Definitions; Disclosure to Shareholders; Accounting and Reporting Requirements; Disclosure and Accounting Requirements, 70921-70926 [E8-27654]
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Federal Register / Vol. 73, No. 227 / Monday, November 24, 2008 / Proposed Rules
manner. Research records involving raw
data shall include the devices or
instruments on which they reside.
However, if deemed appropriate by the
research institution or investigator,
research data or records that reside on
or in instruments or devices may be
copied and removed from those
instruments or devices as long as the
copies are complete, accurate, and have
substantially equivalent evidentiary
value as the data or records when the
data or records reside on the
instruments or devices. Such copies or
data or records shall be made by a
disinterested, qualified technician and
not by the subject of the original
allegation or other interested parties.
When the relevant data or records have
been removed from the devices or
instruments, the instruments or devices
need not be maintained as evidence.
§ 3022.12
Remedies for non-compliance.
USDA agencies’ implementation
procedures identify the administrative
actions available to remedy a finding of
research misconduct. Such actions may
include the recovery of funds,
correction of the research record,
debarment of the researcher(s) who
engaged in the research misconduct,
proper attribution, or any other action
deemed appropriate to remedy the
instance(s) of research misconduct. In
determining the appropriate
administrative action, the appropriate
agency must impose a remedy that is
commensurate with the infraction as
described in the finding of research
misconduct.
§ 3022.13
Appeals.
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§ 3022.14 Relationship to other
requirements.
Some of the research covered by this
part also may be subject to regulations
of other governmental agencies (e.g., a
university that receives funding from a
USDA agency and also under a grant
from another Federal agency). Research
covered under this part that is also
subject to requirements of other
agencies or funding sources must be
conducted in compliance with all
applicable requirements of this part.
USDA agencies may include in their
implementation procedures a process
for deferring to or collaborating with
19:30 Nov 21, 2008
Dated: November 6, 2008.
Issued at Washington, DC.
Approved.
Edward T. Schafer,
Secretary, U.S. Department of Agriculture.
[FR Doc. E8–27607 Filed 11–21–08; 8:45 am]
BILLING CODE 3410–34–P
FARM CREDIT ADMINISTRATION
12 CFR Parts 619, 620, and 621
RIN 3052–AC35
Definitions; Disclosure to
Shareholders; Accounting and
Reporting Requirements; Disclosure
and Accounting Requirements
Jkt 217001
Farm Credit Administration.
Proposed rule.
AGENCY:
ACTION:
(a) If USDA relied on an institution to
conduct an inquiry, investigation, and
adjudication, the alleged person(s)
should first follow the institution’s
appeal policy and procedures.
(b) USDA agencies’ implementation
procedures identify the appeal process
when a finding of research misconduct
is elevated to the agency.
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other agencies when a research
institution receives funding or support
from multiple sources and therefore
would be subject to multiple research
agencies’ research misconduct
procedures. For example, when a
research institution or the OIG or a
Federal agency other than the relevant
USDA agency, has previously initiated
its own inquiry and investigation, the
relevant USDA agency may wish to
defer its own inquiry or investigation
until it receives the results of that
external inquiry and investigation. If the
relevant USDA agency does not receive
the results of the external inquiry within
what it believes to be a reasonable time,
the relevant USDA agency should
proceed with its own inquiry and, if
warranted, its own investigation.
SUMMARY: The Farm Credit
Administration (FCA, we, or our) is
proposing to amend and/or make
revisions and technical changes to our
regulations. These amendments are
proposed to clarify FCA’s regulations
related to disclosure and reporting
practices of Farm Credit System
(System) institutions. In addition, they
will ensure that FCA regulations are
consistent with System structural
changes and are updated to include
changes to accounting and reporting
standards.
You may send comments on or
before January 23, 2009.
ADDRESSES: We offer a variety of
methods for you to submit your
comments. For accuracy and efficiency
reasons, commenters are encouraged to
submit comments by e-mail or through
the FCA’s. As facsimiles (fax) are
difficult for us to process and achieve
compliance with section 508 of the
Rehabilitation Act, we are no longer
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accepting comments submitted by fax.
Regardless of the method you use,
please do not submit your comment
multiple times via different methods.
You may submit comments by any of
the following methods:
• E-mail: Send us an e-mail at regcomm@fca.gov.
• FCA Web site: https://www.fca.gov.
Select ‘‘Public Commenters,’’ then
‘‘Public Comments,’’ and follow the
directions for ‘‘Submitting a Comment.’’
• Federal eRulemaking Portal: https://
www.regulations.gov. Follow the
instructions for submitting comments.
• Mail: Gary K. Van Meter, Deputy
Director, Office of Regulatory Policy,
Farm Credit Administration, 1501 Farm
Credit Drive, McLean, VA 22102–5090.
You may review copies of comments
we receive at our office in McLean,
Virginia, or from our Web site at https://
www.fca.gov. Once you are in the Web
site, select ‘‘Public Commenters,’’ then
‘‘Public Comments,’’ and follow the
directions for ‘‘Reading Submitted
Public Comments.’’ We will show your
comments as submitted, but for
technical reasons we may omit items
such as logos and special characters.
Identifying information that you
provide, such as phone numbers and
addresses, will be publicly available.
However, we will attempt to remove email addresses to help reduce Internet
spam.
FOR FURTHER INFORMATION CONTACT:
Thomas R. Risdal, Senior Policy
Analyst, Office of Regulatory Policy,
Farm Credit Administration, McLean,
VA 22102–5090, (703) 883–4498, TTY
(703) 883–4434, or Robert Taylor,
Attorney, Office of General Counsel,
Farm Credit Administration, McLean,
VA 22102–5090, (703) 883–4020, TTY
(703) 883–4020.
SUPPLEMENTARY INFORMATION:
I. Objectives
The objectives of this proposed rule
are to:
• Clarify the FCA regulations related
to disclosure and reporting practices of
System institutions; and
• Ensure that FCA regulations are
consistent with System structural
changes and updated to include changes
to accounting and reporting standards.
II. Background
The Farm Credit Amendments Act of
1985 (1985 Amendments) 1 added
provisions to the Farm Credit Act of
1971, as amended (Act),2 requiring FCA
to regulate the disclosure and reporting
1 Pub.
2 Pub.
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L. 99–205, 99 Stat. 1678, Dec. 23, 1985.
L. 92–181, 85 Stat. 583, Dec. 10, 1971.
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by the Sarbanes-Oxley Act of 2002 to
oversee the auditors of public
companies 4 in the preparation of
informative, fair, and independent audit
reports. As a result of its creation,
public institutions are required to
follow the auditing standards that are
established by the PCAOB, while
nonpublic institutions may continue to
follow the standards that are established
by the American Institute of Certified
Public Accountants (AICPA). We
propose to revise the definition of
generally accepted auditing standards in
§ 621.2(d) to include reference to the
standards and guidelines that are
generally accepted in the United States
of America and that are adopted by the
authoritative body that governs the
overall quality of the audit performance.
Specifically, we propose to remove the
language referring to the AICPA, and
insert in its place a reference solely to
generally accepted auditing standards.
Additionally, to ensure consistency
throughout the regulations, we propose
to amend § 619.9270(e) to remove the
language referring to the AICPA, and
insert in its place a reference to the
authoritative body governing overall
audit quality.
III. Section-by-Section Analysis
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practices of System institutions. The
Act, as amended by the 1985
Amendments, requires: (1) Each System
institution to prepare and publish
annual financial reports as prescribed
by the FCA; and (2) that the annual
reports contain financial statements
prepared in accordance with generally
accepted accounting principles (GAAP)
and be audited by an independent
public accountant. To implement these
requirements, we issued regulations at
part 620 (Disclosure to Shareholders)
and part 621 (Accounting and Reporting
Requirements). The regulations
established the requirements for the
preparation of financial reports by Farm
Credit banks and associations, including
annual reports to shareholders and
reports of condition and performance
(Call Reports). The regulations also
established requirements for
categorizing and maintaining
information on high-risk loans and a
requirement that each System
institution have its financial statements
audited by a qualified public
accountant. When developing the
regulations at parts 620 and 621, we
considered the Securities and Exchange
Commission’s (SEC) disclosure and
reporting requirements for public
companies in effect at the time, as well
as the requirements of other financial
institution regulators. We adapted these
requirements to the cooperative
structure of System institutions.
