WASHINGTON (12/12/07)—The often-delayed, much-awaited final accounting rule for mutual business combinations has been issued by the Financial Accounting Standards Board's (FASB's) and it reflects a different approach to accounting for business combinations than credit unions used previously, according to Scott Waite, chairman of the Credit Union Natrional Association's Accounting Task Force and an advisor to the FASB. Years in the making, the merger accounting guidance was designed jointly by FASB and the International Accounting Standards Board (IASB) and eliminates the pooling-of-interests method of accounting for business combinations. In effect, it prohibits the continuing institution in a merger from simply combining the balance sheet and retained earnings. The revised final FASB/IASB Statement No. 141 applies to mergers, involving business entities including credit unions, transacted in fiscal years beginning on or after Dec.15, 2008. The 2006 Financial Institutions Regulatory Relief Act, in anticipation of FASB's final rule, amended the definition of net worth under the Federal Credit Union Act to eliminate a concern that, under the purchase method, a surviving credit union couldn't count the merged credit union's acquired retained earnings in its own net worth calculation. That would, in turn, lower its net-worth classification under Prompt Corrective Action. It is based on the conclusion that such business combinations are acquisitions and, should be treated the same way that other asset acquisitions are accounted for, which is based on the values exchanged, said Waite, who is also SVP-CFO of Patelco CU, San Francisco. Waite said also of note in the FASB/IASB rule are the following points:
* FASB clarified that it does not apply to combinations involving not-for-profit organizations but credit unions were not included under that term; * The new statement requires that certain asset acquisitions be recognized apart from goodwill. To assist in identifying such acquired intangible assets, the statement provides a list of intangible assets that meet those criteria; and * Credit unions involved in mergers after the effective date of the statement must be mindful of its directives, as all business combinations in the scope of the statement are to be accounted for using one method, the purchase method.
The statement retains current disclosure requirements and requires disclosure of the primary reasons for a business combination as well as the allocation of the purchase price paid for the assets acquired and liabilities assumed. According to Waite, the new statement also contains some changes in how acquisition costs are determined for an acquired entity and how such costs should be expensed or capitalized. Some expenses previously capitalized would have to be expense at the time of the merger. Waite also noted that although the result may not please many credit unions, our issues and concerns were certainly taken seriously and considered by the FASB during the long process. “We certainly made our presence felt. Credit Unions are specifically mentioned 15 times in the final standard. That’s more than any other industry”, said Waite. “They definitely know who credit unions are now.