WOCCU Supports Characterizing Membership Shares As Liabilities
Madison, Wi-In response to the heated debate
the characterization of cooperative membership
shares, the International Accounting Standards
Board (IASB) opened its proposed guidelines,
Members' Shares in Co-operative Entities—also
called Draft Interpretation 8 or just D8—for
public comment this month. The World Council of
Credit Unions, Inc. (WOCCU) took the opportunity
to issue a three-page letter arguing that
membership shares should be defined as a
liability, not equity in certain circumstances.
The debate centers around the fact that some
the rights credit union members enjoy, such as
voting rights, seem to place their shares in the
category of an equity, while other rights, such
as the right to withdraw their shares upon
leaving the institution, suggest that these
shares are a liability.
Credit unions throughout the United States,
Mexico, Guatemala, Ireland, Australia, New
Zealand and nearly all provinces of Canada
already treat membership shares as a liability.
However, many nations have long considered the
shares equity and would like to keep it that
WOCCU's support of liability status for shares
based on three key arguments. Firstly, WOCCU
believes that accounting treatment does not alter
the nature of the credit union system as some
have argued. "Whether members' shares are
classified as equity or liability, the
fundamental characteristics of the one-member,
one-vote principle remains unchanged," stated the
official letter sent to the IASB.
Another argument is, by classifying member
as equity, credit unions place their members'
savings at risk. This is highly problematic
because credit unions have an obligation to
protect members' savings. The third and final
argument states that shares cannot be considered
equity because they can be delivered
or "returned" to member at any time.
There are several conditions under which WOCCU
believes member shares should be considered
equity—if the credit union or cooperative has the
unconditional right to refuse redemption of
members' shares, or if the institution is
prohibited by an outside governing body from
redemption of members' shares.
WOCCU understands that re-characterization of
member shares will be an adjustment for credit
unions that have been classifying them as equity
for many years. Thus, it has suggested a five-
year transition period, during which the credit
union must transfer 20% of all members' shares
from equity to liability status each year.
World Council consulted heavily with European
Cooperative banks in these deliberations to
ensure a coordinated position.
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, 51,000 credit unions in 100 countries serve 196 million people. Learn more about World Council's impact around the world at www.woccu.org.