Since our adoption of the regulations
at parts 620 and 621, they have been
revised several times to address a
variety of issues. Most recently, we
revised the regulations to incorporate
improvements in governance and
financial reporting best practices
brought about by the Sarbanes-Oxley
Act of 2002 3 and the SEC’s
implementing regulations. While there
have been a number of amendments to
FCA’s regulations over the years, the
primary disclosure requirements for
shareholder reports, Call Reports and
nonperforming loans have not changed
significantly since they were adopted in
the 1980s. However, System structure
has changed as have certain accounting
and reporting standards. In order to
incorporate these changes into FCA’s
regulations, as applicable, we propose
the following amendments to parts 619,
620, and 621.
4 A public company is a company that is
permitted to offer its registered securities (stock,
bonds, etc.) for sale to the general public, typically
through a stock exchange, but also may include
companies whose stock is traded over the counter
(OTC).
5 Section 620.1(o) defines ‘‘report’’ as the ‘‘annual
report, quarterly report, notice, or information
statement, regardless of form, required by this part
unless otherwise specified.’’
A. Generally Accepted Auditing
Standards [§§ 619.9270(e) and 621.2(d)]
The Public Company Accounting
Oversight Board (PCAOB) was created
3 Pub.
L. 107–204, 116 Stat. 745, July 30, 2002.
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B. Signatures on Financial Reports
[§ 620.3(b)(3)]
Section 620.3(b) and (c) provide the
requirements for signing and certifying
the financial accuracy of the reports 5 by
the institution’s chief executive officer
(CEO), chief financial officer (CFO), and
a designated board member. Existing
§ 620.3(b)(3) provides that the
designated board member that signs and
certifies the reports is the board member
that certifies reports of condition and
performance. The language ‘‘reports of
condition and performance’’ is a direct
reference to the Call Report
requirements in part 621, Accounting
and Reporting Requirements, which is
an incorrect reference. Thus, we
propose to amend § 620.3(b)(3) to
remove the reference to reports of
condition and performance.
C. Contents of the Annual Report to
Shareholders; Incorporation by
Reference [§ 620.5(a) Through (e)]
Section 620.5(a) through (e) requires
that an institution’s annual report
contain: (1) A description of its
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business; (2) a description of its
property; (3) disclosure of certain legal
proceedings and enforcement actions to
which the institution is a party; (4) a
description of its capital structure, and
(5) a description of its liabilities. In
addition, § 620.5(g) requires an
institution’s annual report to contain a
management’s discussion and analysis
(MD&A) section that must include
information necessary to an
understanding of the institution’s
financial condition, material changes
thereto, and results of operations. In
certain circumstances, it may be
appropriate for the institution to include
the disclosures required by § 620.5(a)
through (e) in the MD&A section of the
annual report. In order to provide
institutions flexibility in meeting the
above requirements and to avoid the
occurrence of duplicate disclosures, we
propose to amend § 620.5(a) through (e)
to allow the information required by
these provisions to be incorporated by
reference to the MD&A section, so long
as the descriptions and disclosures are
appropriately included in the MD&A as
required by § 620.5(g).
D. Description of Business; Significant
Developments [§ 620.5(a)(4)]
Section 620.5(a)(4) requires disclosure
of any significant developments within
the last 5 years that could have a
material impact on earnings or the
interest rates to borrowers. We are
adding patronage and dividends to the
list for which disclosure of significant
developments that have material impact
is required. Since an institution’s
patronage and patronage policies and
practices ultimately affect the patronage
or dividend return to a patron/
stockholder, we propose to further
amend this section to specifically
require that changes to an institution’s
patronage and dividend policies and
practices be disclosed if the changes are
considered a significant development in
accordance with the requirements of
this section.
E. Description of Business; the
Institution’s Interdependent
Relationship With Its Funding Bank
[§ 620.5(a)(10)]
Section 620.5(a)(10) requires each
association to disclose in its annual
report the association’s financial and
supervisory relationship with its
funding bank. In order that the section
not be interpreted to require only
disclosure of the financial and
supervisory relationships, but also
include all interdependent relationships
between banks and associations, we
propose to amend this section to remove
language, such as ‘‘financial’’ or
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‘‘supervisory,’’ that may be interpreted
to limit the disclosure of the
interdependent relationship. While
there is a financial and supervisory
relationship between associations and
funding banks that must be disclosed,
we conclude that the disclosure should
further include a discussion of all
interdependent relationships so
shareholders can understand the full
extent of the relationship between an
association and its funding bank.
F. Description of Liabilities; Description
of Statutory Responsibility for
Repayment of Obligations Issued by the
Farm Credit System Financial
Assistance Corporation [§ 620.5(e)(4)]
Section 620.5(e)(4) requires disclosure
of System institutions’ responsibility for
repayment of obligations issued by the
Farm Credit System Financial
Assistance Corporation (FAC). Because
the FAC has fulfilled its obligations and
discharged its responsibilities under the
Act and is no longer a chartered entity,
we propose to remove § 620.5(e)(4) in its
entirety.
G. Selected Financial Data; Associations
That Are Not Direct Lender Associations
[§ 620.5(f)(2)]
Section 620.5(f)(2) requires disclosure
of selected financial data for each of the
last 5 fiscal years in the annual reports
of associations that are not direct lender
associations. Due to System structure
changes that occurred subsequent to the
implementation of this section, all
System associations are now direct
lenders. Therefore, we propose to
remove this section of the regulation in
its entirety.
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H. Description of Funding Sources
[§ 620.5(g)(3)(i)(A)]
Section 620.5(g)(3)(i)(A) requires that
an institution describe its outstanding
consolidated Systemwide debt
obligations and other bond obligations
used to fund its lending operations. We
propose to clarify that the requirement
applies to all debt obligations held by
each System institution, not just the
consolidated Systemwide debt and bond
obligations. For example, this section
would require that an association
describe the general financing
agreement with its affiliated bank.
I. Listing of Directors and Senior
Officers and Their Terms of Office
[§ 620.5(h)(1)]
Section 620.5(h)(1) requires the
disclosure of the names of all directors
and senior officers of the institution,
their respective position titles and terms
of office. Most senior officers, as
employees, do not have agreed-upon
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terms of office with the institution.
Therefore, in lieu of disclosing a term of
office for a senior officer, we propose to
amend this section to require disclosure
of the date the senior officer
commenced employment in his/her
current position. The requirement to
disclose the term of office for directors
would remain unchanged.
J. Director Compensation [§ 620.5(i)(1)]
Section 620.5(i)(1) requires System
institutions to make disclosures
concerning the compensation of
directors, including the total cash and
noncash compensation paid to all
directors as a group during the fiscal
year. However, the current regulation
does not specify whether the disclosures
should include only those directors that
are serving as of the date of the annual
report, or if it should also include
directors that received compensation
during the fiscal year, whether or not
serving as of the date of the annual
report. As a result, disclosure practices
vary among System institutions.
Additionally, disclosure requirements
for System institutions’ CEOs at
§ 620.5(i)(2)(i)(A) specifically require
disclosure of compensation paid to each
individual CEO that served in his/her
capacity as CEO during the fiscal year.
In order to clarify the requirements for
director compensation and to conform
these requirements with the disclosures
required for the CEO at
§ 620.5(i)(2)(i)(A), we propose to amend
this section to clarify that the
disclosures required by § 620.5(i)(1)
apply to all directors that served in that
capacity during the fiscal year,
including those that resigned from the
board or whose terms expired during
the fiscal year.
K. Fees Paid to the Qualified Public
Accountant Engaged To Conduct the
Financial Statement Audit [§ 620.5(l)(2)]
Section 620.5(l)(2) requires each
institution to disclose in its annual
report all fees paid to its qualified
public accountant, with the fees
segregated into three categories: audit
services, non-audit services, and tax
services. The types of non-audit services
must be individually identified and
disclosed, and each institution must
state whether the non-audit services
were approved by its audit committee.
This requirement applies only to the
fees paid to the qualified public
accountant engaged to conduct the
institution’s financial statement audit.
The requirement is intended to help
shareholders assess the independence of
the institution’s external auditor. It does
not apply to fees paid to other qualified
public accountants not engaged to
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conduct the institution’s audit. Thus,
we propose to amend § 620.5(l)(2) to
make this clarification.
