SAN FRANCISCO — The Financial Accounting Standards Board's Jan. 7 decision to make adjustments to fair value accounting rules won't affect credit unions much, but it's an important step in the right direction, said Scott Waite, senior vice president and chief financial officer of the $4.2 billion Patelco Credit Union. Waite serves on the FASB's small business advisory committee, and this month celebrates his sixth anniversary serving as an adviser to the group.
The decision pertains to a subset class of securities, EITF 99-20, which were typically rated A or below at time of purchase and were subject to stricter impairment test parameters that based value under the assessment of a “market participant”; in other words, current market demand.
Other investments are valued for impairment testing under FASB Statement No. 115, which is based on “management's asserted judgment.” Though the term sounds arbitrary, Waite said value must be quantitatively supported by estimated future cash flow numbers based on repayment factors like current economic conditions, prepayments and the value of the collateral.
The decision brings the impairment testing of 99-20 securities more in line with others governed under FASB 115. According to the FASB's board meeting minutes, the rules apply to financial statements prepared after Dec. 15, 2008, which means they can be applied to year-end figures.
However, because credit unions are restricted to purchasing only the highest rated and top-traunched securities, there aren't enough 99-20 securities on corporate books to have much of an effect on year-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're better off than were they were last week, but it doesn't alleviate their concerns by any stretch of the imagination.”
However, he said this week's vote is an important step toward reconsidering other FAS 115 rules that would benefit credit unions.
Waite said when he last met with FASB advisors last month, other-than-temporary-impairment issues were on the agenda, and he said he expects the FASB to address two OTTI issues over the next six months: the requirement to write down impaired investments to fair market value, rather than merely writing down the actual loss amount, and whether or not to allow the reversal of impairments under the proper criteria.
While accounting standards could use some improvement, Waite said he thinks fair value accounting has considerable merit and warned financial managers against anticipating any major changes. Though it's a headache for those who prepare financial statements, he said it's popular with investors and ratings agencies, and “provides a valuable tool to the American public.”
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