[Federal Register: November 15, 2007 (Volume 72, Number 220)]
[Rules and Regulations]
[Page 64129-64130]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr15no07-4]
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FARM CREDIT ADMINISTRATION
12 CFR Part 630
RIN 3052-AC40
Disclosure to Investors in System-Wide and Consolidated Bank Debt
Obligations of the Farm Credit System
AGENCY: Farm Credit Administration.
ACTION: Direct final rule.
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SUMMARY: The Farm Credit Administration (FCA or we) issues this direct
final rule amending our regulation on the external auditor's assessment
of internal control over financial reporting concerning the System-wide
annual report to investors. The effect of the amended rule is to
require the external auditor of the Federal Farm Credit Banks Funding
Corporation (Funding Corporation) to express an opinion on the
effectiveness of internal control over financial reporting instead of
reporting on management's assessment of internal control over financial
reporting. The amended rule implements recent changes in industry
practices.
DATES: If no significant adverse comment is received on or before
December 17, 2007, these regulations shall be effective upon the
expiration of 30 days after publication in the Federal Register during
which either or both Houses of Congress are in session. We will publish
notice of the effective date in the Federal Register. If we receive
significant adverse comment on an amendment, paragraph, or section of
this rule, and that provision may be addressed separately from the
remainder of the rule, we will withdraw that amendment, paragraph, or
section and adopt as final those provisions of the rule that are not
the subject of a significant comment. In such a case, we would then
tell you how we expect to continue further rulemaking on the provisions
that were the subject of significant adverse comment.
ADDRESSES: We offer a variety of methods for you to submit comments.
For accuracy and efficiency reasons, we encourage commenters to submit
comments by e-mail, through the Agency's Web site, or the Federal
eRulemaking Portal. 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.
Agency Web site: http://www.fca.gov. Once you are at the
Web site, select ``Public Commenters,'' then ``Public Comments.''
Federal eRulemaking Portal: http://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.
Fax: (703) 883-4477. Posting and processing of faxes may
be delayed. As faxes are difficult for us to process and achieve
compliance with section 508 of the Rehabilitation Act, please consider
another means to submit your comment if possible.
You may review copies of comments we receive at our office in
McLean, Virginia, or from our Web site at http://www.fca.gov. Once you
are in the Web site, select ``Public Commenters,'' then select ``Public
Comments,'' then select ``Submitting a Comment'' and follow the
instructions there. 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: Wade Wynn, Policy Analyst, Office of
Regulatory Policy, Farm Credit Administration, McLean, VA 22102-5090,
(703) 883-4414, TTY (703) 883-4434, or Laura McFarland, Senior
Attorney, Office of General Counsel, Farm Credit Administration,
McLean, VA 22102-5090, (703) 883-4020, TTY (703) 883-4020.
SUPPLEMENTARY INFORMATION:
I. Background
The FCA adopted a final rule on December 20, 2006, amending our
disclosure and reporting requirements for Farm Credit System (System)
institutions.\1\ As part of that rulemaking, we added a requirement in
Sec. 630.5(d) to include a report by management assessing the
effectiveness of internal control over financial reporting in the
System-wide annual report to investors. We also added a requirement
that the external auditor of the Funding Corporation review, attest,
and report on management's assessment of internal control over
financial reporting. The December 2006 rulemaking adding Sec. 630.5(d)
did not receive any objections to requiring an external auditor to
report on management's assessment of internal control over financial
reporting in the System-wide annual report to investors. Commenters did
ask that the attestation reporting requirement be similar to that of
Public Company Accounting Oversight Board (PCAOB) auditing standards,
and we agreed. We further explained that the external auditor's
attestation report should conform to other applicable industry
standards, which we identified as those regulations of the Securities
and Exchange Commission (SEC) implementing the Sarbanes-Oxley Act of
2002 (Sarbanes-Oxley).\2\ Although the System is not covered by the
provisions of Sarbanes-Oxley, nor regulated by the SEC, we generally
regard SEC rules as the industry standard in this area, and we continue
to follow this same general approach with consideration given to the
unique cooperative structure of the System.
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\1\ 71 FR 76111 (December 20, 2006).
\2\ Pub. L. 107-204 (July 30, 2002).
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On June 27, 2007, the SEC revised its requirement regarding the
external auditor's attestation report.\3\ The SEC now requires the
external auditor to express an opinion directly on the effectiveness of
internal control over financial reporting instead of reporting on
management's assessment of internal control over financial reporting.
The SEC continues to require external auditors to evaluate whether
management has included appropriate disclosures in its assessment
report. Further, on July 25, 2007, the SEC approved PCAOB Auditing
Standard No. 5, ``An Audit of Internal Control Over Financial Reporting
That Is Integrated With an Audit of Financial Statements.'' \4\
Auditing Standard No. 5 is intended to increase the accuracy of
financial reports and reduce costs by making audits more risk-based and
scalable to company size and complexity. Auditing Standard No. 5
requires the external auditor to form an opinion on the effectiveness
of internal control over financial reporting except in the circumstance
of a scope limitation that would result in the auditor disclaiming an
opinion. The
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external auditor generally disclaims an opinion when significant
limitations prevent him from performing all the tests necessary to
complete the audit and render an opinion. Auditing Standard No. 5 also
requires the external auditor to modify his or her opinion on the
effectiveness of internal control over financial reporting if the
auditor determines that management's assessment is not fairly stated.
