The Credit Union National Association urged the Financial Accounting Standards Board on Wednesday to abandon its proposal to change the methodology used to determine credit impairment, saying the measure would hurt credit unions and may have unintended consequences.
The FASB has proposed an update to financial reporting on expected credit losses and loans, as well as other assets, held by financial institutions. Under the proposal, a single “expected loss” model would be used to measure credit losses, replacing the multiple impairment models currently accepted as standard.
“[The proposal is] the most critical regulatory concern credit unions have faced in quite some time, including rules or proposals that have been issued under the Dodd-Frank…Act,” CUNA President and CEO Bill Cheney said in a letter to the FASB.
Under the FASB’s proposal, a reporting entity would be required to estimate cash flows it is unlikely to collect, using all available information.
CUNA expressed concern about the proposal’s ability to meet the board’s objectives, as well as potential reconciliation between it and a proposal by the International Accounting Standards Board.
“Some have concluded that the current methodology for recognizing credit losses did not identify such losses at the largest financial institutions soon enough leading up to and during the financial crisis,” Cheney said. “However, there is no evidence that the current system is not working well for smaller institutions, including credit unions.”
CUNA said that, if abandoning the proposal is not feasible, the FASB should work with credit unions to develop loss reporting standards separate from those for publicly traded firms that will reflect the business model of credit unions.