L. Preparing and Publishing the
Quarterly Report [§ 620.10(a)]
On December 4, 2007, the FCA issued
a final rule (72 FR 68060) amending the
disclosure and reporting regulations for
System institutions. The final rule
revised the requirements for submitting
part 620 reports to the FCA. Among
other things, amended § 620.4 requires
that each System institution prepare and
send to FCA an electronic copy of its
annual report and publish a copy of its
annual report on its Web site when it
sends FCA the electronic copy. This
amendment intended to strike a balance
between providing accelerated reporting
and improved information flow to
shareholders and investors, allowing
sufficient time for the issuance of a
paper copy of the annual report to
shareholders. This amendment,
however, did not address publication
and filing requirements for quarterly
reports to shareholders. To further
facilitate timely disclosure of financial
information and improved information
flow to shareholders and investors, we
propose to amend § 620.10(a) to include
requirements for filing the quarterly
report electronically with the FCA and
publishing the report on the
institution’s Web site when it sends the
report electronically to the FCA. The
section does not require that the
quarterly report be sent to shareholders.
However, it must be made available for
public inspection at the issuing
institution.
Additionally, we propose to amend
§ 620.10(a) to replace the language
‘‘Farm Credit bank and direct lender
association’’ with ‘‘institution,’’ which
is defined for purposes of § 620.1(f) to
mean ‘‘any bank or association
chartered by the Act.’’
M. Interim Financial Statements and
Pro Forma Presentations Subsequent to
Consummation of a Business
Combination [§ 620.11(b)(4) and (b)(5)],
and Reporting Accounting Changes and
Error Corrections [§ 620.11(b)(6) and
(b)(7)]
The Financial Accounting Standards
Board (FASB) develops and establishes
financial accounting and reporting
standards and the hierarchy under
which those standards are to be applied
(i.e., GAAP). The recent issuance by the
FASB of certain standards has
necessitated a review of our regulations
that are affected by the new standards.
Section 620.11(b)(4) and (b)(5)
established the interim financial
reporting requirements for System
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institutions that consummated a
business combination, merger,
consolidation, etc. (hereinafter referred
to solely as a business combination),
using either the pooling or purchase
methods of accounting. The interim
financial reporting requirements were
affected by the FASB’s issuance in 2007
of Statement of Financial Accounting
Standards (SFAS) 141(R) because:
• FCA regulations require that System
institutions prepare financial statements
and reports in accordance with GAAP,
thus all System institutions are required
to adopt SFAS 141(R) and its disclosure
requirements;
• SFAS 141(R) requires that the
acquisition method of accounting be
used to account for all business
combinations, including combinations
of mutual enterprises, thus the
references in § 620.11(b)(4) and (b)(5) to
pooling and purchase methods of
accounting are no longer relevant; and
• In deliberating the new standard,
the FASB agreed that the definition of
a mutual enterprise includes
cooperative entities, thus the acquisition
method of accounting prescribed by
SFAS 141(R) is GAAP for System
institutions.
SFAS 141(R) is effective for all
business combinations that have an
acquisition date on or after the
beginning of the first annual reporting
period beginning on or after December
15, 2008. Therefore, as of the effective
date, System institutions will be
required to apply SFAS 141(R) to
business combinations with an
acquisition date of January 1, 2009, or
thereafter. Accordingly, since
§ 620.11(b)(4) and (b)(5) will no longer
apply to current GAAP, we propose to
remove these sections in their entirety.
FCA reporting requirements for
accounting changes are found in
§ 620.11(b)(6) and (b)(7). The FASB
issued SFAS 154, Accounting Changes
and Error Corrections, which replaced
Accounting Principles Bulletin Opinion
No. 20 and SFAS 3 and changed the
requirements for the accounting for and
reporting of a change in accounting
principles. SFAS 154 was effective for
accounting changes and corrections of
errors made in fiscal years beginning
after December 15, 2005. Since SFAS
154 addresses the accounting and
reporting requirements covered by
existing § 620.11(b)(6) and (b)(7), and
since System institution financial
statements and reports are required to
be prepared in accordance with GAAP,
we propose to remove § 620.11(b)(6) and
(b)(7) in their entirety.
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N. Independent Public Accountant
[§ 620.11(e) and § 620.21(f)]
Section 619.9270 provides FCA’s
definition of ‘‘qualified public
accountant or external auditor.’’ In order
to ensure that § 620.11(e) and § 620.21(f)
are consistent with the definitions
established in § 619.9270, we propose to
amend § 620.11(e) to replace the
references to ‘‘independent public
accountant’’ with ‘‘qualified public
accountant or external auditor.’’
Additionally, we propose to amend
§ 620.21(f) to replace each reference to
‘‘independent public accountant’’ or
‘‘accountant’’ with ‘‘qualified public
accountant or external auditor.’’
O. Accounting for the Allowance for
Loan Losses and Chargeoffs [§ 621.5(a)]
Our existing rule at § 621.5(a) on the
allowance for loan losses states that
System institutions shall maintain, at all
times, an allowance for loan losses that
is adequate to absorb all probable and
estimable losses that may reasonably be
expected to exist in the loan portfolio.
This requirement was intended to be
consistent with GAAP existing at the
time. The accounting for the allowance
for loan losses continues to evolve as
additional pronouncements and other
guidance are issued by the FASB and
other standard-setting bodies. Therefore,
to ensure that the accounting for the
allowance for loan losses remains
current with industry standards, we
propose to amend this section by
revising the language to clarify that a
System institution’s allowance for loan
losses should be determined in
accordance with GAAP.
P. Reports of Condition and
Performance; Applicability and General
Instructions; Filing of Reports
[§ 621.12(c)]
We propose to revise this provision
because all Call Reports are currently
submitted electronically, and the
instructions for the preparation of the
Call Reports are available on the
Agency’s Web site. Additionally, we
propose to amend § 621.12 to require
that institutions file their Call Reports in
accordance with the instructions
prescribed by the FCA.
Q. Technical Corrections [§ 620.5]
In a previous rulemaking, § 620.5 was
amended by removing the word
‘‘financial’’ and adding in its place the
word ‘‘financing.’’ The intent of the
change, however, was to remove the
word ‘‘financial’’ and add in its place
the word ‘‘financing’’ only as it
appeared in § 620.5(a)(8), rather than in
§§ 620.5(a)(4), 620.5(e)(2), 620.5(f),
620.5(f)(1)(iii), 620.5(g), 620.5(g)(1)(iv),
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620.5(g)(2)(ii), 620.5(g)(2)(vi),
620.5(j)(3)(ii), and 620.5(m)(1).
Therefore, we propose to amend § 620.5
to correct instances where the word
‘‘financial’’ was inadvertently replaced
with the word ‘‘financing.’’
IV. Regulatory Flexibility Act
Pursuant to section 605(b) of the
Regulatory Flexibility Act (5 U.S.C. 601
et seq.), FCA hereby certifies that the
proposed rule will not have a significant
economic impact on a substantial
number of small entities. Each of the
banks in the Farm Credit System,
considered together with its affiliated
associations, has assets and annual
income in excess of the amounts that
would qualify them as small entities.
Therefore, System institutions are not
‘‘small entities’’ as defined in the
Regulatory Flexibility Act.
List of Subjects in 12 CFR Parts 619,
620 and 621
Accounting, Agriculture, Banks,
Banking, Reporting and recordkeeping
requirements, Rural areas.
For reasons stated in the preamble,
parts 619, 620, and 621 of chapter VI,
title 12 of the Code of Federal
Regulations are proposed to be amended
as follows:
PART 619—DEFINITIONS
1. The authority citation for part 619
continues to read as follows:
Authority: Secs. 1.4, 1.7, 2.1, 2.4, 2.11, 3.2,
3.21, 4.9, 5.9, 5.12, 5.17, 5.18, 6.22, 7.0, 7.1,
7.6, 7.8, 7.12 of the Farm Credit Act (12
U.S.C. 2011, 2015, 2072, 2075, 2092, 2123,
2142, 2160, 2243, 2244, 2252, 2253, 2254,
2278b–2, 2279a, 2279a–1, 2279b, 2279b–2,
2279f).
2. Section 619.9270 is amended by
revising the second sentence of
paragraph (e) to read as follows:
§ 619.9270 Qualified Public Accountant or
External Auditor.
