CUNA Comment Letter

Presentation of Ronald Parker at the Financial Accounting Standards Board Meeting on 10/29/01

Good morning:

My name is Ron Parker and I am a partner with the CPA firm of Clifton Gunderson and the partner-in-charge of their CU Group. We are the 3rd largest auditor of credit unions with over 250 credit union clients ranging in asset size from 1 million to nearly 3 billion. In addition, I have had the pleasure of being a credit union board and supervisory committee member and have also served as chairman of the AICPA Credit Union Committee. I am representing the Credit Union National Association (CUNA) which is the national trade association serving America's credit unions.

I will be discussing who the users of credit union financial information are and their respective interests in that information.


Users of Credit Union Financial Information and Their Respective Interests

Users of Financial Information

The users of credit union financial information generally fall into two groups. Primary users include board and other credit union officials, regulatory agencies, lenders and other creditors. Secondary users include employees, members/owners, trade associations and others.

Board Members and Other Credit Union Officials as Users of Financial Information

Credit union board members and other officials are non-compensated volunteers elected by their membership from the credit union's field of membership. These individuals come from all walks of life with a variety of knowledge and experience in working with financial information. Since credit unions have traditionally served those of modest means these volunteers come with varied educational backgrounds and experience but with a common goal of conducting credit union business in the best interest of their membership.

The Nature of Financial Information With Which Credit Union Officials are Used to Working

A transaction-based system using primarily historical exchange prices as a basis for reporting purposes is what most credit union officials are familiar with and accustomed to in the financial information they presently utilize. The concept of intangibles is foreign to this group of users since intangible assets are not presently recognized by credit unions.

Additionally, since credit unions are not managed on a fair--value or market-value basis, fair value and market value concepts other than in valuing marketable assets are not common to these users.

How Credit Union Boards View Mergers

Officials view the merger of credit unions as the combining of two credit unions’ assets, liabilities, capital and fields of membership to better serve their respective members.

A board's decision as to whether to merge or not to merge with another credit union is based on the benefit of the combination to the respective members in terms of better services and products and the safety and soundness of the surviving credit union.

The Interest of Primarv Users

The interests of the primary users are with the credit union's ability to generate favorable cash flows sufficient for operational and liquidity purposes. Credit unions do not issue capital or debenture securities and, therefore, rely on earnings as their sole source of capital. Maintenance of adequate capital from this source is of primary concern. Additionally, these users are concerned with asset quality and the effective management of assets and liabilities.

Summary of Key Points Regarding Credit Union Combinations

1. Users of credit union financial information are varied, but are included within the potential users defined in Concept Statement #1 paragraphs 24-27.

2. Key users of financial information are officials (non-compensated volunteers) and members who come from varied backgrounds, knowledge and experience levels.

3. Understandability and relevance of the financial information is of major importance to officials and members.

A. These users generally have an understanding of historical exchange prices as a measure of safety and soundness. B. They view combinations of credit unions as a combining of resources, talents and fields of membership in order to better serve their members and not as an individual member investment decision. They generally view combinations as nothing more than an arrangement among two membership groups and the elimination of one of the credit union charters.

C. They look at their investment in the credit union as an earning deposit and are not concerned with the market value of their proportional share of the credit unions capital due to its lack of marketability.

D. Members are interested in cash flows for liquidity purposes and sufficient rates of return on deposits and low loan and other services rates as opposed to investment views such as rate of return on equity. Users also focus on the safety and soundness of the credit union by monitoring capital adequacy, asset quality and the management of assets and liabilities.

E. They utilize trend analysis and other safety and soundness measures such as assets/capital ratios, which would be impacted by the implementation of purchase accounting as it now stands.

4. Credit unions are not managed on a fair-value or market value basis. Market value accounting is not of significant importance to credit union financial statement users.

5. No value or consideration is given and none is received by the members of either credit union in a combination.

6. No assets are disbursed to members by the acquiring credit union; no new capital is invested by members of either credit union on a combination; and there is no bargaining relating to the respective market values of the combining credit unions.

Thank you.