MADISON, Wis.—Certain provisions in the International Accounting Standards Board's (IASB) proposed accounting standards for small and medium-sized enterprises (SMEs) could be detrimental to credit unions, according to World Council of Credit Unions (WOCCU). The worldwide credit union trade association last week made its position known to IASB officials in a letter written by Dave Grace, vice president of WOCCU Association Services.
WOCCU's greatest concerns, according to Grace, focus on the draft's failure to clearly identify to whom the standards apply and their failure to sufficiently simplify reporting requirements for smaller institutions. "Excluding credit unions from the scope of the SME standards and requiring adherence to the full International Financial Reporting Standards is both impractical and counter to the IASB's intention of making accounting requirements more accessible to smaller non-listed institutions," Grace said in his letter to IASB board member Thomas E. Jones.
Specific areas of concern include the draft's failure to clarify whether, as member-owned financial cooperatives, credit unions fall within the document's provisions. The draft carefully articulates application to entities that hold public assets "for a broad group of outsiders such as a bank, insurance entity, securities broker/dealer, pension fund, mutual fund or investment banking entity." Failure to include credit unions in the list may imply inclusion in full International Financial Reporting Standards, which could create insurmountable hurdles for many SMEs.
A second area of concern is IASB's required use of "fair-value accounting" methods and its usage in credit union mergers. The intent of a credit union merger is not an attempt "to bid up or receive any price beyond book value of its outstanding ownership shares," Grace told IASB. The way mergers are accounted for on the newly combined entity's financial statement could be misleading and negatively impact the credit union's capital-to-asset ratios in some jurisdictions.
"We strongly recommend that the pooling-of-interest method, which does not require a fair valuation of both entities pre-combination, be allowed for SMEs or, at a minimum, for cooperatives and micro-entities with fewer than 10 employees," Grace wrote. The median credit union worldwide to which these regulations would apply has 2,650 members, $1.9 million in assets and 7.5 employees.
WOCCU also recommended a longer transition period for implementation of the standards, given the often sluggish flow of information to small credit unions in some developing countries.
To view the letter's full text, please visit the WOCCU Website's advocacy section at www.woccu.org/memberserv/advocacy/positionpapers.
World Council of Credit Unions is the global trade association and development agency for credit unions. World Council promotes the sustainable development of credit unions and other financial cooperatives around the world to empower people through access to high quality and affordable financial services. World Council advocates on behalf of the global credit union system before international organizations and works with national governments to improve legislation and regulation. Its technical assistance programs introduce new tools and technologies to strengthen credit unions' financial performance and increase their outreach.
World Council has implemented more than 290 technical assistance programs in 71 countries. Worldwide, 56,000 credit unions in 101 countries serve 200 million people. Learn more about World Council's impact around the world at www.woccu.org.