*
*
*
*
*
(e) * * * For the purposes of this
definition, the term ‘‘independent’’ has
the same meaning as under the rules
and interpretations of the authoritative
body governing overall audit
performance. * * *
PART 620—DISCLOSURE TO
SHAREHOLDERS
3. The authority citation for part 620
continues to read as follows:
Authority: Secs. 4.19, 5.9, 5.17, 5.19, 8.11
of the Farm Credit Act (12 U.S.C. 2207, 2243,
2252, 2254, 2279aa–11); sec. 424 of Pub. L.
100–233, 100 Stat. 1568, 1656.
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Federal Register / Vol. 73, No. 227 / Monday, November 24, 2008 / Proposed Rules
Subpart A—General
4. Section 620.3 is amended by
revising paragraph (b)(3) as follows:
§ 620.3 Accuracy of reports and
assessment of internal control over
financial reporting.
*
*
*
*
*
(b) * * *
(3) A board member formally
designated by action of the board to
certify reports on behalf of individual
board members.
*
*
*
*
*
Subpart B—Annual Report to
Shareholders
5. Amend § 620.5 as follows:
a. Remove the word ‘‘financing’’ and
add in its place the word ‘‘financial’’
each place it appears in paragraphs
(e)(2), (f) introductory text, (f)(1)(iii), (g)
introductory text, (g)(1)(iv), (g)(2)(ii),
(g)(2)(vi), (j)(3)(ii), and (m)(1);
b. Revise the introductory paragraph,
paragraphs (a)(4), (a)(10) introductory
text, (g)(3)(i)(A), (h)(1), (i), and the first
sentence of paragraph (l)(2);
c. Remove paragraphs (a)(10)(v), (e)(4)
and (f)(2); and
d. Redesignate existing paragraphs
(f)(3) and (f)(4) as newly designated
paragraphs (f)(2) and (f)(3).
sroberts on PROD1PC70 with PROPOSALS
§ 620.5 Contents of the annual report to
shareholders.
The report must contain the following
items in substantially the same order,
except that information required by
paragraphs (a) through (e) of this section
may be referenced to information
required by paragraph (g) so long as the
descriptions and disclosures are
appropriately included in paragraph (g)
of this section:
(a)* * *
(4) Any significant developments
within the last 5 years that had or could
have a material impact on earnings,
interest rates to borrowers, patronage, or
dividends, including, but not limited to,
changes in the reporting entity, changes
in patronage policies and practices, and
financial assistance provided by or to
the institution through loss-sharing or
capital preservation agreements or from
any other source;
*
*
*
*
*
(10) For associations, in a separate
section of the annual report, discuss the
interdependent relationship between
the association and its funding bank,
including, but not limited to, the
financial relationship, a service provider
relationship, other material operational
relationships, and other specific issues
or areas that create a material
interdependent relationship between
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19:30 Nov 21, 2008
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the association and its funding bank.
This separate section may reference
information from other sections of the
annual report. At a minimum, the
separate section must include the
statement required by § 620.2(h)(2)(i) of
this part and the following information
required elsewhere in this section, if
applicable:
*
*
*
*
*
(g) * * *
(3) * * *
(i) * * *
(A) Describe the average and yearend
amounts, maturities, and interest rates
on outstanding consolidated
Systemwide debt obligations, bond
obligations, or any other obligations
used to fund the institution’s lending
operations.
*
*
*
*
*
(h) * * *
(1) List the names of all directors and
senior officers of the institution,
indicating the position title and term of
office of each director, and the position,
title, and date each senior officer
commenced employment in his or her
current position.
*
*
*
*
*
(i) Compensation of directors and
senior officers. For the purposes of this
paragraph, disclosure of compensation
paid to and days served by directors
applies to any director who served in
that capacity at any time during the
reporting period.
*
*
*
*
*
(l) * * *
(2) Disclose the total fees, by the
category of services provided, paid
during the reporting period to the
qualified public accountant engaged to
conduct the institution’s financial
statement audit. * * *
*
*
*
*
*
Subpart C—Quarterly Report
6. Amend § 620.10 by revising
paragraph (a) to read as follows:
§ 620.10
Preparing the quarterly report.
(a) Each institution of the Farm Credit
System must:
(1) Prepare and send, to the Farm
Credit Administration, an electronic
copy of its quarterly report within 40
calendar days after the end of each fiscal
quarter, except that no report need be
prepared for the fiscal quarter that
coincides with the end of the fiscal year
of the institution; and
(2) Publish a copy of its quarterly
report on its Web site when it sends the
report electronically to the Farm Credit
Administration.
*
*
*
*
*
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Frm 00011
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§ 620.11
70925
[Amended]
7. Amend § 620.11 as follows:
a. Remove paragraphs (b)(4) through
(b)(7);
b. Redesignate existing paragraph
(b)(8) as newly designated paragraph
(b)(4); and
c. Remove the words ‘‘independent
public accountant,’’ ‘‘an independent
public accountant,’’ and ‘‘the
independent public accountant’’ and
add the words ‘‘a qualified public
accountant or external auditor’’ in each
place they appear in paragraph (e) and
its heading.
Subpart E—Annual Meeting
Information Statement
8. Amend § 620.21 by revising the
heading and paragraph (f) to read as
follows:
§ 620.21 Contents of the information
statement and other information to be
furnished in connection with the annual
meeting or director elections.
*
*
*
*
*
(f) Relationship with qualified public
accountant or external auditor. If an
institution of the Farm Credit System
has had a change or changes in its
qualified public accountant or external
auditor since the last annual report to
shareholders, or if a disagreement with
a qualified public accountant or external
auditor has occurred, the institution
shall disclose the information required
by § 621.4(c) and (d) of this chapter.
PART 621—ACCOUNTING AND
REPORTING REQUIREMENTS
9. The authority citation for part 621
continues to read as follows:
Authority: Secs. 5.17, 8.11 of the Farm
Credit Act (12 U.S.C. 2252, 2279aa–11); sec.
514 of Pub. L. 102–552.
Subpart A—Purpose and Definitions
10. Amend § 621.2 by revising
paragraph (d) to read as follows:
§ 621.2
Definitions.
*
*
*
*
*
(d) Generally accepted auditing
standards means the standards and
guidelines that are generally accepted in
the United States of America and that
are adopted by the authoritative body
that governs the overall quality of audit
performance.
*
*
*
*
*
Subpart B—General Rules
11. Amend § 621.5 by revising
paragraph (a) to read as follows:
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70926
Federal Register / Vol. 73, No. 227 / Monday, November 24, 2008 / Proposed Rules
§ 621.5 Accounting for the allowance for
loan losses and chargeoffs.
*
*
*
*
*
(a) Maintain at all times an allowance
for loan losses that is determined
according to generally accepted
accounting principles.
*
*
*
*
*
Subpart D—Report of Condition and
Performance
12. Amend § 621.12 by revising
paragraph (c) as follows:
§ 621.12 Applicability and general
instructions.
*
*
*
*
*
(c) All reports of condition and
performance shall be submitted
electronically in accordance with the
instructions prescribed by the Farm
Credit Administration and located on its
Web site.
Dated: November 17, 2008.
Roland E. Smith,
Secretary, Farm Credit Administration Board.
[FR Doc. E8–27654 Filed 11–21–08; 8:45 am]
BILLING CODE 6705–01–P
You may mail two copies of
your comments to: Federal Aviation
Administration, Aircraft Certification
Service, Engine and Propeller
Directorate, Attn: Robert McCabe, ANE–
110 Standards Staff, 12 New England
Executive Park, Burlington,
Massachusetts 01803–5299, Rules
Docket No. NE129. You may deliver two
copies to the Engine and Propeller
Directorate at the above address. You
must mark your comments: Docket No.
NE 129. You may send comments via
e-mail to robert.mccabe@faa.gov. You
must use the subject ‘‘Docket No. NE
129’’. You can inspect comments in the
Rules Docket weekdays, except Federal
holidays, between 7:30 a.m. and 4 p.m.
ADDRESSES:
FOR FURTHER INFORMATION CONTACT:
Federal Aviation Administration,
Aircraft Certification Service, Engine
and Propeller Directorate, Attn: Robert
McCabe, ANE–1 10 Standards Staff, 12
New England Executive Park,
Burlington, Massachusetts 01803–5299;
telephone (781) 238–7138; facsimile
(781) 238–7199; e-mail
robert.mccabe@faa.gov.
