Definitions; Disclosure to Shareholders; Accounting and Reporting Requirements; Disclosure and Accounting Requirements, 28597-28600 [E9-14255]

Agencies

• Farm Credit Administration

[Federal Register Volume 74, Number 115 (Wednesday, June 17, 2009)]
[Rules and Regulations]
[Pages 28597-28600]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E9-14255]


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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: Final rule.

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SUMMARY: The Farm Credit Administration (FCA, we, or our) issues this 
final rule amending FCA's regulations related to disclosure and 
reporting practices of Farm Credit System (System) institutions. This 
rule updates references to accounting terminology, streamlines 
requirements for filing quarterly reports and the content of the annual 
report to shareholders, and updates the requirements for maintaining an 
allowance for loan losses. The amendments ensure that FCA regulations 
are consistent with System structural changes and are updated to 
include changes to accounting and reporting standards.

DATES: Effective Date: This regulation will be effective 30 days after 
publication in the Federal Register during which either or both Houses 
of Congress are in session. We will publish a notice of the effective 
date in the Federal Register.

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 final rule are to:
     Clarify 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 practices of 
System institutions. In keeping with this provision, we published a 
proposed regulation in the Federal Register (73 FR 70921) on November 
24, 2008, to amend parts 619,

[[Page 28598]]

620, and 621 affecting references to accounting terminology, 
requirements for the content of the annual report to shareholders, 
requirements for filing quarterly reports to shareholders, and 
requirements for maintaining an allowance for loan losses. We also 
proposed certain other clarifications and technical changes to our 
reporting and disclosure regulations. The proposed rule was published 
with a 60-day comment period, which closed on January 23, 2009.
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    \1\ Public Law 99-205, 99 Stat. 1678, Dec. 23, 1985.
    \2\ Public Law 92-181, 85 Stat. 583, Dec. 10, 1971.
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III. Comments and Our Response

    We received three comment letters on the proposed rule. Of the 
comment letters received, one was from the Federal Farm Credit Banks 
Funding Corporation (Funding Corporation) on behalf of the Farm Credit 
System's Accounting Standards Workgroup, one was from the Farm Credit 
Council (FCC) acting for its membership, and one was from a System 
association. In general, the commenters supported the proposed rule, 
but suggested additional changes to our rules. The commenters stated 
the suggested changes would allow for additional flexibility in meeting 
disclosure requirements. We discuss the comments to our proposed rule 
and provide our responses below. Those provisions of the proposed rule 
that did not receive comments are finalized as proposed.

A. Generally Accepted Auditing Standards [Sec. Sec.  619.9270(e) and 
621.2(d)]

    We received no comments on our proposal to replace the language in 
Sec.  621.2(d) referring to Auditing Standards Board of the American 
Institute of Certified Public Accountants (AICPA) with a reference to 
generally accepted auditing standards. We also received no comments on 
our proposed conforming change in Sec.  619.9270(e) to replace the 
reference to AICPA with a reference to the authoritative body governing 
overall audit quality. We finalize these changes as proposed.

B. Signatures on Financial Reports [Sec.  620.3(b)(3)]

    We received no comments on our proposal to remove the reference to 
reports of condition and performance from the signature requirements of 
Sec.  620.3(b)(3). We finalize the change as proposed.

C. Contents of the Annual Report to Shareholders; Incorporation by 
Reference [Sec.  620.5(a) Through (e)]

    We received three comments supporting our proposal to allow the 
information required by Sec.  620.5(a) through (e) to be incorporated 
by reference to the Management's Discussion and Analysis (MD&A) 
section. The commenters also suggested that we allow incorporation by 
reference in other areas of the report, not just the MD&A.
    While we received support for the proposed change to Sec.  620.5, 
we have determined it is unnecessary to change our existing rules and 
withdraw the proposed change. We originally proposed a change to allow 
incorporation in the MD&A the annual report items contained in 
paragraphs (a) through (e) of Sec.  620.5. We, in part, made this 
proposal because of the existing introductory language of Sec.  620.5 
stating that the annual report ``must contain the following items in 
substantially the same order.'' However, existing Sec.  620.2(d) 
provides that information in any part of the annual report may be 
incorporated by reference in answer to any other item of the report. In 
consideration of this language and the introductory language of Sec.  
620.5, we believe institutions are already authorized under the 
provisions of Sec.  620.2(d) to incorporate the information of any 
required section of the annual report in another section, if the 
institution desires to do so. However, to ensure compliance the 
introductory language of Sec.  620.5, institutions applying the 
provisions of Sec.  620.2(d) will need to maintain the annual report 
section headings, as identified in Sec.  620.5, and state under the 
heading where the ``answer'' may be found, i.e., the location where the 
reader may find the information.

