ARLINGTON, Va.-The Financial Accounting Standards Board haswritten NAFCU President and CEO Fred Becker that it does not objectto the trade association's proposed legislative amendmentredefining net worth in the Federal Credit Union Act. NAFCU wantsto change the definition of credit unions' net worth in the FCUAfrom "retained earnings balance" to "capital.as determined by theNCUA Board." The change would help credit unions with FASB'sproposed merger accounting changes from the "pooling" method to"purchase" accounting. FASB is working toward a common accountingmethod for all businesses and declined to create a carve out forcredit unions. According to NAFCU Director of Regulatory AffairsGwen Baker, under the current definition of net worth, creditunions would be at a great disadvantage in mergers and "create adisincentive for healthy credit unions to merge. "She added thatFASB is expected to have an exposure draft out during the secondquarter and a final decision by the end of the year. NAFCU Directorof Legislative and Political Affairs Brad Thaler said the newmethod, to go into effect Jan. 1 2006, is like "two plus two equalstwo." Currently, when credit unions merge, their assets arecombined, as is their net worth. Under the purchase method, onlythe net worth of the surviving institution is counted, potentiallyplacing that credit union in perilous territory with regard toPrompt Corrective Action. NAFCU's proposal aims at solving that byredefining net worth. It could also help later down the road withother changes to PCA, NAFCU Senior Economist Jeff Taylor said.Essentially, NAFCU's proposal is "widening the bucket" of networth, he explained. Retained earnings is just one type of capital.Additionally, Thaler pointed out the flexibility NAFCU's definitioncould provide credit unions. "It brings it to the NCUA Board ratherthan giving a strict definition in statute for that," he said. FASBCounsel to the Chairman Jeffrey P. Mahoney's letter to NAFCU tookno stand on the legislation, but stated, "An amendment to thecapital adequacy ratio in no way influences the creation andimprovement of general-purpose standards of financial accountingand reporting. As such, the attached proposed amendment does not(FASB's emphasis) propose to establish or change general-purposestandards of financial accounting and reporting. Therefore, theproposed amendment has no impact on the standard setting activitiesof FASB." Mahoney continued, "While our primary concerns are notregulatory issues, we do have an interest in supporting anexpedited resolution of this matter. The attached proposedamendment proposes a way to resolve this matter." Thalerhighlighted that the letter from FASB is significant because, asNAFCU lobbyists have taken the issue to the Hill, some lawmakershave asked what FASB thinks of it. Mahoney copied the letter toNCUA Chairman Dennis Dollar and CUNA President and CEO Dan [email protected]