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

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Office of Thrift Supervision, Treasury.

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Interim final rule with request for comments.


The Office of Thrift Supervision (OTS) is adopting an interim final rule that amends its annual independent audit requirements for small, non-public, highly rated savings associations that voluntarily obtain independent audits. This change will make OTS's requirements more consistent with those of the other federal banking agencies and will avoid the potential regulatory burden that could otherwise result from other regulatory action.


This interim rule is effective November 25, 2002. Written comments must be received by December 26, 2002.


Mail: Send comments to Regulation Comments, Chief Counsel's Office, Office of Thrift Supervision, 1700 G Street, NW., Washington, DC 20552, Attention: No. 2002-54.

Delivery: Hand deliver comments to the Guard's Desk, East Lobby Entrance, 1700 G Street, NW., from 9 a.m. to 4 p.m. on business days, Attention: Regulation Comments, Chief Counsel's Office, No. 2002-54.

Facsimiles: Send facsimile transmissions to FAX Number (202) 906-6518, Attention: Regulations Comments, No. 2002-54.

E-Mail: Send e-mails to, Attention: No. 2002-54, and include your name and telephone number.

Availability of comments: OTS will post comments and the related index on the OTS Internet Site at In addition, you may inspect comments at the Public Reading Room, 1700 G Street, NW., by appointment. To make an appointment for access, call (202) 906-5922, send an e-mail to, or send a facsimile transmission to (202) 906-7755. (Please identify the materials you would like to inspect to assist us in serving you.) We schedule appointments on business days between 10 a.m. and 4 p.m. In most cases, appointments will be available the business day after the date we receive a request.

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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.

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I. Background and Changes

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. Currently, OTS regulations require 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).

In 1994 when OTS originally promulgated §§ 562.4(d) and (e), OTS believed that the SEC independence rules provided an appropriate standard for assessing auditor independence and that this standard would not unduly burden small, non-public, highly rated savings associations that file voluntary audits with OTS.[4] Because recent statutory changes intended to reach publicly traded institutions would indirectly affect these voluntary filers, OTS has reexamined the use of this standard.

On July 30, 2002, Congress passed the Sarbanes-Oxley Act of 2002.[5] Title II of that act sets forth standards for auditor independence. Specifically, section 201(g)(5) 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 would affect a change in the SEC independence rules.

If OTS rules remain unchanged, a savings association that obtains a voluntary audit may not use its external auditors to perform non-auditing services.[6] Although OTS encourages non-publicly held savings associations that voluntarily file audits with the agency to follow the prohibition from Sarbanes-Oxley, OTS is concerned that an absolute prohibition in this manner may be unnecessarily detrimental to some voluntary filers. Specifically, OTS believes 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.

Moreover, none of the other banking agencies require that institutions that file voluntary audits follow the SEC independence rules. Requiring savings associations to do so may place these savings associations at an unnecessary competitive disadvantage as these requirements became more restrictive. Therefore, OTS is amending its regulation to eliminate the requirement that institutions voluntarily filing audits comply with the SEC independence rules.[7]

On the other hand, OTS continues to believe that auditor independence is important to the safety and soundness of all institutions and thus OTS is retaining the requirement that institutions filing voluntary audits comply with the AICPA Professional Conduct Code, including those sections that address independence. Further, OTS may monitor voluntary audit filers' non-audit outsourcing to ensure that institutions are properly preserving the independence between the two functions. OTS believes that this approach is the most effective means of maintaining comparability and consistency with the other banking agencies. This approach also reduces regulatory burden on savings associations filing voluntary audits consistent with safe and sound regulation. Start Printed Page 70531

II. Justification for Interim Rule

A. Notice and Comment Requirement

Section 553 of the Administrative Procedure Act (APA) permits an agency to issue rules without prior notice and comment if the agency finds good cause and explains its finding when it publishes the rule. 5 U.S.C. 553(b)(B). A finding that notice and comment are impracticable, unnecessary, or contrary to the public interest constitutes good cause.

As discussed more fully above, OTS has examined the legislative changes made by the Sarbanes-Oxley Act and the potential impact of any implementing regulations on small, non-public savings associations. OTS believes that the interaction of these changes with OTS's current regulations on voluntary audits could significantly increase the regulatory burden on these small thrifts. Small, non-public banks and non-depository institutions are not covered by the new independence rules. Small, non-public, highly rated thrifts do not pose any greater risks.

