those terms are commonly used to refer to individual groups of assets and related liabilities rather than to an entity's net assets or changes in net assets taken as a whole. While reporting by fund groups is not a necessary part of external financial reporting, paragraph 958-205-45-3 does not preclude providing disaggregated information by fund groups.
Reporting Endowment Funds
205-958-05-8
Laws concerning use of net appreciation of endowment funds that are donor-restricted may vary from jurisdiction to jurisdiction. For example, most jurisdictions follow enacted versions of the Uniform Prudent Management of Institutional Funds Act of 2006 or similar legal guidance (including interpretations of the law issued by state Attorneys General) and some jurisdictions follow trust law.
205-958-05-9
Because donor stipulations and laws vary, NFPs must assess the relevant facts and circumstances for their endowment gifts and their relevant laws to determine the classification of endowment funds within the NFP financial reporting model (see paragraph 958-205-45-2), including whether some or all of the investment return on endowments is available for spending.
205-958-05-10
Subsection 4(a) of the Uniform Prudent Management of Institutional Funds Act of 2006 provides that, unless stated otherwise in the gift instrument, the assets in an endowment fund are donor-restricted assets until appropriated for expenditure by the institution. For related guidance, see paragraphs 958-205-45-13 through 45-13F.
205-958-10Objectives
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205-958-10-1
The standards for reporting financial information in this Subtopic, in combination with Subtopics 958-210, 958-220, and 958-230, focus on the content of financial statements, that is, on the basic information to be provided in financial statements by a not-for-profit entity (NFP). These Subtopics have the following objectives:
- aRequire information that meets the objectives of financial reporting for NFPs
- bDefine what constitutes a complete set of general-purpose financial statements for those entities
- cRequire methods of reporting that information that are all of the following:
- 1Comprehensive
- 2Understandable
- 3Useful for decisions by present and potential resource providers
- 4Consistent with the conceptual framework.
- 1
205-958-15Scope and Scope Exceptions
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Overall Guidance
205-958-15-1
This Subtopic follows the same Scope and Scope Exceptions as outlined in the Overall Subtopic, see Section 958-10-15. It discusses how not-for-profit entities (NFPs) report assets, liabilities, net assets, revenues, expenses, gains, and losses in financial statements; however, it does not specify when to recognize or how to measure those elements.
205-958-45Other Presentation Matters
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205-958-45-1
This Subtopic specifies certain basic information to be reported in financial statements of not-for-profit entities (NFPs). The requirements generally are no more stringent than requirements for business entities. The degree of aggregation and order of presentation of items of assets and liabilities in statements of financial position or of items of revenues and expenses in statements of activities of NFPs, although not specified, generally should be similar to those required or permitted for business entities. Particular formats for a statement of financial position, a statement of activities, or a statement of cash flows, are neither prescribed nor prohibited in part because similar prescriptions and proscriptions do not exist for business entities.
205-958-45-2
The usefulness of information provided by financial statements of NFPs can be vastly improved if certain basic information is classified in comparable ways. NFPs shall do the following:
- aReport assets and liabilities in reasonably homogeneous groups and sequence or classify them in ways that provide relevant information about their interrelationships, liquidity, and financial flexibility.
- bClassify and report net assets in two groups—net assets with donor restrictions and net assets without donor restrictions—based on the existence or absence of donor-imposed restrictions. Information about restrictions imposed by donors on the use of contributed assets, including their potential effects on specific assets and on liabilities or classes of net assets, shall be disclosed in accordance with paragraph 958-210-50-3, because it is helpful in assessing the financial flexibility of an NFP.
- cAggregate items of revenues, expenses, gains, and losses into reasonably homogeneous groups and classify and report them as increases or decreases in net assets with donor restrictions or net assets without donor restrictions.
- dClassify and report cash receipts and cash payments as resulting from investing, financing, or operating activities.
205-958-45-3
Reporting by fund groups is not a necessary part of external financial reporting; however, this Subtopic does not preclude providing disaggregated information by fund groups.
Complete Set of Financial Statements
205-958-45-4
A complete set of financial statements of an NFP shall include a statement of financial position as of the end of the reporting period, a statement of activities and a statement of cash flows for the reporting period, and accompanying notes to financial statements.
205-958-45-5
A set of financial statements shall include, either in the body of financial statements or in the accompanying notes, information required by generally accepted accounting principles (GAAP) or required by applicable specialized accounting and reporting principles and practices unless NFPs are specifically exempt from providing that information.
Reporting of Expenses by Nature and Function
205-958-45-6
Reporting expenses by nature and function is useful in associating expenses with service efforts and accomplishments of NFPs. All NFPs shall report information about all expenses in one location—on the face of the statement of activities, as a schedule in the notes to financial statements, or in a separate financial statement—as required by paragraph 958-720-45-15. The relationship between functional classification and natural classification for all expenses shall be presented in an analysis that disaggregates functional expense classifications, such as major classes of program services and supporting activities by their natural expense classifications, such as salaries, rent, electricity, supplies, interest expense, depreciation, awards and grants to others, and professional fees. To the extent that expenses are reported by other than their natural classification (such as salaries included in cost of goods sold or facility rental costs of special events reported as direct benefits to donors), they shall be reported by their natural classification in the functional expense analysis. For example, salaries, wages, and fringe benefits that are included as part of the cost of goods sold on the statement of activities shall be included with other salaries, wages, and fringe benefits in the functional expense analysis. External and direct internal investment expenses that have been netted against investment return shall not be included in the functional expense analysis. Certain items that are typically reported in other comprehensive income of for-profit entities, such as those items listed in paragraph 220-10-45-10A, are considered gains or losses and, like other gains and losses, shall not be included in the functional expense analysis. See Note F in paragraph 958-205-55-21 for an example that illustrates the reporting of expenses by nature and function.
Comparative Financial Statements
205-958-45-7
The guidance provided by Section 205-10-45 encourages but does not require comparative financial statements.
205-958-45-8
NFPs sometimes present comparative information for a prior year or years only in total rather than by net asset class. Such summarized information may not include sufficient detail to constitute a presentation in conformity with GAAP. If the prior year's financial information is summarized and does not include the minimum information required by this Topic (for example, if the statement of activities does not present revenues, expenses, gains, and losses by net asset class), the nature of the prior-year information shall be described by the use of appropriate titles on the face of the financial statements and in a note to financial statements. The use of appropriate titles includes a phrase such as with summarized financial information for the year ended June 30, 19PY, following the title of the statement or column headings that indicate the summarized nature of the information. Labeling the prior-year summarized financial information for comparative purposes only without further disclosure in the notes to financial statements would not constitute the use of an appropriate title.
Expirations of Donor-Imposed Restrictions
205-958-45-9
An NFP shall recognize the expiration of a donor-imposed restriction on a contribution in the period in which the restriction expires. A restriction expires when the stipulated time has elapsed, when the stipulated purpose for which the resource was restricted has been fulfilled, or both. If two or more donor-imposed restrictions that are temporary in nature are imposed on a contribution, the effect of the expiration of those restrictions shall be recognized in the period in which the last remaining restriction has expired.
205-958-45-10
For example, a gift of a term endowment that is to be invested for five years has two donor-imposed restrictions that are temporary in nature—a purpose restriction (to be invested) and a time restriction (for a period of five years). After five years of investing, the purpose restriction will be met and the time restriction will lapse.In Year 5, when that term endowment is no longer donor-restricted, a reclassification of net assets shall be reported to reflect the decrease in net assets with donor restrictions and the increase in net assets without donor restrictions.
