Financial Statement DisclosuresFinancial Statement · PDF file · 2012-04-26Financial Statement DisclosuresFinancial Statement Disclosures ... statement of financial position (balance

Financial Statement DisclosuresFinancial Statement Disclosures

New Concerns and Problem Areas

Speaker BiographyMi h l T B CPAMichael T. Burns, CPAManaging Director/Shareholder

CBIZ & Mayer Hoffman McCann P C

Mike is the New England Not For Profit Practice leader and serves on

CBIZ & Mayer Hoffman McCann P.C.

Mike is the New England Not-For-Profit Practice leader and serves onthe Firm’s National Not-For-Profit Executive Committee. Prior to joiningthe Firm in 2004, he was a partner in the Boston office of a top ten firm,where he acted as the department head and the partner-in-charge ofwhere he acted as the department head and the partner in charge ofnot-for-profit client services. Mike has more than 25 years of auditexperience and exclusively serves not-for-profit organizations. Heserves as the audit partner on colleges, universities, secondaryp g , , yschools, cultural and human services organizations.

Mi h ll E S i CPA MBA

Speaker Biography Michelle E. Spriggs, CPA, MBADirector/Principal

CBIZ & Mayer Hoffman McCann P CCBIZ & Mayer Hoffman McCann P.C.

Michelle is a member of the Firm’s National Professional Standards Gro pMichelle is a member of the Firm’s National Professional Standards Groupproviding specialty expertise with respect to not-for-profit matters, inaddition to her client service responsibilities in our New England offices.Prior to joining the Firm, she worked for a top ten accounting firmPrior to joining the Firm, she worked for a top ten accounting firmspecializing in serving not-for-profit organizations. Michelle concentratesher efforts on matters impacting not-for-profit organizations and OMBCircular A-133 audits. She works with numerous not-for-profit and highereducation organizations providing a broad array of financial statement andcompliance audit services.

Objectives for the Webinar

• To heighten your awareness of opportunities to improve financial statements and footnotes

• To provide practical suggestions in making these i timprovements

• To assist you in evaluating completeness of your current• To assist you in evaluating completeness of your current disclosures

Why Are the Financials and Footnotes So Important?

• Why should we care?

• Who are the readers of the financial statements?

Wh t d th fi i l d f t t b t• What do the financials and footnotes say about your organization?

Where Can Improvements be Made?

• Do the financials make the most possible sense compared to internal presentations?– Common issue with Audit Committees and Boards when trying to

compare budget to actual as well as other management provided reports to the external audited financial statements

• Potential improvement– Review internal presentation documents for opportunities to p pp

mirror audited financial statements where possible• Operating and non-operating activities• Same revenue and expense categories and captions/terminology used• Temporary and permanently restricted net asset activity• Depreciation


• Do your footnotes contain ancient history?– When was the last time the footnotes were read from beginning

t d?to end?– Sometimes historical information that was once important may

not be important to the years of the financial statements being t dpresented

• Potential improvement– Review for terminology referring to years for which financial

information is not being presented (i.e. longer than the last 2 years)

– Reword or remove any information that is no longer relevant to the financials being presented


• Does the description of the organization do justice to what the organization currently does?– When was the last time the organizational description disclosure

was reviewed and compared to current activities?

• Potential improvement– Review the current disclosure– Review the 990 for any information disclosed that could beReview the 990 for any information disclosed that could be

relevant to disclose in the financial statements– Update for any improvements or changes to recent activity

• Locations of operationsLocations of operations• Programmatic activity• Major sources of revenue


• Do you have financial statement lines (and thus disclosures) covering immaterial items?

When was the last time you reviewed the statement of financial– When was the last time you reviewed the statement of financial position, statement of activities and statement of functional expenses for evidence of immaterial and/or irrelevant line items?

– Organizations change over time and inevitably matters that wereOrganizations change over time and inevitably matters that were once material may no longer be material to the organization’s overall financial position

• Potential improvement– Review line items and ask how relevant and material they are to

the overall financial position of the organization– Combine like items – Review disclosures for opportunities for combination or deletion


• Is there information on the face of the financial statements that is better suited in a footnote?– Common area for this is fixed asset activity

• Potential improvementp– Look for areas on the statement of financial position or statement

of activities where there is detailed information– Consider moving the detailed information to a footnote or just aConsider moving the detailed information to a footnote or just a

line item on the face of the financial statements


• Do your policies follow a logical sequence relative to the statement of financial position (balance sheet) and t t t f ti iti ?statement of activities?– Often new disclosures are just added to the end of the previous

disclosures and are not reviewed for consistency with the presentation of the core financial statements or for logical flow of sequence

• Potential improvement– Review order of footnotes and compare to order and flow of the

core financial statements– Review order of organizational policy note for flow and order


• Do you have a revenue recognition policy that covers the complexity of the earned and contributed support of the organization?organization?– As revenue sources grow and become more material to an

organization, the revenue recognition policy disclosure should be updatedupdated

• Potential improvement– Review each significant revenue line item on the statement ofReview each significant revenue line item on the statement of

activities and look for a corresponding revenue recognition policy disclosure

– Ask if an existing disclosure is adequate relative to current activity

– Add any missing information


• Do you have a policy for each major financial statement caption?– Financial statement line items are frequently added but

sometimes the corresponding policy disclosure gets overlooked

• Potential improvement– Review the significant line items on the financial statements

Are there significant line items without a corresponding policy– Are there significant line items without a corresponding policy disclosure?

– Add any missing disclosures


• Is there clarity as to what is included in temporarily restricted net asset disclosures?

Often this disclosure goes on inertia with some changes for new– Often this disclosure goes on inertia with some changes for new activities

– Often accumulated unspent gains is just one line item in the table of disclosuretable of disclosure

• Potential improvement– Disclosure transparency related to:sc osu e t a spa e cy e ated to

• Time restrictions • Purpose restrictions• Time and purpose restrictions

– Accumulated unspent gains in a separate table by spending purpose

• General operating endowment vs. types of restricted endowments


• Is there clarity as to what is included in permanently restricted net asset disclosures?– Commonly there is a lack of transparency between operating

endowments and restricted endowments

• Potential improvement– Table in the footnote by major restriction type


• Are related party disclosures clear and evident?– This is often an area that receives little attention in the footnotes

b t b i f l t th d f th fi i l t t tbut can be meaningful to the readers of the financial statements in helping to understand the interrelationships of the organization

P t ti l i t• Potential improvement– Describe the nature of the relationship– Disclose transaction activities during the yearg y– Disclose balances due to/from at the end of the year

• Receivables/payables– Review 990 reporting for consistency with financial statementReview 990 reporting for consistency with financial statement

disclosures


• Do your footnotes duplicate and repeat things that only need to be said once?– Common areas of duplication

• Fair value• Investments• Endowments • Net assets

• Potential improvement– Review for duplications– Determine where the information is best presented - onceDetermine where the information is best presented once


• Do you use tables rather than text when possible?– Common areas we have seen text used vs. tables

• Useful lives of fixed assets• Future lease commitments• Future debt commitments

• Potential improvement– Review disclosures for text where multiple numbers are being p g

reported– Is there an opportunity to put the information in a table?

Recent Disclosure Changes – Are You Getting Them Right?

Investments:• Did you modify standard footnotes for the use of the net asset

l (“NAV”) ti l di t?value (“NAV”) practical expedient?

• Is there disclosure about significant transfers in and out of levels and why?levels and why?

• Did you show gross purchases and sales of Level 3 investments?