D. Description of Business; Significant Developments [Sec.  
620.5(a)(4)]

    We received no comments on the proposal to require the disclosure 
of significant developments that had or could have material impact on 
patronage and dividends. We finalize the change as proposed.
    However, we received three comments suggesting that the current 
requirement to report significant developments for the last 5 years be 
limited to the last 3 years. The commenters explained that such a 
change would be consistent with the requirement in Sec.  620.5(m) to 
furnish financial statements and related footnotes for the last 3 
years. The commenters also explained that the continuation of the 5-
year disclosure requirement would provide no additional relevant 
information to the reader. While we consider the suggested change to 
our rule worth additional consideration, we did not propose this 
change. We cannot, in this final rulemaking, make the change without 
providing additional notice and comment because it does not constitute 
a logical outgrowth of the proposed rulemaking. We will, however, 
consider this issue in a future rulemaking.

E. Description of Business; the Institution's Interdependent 
Relationship With its Funding Bank [Sec.  620.5(a)(10)]

    We proposed removing language that may be interpreted as limiting 
disclosures of certain interdependent relationships, including removal 
of paragraph (a)(10)(v). We also proposed new language for paragraph 
(a)(10) that captures a broader relationship between associations and 
their funding banks, including the elements of paragraph (a)(10)(v). We 
received no comments on our proposal and finalize these changes as 
proposed.

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)]

    We received no comments on our proposal to remove a remaining 
reference in Sec.  620.5(e)(4) to the Farm Credit System Financial 
Assistance Corporation (FAC), which is no longer a chartered entity. We 
finalize this change as proposed.

G. Selected Financial Data; Associations That are not Direct Lender 
Associations [Sec.  620.5(f)(2)]

    We received no comments on our proposal to remove Sec.  620.5(f)(2) 
addressing associations that are not direct lender associations. All 
System associations are now direct lenders. We finalize this change as 
proposed.

H. Description of Funding Sources [Sec.  620.5(g)(3)(i)(A)]

    We received no comments on our proposed clarification that Sec.  
620.5(g)(3)(i)(A) applies to all debt obligations held by each System 
institution, not just the consolidated System-wide debt and bond 
obligations. We finalize this change as proposed.

I. Listing of Directors and Senior Officers and Their Terms of Office 
[Sec.  620.5(h)(1)]

    We received no comments on the proposal to require disclosure of 
the date each senior officer commenced employment in his/her current 
position. We are finalizing this change as proposed.
    We did receive three comments on this section suggesting changes 
not otherwise proposed. The commenters suggested requiring disclosure 
of prior

[[Page 28599]]

positions held, if in the current position less than 5 years, 
explaining that it would provide useful information. The commenters 
contend that without this information the experience of the senior 
officer would be understated. We believe the commenters' concerns are 
sufficiently addressed by the requirements in Sec.  620.5(h)(2). 
However, if institutions wish to disclose more information than that 
required by regulation, such additional disclosures may be made, 
provided that the disclosures comply with Sec.  620.3(a).

J. Director Compensation [Sec.  620.5(i)(1)]

    We received no comments on our proposal to clarify that the 
disclosures required by Sec.  620.5(i)(1) apply to all directors who 
served in that capacity during the fiscal year, including those who 
resigned from the board or whose terms expired during the fiscal year. 
We finalize this change as proposed.

K. Fees Paid to the Qualified Public Accountant Engaged to Conduct the 
Financial Statement Audit [Sec.  620.5(l)(2)]

    We received no comments on our proposal clarifying that disclosure 
of fees paid to the qualified public accountant applies only to the 
qualified public accountant engaged to conduct the audit of the 
institution's financial statement. We finalize this change as proposed.

L. Preparing and Publishing the Quarterly Report [Sec.  620.10(a)]

    We received no comments on our proposals to require institutions to 
electronically file the quarterly report with the FCA and publish the 
report on the institution's Web site. We also received no comments on 
our proposal to replace ``Farm Credit bank and direct lender 
association'' with ``institution'' in Sec.  620.10. We finalize these 
changes as proposed.

