CU Trades Weigh In On Fair Value Accounting

WASHINGTON–CUNA and NAFCU rushed to file comment on a Fair Accounting Standards Board proposal on fair value accounting within the six-day comment period."To summarize, a fair value assessment reflects the price at which an orderly transaction would occur between market participants on the measure date," CUNA wrote in its comment letter. "However, the application of this key principle raises serious concerns and provides opportunities for the distortion of an asset's value, particularly when the asset is held to maturity."Though CUNA praised FASB for suggesting it would be appropriate in some cases to "determine that observable market data...require significant adjustment based on unobservable data…. " the trade association expressed concern the proposal doesn't go far enough in addressing key issues regarding the application of fair value "for performing assets where there is an ability and intent to hold until recovery or maturity. For example, it does not address the concern that many have raised that an asset that can be held to maturity should not be marked to current market prices."For its part, NAFCU said it generally supports the proposal, but said that any flexibility in the determination of fair value must also be "balanced with transparency. Thus, we urge that management’s assumptions about future cash flows and appropriately adjusted discount rates, as well as statements of management intent and ability to hold securities, both in active and inactive markets, are adequately disclosed."NAFCU also said FASB should address held-to-maturity securities, allowing "current severe liquidity risk premiums to be adjusted in the determination of fair value to levels observed during periods of normal market activity."