12 U.S.C. § 1831m : US Code - Section 1831M: Early identification of needed improvements in financial management

Search 12 U.S.C. § 1831m : US Code - Section 1831M: Early identification of needed improvements in financial management

(a) Annual report on financial condition and management
(1) Report required
Each insured depository institution shall submit an annual
report to the Corporation, the appropriate Federal banking
agency, and any appropriate State bank supervisor (including any
State bank supervisor of a host State).
(2) Contents of report
Any annual report required under paragraph (1) shall contain -
(A) the information required to be provided by -
(i) the institution's management under subsection (b) of
this section; and
(ii) an independent public accountant under subsections (c)
and (d) of this section; and
(B) such other information as the Corporation and the
appropriate Federal banking agency may determine to be
necessary to assess the financial condition and management of
the institution.
(3) Public availability
Any annual report required under paragraph (1) shall be
available for public inspection. Notwithstanding the preceding
sentence, the Corporation and the appropriate Federal banking
agencies may designate certain information as privileged and
confidential and not available to the public.
(b) Management responsibility for financial statements and internal
controls
Each insured depository institution shall prepare -
(1) annual financial statements in accordance with generally
accepted accounting principles and such other disclosure
requirements as the Corporation and the appropriate Federal
banking agency may prescribe; and
(2) a report signed by the chief executive officer and the
chief accounting or financial officer of the institution which
contains -
(A) a statement of the management's responsibilities for -
(i) preparing financial statements;
(ii) establishing and maintaining an adequate internal
control structure and procedures for financial reporting; and
(iii) complying with the laws and regulations relating to
safety and soundness which are designated by the Corporation
and the appropriate Federal banking agency; and
(B) an assessment, as of the end of the institution's most
recent fiscal year, of -
(i) the effectiveness of such internal control structure
and procedures; and
(ii) the institution's compliance with the laws and
regulations relating to safety and soundness which are
designated by the Corporation and the appropriate Federal
banking agency.
(c) Internal control evaluation and reporting requirements for
independent public accountants
(1) In general
With respect to any internal control report required by
subsection (b)(2) of this section of any institution, the
institution's independent public accountant shall attest to, and
report separately on, the assertions of the institution's
management contained in such report.
(2) Attestation requirements
Any attestation pursuant to paragraph (1) shall be made in
accordance with generally accepted standards for attestation
engagements.
(d) Annual independent audits of financial statements
(1) Audits required
The Corporation, in consultation with the appropriate Federal
banking agencies, shall prescribe regulations requiring that each
insured depository institution shall have an annual independent
audit made of the institution's financial statements by an
independent public accountant in accordance with generally
accepted auditing standards and section 1831n of this title.
(2) Scope of audit
In connection with any audit under this subsection, the
independent public accountant shall determine and report whether
the financial statements of the institution -
(A) are presented fairly in accordance with generally
accepted accounting principles; and
(B) comply with such other disclosure requirements as the
Corporation and the appropriate Federal banking agency may
prescribe.
(3) Requirements for insured subsidiaries of holding companies
The requirements for an independent audit under this subsection
may be satisfied for insured depository institutions that are
subsidiaries of a holding company by an independent audit of the
holding company.
(e) Repealed. Pub. L. 104-208, div. A, title II, Sec. 2301(a),
Sept. 30, 1996, 110 Stat. 3009-419
(f) Form and content of reports and auditing standards
(1) In general
The scope of each report by an independent public accountant
pursuant to this section, and the procedures followed in
preparing such report, shall meet or exceed the scope and
procedures required by generally accepted auditing standards and
other applicable standards recognized by the Corporation.
(2) Consultation
The Corporation shall consult with the other appropriate
Federal banking agencies in implementing this subsection.
(g) Improved accountability
(1) Independent audit committee
(A) Establishment
Each insured depository institution (to which this section
applies) shall have an independent audit committee entirely
made up of outside directors who are independent of management
of the institution, except as provided in subparagraph (D), and
who satisfy any specific requirements the Corporation may
establish.
(B) Duties
An independent audit committee's duties shall include
reviewing with management and the independent public accountant
the basis for the reports issued under subsections (b)(2), (c),
and (d) of this section.
(C) Criteria applicable to committees of large insured
depository institutions
In the case of each insured depository institution which the
Corporation determines to be a large institution, the audit
committee required by subparagraph (A) shall -
(i) include members with banking or related financial
management expertise;
(ii) have access to the committee's own outside counsel;
and
(iii) not include any large customers of the institution.
(D) Exemption authority
(i) In general
An appropriate Federal banking agency may, by order or
regulation, permit the independent audit committee of an
insured depository institution to be made up of less than
all, but no fewer than a majority of, outside directors, if
the agency determines that the institution has encountered
hardships in retaining and recruiting a sufficient number of
competent outside directors to serve on the internal audit
committee of the institution.
(ii) Factors to be considered
In determining whether an insured depository institution
has encountered hardships referred to in clause (i), the
appropriate Federal banking agency shall consider factors
such as the size of the institution, and whether the
institution has made a good faith effort to elect or name
additional competent outside directors to the board of
directors of the institution who may serve on the internal
audit committee.
(2) Review of quarterly reports of large insured depository
institutions
(A) In general
In the case of any insured depository institution which the
Corporation has determined to be a large institution, the
Corporation may require the independent public accountant
retained by such institution to perform reviews of the
institution's quarterly financial reports in accordance with
procedures agreed upon by the Corporation.
