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Plain vanilla could be exempt from FASB fair value rule
WASHINGTON (1/26/11)—The Financial Accounting Standards Board (FASB) signaled its intent to exclude consumer and other loans that are held for collection of contractual payments from fair value accounting standards, during a FASB meeting Tuesday. FASB’s decision is not final and there will be more deliberation by FASB on this issue. “I think this is a very positive development for credit unions,” said CUNA President/CEO Bill Cheney Tuesday, “CUNA, along with our Accounting Subcommittee, has been working for changes to the FASB fair value rule since the board first indicated it planned to apply fair value accounting principles to loans and other assets.” The subcommittee is headed by Scott Waite, chief financial officer of Patelco CU, San Francisco. “However,” Cheney added, “we need to carefully track developments on debt securities and the potential impact on credit unions that invest in mortgage and other asset-backed securities.” As indicated by FASB, entities that provide certain financial products to customers or members with the intent to hold them for collection of contractual payments will be able to record such products at their amortized cost, just as they do now. Debt securities, such as those securitized by loans, and some other types of investments would be subject to fair value accounting standards. It is unclear at this point how the Allowance for Loan and Lease Loss (ALL) Accounts would be affected. FASB’s fair value accounting proposal, which was released in May of 2010, would have required most financial assets and liabilities to be reported under U.S. Generally Accepted Accounting Principles (GAAP) at fair value. The proposal would also require the funding of ALL Accounts to utilize the expected loss model. Credit unions with assets of $10 million or more are required to comply with GAAP. CUNA has met regularly with FASB officials to oppose the proposed application of fair value accounting rules to loans and other credit union products, and has said that the proposed accounting changes would provide no benefit to credit unions while substantially increasing their compliance costs. In several meetings with the FASB board, Waite reiterated CUNA's claim that reporting fair value under GAAP is simply not useful to the members, creditors, board members, and regulators of credit unions. Waite told FASB that credit unions "provide an economic value to consumers by leveraging their not-for-profit status in the higher rates on deposit and lower rates on loans." "For us to be unfairly fair-valued on this business model changes the purpose of accounting standards," he said. "Accounting standards should not be the driver of shaping acceptable business models," but should "provide comparability, transparency, and relevancy," Waite added. FASB expects the final rule to be issued later this year and take effect sometime in 2013 with a four-year deferral for non-public entities under $1 billion in assets, which includes credit unions under the asset limitation. However, FASB has warned that issue date could change.


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