Credit unions as both federally or state-chartered financial institutions and non-for-profit entities present credit unions with numerous regulatory, business, and operational challenges. Of particular note are meeting high standards in accounting, transparency, and operational efficiency – among these is meeting Superlative Accounting, Transparency, and Efficiency requirements. Unfortunately there is limited industry data regarding accounting functions within credit unions which leaves many wondering if their accounting teams are sufficiently staffed.
Credit unions take great care in managing lending policies and loan management practices to provide members with credit. That is why a credit union must ensure its internal loan review processes are thorough, timely, and in line with its lending guidelines – this includes making sure there is adequate documentation supporting allowances for loan losses or other-than-temporary impairments reported on its financial statements. Our lending risk review process evaluates each loan from its inception through fulfillment – such as member business lending as well as indirect and traditional membership lending.
In 2016, the FASB issued a new accounting standard that significantly altered how credit unions calculate their allowance for credit losses (ALLL). Known as current expected credit loss (CECL), this methodology will become effective for financial reporting and regulatory reporting beginning 2023; until then, credit unions should follow current GAAP guidance in estimating and documenting ALLL and impairments.
Financial crisis brought with it new accounting standards as well as increased scrutiny on how credit unions manage their balance sheets, leading to additional regulatory and supervisory initiatives and practices aimed at maintaining safety and soundness across the national credit union system. NCUA offers resources that help credit unions address these evolving challenges such as our Regulatory Alerts, Letters to Credit Unions and Accounting Bulletins.
CUSOs may be structured either as C corporations or limited liability companies (LLCs). Both structures offer advantages; however, each structure has distinct tax implications. A C corporation is subject to both federal and state income taxes at both levels – corporate level as well as individual shareholder level for dividends paid out via double taxation – while LLCs are pass-through entities, meaning profits and losses are taxed only once by owners at owner level.
While the number of credit union service organizations (CUSOs) continues to expand, it’s vital that each meets the stringent standards imposed by NCUA. This is especially true of core services providers like tax preparation and auditing. Compliance with other NCUA regulations as well as state and federal laws is also key; directors and management of each CUSO should remain aware of ongoing regulatory initiatives impacting them; this ensures each CUSO has sufficient staff trained by qualified individuals.