205-958-45-10A
In determining when the last of two or more donor-imposed restrictions that are temporary in nature has expired, explicit donor stipulations generally carry more weight than implied restrictions. For example, assume in Year 1 that an entity receives an unconditional promise to give that is payable in two equal installments in Years 2 and 3 with an explicit donor stipulation that its gift is to cover purchases of new equipment for the new School of Chemistry, which is expected to be completed in Year 3. That gift would have a purpose restriction (to be used to acquire new equipment to be housed in the new building), and because the unconditional promise is payable in Years 2 and 3, an entity generally would imply a time restriction (see paragraph 958-605-45-5). If, however, the building was completed early and opened in Year 2 and all of the needed equipment was purchased in Year 2 and exceeded the promised amount, absent an explicit stipulation to the contrary, it would be reasonable to conclude that those purchases fulfilled the donor restriction on the promised gift. The restriction for the purchase of the equipment expires when the equipment is placed in service in accordance with paragraph 958-205-45-12. In addition, a reclassification of net assets would be reported to reflect the decrease in net assets with donor restrictions and the increase in net assets without donor restrictions in Year 2.
205-958-45-11
If an expense is incurred for a purpose for which both net assets without donor restrictions and net assets with donor restrictions are available, a donor-imposed restriction is fulfilled to the extent of the expense incurred unless the expense is for a purpose that is directly attributable to another specific external source of revenue. For example, an expense does not fulfill an existing donor restriction if that expense is incurred for a purpose that is directly attributable to and reimbursed by a sponsored exchange agreement or a conditional award from a government agency, private foundation, or others. Explicit time restrictions, such as those discussed in paragraph 958-205-45-10, and implied time restrictions, such as those discussed in paragraph 958-605-45-5, make net assets unavailable to support expenses until the time restrictions have expired.
205-958-45-12
Unless donor stipulations limit the use of the assets for a period of time or for a particular purpose, donor restrictions on long-lived assets, if any, or cash to acquire or construct long-lived assets are considered to have expired when the assets are placed in service.
Reporting Endowment Funds
205-958-45-13
Endowment funds are established either by a donor or by a governing board and can be either with donor restrictions or without donor restrictions. Endowment funds with donor restrictions are referred to as donor-restricted endowment funds. A donor-restricted endowment fund results from a gift with a stipulation that the resources be invested either for a long, specified period of time or in perpetuity. Those without donor restrictions are referred to as board-designated endowment funds (sometimes called funds functioning as endowment or quasi-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, generally for a long but possibly unspecified period of time.
205-958-45-13A
An NFP shall report the net assets of an endowment fund in a statement of financial position within the following two classes of net assets on the basis of the existence or absence of donor-imposed restrictions:
- aNet assets with donor restrictions. For example, a donor-restricted endowment would be classified as net assets with donor restrictions.
- bNet assets without donor restrictions. For example, a board-designated endowment fund, which generally results from an internal designation of net assets without donor restrictions, would thus generally be classified as net assets without donor restrictions.
205-958-45-13B
When classifying a donor-restricted endowment fund, consideration shall be given to both the donor's explicit stipulations and the applicable laws that extend donor restrictions. Investment return generally is considered free of donor restrictions unless its use is limited by a donor-imposed restriction or by law. In the United States, most donor-restricted endowment funds are subject to an enacted version of the Uniform Prudent Management of Institutional Funds Act of 2006 (UPMIFA) that extends a donor's restriction to use of the funds, including the investment return, until the funds are appropriated for expenditure by the governing board. Thus, if a donor or law imposes a restriction on the investment return, those returns shall be reported within net assets with donor restrictions until appropriated for expenditure. Conversely, for an endowment fund that is created by a governing board (board-designated endowment fund), assuming no other purpose-type restrictions exist on the use of those funds, that original fund and all investment returns are free of donor restrictions and shall be reported in net assets without donor restrictions.
205-958-45-13C
Paragraphs provide guidance for classification of net assets of donor-restricted endowment funds for NFPs that follow an enacted version of UPMIFA.
205-958-45-13D
Donor-restricted endowment funds generally result from a donor's stipulation or by extension of a donor restriction imposed through UPMIFA that limits an NFP's use of an endowment fund. The original gifted amount, any additional gifts to that fund, and any resulting investment returns shall initially be classified as net assets with donor restrictions. Therefore, unless stated otherwise in the gift instrument, the assets in a donor-restricted endowment fund are donor-restricted assets until they are appropriated for expenditure by the NFP's governing board. Donors may provide specific instructions on spending from a donor-restricted endowment fund or from the components of investment return generated from the fund.
205-958-45-13E
The amount of net assets with donor restrictions in the donor-restricted endowment fund is reduced when the governing board appropriates for expenditure funds from the endowment fund. Upon appropriation for expenditure, the restriction expires to the extent of the amount appropriated as long as all of the time restrictions have lapsed and all of the purpose restrictions have been met. At that time, the appropriated amount is reclassified from net assets with donor restrictions to net assets without donor restrictions in accordance with paragraph 958-205-45-9. However, if purpose restrictions from a donor have not yet been met, those funds shall remain in net assets with donor restrictions until those purpose restrictions have been satisfied.
205-958-45-13F
In the absence of interpretation of the phrase appropriated for expenditure in subsection 4(a) of UPMIFA (see paragraph 958-205-05-10) by legal or regulatory authorities (for example, court decisions or interpretations by state attorneys general), for purposes of the guidance in this Subtopic, appropriation for expenditure is deemed to occur upon approval for expenditure, unless approval is for a future period, in which case appropriation is deemed to occur when that period is reached. Approval for expenditure may occur through different means within and across NFPs. For example, expenditures could be approved as part of a formal, annual budget. Expenditures also could be approved during the year as unexpected needs arise (such as for emergency relief efforts).
205-958-45-13G
As discussed in paragraph 958-205-05-8, some NFPs follow trust law. For donor-restricted endowment funds that are subject to trust law, typically at least, the amount of the original gift(s) and any gains or net appreciation of the fund are not considered to be available for expenditure. Generally, interest, dividends, rents, or other forms of ordinary income are available for spending and are classified as net assets without donor restrictions unless a purpose or other donor restriction exists on use of the investment income.
205-958-45-13H
If a donor-restricted endowment fund is an underwater endowment fund, the accumulated losses shall be included together with that fund in net assets with donor restrictions. An NFP shall disclose the required information in accordance with paragraph 958-205-50-2.
205-958-45-13I
See Note E of Example 1 (paragraph 958-205-55-21) for an illustrative disclosure about endowment funds and investment management policies.
205-958-45-13J
See Example 1 (paragraph 958-205-55-2) for an illustration of a statement of activities, showing support from both a donor-restricted endowment fund and a board-designated endowment fund, along with a statement of financial position, statement of cash flows, and example notes for an NFP.
Contributed Nonfinancial Assets
205-958-45-36
An NFP shall present contributed nonfinancial assets as a separate line item in the statement of activities, apart from contributions of cash and other financial assets, as discussed in paragraph 958-605-45-7A.
205-958-50Disclosure
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Nature of the Not-for-Profit Entity's Activities
205-958-50-1
The financial statements shall provide a description of the nature of the not-for-profit entity's (NFP's) activities, including a description of each of its major classes of programs. If not provided in the notes to financial statements, the description can be presented on the statement of activities (for example, using column headings).
Reporting Endowment Funds
205-958-50-1A
An NFP shall disclose information to enable users of financial statements to understand all of the following about its endowment funds (both donor restricted and board designated):
- a Net asset classification (for example, net assets with donor restrictions or net assets without donor restrictions)
- b Net asset composition (for example, board-designated endowment funds or donor-restricted endowment funds)
- c Changes in net asset composition
- d Spending policies
- e Related investment policies.
205-958-50-1B
At a minimum, an NFP shall disclose all of the following information for each period for which it presents financial statements:
- a A description of the governing board's interpretation of the law or laws that underlie the NFP's net asset classification of donor-restricted endowment funds, including its interpretation of the ability to spend from underwater endowment funds.
