[BILLING CODES: 4810-33-P, 6210-01-P, 6714-01-P, 6720-01-P]

DEPARTMENT OF THE TREASURY

Office of the Comptroller of the Currency

12 CFR Part 19

[Docket No. 02-15]

RIN 1557-AB43

BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM

12 CFR Part 263

[Docket No. R-1139] FEDERAL DEPOSIT INSURANCE CORPORATION

12 CFR 308

RIN 3064-AC57

DEPARTMENT OF THE TREASURY

Office of Thrift Supervision

12 CFR Part 513

[Docket No. 2002-58]

RIN

Removal, Suspension, and Debarment of Accountants From Performing Audit Services

AGENCIES: Office of the Comptroller of the Currency (OCC), Treasury; Board of Governors

of the Federal Reserve System (Board); Federal Deposit Insurance Corporation (FDIC); and

Office of Thrift Supervision (OTS), Treasury.

ACTION: Joint notice of proposed rulemaking.

SUMMARY: The OCC, Board, FDIC, and OTS (each an Agency, and collectively, the

Agencies) propose to revise their respective rules of practice pursuant to section 36 of the

Federal Deposit Insurance Act (FDIA) (12 U.S.C. 1831m). Section 36, as implemented by 12

CFR part 363, requires that each insured depository institution with total assets of $500 million

or more produce an annual report containing the institution's financial statements and certain

management assessments. The depository institution must provide the report to the FDIC, the

appropriate Federal banking agency, and any appropriate state bank supervisor. Section 36 also

requires that the depository institution obtain an audit of its financial statements and an

attestation on managements assertions concerning internal controls over financial reporting by

an independent public accountant (accountant) and include the accountants audit and attestation

reports in its annual report.

Congress gave the Agencies authority to remove, suspend, or debar accountants from

performing the audit services required by section 36 if there is good cause to do so. This

proposal would amend the Agencies rules to establish rules of practice and procedure for the

removal, suspension, and debarment of accountants and their firms from performing section 36

audit services for insured depository institutions. The proposal reflects the Agencies' increasing

concern with the quality of audits and internal controls for financial reporting at insured

depository institutions. Although there have been few bank and thrift failures in recent years, the

circumstances of the failures that have occurred illustrate the importance of maintaining high

quality in the audits of the financial position and attestations of management assessments of

insured depository institutions. The proposed regulations enhance the Agencies' ability to

address misconduct by accountants who perform annual audit and attestation services.

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DATES: Comments must be received by [INSERT DATE 60 DAYS AFTER DATE OF

PUBLICATION IN THE FEDERAL REGISTER].

ADDRESSES:

OCC: Please direct comments to: Public Information Room, Office of the Comptroller

of the Currency, 250 E Street, SW, Mailstop 1-5, Washington, DC, 20219, Attention Docket No.

02-15. Comments are available for inspection and photocopying at that address. You can make

an appointment to inspect the comments by calling (202) 874-5043. In addition, comments may

be sent by facsimile transmission to (202) 874-4448, or by electronic mail to

regs.comments@occ.treas.gov. Due to delays in paper mail delivery in the Washington area,

commenters are encouraged to use fax or e-mail delivery, if possible.

Board: Comments should refer to Docket No. R-1139 and may be mailed to Secretary,

Board of Governors of the Federal Reserve System, 20th Street and Constitution Avenue, N.W.,

Washington, D.C. 20551; sent by FAX to (202) 452-3819 or (202) 452-3102; or sent by e-mail

to regs.comments@federalreserve.gov. Members of the public may inspect comments in Room

MP-500 between 9:00 a.m. and 5:00 p.m. on weekdays pursuant to section 261.12 (except as

provided in section 261.14) of the Boards Rules Regarding Availability of Information, 12 CFR

261.12 and 261.14.

FDIC: Written comments should be addressed to Robert E. Feldman, Executive

Secretary, Attention: Comments, Federal Deposit Insurance Corporation, 550 17th Street, NW,

Washington, DC 20429. Commenters are encouraged to submit comments by facsimile

transmission to FAX number (202) 898-3838 or by electronic mail to Comments@FDIC.gov.

