June 6, 2011

ICBA Concerned About Impact of Proposed Accounting Rules on Community Banks

ICBA Concerned About Impact of Proposed Accounting Rules on Community Banks

The Independent Community Bankers of America (ICBA) has published its Policy Resolutions and Priorities for accounting and auditing for 2011. One of the items the ICBA is advocating against is the Financial Accounting Standards Board?s (FASB) adoption of Proposed Accounting Standards Update (PASU), File Reference No. 1810-100, Accounting for Financial Instruments and Revisions to the Accounting for Derivative Instruments and Hedging Activities: Financial Instruments (Topic 825) and Derivatives and Hedging (Topic 815), which proposes to expand fair value accounting for loans and core deposits. The ICBA is urging the FASB to withdraw this PASU because the ICBA believes that accounting guidance in the PASU has the potential to greatly misrepresent operations of community banks and other financial institutions whose primary business practice is to hold financial instruments to collect contractual cash flows, not to trade them on a regular basis. The ICBA is also claiming that the PASU could force community banks to “reconsider making longer-term loans and deposits because of the impact of the changes in fair values they will need to record.” The ICBA also opposes the FASB’s May 2010 PASU, File Reference No. 1790-100, Comprehensive Income (Topic 220): Statement of Comprehensive Income, aimed at creating a new continuous statement of comprehensive income, and states that the expanded reporting of comprehensive income included in the PASU is “unnecessary and of little use to most financial statement users.”

The ICBA’s priorities also include the elimination of pro-cyclicality in accounting standards. The ICBA advocates that recent market conditions prove that the nature of mark-to-market accounting exacerbates cyclicality in financial results due to greater reliance on fair value measurements, which the ICBA believes are less accurate than current accounting requirements. Further, the ICBA is calling for greater flexibility in estimating the allowance for loan and lease losses (ALLL) and believes that financial institutions should be allowed to be conservative and set aside reserves in good times in preparation for potential difficult times. In addition, the ICBA is urging regulators and standard-setters, when developing accounting and auditing standards, to consider the unique environment in which community banks operate. The ICBA states that “as accounting standards become more complex, there is great merit in looking at whether all aspects of accounting and disclosure are necessary for all companies.” The ICBA also opposes efforts by banking regulators to impose the requirements of the Sarbanes-Oxley Act on non-public banks and believes that accounting and auditing guidance should recognize that community banks often have fewer options, especially those located in small towns and rural communities, when selecting auditing firms, directors, and financial expert audit committee members. Additional information about ICBA’s 2011 Policy Resolutions and Priorities is available in the advocacy section of the ICBA website.

If you would like to discuss the ICBA’s Policy Resolutions and Priorities for 2011, please contact the experts listed below at (800) 270-9629. To receive banking updates from PYA on Twitter, click here.

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