NORWALK, Conn. – Credit union executives were calling on the Financial Accounting Standards Board last week to change the rules on mark-to-market accounting in order to ease the controversial rules’ effects on their books, stretching back to last year.
In comment letters submitted to the accounting rules-setters, the credit union executives endorsed a proposal that would allow them to separate actual losses on their investments from the simple diminishment of the fair market value of those investments, and to apply the rules changes retroactively.
"We believe that retrospective application is appropriate because during 2007 and 2008 a number of financial institutions recorded significant (other-than-temporary impaired) charges on held-to-maturity debt securities. Because these institutions have amortized and will continue to amortize significant non-credit impairments to interest income, failure to retrospectively apply the proposed (rules change) will distort their future net interest margins," said Hank Sigmon, chief financial officer for First Tech CU.
"FASB’s proposal," wrote Thomas Davis, CFO for Option 1 CU, "does not provide for a more uniform system of impairment testing standards for financial instruments because an entity would have applied one accounting treatment for OTTI on or before year-end 2008, and a different accounting treatment for OTTI beginning in 2009. The difference in accounting treatment greatly reduces financial statement comparability and transparency."
"The guidance should be applied to the 2008 financial statements," commented Bonnie Humphrey-Anderson, CFO for OSU FCU. "FASB had the opportunity and the support of the SEC to address this issue in December 2008. The delay in acting should not prevent the retroactive application of this (rules change)."
The credit union executives all expressed their support for the proposal to separate actual losses from credit losses, those related to the decline in the market value of securities. They supported continuing to report to mark-to-market adjustments, but in footnotes to the financial statements, and not through the income statement.
"We agree that the credit component of OTTI for held-to-maturity investments should be recorded in income but believe that the non-credit component should not be included in income or accumulated other comprehensive income," wrote Bill Lawton, president of Community Financial Members FCU. "The non-credit component should be disclosed in the footnotes to the financial statements."