Comments also may be hand delivered to the guard station at the rear of the 550 17th Street

Building (located on F Street), on business days between 8:30 am and 5:00 p.m. Comments may

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mailto:regs.comments@occ.treas.govmailto:regs.comments@federalreserve.govmailto:Comments@FDIC.gov

be inspected and photocopied in the FDIC Public Information Center, Room 100, 801 17th

Street, NW, Washington, DC, between 9:00 am and 4:30 p.m. on business days.

OTS: Mail: Send comments to Regulation Comments, Chief Counsels Office, Office

of Thrift Supervision, 1700 G Street, NW., Washington, DC 20552, Attention Docket No. 2002-

58.

Delivery: Hand deliver comments to the Guards Desk, East Lobby Entrance, 1700 G Street,

N.W. from 9:00 a.m. to 4:00 p.m. on business days, Attention: Regulation Comments, Chief

Counsels Office, Attention Docket No. 2002-58.

Facsimiles: Send facsimile transmissions to FAX Number (202) 906-6518, Attention Docket

No. 2002-58.

E-Mail: Send e-mails to , Attention Docket No. 2001-58 and

include your name and telephone number. Due to temporary disruptions in mail service in the

Washington, D.C. area, commenters are encouraged to send comments by fax or e-mail if

possible.

Public Inspection: Interested persons may inspect comments at the Public Reference Room,

1700 G St. N.W., from 10:00 a.m. until 4:00 p.m. on Tuesdays and Thursdays or obtain

comments and/or an index of comments by facsimile by telephoning the Public Reference Room

at (202) 906-5900 from 9:00 a.m. until 5:00 p.m. on business days. Comments and the related

index will also be posted on the OTS Internet Site at .

FOR FURTHER INFORMATION CONTACT:

OCC: Mitchell E. Plave, Counsel, Legislative and Regulatory Activities Division, (202)

874-5090; Richard Shack, Senior Accountant, Office of the Chief Accountant, (202) 874-4911;

and Karen A. Besser, National Bank Examiner, Special Supervision/Fraud, (202) 874-4464.

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Board: Richard Ashton, Associate General Counsel, (202) 452-3750; Nina Nichols,

Counsel, (202) 452-2961; Arthur Lindo, Project Manager, (202) 452-2695; and Salome Tinker,

Senior Financial Analyst, (202) 452-3034, Division of Banking Supervision and Regulation; for

users of Telecommunication Devices for the Deaf (TDD) only, contact (202) 263-4869.

FDIC: Richard Bogue, Counsel, Enforcement Unit, (202) 898-3726; Robert F. Storch,

Chief, Accounting and Securities Disclosure Section, (202) 898-8906.

OTS: Christine A. Smith, Project Manager, (202) 906-5740, Supervision Policy; Teresa

A. Scott, Counsel (Banking & Finance), (202) 906-6478, Regulations and Legislation Division,

Office of Thrift Supervision, 1700 G Street, N.W., Washington, DC 20552.

SUPPLEMENTARY INFORMATION:

I. Background

Section 36 of the FDIA, as implemented by FDIC regulations, requires every large

insured depository institution to submit an annual report containing its financial statements and

certain management assessments to the FDIC, the appropriate Federal banking agency, and any

appropriate state bank supervisor.1 Section 36 of the FDIA also requires that an independent

public accountant audit such insured depository institutions annual financial statements to

determine whether those statements are presented fairly in accordance with generally accepted

accounting principles (GAAP) and with the accounting objectives, standards, and requirements

described in section 37 of the FDIA.

1 12 U.S.C. 1831m, 1831m(j)(2); see also 12 CFR part 363 (describing the requirements for independent audits and reporting for all insured depository institutions). The statute gives the FDIC Board of Directors the discretion to establish the threshold asset size at which a section 36 annual report is required. That amount is currently set at $500 million. See 12 CFR 363.1(a). While a section 36 audit is not required of financial institutions with less than $500 million in total assets, the Agencies encourage every insured depository institution, regardless of its size or character, to have an annual audit of its financial statements performed by an independent public accountant. See 12 CFR 363 App. A (Introduction).

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Under section 37, the accounting principles applicable to financial statements required to

be filed with the Agencies must be uniform and consistent with GAAP.2 In addition, the

accountant must attest to and report on managements assertions concerning internal controls

over financial reporting.3 The institutions annual report also must contain the accountants audit

and attestation reports.4 Section 36 of the FDIA gives the Agencies the authority to remove,

suspend, or bar an accountant from performin