• Have investments been sufficiently “disaggregated” to show nature of risk by industry, geography or nature of security?

H th d f d t i i f i l b di l d f• Have methods of determining fair values been disclosed for non practical expedient fair value?


Derivatives:• Are you showing derivatives in table format with the requisite

it ?items?

• Have you looked at samples of standard wording to be sure your report conforms with best practices?your report conforms with best practices?

Loans and trade receivables:• Methods used to estimate losses

• Charge off polices

• When loans get placed on non accrual status

• Aging data


Endowments and funds functioning as endowments:• Do you really understand what is in the schedule?• Should pledges be included or not?• Should it tie to investments or not?• What is the spending policy computing on?• Are required disclosures included?

– Interpretation of relevant law and spending policyInterpretation of relevant law and spending policy• Including 7 factors for determining an appropriation

– Funds with deficienciesReturn objective and risk parameters– Return objective and risk parameters

– Strategies employed for achieving objectives

Commonly Missed Disclosures

• Letter of credit details omitted as to maturity, cost and related terms which is backing long term debt

• Considerations relative to the AICPA Financial Reporting Whitepaper covering pledges, beneficial interest and split interest agreements are not consideredg– Discount rates are the most common issue

• Existence of union contracts covering major groups of lemployees

• Long term employment contracts with executives

I f ti i ifi t diti l i t t• Information on significant conditional promises not yet recorded


• Information regarding major suppliers and outstanding arrangements

• Disclosure of self insurance activity

• Specific estimates and assumptions in summary of significant accounting policy noteaccounting policy note

• Non-qualified benefit plans (457) and the existence of “employee only” retirement plansp y y p

• Investment return detail reconciled to the face of the financials

• Title and use restrictions on gifted/granted assetsg g


• The organization’s policy regarding implying time restrictions of long lived assets

• Cash that is restricted to some use by donors, funders or others

• Disclosures about short term use of donor restricted cash items

• Footnotes not tailored to cover NAV practical expedient

• Supplemental fair value disclosures not made or complete for financial instruments not carried at FMV (Conduit debt issuersfinancial instruments not carried at FMV (Conduit debt issuers, those using derivatives, those with assets over $100m)


• Non-recurring fair value measures are not sufficiently evident in footnotes

• Consideration of discounting of non interest bearing notes

• If the organization makes contributions to others, are disclosures relative to timing of those planned paymentsdisclosures relative to timing of those planned payments made

• Information on the organization’s major programsg j p g

• Not clear what fair value level assumption was used for supplemental disclosures and on non recurring fair value methodsmethods

Sample NAV Practical Expedient Note

InvestmentsThe Organization reports investments at fair value. Fair value is d t i d f ll d ib d d th f i l tdetermined as more fully described under the fair value measurements policy below. The Organization’s management is responsible for the fair value measurement of investments reported in the financial statements and believes that the reported values are reasonableand believes that the reported values are reasonable.

Fair Value Measurements The Organization reports required types of financial instruments in accordance with fair value accounting standards. Fair value is the price that would be received to sell an asset or paid to transfer liability in an

d l t ti b t k t ti i t t th torderly transaction between market participants at the measurement date.


Fair Value Measurements (continued)

These standards require an entity to maximize the use of observable inputs (such as quoted prices in active markets) and minimize the use ofinputs (such as quoted prices in active markets) and minimize the use of unobservable inputs (such as appraisals or other valuation techniques) to determine fair value. In addition, the Organization reports certain investments using the net asset value per share as determined byinvestments using the net asset value per share as determined by investment managers under the so called “practical expedient.” The practical expedient allows net asset value per share to represent fair value for reporting purposes when the criteria for using this method are met. Fair value measurement standards also require the Organization to classify these financial instruments into a three-level hierarchy, based on the priority of inputs to the valuation technique or in accordance with net asset value practical expedient rules which allow for either Level 2 orasset value practical expedient rules, which allow for either Level 2 or Level 3 reporting depending on lock up and notice periods associated with the underlying funds.


Instruments measured and reported at fair value are classified and disclosed in one of the following categories:

• Level 1 - Quoted prices are available in active markets for identical instruments as of the reporting date. Instruments which are generally included in this category include listed equity and debt g y g y q ysecurities publicly traded on an exchange.

• Level 2 - Pricing inputs are other than quoted prices in active markets, which are either directly or indirectly observable as of the reporting date, and fair value is determined through the use of models or other valuation methodologies. Level 2 also includes

ti l di t i t t ith ti i d f d ti fpractical expedient investments with notice periods for redemption of 90 days or less.


(continued)

• Level 3 - Pricing inputs are unobservable for the instrument and g pinclude situations where there is little, if any, market activity for the instrument. The inputs into the determination of fair value require significant management judgment or estimation. Level 3 also includes practical expedient investments with notice periods for redemption of more than 90 days.

In some instances, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such instances, an instrument’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurementlevel of input that is significant to the fair value measurement.


Market price is affected by a number of factors, including the type of instrument and the characteristics specific to the instrument, as well as the effects of market interest and credit risk Instruments withas the effects of market, interest and credit risk. Instruments with readily available active quoted prices, or for which fair value can be measured from actively quoted prices, generally will have a higher degree of market price observability and a lesser degree ofdegree of market price observability and a lesser degree of judgment used in measuring fair value. It is reasonably possible that change in values of these instruments will occur in the near term and that such changes could materially affect amounts reported inand that such changes could materially affect amounts reported in the Organization’s financial statements.

For more information on the fair value of the Organization’s financialFor more information on the fair value of the Organization’s financial instruments, see Note 4 - Fair Values of Financial Instruments.


A summary of Level 2 and 3 investments of the significant categories of investments utilizing the net asset value practical expedient and their attributes are as follows:expedient and their attributes are as follows:

RedemptionFrequency (if Redemption

U f d d C tl N tiUnfunded Currently NoticeFair Value Commitments Eligible) Period

I t ti l it f d $ $ thlInternational equity funds $ - $ - monthly 6 - 30 daysGlobal asset allocation strategy - - monthly 5 daysLimited partnership investments - - N/A N/A

$ - $ -


• International Equity Funds – includes investments in funds that seek to achieve capital appreciation primarily through investments in equity-related securities and bonds of companies outside the Unitedequity related securities and bonds of companies outside the United States. This category includes both growth and value-oriented funds, and managers that invest in both developed and emerging market countries. All of these funds are redeemable on a monthly ybasis with less than 30 days notice.

• Global Asset Allocation Strategy – includes one fund that seeks to achieve long-term capital appreciation primarily through investments in common stocks and bonds, including non-investment-grade debt securities. This fund may hold significant

iti i iti f f i i i dditi t iti fpositions in securities of foreign issuers in addition to securities of domestic issuers. This fund is redeemable on a monthly basis with five days notice.


• Limited Partnership Investments – includes investments in various private equity funds, well diversified by managers, strategies and expected timing of liquidation. These investments are includedand expected timing of liquidation. These investments are included in the portfolio to provide further diversification, reduced volatility and enhanced returns. These investments can never be redeemed with the funds. Instead, the nature of these investments is that distributions from each fund will be received as the underlying investments of the funds are liquidated. It is estimated that the underlying assets of these funds will be liquidated over the next one to ten years.

