WASHINGTON — Because of the unique nature of credit unions, asset valuation requires careful consideration the national credit union trade associations told the Financial Accounting Standards Board.
CUNA supported specific valuation guidance for financial reporting, including detailed implementation valuation guidance with "conceptual valuation for extraordinary situations." Additionally, the group advocated that FASB serve as the primary standard setting body with assistance from some type of task force. CUNA also said the guidance should focus on the national level and not reach the international level.
"This [invitation to comment] is of importance to the credit union movement in light of the forthcoming FASB final guidance on business combinations for mutuals," CUNA wrote. "That guidance will implement the FASB merger rule that eliminates the pooling-of-interests method of accounting for business combinations and instead mandate the use of the acquisition method of accounting. Use of the acquisition method will require the acquiring credit union to measure and recognize the fair (market) value of the assets and liabilities of the acquired credit union at the acquisition date. In addition, the continuing credit union will have to assess any potential impairment of goodwill and intangible assets (annually at a minimum)."
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Finally, CUNA advocated, "Many small credit unions have limited resources and may require extended time to comply with any new guidance. There may be compliance issues with the determination of fair value that are unique to smaller institutions. For example, there may be differences of opinion between entities about the fair market value of a particular asset or liability. It is unclear whether in determining the fair values that valuation should be performed by an independent third party. Furthermore, it may be very difficult and/or expensive for a small entity to find an appraiser familiar with its unique aspects. Therefore, we would urge FASB to address these concerns in any valuation guidance that is issued."
NAFCU was a bit more skeptical as to the need for valuation guidance specifically for financial reporting. "While it is possible that guidance can result in greater consistency and comparability in reporting, it is important to note that the current method is viable," according to NAFCU's letter. "As such, NAFCU is concerned that such guidance may complicate the financial reporting process. Existing guidance applicable to valuation for financial reporting for other purposes has significant benefits, of which flexibility is most notable. Accordingly, NAFCU urges FASB to carefully weigh the risks and costs of issuing valuation guidance against the perceived benefits."
NAFCU, too, noted the unique circumstances of credit unions. "Often," the letter read, "credit unions issue loans at below existing market rates and pay dividends (interest) on deposits at above market rates. These are just some of the unique characteristics that, if not considered, valuation of their assets and liabilities will not be accurate."
The trade association also pointed out that "a fair value measurement has diminished relevance for credit unions" given their nonprofit, cooperative nature. "Because credit unions are not-for-profit cooperative organizations, credit unions manage their net income to invest in their members, usually through higher rates on savings products, lower rates on loans, lower fees and/or added services. Thus, such measurement can lead to a misunderstanding and misinterpretation of financial statements," NAFCU stated. –[email protected]
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