[Federal Register Volume 68, Number 173 (Monday, September 8, 2003)]
[Rules and Regulations]
[Pages 52831-52832]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-22779]



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 Rules and Regulations
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  Federal Register / Vol. 68, No. 173 / Monday, September 8, 2003 / 
Rules and Regulations  

[[Page 52831]]



DEPARTMENT OF THE TREASURY

Office of Thrift Supervision

12 CFR Part 562

[No. 2003-45]
RIN 1550-AB54


Regulatory Reporting Standards: Qualifications for Independent 
Public Accountants Performing Audit Services for Voluntary Audit Filers

AGENCY: Office of Thrift Supervision, Treasury.

ACTION: Final rule.

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SUMMARY: The Office of Thrift Supervision (OTS) is adopting as final an 
interim final rule that amended its annual independent audit 
requirements for small, non-public, highly rated savings associations 
that voluntarily obtain independent audits. This change made OTS's 
requirements more consistent with those of the other federal banking 
agencies and avoided the potential regulatory burden from imposing 
unnecessary additional restrictions.

EFFECTIVE DATE: September 8, 2003.

FOR FURTHER INFORMATION CONTACT: Christine Smith, Project Manager, 
(202) 906-5740, Examination Policy Division, or Teresa A. Scott, 
Counsel (Banking & Finance), (202) 906-6478, Regulations and 
Legislation Division, Office of Thrift Supervision, 1700 G Street, NW., 
Washington, DC 20552.

SUPPLEMENTARY INFORMATION: 

Background

    Savings associations that are publicly traded,\1\ have assets of 
$500 million or more\2\, or have a 3, 4, or 5 CAMEL rating \3\ must 
obtain and file an annual independent audit. Small, non-public, 1- or 
2-rated savings associations are not required to obtain an independent 
audit. OTS regulations had required that public accountants conducting 
these independent audits (whether required or voluntary) follow the SEC 
independence rules, including those governing outsourcing of non-audit 
services. 12 CFR 562.4 (d) and (e) (2002).
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    \1\ 17 U.S.C. 78m (West 2002). Generally, federally-chartered 
publicly traded savings associations file annual audits with OTS, 
while generally publicly traded federally-chartered thrift holding 
companies file audits with the Securities and Exchange Commission 
(SEC).
    \2\ 12 CFR 363.2 (2002). These institutions file annual audits 
with the Federal Deposit Insurance Corporation and OTS.
    \3\ 12 CFR 562.4(b). These savings associations file annual 
audits with OTS.
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    On July 30, 2002, Congress passed the Sarbanes-Oxley Act of 
2002.\4\ Title II of that act sets forth standards for auditor 
independence. The standards include section 201(g)(5), which prohibits 
a registered public accountant from performing an audit for a public 
company contemporaneously with providing that company with delineated 
non-audit services, including internal audit outsourcing services. This 
congressional mandate affected a change in the SEC independence rules.
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    \4\ Sarbanes-Oxley Act of 2002, Pub. L. 107-204, section 201, 
116 Stat. 745 (2002).
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    As reflected in the interim final rule, OTS believed that if its 
rules remained unchanged, a savings association obtaining a voluntary 
audit may not use its external auditors to perform non-auditing 
services.\5\ Although OTS encourages non-publicly held savings 
associations that voluntarily file audits with the agency to follow the 
prohibition from Sarbanes-Oxley, OTS was concerned that an absolute 
prohibition in this manner may be unnecessarily detrimental to some 
voluntary filers. Specifically, OTS believed that small institutions 
with less complex operations and limited staff, may, in some instances, 
use their independent public accountant to perform both an external 
audit and some or all of an audit client's non-audit activities 
consistent with the OTS's safety and soundness objectives. Some of 
these institutions may not have access to a full range of qualified 
public accountants such that they could engage both an external auditor 
and a different outside firm to perform non-audit functions. Other 
institutions may reasonably have determined that the costs of having a 
full time in-house staff to perform those services exceed the benefits.
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    \5\ These services include bookkeeping, financial information 
systems design, appraisal, valuation, and actuarial services, and 
internal audit outsourcing services. For a complete list of 
prohibited activities, see id. at section 201.
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    Since OTS issued the interim rule, the SEC, based on provisions 
from the Sarbanes-Oxley Act, added new provisions to its independence 
rules, including ones governing prohibited non-audit services (such as 
the prohibition on internal audit outsourcing), pre-approval 
requirements, auditor partner rotation, auditor reports to the audit 
committee, and conflict of interest. Without the OTS rule change, 
voluntary filers would also be subject to these SEC provisions on 
independence. The OTS is equally concerned that these additional SEC 
independence rules may unnecessarily burden voluntary filers.
    Moreover, none of the other banking agencies require that 
institutions that file voluntary audits follow the SEC independence 
rules. OTS believed that requiring savings associations to do so might 
place these savings associations at an unnecessary competitive 
disadvantage as these requirements became more restrictive.
    For all of these reasons, OTS is finalizing its interim rule that 
amended its regulation to eliminate the requirement that institutions 
voluntarily filing audits comply with the SEC independence rules while 
retaining the requirement that institutions filing voluntary audits 
comply with the AICPA Professional Conduct Code, including those 
sections that address independence.\6\
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    \6\ OTS understands that passage of the Sarbanes-Oxley Act may 
place increased responsibilities on small publicly held savings 
associations, including the prohibitions against outsourcing 
internal non-audit services to the association's external auditor. 
Nothing in this rule affects those requirements.
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Discussion of Comments

