| NAC Subgroup 1 Meeting NFP Industry Review

1. |NAC Subgroup 1 MeetingNFP Industry Review Teresa Gordon Land conservancyPublic broadcastingAdvocacy

2. Land Conservancy Nature ConservancyConservation FundTrust for Public Land Connecticut Audubon Society?

4. Nature Conservancy • The $10K difference includes one items on SCNA: Change in underwater endowment .

5. Public Broadcasting Oregon Public BroadcastingNational Public Radio Northwest Public Radio (GASB)

7. Oregon Public Broadcasting • The $1.7M difference includes three items on SCNA: Gain on charitable remainder trust Change in underwater endowment Matured annuities and other transfers

8. AdvocacyHard to find those with auditedfinancial statements available! American Humane Assn.Chicago Coalition for the HomelessFriends of the EarthConnecticut Audubon Society

10. Advocacy Agencies • The difference reported on SCNA for AHA was release of restrictions due to decrease in underwater endowments • The old and new methods produce essentially identical results of CCH since there were no endowment assets

11. Notice something? All of the entities I looked at were pretty much as the “charity” end of the scale with most support from contributions and investments

12. I went looking for hybrids probably not covered by other group members • Museums with “live” exhibits • Monterey Bay Aquarium • Admissions and program fees were about half of revenues • Arizona-Sonora Desert Museum • Admission fees were about a third of revenues • Performing Arts • Seattle Repertory Theatre • Earned revenues were 55% of revenues, the rest coming from contributions and grants

15. Issues Raised by My Analysis PRNA that is not “endowment” Geography for quasi-endowments Split Interest Agreements Other

16. PRNA – it is more than endowments! • Land held for conservation endowment • Perpetual trusts held by others – cannot be managed as endowment by the beneficiary (no control) • New “restricted” category makes more sense than new “endowment” category

17. Quasi-Endowment Geography • Should the new “endowment” category include only “true” donor-restricted endowments? • Could it also include board-designated endowments • “Quasi-endowments” • “Funds functioning as endowment” • Either method could work. • Portion of investment return allocated to operations would appear in revenue on the income statement

18. Pros & Cons: Quasi-endowments • Leave them in “unrestricted” • Report undistributed investment returns in “non-operating” on income statement • FS users would be aware that additional resources are expendable • Reporting only in Stmt of Changes in NA less desirable because it is less transparent • Put them in “endowment” • Separately report undistributed investment returns the stmt of change in endowment net assets • Expendable nature of undistributed portion of returns would not be apparent to users that concentrate on the income statement

19. Split-interest Agreements • Charitable remainder trusts, gift annuities, life-income funds, etc. • Since balance sheets rarely have NA columns, it was hard to determine whether the split-interest liabilities and related assets were reported in URNA, TRNA or PRNA . • Also hard because change in values might not be material and therefore not separately labelled on statement of activities • I found them in PRNA, TRNA and URNA

20. Split-interest Agreements • Under current GAAP, temporarily restricted “makes sense” since the NFP generally has a “remainder interest” when the donor dies. • What about the new “restricted” NA class? • To me, “restricted” makes better sense than “endowment” even though one might manage the assets in a pool. • In one case, I found some of the total gift annuity liability and assets rolled into what was labeled the endowment fund.

21. Other issues • Mission-related joint ventures and other arrangements • Found one in revenue (equity method) • Found another at historical cost with share of earnings reported in revenue • If clearly and closely related to the entity’s mission, would a “partial consolidation” make the most sense? • % share of revenues reported as revenue • % share of expenses reported as expense

22. Other issues • Underwater endowments – I found lots! • At first, I thought about moving the underwater balances to “endowment” assuming there was TRNA investment returns sufficient to cover shortfalls. • However, I found more than one entity with ZERO in TRNA due to the “depth” of the water they were under! • Where to show the loss/recovery? • Non-operating item on income statement? • Statement of changes in unrestricted net assets only?

23. Other issues:Preserving functional expenses • Impairment of intangibles was reported by one entity as “non-operating” • We are directed by ASU to exclude gain/loss related to defined benefit plans from functional expense categories • What other issues should we consider that would identify “other” items that would distort the meaning of the functional expense categories?

24. “New format” FS and Audited FS • Available at my website: • http://www.cbe.uidaho.edu/tgordon and go to the Presentations page. Alternatively, click this link: http://www.cbe.uidaho.edu/tgordon/presentations%20n%20comltrs.htm