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New FASB GAAP plan would affect CUs over 10M
WASHINGTON (5/28/10)--The Financial Accounting Standards Board (FASB) this week proposed changes that would, among other things, greatly expand the range of financial instruments that are to be measured at market value, including loans. The FASB exposure draft would also provide that loan loss reserves be measured on a forward-looking “expected loss” basis. This differs from the current method, which uses a historical “incurred loss” approach. The Credit Union National Association’s (CUNA) Accounting Subcommittee has been weighing-in with FASB regarding this proposal on accounting for financial instruments over the past year. Following his speech at CUNA’s Governmental Affairs Conference this past February, several members of the Subcommittee and CUNA staff met with FASB Chairman Robert Herz to discuss a range of accounting issues and concerns of the credit union industry, including the subject of this week’s exposure draft. FASB in a release said that the objective of the new accounting standard “is to provide financial statement users a more timely, transparent, and representative depiction of an entity’s exposure to risk from financial instruments based on how they are utilized in an entity’s business model.” The proposed changes would modify U.S. Generally Accepted Accounting Principles (GAAP); credit unions over $10 million in assets are required to comply with GAAP. Once adopted, FASB expects the rule to take effect sometime in 2013. However, non-public entities with less than $1 billion in assets will be permitted a four-year deferral from certain requirements, such as those relating to loans. Herz encouraged all that would be affected by the proposal to “carefully review the proposal.” “Through its due process, the FASB will ensure that it obtains and considers a broad range of input on this important proposal,” Herz added. FASB will accept comments on the exposure draft through September 30. In addition, the International Accounting Standards Board (IASB), the international accounting standard-setter, has a similar proposal out for comment. The two Boards are working together and hope to ultimately adopt a single standard for accounting for financial instruments. However, a number of inconsistencies between the proposals may prevent such convergence. CUNA’s Accounting Subcommittee will thoroughly examine this issue in the near future. A CUNA-led audio conference tentatively scheduled for late July will feature several accounting professionals, and will likely include staff from the National Credit Union Administration and Financial Accounting Foundation, the organization that oversees FASB. CUNA representatives said that they would do all that they could to "minimize the impact of this proposal on the credit union industry.”

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