- b A description of the NFP's policy or policies for the appropriation of endowment assets for expenditure (its endowment spending policy or policies), including its policy, and any actions taken during the period, concerning appropriation from underwater endowment funds.
- c A description of the NFP's endowment investment policies, including all of the following:
- 1 Return objectives and risk parameters
- 2 How return objectives relate to the NFP's endowment spending policy or policies
- 3 The strategies employed for achieving return objectives.
- 1
- d The composition of the NFP'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.
- e A reconciliation of the beginning and ending balance of the NFP's endowment, in total and by net asset class, including, at a minimum, all of the following line items that apply:
- 1 Investment return, net
- 2
- 3 Amounts appropriated for expenditure
- 4
- 5 Other changes.
- 1
205-958-50-1C
If an NFP is subject to a donor restriction or applicable laws that its governing board interprets as requiring the maintenance of purchasing power for donor-restricted endowment funds, the NFP shall periodically adjust the disclosed amount that is required to be maintained either by the donor or by law to reflect that interpretation to maintain the purchasing power of the endowment fund in perpetuity. Under those circumstances, unless a donor provides an amount or an index, an NFP shall use the inflation (deflation) index (or indexes) that it deems most relevant for adjusting that amount (for example, the Consumer Price Index or the Higher Education Price Index).
205-958-50-2
For each period for which a statement of financial position is presented, an NFP shall disclose each of the following, in the aggregate, for all underwater endowment funds:
- a The fair value of the underwater endowment funds
- b The original endowment gift amount or level required to be maintained by donor stipulations or by law that extends donor restrictions
- c The amount of the deficiencies of the underwater endowment funds ((a) less (b)).
205-958-50-2A
Example 3 (see paragraphs ) illustrates the application of the disclosure requirements in paragraphs .
Ratio of Fundraising Expenses to Amounts Raised
205-958-50-3
If an NFP discloses in its financial statements a ratio of fundraising expenses to amounts raised, it also shall disclose how it computes that ratio.
Comparative Financial Statements
205-958-50-4
If the prior year's financial information is summarized and does not include the minimum information required by the Not-for-Profit Entities Topic (for example, if the statement of activities does not present revenues, expenses, gains, and losses by net asset class), the nature of the prior-year information shall be described by the use of appropriate titles on the face of the financial statements and in a note to financial statements (see paragraph 958-205-45-8).
205-958-55Implementation Guidance and Illustrations
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Implementation Guidance
205-958-55-1
This paragraph provides implementation guidance on the application of paragraphs . Enacted versions of the Uniform Prudent Management of Institutional Funds Act of 2006 vary across jurisdictions, so a not-for-profit entity (NFP) would have to assess the specific law applicable to its operations for guidance. Other sources that may be helpful in that assessment could include discussion that occurred in the legislative committees leading to the law adopted in a particular state, announcements from the state attorney general, a consensus of learned lawyers in the state, or similar information. In the absence of new legislation, clarifying court decisions, additional guidance issued by the state attorney general, or similar developments, the governing board's interpretation of the relevant law shall be consistent from year to year.
Illustrations
205-958-55-1A
This Section, which is an integral part of the requirements of this Subtopic, provides general guidance to be used in the presentation of a full set of financial statements, including certain notes to the financial statements, by an NFP.
205-958-55-2
This Example provides illustrations of statements of financial position, statements of activities, statements of cash flows, and selected notes to the financial statements for Not-for-Profit Entity A. The terms statement of financial position and statement of activities indicate the content and purpose of the respective statements and serve as possible titles for those statements. Other appropriately descriptive titles may also be used. For example, a statement reporting financial position could be called a balance sheet. Current practice and the statement's purpose suggest, however, that a statement of cash flows only be titled statement of cash flows. These illustrations are intended as examples only; they present only a few of the permissible formats. Other formats or levels of detail may be appropriate for certain circumstances. For example, a schedule of expenses by nature and function is illustrated in the notes to the financial statements but also may be presented on the face of the statement of activities or as a separate statement. Not-for-profit entities (NFPs) are encouraged to provide information in ways that are most relevant and understandable to donors, creditors, and other external users of financial statements. NFPs typically provide comparative financial statements; however, for simplicity, the illustrative statements of activities and statements of cash flows provide information for a single period.
205-958-55-3
The illustrations also include certain notes to financial statements for matters discussed in Subtopics 958-210, 958-220, and 958-230. The illustrative notes are not intended to illustrate compliance with all generally accepted accounting principles (GAAP) and specialized accounting and reporting principles and practices.
205-958-55-4
Shading is used to highlight certain basic totals that must be reported in financial statements to comply with the provisions of Subtopics 958-210, 958-220, and 958-230. Together they require not only reporting those certain basic totals but also reporting components of those aggregates; for example, they require reporting information about the gross amounts of items of revenues and expenses and cash receipts and payments.
205-958-55-5
The following facts and transactions are reflected in the illustrative financial statements in Example 1. The transactions are presented by class of net assets to facilitate locating their effects in the statements and notes. The transactions in (a) through (hh) affect net assets without donor restrictions. The transactions in (i) through (n), (s), (t), and (w) affect net assets with donor restrictions. The transactions in (hhh), (o) through (r), and (u) affect both classes of net assets.
- aNot-for-Profit Entity A invested cash in excess of daily requirements in short-term investment instruments. Interest earned on these investments totaled $850, which is included in the net investment return on the statement of activities. The governing board previously designated a portion of net assets without donor restrictions for long-term investment (quasi-endowment). Those assets earned $5,800, comprising $2,000 of dividends, interest, and rents and $3,800 of realized and unrealized net gains.
- bNot-for-Profit Entity A received contributions without donor restrictions of the following: cash, $5,120; recognizable contributed services, $300; other consumable assets, $1,410; equipment, $140; and unconditional promises to give to support activities of 20X1, $1,020.
- cEquipment with an original cost of $660 and accumulated depreciation of $330 was destroyed in a fire. Insurance proceeds of $250 were received. The equipment was originally purchased with assets without associated donor restrictions.
- dAll conditions of a prior year's grant of $650 were substantially met. The grant proceeds were originally recorded as a refundable advance.
- eNot-for-Profit Entity A made a payment of $425 on its prior year unconditional grant to an unrelated agency.
- fNot-for-Profit Entity A repaid $1,140 of its notes payable. Interest of $32 was incurred and paid on these notes.
- gNot-for-Profit Entity A repaid $1,000 of its long-term debt. Interest of $350 was incurred and paid on the debt.
- hDepreciation amounted to $3,200.
- hhNot-for-Profit Entity A sold equipment that was fully depreciated for $200.
- hhhNot-for-Profit Entity A's financial assets consisted of cash and cash equivalents, short-term investments, accounts and interest receivable, contributions receivable, assets restricted to investment in land, buildings, and equipment, and long-term investments. The $193,490 of donor-restricted net assets included the net assets resulting from contributions receivable of $1,000, which were without purpose restrictions and were due within one year. The remaining amounts of contributions receivable were either purpose-restricted or due in greater than one year. In addition, amounts made unavailable by the governing board included $36,600 of board-designated long-term investments. The $1,300 liquidity reserve, created in a prior year when the governing board designated net assets without donor restrictions, was included as a reconciling item in Not-for-Profit Entity A's note on liquidity risk and the availability of resources because the intention of the designation was to support unanticipated liquidity needs and not general expenditures.
- iNot-for-Profit Entity A received contributions with donor restrictions as follows.
