A trade group representing credit unions is asking the Financial Accounting Standards Board to delay its proposals for changes in the accounting for credit losses and loan impairments.
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Credit Union National Association CEO Bill Cheney met Monday with FASB board member Russell Golden to discuss the credit loss reporting proposal to try to get its implementation delayed. He warned the proposals could have costly and harmful consequences for credit unions.
FASB proposed the changes in December as part of its financial instruments convergence project with the International Accounting Standards Board, but its proposals differ from those of the IASB (see FASB Proposes More Timely Recognition of Credit Losses and IASB Diverges from FASB in Revised Loan Loss Proposals). Last week, Fitch Ratings warned that the proposal could eventually force U.S. banks to book expected losses early, putting pressure on their reserve levels and reported earnings (see Fitch Predicts FASB Loan Impairment Proposal Would Hit Bank Reserves).
CUNA CEO Cheney and other credit union representatives met with Golden and other FASB representatives Monday at the CUNA Washington office, where they highlighted credit union concerns regarding the reporting proposal that would use a single "expected loss" measurement for the recognition of credit losses. This would replace the multiple existing impairment models in U.S. GAAP that primarily use an "incurred loss" approach.
Credit unions are concerned that the proposed "expected loss" approach could require use of speculative forecasting of the performance of an asset over the remainder of the asset's life, Cheney and other CUNA and credit union representatives told the FASB representatives.
CUNA also warned that the proposal is extremely complex, and will create new costs for credit unions.
During the meeting, Golden told CUNA that the board may consider extending the April 30 deadline for comments on its credit loss reporting proposal.
Golden noted that the IASB is accepting comment on a similar proposal for international financial reporting statements until July 5, and he said FASB is considering adopting a later deadline along those lines.
Asked about the possible extension on the comment deadline, FASB spokesman Robert Stewart responded in an email Tuesday. “As we’ve said before, the FASB will consider all comments received on both the IASB and FASB impairment proposals, including comments in which stakeholders have asked us to extend the deadline for comments.“
Financial Accounting Foundation vice president of government affairs and external relations Grace Hinchman told CUNA that FASB is also working on guidance and plans to release that guidance in the coming weeks. The FAF is the parent organization of FASB and the Private Company Council.
Julie Renderos, the CFO of Suncoast FCU in Tampa, Fla., and CUNA staff also told FASB representatives during the meeting that while interest income is currently recorded over the life of a loan, the proposal would require credit losses to be recorded up front. Forecasting forward-looking data could present challenges to credit unions and other institutions, she noted.
Renderos, who is a member of CUNA's Accounting Subcommittee, said the proposal, as currently modeled, could double allowance accounts in some cases, and noted it could also harm credit unions' net worth.
CUNA general counsel Eric Richard raised concerns that the proposal could affect credit unions more severely than other institutions because of the statutory restrictions on their net worth. CUNA deputy general counsel May Dunn noted that at a time when credit unions are prospering again the proposal could have a very negative affect on credit unions' operations. CUNA senior assistant general counsel for regulatory advocacy Luke Martone said credit impairment allowances could particularly be impacted by the proposal.
The credit union group emphasized that the users of credit union financial statements are different than those of banks. Cheney noted that credit union financial reports are mainly released for National Credit Union Administration analysis, not for member use: Bank statements mainly benefit their shareholders. CUNA chief economist Bill Hampel also participated in the meeting.
Golden said he would bring this distinction up with the board and he expressed an interest in having FASB officials meet with more credit unions.