Audit Requirement for Credit Union Service Organizations (CUSOs), 14579-14580 [05-5677]

Agencies

• National Credit Union Administration

[Federal Register Volume 70, Number 55 (Wednesday, March 23, 2005)]
[Proposed Rules]
[Pages 14579-14580]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 05-5677]


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NATIONAL CREDIT UNION ADMINISTRATION

12 CFR Part 712


Audit Requirement for Credit Union Service Organizations (CUSOs)

AGENCY: National Credit Union Administration (NCUA).

ACTION: Proposed rule.

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SUMMARY: NCUA proposes to change its rule concerning credit union 
service organizations (CUSOs) to provide that a wholly owned CUSO need 
not obtain its own annual financial statement audit from a certified 
public accountant if it is included in the annual consolidated audit of 
the Federal credit union (FCU) that is its parent. The amendment will 
reduce regulatory burden and conform the regulation with agency 
practice, which since 1997 has been to view credit unions with wholly 
owned CUSOs in compliance with the rule if the parent FCU has obtained 
an annual financial statement audit on a consolidated basis.

DATES: Comments must be received on or before May 23, 2005.

ADDRESSES: You may submit comments by any of the following methods 
(Please send comments by one method only):
     Federal eRulemaking Portal: https://www.regulations.gov. 
Follow the instructions for submitting comments.
     NCUA Web Site: https://www.ncua.gov/
RegulationsOpinionsLaws/proposed_regs/proposed_regs.html. Follow the 
instructions for submitting comments.
     E-mail: Address to regcomments@ncua.gov. Include ``[Your 
name] Comments on Proposed Rule 712, CUSO Audit Requirements,'' in the 
e-mail subject line.
     Fax: (703) 518-6319. Use the subject line described above 
for e-mail.
     Mail: Address to Mary Rupp, Secretary of the Board, 
National Credit Union Administration, 1775 Duke Street, Alexandria, 
Virginia 22314-3428.
     Hand Delivery/Courier: Same as mail address.

FOR FURTHER INFORMATION CONTACT: Ross P. Kendall, Staff Attorney, 
Office of General Counsel, at the above address or telephone (703) 518-
6540.

SUPPLEMENTARY INFORMATION: 

Proposed Changes

    The NCUA Board proposes revising Sec.  712.3(d) so that a CUSO that 
is wholly owned need not secure its own public accounting firm 
financial statement audit if it is included on a consolidated basis in 
the audit of the FCU itself. Currently, this section requires an FCU to 
obtain a written commitment from any CUSO in which it has made an 
investment or to which it has made a loan that the CUSO will secure an 
annual opinion audit of its financial statements, performed in 
accordance with generally accepted auditing standards by a licensed, 
certified public accountant. 12 CFR 712.3(d)(2).
    The current rule is designed to assure that any CUSO with respect 
to which an FCU intends to make a loan or an investment maintains its 
books and records in a manner that will enable the FCU to obtain 
accurate financial information about its operations and financial 
condition. The rule also requires that a CUSO provide NCUA with access 
to any of its books and records. 12 CFR 712.3(d)(3). The proposed 
amendment recognizes that, where a CUSO is controlled by an FCU by 
virtue of its ownership of one hundred percent of its voting shares, 
generally accepted accounting principles (GAAP) call for the 
preparation of financial statements of both the FCU and the CUSO on a 
consolidated basis. Accordingly, where the FCU has a financial 
statement audit prepared on a consolidated basis, the proposed rule 
would excuse the CUSO from having to obtain a separate audit opinion. 
Implicit in the proposal is the recognition that NCUA has full access 
to the information by virtue of its oversight of the parent FCU.
    Consolidated financial statements present the results of 
operations, financial position, and cash flows of a parent and its 
subsidiaries as if the group were a single enterprise. Under GAAP, 
consolidated financial statements generally include enterprises in 
which the parent has a controlling financial interest, usually, a 
majority voting interest. There is a presumption that consolidated 
statements are more meaningful than separate statements and are usually 
necessary for a fair presentation when one of the enterprises in a 
group directly or indirectly has a controlling financial interest in 
another.
    The Board notes this proposed change is consistent with its ongoing 
efforts to reduce regulatory burden while preserving necessary 
guidelines to assure that FCUs operate in a safe and sound manner. As a 
matter of practice, NCUA staff has since 1997 considered wholly-owned 
CUSOs to be in compliance with the rule if the parent FCU has obtained 
an opinion audit on consolidated financial statements. See Preamble to 
Proposed Amendments to 12 CFR part 712, 62 FR 11779, 11783