Restricted to: Cash Consumable Assets Promises to Give Program purposes " $2,170 " $960 $920 Use in future periods 740 1000 "Acquisition of land, buildings, and equipment" 770 " 1,380 "
- iiThe composition of assets restricted to investment in land, buildings, and equipment as of June 30, 20X1, and 20X0, is shown below. The change in restricted cash below represents a purchase of investments restricted to investment in land, buildings, and equipment.
6/30/20X1 6/30/20X0 Restricted cash $60 $160 Contributions receivable " 2,440 " " 1,500 " Investments " 2,710 " " 2,900 " " $5,210 " " $4,560 "
- jIn addition, a donor transferred cash of $200 to set up an annuity trust having a related annuity obligation with a present value of $100. Upon the death of the beneficiary, the remaining interest will be used for a donor-restricted purpose.
- kIn addition, a donor contributed cash of $70 to create a term endowment. At the end of 15 years the endowment assets can be used to support Not-for-Profit Entity A's operations.
- lNot-for-Profit Entity A made payments of $145 to beneficiaries of annuity trust agreements.
- mA donor contributed a paid-up life insurance policy with a cash surrender value of $80. Upon the death of the insured, the death benefit must be used to create a donor-restricted endowment fund. There was no change in the cash surrender value between the date of the gift and the end of the fiscal year.
- nA donor contributed cash of $200 to create a donor-restricted endowment fund. The income is restricted to use for Program A activities.
- oNot-for-Profit Entity A collected promises to give of $3,055: $980 of amounts for general purposes, $610 of amounts restricted to future periods, $1,025 of amounts restricted to program purposes, and $440 of amounts for acquisition of land, buildings, and equipment.
- pNot-for-Profit Entity A utilized all of the $1,410 consumable assets contributed for general purposes, and $350 of the $960 consumable assets contributed for program purposes.
- qA trust annuitant died and the $400 remainder interest became available for the general use of Not-for-Profit Entity A. Management decided to invest the remainder interest in short-term investments. The actuarial gain on death of the annuitant is included in the actuarial loss on annuity obligations.
- rNot-for-Profit Entity A acquired and placed in service $1,500 of equipment for Program A; net assets with donor restrictions were available at the time the equipment was purchased.
- sNet investment return of $18,000 was earned from the pooled donor-restricted endowment. This comprised $12,000 of realized and unrealized net gains and $6,000 of interest and dividends. Additionally, $300 of interest and dividends was earned from separately invested donor-restricted endowment funds and annuity trust assets, which are required to be reinvested. The original endowment gift amount as adjusted to the level required by donor stipulations or by law that extends donor restrictions was $122,337.
- tNot-for-Profit Entity A reinvested the yield of $120 on a donor-restricted endowment fund that requires income to be added to the original gift until the fund's value is $2,500.
- uNot-for-Profit Entity A's governing board appropriated for current operations $7,500 of net assets with donor restrictions from the donor-restricted endowment fund. The full amount appropriated was reclassified to net assets without donor restrictions in the current year because the purpose restrictions on $3,000 of the appropriated amount were met in the current year and there were no purpose restrictions on the remaining $4,500.
- vNot-for-Profit Entity A follows an enacted version of UPMIFA.
- wNone of Not-for-Profit Entity A's endowment funds were underwater as of the date of the financial statements.
205-958-55-6
The following illustrates the requirements of Subtopic 958-210. Comparative statements of financial position are provided to facilitate understanding of the statement of activities and the statement of cash flows.
205-958-55-7
A statement of financial position that sequences assets and liabilities based on their relative liquidity is presented. For instance, cash and cash equivalents of donor-restricted endowment funds held temporarily until suitable long-term investment opportunities are identified are included in the classification long-term investments. Similarly, cash and contributions receivable restricted by donors to investment in land, buildings, and equipment are not included with the line items cash and cash equivalents or contributions receivable. Rather, those items are reported as assets restricted to investment in land, buildings, and equipment and are sequenced closer to land, buildings, and equipment. (Pursuant to paragraph 958-210-50-3, the kind of asset is required to be described in the notes to financial statements because its nature is not clear from the description on the face of the statement of financial position. That note is not illustrated in this Example.) Assets and liabilities also may be arrayed by their relationship to net asset classes, classified as current and noncurrent, or arranged in other ways.
205-958-55-8
For an alternative presentation of the net asset section of a statement of financial position, see Example 1 (paragraph 958-210-55-3).
205-958-55-9
The following illustrates a statement of financial position for Not-for-Profit Entity A.
Not-for-Profit Entity A Statements of Financial Position " June 30, 20X1 and 20X0" (in thousands) Assets: 20X1 20X0 Cash and cash equivalents "$4,575 " "$4,960 " Accounts and interest receivable " 2,130 " " 1,670 " Inventories and prepaid expenses 610 " 1,000 " Contributions receivable " 3,025 " " 2,700 " Short-term investments " 1,400 " " 1,000 " "Assets restricted to investment in land, buildings, and equipment" " 5,210 " " 4,560 " "Land, buildings, and equipment" " 61,700 " " 63,590 " Long-term investments " 218,070 " " 203,500 " Total assets "$296,720 " "$282,980 " Liabilities and net assets: Liabilities: Accounts payable " $2,570 " " $1,050 " Refundable advance 650 Grants payable 875 " 1,300 " Notes payable " 1,140 " Annuity trust obligations " 1,685 " " 1,700 " Long-term debt " 5,500 " " 6,500 " Total liabilities " 10,630 " " 12,340 " Net assets: Without donor restrictions (Note DD) "92,600" "84,570" With donor restrictions (Note B) "193,490" "186,070" Total net assets "286,090" "270,640" Total liabilities and net assets "$296,720 " "$282,980 " Note: See paragraph 958-205-55-21 for the notes to financial statements.
205-958-55-10
The following illustrates the requirements of Subtopic 958-220. Three formats of statements of activities are presented. To facilitate comparison of the formats, the same level of aggregation is used in each of the statements of activities. The guidance in Subtopic 958-220 permits flexibility to present information in a number of ways as long as the requirements are met. Each format has certain advantages, as follows:
- aFormat A reports information in a single column. That format most easily accommodates presentation of multiyear comparative information.
- bFormat B reports the same information in columnar (or multicolumn) format with a column for each class of net assets. Use of a total column is optional as long as the change in total net assets is presented in accordance with paragraph 958-210-45-1. That format makes evident that the effects of expirations on donor restrictions result in reclassification of net assets. It also accommodates presentation of aggregated information about contributions and investment return for the entity as a whole. However, care is needed for labels and headings to ensure that they clearly communicate all columns and subtotals.
- cFormat C reports information in two statements with summary amounts from a statement of revenues, expenses, and other changes in net assets without donor restrictions (Part 1 of 2) and a statement of changes in net assets (Part 2 of 2). Alternative formats for the statement of changes in net assets—a single-column and a multicolumn or columnar—are illustrated. The two-statement format focuses attention first on changes in net assets without donor restrictions. That format may be preferred by membership organizations and other NFPs that view certain transactions and events, including the receipts of donor-restricted revenues and gains from contributions and investment return, as incidental or insignificant to their daily operations.
205-958-55-11
The three illustrative statements of activities show items of revenues and gains first, then expenses, then losses; reclassification of net assets, which must be shown separately, is reported with revenues and gains. Those items could be arranged in other ways and other subtotals may be included. For example, the items may be sequenced using any one of the following sequences:
- aRevenues, expenses, gains and losses, and reclassification of net assets shown last
- bCertain revenues, less directly related expenses, followed by a subtotal, then other revenues, other expenses, gains and losses, and reclassification of net assets
- cExpenses followed by revenues, gains and losses, and the reclassification of net assets.
205-958-55-12
The following provide additional illustrations of statements of activities:
- aExample 1 in Subtopic 958-220 (see paragraph 958-220-55-5) provides an illustration that shows how items may be sequenced to distinguish between operating and nonoperating activities or to make other distinctions, if desired.
