MADISON, Wis. (2/4/11)--A CUNA CFO Council white paper examines new regulations adopted that require credit unions to change from the pooling to acquisitions method of accounting. The effect of this change in accounting rules made the credit union merger transaction more time consuming, costly and complex for chief financial officers (CFOs), management, staff and their boards, according to CUNA’s CFO Council. The CFO’s Evolving Merger Role is a white paper sponsored by the council that examines the increasing and evolving portfolio of the CFO in credit union mergers. Effective merger business models and the experiences of their CFOs are profiled along with lessons from the corporate world. The increased regulatory scrutiny and the resulting complexity have contributed to an evolution in the CFO’s merger role. The merger transaction in the past was fairly easy, according to Peg Lamb, CFO of Marine CU, a $410 million-asset credit union in La Crosse, Wis. “You completed due diligence, you had the acquired credit union expense as much as possible on their books before the merger, and with the pooling method you could come away with significant increases in either income or capital,” she said. “Accounting is so different now with Statement of Financial Accounting Standards (SFAS) 141-R. Most merger costs can’t be capitalized. Instead it’s required that all acquisition costs--with the exception of capital issuance costs--must be recognized as expense or period costs when incurred, which are usually after the merger.” If, for instance, two credit unions have separate core systems, the core system not chosen may have multiple years left in the contract. Because one can’t eliminate the acquired credit union’s processing system until after the merger when their members’ accounts are converted to the acquirer’s system, these costs are incurred and expensed post-merger. Not factoring these types of issues into the total cost of the merger can be a costly mistake, Lamb said. CFOs are accustomed to working independently with numbers, often in a solitary environment. In the past, the CFO focused on financials and played a minor role in the cultural transformation, but that is no longer the case, said the paper. The CFO today is expected to take a leadership role in developing a new culture that includes educating employees and modeling behavior. Organizational culture has been likened to breathing. One isn’t aware of breathing; it’s done automatically. Mergers tend to rise or fall depending on the ability of the two organizations to combine as one, taking the best parts and eliminating the negative elements of both cultures, the council said.