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CHAPTER 8.5.1
ENDOWMENT ACCOUNTING
OVERVIEW
An endowment is a proper transfer of money and/or property donated with the intention to
support the University and its discretely presented component units in perpetuity.
Ed code 89721 mandates the University (only) that endowment funds received be deposited into
and maintained in local trust accounts (CSU Fund 466, Endowment Trust) by the University. For
discretely presented component units, these funds are recorded in CSU Fund 921.
Endowments may come with stipulations regarding its usage (by donor or trustees). There can be
an undesignated endowment fund or a number of restricted endowment funds.
SOURCES OF ENDOWMENT
 Original gift
 Net appreciation( realized and unrealized)
 Interest/dividends
DEFINITION AND ACCOUNTING OF DIFFERENT ENDOWMENT TYPES
1. TRUE ENDOWMENTS
Established when the donor states that the gift is to be held permanently as an endowment as
identified in a written gift agreement or the organization restricts it for a specific use as
solicited from donors. The original funds and any additional principal cannot be withdrawn,
expended, or otherwise exhausted.
FASB Accounting
Fund is classified as permanently restricted net assets.
GASB Accounting
True endowment is also referred to as permanent endowment. Fund is classified as restricted
nonexpendable net position.
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2. TERM ENDOWMENTS
Funds set aside for a specific period of time or until a certain event. These funds can be
established by a donor or the organization.
FASB Accounting
Fund is classified as temporarily restricted net assets.
GASB Accounting
Fund is classified as restricted expendable net position.
3. QUASI ENDOWMENT
Funds set aside by an organization’s Board, which maintains the power to release the
restriction on principal spending. Additional reserve funds, and other unrestricted gifts are
often used to set up this fund type. The Funds are held by Board resolution and therefore can
have policies and procedures that allow withdrawal of principal. This fund is also referred as
Board-Designated Funds.
FASB Accounting
Fund is classified as unrestricted net assets.
GASB Accounting
Fund is classified as unrestricted net position.
GASB EXAMPLE: PERMANENT ENDOWMENT
Facts: A corporation gives $5 million to a state university (recipient) with the stipulation that the
university establishes an endowment, invest the gift, and maintain the principal intact in
perpetuity. The investment income is to be used for scholarships for underprivileged students
majoring in business or public administration.
Type: Permanent endowment (permanently nonexpendable addition to net position).
Restrictions:
 Purpose restriction - the requirement to invest the gift and the specified use of investment
income
 Time restriction - the stipulation that the principal be maintained intact in perpetuity (can
never be expended)
Accounting: Recognize assets and revenues when the gift is received because at that time the
university begins to comply with the time requirement (to maintain the principal intact). The
university should always report resulting net position or fund balance (principal) as restricted
because of the purpose restriction and the time requirement (investment in perpetuity).
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GASB EXAMPLE: TERM ENDOWMENT
Facts: An alumnus promises to donate $500,000 to his alma mater with the stipulation that the
university invest the principal and use the income to provide summer research grants for
accounting faculty members. The terms of the agreement specify that, after the donor’s death, the
university should withdraw the principal of the gift and use (expend) it, also for summer research
grants for accounting faculty members.
Type: Term endowment
Restrictions:
 Purpose restriction - requirements to invest the principal until the donor’s death and then to
expend it for summer grants
 Time restriction - requirement to maintain the principal intact until after the donor’s death
Accounting: The University should recognize assets and revenues when the gift is received. It
should not recognize a receivable when the promise is made because it cannot begin to comply
with the time requirement until the gift is received. When the gift is recognized, the university
should report resulting net position or fund balance as restricted because of the purpose
restrictions and the time requirement. However, it should continue to report net position or fund
balance as restricted after the donor’s death, until the principal is expended in accordance with
the donor’s stipulations.
INVESTMENT IN LAND AND OTHER REAL ESTATE HELD BY ENDOWMENTS (GASB)
GASB 52, Land and Other Real Estate Held as Investment by Endowment, requires that land and
other real estate held by endowments (except federal land grants) be reported at fair value at the
reporting date. Any changes in fair value during the period should be reported as endowment
income. Significant assumptions used to determine fair value should be disclosed as required by
GASB 31.
UNDERWATER ENDOWMENT
Underwater endowment occurs when value of donor-restricted endowment funds decline below
the corpus, consideration of various accounting issues is required.
GASB Accounting
 Reduction of Restricted net position is allowed.
 If liabilities that relate to specific restricted assets exceed those assets, no restricted
component net position should be reported – the net negative amount should reduce
unrestricted net position.
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FASB Accounting
 Permanently restricted net assets are NOT reduced by losses.
 Losses on donor restricted endowment fund shall reduce temporary restricted net assets to the
extent that donor-imposed temporary restrictions on net appreciation of the fund have not
been met before loss occurs. Remainder shall reduce unrestricted net assets.
ENDOWMENT ACCOUNTING (FASB)
NACUBO AND GASB EXCERPTS FOR UNDERWATER ENDOWMENT FOR GASB ENTITIES
Source of Question – NACUBO February 11, 2009 Webcast on Underwater Endowments
Question: For GASB institutions, how is the spending of corpus or historic gift amount
reflected on the financial statements? Are public institutions required to show a reduction of
unrestricted net position to cover the underwater portion of true endowment funds at year end
under UPMIFA?
Answer: Per SGAS 31, increases in fair value, as well as certain decreases, should be reported
as changes in unrestricted net assets unless restricted by donor, contractual, or other legal
requirements. A major difference between FASB and GASB is that GASB allows decreases in
donor restricted endowments to directly reduce the restricted non-expendable net asset class.