- bExample 2 in Subtopic 958-220 (see paragraph 958-220-55-7) illustrates the display of an appropriately labeled subtotal for change in a class of net assets before the effects of a discontinued operation.
- cExample 3 in Subtopic 958-220 (see paragraph 958-220-55-8) provides three possible methods of displaying fundraising efforts in the revenue section of the statement of activities if an NFP acts as an agent, trustee, or intermediary in raising resources for another.
- dExample 1 in Subtopic 958-320 (see paragraph 958-320-55-4) provides an illustration of an NFP that presents:
- 1Net investment return
- 2Appropriation of funds from the quasi-endowment
- 3Appropriation of funds from a donor-restricted endowment fund in which the purpose restrictions on the appropriated amount have been met during the period.
- 1
205-958-55-13
Format A (a single-column format) is as follows.
Not-for-Profit Entity A Statement of Activities " Year Ended June 30, 20X1" (in thousands) Changes in net assets without donor restrictions: Revenues and gains: Contributions of cash and other financial assets " $6,790 " Contributions of nonfinancial assets " 1,850 " Fees " 5,200 " "Investment return, net" " 6,650 " Gain on sale of equipment 200 Other 150 Total revenues and gains without donor restrictions " 20,840 " Net assets released from restrictions (Note D): Satisfaction of program restrictions " 8,990 " Satisfaction of equipment acquisition restrictions " 1,500 " Expiration of time restrictions " 1,250 " Appropriation from donor endowment and subsequent satisfaction of any related donor restrictions " 7,500 " Total net assets released from restrictions " 19,240 " "Total revenues, gains, and other support without donor restrictions" " 40,080 " Expenses and losses: Salaries and benefits " 15,115 " Grants to other organizations " 4,750 " Supplies and travel " 3,155 " Services and professional fees " 2,840 " Office and occupancy " 2,528 " Depreciation " 3,200 " Interest 382 Total expenses (Note F) " 31,970 " Fire loss on building 80 Total expenses and losses " 32,050 " Increase in net assets without donor restrictions " 8,030 " Changes in net assets with donor restrictions: Contributions of cash and other financial assets " 7,430 " Contributions of nonfinancial assets 960 "Investment return, net" " 18,300 " Actuarial loss on annuity trust obligations (30) Net assets released from restrictions (Note D) " (19,240)" Increase in net assets with donor restrictions " 7,420 " Increase in total net assets " 15,450 " Net assets at beginning of year " 270,640 " Net assets at end of year " $286,090 " Note: See paragraph 958-205-55-21 for the notes to financial statements.
205-958-55-14
Format B (a multicolumn format) is as follows.
Not-for-Profit Entity A Statement of Activities " Year Ended June 30, 20X1" (in thousands) Without Donor Restrictions With Donor Restrictions Total "Revenues, gains, and other support:" Contributions of cash and other financial assets " $6,790 " " $7,430 " " $14,220 " Contributions of nonfinancial assets " 1,850 " 960 " 2,810 " Fees " 5,200 " " 5,200 " "Investment return, net" " 6,650 " "18,300" " 24,950 " Gain on sale of equipment 200 200 Other 150 150 Net assets released from restrictions (Note D): Satisfaction of program restrictions " 8,990 " " (8,990)" Satisfaction of equipment acquisition restrictions " 1,500 " " (1,500)" Expiration of time restrictions " 1,250 " " (1,250)" Appropriation from donor endowment and subsequent satisfaction of any related donor restrictions " 7,500 " " (7,500)" Total net assets released from restrictions " 19,240 " " (19,240)" - "Total revenues, gains, and other support" " 40,080 " " 7,450 " " 47,530 " Expenses and losses: Program A " 13,296 " " 13,296 " Program B " 8,649 " " 8,649 " Program C " 5,837 " " 5,837 " Management and general " 2,038 " " 2,038 " Fundraising " 2,150 " " 2,150 " Total expenses (Note F) " 31,970 " " 31,970 " Fire loss on building 80 80 Actuarial loss on annuity trust obligations 30 30 Total expenses and losses " 32,050 " 30 " 32,080 " Change in net assets " 8,030 " " 7,420 " " 15,450 " Net assets at beginning of year " 84,570 " " 186,070 " " 270,640 " Net assets at end of year " $92,600 " " $193,490 " " $286,090 " Note: See paragraph 958-205-55-21 for the notes to financial statements.
205-958-55-15
Format C, Part 1 of 2 is as follows.
Not-for-Profit Entity A " Statement of Revenues, Expenses, and" Other Changes in Net Assets without Donor Restrictions " Year Ended June 30, 20X1" (in thousands) Revenues and gains without donor restrictions: Contributions of cash and other financial assets " $6,790 " Contributions of nonfinancial assets " 1,850 " Fees " 5,200 " "Investment return, net" " 6,650 " Gain on sale of equipment 200 Other 150 Total revenues and gains without donor restrictions " 20,840 " Net assets released from restrictions (Note D): Satisfaction of program restrictions " 8,990 " Satisfaction of equipment acquisition restrictions " 1,500 " Expiration of time restrictions " 1,250 " Appropriation from donor endowment and subsequent satisfaction of any related donor restrictions " 7,500 " Total net assets released from restrictions " 19,240 " "Total revenues, gains, and other support without donor restrictions" " 40,080 " Expenses and losses: Program A " 13,296 " Program B " 8,649 " Program C " 5,837 " Management and general " 2,038 " Fundraising " 2,150 " Total expenses (Note F) " 31,970 " Fire loss on building 80 Total expenses and losses without donor restrictions " 32,050 " Increase in net assets without donor restrictions " $8,030 " Note: See paragraph 958-205-55-21 for the notes to financial statements.
205-958-55-16
Format C, Part 2 of 2 is as follows.
Not-for-Profit Entity A Statement of Changes in Net Assets " Year Ended June 30, 20X1" (in thousands) Net assets without donor restrictions: Total revenues and gains " $20,840 " Net assets released from restrictions (Note D) " 19,240 " Total expenses and losses " (32,050)" Increase in net assets without donor restrictions " 8,030 " Net assets with donor restrictions: Contributions of cash and other financial assets " 7,430 " Contributions of nonfinancial assets 960 "Investment return, net" " 18,300 " Actuarial loss on annuity trust obligations (30) Net assets released from restrictions (Note D) " (19,240)" Increase in net assets with donor restrictions " 7,420 " Increase in net assets " 15,450 " Net assets at beginning of year " 270,640 " Net assets at end of year " $286,090 " Note: See paragraph 958-205-55-21 for the notes to financial statements.
205-958-55-17
Format C, Part 2 of 2 (Alternate) is as follows.
Not-for-Profit Entity A Statement of Changes in Net Assets " Year Ended June 30, 20X1" (in thousands) Without Donor Restrictions With Donor Restrictions Total "Revenues, gains, and other support:" Revenues and gains without donor restrictions " $20,840 " " $20,840 " Revenues and gains with donor restrictions: Contributions of cash and other financial assets " $7,430 " " 7,430 " Contributions of nonfinancial assets 960 960 "Investment return, net" " 18,300 " " 18,300 " Net assets released from restrictions (Note D) " 19,240 " " (19,240)" - "Total revenues, gains, and other support" " 40,080 " " 7,450 " " 47,530 " Expenses and losses: Expenses and losses " 32,050 " " 32,050 " Actuarial loss on annuity trust obligations 30 30 Total expenses and losses " 32,050 " 30 " 32,080 " Change in net assets " 8,030 " " 7,420 " " 15,450 " Net assets at beginning of year " 84,570 " " 186,070 " " 270,640 " Net assets at end of year " $92,600 " " $193,490 " " $286,090 " Note: See paragraph 958-205-55-21 for the notes to financial statements.
