ARLINGTON, Va.-The Financial Accounting Standards Board has written NAFCU President and CEO Fred Becker that it does not object to the trade association's proposed legislative amendment redefining net worth in the Federal Credit Union Act. NAFCU wants to change the definition of credit unions' net worth in the FCUA from "retained earnings balance" to "capital.as determined by the NCUA Board." The change would help credit unions with FASB's proposed merger accounting changes from the "pooling" method to "purchase" accounting. FASB is working toward a common accounting method for all businesses and declined to create a carve out for credit unions. According to NAFCU Director of Regulatory Affairs Gwen Baker, under the current definition of net worth, credit unions would be at a great disadvantage in mergers and "create a disincentive for healthy credit unions to merge. "She added that FASB is expected to have an exposure draft out during the second quarter and a final decision by the end of the year. NAFCU Director of Legislative and Political Affairs Brad Thaler said the new method, to go into effect Jan. 1 2006, is like "two plus two equals two." Currently, when credit unions merge, their assets are combined, as is their net worth. Under the purchase method, only the net worth of the surviving institution is counted, potentially placing that credit union in perilous territory with regard to Prompt Corrective Action. NAFCU's proposal aims at solving that by redefining net worth. It could also help later down the road with other changes to PCA, NAFCU Senior Economist Jeff Taylor said. Essentially, NAFCU's proposal is "widening the bucket" of net worth, he explained. Retained earnings is just one type of capital. Additionally, Thaler pointed out the flexibility NAFCU's definition could provide credit unions. "It brings it to the NCUA Board rather than giving a strict definition in statute for that," he said. FASB Counsel to the Chairman Jeffrey P. Mahoney's letter to NAFCU took no stand on the legislation, but stated, "An amendment to the capital adequacy ratio in no way influences the creation and improvement of general-purpose standards of financial accounting and reporting. As such, the attached proposed amendment does not (FASB's emphasis) propose to establish or change general-purpose standards of financial accounting and reporting. Therefore, the proposed amendment has no impact on the standard setting activities of FASB." Mahoney continued, "While our primary concerns are not regulatory issues, we do have an interest in supporting an expedited resolution of this matter. The attached proposed amendment proposes a way to resolve this matter." Thaler highlighted that the letter from FASB is significant because, as NAFCU lobbyists have taken the issue to the Hill, some lawmakers have asked what FASB thinks of it. Mahoney copied the letter to NCUA Chairman Dennis Dollar and CUNA President and CEO Dan Mica. [email protected]