The Financial Accounting Standards Board has issued a proposed FASB Staff Position on the endowments of nonprofit organizations that could have large implications for how they recognize their assets and use donor-restricted funds.

FSP 117-a, "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," provides guidance on classifying the net assets and equity associated with donor-restricted endowment funds that are subject to an enacted version of UPMIFA.

The issues in the FSP could have widespread importance to the not-for-profit sector, especially organizations with sizeable endowments, and the users of their financial statements, such as donors, credit rating agencies, and regulators. Jeffrey Mechanick, FASB project manager, noted that the adoption of UPMIFA has raised significant questions about the reporting of donor-restricted endowment funds.

"Organizations across the country now find themselves subject to increased public scrutiny on how they manage and use their endowments, which in many instances have seen tremendous growth over the past decade," he said in a statement.

The provisions of the FSP will be effective for fiscal years ending after June 15, 2008.

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