The trade association representing credit unions believes that the Financial Accounting Standards Boards recent proposal to redefine the meaning of a public business entity could open the door to more appropriate accounting standards for credit unions.
FASB issued for public comment Wednesday a proposal that would define a public business entity and affect which types of businesses might qualify for alternative accounting and reporting guidance as private companies (see FASB Proposes to Define Public Business Entities).
The Credit Union National Association sees this as a major positive step for credit unions as it might allow nonpublic business entities to use accounting and reporting alternatives under U.S. GAAP. Such entities, which could include credit unions, could be subject to more flexible accounting requirements, although FASB acknowledged that whether alternatives allowed under GAAP would be permitted may ultimately be determined by regulators. Comments are due to FASB on September 20, and CUNA plans to post a call for comments on its own regulatory advocacy Web site this week.
The proposal includes a revised definition of "public business entity." When finalized, the definition will be used by FASB to identify the different needs of users of private company financial statements as opposed to the users of public company financial statements, according to the proposed accounting standards update.
The framework should also help identify opportunities for reducing the complexity and costs associated with preparing financial statements in accordance with GAAP for nonpublic entities, CUNA noted, although the proposal in and of itself would not affect existing requirements.
The Credit Union National Association has long advocated to FASB that credit unions, based on their structure as not-for-profit, member-owned financial cooperatives, should not be subjected to a number of onerous and costly reporting requirements that should be applied to only publicly traded companies. Patelco Credit Union executive vice president and CFO Scott Waite, who has served on several FASB advisory councils for 10 years, was able to help draw FASBs focus to the need for accounting treatment distinctions for credit unions.
Before issuing the proposal, according to the exposure draft, the board members discussed whether a financial institution that does not otherwise meet any of the criteria of a public business entity as defined in the proposed accounting standards update should be included in the definition of a public business entity for financial reporting purposes and, therefore, would not be within the scope of the guide. A financial institution referred to in this proposed Update would be subject to the description in paragraph 942-320-50-1 of the Accounting Standards Codification, which includes banks, savings and loan associations, savings banks, credit unions, finance companies, and insurance entities.
In a comment letter on June 21 to FASB, CUNA deputy general counsel Mary Dunn stated, Unlike most other financial institutions, credit unions do not issue stock or pay dividends to outside stockholders. By law, they must use their earnings to build capital and as member-financial institutions, credit unions do not issue stock or pay dividends to outside stockholders.
She added, By law, credit unions must use their earnings to build capital, and as member-owned cooperative institutions, work hard to provide favorable rates on loans and savings, and to minimize fees.