FASB Merger Accounting Change Put Off Again
WASHINGTON - At a recent meeting, the Financial Accounting Standards Board said it would not make any final changes on merger accounting for mutual entities effective until 2008.
Patelco Credit Union Chief Financial Officer Scott Waite, who serves on FASB's Small Business Advisory Committee, said the standards setting organization has determined to maintain the release of the final standard on time in the second quarter of 2007, but the Jan. 1, 2007 effective date has been pushed back to 2008, "which is welcome news for some." Previously, the standard would have been retroactive to the effective date and required some to go back and recalculate things. However, the change does leave some credit unions up in the air that are currently looking at mergers.
Waite explained that the length of time this standard is taking to establish, about four years now, is rare, but it is also unique in that this is a joint effort with the International Accounting Standards Board. "So, it will take a little bit more time just based on the nature of it," he said.
The changes expected are in the minutiae, Waite pointed out and he does not expect any carve out for credit unions. Modifications will more likely concern how things are valuated. "The big thing still in front for credit unions is valuations of the credit unions they're merging into themselves," he said. What is the value of a checking account? Money flows in and out daily but there are also fees and related debit card transactions to consider. Additionally, a checking account is a relationship driver.
This type of fair valuing is nothing new in financial services accounting, Waite emphasized, because banks have been doing it for years, but there will be a learning curve for credit unions.
The new standard has presented a problem for merging credit unions in changing from the pooling method of accounting, where the capital is just combined, but under the acquisition method the merging institution's capital is not counted toward net worth for credit unions causing possible unintended negative consequences under Prompt Corrective Action for the continuing credit union.
Three pieces of legislation have been moving through Congress to change the definition of net worth for credit unions to fix the problem: the Senate and House versions of regulatory relief, the Credit Union Regulatory Improvements Act (H.R. 2317), and Net Worth Amendment for Credit Unions Act (H.R. 1042).
Even with the delay, Waite said it should not remove the impetus for Congress to act. "I hope people at the congressional level don't see this as less than important, timing-wise," he added. -firstname.lastname@example.org