Some simplification in credit union audit requirements – with a longstanding agency guide to be decommissioned in the process – was proposed and issued for public comment Thursday during an open meeting of the National Credit Union Administration (NCUA) Board.
NCUA’s supervisory committee audit regulations, based on requirements provided in sections 115 and 202 of the Federal Credit Union Act, specify the minimum type of annual audit a federally insured credit union (FICU) is required to obtain, according to its charter type and asset size; the licensing requirements of persons performing certain audits; and the auditing principles that apply to certain audits.
Last updated in July 1999, the rules outline options for a federally insured credit union (FICU) to comply with the annual audit requirement if it has elected not to voluntarily obtain a financial statement audit. The options permitted include an FICU obtaining: (1) a balance sheet audit; (2) a Report on Examination of Internal Controls over Call Reporting; or (3) an audit per the Supervisory Committee Guide published by NCUA. The first two options are analogous to options adopted in 1999 by the Federal Financial Institutions Examination Council for other federally insured financial institutions.
Regarding the third option, the NCUA amended the Supervisory Committee Guide in 1999 to detail the minimum scope and procedures for engaging outside compensated professionals in the audit process and to clearly distinguish a Supervisory Committee Guide audit from a financial statement audit.
Thursday’s proposal would do the following:
- Minimum audit procedures: The proposal would replace the option to perform an audit according to the Supervisory Committee Guide with the option to meet certain minimum requirements as provided in a new Appendix A to the supervisory committee audit regulation. The minimum procedures outlined in Appendix A reflect common industry practices for testing accounts and controls over financial institution financial statements. The NCUA Board also plans to decommission the Supervisory Committee Guide, according to the proposal. NCUA would instead issue reference material on how to conduct procedures that would meet the minimum requirements of Appendix A.
- Report on examination of internal controls: The proposal eliminates this option which staff noted was only used by 20 credit unions as of last September.
- Timeframe for auditor report: The proposed rule eliminates a requirement that an auditor engagement letter specify a 120-day timeframe for delivery of the written report. The proposal eliminates the 120-day timeframe and allows the credit union to negotiate a target date as long as that target date allows the credit union to satisfy its annual audit requirement. (This also eliminates the need to get a waiver from the NCUA regional director in the event the prescribed timeframe were to be exceeded.)
The board is seeking comments on other areas that could be improved. For example, input is also sought on whether the agency should also remove the balance sheet audit as an option for credit unions not required to obtain a financial statement audit. Staff noted this option is used by fewer than 100 credit unions and has limited value, as it does not include an audit of the credit union’s income statement.
The proposal provides for a 60-day public comment period that begins following its publication in the Federal Register.
This was the only regulatory action undertaken during Thursday’s open meeting, which began with a staff briefing on the interagency flood insurance rule, which the agency board approved by notation vote Jan. 31.
Supervisory Committee Audit Rule Changes Proposed (NCUA release)
Notice of proposed rulemaking and request for comment (Notice for Federal Register)
Loans in Areas Having Special Flood Hazards (Interagency rule)