WASHINGTON-The Financial Accounting Standards Board's decision to make changes to its mark-to-market rules is receiving mixed reviews from the CUs those revisions were supposed to help.
"We are pleased that the FASB took quick action and are encouraged by the changes to impairment rules as these incorporate prior recommendations of the ACCU, corporates, and numerous others over the past several months for more accurately reflecting the economic reality of entities," said Brad Miller, executive director of the Association of Corporate CUs. "The ability to reverse the non-credit portion out of retained earnings for all prior impairments, upon adoption will effectively result in the same outcome as if retroactive application to 2008 had been allowed.
"We are concerned, however, about the FASB's decision to use orderly transactions in inactive markets for valuation purposes," Miller continued. "Inactive markets by definition are not orderly. By reversing the proposed standards for the use of judgment in valuing assets, FASB maintains an 'exit price' philosophy and has taken a backward step in recognizing illiquid and non-functioning markets for valuation purposes.
Melissa Wardell, SVP/CFO for Plano, Texas-based Southwest Corporate FCU, is cautiously optimistic, but awaiting further clarification. "Southwest Corporate is pleased that FASB has changed the impairment rules to allow recording through income the credit portion of the impairment. [FASB] also [is] providing for a cumulative adjustment to retained earnings that will allow entities to reverse the non-credit portion of prior impairments at adoption."
Wayne Tew, president and CEO of Clark County CU, Las Vegas, said the new accounting rules will have only a small direct affect on his CU, as it has reported investment gains.
"As for the industry, it will make balance sheets look better," Tew declared. "The most important thing is it implies NCUA was too hasty in its conservatorship of U.S. Central and WesCorp. From what we can tell, it was mark-to-market rules that led to the conservatorship, and knowing FASB was considering this change, NCUA acted too hastily.
"From a business perspective, it allows people to evaluate a business on a long-term perspective, rather than a snapshot," Tew added.
