GAAP Accounting Could Complicate Assessment Rebate
Add GAAP accounting standards to the list of factors the NCUA Board may have to consider when setting remaining corporate assessment rates.
CUNA Chief Economist Bill Hampel raised the issue Monday during a press call, saying should the NCUA rebate extra money to credit unions after corporate losses are repaid, it could create problems for industry accountants.
As the corporate stabilization fund winds down, Hampel said, the NCUA will have about $2.5 billion in excess funds that will probably be returned to credit unions. Because credit unions will have already recorded the expenses when recording annual assessments, the rebated funds would have to be reversed and added back to balance sheets as income.
“I’d expect the accounting profession would have an interesting time figuring out if that assessment is an expense, knowing there could be a future rebate,” Hampel said.
Yes and no, say industry CPAs.
Dan Mahalak, principal at the St. Clair Shores, Mich.-based accounting firm Cindrich Mahalak & Co., said he thinks credit unions would record any NCUA corporate windfall as income for that year.
However, he said timing could present a problem for accountants, as could the reasons for the rebate. Should the NCUA rebate money in January, it could potentially be interpreted as a “fix” for the prior year’s assessment. However, if a rebate would occur later, it wouldn’t present a problem for the previous year’s financial reports.
The reasons for a rebate will also affect accounting treatments, the suburban Detroit accountant said.
“To me, it’s contingent upon what caused the assessment to be overstated,” Mahalak said. “Was this something the NCUA or credit union should have known beforehand? Was the NCUA too cautious to say anything about a potential recovery?”
Mahalak added that the NCUA is unlikely to miss the mark by much, but if the agency does, it will err on the side of overcharging.
“When we get to that point, a lot will be said about the fact that this is it, the corporate stabilization effort is finally over,” he said. “And the NCUA isn’t going to want to have understated that loss estimate and have to collect more assessments if everybody thinks we’re done.”
Jeff Paille, partner at the Rochester, N.Y.-based accounting firm The Bonadio Group, said recent good news about reduced loss estimates and securities lawsuit recoveries aren’t likely to translate into income for credit unions in the near future.
“It’s too early to understand the value of that to natural person credit unions at this point. We’re just not there yet,” Paille said.
In the same way credit unions aren’t supposed to accrue projected corporate assessment expenses, they shouldn’t plan to receive any rebates either, he said.
Interestingly, both Paille and Mahalak said credit unions do frequently accrue assessment costs against their advice. However, both men said even though credit unions receive exam and/or audit exceptions for the practice, because the assessment bill comes in the fall, by year-end the funds are already off the books.
“The only risk is that the NCUA expects to see that cost recorded in the 3rd quarter Call Report, so credit unions that accrue throughout year have to reconcile previous financial reports so all the expense accrues in the 3rd quarter,” Paille said.
Yes and no, say industry CPAs.