205-958-55-18
The following illustrates the requirements of Subtopic 958-230. Statements of cash flows are illustrated using both the direct and indirect methods of reporting cash flow from operating activities. An NFP may choose either method of reporting cash flows from operating activities. If the direct method is used, a reconciliation to the indirect method (as illustrated in paragraph 230-10-55-10) may be reported but is not required.
205-958-55-19
The direct method is as follows.
Not-for-Profit Entity A Statement of Cash Flows " Year Ended June 30, 20X1" (in thousands) Cash flows from operating activities: Change in net assets " $15,450 " Adjustments to reconcile change in net assets to net cash used by operating activities: Depreciation " 3,200 " Fire loss 80 Actuarial loss on annuity trust obligations 30 Gain on sale of equipment (200) Increase in accounts and interest receivable (460) Decrease in inventories and prepaid expenses 390 Increase in contributions receivable (325) Increase in accounts payable " 1,520 " Decrease in refundable advance (650) Decrease in grants payable (425) Contributions restricted for long-term investment " (2,740)" Realized and unrealized gains on investments " (15,800)" Interest and dividends restricted for reinvestment (300) Net cash used by operating activities (230) Cash flows from investing activities: Purchase of equipment " (1,500)" Proceeds on sale of equipment 200 Insurance proceeds from fire loss on building 250 Proceeds from sale of investments " 76,100 " Purchase of investments "(75,000)" Net cash provided by investing activities 50 Cash flows from financing activities: Proceeds from contributions restricted for: Investment in perpetual endowment 200 Investment in term endowment 70 "Investment in land, buildings, and equipment" " 1,210 " Investment subject to annuity trust agreements 200 " 1,680 " Other financing activities: Interest and dividends restricted for reinvestment 300 Payments of annuity trust obligations (145) Payments on notes payable " (1,140)" Payments on long-term debt " (1,000)" " (1,985)" Net cash used by financing activities (305) "Net decrease in cash, cash equivalents, and restricted cash" (485) "Cash, cash equivalents, and restricted cash at beginning of year" "5,120" "Cash, cash equivalents, and restricted cash at end of year" "$ 4,635" Supplemental data: Noncash investing and financing activities: Gifts of equipment $140 "Gift of paid-up life insurance, cash surrender value" 80 Interest paid 382
205-958-55-20
The indirect method is as follows.
Not-for-Profit Entity A Statement of Cash Flows " Year Ended June 30, 20X1" (in thousands) Cash flows from operating activities: Change in net assets " $15,450 " Adjustments to reconcile change in net assets to net cash used by operating activities: Depreciation " 3,200 " Fire loss 80 Actuarial loss on annuity trust obligations 30 Gain on sale of equipment (200) Increase in accounts and interest receivable (460) Decrease in inventories and prepaid expenses 390 Increase in contributions receivable (325) Increase in accounts payable " 1,520 " Decrease in refundable advance (650) Decrease in grants payable (425) Contributions restricted for long-term investment " (2,740)" Realized and unrealized gains on investments " (15,800)" Interest and dividends restricted for reinvestment (300) Net cash used by operating activities (230) Cash flows from investing activities: Purchase of equipment " (1,500)" Proceeds on sale of equipment 200 Insurance proceeds from fire loss on building 250 Proceeds from sale of investments " 76,100 " Purchase of investments "(75,000)" Net cash provided by investing activities 50 Cash flows from financing activities: Proceeds from contributions restricted for: Investment in perpetual endowment 200 Investment in term endowment 70 "Investment in land, buildings, and equipment" " 1,210 " Investment subject to annuity trust agreements 200 " 1,680 " Other financing activities: Interest and dividends restricted for reinvestment 300 Payments of annuity trust obligations (145) Payments on notes payable " (1,140)" Payments on long-term debt " (1,000)" " (1,985)" Net cash used by financing activities (305) "Net decrease in cash, cash equivalents, and restricted cash" (485) "Cash, cash equivalents, and restricted cash at beginning of year" "5,120" "Cash, cash equivalents, and restricted cash at end of year" "$ 4,635" Supplemental data: Noncash investing and financing activities: Gifts of equipment $140 "Gift of paid-up life insurance, cash surrender value" 80 Interest paid 382
205-958-55-21
The following are illustrative notes to financial statements. Note B provides information required by paragraph 958-210-45-9. Note DD provides information required by paragraph 958-210-45-11. Note F provides information required by paragraph 958-720-45-15. Note G provides information required by paragraphs 958-210-45-7(c) and 958-210-50-1A. Note D and Note E provide information that is useful to users but is not explicitly required. Note H provides information required by paragraphs . Comparative statements of financial position are provided in the illustrative example in paragraph 958-205-55-9 only to facilitate understanding of the statement of cash flows. For purposes of applying paragraphs to this illustrative example, assume that the year ended June 30, 20X1, is the only period for which a statement of financial position is presented. Additional disclosure examples for contributed nonfinancial assets recognized are illustrated in paragraph 958-605-55-70U. Additional endowment disclosure requirements are illustrated in Example 3 included in this Section. All amounts are in thousands.
- Note B
- Net assets with donor restrictions are restricted for the following purposes or periods.
Subject to expenditure for specified purpose: Program A activities: Purchase of equipment " $3,060 " Research 950 Educational seminars and publications 240 Program B activities: Disaster relief 745 Educational seminars and publications 280 Program C activities: general 210 Buildings and equipment " 2,150 " Annuity trust agreements for research " 2,815 " " 10,450 " Subject to the passage of time: "For periods after June 30, 20X1" " 3,140 " Subject to NFP spending policy and appropriation: "Investment in perpetuity (including amounts above original gift amount of $122,337), which, once appropriated, is expendable to support:" Program A activities " 33,300 " Program B activities " 15,820 " Program C activities " 16,480 " Any activities of the organization " 109,100 " " 174,700 " Subject to appropriation and expenditure when a specified event occurs: "Endowment requiring income to be added to original gift until fund's value is $2,500" " 2,120 " Paid-up life insurance policy that will provide proceeds upon death of insured for an endowment to support general activities 80 " 2,200 " Not subject to appropriation or expenditure: Land required to be used as a recreation area " 3,000 " Total net assets with donor restrictions " $193,490 "
- Note D
- Net assets were released from donor restrictions by incurring expenses satisfying the restricted purposes or by occurrence of the passage of time or other events specified by donors.
Purpose restrictions accomplished: Program A expenses "$4,350 " Program B expenses "3,450" Program C expenses "1,190" "8,990" Program A equipment acquired and placed in service " 1,500 " Time restrictions expired: Passage of specified time 850 Death of annuity beneficiary 400 " 1,250 " Release of appropriated endowment amounts without purpose restrictions "4,500" Release of appropriated endowment amounts with purpose restrictions "3,000" Total restrictions released "$19,240 "
- Note DD
- Not-for-Profit Entity A's governing board has designated, from net assets without donor restrictions of $92,600, net assets for the following purposes as of June 30, 20X1.
Quasi-endowment " $36,600 " Liquidity reserve "1,300 " Total " $37,900 "
- Note E
- Investments are carried at fair value, and realized and unrealized gains and losses are reflected within investment return, net, in the statement of activities. Not-for-Profit Entity A invests cash in excess of daily requirements in short-term investments. At June 30, 20X1, $1,400 was invested short term, and during the year short-term investments earned $850. Most long-term investments are held in two investment pools. Pool A is for donor-restricted endowments and the unappropriated net appreciation of those endowments. Pool B is for amounts designated by the board of trustees for long-term investment. Annuity trusts of $4,500, term endowments of $70, and certain donor-restricted endowments of $2,200 are separately invested. Long-term investment activity is reflected in the following table.
