Endowment investments losing value? How to classify based on restrictions…

An endowment investment can be a great benefit to any charity or non-profit. These are set up using funds from generous donors that want to see their money supporting the mission many years into the future, and possibly in perpetuity. Generally, an endowment investment account is set up with funds for which the donor restricts so that only the interest and earnings can be used. This means that the original endowment amount or “corpus” must always stay intact.

When the endowments are earning interest and capital gains during the year, this is relatively easy. The corpus stays intact as permanently restricted and the earnings are recognized as increases to unrestricted net assets. However, during adverse economic times, such as now, it’s very possible that investments lose value during a fiscal year. In this case the original amount of the endowment, or corpus, must remain intact. Any losses must be recognized as unrestricted net asset changes and the permanently restricted corpus should remain whole on the financial statements.

Unfortunately, this is a grim reality in the current economic conditions and widespread investment losses. The amount of the donor’s original endowment must remain whole and any changes in value, good or bad, will affect unrestricted net assets.

Is your organization experiencing difficulties in allocating investment losses between unrestricted and restricted net assets? Post a comment.

Categories: Assets, General Information
Tags: Donor restrictions, Endowments, Permanently Restricted Assets