CUNA Comment Letter

Proposed Statement of Position Regarding Allowance for Credit Losses

September 18, 2003

Mr. Frederick Gill
Senior Technical Manager
Accounting Standards
File 3480
1211 Avenue of the Americas
New York, NY 10036-8775

Dear Mr. McNamara:

The Credit Union National Association (CUNA) appreciates this opportunity to comment on the American Institute of Certified Public Accountant’s (AICPA’s) proposed Statement of Position (SOP) regarding Allowance for Credit Losses. The proposed SOP addresses the recognition and measurement by creditors of the allowance for credit losses related to all loans, as that term is defined in Financial Accounting Standards Board (FASB) Statement of Financial Accounting Standards (FAS) No. 114, Accounting by Creditors for Impairment of a Loan, with certain exceptions. CUNA, a national trade association, represents more than 90 percent of the nation’s 10,000 state and federal credit unions. This letter reflects the views of our member credit unions and of CUNA’s Accounting Task Force, chaired by Mr. Scott Waite, SVP and CFO of Patelco Credit Union in San Francisco, California.

Under the proposed SOP, the allowance for credit losses reported on a creditor's balance sheet should consist only of (1) a component for individual loan impairment recognized and measured pursuant to FASB Statement No. 114 and (2) one or more components of collective loan impairment recognized pursuant to FASB Statement (FAS) No. 5, Accounting for Contingencies, and measured in accordance with the guidance in the proposed SOP. If a creditor evaluates or grades an individual loan as part of a credit risk evaluation or grading process, that loan has been "identified for evaluation" within the meaning of paragraph 6 of FASB Statement No. 114.

The proposed SOP also provides that a creditor should group into pools, based on similar credit risk characteristics, loans other than those that were individually determined to be impaired. Those pools should be evaluated for collective loan impairment and include loans that were individually evaluated and determined to not be impaired and loans that were not individually evaluated. Loans that have been individually evaluated and have been determined to be impaired, regardless of whether an impairment allowance has been recorded, should not be included in those pools.

Summary of CUNA’s Position