New Accounting for Credit Union Mergers
Credit Union Advisor, 2007 Fall

The FASB has stated that FAS 141R, Business Combinations: Applying the Acquisition Method, will be effective for annual periods beginning after December 15, 2008. For calendar year entities, the pronouncement will apply to 2009 credit union merger transactions and will require use of purchase accounting. The pooling-of-interests accounting method will no longer be an acceptable accounting method.

The pronouncement is expected to create challenges as credit unions will be required to identify the fair value of assets and liabilities — including goodwill and intangible assets — of an acquired institution. Then, in subsequent years, any goodwill or intangible assets recognized in a merger will need to be evaluated for impairment, consistent with FAS 142, Accounting for the Impairment or Disposal of Long-Lived Assets. Thankfully, for the purpose of determining regulatory capital under the prompt corrective active provisions, regulators have amended the definition of net worth to include the retained earnings of another credit union acquired in a business combination.

As 2007 draws to a close, there may be two perspectives on the coming accounting changes for credit union mergers: 1) there is ample time to digest the new purchase accounting rules with the counsel of your Plante & Moran advisor and/or 2) complete mergers in 2008 under the soon-to-be-extinct pooling-of-interests accounting method.