NORWALK, Conn.—Credit unions are overwhelmingly scoring a proposal by the Financial Accounting Standards Board to incorporate predictions of future loan performance in their calculations for allowance for loan losses and are asking the accounting rule-setters for an exemption from the proposal if it is finalized.
“I strongly urge the FASB to exempt credit unions from the proposed changes based on their unique structure as private, not for profit, cooperatively-owned financial institutions,” wrote David Brooks, president of $50 million Corpus Christi City Employees CU, in a comment letter on the proposal.
“This change could significantly increase our costs and jeopardize the services we offer our membership,” wrote Christa Hollier, president of $25 million Golden Triangle FCU in Groves, Texas, another commenter seeking a credit union exemption.
The FASB proposal on Credit Losses for Financial Instruments, which would require credit unions and bank use a single "expected loss" measurement for the recognition of credit losses, is unanimously opposed by credit unions, which have submitted more than half the comment letters received by the FASB on the proposal. The comment period expires Friday.
The FASB is the setter of rules governing generally accepted accounting principles, or GAAP, which all credit unions are required to follow.
The proposal would replace the multiple existing impairment models that generally use an "incurred loss" approach. Under the proposal, the reporting entity would be required to estimate the cash flows on an asset that it does not expect to collect, using all available information, including historical experience and forecasts about the future.
Among the credit union complaints:
- the proposal is not consistent with the historic matching accounting principle;
- the method will require increases in ALL and reduce capital;
- it will cause increased volatility in credit unions financials along with swings in the local, regional and national economy;
- it will spike accounting costs, especially for smaller credit unions.
“The time and cost of implementing the proposed methodology significantly outweighs any foreseeable benefit related to this proposal,” commented Susan Leonard, chief financial officer at $960 million New England FCU in Williston, Vt. “This is especially true in the credit union industry where there are very few actual users of the audited financial statements.”
Implementation of the proposal, wrote Barbara Junga, vice president for finance at $1.5 billion Dow Chemical Employees’ CU in Michigan, “will have a rapid, perhaps detrimental impact to credit union capital positions; overstating expense and depleting capital.” She suggested if FASB proceeds with the proposal that its implementation be phased in.