    OTS received two public comments, both from trade associations. 
Both trade associations strongly supported the interim rule, noting 
that the rule change encourages voluntary filers to continue to file 
audits with the OTS. Moreover, the commenters heralded the fact that 
the same rule that applies to smaller banks by other federal banking 
regulators would now apply to smaller savings associations.

[[Page 52832]]

Findings and Certifications

A. Executive Order 12866

    The Director of OTS has determined that this final rule does not 
constitute a significant regulatory action for the purposes of 
Executive Order 12866.

B. Regulatory Flexibility Act

    Under the Regulatory Flexibility Act, OTS must either provide an 
Initial Regulatory Flexibility Analysis (IRFA) with this final rule, or 
certify that the rule would not have a significant economic impact on a 
substantial number of small entities. Pursuant to section 605(b) of the 
Regulatory Flexibility Act, OTS certifies that this final rule will not 
have a significant economic impact on a substantial number of small 
entities. It removes a requirement that could, if left unchecked, 
inadvertently lead to potential additional regulatory burden. The final 
rule, which is written in plain language, reduces regulatory burden.

C. Unfunded Mandates Act of 1995

    Section 202 of the Unfunded Mandates Reform Act of 1995, Pub. L. 
104-4 (Unfunded Mandates Act) requires that an agency prepare a 
budgetary impact statement before promulgating a rule that includes a 
Federal mandate that may result in expenditure by State, local, and 
tribal governments, in the aggregate, or by the private sector, of $100 
million or more in any one year. OTS has determined that the effect of 
this rule will not result in expenditures by State, local, or tribal 
governments or by the private sector of $100 million or more. Rather, 
the rule imposes no new requirements and makes only burden reducing 
amendments to current OTS regulations. Accordingly, OTS has not 
prepared a budgetary impact statement for this rule or specifically 
addressed the regulatory alternatives considered.

D. Effective Date

    For the reasons stated in the interim rule, published on November 
25, 2002 (67 FR 70529), OTS is making this final rule effective 
immediately.

E. Paperwork Reduction Act

    The OTS has determined that this interim final rule does not 
involve a change to collections of information previously approved 
under the Paperwork Reduction Act (44 U.S.C. 3501 et seq.).

List of Subjects in 12 CFR Part 562

    Accounting, Reporting and recordkeeping requirements, Savings 
associations.

PART 562--REGULATORY REPORTING STANDARDS

0
Accordingly, the Office of Thrift Supervision adopts as final, without 
change, the interim rule published on November 25, 2002 at 67 FR 70529 
amending part 562 in Title 12, Chapter V, Code of Federal Regulations.

    Dated: September 2, 2003.

By the Office of Thrift Supervision.
James E. Gilleran,
Director.
[FR Doc. 03-22779 Filed 9-5-03; 8:45 am]
BILLING CODE 6720-01-P