Definition
The Uniform Prudent Management of Institutional Funds Act (UPMIFA) was approved by the Uniform Law Commission in 2006 and has been enacted, with variations, in most states. It replaced the 1972 act's historic dollar value rule. Under UPMIFA a nonprofit may spend or accumulate as much of a donor-restricted endowment as it determines prudent for the fund's purposes, after considering factors such as the duration and preservation of the fund, general economic conditions, inflation, expected total return, and the institution's other resources. Some states adopted an optional provision that presumes imprudence when annual appropriations exceed 7% of the fund's average fair value over a multi-year period.
Why it matters in an audit or review
UPMIFA is the state law behind endowment classification and disclosure under ASC 958-205. Auditors read the enacted version for the client's state, check that the board's interpretation is disclosed, and test whether appropriations follow the spending policy. The interpretation also decides how much of a fund counts as permanently restricted principal.
Example
Illustrative: in a state that adopted the 7% presumption, a $2,000,000 endowment with a three-year average fair value of $1,800,000 would face a presumption of imprudence on an appropriation above $126,000 (7% x $1,800,000).
Sources
- Uniform Law Commission, Uniform Prudent Management of Institutional Funds Act (2006) and enactment status: https://www.uniformlaws.org
- FASB ASC 958-205-50, endowment disclosures
- The enacted statute of the client's state
Definitions paraphrase AICPA and FASB guidance; read the standard itself before relying on a requirement. Example figures are illustrative. This page is guidance, not professional advice. Report an error