Group Reviewing Document

The Financial Accounting Standards Board (FASB) new guidance on public business entities may let credit unions be classified as a nonprofit entity or a private company for financial reporting purposes.


Credit Unions May Be Eligible for New Financial Reporting Methods Under FASB Guidance

  • 2/4/2014

On December 23, 2013, the Financial Accounting Standards Board (FASB) released guidance to help determine if a company is considered a public business entity for financial reporting purposes.

"Although the guidance initially does not appear to affect credit unions — since they clearly do not meet the definition of a public company — credit unions could potentially be classified as a nonprofit entity or a private company under the new definition, which could have significant ramifications for the industry" Charles Kelly
credit union assurance senior manager

Business classification

If a credit union is determined to be a:

  • nonprofit, then it cannot elect to adopt alternative accounting treatments from the Private Company Council (PCC), which was recently formed to work with the FASB to change existing and emerging nongovernmental generally accepted accounting principles for private companies.
  • private company, then it may be able to adopt the PCC’s alternative accounting treatments.

Note that this classification should not be confused with a credit union’s tax status — and many credit unions believe they are nonprofits based on their tax-exempt status. However, the FASB’s definition of a nonprofit company specifically excludes credit unions.

PCC’s guidance

The PCC, in conjunction with the FASB, released a guide called the Private Company Decision-Making Framework: A Guide for Evaluating Financial Accounting and Reporting for Private Companies. Along with public companies, nonprofits are specifically excluded from the scope of the PCC’s guide.

Credit unions do not meet the definition of a public business entity, and are therefore within the scope of the PCC’s guide. This means that they may be eligible to elect certain PCC accounting alternatives in their financial reporting.

An example of a PCC accounting alternative that may be attractive for credit unions is Accounting Standards Update (ASU) No. 2014-02, Intangibles—Goodwill and Other (Topic 350): Accounting for Goodwill, issued on January 16, 2014. This update permits a private company to subsequently amortize goodwill resulting from a merger on a straight-line basis over 10 years or less, and permits the application of a simplified goodwill impairment analysis.

This alternative accounting treatment could produce significant cost savings for credit unions with goodwill on their balance sheets that currently must employ a third-party valuation specialist annually to test the goodwill for impairment. This ASU is available for early adoption, including for any financial statements that are not yet available.

NCUA approval

The PCC’s alternative accounting methods have not yet been approved by the National Credit Union Administration (NCUA).

It is unclear at this point whether PCC alternatives will be accepted for regulatory reporting purposes. Kelly says that if a credit union is considering PCC alternative elections for their 2013 audited financial statements they should closely monitor regulatory announcements.

How we can help

Your accounting advisor can discuss the PCC alternatives available to your institution in greater detail and assist you in quantifying the potential cost and time savings of electing those alternatives. CLA professionals have a broad historical perspective on how this guidance may affect your credit union.