The issue is whether spending from a non-expendable net asset class can occur. NACUBO has
approached GASB on this issue and has learned that GASB believes they do not need to issue
UPMIFA specific guidance because their framework allows for the proper accounting and
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reporting under this law. Consequently, public institutions in UPMIFA states reflect the results
of governing board directed spending decisions (as well as valuation increases/decreases) as
changes in restricted non-expendable net position.
FROM GASB’S COMPREHENSIVE IMPLEMENTATION GUIDE
Chapter 7, Questions and Answers
7.24.6. Q—Generally, when permanent endowments are mentioned in Statement 34, the
discussion also includes term endowments. (See paragraphs 53, 100, 101, and 103 of that
Statement, for example.) However, Statement 34, paragraph 35, as amended, states that when
permanent endowments or permanent fund principal amounts are included, the restricted
component of net position should be displayed in two additional components—expendable and
nonexpendable. Does this display requirement also apply to term endowments? (Q&A34-98)
[Amended 2012]
A—No. The objective of the requirement in paragraph 35 is to identify net position that cannot
be spent.
Term endowments may “currently” be nonexpendable, but at some point in the future (when the
term expires) they will become expendable. Thus, the requirement in paragraph 35 applies only
when the unavailability of net position is permanent.
7.24.8. Q—In computing the restricted component of net position, are governments required to
“close” nominal accounts into that component? That is, is it necessary to account for the change
in the net position balance by adding restricted revenues and deducting expenses incurred for the
specified purposes? (Q&A34B-22) [Amended 2005 and 2012]
A—No. Statement 34 follows a change in total net position approach and does not require
presentation of a statement of changes in the components of net position, nor does it require
disclosure of the changes in restricted net position. The concept of restricted net position focuses
on balances rather than transactions. Restricted net position is composed of restricted assets,
reduced by reported claims against those assets. Therefore, if a government has net position at
year-end that is subject to a legally enforceable restriction on its use, the net position should be
reported as restricted in the statement of net position. (See questions 7.24.18 and 7.24.19 about
the effect of using restricted resources for other purposes.)
7.24.13.
Q—Can restricted net position be reported as a negative amount? (Q&A20047.485) [Amended 2012]
A—No. Negative amounts should not be reported for any category of restricted net position. If
liabilities that relate to specific restricted assets exceed those assets, no restricted component net
position should be reported—the net negative amount should reduce unrestricted net position.
Restricted net position is intended to portray, at the date of the statement of net position, the
extent to which the government has assets that can only be used for specific purposes (after
recognizing the specific liabilities that will be liquidated with those assets, or the specific
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liabilities from which the assets resulted). If the related liabilities exceed the assets on hand, the
“shortfall” by default is covered by unrestricted assets. (See also questions 7.24.7 and 7.24.8 and
Exercise 3 in Appendix 7-3 of the Guide)
7.24.14.
Q—A local benefactor has made a $5 million donation to the community college.
According to the terms of the bequest, the principal of the gift is required to remain intact and the
earnings are required to be used for improvements to the college’s fine art center. At the end of
the current fiscal year the fair value of the endowment has dropped to $4.85 million. Because the
original amount is nonexpendable, should the college report restricted nonexpendable net
position of $5 million or $4.85 million? (Q&A2004-7.486) [Amended 2011 and 2012]
A—Restricted (nonexpendable) net position should be reported as $4.85 million. Restricted net
position should represent the reported amount of restricted assets reduced by liabilities related to
those assets. (See questions 7.24.7 and 7.24.13 and t Exercise 3 in Appendix 7-3.) In this
example, the restricted assets reported in the statement of net position are $4.85 million as a
result of the investment loss.
7.24.20.
Q—A government passes enabling legislation that levies an incremental sales tax
and restricts the revenues to funding elementary and secondary education. Subsequently, the
government uses some of the revenues for another purpose. The government reevaluates the
legal enforceability of the restriction, as required by t paragraph 5 of Statement 46. Based on its
professional judgment, the government determines that the restriction is not legally enforceable
and reports the accumulated resources and all future resources generated by the tax as
unrestricted from that period forward. Several years later, however, the government is sued, and
the court orders the government to use the resources only for the purpose specified by the
legislation. How should the net position be reported? (Q&A2005-7.499) [Amended 2012]
A—Unless the court order specifies which resources are restricted, the components of net
position generated by the sales tax should be reported as restricted—and disclosed in the notes to
the financial statements as restricted by enabling legislation—beginning in the period during
which the court judgment was rendered.
Paragraph 3 of Statement 46 cautions that legal enforceability cannot ultimately be proven unless
tested through the judicial process. Until such time, professional judgment relies on available
evidence. At the time the government used the tax revenues for non specified purposes, there
may have been no reason to believe that an outside party could compel the government to honor
the restriction imposed by the enabling legislation; in fact, there may have been no prior
instances in which a court compelled the government or similar governments.
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REVISION CONTROL
Document Title:
CHAPTER 8.5.1 – ENDOWMENT ACCOUNTING
REVISION AND APPROVAL HISTORY
Section(s)
Revised
General
General
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Summary of Revisions
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Combined the information in Attachment D and E in last year’s
GAAP manual.

Added the definition and accounting of the different types of
endowments both under GASB and FASB.
Previously in Chapter 8.6 Attachment D.
GAAP Manual | Endowment Accounting | June 30, 2015
Revision Date
April 2014
April 2015