CUNA Issues Comment Call on Merger Accounting Proposal

WASHINGTON-CUNA has issued a comment call seeking member input concerning the Financial Accounting Standards Board’s exposure draft on merger accounting for credit unions and mutual institutions. The proposal would eliminate the use of the pooling method of accounting in business combinations in favor of the purchase method, which could inadvertently put credit unions in jeopardy with Prompt Corrective Action. The problem is that the net worth, defined as “retained earnings” only for credit union capital purposes, of the merging institutions would become “acquired equity” of the surviving institution for merger accounting purposes and, therefore, not count toward net worth. The healthy surviving credit union could then be subject to PCA. Legislation, the Net Worth Amendment for Credit Unions Act (H.R. 1042) and the Credit Union Regulatory Improvements Act (H.R. 2317), is currently in Congress to resolve the issue after the credit union trades and FASB have been unable to reach an agreement. Specifically, CUNA’s request for comments is focused on whether the guidance for determining fair value, as will be necessary under the purchase method, will be effective and useful and how it can be improved. CUNA’s Accounting Task Force and CFO Council will be reviewing the comments it receives and working on an umbrella comment letter. CUNA is asking for comments by Oct. 7. FASB plans to hold roundtable meetings at its Connecticut headquarters Oct. 27, 2005 and comments are due by Oct. 28, 2005. The board expects to issue its final guidance in mid-2006 with an effective date of Jan. 1, 2007.