1. May 13, 20081 Accounting Upd ate FOCUS Staunton May 13, 2008 Larry Goldstein, President Campus Strategies © Campus Strategies

2. May 13, 20082 Agenda Recently issued GASB documents and upcoming effective dates GASB Statement No. 50 GASB Statement No. 51 GASB Statement No. 52 FASB UPMIFA FSP © Campus Strategies

3. May 13, 20083 Recently Issued GASB Documents © Campus Strategies

4. May 13, 20084 Recently Issued Documents Statement 50—Pension Disclosures (an amendment of GASB Statements No. 25 and No. 27) (5/07) Statement 51—Accounting and Financial Reporting for Intangible Assets (6/07) Concepts Statement No. 4—Elements of Financial Statements (6/07)… © Campus Strategies

5. May 13, 20085 Recently Issued Documents 2007-08 Comprehensive Implementation Guide (10/07) Statement 52—Land and Other Real Estate Held as Investments by Endowments (11/07)… © Campus Strategies

6. May 13, 20086 Recently Issued Documents Exposure drafts Derivatives (6/07) Fund balance reporting (2/08) Concepts Statement No. 2—Service Efforts and Accomplishments Reporting (4/08) © Campus Strategies

7. May 13, 20087 Upcoming GASB Effective Dates © Campus Strategies

8. May 13, 20088 Effective Dates June 30, 2008 Statement 43—Phase II (OPEB plans) Statement 45—Phase I (Employers OPEB) Statement 48—Sales & Pledges of Receivables and Future Revenues Statement 50—Pension Disclosures… © Campus Strategies

9. May 13, 20089 Effective Dates June 30, 2009 Statement 43—Phase III (OPEB plans) Statement 45—Phase II (Employers OPEB) Statement 49—Pollution Remediation Obligations Statement 52—Endowment Real Estate June 30, 2010 Statement 45—Phase III (Employers OPEB) Statement 51—Intangible Assets © Campus Strategies

10. May 13, 200810 GASB 50 Pension Disclosures © Campus Strategies

11. May 13, 200811 Pension Disclosures Driven by new OPEB standards Amends GASB 25 (pension plans) and GASB 27 (accounting for pensions by employers) Extends new disclosure requirements related to OPEB to pensions Removes inconsistencies between original pension disclosures and OPEB disclosures © Campus Strategies

12. May 13, 200812 GASB 51 Intangible Assets © Campus Strategies

13. Intangible Assets Assets that possess following characteristics Lack physical substance Nonfinancial nature Initial useful life extending beyond a single reporting period… May 13, 200813© Campus Strategies

14. Intangible Assets Examples Patents, copyrights, trademarks Easements and land use rights Computer software Purchased or licensed Internally generated… May 13, 200814© Campus Strategies

15. Intangible Assets Intangible assets must be classified and reported as capital assets Existing authoritative guidance related to capital assets extends to intangible assets But there are exceptions… May 13, 200815© Campus Strategies

16. Intangible Assets Exceptions Intangible assets acquired or created primarily to generate income or profit Should be reported at cost or value at time of donation Capital leases Goodwill resulting from a combination transaction (e.g., merger, acquisition)… May 13, 200816© Campus Strategies

17. Intangible Assets Recognition—only if asset is identifiable Asset is separable (i.e., capable of being separated and sold, transferred, licensed, etc.) or Asset arises from contractual or other legal rights, regardless of whether rights are separable… May 13, 200817© Campus Strategies

18. Intangible Assets Internally generated intangible assets (IGIA) Created or produced by institution or entity contracted by institution or Acquired from a third party and requiring more than minimal incremental effort to achieve expected service capacity… May 13, 200818© Campus Strategies

19. Intangible Assets IGIA costs capitalized only when all three criteria met 1.Specific objective for project determined, including establishment of expected service capacity upon completion 2.Demonstration of technical or technological feasibility for completing project… May 13, 200819© Campus Strategies

20. Intangible Assets 3.Demonstration of current intention, ability, and presence of effort to complete project If multiyear project, requirement for continuing satisfaction of this criterion Outlays incurred prior to meeting criteria should be expensed as incurred… May 13, 200820© Campus Strategies

21. Intangible Assets Standard includes guidance on applying the specified-conditions approach for recognition of computer software Guidance closely follows requirements of AICPA SOP 98-1, Accounting for the Costs of Computer Software Developed or Obtained for Internal Use… May 13, 200821© Campus Strategies

22. Intangible Assets Amortization Existing guidance for depreciating capital assets generally applies to amortizing intangible assets Not required for intangible assets with indefinite useful lives Indefinite useful lives exist when there are no factors that limit useful life… May 13, 200822© Campus Strategies

23. Intangible Assets Transition Provisions generally should be applied retroactively Exceptions permitted for IGIA and intangible assets with indefinite useful lives at transition… May 13, 200823© Campus Strategies

24. Intangible Assets Recognition required for all other intangible assets acquired in fiscal years ending after June 30, 1980 by phase 1 or 2 governments Phase 3 governments are encouraged but not required to report other intangible assets May 13, 200824© Campus Strategies