Sample Supplemental Fair Value Disclosure Note

Example 1Fair values of financial instruments for which the Organization did not elect the fair value option includes cash and cash equivalents, receivables, mortgages, accounts payable, and bonds payable. Certain of these instruments are short term in nature and accordingly fair values are estimated to approximate carrying values using level 2 fair value methodsestimated to approximate carrying values using level 2 fair value methods. For other instruments, management determined that the cost associated with assessing an estimate of fair value outweighed the benefits from this additional information. Different assumptions could significantly affect p g ythese estimated fair values. Accordingly, the net realizable values could be materially different from the estimates at December 31, 2010. In addition, the estimates are only indicative of the value of individual financial i t t d h ld t b id d i di ti f th f i l finstruments and should not be considered an indication of the fair value of the Organization.

Sample Supplemental Fair Value Disclosure Note

Example 2Fair value of financial instruments for which the Organization did not elect the f i l ti i l d h d h i l t i bl d tfair value option includes cash and cash equivalents, receivables, and accounts payable. The fair value of such instruments was determined to approximate carrying value given the short term nature of these instruments using level 2 fair value methods. Net realizable values could be materially different from the yestimates at June 30, 2010. In addition, the estimates are only indicative of the value of the individual financial instruments and should not be considered an indication of the fair value of the Organization.

The fair value of the Organization’s bonds payable approximates $86,000,000. The fair value of the bonds is estimated based on quoted market prices for the same or similar issues which is a level 2 fair value method. The market prices utilized reflect the rate that the Organization would have to pay to autilized reflect the rate that the Organization would have to pay to a creditworthy third party to assume its obligation and do not reflect an additional liability to the Organization.

Sample Non-Recurring Fair Value Measurement Note

• Contributions, split interest agreements, asset retirement obligations are common items that are recorded at fair value when initially recorded but are not reset to fair value over thewhen initially recorded, but are not reset to fair value over the life of the related instrument unless the Organization has elected to do so.

• Footnotes should make this clear, for example:

“Pl d i i i ll d d f i l h ifi bl“Pledges are initially recorded at fair value when verifiably committed. Pledges expected to be received beyond one year are recorded at the present value of expected future cash flows using a risk adjusted discount rate Such fair value determinations wererisk adjusted discount rate. Such fair value determinations were made using level 2 methods.”

Before Example Footnotes

ABC COMPANY

Notes to Financial Statements

1

Note 1 - Description of Business and Summary of Significant Accounting Policies

Description of Organization

ABC Company (the “Company”) was created in 1888 to further mathematical research and scholarship. It is an international membership organization, currently with over 30,000 members. The Company fulfills its mission with publications and professional programs that promote mathematical research, increase the awareness of the value of mathematical research to society and foster excellence in mathematics education.

Basis of Financial Statement Presentation

The accompanying financial statements are presented on the accrual basis of accounting in accordance with U.S. generally accepted accounting principles (GAAP) and have been prepared to focus on the Company as a whole and to present balances and transactions according to the existence or absence of donor-imposed restrictions.

The preparation of the financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosures of contingent assets and liabilities, as of the dates of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.

The Company defines operating income as the net increase in unrestricted net assets derived from the activities related to the accomplishment of its mission, such as publications, programs, meetings and conferences, and member services. Investment earnings appropriated by the Board of Trustees on unrestricted long-term investments are presented as operating revenue. Any excess investment earnings (losses) are presented as a nonoperating item.

Classifications of Net Assets

The Company’s net assets and activities that increase or decrease net assets are classified as unrestricted, temporarily restricted, or permanently restricted.

The Company is incorporated under the laws of the District of Columbia and is therefore subject to the provisions of the Uniform Prudent Management of Institutional Funds Act (the “Act”). Under the Act, the Company has classified its net assets as follows in 2010 and 2009:

Permanently restricted net assets - are those which must be permanently invested to provide a source of support for the activities of the Company and which are commonly referred to as endowments. Permanently restricted net assets consist of (1) the original value of gifts donated to the permanent endowment; (2) the original value of any subsequent gifts to the permanent endowment, and (3) if required, accumulations to the permanent endowment made in accordance with the terms of the applicable donor gift instrument at the time the accumulation is added to the fund.

ABC COMPANY


2

Note 1 - Description of Business and Summary of Significant Accounting Policies (Continued)

Classifications of Net Assets (Continued)

Temporarily restricted net assets - include (1) those whose use is restricted by donor-imposed limitations which will lapse upon the passage of time, use of the asset for its intended purpose, or the meeting of other donor-imposed stipulations, and (2) any remaining portion of a true endowment fund that is not classified as permanently restricted net assets. This remaining portion of true endowment funds, if any, shall remain in temporarily restricted net assets until appropriated for expenditure by the Board in accordance with the standard of prudence prescribed by the Act.

Unrestricted net assets - are those without any donor-imposed or other restrictions as to their use and which are available for the general operations of the Company.

The original amount of endowment gifts has been included in permanently restricted net assets in 2011 and 2010, as none of the gifts require subsequent accumulations.

Contributions and Net Assets Released from Restrictions

The Company records as contribution revenue unconditional promises to give. All other contribution revenue is recorded as received. If the contribution is made in assets other than cash, the amount of the contribution is measured at the fair value of the asset contributed at the date the contribution or unconditional promise to give is made by the donor.

Contributions of cash and other assets are reported as temporarily restricted support if they are received with donor stipulations that limit the use of the donated asset for some specific purpose or time period and as permanently restricted support if the donated asset must be invested in perpetuity.

When a donor restriction expires, that is, when a stipulated time restriction ends or purpose restriction is accomplished, temporarily restricted net assets are reclassified to unrestricted net assets and reported in the accompanying statements of activities as net assets released from restrictions.

If a donor-imposed restriction is met for the full amount of the contribution within the year, the related revenues and expenses are recorded solely in the unrestricted net assets category in the accompanying statements of activities.

The Company receives contributed services from its members, principally as volunteer leaders in the governance structure of the Company and as volunteer members of editorial committees for the Company’s various publications. The latter category of contributed services qualifies for recognition as income and expense under GAAP, as the members of the editorial committees must possess specialized skills. However, the Company has no practical way of measuring the fair value of the services received from its volunteer editorial committee members, and accordingly, no such estimate is included as revenue or expense in the accompanying financial statements.

ABC COMPANY


3


Investments

The Company’s investments, both short term and long term, are carried at fair value, as determined by quoted market prices. Investments in mutual funds are carried at the quoted net asset value of the fund, which approximates fair value. Certain investments, such as money market funds and certificates of deposit, are carried at cost, which approximates fair value.

Under the Act, the total return (interest, dividends, and realized and unrealized gains or losses) derived from all donor-restricted endowment fund investments is recorded as investment return (loss) in temporarily restricted net assets. As the purpose restriction is met, the income derived from true endowment funds whose use of income is restricted is reclassified from temporarily restricted net assets to unrestricted net assets as net assets released from restrictions. This totaled $XXX and $XXX in 2011 and 2010, respectively.

As expenditures are incurred that meet the criteria established by the Board of Trustees for use of the income derived from true endowment funds whose use of income is not restricted, the income is reclassified from temporarily restricted net assets to unrestricted net assets as net assets released from restrictions. This totaled $XXX and $XXX in 2011 and 2010, respectively.

The Board also appropriates funds to support the Company’s mission-driven activities. The total so appropriated from Board-designated funds and included in operating revenue as earnings available for spending was $XXX in 2011 and $XXX in 2010. Earnings related to the Operations Support Fund totaled $XXX and $XXX in 2011 and 2010, respectively, and earnings related to the Young Scholars Fund totaled $XXX and $XXX in 2011 and 2010, respectively.