SUPPLEMENTARY INFORMATION:
DEPARTMENT OF TRANSPORTATION
Comments Invited
Federal Aviation Administration
We invite interested people to take
part in this rulemaking by sending
written comments, data, or views. The
most helpful comments reference a
specific portion of the special
conditions, explain the reason for any
recommended change, and include
supporting data. We ask that you send
us two copies of written comments.
We will file in the docket all
comments we receive, as well as a
report summarizing each substantive
public contact with FAA personnel
about these special conditions. You can
inspect the docket before and after the
comment closing date. If you wish to
review the docket in person, go to the
address in the ADDRESSES section of this
preamble between 7:30 a.m. and 4 p.m.,
Monday through Friday, except Federal
holidays.
We will consider all comments we
receive on or before the closing date for
comments. We will consider comments
filed late, if it is possible to do so
without incurring expense or delay. We
may change these special conditions
based on the comments we receive.
If you want us to let you know we
received your comments on this
proposal, send us a preaddressed,
stamped postcard on which the docket
number appears. We will stamp the date
on the postcard and mail it back to you.
14 CFR Part 33
[Docket No. NE129; Notice No. 33–08–01–
SCI]
Special Conditions: General Electric
Company GEnx–2B Model Turbofan
Engines
Federal Aviation
Administration (FAA), DOT.
ACTION: Notice of proposed special
conditions.
sroberts on PROD1PC70 with PROPOSALS
AGENCY:
SUMMARY: This notice proposes special
conditions for General Electric
Company (GE) GEnx–2B67 and GEnx–
2B69 model turbofan engines. The fan
blades of these engines will have novel
or unusual design features when
compared to the state of technology
envisioned in the part 33 airworthiness
standards. The applicable airworthiness
regulations do not contain adequate or
appropriate safety standards for these
design features. These special
conditions contain the added safety
standards the Administrator considers
necessary to establish a level of safety
equivalent to that established by the
existing airworthiness standards of 14
CFR part 33.
DATES: We must receive your comments
on or before December 24, 2008.
VerDate Aug<31>2005
19:30 Nov 21, 2008
Jkt 217001
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Frm 00012
Fmt 4702
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Background
On February 28, 2006, the General
Electric Company (GE) applied to the
FAA to amend the GEnx model type
certificate to add GEnx–2B engine
model series. Currently, the GEnx type
certificate consists of the GEnx–1B
turbofan engine models GEnx–1B54,
GEnx–1B58, GEnx–1B64, GEnx–B67,
and GEnx–1B70. GE is requesting to add
the GEnx–2B67 and GEnx–2B69 engine
model series to the type certificate.
The GEnx–2B engine model series is
a close derivative of the GEnx–1B
engine models, and will utilize a
significant number of common parts and
systems. Some GEnx–2B engine model
components, which differ from those on
the GEnx–1B engine models, include a
smaller diameter fan operating at a
slightly higher speed, a lower guide
vane count, fewer booster stages, lower
bypass ratio, fewer low pressure turbine
stages, lighter accessories gearbox, and a
modified turbine rear frame. Those
components do not introduce any
unique materials, design concepts, or
manufacturing processes.
The GEnx–2B engine models will also
incorporate fan blades manufactured
using carbon graphite composite
material, with a bonded metal tip cap,
and metal leading and trailing edge
laminates. The design and manufacture
of these fan blades are similar to those
used on the GE90–76B, –77B, –85B,
–90B, –94B baseline engines, the GE90–
110B1, –113B, and –115B derivative
engine model series, and the GEnx–1B
engine model series. This novel and
unusual design feature results in the fan
blades having significant differences in
material property characteristics when
compared to conventionally designed
fan blades using only metallic materials.
GE submitted data and analysis
during the GE90 baseline and GE90–
115B derivative engine model
certification programs, and again during
the recent GEnx–JB certification
program. GE was able to show that the
likelihood of these carbon graphite
composite fan blades failing below the
inner annulus flow path line is highly
improbable. GE questioned the
appropriateness of the requirement
contained in § 33.94(a)(1) to show
containment after a failure of the fan
blade at the outermost retention feature.
The FAA responded during the GE90
baseline by reviewing the historical
basis for the § 33.94(a)(1) test
requirements, and determined that they
are based on metallic blade
characteristics and service history, and
therefore were not appropriate for the
unusual design features of the
composite fan blade design planned for
E:\FR\FM\24NOP1.SGM
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]]>Agencies
[Federal Register Volume 73, Number 227 (Monday, November 24, 2008)]
[Proposed Rules]
[Pages 70921-70926]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E8-27654]
=======================================================================
-----------------------------------------------------------------------
FARM CREDIT ADMINISTRATION
12 CFR Parts 619, 620, and 621
RIN 3052-AC35
Definitions; Disclosure to Shareholders; Accounting and Reporting
Requirements; Disclosure and Accounting Requirements
AGENCY: Farm Credit Administration.
ACTION: Proposed rule.
-----------------------------------------------------------------------
SUMMARY: The Farm Credit Administration (FCA, we, or our) is proposing
to amend and/or make revisions and technical changes to our
regulations. These amendments are proposed to clarify FCA's regulations
related to disclosure and reporting practices of Farm Credit System
(System) institutions. In addition, they will ensure that FCA
regulations are consistent with System structural changes and are
updated to include changes to accounting and reporting standards.
DATES: You may send comments on or before January 23, 2009.
ADDRESSES: We offer a variety of methods for you to submit your
comments. For accuracy and efficiency reasons, commenters are
encouraged to submit comments by e-mail or through the FCA's. As
facsimiles (fax) are difficult for us to process and achieve compliance
with section 508 of the Rehabilitation Act, we are no longer accepting
comments submitted by fax. Regardless of the method you use, please do
not submit your comment multiple times via different methods. You may
submit comments by any of the following methods:
E-mail: Send us an e-mail at reg-comm@fca.gov.
FCA Web site: https://www.fca.gov. Select ``Public
Commenters,'' then ``Public Comments,'' and follow the directions for
``Submitting a Comment.''
Federal eRulemaking Portal: https://www.regulations.gov.
Follow the instructions for submitting comments.
Mail: Gary K. Van Meter, Deputy Director, Office of
Regulatory Policy, Farm Credit Administration, 1501 Farm Credit Drive,
McLean, VA 22102-5090.
You may review copies of comments we receive at our office in
McLean, Virginia, or from our Web site at https://www.fca.gov. Once you
are in the Web site, select ``Public Commenters,'' then ``Public
Comments,'' and follow the directions for ``Reading Submitted Public
Comments.'' We will show your comments as submitted, but for technical
reasons we may omit items such as logos and special characters.
Identifying information that you provide, such as phone numbers and
addresses, will be publicly available. However, we will attempt to
remove e-mail addresses to help reduce Internet spam.
FOR FURTHER INFORMATION CONTACT: Thomas R. Risdal, Senior Policy
Analyst, Office of Regulatory Policy, Farm Credit Administration,
McLean, VA 22102-5090, (703) 883-4498, TTY (703) 883-4434, or Robert
Taylor, Attorney, Office of General Counsel, Farm Credit
Administration, McLean, VA 22102-5090, (703) 883-4020, TTY (703) 883-
4020.
SUPPLEMENTARY INFORMATION:
I. Objectives
The objectives of this proposed rule are to:
Clarify the FCA regulations related to disclosure and
reporting practices of System institutions; and
Ensure that FCA regulations are consistent with System
structural changes and updated to include changes to accounting and
reporting standards.
II. Background
The Farm Credit Amendments Act of 1985 (1985 Amendments) \1\ added
provisions to the Farm Credit Act of 1971, as amended (Act),\2\
requiring FCA to regulate the disclosure and reporting
[[Page 70922]]
practices of System institutions. The Act, as amended by the 1985
Amendments, requires: (1) Each System institution to prepare and
publish annual financial reports as prescribed by the FCA; and (2) that
the annual reports contain financial statements prepared in accordance
with generally accepted accounting principles (GAAP) and be audited by
an independent public accountant. To implement these requirements, we
issued regulations at part 620 (Disclosure to Shareholders) and part
621 (Accounting and Reporting Requirements). The regulations
established the requirements for the preparation of financial reports
by Farm Credit banks and associations, including annual reports to
shareholders and reports of condition and performance (Call Reports).
