New Accounting Rule May Create Opportunity for Many Credit Unions

Affording credit unions the opportunity to reclassify balance sheet information, FASB 159 could provide a marginal boost to the bottom line.


FASB 159, “The Fair Value Option for Financial Assets and Financial Liabilities,” is a new rule that is effective January 1, 2008. However, FASB is allowing early adoption of this rule if the credit union elects it by April 30, 2007.

What FASB 159 Means for Credit Unions:
FASB 159 will allow credit unions to reclassify any balance sheet item and make an adjustment to the cost basis of that item to bring it in line with fair value. Using an investment as an example, under previous accounting methodologies, if the credit union has an investment which was other than temporarily impaired you would have to recognize the adjustment through the income statement. FASB 159 will allow the credit union to adjust the cost basis directly to retained earnings (capital) and bypass the income statement. The investment must then be moved into a trading account where it will be marked to market each month. Because many credit unions have well above the regulatory minimum capital levels, FASB 159 could be a way to lower capital and increase the yield of the investment portfolio.

It is up to the credit union'discretion as to which balance sheet items the Fair Value Option is used on. If you pick it for one balance sheet item it does not taint the entire balance sheet. As of this writing, we have heard of credit unions looking to use FASB 159 treatment on investments, Federal Home Loan Bank advances, and investments in CUSOs. Under one scenario, for example, a credit union could pay back the initial borrowings and then re-borrow at a lower rate, saving interest expense.

If a credit union elects to use FASB 159, they must also incorporate FASB 157, a companion statement to 159. FASB 157 requires a disclosure about how the fair market value was determined. For most balance sheet items, such as investments and Federal Home Loan Bank Advances, the creation of FASB 157 should not be too burdensome.

The Opportunity for Credit Unions
There is an opportunity for credit unions to increase margins. For most credit unions, adding investment yield or decreasing interest expense on borrowings will not have a material impact on ROA. However, given today'hypercompetitive environment, even a few marginal basis points can help deliver member value.

To visit FASB's webpage and get more information on FASB 159 click here.

Disclaimer: This article is not advice and is for information only. Please discuss any accounting matters with your CPA firm.




April 9, 2007


  • So this accounting rule change allows credit unions (any any other business) to hide losses. Did we learn anything from Enron!!!! Don''t adopt this new accounting procedure if all you want to do is to manipulate your earnings. Deplorable! This accounting rule change is so much more involved and has long-term consequences. Do your homework - check it out and think long-term.
  • Timely, good job
  • I agree with comment #1, this will allow any business/credit union to overstate earnings. Anyone looking to adopt this FASB 159, should think twice about the integrity of their company/credit union.
  • this new fasb is being pushed by brokerage houses with $$ on the mind. They are trying to get people to early adopt so that they can generate bond trades. The AICPA is warning that some of the "ideas" that these brokerage firms are promoting will not be considered to be GAAP. You should be weary of those firms pushing adopting this statement for earnings enhancement reasons.