Fair Value Measurements

Investments are reported at fair value in the Company’s financial statements. Fair value represents the price that would be received upon the sale of an asset or paid upon the transfer of a liability in an orderly transaction between market participants as of the measurement date. GAAP establishes a fair value hierarchy that prioritizes inputs used to measure fair value into three levels:

Level 1 – quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities.

Level 2 – observable prices that are based on inputs not quoted in active markets, but corroborated by market data.

Level 3 – unobservable inputs are used when little or no market data is available.

The fair value hierarchy gives the highest priority to Level 1 inputs and the lowest priority to Level 3 inputs. In determining fair value, the Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible. See Note 4 for further discussion.

ABC COMPANY


4


Deferred Prepublication Costs

Prepublication costs, consisting of translation, editorial, composition and proofreading costs, are deferred until publication. Upon publication, prepublication costs related to books are transferred into completed books inventory and prepublication costs related to journals are expensed to offset subscription revenue for the journals.

Completed Books

Publication costs of books, consisting of paper, printing, and prepublication costs, are deferred and charged to expense as the books are sold. Completed books are recorded in the accompanying balance sheets at the lower of average cost or market.

Land, Buildings, Equipment and Accumulated Depreciation

Land, buildings, and equipment are recorded at cost less accumulated depreciation. Depreciation is provided over the estimated useful lives of the assets using straight-line or accelerated methods.

EstimatedAsset classifications Useful Life

Land and improvements 10 - 20 yearsBuilding and improvements 10 - 35 yearsFurniture, equipment, and software 3 - 10 yearsTransportation equipment 3 - 15 years

Depreciation expense was $XXX and $XXX for the years ended December 31, 2011 and 2010, respectively.

Membership Journals

Members are provided certain journals at no charge as these journals are considered to be benefits of membership in the Company.

Revenue Recognition

Advance collections for dues, subscriptions, and publications are deferred and generally recognized as income when the services are rendered or the publications shipped. For subscriptions to current year journals for which all of the issues have not yet been published but for which substantially all of the costs have been incurred, the Company accrues estimated completion costs and recognizes the related revenues. For sales of books and journals, revenue is recognized upon shipment. In addition, the Company reserves for its estimate of book returns.

ABC COMPANY


5


Income Taxes

The Company is a tax-exempt organization as described in Section 501(c)(3) of the Internal Revenue Code (the “Code”) and is generally exempt from income taxes pursuant to Section 501(a) of the Code. Rules and regulations regarding unrelated business income tax apply to the Company, but no activities resulting in a material amount of taxes due occurred in 2011 or 2010. The Company believes it has taken no uncertain tax positions.

Grant Income

The Company receives various grants that are subject to audit by the grantors or their representatives. Such audits could result in requests for reimbursement for expenditures disallowed under the terms of the grant; however, management believes that these disallowances, if any, would be immaterial.

Note 2 - Cash and Cash Equivalents

Bank accounts, money market funds and petty cash comprise the cash and cash equivalents balance as of December 31, 2011 and 2010. The Company’s bank accounts are federally insured to a maximum of $XXX each.

Note 3 - Land, Buildings and Equipment

The following comprise the Company’s investments in land, buildings, and equipment as of December131:

2011 2010

Land and improvements $ - $ - Building and improvements - - Furniture, equipment and software - - Transportation equipment - - Software in progress - -

- - Less accumulated depreciation - -

$ - $ -

Progress payments for new Association Management Software to replace numerous in-house developed software applications comprise the software in progress at December 31, 2011. The Company accounts for costs incurred for software developed or obtained for internal use in accordance with FASB ASC Topic 350-40 Internal Use Software, including capitalizing costs incurred during the application development stage with amortization on a straight-line basis beginning when the computer software is ready for its intended use. The software in progress is anticipated to begin amortization during fiscal 2011.

ABC COMPANY


6

Note 4 - Investments

The following table summarizes the Company’s investments as of December 31, 2011 and 2010, as well as related strategy:

2011 2010

Certificates of deposit $ - $ - Fixed income mutual funds - - U.S. government bonds - - Convertible securities mutual fund - - Domestic corporate stock - - Money market mutual funds - -

Total short-term investments - -

Cash and cash equivalents - - Domestic common stocks - - Fixed income mutual funds - - Equity mutual funds:

Domestic common stocks - - Domestic real estate investment trusts - - International common stocks - -

Total long-term investments - -

Total investments $ - $ -

The investments are classified in Level 1 in the fair value hierarchy because of the Company’s ability to obtain quoted prices and redeem its interest on a daily basis.

The Company’s long-term investments are segregated into seven separate portfolios (including mutual funds), each with its own investment manager and investment objective. The overall investment strategy is determined by the Investment Committee of the Board of Trustees and is approved by the Board of Trustees annually. The primary investment objective of the long-term investment portfolio is an average real total return (net of investment fees and the effects of consumer inflation) of at least 6% over the long term. To achieve this result, the investment portfolio is allocated approximately 75% to equity investments and 25% to fixed income investments. The equity investments are further diversified into domestic, international, and real estate holdings. Additionally, the entire portfolio is diversified across economic sectors, geographic locations, industries, and size of investees.

ABC COMPANY


7

Note 4 - Investments (Continued)

The long-term investment portfolio is allocated among the three categories of net assets as of December 31 as follows:

2011 2010

Unrestricted net assets:Board-designated purposes $ - $ -

Total allocated to unrestricted net assets - -

Total allocated to temporarily restricted net assets - -Permanently restricted net assets:

Unrestricted use of income - -Restricted use of income - -

Total allocated to permanently restrictednet assets - -

Total long-term investments, at fair value $ - $ -

The following schedule summarizes the investment return and its classification in the accompanying statements of activities for the years ended December 31:

2011 2010

Dividends and interest, net of management fees of$XXX and $XXX, respectively $ - $ -

Net realized and unrealized gains - -

Investment income - -

Less investment income classified as temporarily - -restricted

Less investment earnings available for spending:Spendable income from Operations Support Fund - -Spendable income from Young Scholars Fund - -

Investment income in excess investmentearnings available for spending $ - $ -

ABC COMPANY


8

Note 5 - Endowments

The Company’s endowment consists of approximately 30 individual funds established for a variety of purposes, including both donor-restricted endowment funds (true endowment) and funds designated by the Board of Trustees to function as endowments. Net assets associated with endowment funds, including funds designated by the Board of Trustees to function as endowments, are classified and reported based on the existence or absence of donor-imposed restrictions.

Net assets comprising true endowment funds and funds designated by the Board of Trustees to function as endowments were as follows at December 31:

Temporarily PermanentlyUnrestricted Restricted Restricted Total

2011Donor-restricted

endowment funds $ - $ - $ - $ - Board-designated

endowment funds - - - -

Total endowmentnet assets $ - $ - $ - $ -





ABC COMPANY


9

Note 5 - Endowments (Continued)

The following table summarizes the changes in endowment net assets for the year ended December 31, 2011:


Endowment net assets,January 1, 2011 $ - $ - $ - $ -

Donor-restrictedcontributions - - - -

Investment income - - - - Release of endowment

net asset restrictions - - - - Additions from operations - - - -

Endowment net assets,December 31, 2011 $ - $ - $ - $ -








ABC COMPANY


10


Interpretation of Relevant Law

The portion of the donor-restricted endowment fund that is not classified in permanently restricted net assets is classified as temporarily restricted net assets until those amounts are appropriated for expenditure by the Company in a manner consistent with the standard of prudence prescribed by the Act. In accordance with the Act, the Company considers the following factors in making a determination to appropriate or accumulate donor-restricted endowment funds:

1. The duration and preservation of the fund 2. The purposes of the Company and the donor-restricted endowment fund 3. General economic conditions 4. The possible effect of inflation and deflation 5. The expected total return from income and the appreciation of investments 6. Other resources of the Company 7. The investment policies of the Company

Funds with Deficiencies

From time to time, the fair value of assets associated with individual donor-restricted endowment funds may fall below the level that the donor or the Act requires the Company to retain as a fund of perpetual duration. Deficiencies of this nature were funded by operations and amounted to $XXX as of December 31, 2009. These deficiencies resulted from the significant market losses on long-term investments that occurred in 2008, which occurred shortly after the investment of new permanently restricted contributions and continued appropriation for certain programs that was deemed prudent by the Board of Trustees. Subsequent gains occurred in 2010 due to the recovery in the financial markets that restored $XXX of the fair value of the assets of the affected endowment funds to their required level, which have been classified as an increase in unrestricted net assets.