Pool A Pool B Other Total Investments at beginning of year " $164,000 " " $32,800 " " $6,700 " " $203,500 " Gifts available for investment: Gifts creating perpetual endowment 200 80 280 Gifts creating term endowments 70 70 Gifts creating annuity trusts 200 200 Amount withdrawn at death of annuitant (400) (400) "Investment return, net" "18,000" "5,800" 300 " 24,100 " Amounts appropriated for current operations " (7,500)" " (2,000)" " (9,500)" Annuity trust income for current and future payments (180) (180) Investments at end of year " $174,700 " " $36,600 " " $6,770 " " $218,070 " Pool A Pool B Other Total Permanently restricted net assets " $136,820 " " $2,200 " " $139,020 " Temporarily restricted net assets " 10,752 " " 4,570 " " 15,322 " Unrestricted net assets " 27,128 " " $36,600 " " 63,728 " " $174,700 " " $36,600 " " $6,770 " " $218,070 "
- Laws and regulations allow the governing board to appropriate so much of an endowment fund as is prudent considering the following relevant factors: the duration and preservation of the endowment fund, the purposes of Not-for-Profit Entity A and the endowment fund, general economic conditions, the possible effect of inflation or deflation, the expected total return from income and the appreciation of investments, Not-for-Profit Entity A's other resources, and Not-for-Profit Entity A's investment policy. Under Not-for-Profit Entity A's endowment spending policy, 5 percent of the average of the fair value at the end of the previous 3 years is appropriated, which was $7,500 for the year ended June 30, 20X1.
- Note F
- The table below presents expenses by both their nature and their function for fiscal year 20X1.
Program Activities Supporting Activities Total Expenses A B C Programs Subtotal Management and General Fund- Supporting Subtotal Raising Salaries and benefits " $7,400 " " $3,900 " " $1,725 " " $13,025 " " $1,130 " $960 " $2,090 " " $15,115 " Grants to other organizations " 2,075 " 750 " 1,925 " " 4,750 " " 4,750 " Supplies and travel 890 " 1,013 " 499 " 2,402 " 213 540 753 " 3,155 " Services and professional fees 160 " 1,490 " 600 " 2,250 " 200 390 590 " 2,840 " Office and occupancy " 1,160 " 600 450 " 2,210 " 218 100 318 " 2,528 " Depreciation " 1,440 " 800 570 " 2,810 " 250 140 390 " 3,200 " Interest 171 96 68 335 27 20 47 382 Total expenses " $13,296 " " $8,649 " " $5,837 " " $27,782 " " $2,038 " " $2,150 " " $4,188 " " $31,970 "
- The financial statements report certain categories of expenses that are attributable to more than one program or supporting function. Therefore, these expenses require allocation on a reasonable basis that is consistently applied. The expenses that are allocated include depreciation, interest, and office and occupancy, which are allocated on a square-footage basis, as well as salaries and benefits, which are allocated on the basis of estimates of time and effort.
- Note G
- The following reflects Not-for-Profit Entity A's financial assets as of the balance sheet date, reduced by amounts not available for general use because of contractual or donor-imposed restrictions within one year of the balance sheet date. Amounts not available include amounts set aside for long-term investing in the quasi-endowment that could be drawn upon if the governing board approves that action. However, amounts already appropriated from either the donor-restricted endowment or quasi-endowment for general expenditure within one year of the balance sheet date have not been subtracted as unavailable.
"Financial assets, at year-end" " $234,410 " "Less those unavailable for general expenditures within one year, due to: " Contractual or donor-imposed restrictions: Restricted by donor with time or purpose restrictions " (11,940)" Subject to appropriation and satisfaction of donor restrictions " (174,700)" Investments held in annuity trust " (4,500)" Board designations: "Quasi-endowment fund, primarily for long-term investing" " (36,600)" Amounts set aside for liquidity reserve " (1,300)" Financial assets available to meet cash needs for general expenditures within one year " $5,370 "
- Not-for-Profit Entity A is substantially supported by restricted contributions. Because a donor's restriction requires resources to be used in a particular manner or in a future period, Not-for-Profit Entity A must maintain sufficient resources to meet those responsibilities to its donors. Thus, financial assets may not be available for general expenditure within one year. As part of Not-for-Profit Entity A's liquidity management, it has a policy to structure its financial assets to be available as its general expenditures, liabilities, and other obligations come due. In addition, Not-for-Profit Entity A invests cash in excess of daily requirements in short-term investments. Occasionally, the board designates a portion of any operating surplus to its liquidity reserve, which was $1,300 as of June 30, 20X1. There is a fund established by the governing board that may be drawn upon in the event of financial distress or an immediate liquidity need resulting from events outside the typical life cycle of converting financial assets to cash or settling financial liabilities. In the event of an unanticipated liquidity need, Not-for-Profit Entity A also could draw upon $10,000 of available lines of credit (as further discussed in Note XX) or its quasi-endowment fund.
- Note H
- The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the statement of financial position that sum to the total of the same such amounts shown in the statement of cash flows.
6/30/20X1 Cash and cash equivalents " $4,575 " "Restricted cash included in assets restricted to investment in land, buildings, and equipment" 60 "Total cash, cash equivalents, and restricted cash shown in the statement of cash flows" " $4,635 "
- Assets restricted to investment in land, buildings, and equipment on the statement of financial position include restricted cash received with a donor-imposed restriction that limits use of that cash to long-term purposes.
205-958-55-31
This Example illustrates application of the disclosure guidance in paragraphs by an NFP (NFP B) subject to an enacted version of the Uniform Prudent Management of Institutional Funds Act of 2006 even though that disclosure guidance applies whether or not an NFP is subject to an enacted version of that law.
205-958-55-32
This Example makes all of the following assumptions:
- aNFP B is issuing a full set of financial statements for both the current fiscal year, 200Y, and the previous fiscal year, 200X.NFP B is required to disclose the information in paragraph 958-205-50-1B for each period for which it presents financial statements; however, for simplicity, the disclosures provide information for a single period, 200Y.
- bNFP B has a sizable endowment.
- cBefore 200Y, an enacted version of the Uniform Prudent Management of Institutional Funds Act of 2006 became effective for the State to whose law NFP B is subject.
- d
- eNone of the funds have donor stipulations that override the restriction described in subsection 4(a) of the law, which the enacted version in the State included verbatim: "unless stated otherwise in the gift instrument, the assets in an endowment fund are donor-restricted assets until appropriated for expenditure by the institution."
- f
- g
205-958-55-36
The following table contains assumptions about NFP B's endowment-related activities in the year 200Y.
Board- Donor-Restricted Designated Endowment Endowment Funds Funds Total "Investment return, net(a)" 372 10 382 Contributions to donor-restricted endowment fund " 2,000 " - " 2,000 " Amounts appropriated for expenditure(a) " (7,077)" (373) " (7,450)" Transfer to create board-designated endowment funds - 500 500 Total change in endowment funds " $(4,705)" $137 " $(4,568)" (a) "Included within investment return, net is $125 of 200Y net depreciation that occurred in recent donor-restricted endowment funds, causing the fair value of those funds to be less than the original gift amount. In addition, so as not to suspend certain programs, NFP B's Board deemed it prudent to continue to appropriate $75 to those programs. "
205-958-55-37
NFP B's disclosure of its endowment follows.
- NOTE X: ENDOWMENT
- NFP B's endowment consists of approximately 100 individual funds established for a variety of purposes. Its endowment includes both donor-restricted endowment funds and funds designated by the Board of Trustees to function as endowments. As required by GAAP, net assets associated with endowment funds, including funds designated by the Board of Trustees to function as endowments, are classified and reported based on the existence or absence of donor-imposed restrictions.
