FASB Relieves Pressure On Net Worth Accounting

Register now

The Financial Accounting Standards Board removed some of the urgency behind efforts by credit unions to amend the Federal CU Act's definition on net worth in response to the FASB's pending rule on merger accounting.

The overseer of accounting rules voted to set a 120-comment period on its business combinations project, which includes the merger accounting rule, in effect pushing ahead the proposed effective date for the credit union mergers rule until at least January 2007.

The credit union lobby and NCUA had been operating on the expectation that the new rule barring the use of the traditional pooling method of accounting-which allows credit unions to "pool" or combine their net worth after a merger-would take effect Jan. 1, 2006. That means that credit unions would only be able to count their own capital after merging with another credit union.

The credit union movement fears that the new requirement to use the "purchase" method of accounting would dilute a credit union's net worth, or capital, after a merger, thereby discouraging mergers, especially those of troubled credit unions.

A bill introduced in Congress would redefine the concept of net worth for credit unions to allow credit unions to continue the practice of "pooling" their capital after a merger. That bill has had no opposition in Congress, including among the bankers, and is expected to be voted into law. But the FASB action removes the urgency.

Of course, the FASB action cuts both ways. It could also induce those in Congress asked to vote for the bill to wonder what's the hurry.

For reprint and licensing requests for this article, click here.