Elimination of the regulatory requirement decreases burden on the industry and permits certain savings associations more flexibility in accessing the marketplace in search of non-audit services that may be performed by outside entities. The change also aligns OTS regulations more closely to those of the other banking agencies. Accordingly, OTS concludes that public notice and comment on these changes in advance of implementation are unnecessary and contrary to the public interest. Nonetheless, OTS invites comments on this interim rule during the 60-day period following its publication. In developing a final rule, OTS will consider all public comments it receives within that period.

B. Effective Date Requirement

Section 302 of the Riegle Community Development and Regulatory Improvement Act of 1994 (CDRIA), 12 U.S.C. 4802, requires that new OTS regulations and amendments to existing regulations take effect on the first day of a calendar quarter that begins on or after the date of publication of the rule. This delayed effective date provision applies only if the rule imposes additional reporting, disclosure, or other new requirements on insured depository institutions.

As a related matter, section 553(d) of the APA states that a rule must not be made effective before 30 days after its publication. 5 U.S.C. 553(b)(B). This APA provision does not apply, however, if the rule grants or recognizes an exemption or relieves a restriction.

OTS concludes that neither CDRIA nor the APA precludes the publication of this rule with an immediate effective date. This rule makes only burden reducing amendments to OTS rules and relieves current requirements on independence and non-audit outsourcing activities.

II. Findings and Certifications

A. Executive Order 12866

The Director of OTS has determined that this interim 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 interim 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 interim 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 interim rule, which is written in plain language, reduces regulatory burden.

C. Unfunded Mandates Reform Act of 1995

Section 202 of the Unfunded Mandates Reform Act of 1995 [8] (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 expenditures by state, local, and tribal governments, in the aggregate, or by the private sector, of $100 million or more in any one year. If a budgetary impact statement is required, section 205 of the Unfunded Mandates Act also requires an agency to identify and consider a reasonable number of regulatory alternatives before promulgating a rule. OTS has determined that this interim rule will not result in expenditures by state, local, or tribal governments, or by the private sector, of $100 million or more in any one year. Accordingly, section 202 of the Unfunded Mandates Act does not require the OTS to prepare a budgetary impact statement for this rule.

D. 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.).

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List of Subjects in 12 CFR Part 562

  • Accounting
  • Reporting and recordkeeping requirements
  • Savings associations
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For the reasons set out in the preamble, the Office of Thrift Supervision amends part 562 of chapter V, title 12, of the Code of Federal Regulations as follows:

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1. The authority citation for part 562 continues to read as follows:

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Authority: 12 U.S.C. 1463

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2. Amend § 562.4 by revising paragraphs (d)(3) and (e) to read as follows:

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Audit of savings associations and savings association holding companies.
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(d) * * *

(3)(i) Is in compliance with the American Institute of Certified Public Accountants' (AICPA) Code of Professional Conduct; and

(ii) Meets the independence requirements and interpretations of the Securities and Exchange Commission and its staff; and

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(e) Voluntary audits. When a savings association, savings and loan holding company, or affiliate (as defined by 12 CFR 563.41(b)(1)) obtains an independent audit voluntarily, it must be performed by an independent public accountant who satisfies the requirements of paragraphs (d)(1), (d)(2), and (d)(3)(i) of this section.

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Dated: November 18, 2002.

By the Office of Thrift Supervision.

James Gilleran,


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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).

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2.  12 CFR 363.2 (2002). These institutions file annual audits with the Federal Deposit Insurance Corporation and OTS.

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3.  12 CFR 562.4(b). These savings associations file annual audits with OTS.

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4.  The SEC modified its independence rules in December 2000. The modified rules, although more restrictive than those in effect in 1994, continued to provide an appropriate standard for savings associations that file audits voluntarily. However, see discussion below concerning changes required by the Sarbanes-Oxley Act of 2002, Pub. L. No. 107-204, § 201, 116 Stat. 745 (2002).

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5.  Sarbanes-Oxley Act of 2002, Pub. L. No. 107-204, § 201, 116 Stat. 745 (2002).

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6.  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 § 201.

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7.  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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8.  Pub. L. 104-4, 109 Stat. 48 (1995) (codified at 2 U.S.C. Chs. 17A, 25).

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[FR Doc. 02-29833 Filed 11-22-02; 8:45 am]