The regulations also established requirements for categorizing and
maintaining information on high-risk loans and a requirement that each
System institution have its financial statements audited by a qualified
public accountant. When developing the regulations at parts 620 and
621, we considered the Securities and Exchange Commission's (SEC)
disclosure and reporting requirements for public companies in effect at
the time, as well as the requirements of other financial institution
regulators. We adapted these requirements to the cooperative structure
of System institutions.
---------------------------------------------------------------------------
\1\ Pub. L. 99-205, 99 Stat. 1678, Dec. 23, 1985.
\2\ Pub. L. 92-181, 85 Stat. 583, Dec. 10, 1971.
---------------------------------------------------------------------------
Since our adoption of the regulations at parts 620 and 621, they
have been revised several times to address a variety of issues. Most
recently, we revised the regulations to incorporate improvements in
governance and financial reporting best practices brought about by the
Sarbanes-Oxley Act of 2002 \3\ and the SEC's implementing regulations.
While there have been a number of amendments to FCA's regulations over
the years, the primary disclosure requirements for shareholder reports,
Call Reports and nonperforming loans have not changed significantly
since they were adopted in the 1980s. However, System structure has
changed as have certain accounting and reporting standards. In order to
incorporate these changes into FCA's regulations, as applicable, we
propose the following amendments to parts 619, 620, and 621.
---------------------------------------------------------------------------
\3\ Pub. L. 107-204, 116 Stat. 745, July 30, 2002.
---------------------------------------------------------------------------
III. Section-by-Section Analysis
A. Generally Accepted Auditing Standards [Sec. Sec. 619.9270(e) and
621.2(d)]
The Public Company Accounting Oversight Board (PCAOB) was created
by the Sarbanes-Oxley Act of 2002 to oversee the auditors of public
companies \4\ in the preparation of informative, fair, and independent
audit reports. As a result of its creation, public institutions are
required to follow the auditing standards that are established by the
PCAOB, while nonpublic institutions may continue to follow the
standards that are established by the American Institute of Certified
Public Accountants (AICPA). We propose to revise the definition of
generally accepted auditing standards in Sec. 621.2(d) to include
reference to the standards and guidelines that are generally accepted
in the United States of America and that are adopted by the
authoritative body that governs the overall quality of the audit
performance. Specifically, we propose to remove the language referring
to the AICPA, and insert in its place a reference solely to generally
accepted auditing standards. Additionally, to ensure consistency
throughout the regulations, we propose to amend Sec. 619.9270(e) to
remove the language referring to the AICPA, and insert in its place a
reference to the authoritative body governing overall audit quality.
---------------------------------------------------------------------------
\4\ A public company is a company that is permitted to offer its
registered securities (stock, bonds, etc.) for sale to the general
public, typically through a stock exchange, but also may include
companies whose stock is traded over the counter (OTC).
---------------------------------------------------------------------------
B. Signatures on Financial Reports [Sec. 620.3(b)(3)]
Section 620.3(b) and (c) provide the requirements for signing and
certifying the financial accuracy of the reports \5\ by the
institution's chief executive officer (CEO), chief financial officer
(CFO), and a designated board member. Existing Sec. 620.3(b)(3)
provides that the designated board member that signs and certifies the
reports is the board member that certifies reports of condition and
performance. The language ``reports of condition and performance'' is a
direct reference to the Call Report requirements in part 621,
Accounting and Reporting Requirements, which is an incorrect reference.
Thus, we propose to amend Sec. 620.3(b)(3) to remove the reference to
reports of condition and performance.
---------------------------------------------------------------------------
\5\ Section 620.1(o) defines ``report'' as the ``annual report,
quarterly report, notice, or information statement, regardless of
form, required by this part unless otherwise specified.''
---------------------------------------------------------------------------
C. Contents of the Annual Report to Shareholders; Incorporation by
Reference [Sec. 620.5(a) Through (e)]
Section 620.5(a) through (e) requires that an institution's annual
report contain: (1) A description of its business; (2) a description of
its property; (3) disclosure of certain legal proceedings and
enforcement actions to which the institution is a party; (4) a
description of its capital structure, and (5) a description of its
liabilities. In addition, Sec. 620.5(g) requires an institution's
annual report to contain a management's discussion and analysis (MD&A)
section that must include information necessary to an understanding of
the institution's financial condition, material changes thereto, and
results of operations. In certain circumstances, it may be appropriate
for the institution to include the disclosures required by Sec.
620.5(a) through (e) in the MD&A section of the annual report. In order
to provide institutions flexibility in meeting the above requirements
and to avoid the occurrence of duplicate disclosures, we propose to
amend Sec. 620.5(a) through (e) to allow the information required by
these provisions to be incorporated by reference to the MD&A section,
so long as the descriptions and disclosures are appropriately included
in the MD&A as required by Sec. 620.5(g).
D. Description of Business; Significant Developments [Sec.
620.5(a)(4)]
Section 620.5(a)(4) requires disclosure of any significant
developments within the last 5 years that could have a material impact
on earnings or the interest rates to borrowers. We are adding patronage
and dividends to the list for which disclosure of significant
developments that have material impact is required. Since an
institution's patronage and patronage policies and practices ultimately
affect the patronage or dividend return to a patron/stockholder, we
propose to further amend this section to specifically require that
changes to an institution's patronage and dividend policies and
practices be disclosed if the changes are considered a significant
development in accordance with the requirements of this section.
E. Description of Business; the Institution's Interdependent
Relationship With Its Funding Bank [Sec. 620.5(a)(10)]
Section 620.5(a)(10) requires each association to disclose in its
annual report the association's financial and supervisory relationship
with its funding bank. In order that the section not be interpreted to
require only disclosure of the financial and supervisory relationships,
but also include all interdependent relationships between banks and
associations, we propose to amend this section to remove language, such
as ``financial'' or
[[Page 70923]]
``supervisory,'' that may be interpreted to limit the disclosure of the
interdependent relationship. While there is a financial and supervisory
relationship between associations and funding banks that must be
disclosed, we conclude that the disclosure should further include a
discussion of all interdependent relationships so shareholders can
understand the full extent of the relationship between an association
and its funding bank.
F. Description of Liabilities; Description of Statutory Responsibility
for Repayment of Obligations Issued by the Farm Credit System Financial
Assistance Corporation [Sec. 620.5(e)(4)]
Section 620.5(e)(4) requires disclosure of System institutions'
responsibility for repayment of obligations issued by the Farm Credit
System Financial Assistance Corporation (FAC). Because the FAC has
fulfilled its obligations and discharged its responsibilities under the
Act and is no longer a chartered entity, we propose to remove Sec.
620.5(e)(4) in its entirety.
G. Selected Financial Data; Associations That Are Not Direct Lender
Associations [Sec. 620.5(f)(2)]
Section 620.5(f)(2) requires disclosure of selected financial data
for each of the last 5 fiscal years in the annual reports of
associations that are not direct lender associations. Due to System
structure changes that occurred subsequent to the implementation of
this section, all System associations are now direct lenders.
Therefore, we propose to remove this section of the regulation in its
entirety.
H. Description of Funding Sources [Sec. 620.5(g)(3)(i)(A)]
Section 620.5(g)(3)(i)(A) requires that an institution describe its
outstanding consolidated Systemwide debt obligations and other bond
obligations used to fund its lending operations. We propose to clarify
that the requirement applies to all debt obligations held by each
System institution, not just the consolidated Systemwide debt and bond
obligations. For example, this section would require that an
association describe the general financing agreement with its
affiliated bank.
I. Listing of Directors and Senior Officers and Their Terms of Office
[Sec. 620.5(h)(1)]
Section 620.5(h)(1) requires the disclosure of the names of all
directors and senior officers of the institution, their respective
position titles and terms of office. Most senior officers, as
employees, do not have agreed-upon terms of office with the
institution. Therefore, in lieu of disclosing a term of office for a
senior officer, we propose to amend this section to require disclosure
of the date the senior officer commenced employment in his/her current
position. The requirement to disclose the term of office for directors
would remain unchanged.
