WASHINGTON (9/27/12)--Noting that credit unions are not publicly traded companies, and should not be treated as such, the Credit Union National Association (CUNA) has urged the Financial Accounting Standards Board (FASB) to exclude credit unions from the scope of upcoming accounting standards changes.
FASB's proposed requirements would unduly burden credit unions, while at the same time not resulting in superior information to a credit union's members, creditors, auditors, or regulators, CUNA said in a comment letter.
FASB this summer released a draft proposal that would amend its financial instruments regulations by requiring credit unions and other financial institutions to provide certain disclosures about liquidity risk and interest rate risk (IRR). The proposal is intended to provide users of financial statements with more decision-useful information about entity-level exposures to liquidity risk and IRR.
Specifically, credit unions and other institutions would be required to disclose liquidity risk information that includes:
- The carrying amounts of classes of financial assets and liabilities in a table, segregated by expected maturities, including off-balance sheet financial commitments and obligations;
- Information about time deposit liability, including the cost of funding in a table or list during the previous four fiscal quarters; and
- Details on available liquid funds, such as unencumbered cash, high-quality liquid assets and borrowing availability, in a tabular format.
Financial institutions would also be required to provide IRR disclosures that include:
- The carrying amounts of classes of financial assets and liabilities according to time intervals based on the contractual repricing of the instrument;
- An interest rate sensitive table that presents the effects on net income and shareholders' equity of hypothetical instantaneous shifts of interest rate curves; and
- Information on the organization's overall IRR exposure.
CUNA Deputy General Counsel Mary Dunn in a comment letter to FASB said while CUNA supports appropriate transparency on the part of credit unions to their members, regulators, and Congress, the National Credit Union Administration (NCUA) has regulated IRR for federally insured credit unions. The new disclosure requirements imposed by FASB could undermine compliance with those NCUA requirements, particularly if members are confused about the information provided to them under the FASB proposal, Dunn said.
Dunn in the letter also noted the differences between credit unions, which are beholden to their members, not shareholders who have purchased publicly traded stock. "As such, these disclosures are not appropriate for credit unions," she said.
Credit unions would have to undertake significant compliance costs to provide these FASB disclosures, and the costs of compliance would likely far outweigh any benefits from this proposal, the CUNA letter added. The letter noted that FASB's proposal also comes at a time when credit unions are facing an avalanche of new requirements as a result of the Dodd-Frank Wall Street Reform and Consumer Protection Act and other requirements.
Further, liquidity risk and IRR risk information is not frequently demanded by credit union members, CUNA noted. A CUNA CFO council survey found that credit union members, in general do not request financial statements, IRR details or liquidity risk details from their credit unions. Sixty-seven percent of the 127 credit unions surveyed said none of their members had asked for financial statements within the past year. The 31% of credit unions that had received financial information requests only received those requests from between one and five of their members, and a scant few of those credit unions were asked for detailed IRR or liquidity risk information.
If FASB does not agree to remove credit unions from the scope of the proposal, FASB should allow adequate time for all reporting entities to make the necessary changes to their systems and retrain staff. CUNA suggested FASB set an effective date at least one year beyond the issuance of the final rule, and grant credit unions and other nonpublic entities an extra six months to comply.
For the full CUNA comment letter, use the resource link.