Return Objectives and Risk Parameters

The Company has adopted investment and spending policies for endowment assets that attempt to provide a predictable stream of funding to programs supported by its endowment while seeking to maintain the purchasing power of the endowment assets. Endowment assets include those assets of donor-restricted funds that the organizations must hold in perpetuity or for a donor-specified period as well as board-designated funds. Under this policy, as approved by the Board of Trustees, the endowment assets are invested in a manner that is intended to produce an average annual real rate of return of approximately 6% over the long term. Actual returns in any given year may vary from this amount.

Strategies Employed for Achieving Objectives

To satisfy its long-term rate-of-return objectives, the Company relies on a total return strategy in which investment returns are achieved through both capital appreciation (realized and unrealized) and current yield (interest and dividends). The Company targets a diversified asset allocation that places emphasis on investments in equities (allocation in the portfolio between 65% to 85%, with foreign equities comprising no more than 25% of the equity total), fixed income securities (allocation in the portfolio between 15% to 25%) and alternatives (currently real estate investment trusts with an allocation in the portfolio of no more than 10%) to achieve its long-term return objectives within prudent risk constraints.

ABC COMPANY


11


Spending Policy and How the Investment Objectives Relate to Spending Policy

The Company has a policy of appropriating for distribution each year 5% of its true endowment funds’ average fair value using the average of the prior four years’ ending fair value, normalized for intervening contributions and appropriations, through the calendar year-end immediately preceding the fiscal year in which the distribution is planned. The Company has a policy of appropriating for distribution each year 5% of the Board-designated Operations Support Fund’s average fair value using the average of the prior four years’ ending fair value through the calendar year-end one year preceding the fiscal year in which the distribution is planned. In establishing these policies, the Company considered the expected return on its endowment. Accordingly, the Company expects the current spending policy to allow its endowment to maintain its purchasing power by growing at a rate, on average over time, equal to planned payouts. Additional real growth will be provided through new gifts and any excess investment return.

Note 6 - Severance and Study Leave Pay

Certain employees of the Company receive vested rights to severance and study leave pay based upon salary and years of service. The Company provides for this obligation over the related years of the employees’ service. The provision for severance and study leave pay charged to expense totaled $XXX and $XXX in 2011 and 2010, respectively.

Note 7 - Pension and Postretirement Benefits

The Company has contributory retirement plans (the “Plans”) covering substantially all full-time employees. The Plans are administered by, and related assets are maintained with, Teachers Insurance and Annuity Association and College Retirement Equities Fund. The Company’s retirement expenses for the Plans totaled approximately $XXX and $XXX in 2011 and 2010, respectively.

The Company sponsors a defined benefit postretirement medical plan that covers substantially all full-time employees. Under the plan provisions, employees who retire from the Company at age 62 or older with at least 12 years of service are eligible for benefits under the plan. Plan benefits consist of health insurance coverage under a Medicare Supplement Plan and reimbursement of Medicare Part B premiums. Employees who retire before age 62 may qualify for coverage under the plan according to a longer service requirement schedule established by the Company. Spouses of eligible retirees are not covered. The plan is noncontributory and is unfunded.

In 1998, this plan was amended to include the prior service of employees previously leased from the University of Michigan as eligible service when such persons became Company employees. The resulting prior service cost of these employees is being amortized over their estimated average future service period until retirement.

Effective January 1, 2007, the plan was further amended to limit the annual benefit per retiree to $XXX with no other limits applied to the Medicare Part B or “Medigap” insurance premiums. The amendment also limits the eligible population to retirees eligible under the prior provisions at June 30, 2006 and Company employees as of June 30, 2006. There is no provision for this maximum benefit amount to increase over time. This amendment resulted in a prior service credit of approximately $XXX.

ABC COMPANY


12

Note 7 - Pension and Postretirement Benefits (Continued)

Net postretirement benefit cost for the years ended December 31, 2011 and 2010 consisted of the following components:

2011 2010

Service cost $ - $ - Interest cost - - Amortization of prior service cost, pre-2007 amendment - - Amortization of prior service credit, 2007 amendment - - Amortization of net experience losses - -

Net postretirement benefit cost $ - $ -

The prior service cost (credit) and net loss (gain) expected to be recognized as components of net periodic postretirement benefit cost for the year ending December 31, 2012 are approximately $XXX and $XXX, respectively.

The following table reconciles the plan’s funded status with the amounts presented in the Company’s financial statements at December 31, 2011 and 2010:

2011 2010

Projected postretirement benefit obligation,beginning of the year (and funded status) $ - $ -

Service and interest cost for the year - - Benefits paid - - Actuarial gain recognized in the year incurred - -

Projected postretirement benefit obligation, end of year $ - $ -

Net liability recognized in the balance sheet $ - $ -

The following table presents additional information relating to the plan for the years ended December 31, 2011 and 2010:

Discount rate 5.50%Healthcare cost trend rate assumed for next year Not applicableRate to which the cost trend rate is assumed to decline (the ultimate trend

rate) Not applicableYear that the rate reaches the ultimate trend rate Not applicable

ABC COMPANY


13


The expected future benefit payments under plan provisions for the next ten years are as follows:

Year-end

2012 $ - 2013 - 2014 - 2015 -

- 2017 - 2021 - 2016

Note 8 - Designated Unrestricted Net Assets

The Board of Trustees of the Company has designated components of unrestricted net assets to support certain purposes. All such designated funds within unrestricted net assets are supported by the unrestricted portion of the long-term investment portfolio. The Economic Stabilization Fund is designated to provide support for the Company in future years should an unexpected need arise. The Operations Support Fund is designated to provide current operating support to the Company via use of a 5% spending rate applied to the three-year moving average value of the fund. The Journal Archive Fund is designated to accumulate funds to support changes that may be necessary for electronic files to be available for future use due to as-yet-unforeseen technological changes. The Young Scholars Fund was created by the Board of Trustees in 2000 to augment the funds in Epsilon Fund for Young Scholars, a true endowment fund that supports programs for high school mathematics students.

