The Move to International Accounting Standards: Impact on Cooperatives

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The Move to International Accounting Standards
Impact on Cooperatives

• Mary Griffin
• National Cooperative Business Association
• Washington, DC
• www.ncba.coop

Cooperative Issues Forum June 17, 2008 Madison
Wisconsin
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National Cooperative Business Association

• Formed in 1916
• Only national, cross-sector co-op membership
  association
• Developed .coop domain
• More than 10,000 names purchased
• Over 18 million in international co-op
  development programs in more than ten countries

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Cooperative Finance Tax Council

• Cross-sector information policy development
  entity formed in 2004
• Identify and address key co-op legal, financial
  and tax related issues
• Led by Steering Committee
• all sectors represented
• financial and legal expertise
• managed by NCBA staff
• Communications system for input and feedback
  from all sectors

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Financial Accounting in the US

• SEC has statutory authority over accounting
  standards
• Delegates to private entity, FASB, to develop
  standards that become US GAAP
• Co-ops follow US GAAP
• Enforcement
• SEC publicly traded companies
• AICPA private companies

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FASB The US Standard Setter

• Financial Accounting Foundation
• Non-profit organization that oversees FASB
• Board of Trustees appoints 7 members to FASB
• FASB
• Issues accounting standards and guidance
• Non-governmental, independent
• Funded by fees paid to SEC by companies
• Weekly meetings, open to public, webcast

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Standard Setting Process

• Major projects/activities identified
• SEC recommendations
• Intl convergence topic
• Advisory committees to FASB
• Exposure Draft or Preliminary Views Issued
• Comment period for public response
• Possible Roundtable discussion with constituents
• Revised Exposure Draft or Final Statement

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Why should co-ops be concerned about accounting
changes?

• Standards dictate type and format of financial
  information
• Co-ops must follow US GAAP
• Members, potential members, vendors, lenders,
  outside investors look at financial statements
• Can change financial picture of co-op

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One Global Standard Setter The IASB

• More than 100 countries using IFRS
• FASB and IASB convergence
• Move to Principles Based accounting
• SEC roadmap
• Accept IFRS for intl companies by 2009
• Proposal to allow US companies to use USGAAP or
  IFRS
• FASB Chairs comments
• Timeframe

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An example Reclassification of Equity

• FASB proposed FAS 150 in 2003 to reclassify
  equity
• Negative impact on co-ops
• Co-ops campaign to stop implementation of
  standard
• Various proposals considered
• Current approach basic ownership
• Only most subordinate interests would be
  classified as equity
• Are member shares equity under this approach?

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Impact on Users

• Lenders do we want to lend to an entity that
  has a lot of debt and little equity?
• Vendors will this co-op be able to pay its
  bill?
• Members what happened to my equity share?
• Potential members - who is running this place?
• Outside investors will we make any money?

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FASB and IASB Convergence

• FASB issued Preliminary Views document for
  comments due 5/30/08
• IASB has discussion paper out for comments due
  9/5/08
• FASB and IASB will jointly develop standard

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Coordinated Intl Co-op Response

• Prioritize accounting policy issues
• Dedicate resources, including staff
• Identify develop technical expertise
• Coordinate Response ICA, NCBA, NSAC and others
• many countries, one message

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Coordinated Intl Co-op Response

• Co-op communities in all countries must
  participate
• Educate about and advocate for Co-ops
• Understand IASB process and politics
• Identify partners with similar concerns
• Representation at IASB
• e.g., International Cooperative Financial
  Reporting Group

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What can Individual Co-ops Do?

• Know your co-ops capital structure
• Find out - key accounting rules and proposed
  changes
• Make Changes if needed, change your bylaws to
  make sure co-op shares would be treated as equity
• Advocate Tell accounting standard setters about
  impact on co-ops

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We must all hang together, or assuredly we shall
all hang separately. Benjamin
Franklin Cooperator
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Thank You