(B) Report to audit committee
The independent public accountant referred to in subparagraph
(A) shall provide the audit committee of the insured depository
institution with reports on the reviews under such subparagraph
and the audit committee shall provide such reports to the
Corporation, any appropriate Federal banking agency, and any
appropriate State bank supervisor.
(C) Limitation on notice
Reports provided under subparagraph (B) shall be only for the
information and use of the insured depository institution, the
Corporation, any appropriate Federal banking agency, and any
State bank supervisor that received the report.
(D) Notice to institution
The Corporation shall promptly notify an insured depository
institution, in writing, of a determination pursuant to
subparagraph (A) to require a review of such institution's
quarterly financial reports.
(3) Qualifications of independent public accountants
(A) In general
All audit services required by this section shall be
performed only by an independent public accountant who -
(i) has agreed to provide related working papers, policies,
and procedures to the Corporation, any appropriate Federal
banking agency, and any State bank supervisor, if requested;
and
(ii) has received a peer review that meets guidelines
acceptable to the Corporation.
(B) Reports on peer reviews
Reports on peer reviews shall be filed with the Corporation
and made available for public inspection.
(4) Enforcement actions
(A) In general
In addition to any authority contained in section 1818 of
this title, the Corporation or an appropriate Federal banking
agency may remove, suspend, or bar an independent public
accountant, upon a showing of good cause, from performing audit
services required by this section.
(B) Joint rulemaking
The appropriate Federal banking agencies shall jointly issue
rules of practice to implement this paragraph.
(5) Notice by accountant of termination of services
Any independent public accountant performing an audit under
this section who subsequently ceases to be the accountant for the
institution shall promptly notify the Corporation and each
appropriate Federal banking agency pursuant to such rules as the
Corporation and each appropriate Federal banking agency shall
prescribe.
(h) Exchange of reports and information
(1) Report to the independent auditor
(A) In general
Each insured depository institution which has engaged the
services of an independent auditor to audit such institution
shall transmit to the auditor a copy of the most recent report
of condition made by the institution (pursuant to this chapter
or any other provision of law) and a copy of the most recent
report of examination received by the institution.
(B) Additional information
In addition to the copies of the reports required to be
provided under subparagraph (A), each insured depository
institution shall provide the auditor with -
(i) a copy of any supervisory memorandum of understanding
with such institution and any written agreement between such
institution and any appropriate Federal banking agency or any
appropriate State bank supervisor which is in effect during
the period covered by the audit; and
(ii) a report of -
(I) any action initiated or taken by the appropriate
Federal banking agency or the Corporation during such
period under subsection (a), (b), (c), (e), (g), (i), (s),
or (t) of section 1818 of this title;
(II) any action taken by any appropriate State bank
supervisor under State law which is similar to any action
referred to in subclause (I); or
(III) any assessment of any civil money penalty under any
other provision of law with respect to the institution or
any institution-affiliated party.
(2) Reports to banking agencies
(A) Independent auditor reports
Each insured depository institution shall provide to the
Corporation, any appropriate Federal banking agency, and any
appropriate State bank supervisor, a copy of each audit report
and any qualification to such report, any management letter,
and any other report within 15 days of receipt of any such
report, qualification, or letter from the institution's
independent auditors.
(B) Notice of change of auditor
Each insured depository institution shall provide written
notification to the Corporation, the appropriate Federal
banking agency, and any appropriate State bank supervisor of
the resignation or dismissal of the institution's independent
auditor or the engagement of a new independent auditor by the
institution, including a statement of the reasons for such
change within 15 calendar days of the occurrence of the event.
(i) Requirements for insured subsidiaries of holding companies
(1) In general
Except with respect to any audit requirements established under
or pursuant to subsection (d) of this section, the requirements
of this section may be satisfied for insured depository
institutions that are subsidiaries of a holding company, if -
(A) services and functions comparable to those required under
this section are provided at the holding company level; and
(B) the institution -
(i) has total assets, as of the beginning of such fiscal
year, of less than $5,000,000,000; or
(ii) has -
(I) total assets, as of the beginning of such fiscal
year, of $5,000,000,000, or more; and
(II) a CAMEL composite rating of 1 or 2 under the Uniform
Financial Institutions Rating System (or an equivalent
rating by any such agency under a comparable rating system)
as of the most recent examination of such institution by
the Corporation or the appropriate Federal banking agency.
(2) Large institutions
For purposes of this subsection, in the case of an insured
depository institution described in paragraph (1)(B)(ii) that the
Corporation determines to be a large institution, the audit
committee of the holding company of such an institution shall not
include any large customers of the institution.
(3) Applicability based on risk to fund
The appropriate Federal banking agency may require an
institution with total assets in excess of $9,000,000,000 to
comply with this section, notwithstanding the exemption provided
by this subsection, if it determines that such exemption would
create a significant risk to the Deposit Insurance Fund if
applied to that institution.
(j) Exemption for small depository institutions
This section shall not apply with respect to any fiscal year of
any insured depository institution the total assets of which, as of
the beginning of such fiscal year, are less than the greater of -
(1) $150,000,000; or
(2) such amount (in excess of $150,000,000) as the Corporation
may prescribe by regulation.