25. Questions? May 13, 2008© Campus Strategies25

26. May 13, 200826 GASB 52 Endowment Real Estate © Campus Strategies

27. Endowment Real Estate Paragraph 19 of GASB 34 defines land as a capital asset Requires recognition at cost (or fair value at time of donation) Many endowments hold land and other real estate for investment purposes Standard applies to real estate held as true and term endowments but not quasi-endowments… May 13, 2008© Campus Strategies27

28. Endowment Real Estate True and term endowment real estate should be measured at fair value Changes in value should be reported in SRECNA as investment income Investment disclosures per paragraph 15 of GASB 31 should be presented as appropriate May 13, 2008© Campus Strategies28

29. Uniform Prudent Management of Institutional Funds Act (UPMIFA) Model act approved by National Conference of Commissioners on Uniform State Laws (07/06) Enacted by 22 states and DC so far; under consideration by seven others Effective July 1, 2008 in Virginia Updates the 1972 UMIFA in the area of investment management and endowment spending… May 13, 200829© Campus Strategies

30. UPMIFA Eliminates concept of historic dollar value Enhances guidance on what constitutes prudent endowment spending Authorizes spending from “underwater” endowments Includes optional rebuttable presumption of imprudence for spending below 2% or above 7% of market value… May 13, 200830© Campus Strategies

31. UPMIFA FASB Staff Position, FSP No. 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 Disclosure Requirements… May 13, 200831© Campus Strategies

32. UPMIFA Objectives Provide guidance on net asset classification of donor-restricted endowment funds for not-for-profit organizations subject to UPMIFA Improve endowment disclosures whether subject to UPMIFA, UMIFA, or other state law… May 13, 200832© Campus Strategies

33. UPMIFA Key questions Does ability to spend from “underwater” endowments affect net asset classification? Does optional rebuttable presumption of imprudence impose a temporary (time) restriction on a portion of otherwise unrestricted funds?... May 13, 200833© Campus Strategies

34. UPMIFA UPMIFA specifies 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.” Does above language impose a time restriction on a portion of otherwise unrestricted funds?... May 13, 200834© Campus Strategies

35. UPMIFA Conclusions If governing board concludes that state law requires a portion of the fund— initial gift or appreciation—to be retained in perpetuity That amount is permanently restricted Other amounts are temporarily restricted or unrestricted… May 13, 200835© Campus Strategies

36. UPMIFA If subsequent losses result in spending below amount required to be retained Loss must be recognized in temporarily restricted until exhausted, then unrestricted Because overall fund accountability is unchanged under UPMIFA—still accountable for full amount of fund… May 13, 200836© Campus Strategies

37. UPMIFA Rebuttable presumption language does not affect net asset classification Refer to EITF Topic No. D-49, “Classifying Net Appreciation on Investments of a Donor-Restricted Endowment Fund” Unless law extends donor-imposed restriction, no impact… May 13, 200837© Campus Strategies

38. UPMIFA An important caveat! Be sure to read actual language in UPMIFA as adopted by in Virginia along with other relevant information Might reach a different conclusion if law deviates from model legislation… May 13, 200838© Campus Strategies

39. UPMIFA New disclosure requirements apply to all NFPs—not just those in states adopting UPMIFA For both donor-restricted and board- designated, must address net asset classification, net asset composition, changes in net asset composition, spending policy(ies), and related investment policy(ies) concerning endowment funds… May 13, 200839© Campus Strategies

40. UPMIFA Minimum information Description of board’s interpretation of relevant law guiding net asset classification Description of endowment spending (distribution) policy(ies)… May 13, 200840© Campus Strategies

41. UPMIFA Description of endowment investment policy(ies) Return objectives and risk parameters How the objectives relate to spending policy(ies) Strategies for achieving objectives… May 13, 200841© Campus Strategies

42. UPMIFA Composition of endowment by net asset class Endowment roll-forward by net asset class Planned endowment distribution for next year (if known)… May 13, 200842© Campus Strategies

43. UPMIFA Composition of endowment by net asset class Endowment roll-forward by net asset class Planned endowment distribution for next year (if known)… May 13, 200843© Campus Strategies

44. UPMIFA Composition of endowment by net asset class Endowment roll-forward by net asset class Planned endowment distribution for next year (if known)… May 13, 200844© Campus Strategies

45. UPMIFA Proposed FSP issued in February Comments were due by April 18 Final FSP expected in June Anticipated effective date is for fiscal years ending after June 15, 2008 (i.e., FY 2008) Monitor progress at www.fasb.org May 13, 200845© Campus Strategies

46. Acknowledgements David Bean, GASB Susan Budak, NACUBO FARM co-author Wes Galloway, GASB Jeff Mechanick, FASB Ken Schermann, GASB May 13, 200846© Campus Strategies

47. May 13, 200847 Accounting Update Questions, Comments, and Reactions Larry.Goldstein@Campus-Strategies.com (540) 942-9146 © Campus Strategies