[[Page 14580]]

(March 13, 1997). Although GAAP would permit a consolidated audit where 
one entity owns the majority of the voting shares of another, the Board 
believes the current proposal will ensure that prospective minority 
investors have access to maximum disclosure of potential risks to their 
investment. The Board welcomes comment on all aspects of the proposal.
    The proposed rule also makes nonsubstantive, minor edits to the 
wording and punctuation of the audit provision.

Request for Comment

    The NCUA Board is interested in receiving comments on the proposed 
amendments to part 712.

Regulatory Procedures

Regulatory Flexibility Act

    The Regulatory Flexibility Act (RFA) requires NCUA to prepare an 
analysis to describe any significant economic impact any proposed 
regulation may have on a substantial number of small entities. NCUA 
considers credit unions having less than ten million dollars in assets 
to be small for purposes of RFA. Interpretive Ruling and Policy 
Statement (IRPS) 87-2 as amended by IRPS 03-2. The proposal relieves a 
CUSO that is wholly owned from having to secure a separate opinion 
audit of its books, if it is included in the annual consolidated 
opinion audit of the credit union that is its parent owner. The NCUA 
has determined and certifies that this proposed rule, if adopted, will 
not have a significant economic impact on a substantial number of small 
credit unions. Accordingly, the NCUA has determined that an RFA 
analysis is not required.

Paperwork Reduction Act

    NCUA has determined that the proposed regulation does not increase 
paperwork requirements under the Paperwork Reduction Act of 1995 and 
regulations of the Office of Management and Budget.

Executive Order 13132

    Executive Order 13132 encourages independent regulatory agencies to 
consider the impact of their actions on state and local interests. In 
adherence to fundamental federalism principles, NCUA, an independent 
regulatory agency as defined in 44 U.S.C. 3502(5), voluntarily complies 
with the executive order. This proposed rule, if adopted, will apply 
only to federally-chartered credit unions. It will not have substantial 
direct effects on the states, on the relationship between the national 
government and the states, or on the distribution of power and 
responsibilities among the various levels of government. NCUA has 
determined that this proposal does not constitute a policy that has 
federalism implications for purposes of the executive order.

The Treasury and General Government Appropriations Act, 1999--
Assessment of Federal Regulations and Policies on Families

    The NCUA has determined that this proposed rule will not affect 
family well-being within the meaning of section 654 of the Treasury and 
General Government Appropriations Act, 1999, Pub. L. 105-277, 112 Stat. 
2681 (1998).

Agency Regulatory Goal

    NCUA's goal is to promulgate clear and understandable regulations 
that impose minimal regulatory burden. We request your comments on 
whether the proposed rule is understandable and minimally intrusive if 
implemented as proposed.

List of Subjects in 12 CFR Part 712

    Administrative practices and procedure, Credit, Credit unions, 
Investments, Reporting and recordkeeping requirements.

    By the National Credit Union Administration Board on March 17, 
2005.
Mary F. Rupp,
Secretary of the Board.
    Accordingly, NCUA proposes to amend 12 CFR part 712 as follows:

PART 712--CREDIT UNION SERVICE ORGANIZATIONS (CUSOs)

    1. The authority citation for part 712 continues to read as 
follows:

    Authority: 12 U.S.C. 1756, 1757(5)(D), and (7)(I), 1766, 1782, 
1784, 1785 and 1786.

    2. Revise Sec.  712.3(d)(2) to read as follows:


Sec.  712.3  What are the characteristics of and what requirements 
apply to CUSOs?

* * * * *
    (d) * * *
    (2) Prepare quarterly financial statements and obtain an annual 
financial statement audit of its financial statements by a licensed 
certified public accountant in accordance with generally accepted 
auditing standards. A wholly owned CUSO is not required to obtain a 
separate annual financial statement audit if it is included in the 
annual consolidated financial statement audit of the credit union that 
is its parent; and
* * * * *
[FR Doc. 05-5677 Filed 3-22-05; 8:45 am]
BILLING CODE 7535-01-P