by Laurie Goodey, A&A Manager

Webcast Regarding Codification of U.S. GAAP
The Financial Accounting Standards Board (FASB) hosted a webcast that discusses and demonstrates the use of the FASB Accounting Standards Codification, an on-line research system that organizes all authoritative U.S. GAAP by topic.  Panelists Larry Smith, FASB Board member, and Tom Hoey, project director for the FASB codification project, presented the new tool and answered questions during the event while Jay Hanson, National Director of Accounting for McGladrey & Pullen, LLP, moderated the program.  

The one-hour webcast, The Move to Codification of U.S. GAAP, is archived with free access by the public.  To register for the archived webcast, go to http://w.on24.com/r.htm?e=104519&s=1&k=BDD7BC6E5BD3B1CC8E9F2631759517DD   

FAF Adopts Changes to Its Governance
The Financial Accounting Foundation (FAF) Board of Trustees is responsible for the oversight, funding, and appointment of members of the Financial Accounting Standards Board (FASB) and the Governmental Accounting Standards Board (GASB).  In July 2007, the Board of Trustees established a Special Committee on Governance Review to re-examine the overall structure, effectiveness, and efficiency of the governance processes of the FAF, FASB, and GASB; to evaluate and plan for the future role of the FAF and FASB in a capital market environment moving toward a single set of global financial reporting standards; to evaluate and plan for the future funding and continuing role of the GASB; and to evaluate and plan for the ongoing and future role of the Board of Trustees in preserving the independence and promoting the effectiveness of private sector and governmental accounting standard setting. At a special meeting on February 26, 2008, the Board of Trustees approved a series of changes to the FAF's oversight role, operations and governance; the FASB's structure and operations; and the GASB's funding and operations.  These changes included the following, among others:

• Expanding the breadth of individuals and organizations that are invited to submit nominations for the FAF Board of Trustees to include accounting, financial, investor, government, and other groups.  Final authority for all appointments would rest solely with the Board of Trustees.
• Changing the term of service for Trustees from two three-year terms to one five-year term.
• Increasing the governance and oversight activities of the Trustees.
• Reducing the size of the FASB from seven members to five.
• Affirming the need for investor participation on the FASB by broadening the current by-law requirement that members possess investment experience.
• Providing the FASB Chair and the GASB Chair with decision-making authority to set the FASB and GASB technical agendas, respectively.
• Affirming the conviction that securing a stable and permanent funding source for the
• GASB is a matter of urgency for the FAF.

Corporate Governance Changes to Oversight, Structure, and Operations of the FAF, FASB, and GASB is available in full at http://www.fasb.org/faf/FAFGovernanceResolutions02-27-08.pdf.

Guidance Proposed for Net Asset Classification of Donor-Restricted Endowment Funds 
In July 2006, the National Conference of Commissioners on Uniform State Laws approved the Uniform Prudent Management of Institutional Funds Act of 2006 (UPMIFA).  This Act is a modernized version of the Uniform Management of Institutional Funds Act of 1972 (UMIFA), the model act on which most states have based their laws governing the investment and management of donor-restricted endowment funds by not-for-profit organizations. Because the UPMIFA prescribes new guidelines for expenditure of donor-restricted endowment funds, questions have arisen as to the appropriate net asset classification of such funds.  To provide guidance on the net asset classification of donor-restricted endowment funds for a not-for-profit organization that is subject to an enacted version of the UPMIFA, the Financial Accounting Standards Board (FASB) has proposed FASB Staff Position (FSP) No. FAS 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.  The proposed FSP addresses the following accounting issues resulting from new guidelines in the UPMIFA:

• The UPMIFA shifts its focus from the prudent spending of the net appreciation of the fund to the entirety of a donor-restricted endowment fund.  The UPMIFA eliminates UMIFA's historic-dollar-value threshold, an amount below which an organization could not spend from the fund, in favor of a more robust set of guidelines about what constitutes prudent spending, explicitly requiring consideration of the duration and preservation of the fund.  The proposed FSP therefore would require a not-for-profit organization that is subject to an enacted version of the UPMIFA to classify all or a portion of a donor-restricted endowment fund of perpetual duration as permanently restricted net assets. The amount classified as permanently restricted is the amount of the fund a) that must be retained permanently in accordance with explicit donor stipulations, or(b) that in the absence of such stipulations, the organization's governing board determines must be retained permanently, if any, under the  relevant law.Subsection 4(a) of the UPMIFA 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." Subsection 4(d) includes an optional provision for adding a rebuttable presumption of imprudence for spending over seven percent of the fair market value of the fund (calculated over the period on which the organization bases its endowment spending formula but not less than three years).  The proposed FSP concludes that in determining whether provisions in enacted legislation that are based on subsection 4(a) or 4(d) of the UPMIFA impose a temporary (time) restriction on the portion of a donor-restricted endowment fund that otherwise would be classified as unrestricted net assets, an organization should apply the guidance in EITF Topic No. D-49, "Classifying Net Appreciation on Investments of a Donor-Restricted Endowment Fund".  Topic D-49 concludes that, in the absence of other relevant law, if the Act has been adopted without modifications that preclude the governing board from exercising its discretion to appropriate some or all of an organization's net appreciation on investments, realized or unrealized, the net appreciation is not donor-restricted, unless the donor has explicitly restricted the use of either income or net appreciation.  A legal limitation requiring that a governing board exercise ordinary business care and prudence when appropriating net appreciation is not the equivalent of a law that extends a donor-imposed restriction and, therefore, does not result in classification of net appreciation as donor-restricted, either permanently or temporarily.

The proposed FSP also would require improved disclosures about an organization's endowment (both donor-restricted and board-designated funds), whether or not the organization is subject to the UPMIFA.  The proposed FSP requires a not-for-profit organization to disclose information to enable financial statement users to understand the net asset classification, net asset composition, changes in net asset composition, spending policies, and related investment policies about its endowment funds (both donor-restricted and board-designated).

If finalized, the provisions of the proposed FSP would be effective for fiscal years ending after June 15, 2008.  The proposed FSP is available for comment until April 18, 2008 at http://www.fasb.org/fasb_staff_positions/prop_fsp_fas117-a.pdf.

Standard Proposed for Fund Balance Reporting and Governmental Fund Type Definitions
Currently, there is diversity of practice in how fund balance is reported by state and local governments.

The Governmental Accounting Standards Board therefore has issued a proposed Statement, Fund Balance Reporting and Governmental Fund Type Definitions, to address this diversity.  The proposed Statement is intended to improve the usefulness of information provided about fund balance by providing clearer, more structured fund balance classifications, and by clarifying the definitions of existing governmental fund types.

The Statement proposes establishing a hierarchy of fund balance classifications primarily based on the extent to which a government is bound to observe spending constraints imposed upon the use of resources reported in governmental fund balances.  The proposal distinguishes fund balance between amounts that are considered "nonspendable," such as fund balance associated with inventories, and "spendable," such as fund balance associated with cash. The spendable category would be further broken down based on the relative strength of the constraints that control how specific amounts can be spent. From greatest to least constraint, the classifications of spendable fund balance would be restricted, limited, assigned, and unassigned.

The proposed Statement also would clarify the definitions of individual governmental fund types. It includes interpretations of certain terms within the definition of special revenue fund types, while modifying the debt service and capital projects fund types for clarity and consistency. The proposal also specifies how economic stabilization or "rainy-day" amounts would be reported.

If finalized, the proposed Statement would be effective for financial statements for periods beginning after June 15, 2010, with earlier implementation encouraged.  The proposed Statement is available for comment until June 30, 2008 at http://www.gasb.org/exp/ed_fund_balance_reporting.pdf.

SSARS No. 17 Issued
The Accounting and Review Services Committee of the American Institute of Certified Public Accountants has issued Statement on Standards for Accounting and Review Services (SSARS) No. 17, Omnibus Statement on Standards for Accounting and Review Services - 2008.  Among other provisions, this statement:  

• Replaces the term "nonpublic entity" with the term "nonissuer" to conform to the terminology used by other standard setters.
• Clearly indicates the differences between compilation, review, and audit engagements and revises the illustrative arrangement letters for compilation and review engagements accordingly.
• States that, in a review engagement, the accountant must apply analytical procedures to the financial statements; make inquires of management or other company personnel, or both; and obtain representations from management for all financial statements and periods covered by the accountant's review report.
• Revises the definition of "third parties" to clarify that the phrase, "who are knowledgeable about the nature of the procedures applied and the basis of accounting and assumptions used in the preparation of financial statements" applies to "members of management," and also introduces definitions of "those charged with governance" and "management."
• States that management's written representations should be made as of the date of the accountant's review report.
• Provides guidance with respect to an accountant's consideration of the entity's ability to continue as a going concern during the performance of compilation or review procedures.
• Provides guidance with respect to an accountant's consideration of subsequent events in a compilation or review engagement.
• Incorporates guidance with respect to analytical procedures in a review engagement. 

SSARS No. 17 is effective for compilations and reviews of financial statements for periods ending on or after December 15, 2008