<p>WASHINGTON – Credit union trade associations have adopted an attitude of watchfulness about possible regulatory fallout in the wake of the Enron scandal. They fear that even though credit unions had nothing to do with the actual Enron disgrace their position as regulated financial institutions could mean the affair has a disparate impact on them. "Right now it's a little difficult because we are aware of the possibility that some new regulations may be coming post Enron," said Mary Dunn, CUNA Associate General Counsel. "But we haven't seen any yet so we can't know how to respond." Bill Hall, NAFCU's tax counsel, agreed. "Even prior to Enron there was a general trend toward greater transparency in accounting standards," he said. "In that context Enron might have an impact on credit unions, but it's hard to know just what that would be yet." Worries center around the confluence of two accounting trends. The first is the Financial Accounting Standards Board (FASB) inclination to make the General Accepted Accounting Standards (GAAP) uniform for financial institutions not only in the U.S. but around the world as well. The second is the tendency for regulatory ideas to migrate from regulator to regulator and have impacts far beyond the original industry over which they were first promulgated. Ron Parker heads the Credit Union Division of Clifton Gunderson, the nation's 13th largest accounting and consulting firm headquartered in Illinois. He admits that, as an accountant, his point of view is biased toward accounting issues, but he points out that credit unions need to be aware of developments coming out of the Enron scandal. "At Clifford Gunderson we audit credit unions and we often consult with them about activities they wish to undertake or about implementing new regulations," Parker noted. In the wake of Enron will part of that relationship, either the consulting or the auditing, have to go away, he asked. Would a regulation barring the same accountancy firm from being the auditor and the consultant be appropriate in a credit union of $50 million as it might in a publicly traded corporation? At first glance it would seem not, Parker said, but against the suggestion that he might be alarmist he points to the example of the Securities and Exchange Commission (SEC) and the loan loss calculations. In December 1986 the SEC issued regulations regarding how publicly traded corporations calculated losses from loans. Since then, Parker said, it is possible to trace how loan loss calculation regulations appeared on the agendas of the Office of Comptroller of the Currency (OCC), Office of Thrift Supervision (OTS), Federal Reserve and, finally, the NCUA, where it appeared as an interpretive ruling. "Regulatory ideas trickle down," Parker said. "It's clear that the SEC didn't have credit unions in mind when it first promulgated its rule for how publicly traded corporations calculated their loan losses, yet credit unions got a version of the regulation." But Peter Kravitz, director of Congressional and Political Affairs for the American Institute of Certified Public Accountants (AICPA) argued that credit unions and all regulated institutions need to trust their regulator not to engage in regulations for regulations' sake, but instead only to adopt the parts of a regulatory idea that would apply to their industry. "Trickle down, if it occurs, is not automatic," Kravitz said. "Credit unions have to trust that the regulator has genuine safety and soundness reasons for proposing a regulation." Michael Riley, accountant and former head of Examination and Insurance for the NCUA, somewhat echoed Kravitz's thoughts, pointing out that "common sense" proposition that consultants are far too close to their advice to then be asked to audit fairly a credit union relying on that advice. "I am in no way casting aspersions on the accounting industry, of which I am one," said Riley. "But it's simply a matter of human nature. The consultancy and auditing functions need to be completely separate," he said, "even though I understand the accountancy industry makes most of its money from consulting. This is just common sense." Riley, proprietor of D. Michael Riley and Associates, consults for credit unions but doesn't audit them. Riley said that it was not enough that separate wings of the same firm might be responsible for the consultancy and auditing, contending that many firms are already structured that way but that "as a practical matter" it was just too hard to keep the two functions completely separate. "They are just two different worlds," Riley said of the work of consulting a public traded firm or a credit union and auditing its books. When asked if he thought NCUA would eventually propose a rule regulating or banning the practice Riley said he hoped not, that in the end the practice probably needed to be controlled by individual credit unions. Whether or not NCUA or any of the regulatory agencies will have a chance to propose new rules before Congress moves by statute is still up in the air. Kravitz also said he anticipated more changes to accounting implementation to come from Congress than from the regulators. "There are a number of different ideas floating around Congress right now," he said. "I expect them to settle down on a few of them and then it will be clearer what may be coming."</p>