[shawnl112]

What is the difference between Net assets board-designated and Endowment funds board-designated?

[NYSCPA]

I've been auditing NFPs for almost a decade and have never heard of the terms in your question, namely the board designated part as it pertains to NA and Endowments.

Net Assets are Assets-Liabilities. Net Assets are comprised of 3 categories, Unrestricted (I donate money to Charity X and say “have a ball, spend it anyway you want to”, Temporarily Restricted (time restriction or purpose restriction) and Permanently Restricted (see endowment funds below).

Endowment Funds are part of the Permanently Restricted Assets. Essentially, a wealthy donor will donate X amount of money to a charity. But, there is a stipulation that the Donated Amount (Principal) can NOT be spent. Only income generated from the Principal can be used to fund the NFPs mission.

If I recall, a “trick” asked on the exam was “The Board of Directors set aside $XXX for a future project” where is that amount reported in Net Assets? The “trick” being that they want to you think it belongs in Permanently Restricted, but that is not the case. Permanently Restricted Assets exist based on the DONOR'S restriction not any internal decision making.

Hope this helps.

[AuditorMan]

Shawnl112, board designations are fairly common for NFPs. As NYSCPA stated, there are three classifications for net assets for NFPs: Unrestricted, Temporarily Restricted, and Permanently Restricted. Board designations arise from a voluntary decision to set aside unrestricted net assets. In simpler terms, the Board of Directors for a NFP simply would say “Lets take $2,000,000 and create an endowment” or “Lets set aside $2,000,000 for the expansion of our facility” at a Board Meeting, vote on it, and then basically set aside a portion of the NFPs assets for that purpose. The key thing to remember is board designations are STILL unrestricted net assets, and the designation can be revoked at any time (the board designation dissapears and the net assets become plain old unrestricted net assets). They are not temporarily or permanently restricted net assets – those restrictions arise from donor stipulations only.

To answer your question as to what is this difference between board designated net assets and a board designated endowment, I would look to my two examples I said above. Board designated net assets would be anything the Board of Directors for a NFP voluntarily choses to set aside money for (e.g. board designated net assets can be for the buildout of their facility). A board designated endowment is a TYPE OF BOARD DESIGNATED NET ASSETS, and is the voluntary creation of an Endowment (investments held to generate income). Unlike a permanently restricted (or a “true”) endowment, a Board Designated endowment can be terminated at any time.

Also, board designations are not required for disclosure. That said, if the information is considered useful to the user of the financials, it can be shown on the face of the financial statements and/or as a disclosure in the notes to the financial statements.

See below for an example of what it would look like on a Statement of Financial Position (balance sheet):

NET ASSETS
Unrestricted
Undesignated $4,500,000
Board designated endowment $1,250,000
TOTAL UNRESTRICTED NET ASSETS $5,750,000
Temporarily Restricted $1,010,000
Permanently Restricted $2,800,000
TOTAL NET ASSETS $9,560,000

Source: I am auditorman.

Edit: Not sure how to get my financial statement example to show spaces. Also, if you are an auditor, prepare to flush your mind of the above information when ASU 2016-14 is implemented.

[Author]

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