The following comprise the balances in these designated funds within unrestricted net assets as of December 31:

2011 2010

Economic Stabilization Fund $ - $ -Operations Support Fund - -Journal Archive Fund - -Young Scholars Fund - -

Total $ - $ -

ABC COMPANY


14

Note 9 - Temporarily Restricted Net Assets

Temporarily restricted net assets consist of amounts restricted by donors for the following purposes as of December 31:

2011 2010

Restricted purpose:Prizes and scholarships $ - $ -Lectures and symposia - -Fellowships - -Epsilon awards - -Book/Journal donation project - -Graduate student travel program - -National Mathematics Game - -Journal Digitization - -Other miscellaneous - -Unspent spendable income from unrestricted use

true endowment funds - -Accumulated gains on true endowment gifts - -

Total $ - $ -

Net assets released from restrictions related to true endowment funds whose use of income is restricted by donors and other temporarily restricted funds totaled $XXX and $XXX in 2011 and 2010, respectively, entirely due to the accomplishment of the designated purposes. Assets released from restrictions related to true endowment funds whose use of income is unrestricted, but which the Board appropriates to support specific activities, totaled $XXX and $XXX in 2011 and 2010, respectively, entirely due to the accomplishment of the Board-approved projects’ purposes.

Note 10 - Permanently Restricted Net Assets

Permanently restricted net assets must be invested in perpetuity and are supported by the long-term investment portfolio as well as other assets of the Company. The Company has two types of these donor-restricted endowments: gifts with no donor designations as to the use of income derived there from and gifts whose donors have designated a specific purpose in the gift instrument.

ABC COMPANY


15


These endowments consisted of the following at December 31:

2011 2010

Endowment without donor designation on use of income $ - $ - Endowment with donor designation on use of income:

Prizes - - Scholarships and fellowships - - Symposia and lectures - - China collaboration - - Epsilon Fund for Young Scholars - -

$ - $ -

Note 11 - Subsequent Events

For purposes of determining the effects of subsequent events on these financial statements, the Company has evaluated events subsequent to December 31, 2011 and through DATE, the date on which the financial statements were available to be issued.

There were no subsequent events to be disclosed based on this evaluation.

After Example Footnotes

ABC COMPANY


1

Note 1 - Description of Business and Summary of Significant Accounting Policies

Description of Organization

ABC Company (the “Company”) was created in 1888 to further mathematical research and scholarship. It is an international membership organization, currently with over 30,000 members. The Company fulfills its mission with publications and professional programs that promote mathematical research, increase the awareness of the value of mathematical research to society and foster excellence in mathematics education.

The Company is incorporated under the laws of the District of Columbia and follows the provisions of the Uniform Prudent Management of Institutional Funds Act (the “Act”) as enacted.

Basis of Financial Statement Presentation

The financial statements of the Company have been prepared on the accrual basis of accounting in accordance with U.S. generally accepted accounting principles.

The Company presents information regarding its financial position and activities according to three classes of net assets described as follows:

Unrestricted - All resources over which the governing board has discretionary control. The governing board of the Company may elect to designate such resources for specific purposes. This designation may be removed at the Board’s discretion.

Temporarily restricted - Resources accumulated through donations or grants for specific operating or capital purposes. Such resources will become unrestricted when the requirements of the donor or grantee have been satisfied through expenditure for the specified purpose or program or through the passage of time.

Permanently restricted - Endowment resources accumulated through donations or grants that are subject to the restriction in perpetuity that the principal be invested. These net assets include the original value of the gift, plus any subsequent additions. Unexpended appreciation on permanently restricted net assets is included in temporarily restricted net assets until appropriated by the Board for use unless otherwise instructed by the donor.

Estimates

The preparation of the financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosures of contingent assets and liabilities, as of the dates of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. Significant estimates included in the financial statements include fair value of certain investments allowances on accounts receivable, useful lives of depreciable assets, deferred revenue and postretirement benefit obligations.

ABC COMPANY


2


Operations

The Company defines operating income as the net increase in unrestricted net assets derived from the activities related to the accomplishment of its mission, such as publications, programs, meetings and conferences, and member services. Investments appropriated for spending by the Board of Trustees are also presented as operating revenue. Any excess investment earnings (losses) are presented as a nonoperating item. In addition, the Company excludes gains and losses on its postretirement benefit obligation other than net periodic cost as nonoperating.

Classifications of Net Assets

The Company’s net assets and activities that increase or decrease net assets are classified as unrestricted, temporarily restricted, or permanently restricted.

Contributions, Gifts and Pledges Receivable

Contributions received are recorded as unrestricted, temporarily restricted, or permanently restricted support depending on the existence and nature of any donor restrictions. Contributions may include actual gifts or promises to give. Such contributions are considered to be available for unrestricted use unless specifically restricted by the donor or grantor. Contributions of assets other than cash are recorded at their fair value on the date of the gift. Restricted gifts or promises to give are required to be reported as restricted support in the period received and are then reclassified to unrestricted net assets upon satisfaction of the donor restriction. Restrictions on contributions related to the acquisition of long-lived assets are considered satisfied at the time the asset is acquired.

The Company receives contributed services from its members, principally as volunteer leaders in the governance structure of the Company and as volunteer members of editorial committees for the Company’s various publications. The latter category of contributed services qualifies for recognition as income and expense under GAAP, as the members of the editorial committees must possess specialized skills. However, the Company has no practical way of measuring the fair value of the services received from its volunteer editorial committee members, and accordingly, no such estimate is included as revenue or expense in the accompanying financial statements.

Cash and Cash Equivalents

The Company maintains its cash in bank deposit accounts which, at times, may exceed federally insured limits. Cash held in short-term investments and with investment managers are considered part of cash and cash equivalents. The Company monitors its exposure associated with cash in bank deposits and has not experienced any losses in such accounts.

ABC COMPANY


3


Short-term and Long-term Investments

Both short-term and long-term investments are carried at fair value. Fair value is determined as per the fair value policies described later in this section.

Interest, dividends and net gains or losses on investments are reported in the statement of activities as increases or decreases in permanently restricted net assets if the terms of the gift require that amounts be applied to principal as increases or decreases in temporarily restricted net assets if the term of the gift or state law impose restriction on current use and increases or decreases in unrestricted net assets in all other cases.

The investments of the Company are pooled and unitized for accounting purposes. Each fund subscribes to, or disposes of, units on the basis of the fair value per unit at the end of the calendar quarter within which the transactions take place. Investment income, including interest, dividends and realized and unrealized gains and losses, is allocated quarterly based on the number of units held by each fund at the beginning of the quarter.

Fair Value Measurements

The Company reports investments at fair value on a recurring basis. These standards require an entity to maximize the use of observable inputs (such as quoted prices in active markets) and minimize the use of unobservable inputs (such as appraisals or valuation techniques) to determine fair value. In addition, the Company reports certain investments using the net asset value per share as determined by investment managers under the so called “practical expedient”. The practical expedient allows net asset value per share to represent fair value for reporting purposes when the criteria for using this method are met. Fair value standards also require the Company to classify these financial instruments into a three-level hierarchy, based on the priority of inputs to the valuation technique or in accordance with net asset value (NAV) practical expedient rules, which allow for either Level 2 or Level 3 depending on lock up and notice periods associated with the underlying funds.

Instruments measured and reported at fair value are classified and disclosed in one of the following categories:

Level 1 - Quoted prices are available in active markets for identical instruments as of the reporting date. Instruments which are generally included in this category include listed equity and debt securities publicly traded on a stock exchange.

Level 2 - Pricing inputs are other than quoted prices in active markets, which are either directly or indirectly observable as of the reporting date, and fair value is determined through the use of models or other valuation methodologies. Level 2 also includes practical expedient investments with notice periods for redemption of 90 days or less.

Level 3 - Pricing inputs are unobservable for the instrument and include situations where there is little, if any, market activity for the instrument. The inputs into the determination of fair value require significant management judgment or estimation. Level 3 also includes practical expedient investments with notice periods for redemption of more than 90 days.

