Financial Accounting Standards Board Chairman Robert H. Herz announced a new agenda project Feb. 18 that could potentially ease fair market accounting rules, which have caused huge unrealized losses and OTTIs for corporate credit unions.
However, corporate executives aren't celebrating yet.
"If they don't make the changes immediately, effective for 2008 financial statements, a great deal of capital will be immediately written off that wouldn't have to otherwise be written down. Waiting until 2009 is too late to protect current capital levels," said Jim Hayes, CFO of San Dimas, Calif.-based Western Corporate Federal Credit Union.
The move was in response to recommendations from the Securities and Exchange Commission's recent study on mark-to-market accounting, as well as input provided by the FASB's valuation resource group.
"The SEC expressed continued support of fair value accounting in its study but recommended consideration of potential improvements in the guidance surrounding the application of fair value principles," Herz said.
Scott Waite, FASB advisory board member and CFO of the $4.2 billion Patelco Credit Union, said he's excited to hear the FASB news because he's been advocating the move since his last FASB meeting.
Waite said that fair value is generally not a bad standard, but it was not intended to work well in inactive or illiquid markets.
"The recent NCUA action to stabilize the corporate credit union system started with an OTTI charge on MBS securities held by U.S. Central," Waite said. "We must be able to address the separation and accounting for declines in fair value between known losses and lack of liquidity price declines."
Hayes agreed, saying he applauds efforts to improve fair value application guidance and estimate disclosure but said "the real issue is the way the measurement of impairment is determined."
"The FASB could provide a great deal of relief by allowing impaired instruments to be written down to net realizable value, rather than fair value," Hayes said.
The FASB anticipates completing projects on application guidance by the end of the second quarter.
Waite, who chairs CUNA's accounting task force, anticipated at press time that the FASB move would be a hot topic at CUNA's Government Affairs Conference, which he planned to attend. He was optimistic that the accounting board will find a way to ease balance sheet pressures without compromising fair value's high standards.
"I commend Chairman Bob Herz and the rest of the FASB Board and appreciate their decision," he said. "I've known and worked with them for seven years. They are some of the brightest people I know, addressing many important issues, and I am confident that the correct solutions will be found."
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