Advisories
Advisory 22
GUIDELINES FOR NEW FINANCIAL INSTRUMENTS ACCOUNTING STANDARDS FOR NOVA SCOTIA CREDIT UNIONS AND CAISSES POPULAIRES
New Standards for accounting of financial instruments took effect January 1, 2007. For Nova Scotia Credit Unions, reporting will be impacted for the fiscal year ending December 31, 2007. Relevant CICA Handbook sections that credit unions will implement include:
- Section 3855: Financial Instruments: Recognition and Measurement;
- Section 1530: Comprehensive IncomeSection 3251: Equity
- Section 3865: Hedges
As prescribed in Section 105 of the Credit Union Act, Nova Scotia Credit Union Deposit Insurance Corporation (CUDIC) expects credit unions to comply with Generally Accepted Accounting Principles (GAAP).
In providing this guidance, CUDIC has considered the need for consistency and harmonization with other Provincial and National Regulatory Agencies, including the Office of the Superintendent of Financial Institutions (OSFI). CUDIC expects credit unions to follow GAAP and to adopt the new standards with the exception of Loans and Mortgages which credit unions are to adopt the recommendations in OSFI’s Guidelines D-10. To view Guideline D-10 visit www.osfi-bsif.gc.ca and type in Guidelines D-10 in the search window.
Loans and Mortgages
OSFI has issued Guideline D-10 – Accounting for Financial Instruments Designated as Fair Value Option (dated June 2006), which restricts the use of the fair value option for loans and mortgages given to companies with annual gross revenue below $62.5 Million. Given that OSFI has conducted research on the impact of the new standards, it would be preferable to capitalize on such research. Therefore, credit unions are not to use the fair value option for loans and mortgages to companies with annual gross revenues below $62.5 Million. The fair value option should also not be used for loan and mortgages to individuals. Portfolios composed of either or both of these types of loans and mortgages should also not be measured using the fair value option.
Regulatory Equity
For the purpose of determining Regulatory Equity pursuant to Section 52 (2) of the Credit Union Act, Accumulated Other Comprehensive Income (Loss) is not in the definition of eligible instruments and is not to be included in the calculation.
Liquidity
For the purposes of determining adequate liquidity pursuant to Section 49 of the Credit Union Act, the value of an asset is the amount calculated in accordance with GAAP and as reported on the credit unions financial statements.
Restriction on Payment of Dividends and Redemption of Shares
Pursuant to Section 36 of the Credit Union Act, the redemption of shares or the payment of dividends or patronage refunds is restricted if such redemption or payment would impair the credit unions ability to maintain prescribed equity and liquidity. For the purpose of determining capital adequacy either for the redemption of shares and/or the payment of dividends, including patronage refunds, the accumulated Other Comprehensive Income is not to be included as part of the determination.
We understand that implementation of these new standards will be challenging for credit unions. Should you have any questions concerning this guideline, please do not hesitate to contact your assigned Analyst for clarification.
December 2007
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