The CUES Podcast Episode 53 show notes
Is your credit union prepared to respond to the Accounting Standards Update 2016-01, recently amended by the Financial Accounting Standards Board?
On Feb. 28, FASB issued six amendments to the 2016 guidance, which primarily impacted accounting for equity investments, financial liabilities under the fair value option, and the presentation and disclosure requirements for financial instruments.
For calendar year-end public business entities, ASU 2016-01 was effective as of Jan. 1, 2018. The new guidance must be adopted for fiscal years starting after Dec. 15, 2018 (an interim period). Early adoption of the new guidance is permitted.
I didn’t fully understand the scope of all of this until I sat down recently with two subject matter experts. In episode 53 of the CUES Podcast, my guests are John Pesh, director of executive benefits at CUESolutions provider CUNA Mutual Group, Madison, Wis., and Bryan Mogensen, principal for financial institutions at CliftonLarsonAllen, Phoenix.
One of the main provisions affecting credit unions is a requirement for equity investments, except those accounted for under the equity method (such as for credit union service organizations), to be measured at fair value, with the changes in fair value recognized through net income, says Mogensen. “So for any of those credit unions that have these investments and are currently reporting them, say as available-for-sale, you’re really going to have to change your accounting to trading.”
He adds that the standards board is “continuing to work on improving the financial reporting and trying to achieve convergence with the International Financial Reporting Standards, IFRS,” Foundation.
A few things the change will not affect, according to Mogensen, include:
- written equity options;
- cash options on equity securities; and
- equity-based indexes.
“It will not affect your CUSO accounting,” he explains.
The rule change could affect investments that are being used to offset employee benefits, says Pesh. “A lot of those investments have been in equity investments—a lot of growth-oriented equities as well as dividend-oriented equities, which when they were accounted for under available-for-sale, credit unions were allowed to let the volatility or the underlying fluctuations of the portfolio really remain off of the income statement.”
The change affects all credit union investments, Pesh adds, noting that CUNA Mutual is doing a lot of education about this right now with clients. Credit unions are rethinking what investments they should be in, he says.
Some key takeaways from for this show include:
- the scope and applicability of the new rule;
- impacted investments and investment alternatives; and
- what the rule changes mean for your credit union and how to respond.
Listen to my interview with Pesh and Mogensen.
The CUES podcast is an audio program hosted by James Lenz, CUES professional development manager. James talks to credit union and cross-industry experts for their perspectives on trends and topics that matter to you.
Learn more about CUNA Mutual Group and download the free ebook, Non-Qualified Executive Benefits: A Guide for Credit Union Leadership.