702.402—Full and fair disclosure of financial condition.
(a) Full and fair disclosure defined.
“Full and fair disclosure” is the level of disclosure which a prudent person would provide to a member of a federally-insured credit union, to NCUA, or, at the discretion of the board of directors, to creditors to fairly inform them of the financial condition and the results of operations of the credit union.
(b) Full and fair disclosure implemented.
The financial statements of a federally-insured credit union shall provide for full and fair disclosure of all assets, liabilities, and members' equity, including such valuation (allowance) accounts as may be necessary to present fairly the financial condition; and all income and expenses necessary to present fairly the statement of income for the reporting period.
(c) Declaration of officials.
The Statement of Financial Condition, when presented to members, to creditors or to the NCUA, shall contain a dual declaration by the treasurer and the chief executive officer, or in the latter's absence, by any other officer designated by the board of directors of the reporting credit union to make such declaration, that the report and related financial statements are true and correct to the best of their knowledge and belief and present fairly the financial condition and the statement of income for the period covered.
(d) Charges for loan losses.
Full and fair disclosure demands that a credit union properly address charges for loan losses as follows:
(1)
Charges for loan losses shall be made in accordance with generally accepted accounting principles (GAAP);
(2)
The allowance for loan and lease losses (ALL) established for loans must fairly present the probable losses for all categories of loans and the proper valuation of loans. The valuation allowance must encompass specifically identified loans, as well as estimated losses inherent in the loan portfolio, such as loans and pools of loans for which losses have been incurred but are not identifiable on a specific loan-by-loan basis;
(3)
Adjustments to the valuation ALL will be recorded in the expense account “Provision for Loan and Lease Losses”;
(4)
The maintenance of an ALL shall not affect the requirement to transfer earnings to a credit union's regular reserve when required under subparts B or C of this part; and
(5)
At a minimum, adjustments to the ALL shall be made prior to the distribution or posting of any dividend to the accounts of members.