April 1, 2009
Mr. Russell G. Golden, FASB Technical Director
Financial Accounting Standards Board
401 Merritt 7
PO Box 5116
Norwalk, CT 06856-5116
VIA ELECTRONIC MAIL: rggolden@fasb.org
RE: Proposed FSP FAS 115-a, FAS 124-a, and EITF 99-20-b: Recognition and Presentation of OtherThan-Temporary Impairments
Dear Mr. Golden:
The Michigan Credit Union League (MCUL) appreciates the opportunity to comment on the Financial
Accounting Standards Board’s (FASB’s) proposed Staff Position (FSP) regarding the Recognition and
Presentation of Other-Than-Temporary Impairments. Given the instability in the financial markets, MCUL
applauds FASB for addressing the issues involved with the application of Financial Accounting Statement No.
157 (FAS 157). MCUL is a statewide credit union trade association representing 96% of the 341 credit unions
located in Michigan.
If the fair value of a security is less than its cost basis at the measurement date, U.S. generally accepted
accounting principles (GAAP) require the reporting entity to determine whether the impairment is other than
temporary. Such a determination requires, among other considerations, including an assertion that the reporting
entity has the intent and ability to hold the security for a period of time sufficient to allow for any anticipated
recovery in fair value. Currently, other-than-temporary impairment (OTTI) securities must be recognized
entirely in earnings.
Under the FSP, OTTI would exist for a debt or equity securities when the security’s fair value is below its
amortized cost at the measurement date, and the reporting entity intends to sell the security, which is more
likely than not that such a sale will occur before recovery of its cost basis. Under these circumstances, the
proposed FSP would require the amount of impairment to be recognized in earnings.
For debt securities, if it is “more likely than not” that the reporting entity will not sell before recovery of its cost
basis, but it is probable that the entity will be unable to collect all amounts due (according to the contractual
terms of the security), the FSP would require the amount of impairment due to credit losses to be recognized in
earnings, with the remaining amount of impairment due to other factors to be recognized in other
comprehensive income (OCI). MCUL supports this proposed separation of impairment loss, as it would likely
minimize the earnings impact on credit unions.
MCUL also supports the proposed change to the language related to an entity’s holding of a security, which
formerly required the “intent and ability to hold” the security, as this may provide some additional flexibility in
determining whether OTTI exists.
Mr. Russell G. Golden, FASB Technical Director
Financial Accounting Standards Board
April 1, 2009
Page 2
Comment was requested on whether the modification in what is to be considered OTTI should apply to both
debt and equity securities. MCUL does not support the debt security’s application to equity securities, as
equity securities are evaluated based on the performance and financial condition of the issuing company and
would not have a credit loss component.
MCUL also agrees with the amortization requirement for the portion of the impairment recognized in other
comprehensive income for held-to-maturity securities. If an investor has the intent to hold the security to
maturity and market conditions improve, the value of the security should be adjusted based on payments
received and anticipated future cash flows.
Overall, MCUL believes this guidance is clear and operational. We strongly encourage the FASB to make this
guidance retroactive to December 31, 2008. Because many financial institutions are presently undergoing their
respective year-end audits, adopting these changes for 2008 would enable yearly comparisons to more
accurately reflect market conditions.
Thank you for the opportunity to express our views on this important FSP, and we thank you in advance for
your time and consideration in this matter. Please do not hesitate to contact me in the event you have any
questions about this letter.
Sincerely,
David Adams
Chief Executive Officer
Cc: Dan Mica, CUNA