WOCCU Supports Characterizing Membership Shares As Liabilities

September 23, 2004

Phone: (608) 395-2000

Madison, Wi-In response to the heated debate over 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 of 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 way.

WOCCU's support of liability status for shares is 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 shares 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 300+ technical assistance programs in 89 countries. Worldwide, 68,882 credit unions in 109 countries serve 235 million people. Learn more about World Council's impact around the world at