NORWALK, Conn. – After a withering lobby by banks and credit unions, the Financial Accounting Standards Board is expected this morning to approve new guidance changing aspects of controversial market-to-market accounting rules, but the changes may come too late for some credit unions, especially corporates.
The accounting rules-setter is expected to approve new guidance to its Financial Accounting Statement 157-e which will allow credit unions and other entities to use greater judgement on the value of a holding when there is no market for that holding.
The Board is also expected to approve changes to FAS 115-a which would allow entities to separate out the expected losses on investments, so-called other-than-temporary impaired, from the mere diminishment of market value on the investments–the mark-to-market, which would be reported instead in footnotes to the financial balance sheet.
The new guidance is widely expected to be effective for the first quarter of 2009–but not retroactively back to 2008–despite lobbying by credit unions and banks.
Several corporates, already stung by the charge-off of their capital in U.S. Central FCU after it was taken over by NCUA, have delayed completion of their 2008 financials while they await word on the FASB proposal. Otherwise, several corporates will be forced to take large charges on their mortgage-backed securities, potentially wiping out the remaining capital of a handful of corporates.
The FASB vote comes just three weeks after board Chairman Robert Herz was threatened by members of Congress to change the accounting rules–and quickly–or have Congress force it to do so. The unusual intervention in the nominally private-sector accounting rules process comes as hundreds of credit unions and banks are threatened by the deterioration of credit markets, forcing them to mark down the value of vast holdings, especially mortgage-backed securities.
Credit unions and banks have been unusually active in lobbying for the accounting changes, both in face-to-face meetings with the FASB members and comment letters submitted on the two proposals.
FASB changes to rules generally take years to germinate, but Herz agreed to have the panel act quickly to help alleviate the growing financial crisis among credit unions and banks.
The five-member panel writes the rules for generally accepted accounting principles, or GAAP.
