[Federal Register: June 17, 2009 (Volume 74, Number 115)]
[Rules and Regulations]
[Page 28597-28600]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr17jn09-2]
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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