enterprise has no asset for a particular future economic benefit if the transactions or The FASB staff believes that a guarantee of net worth lacks the first and second essential characteristics of an asset and should not be recognized as an asset under GAAP by a thrift. The guarantee, in our opinion, cannot be considered a probable future economic benefit that has been obtained by and is under the control of the thrift because the thrift itself will never realize any cash flows that are directly or indirectly attributable to the guarantee. We are not aware of any instances where the potential benefits of insurance currently are recognized as assets in financial statements prepared in accordance with GAAP. For example, a net worth guarantee appears similar in substance to the present insurance on qualified deposits of thrifts and that insurance is not an asset of the thrift. Similarly, insurance provided to pension plan participants by the Pension Benefit Guaranty Corporation is not an asset of the pension plan. In summary, it is the opinion of the FASB staff that a guarantee of net worth would not be recognized as an asset of a thrift institution under GAAP. Accordingly, a guarantee would not result in an increase in a thrift's net worth under GAAP. It should be understood, however, that these views do not address the definition of net worth for regulatory purposes. If I can be of any further assistance in this matter please contact ne. Very truly yours, J. J. Ball J. T. Ball cc: Paul Nelson Majority Staff Director JTB:677D Financial Accounting Standards Board HIGH RIDGE PARK STAMFORD CONNECTICUT 06905 203-329-8401 Assistant Director Research and Technical Activities October 12, 1982 Director, Information Services Section Federal Home Loan Bank Board 1700 G Street, N.M. Washington, D.C. 20552 Re: Proposed Rule-Amendments to Net-Worth and Dear Sir: The staff of the Financial Accounting Standards Board (FASB) has reviewed the above referenced proposed rule issued for comment by the Federal Home Loan Bank Board (FHLBB). The staff's comments are set forth in this letter. The FHLBB proposes to allow savings and loan associations to include "Appraised Equity Capital as an off-balance-sheet item in computing statutory reserves. We understand the FHLBB has the responsibility to assess the viability of insured associations in carrying out its responsibilities under the National Housing Act and that statutory net worth is one of the measures used in making that assessment. The proposal constitutes a redefinition of net worth for statutory purposes and as such would not affect reporting in financial statements prepared on the basis of either generally accepted accounting principles or regulatory accounting principles. Accordingly, the FASB staff has no comment on that portion of the proposal. The Supplementary Information section of the proposal requests comments on the issues which would be raised by a broad Bark-to-market approach in which the current value of all assets and liabilities would reflect market value." In its conceptual framework project on accounting recognition, the FASB is addressing Director, Information Services Section issues related to determining, for purposes of general purpose financial reporting, the most decision-useful attribute of an asset or liability to measure (e.g., current value, replacement cost, historical cost). The Board has not yet reached any conclusions on that issue. The FASB staff is reluctant to provide comments on the broad issue of mark-to market accounting in the context of this limited proposal. If the FHLBB does propose a specific mark-to market approach in regulatory financial statements for all assets and liabilities, the FASB staff will consider submitting comments at that time. Very truly yours, J. J. Ball J.T. Bali The purpose of the meeting was to discuss accounting matters related to investment securities which may be issued by stock S&Ls which are subject to the Commission's rules. Among the actions that may be undertaken by FSLIC in its supervision of a financially troubled savings and loan is the infusion of capital through the issuance by the S&L institution of an ICC in exchange for a cash-equivalent promissory note of FSLIC. FHLBB had provided us with an information package (attached) in advance which documented the development of these instruments and notes by the Board with the assistance of two public accounting firm consultants (DH&S and PMM). The FHLBB staff stated that ICCS had been issued thus far only in connection with mutual associations. Our discussion proceeded with the understanding that any ICCs issued by stock associations would be substantially the same as the ICCs issued by mutual associations which were described in the information package. There were two accounting issues discussed: 1) The proper classification in the balance sheet of the S&L of any notes receivable given by FSLIC as consideration for the ICCs; and 2) The proper classification in the balance sheet of ICCs issued We stated that the Commission had certain rules with respect to the classification of receivables given by shareholders in exchanges involving equity instruments: a.) Regulation S-X, Article 5-02.30 requires that stock subscriptions receivable be shown as a deduction from equity; and |