J. Director Compensation [Sec. 620.5(i)(1)]
Section 620.5(i)(1) requires System institutions to make
disclosures concerning the compensation of directors, including the
total cash and noncash compensation paid to all directors as a group
during the fiscal year. However, the current regulation does not
specify whether the disclosures should include only those directors
that are serving as of the date of the annual report, or if it should
also include directors that received compensation during the fiscal
year, whether or not serving as of the date of the annual report. As a
result, disclosure practices vary among System institutions.
Additionally, disclosure requirements for System institutions' CEOs at
Sec. 620.5(i)(2)(i)(A) specifically require disclosure of compensation
paid to each individual CEO that served in his/her capacity as CEO
during the fiscal year. In order to clarify the requirements for
director compensation and to conform these requirements with the
disclosures required for the CEO at Sec. 620.5(i)(2)(i)(A), we propose
to amend this section to clarify that the disclosures required by Sec.
620.5(i)(1) apply to all directors that served in that capacity during
the fiscal year, including those that resigned from the board or whose
terms expired during the fiscal year.
K. Fees Paid to the Qualified Public Accountant Engaged To Conduct the
Financial Statement Audit [Sec. 620.5(l)(2)]
Section 620.5(l)(2) requires each institution to disclose in its
annual report all fees paid to its qualified public accountant, with
the fees segregated into three categories: audit services, non-audit
services, and tax services. The types of non-audit services must be
individually identified and disclosed, and each institution must state
whether the non-audit services were approved by its audit committee.
This requirement applies only to the fees paid to the qualified public
accountant engaged to conduct the institution's financial statement
audit. The requirement is intended to help shareholders assess the
independence of the institution's external auditor. It does not apply
to fees paid to other qualified public accountants not engaged to
conduct the institution's audit. Thus, we propose to amend Sec.
620.5(l)(2) to make this clarification.
L. Preparing and Publishing the Quarterly Report [Sec. 620.10(a)]
On December 4, 2007, the FCA issued a final rule (72 FR 68060)
amending the disclosure and reporting regulations for System
institutions. The final rule revised the requirements for submitting
part 620 reports to the FCA. Among other things, amended Sec. 620.4
requires that each System institution prepare and send to FCA an
electronic copy of its annual report and publish a copy of its annual
report on its Web site when it sends FCA the electronic copy. This
amendment intended to strike a balance between providing accelerated
reporting and improved information flow to shareholders and investors,
allowing sufficient time for the issuance of a paper copy of the annual
report to shareholders. This amendment, however, did not address
publication and filing requirements for quarterly reports to
shareholders. To further facilitate timely disclosure of financial
information and improved information flow to shareholders and
investors, we propose to amend Sec. 620.10(a) to include requirements
for filing the quarterly report electronically with the FCA and
publishing the report on the institution's Web site when it sends the
report electronically to the FCA. The section does not require that the
quarterly report be sent to shareholders. However, it must be made
available for public inspection at the issuing institution.
Additionally, we propose to amend Sec. 620.10(a) to replace the
language ``Farm Credit bank and direct lender association'' with
``institution,'' which is defined for purposes of Sec. 620.1(f) to
mean ``any bank or association chartered by the Act.''
M. Interim Financial Statements and Pro Forma Presentations Subsequent
to Consummation of a Business Combination [Sec. 620.11(b)(4) and
(b)(5)], and Reporting Accounting Changes and Error Corrections [Sec.
620.11(b)(6) and (b)(7)]
The Financial Accounting Standards Board (FASB) develops and
establishes financial accounting and reporting standards and the
hierarchy under which those standards are to be applied (i.e., GAAP).
The recent issuance by the FASB of certain standards has necessitated a
review of our regulations that are affected by the new standards.
Section 620.11(b)(4) and (b)(5) established the interim financial
reporting requirements for System
[[Page 70924]]
institutions that consummated a business combination, merger,
consolidation, etc. (hereinafter referred to solely as a business
combination), using either the pooling or purchase methods of
accounting. The interim financial reporting requirements were affected
by the FASB's issuance in 2007 of Statement of Financial Accounting
Standards (SFAS) 141(R) because:
FCA regulations require that System institutions prepare
financial statements and reports in accordance with GAAP, thus all
System institutions are required to adopt SFAS 141(R) and its
disclosure requirements;
SFAS 141(R) requires that the acquisition method of
accounting be used to account for all business combinations, including
combinations of mutual enterprises, thus the references in Sec.
620.11(b)(4) and (b)(5) to pooling and purchase methods of accounting
are no longer relevant; and
In deliberating the new standard, the FASB agreed that the
definition of a mutual enterprise includes cooperative entities, thus
the acquisition method of accounting prescribed by SFAS 141(R) is GAAP
for System institutions.
SFAS 141(R) is effective for all business combinations that have an
acquisition date on or after the beginning of the first annual
reporting period beginning on or after December 15, 2008. Therefore, as
of the effective date, System institutions will be required to apply
SFAS 141(R) to business combinations with an acquisition date of
January 1, 2009, or thereafter. Accordingly, since Sec. 620.11(b)(4)
and (b)(5) will no longer apply to current GAAP, we propose to remove
these sections in their entirety.
FCA reporting requirements for accounting changes are found in
Sec. 620.11(b)(6) and (b)(7). The FASB issued SFAS 154, Accounting
Changes and Error Corrections, which replaced Accounting Principles
Bulletin Opinion No. 20 and SFAS 3 and changed the requirements for the
accounting for and reporting of a change in accounting principles. SFAS
154 was effective for accounting changes and corrections of errors made
in fiscal years beginning after December 15, 2005. Since SFAS 154
addresses the accounting and reporting requirements covered by existing
Sec. 620.11(b)(6) and (b)(7), and since System institution financial
statements and reports are required to be prepared in accordance with
GAAP, we propose to remove Sec. 620.11(b)(6) and (b)(7) in their
entirety.
N. Independent Public Accountant [Sec. 620.11(e) and Sec. 620.21(f)]
Section 619.9270 provides FCA's definition of ``qualified public
accountant or external auditor.'' In order to ensure that Sec.
620.11(e) and Sec. 620.21(f) are consistent with the definitions
established in Sec. 619.9270, we propose to amend Sec. 620.11(e) to
replace the references to ``independent public accountant'' with
``qualified public accountant or external auditor.'' Additionally, we
propose to amend Sec. 620.21(f) to replace each reference to
``independent public accountant'' or ``accountant'' with ``qualified
public accountant or external auditor.''
O. Accounting for the Allowance for Loan Losses and Chargeoffs [Sec.
621.5(a)]
Our existing rule at Sec. 621.5(a) on the allowance for loan
losses states that System institutions shall maintain, at all times, an
allowance for loan losses that is adequate to absorb all probable and
estimable losses that may reasonably be expected to exist in the loan
portfolio. This requirement was intended to be consistent with GAAP
existing at the time. The accounting for the allowance for loan losses
continues to evolve as additional pronouncements and other guidance are
issued by the FASB and other standard-setting bodies. Therefore, to
ensure that the accounting for the allowance for loan losses remains
current with industry standards, we propose to amend this section by
revising the language to clarify that a System institution's allowance
for loan losses should be determined in accordance with GAAP.
P. Reports of Condition and Performance; Applicability and General
Instructions; Filing of Reports [Sec. 621.12(c)]
We propose to revise this provision because all Call Reports are
currently submitted electronically, and the instructions for the
preparation of the Call Reports are available on the Agency's Web site.
Additionally, we propose to amend Sec. 621.12 to require that
institutions file their Call Reports in accordance with the
instructions prescribed by the FCA.
Q. Technical Corrections [Sec. 620.5]
In a previous rulemaking, Sec. 620.5 was amended by removing the
word ``financial'' and adding in its place the word ``financing.'' The
intent of the change, however, was to remove the word ``financial'' and
add in its place the word ``financing'' only as it appeared in Sec.
620.5(a)(8), rather than in Sec. Sec. 620.5(a)(4), 620.5(e)(2),
620.5(f), 620.5(f)(1)(iii), 620.5(g), 620.5(g)(1)(iv), 620.5(g)(2)(ii),
620.5(g)(2)(vi), 620.5(j)(3)(ii), and 620.5(m)(1). Therefore, we
propose to amend Sec. 620.5 to correct instances where the word
``financial'' was inadvertently replaced with the word ``financing.''