ABC COMPANY


4


Fair Value Measurements (Continued)

In some instances, the inputs used to measure fair value may fall into different levels of the fair value hierarchy and is based on the lowest level of input that is significant to the fair value measurement.

Market price is affected by a number of factors, including the type of instrument and the characteristics specific to the instrument. Instruments with readily available active quoted prices or for which fair value can be measured from actively quoted prices generally will have a higher degree of market price observability and a lesser degree of judgment used in measuring fair value. It is reasonably possible that change in values of these instruments will occur in the near term and that such changes could materially affect amounts reported in these financial statements.

Deferred Prepublication Costs

Prepublication costs, consisting of translation, editorial, composition and proofreading costs, are deferred until publication. Upon publication, prepublication costs related to books are transferred into completed books inventory and prepublication costs related to journals are expensed which effectively matches subscription revenue for such journals.

Completed Books

Publication costs of books, consisting of paper, printing, and prepublication costs, are accumulated and recorded as completed books. Costs are charged to expense as the books are sold. Completed books are recorded in the accompanying balance sheets at the lower of average cost or market.

Land, Buildings, Equipment and Accumulated Depreciation

Land, buildings, and equipment are recorded at cost less accumulated depreciation. Depreciation is provided over the estimated useful lives of the assets using straight-line or accelerated methods.

EstimatedAsset classifications Useful Life

Land and improvements 10 - 20 yearsBuilding and improvements 10 - 35 yearsFurniture, equipment, and software 3 - 10 yearsTransportation equipment 3 - 15 years

The Company accounts for costs incurred for software developed or obtained for internal use including capitalizing costs incurred during the application development stage with amortization on a straight-line basis beginning when the computer software is ready for its intended use.

ABC COMPANY


5


Recognition of Membership Revenue, Event Income, Rental Income and Deferred Revenue

Membership dues and subscriptions are recorded as earned over the related membership period or subscription period.

Events income is reported as revenue on the date of the event. Advance sales are reported as deferred revenue.

Books and journals revenue is recorded upon shipment, less an estimate for returns.

Income Tax Status

The Company is recognized by the Internal Revenue Service as an organization described under Section 501(c)(3) of the Internal Revenue Code and is generally exempt from Federal and state income taxes on related income.

Uncertain Tax Positions

The Company accounts for the effect of any uncertain tax positions based on a “more likely than not” threshold to the recognition of the tax positions being sustained based on the technical merits of the position under scrutiny by the applicable taxing authority. If a tax position or positions are deemed to result in uncertainties of those positions, the unrecognized tax benefit is estimated based on a “cumulative probability assessment” that aggregates the estimated tax liability for all uncertain tax positions. The Company has identified its tax status as a tax-exempt entity as its only significant tax position; however, the Company has determined that such tax position does not result in an uncertainty requiring recognition. The Company is not currently under examination by any taxing jurisdiction. The Company’s Federal and state tax returns are generally open for examination for three years following the date filed.

Functional Expense Allocation

Costs have been allocated to functional classifications based on percentage of effort, usage, square footage and other criteria.

Grant Income

The Company receives various grants that are subject to audit by the grantors or their representatives. Such audits could result in requests for reimbursement for expenditures disallowed under the terms of the grant; however, management believes that these disallowances, if any, would be immaterial.

ABC COMPANY


6

Note 2 - Land, Buildings and Equipment

The following comprise the Company’s investments in land, buildings, and equipment as of December 31:

2011 2010

Land and improvements $ - $ - Building and improvements - - Furniture, equipment and software - - Transportation equipment - - Software in progress - -

- - Less accumulated depreciation - -

$ - $ -

Note 3 - Investments

The following table summarizes the Company’s investments as of December 31, 2011 and 2010, as well as related strategy:

2011 2010

Certificates of deposit $ - $ - Fixed income mutual funds - - Convertible securities mutual fund - - Domestic corporate stock - - Money market mutual funds - -

Total short-term investments - -

Cash and cash equivalents - - Domestic common stocks - - Fixed income mutual funds - - Equity mutual funds:

Domestic common stocks - - Domestic real estate investment trusts - - International common stocks - -

Total long-term investments - -

Total investments $ - $ -

ABC COMPANY


7


The investments are classified in Level 1 in the fair value hierarchy because of the Company’s ability to obtain quoted prices and redeem its interest on a daily basis.

The Company’s long-term investments are segregated into seven separate portfolios (including mutual funds), each with its own investment manager and investment objective. The overall investment strategy is determined by the Investment Committee of the Board of Trustees and is approved by the Board of Trustees annually. The primary investment objective of the long-term investment portfolio is an average real total return (net of investment fees and the effects of consumer inflation) of at least 6% over the long term. To achieve this result, the investment portfolio is allocated approximately 75% to equity investments and 25% to fixed income investments. The equity investments are further diversified into domestic, international, and real estate holdings. Additionally, the entire portfolio is diversified across economic sectors, geographic locations, industries, and size of investees.

The long-term investment portfolio is allocated among the three categories of net assets as of December 31 as follows:

2011 2010

Unrestricted net assets:Board-designated purposes $ - $ -

Total allocated to unrestricted net assets - -

Total allocated to temporarily restricted net assets - -Permanently restricted net assets:

Unrestricted use of income - -Restricted use of income - -

Total allocated to permanently restrictednet assets - -

Total long-term investments, at fair value $ - $ -

ABC COMPANY


8


The following schedule summarizes the investment return and its classification in the accompanying statements of activities for the years ended December 31:

2011 2010

Dividends and interest, net of management fees of$XXX and $XXX, respectively $ - $ -

Net realized and unrealized gains - -

Investment returns - -

Less investment returns classified as temporarilyrestricted - -

Less investment appropriated for spending:Spendable income from Operations Support Fund - -Spendable income from Young Scholars Fund - -

Sub-total - -

Investment income in excess investmentearnings available for spending $ - $ -

Note 4 - Endowments

The Company’s endowment consists of approximately 30 individual funds established for a variety of purposes, including both donor-restricted endowment funds (true endowment) and funds designated by the Board of Trustees to function as endowments. Net assets associated with endowment funds, including funds designated by the Board of Trustees to function as endowments, are classified and reported based on the existence or absence of donor-imposed restrictions.

ABC COMPANY


9


Net assets comprising true endowment funds and funds designated by the Board of Trustees to function as endowments were as follows at December 31:

















ABC COMPANY


10









Interpretation of Relevant Law

The portion of the donor-restricted endowment fund that is not classified in permanently restricted net assets is classified as temporarily restricted net assets until those amounts are appropriated for expenditure by the Company in a manner consistent with the standard of prudence prescribed by the Act. In accordance with the Act, the Company considers the following factors in making a determination to appropriate or accumulate donor-restricted endowment funds:

1. The duration and preservation of the fund 2. The purposes of the Company and the donor-restricted endowment fund 3. General economic conditions 4. The possible effect of inflation and deflation 5. The expected total return from income and the appreciation of investments 6. Other resources of the Company 7. The investment policies of the Company

Funds with Deficiencies

From time to time, the fair value of assets associated with individual donor-restricted endowment funds may fall below the level that the donor or the Act requires the Company to retain as a fund of perpetual duration. Gains in 2010 due to the recovery in the financial markets that restored $XXX of the fair value of the assets of the affected endowment funds to their required level have been classified as an increase in unrestricted net assets.

