Efforts to Amend GAAP Rules for Credit Union Mergers Gets Boost From Accountants

WASHINGTON – The effort to amend federal law to benefit credit unions going through mergers has received a boost from the American Institute of Certified Public Accountants. According to NAFCU, the Institute sent a letter on May 5 to NCUA Chairman JoAnn Johnson that endorsed the change. While the FCU Act defines credit union net worth as retained earnings under generally accepted accounting principles, a pending Financial Accounting Standards Board proposal would prohibit a credit union from including in that figure the retained earnings of a credit union merged into it. Instead, the acquired retained earnings would be recorded as such in a separate account. According to Arleen Thomas, a senior vice president with the Institute, this needs to be changed. Thomas said the FASB proposal, absent a change in credit union regulatory capital, would broaden the gap between what is considered regulatory capital for credit unions vs. other depository institutions. Additionally, she said it may result in consequences for credit unions “that were not intended” by Congress in wording the FCU Act. She said AICPA “encourages exploring the possibility of amending the Federal Credit Union Act in response to this development.” Thomas pointed out that federal regulators for banks and thrifts require that institutions begin with total GAAP equity as a basis in calculating regulatory capital, but retained earnings at credit unions is just one component of GAAP equity. While noting that regulatory issues are not FASB’s primary focus, Thomas said AICPA “continues to support efforts to produce greater consistency between regulatory reporting and general purpose financial statements, including consistent reporting for all insured depository institutions.” A House bill, H.R. 1042, would implement a NAFCU-sought proposal for correcting this net worth issue. That proposal is also included in CURIA. -