Merger Accounting Proposal Released, Net Worth Bill Awaiting Action

WASHINGTON-After much debate and delay, the Financial Accounting Standards Board on June 30 finally issued its exposure draft to amend Statement No. 141, Business Combinations, requiring credit unions to switch to the purchase method of accounting. The 236-page rule is aimed at making accounting for business combinations universal, but it poses a problem for credit unions in that the merging institutions’ retained earnings would no longer be counted towards the continuing credit unions’ net worth, quite possibly placing it in hazardous territory with Prompt Corrective Action. Comments on the proposal are due Oct. 28, 2005 and the final rule is expected out mid-2006. Credit unions have been pushing Congress to pass H.R. 1042, the Net Worth Amendment for Credit Unions Act, which would change the definition of net worth in the Federal Credit Union Act to avoid the inadvertent PCA pitfall. The bill has passed the House June 13 and is awaiting Senate action. Similar language has also been included in the Credit Union Regulatory Improvements Act (H.R. 2317) and is being urged for inclusion in a comprehensive regulatory relief package.