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\3\ 72 FR 35310 (June 27, 2007).
\4\ Auditing Standard No. 5 supersedes Auditing Standard No. 2,
``An Audit of Internal Control Over Financial Reporting Performed in
Conjunction With an Audit of Financial Statements'' for all audits
of internal control ending on or after November 15, 2007.
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II. Funding Corporation External Auditor's Attestation of Internal
Control Over Financial Reporting
The FCA is amending Sec. 630.5(d)(2) to conform with applicable
industry standards for auditor attestations on internal control over
financial reporting. The requirement in Sec. 630.5(d)(2) for the
external auditor of the Funding Corporation to review, attest, and
report on management's assessment of internal control over financial
reporting is no longer consistent with industry standards. Industry
standards now require attestation reports to opine on the effectiveness
of internal control over financial reporting. The amendment in this
rulemaking will conform with these new standards.
The provision of Sec. 630.5(d)(2), as amended by this direct final
rulemaking, requires the external auditor of the Funding Corporation to
include in the attestation report, an opinion on the effectiveness of
internal control over financial reporting. The revised requirement
reduces confusion, clarifies reporting, and more effectively
communicates the external auditor's responsibility in relation to
management's process and necessarily conveys whether management's
assessment is fairly stated.
III. Direct Final Rule
We are amending Sec. 630.5(d)(2) by a direct final rulemaking. The
Administrative Conference of the United States recommends direct final
rulemaking for Federal agencies to enact noncontroversial regulations
on an expedited basis, without the usual notice and comment period.\5\
This process enables us to reduce the time and resources we need to
develop, review, and publish a final rule while still affording the
public an adequate opportunity to comment or object to the rule.
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\5\ Recommendation 95-4, referencing the Administrative
Procedure Act ``good cause'' exemption at 5 U.S.C. 553(b)(B),
(adopted June 15, 1995).
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In a direct final rulemaking, we notify the public that the rule
will become final on a specified future date unless we receive
significant adverse comment during the comment period. A significant
adverse comment is one where the commenter explains why the rule would
be inappropriate (including challenges to its underlying premise or
approach), ineffective, or unacceptable without a change. In general, a
significant adverse comment would raise an issue serious enough to
warrant a substantive response from the agency in a notice-and-comment
proceeding.
We believe that a direct final rulemaking is the appropriate method
for amending Sec. 630.5(d)(2) to conform to new industry standards. We
do not anticipate there will be significant adverse comments. We
received no objectionable comments to the December 2006 rulemaking that
added the requirement for an external auditor attestation, which
conformed with SEC requirements at the time. Further, we stated at that
time our intent to remain consistent with industry standards in this
area, and commenters agreed. If, however, we receive a significant
adverse comment during the comment period, we will publish a notice of
withdrawal of the relevant provisions of this rule that will also
indicate how further rulemaking will proceed. If we receive no
significant adverse comment, we will publish notice of the effective
date of the rule following the required Congressional waiting period
under section 5.17(c)(1) of the Farm Credit Act of 1971, as amended.
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 direct 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, Farm Credit System institutions are not ``small entities''
as defined in the Regulatory Flexibility Act.
List of Subjects in 12 CFR Part 630
Accounting, Agriculture, Banks, banking, Organization and functions
(Government agencies), Reporting and recordkeeping requirements, Rural
areas.
0
For the reasons stated in the preamble, part 630 of chapter VI, title
12 of the Code of Federal Regulations is amended as follows:
PART 630--DISCLOSURE TO INVESTORS IN SYSTEM-WIDE AND CONSOLIDATED
BANK DEBT OBLIGATIONS OF THE FARM CREDIT SYSTEM
0
1. The authority citation for part 630 continues to read as follows:
Authority: Secs. 5.17, 5.19 of the Farm Credit Act (12 U.S.C.
2252, 2254).
Subpart A--General
0
2. Revise Sec. 630.5(d)(2) to read as follows:
Sec. 630.5 Accuracy of reports and assessment of internal control
over financial reporting.
* * * * *
(d) Management assessment of internal control over financial
reporting.
* * * * *
(2) The Funding Corporation must require its external auditor to
issue an attestation report, which must express an opinion on the
effectiveness of internal control over financial reporting. The
resulting attestation report must accompany management's assessment and
be included in the annual report.
Dated: November, 8, 2007.
Roland E. Smith,
Secretary, Farm Credit Administration Board.
[FR Doc. E7-22312 Filed 11-14-07; 8:45 am]
BILLING CODE 6705-01-P