SAN FRANCISCO — The Financial Accounting Standards Board's Jan.7 decision to make adjustments to fair value accounting rules won'taffect credit unions much, but it's an important step in the rightdirection, said Scott Waite, senior vice president and chieffinancial officer of the $4.2 billion Patelco Credit Union. Waiteserves on the FASB's small business advisory committee, and thismonth celebrates his sixth anniversary serving as an adviser to thegroup.
The decision pertains to a subset class of securities, EITF 99-20,which were typically rated A or below at time of purchase and weresubject to stricter impairment test parameters that based valueunder the assessment of a “market participant”; in other words,current market demand.
Other investments are valued for impairment testing under FASBStatement No. 115, which is based on “management's assertedjudgment.” Though the term sounds arbitrary, Waite said value mustbe quantitatively supported by estimated future cash flow numbersbased on repayment factors like current economic conditions,prepayments and the value of the collateral.
The decision brings the impairment testing of 99-20 securities morein line with others governed under FASB 115. According to theFASB's board meeting minutes, the rules apply to financialstatements prepared after Dec. 15, 2008, which means they can beapplied to year-end figures.
However, because credit unions are restricted to purchasing onlythe highest rated and top-traunched securities, there aren't enough99-20 securities on corporate books to have much of an effect onyear-end reporting.
“My understanding is no, there's not a lot out there,” Waite said.“As far as to the degree this helps corporates, I'd say they'rebetter off than were they were last week, but it doesn't alleviatetheir concerns by any stretch of the imagination.”
However, he said this week's vote is an important step towardreconsidering other FAS 115 rules that would benefit creditunions.
Waite said when he last met with FASB advisors last month,other-than-temporary-impairment issues were on the agenda, and hesaid he expects the FASB to address two OTTI issues over the nextsix months: the requirement to write down impaired investments tofair market value, rather than merely writing down the actual lossamount, and whether or not to allow the reversal of impairmentsunder the proper criteria.
While accounting standards could use some improvement, Waite saidhe thinks fair value accounting has considerable merit and warnedfinancial managers against anticipating any major changes. Thoughit's a headache for those who prepare financial statements, he saidit's popular with investors and ratings agencies, and “provides avaluable tool to the American public.”
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