205-958-55-38
NFP B's disclosure of its interpretation of the law or laws that underlie NFP B's net asset classification of donor-restricted endowment funds follows as required by paragraph 958-205-50-1B(a).
- Interpretation of Relevant Law
- NFP B is subject to the State Prudent Management of Institutional Funds Act (SPMIFA) and, thus, classifies amounts in its donor-restricted endowment funds as net assets with donor restrictions because those net assets are time restricted until the Board of Trustees appropriates such amounts for expenditure. Most of those net assets also are subject to purpose restrictions that must be met before reclassifying those net assets to net assets without donor restrictions. The Board of Trustees of NFP B has interpreted SPMIFA as not requiring the maintenance of purchasing power of the original gift amount contributed to an endowment fund, unless a donor stipulates the contrary. As a result of this interpretation, when reviewing its donor-restricted endowment funds, NFP B considers a fund to be underwater if the fair value of the fund is less than the sum of (a) the original value of initial and subsequent gift amounts donated to the fund and (b) any accumulations to the fund that are required to be maintained in perpetuity in accordance with the direction of the applicable donor gift instrument. NFP B has interpreted SPMIFA to permit spending from underwater funds in accordance with the prudent measures required under the law.Additionally, in accordance with SPMIFA, NFP B considers the following factors in making a determination to appropriate or accumulate donor-restricted endowment funds:
- (1) The duration and preservation of the fund
- (2) The purposes of the organization and the donor-restricted endowment fund
- (3) General economic conditions
- (4) The possible effect of inflation and deflation
- (5) The expected total return from income and the appreciation of investments
- (6) Other resources of the organization
- (7) The investment policies of NFP B.
205-958-55-39
NFP B's disclosure of its endowment net asset composition by type of fund as of June 30, 200Y, follows as required by paragraph 958-205-50-1B(d).
200Y "Endowment Net Asset Composition by Type of Fund as of June 30, 200Y" Without Donor Restrictions With Donor Restrictions Total Board-designated endowment funds " $7,084 " $- " $7,084 " Donor-restricted endowment funds: Original donor-restricted gift amount and amounts required to be maintained in perpetuity by donor - " 97,759 " " 97,759 " Accumulated investment gains Portion subject to appropriation under SPMIFA - " 35,201 " " 35,201 " Term endowment - " 4,388 " " 4,388 " Total funds " $7,084 " " $137,348 " " $144,432 "
205-958-55-41
NFP B's disclosure of a reconciliation of the beginning and ending balances of the endowment, in total and by net asset classes, for the fiscal year ended June 30, 200Y, follows as required by paragraph 958-205-50-1B(e).
"Changes in Endowment Net Assets for the Fiscal Year Ended June 30, 200Y" Without Donor Restrictions With Donor Restrictions Total "Endowment net assets, beginning of year" " $6,947 " " $142,053 " " $149,000 " "Investment return, net" 10 372 382 Contributions - " 2,000 " " 2,000 " Appropriation of endowment assets for expenditure (373) " (7,077)" " (7,450)" Other changes: Transfers to create board-designated endowment funds 500 - 500 "Endowment net assets, end of year" " $7,084 " " $137,348 " " $144,432 "
205-958-55-47
NFP B's presentation under paragraphs and disclosure under paragraph 958-210-50-3 follows.
Description of Amounts Classified as Net Assets with Donor Restrictions (Endowment Only) 200Y Net Assets with Donor Restrictions Original donor-restricted endowment gift amount and amounts required to be retained by donor "$97,759 " Term endowment funds "4,388" Accumulated investment gains on endowment funds Without purpose restrictions " 20,102 " With purpose restrictions " 15,099 " Total endowment funds classified as net assets with donor restrictions "$137,348 "
205-958-55-48
The illustrative disclosure in the preceding paragraph includes only the net assets with donor restrictions within NFP B's endowment. A typical disclosure would be presented outside an endowment note disclosure and include all of the net assets classified within net assets with donor restrictions.
205-958-55-49
NFP B's disclosure under paragraph 958-205-50-2 follows.
- Underwater Endowment Funds
- From time to time, the fair value of assets associated with individual donor-restricted endowment funds may fall below the level that the donor or SPMIFA requires NFP B to retain as a fund of perpetual duration. Deficiencies of this nature exist in 3 donor-restricted endowment funds, which together have an original gift value of $3,500, a current fair value of $3,300, and a deficiency of $200 as of June 30, 200Y. These deficiencies resulted from unfavorable market fluctuations that occurred shortly after the investment of new contributions for donor-restricted endowment funds and continued appropriation for certain programs that was deemed prudent by the Board of Trustees.
205-958-55-50
NFP B's disclosure under paragraph 958-205-50-1B(c)(1) follows.
- Return Objectives and Risk Parameters
- NFP B has adopted investment and spending policies for endowment assets that attempt to provide a predictable stream of funding to programs supported by its endowment while seeking to maintain the purchasing power of the endowment assets. Endowment assets include those assets of donor-restricted funds that the organization must hold in perpetuity or for a donor-specified period(s) as well as board-designated funds. Under this policy, as approved by the Board of Trustees, the endowment assets are invested in a manner that is intended to produce results that exceed the price and yield results of the S&P 500 index while assuming a moderate level of investment risk. NFP B expects its endowment funds, over time, to provide an average rate of return of approximately 8 percent annually. Actual returns in any given year may vary from this amount.
205-958-55-51
NFP B's disclosure under paragraph 958-205-50-1B(c)(3) follows.
- Strategies Employed for Achieving Objectives
- To satisfy its long-term rate-of-return objectives, NFP B relies on a total return strategy in which investment returns are achieved through both capital appreciation (realized and unrealized) and current yield (interest and dividends). NFP B targets a diversified asset allocation that places a greater emphasis on equity-based investments to achieve its long-term return objectives within prudent risk constraints.
205-958-55-52
NFP B's disclosure under paragraph 958-205-50-1B(b) and (c)(2) follows.
- Spending Policy and How the Investment Objectives Relate to Spending Policy
- NFP B has a policy of appropriating for distribution each year 5 percent of its endowment fund's average fair value over the prior 12 quarters through the calendar year-end preceding the fiscal year in which the distribution is planned. In establishing this policy, NFP B considered the long-term expected return on its endowment. Accordingly, over the long term, NFP B expects the current spending policy to allow its endowment to grow at an average of 3 percent annually. NFP B has a policy that permits spending from underwater endowment funds depending on the degree to which the fund is underwater, unless otherwise precluded by donor intent or relevant laws and regulations. The governing board appropriated for expenditure $75 from underwater endowment funds during the year, which represents 3 percent of the 12-quarter moving average, not the 5 percent it generally draws from its endowment.
205-958-60Relationships
Source downloaded: .Record version 4edf9dd43a8c. Effective date must be checked in the source.
Risks and Uncertainties
205-958-60-1
For disclosures about the principal services performed by a not-for-profit entity (NFP) and the revenue sources for the entity's services, see paragraph 275-10-50-2.
205-958-65Transition and Open Effective Date Information
Source downloaded: .Record version af38c3659561. Effective date must be checked in the source.
205-958-65-1
Paragraph superseded on 03/23/2010 after the end of the transition period stated in FASB Staff Position 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.
Related subtopics
- 210-958 Not-for-Profit EntitiesBalance Sheet
- 220-958 Not-for-Profit EntitiesIncome Statement—Reporting Comprehensive Income
- 320-958 Not-for-Profit EntitiesInvestments—Debt Securities
- 220-954 Health Care EntitiesIncome Statement—Reporting Comprehensive Income
- 360-958 Not-for-Profit EntitiesProperty, Plant, and Equipment
- 720-958 Not-for-Profit EntitiesOther Expenses