IV. Regulatory Flexibility Act
Pursuant to section 605(b) of the Regulatory Flexibility Act (5
U.S.C. 601 et seq.), FCA hereby certifies that the proposed rule will
not have a significant economic impact on a substantial number of small
entities. Each of the banks in the Farm Credit System, considered
together with its affiliated associations, has assets and annual income
in excess of the amounts that would qualify them as small entities.
Therefore, System institutions are not ``small entities'' as defined in
the Regulatory Flexibility Act.
List of Subjects in 12 CFR Parts 619, 620 and 621
Accounting, Agriculture, Banks, Banking, Reporting and
recordkeeping requirements, Rural areas.
For reasons stated in the preamble, parts 619, 620, and 621 of
chapter VI, title 12 of the Code of Federal Regulations are proposed to
be amended as follows:
PART 619--DEFINITIONS
1. The authority citation for part 619 continues to read as
follows:
Authority: Secs. 1.4, 1.7, 2.1, 2.4, 2.11, 3.2, 3.21, 4.9, 5.9,
5.12, 5.17, 5.18, 6.22, 7.0, 7.1, 7.6, 7.8, 7.12 of the Farm Credit
Act (12 U.S.C. 2011, 2015, 2072, 2075, 2092, 2123, 2142, 2160, 2243,
2244, 2252, 2253, 2254, 2278b-2, 2279a, 2279a-1, 2279b, 2279b-2,
2279f).
2. Section 619.9270 is amended by revising the second sentence of
paragraph (e) to read as follows:
Sec. 619.9270 Qualified Public Accountant or External Auditor.
* * * * *
(e) * * * For the purposes of this definition, the term
``independent'' has the same meaning as under the rules and
interpretations of the authoritative body governing overall audit
performance. * * *
PART 620--DISCLOSURE TO SHAREHOLDERS
3. The authority citation for part 620 continues to read as
follows:
Authority: Secs. 4.19, 5.9, 5.17, 5.19, 8.11 of the Farm Credit
Act (12 U.S.C. 2207, 2243, 2252, 2254, 2279aa-11); sec. 424 of Pub.
L. 100-233, 100 Stat. 1568, 1656.
[[Page 70925]]
Subpart A--General
4. Section 620.3 is amended by revising paragraph (b)(3) as
follows:
Sec. 620.3 Accuracy of reports and assessment of internal control
over financial reporting.
* * * * *
(b) * * *
(3) A board member formally designated by action of the board to
certify reports on behalf of individual board members.
* * * * *
Subpart B--Annual Report to Shareholders
5. Amend Sec. 620.5 as follows:
a. Remove the word ``financing'' and add in its place the word
``financial'' each place it appears in paragraphs (e)(2), (f)
introductory text, (f)(1)(iii), (g) introductory text, (g)(1)(iv),
(g)(2)(ii), (g)(2)(vi), (j)(3)(ii), and (m)(1);
b. Revise the introductory paragraph, paragraphs (a)(4), (a)(10)
introductory text, (g)(3)(i)(A), (h)(1), (i), and the first sentence of
paragraph (l)(2);
c. Remove paragraphs (a)(10)(v), (e)(4) and (f)(2); and
d. Redesignate existing paragraphs (f)(3) and (f)(4) as newly
designated paragraphs (f)(2) and (f)(3).
Sec. 620.5 Contents of the annual report to shareholders.
The report must contain the following items in substantially the
same order, except that information required by paragraphs (a) through
(e) of this section may be referenced to information required by
paragraph (g) so long as the descriptions and disclosures are
appropriately included in paragraph (g) of this section:
(a)* * *
(4) Any significant developments within the last 5 years that had
or could have a material impact on earnings, interest rates to
borrowers, patronage, or dividends, including, but not limited to,
changes in the reporting entity, changes in patronage policies and
practices, and financial assistance provided by or to the institution
through loss-sharing or capital preservation agreements or from any
other source;
* * * * *
(10) For associations, in a separate section of the annual report,
discuss the interdependent relationship between the association and its
funding bank, including, but not limited to, the financial
relationship, a service provider relationship, other material
operational relationships, and other specific issues or areas that
create a material interdependent relationship between the association
and its funding bank. This separate section may reference information
from other sections of the annual report. At a minimum, the separate
section must include the statement required by Sec. 620.2(h)(2)(i) of
this part and the following information required elsewhere in this
section, if applicable:
* * * * *
(g) * * *
(3) * * *
(i) * * *
(A) Describe the average and yearend amounts, maturities, and
interest rates on outstanding consolidated Systemwide debt obligations,
bond obligations, or any other obligations used to fund the
institution's lending operations.
* * * * *
(h) * * *
(1) List the names of all directors and senior officers of the
institution, indicating the position title and term of office of each
director, and the position, title, and date each senior officer
commenced employment in his or her current position.
* * * * *
(i) Compensation of directors and senior officers. For the purposes
of this paragraph, disclosure of compensation paid to and days served
by directors applies to any director who served in that capacity at any
time during the reporting period.
* * * * *
(l) * * *
(2) Disclose the total fees, by the category of services provided,
paid during the reporting period to the qualified public accountant
engaged to conduct the institution's financial statement audit. * * *
* * * * *
Subpart C--Quarterly Report
6. Amend Sec. 620.10 by revising paragraph (a) to read as follows:
Sec. 620.10 Preparing the quarterly report.
(a) Each institution of the Farm Credit System must:
(1) Prepare and send, to the Farm Credit Administration, an
electronic copy of its quarterly report within 40 calendar days after
the end of each fiscal quarter, except that no report need be prepared
for the fiscal quarter that coincides with the end of the fiscal year
of the institution; and
(2) Publish a copy of its quarterly report on its Web site when it
sends the report electronically to the Farm Credit Administration.
* * * * *
Sec. 620.11 [Amended]
7. Amend Sec. 620.11 as follows:
a. Remove paragraphs (b)(4) through (b)(7);
b. Redesignate existing paragraph (b)(8) as newly designated
paragraph (b)(4); and
c. Remove the words ``independent public accountant,'' ``an
independent public accountant,'' and ``the independent public
accountant'' and add the words ``a qualified public accountant or
external auditor'' in each place they appear in paragraph (e) and its
heading.
Subpart E--Annual Meeting Information Statement
8. Amend Sec. 620.21 by revising the heading and paragraph (f) to
read as follows:
Sec. 620.21 Contents of the information statement and other
information to be furnished in connection with the annual meeting or
director elections.
* * * * *
(f) Relationship with qualified public accountant or external
auditor. If an institution of the Farm Credit System has had a change
or changes in its qualified public accountant or external auditor since
the last annual report to shareholders, or if a disagreement with a
qualified public accountant or external auditor has occurred, the
institution shall disclose the information required by Sec. 621.4(c)
and (d) of this chapter.
PART 621--ACCOUNTING AND REPORTING REQUIREMENTS
9. The authority citation for part 621 continues to read as
follows:
Authority: Secs. 5.17, 8.11 of the Farm Credit Act (12 U.S.C.
2252, 2279aa-11); sec. 514 of Pub. L. 102-552.
Subpart A--Purpose and Definitions
10. Amend Sec. 621.2 by revising paragraph (d) to read as follows:
Sec. 621.2 Definitions.
* * * * *
(d) Generally accepted auditing standards means the standards and
guidelines that are generally accepted in the United States of America
and that are adopted by the authoritative body that governs the overall
quality of audit performance.
* * * * *
Subpart B--General Rules
11. Amend Sec. 621.5 by revising paragraph (a) to read as follows:
[[Page 70926]]
Sec. 621.5 Accounting for the allowance for loan losses and
chargeoffs.
* * * * *
(a) Maintain at all times an allowance for loan losses that is
determined according to generally accepted accounting principles.
* * * * *
Subpart D--Report of Condition and Performance
12. Amend Sec. 621.12 by revising paragraph (c) as follows:
Sec. 621.12 Applicability and general instructions.
* * * * *
(c) All reports of condition and performance shall be submitted
electronically in accordance with the instructions prescribed by the
Farm Credit Administration and located on its Web site.
Dated: November 17, 2008.
Roland E. Smith,
Secretary, Farm Credit Administration Board.
[FR Doc. E8-27654 Filed 11-21-08; 8:45 am]
BILLING CODE 6705-01-P