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)]

    We received no comments on our proposal to remove Sec.  
620.11(b)(4) through (7) due to recent changes in accounting standards. 
We finalize these changes as proposed.

N. Independent Public Accountant [Sec. Sec.  620.11(e) and 620.21(f)]

    We received no comments on our proposal to replace the references 
to ``independent public accountant'' with ``qualified public accountant 
or external auditor'' in Sec. Sec.  620.11(e) and 620.21(f). We 
finalize these changes as proposed.

O. Accounting for the Allowance for Loan Losses and Chargeoffs [Sec.  
621.5(a)]

    We received no comments on our proposal to revise Sec.  621.5(a) by 
clarifying that a System institution's allowance for loan losses should 
be determined in accordance with GAAP. We finalize this change as 
proposed.

P. Reports of Condition and Performance; Applicability and General 
Instructions; Filing of Reports [Sec.  621.12(c)]

    We received no comments on our proposal to require institutions to 
file their Call Reports electronically in accordance with the 
instructions prescribed by the FCA. We finalize this change as 
proposed.

Q. Technical Corrections [Sec.  620.5]

    We received no comments on our proposal to replace the word 
``financing'' with the word ``financial''. We finalize this change as 
proposed.

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 final 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.

0
For reasons stated in the preamble, parts 619, 620, and 621 of chapter 
VI, title 12 of the Code of Federal Regulations are amended as follows:

PART 619--DEFINITIONS

0
1. The authority citation for part 619 is revised to read as follows:

    Authority:  Secs. 1.4, 1.7, 2.1, 2.4, 2.11, 3.2, 3.21, 4.9, 5.9, 
5.17, 5.18, 5.19, 7.0, 7.1, 7.6, 7.8, and 7.12 of the Farm Credit 
Act (12 U.S.C. 2012, 2015, 2072, 2075, 2092, 2123, 2142, 2160, 2243, 
2252, 2253, 2254, 2279a, 2279a-1, 2279b, 2279c-1, 2279f).

0
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

0
3. The authority citation for part 620 is revised 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, 101 Stat. 1568, 1656.

Subpart A--General

0
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

0
5. Amend Sec.  620.5 as follows:
0
a. Remove the word ``financing'' and add in its place the word 
``financial'' each place it appears in paragraphs (e)(2), (f) heading 
and introductory text, (f)(1)(iii) heading, (g) heading and 
introductory text, (g)(1)(iv), (g)(2)(ii), (g)(2)(vi), (j)(3)(ii), and 
(m)(1);
0
b. Revise paragraphs (a)(4), (a)(10) introductory text, (g)(3)(i)(A), 
(h)(1), (i)(1) introductory text, and the first sentence of paragraph 
(l)(2);
0
c. Remove paragraphs (a)(10)(v), (e)(4) and (f)(2);
0
d. Add the word ``and'' at the end of paragraph (a)(10)(iii);
0
e. Remove ``; and'' and add a period at the end of paragraph 
(a)(10)(iv); and
0
f. 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.

* * * * *
    (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

[[Page 28600]]

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 incorporate by 
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 System-wide 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) * * *
    (1) Director compensation. Describe the arrangements under which 
directors of the institution are compensated for all services as a 
director (including total cash compensation and noncash compensation). 
Noncash compensation with an annual aggregate value of less than $5,000 
does not have to be reported. State the total cash and reportable 
noncash compensation paid to all directors as a group during the last 
fiscal year. 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. If applicable, describe any exceptional circumstances 
justifying the additional director compensation as authorized by Sec.  
611.400(c) of this chapter. For each director, state:
* * * * *
    (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

0
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 
electronically sends the report to the Farm Credit Administration.
* * * * *


Sec.  620.11  [Amended]

0
7. Amend Sec.  620.11 as follows:
0
a. Remove paragraphs (b)(4) through (b)(7);
0
b. Redesignate existing paragraph (b)(8) as newly designated paragraph 
(b)(4); and
0
c. Remove the words ``independent public accountant,'' ``an independent 
public accountant,'' and ``the independent accountant'' and add in 
their place, 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

0
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

0
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 Public Law 102-552.

Subpart A--Purpose and Definitions

0
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

0
11. Amend Sec.  621.5 by revising paragraph (a) to read as follows:


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

0
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: June 12, 2009.
Gaye Calhoun,
Acting Secretary, Farm Credit Administration Board.
[FR Doc. E9-14255 Filed 6-16-09; 8:45 am]
BILLING CODE 6705-01-P