ABC COMPANY


11


Return Objectives and Risk Parameters

The Company has adopted investment and spending policies for endowment assets that attempt to provide a predictable stream of funding to programs supported by its endowment while seeking to maintain the purchasing power of the endowment assets. Endowment assets include those assets of donor-restricted funds that the organizations must hold in perpetuity or for a donor-specified period as well as board-designated funds. Under this policy, as approved by the Board of Trustees, the endowment assets are invested in a manner that is intended to produce an average annual real rate of return of approximately 6% over the long term. Actual returns in any given year may vary from this amount.

Strategies Employed for Achieving Objectives

To satisfy its long-term rate-of-return objectives, the Company relies on a total return strategy in which investment returns are achieved through both capital appreciation (realized and unrealized) and current yield (interest and dividends). The Company targets a diversified asset allocation that places emphasis on investments in equities (allocation in the portfolio between 65% to 85%, with foreign equities comprising no more than 25% of the equity total), fixed income securities (allocation in the portfolio between 15% to 25%) and alternatives (currently real estate investment trusts with an allocation in the portfolio of no more than 10%) to achieve its long-term return objectives within prudent risk constraints.

Spending Policy and How the Investment Objectives Relate to Spending Policy

The Company has a policy of appropriating for distribution each year 5% of its true endowment funds’ average fair value using the average of the prior four years’ ending fair value, normalized for intervening contributions and appropriations, through the calendar year-end immediately preceding the fiscal year in which the distribution is planned. The Company has a policy of appropriating for distribution each year 5% of the Board-designated Operations Support Fund’s average fair value using the average of the prior four years’ ending fair value through the calendar year-end one year preceding the fiscal year in which the distribution is planned. In establishing these policies, the Company considered the expected return on its endowment. Accordingly, the Company expects the current spending policy to allow its endowment to maintain its purchasing power by growing at a rate, on average over time, equal to planned payouts. Additional real growth will be provided through new gifts and any excess investment return.

Note 5 - Severance and Study Leave Pay

Certain employees of the Company receive vested rights to severance and study leave pay based upon salary and years of service. The Company provides for this obligation over the related years of the employees’ service. The provision for severance and study leave pay charged to expense totaled $XXX and $XXX in 2011 and 2010, respectively.

ABC COMPANY


12

Note 6 - Pension and Postretirement Benefits

The Company has contributory retirement plans (the “Plans”) covering substantially all full-time employees. The Plans are administered by, and related assets are maintained with, Teachers Insurance and Annuity Association and College Retirement Equities Fund. The Company’s retirement expenses for the Plans totaled approximately $XXX and $XXX in 2011 and 2010, respectively.

The Company sponsors a defined benefit postretirement medical plan that covers substantially all full-time employees. Under the plan provisions, employees who retire from the Company at age 62 or older with at least 12 years of service are eligible for benefits under the plan. Plan benefits consist of health insurance coverage under a Medicare Supplement Plan and reimbursement of Medicare Part B premiums. Employees who retire before age 62 may qualify for coverage under the plan according to a longer service requirement schedule established by the Company. Spouses of eligible retirees are not covered. The plan is noncontributory and is unfunded.

The plan limits the annual benefit per retiree to $XXX with no other limits applied to the Medicare Part B or “Medigap” insurance premiums. The amendment also limits the eligible population to retirees eligible under the prior provisions at June 30, 2006 and Company employees as of June 30, 2006. There is no provision for this maximum benefit amount to increase over time.

Net postretirement benefit cost for the years ended December 31, 2011 and 2010 consisted of the following components:

2011 2010

Service cost $ - $ - Interest cost - - Amortization of prior service cost, pre-2007 amendment - - Amortization of prior service credit, 2007 amendment - - Amortization of net experience losses - -

Net postretirement benefit cost $ - $ -

The prior service cost (credit) and net loss (gain) expected to be recognized as components of net periodic postretirement benefit cost for the year ending December 31, 2012 are approximately $XXX and $XXX, respectively.

ABC COMPANY


13


The following table reconciles the plan’s funded status with the amounts presented in the Company’s financial statements at December 31, 2011 and 2010:

2011 2010

Projected postretirement benefit obligation,beginning of the year (and funded status) $ - $ -

Service and interest cost for the year - - Benefits paid - - Actuarial gain recognized in the year incurred - -

Projected postretirement benefit obligation, end of year $ - $ -

Net liability recognized in the balance sheet $ - $ -

The following table presents additional information relating to the plan for the years ended December 31, 2011 and 2010:

Discount rate 5.50%Healthcare cost trend rate assumed for next year Not applicableRate to which the cost trend rate is assumed to decline (the ultimate trend

rate) Not applicableYear that the rate reaches the ultimate trend rate Not applicable

The expected future benefit payments under plan provisions for the next ten years are as follows:

Year-end

2012 $ - 2013 - 2014 - 2015 -

- 2017 - 2021 - 2016

ABC COMPANY


14

Note 7 - Designated Unrestricted Net Assets

The Board of Trustees of the Company has designated components of unrestricted net assets to support certain purposes. All such designated funds within unrestricted net assets are supported by the unrestricted portion of the long-term investment portfolio. The Economic Stabilization Fund is designated to provide support for the Company in future years should an unexpected need arise. The Operations Support Fund is designated to provide current operating support to the Company via use of a 5% spending rate applied to the three-year moving average value of the fund. The Journal Archive Fund is designated to accumulate funds to support changes that may be necessary for electronic files to be available for future use due to as-yet-unforeseen technological changes. The Young Scholars Fund was created by the Board of Trustees in 2000 to augment the funds in Epsilon Fund for Young Scholars, a true endowment fund that supports programs for high school mathematics students.

The following comprise the balances in these designated funds within unrestricted net assets as of December 31:

2011 2010

Economic Stabilization Fund $ - $ -Operations Support Fund - -Journal Archive Fund - -Young Scholars Fund - -

Total $ - $ -

Note 8 - Temporarily Restricted Net Assets

Temporarily restricted net assets consist of amounts restricted by donors for the following purposes as of December 31:

2011 2010

Restricted purpose:Prizes and scholarships $ - $ -Lectures and symposia - -Fellowships - -Epsilon awards - -Book/Journal donation project - -Graduate student travel program - -National Mathematics Game - -Other miscellaneous - -Unspent spendable income from unrestricted use

true endowment funds - -Accumulated gains on true endowment gifts - -

Total $ - $ -

ABC COMPANY


15


The Company has two types of these donor-restricted endowments: gifts with no donor designations as to the use of income derived there from and gifts whose donors have designated a specific purpose in the gift instrument.

These endowments consisted of the following at December 31:

2011 2010

Endowment without donor designation on use of income $ - $ - Endowment with donor designation on use of income:

Prizes - - Scholarships and fellowships - - Symposia and lectures - - China collaboration - - Epsilon Fund for Young Scholars - -

$ - $ -

Note 10 - Subsequent Events

The Company has evaluated events subsequent to occurring through DATE, the date on which the financial statements were issued.

There were no subsequent events to be disclosed based on this evaluation.

Before and After - What Were the Major Changes

• Broke out operations and estimates as own policy

• Sequenced and added policies for major financial statement q p jlines

• Kept policies as policies with numbers and details going in detailed footnotes

• Broadened uncertain income tax disclosures

• Consolidated notes into policies when it made sense

• Updated wording to follow more common practices g

Final Thoughts, Questions or Issues

Documents

Financial Statement DisclosuresFinancial Statement · PDF file · 2012-04-26Financial Statement DisclosuresFinancial Statement Disclosures ... statement of financial position (balance