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WesCorp OKd to restate 2005 financial statements
SAN DIMAS, Calif. (1/3/08)--WesCorp has received approval from KPMG LLP, its auditing firm, to release its delayed 2006 audited financial statements, after 10 months of discussions and review, the corporate credit union announced Wednesday afternoon. The statements will be posted on WesCorp's website and also will be distributed to its more than 1,100 member credit unions. The delay in publishing the 2006 audited financials was due to a difference in interpretation of the Statement of Financial Accounting Standards (SFAS) 133 for certain derivative transactions used in WesCorp's hedging strategies to manage interest-rate risk. The resolution means WesCorp will restate its earnings for the year 2005, make adjustments for 2006, and revise its hedge accounting practices for 2007. In aggregate, the restatement will result in an increase to WesCorp's income and retained earnings. The restatement has no adverse impact on the financial strength and safety of WesCorp, the corporate said. Under the adjustments, WesCorp will report earnings that are $16.1 million more than previously reported during the period 2005 to September 2007. Year 2005 will show a negative adjustment of $22.9 million. However, financials for year 2006 and up to September 2007 will more than compensate for the adjustment with positive net income increases of $16.9 million and $22.1 million, respectively. "As we were working closely with KPMG on the 2006 audit, we arrived at the conclusion that some of our documentation for certain hedge transactions did not meet the qualifications for hedge accounting under the 'short cut' methodology," said Todd Lane, executive vice president and chief financial officer of the $33 billion corporate credit union. "Interpretations of SFAS 133 in 2005 differ from those of today," he said. The restated financials "adhere to the most recent guidance for accounting treatment of hedge transactions under SFAS 133." WesCorp management believes that most of the hedges during the period under review would have qualified for hedge accounting under a "long haul" method. However, long haul accounting can't be applied retroactively, so the restatement assumes hedge accounting was not applicable to the derivatives and the related hedged item. The short cut methodology--a practice now abandoned by WesCorp and many other financial institutions--permits the user to assume no ineffectiveness if the company meets certain strict criteria, which means ongoing effectiveness testing is not required. However, if the criteria are not met in their entirety, the company must use the long haul methodology, which requires extensive documentation, analysis and testing at the creation of the hedge and during its lifespan. Standard & Poor's and Moody's recently reaffirmed their high ratings of WesCorp's portfolio and noted the corporate's outlook is "stable."
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