§ 1831m. — Early identification of needed improvements in financial management.
[Laws in effect as of January 24, 2002]
[Document not affected by Public Laws enacted between
January 24, 2002 and December 19, 2002]
[CITE: 12USC1831m]
TITLE 12--BANKS AND BANKING
CHAPTER 16--FEDERAL DEPOSIT INSURANCE CORPORATION
Sec. 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 affected 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.
(Sept. 21, 1950, ch. 967, Sec. 2[36], as added Pub. L. 102-242, title I,
Sec. 112(a), Dec. 19, 1991, 105 Stat. 2242; amended Pub. L. 102-550,
title XVI, Sec. 1603(b)(3), Oct. 28, 1992, 106 Stat. 4079; Pub. L. 103-
325, title III, Sec. 314, Sept. 23, 1994, 108 Stat. 2221; Pub. L. 104-
208, div. A, title II, Secs. 2301, 2704(d)(14)(Z), Sept. 30, 1996, 110
Stat. 3009-419, 3009-494.)
Amendments
1996--Subsec. (a)(3). Pub. L. 104-208, Sec. 2301(c), inserted at end
``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.''
Subsec. (e). Pub. L. 104-208, Sec. 2301(a), inserted ``[Repealed]''
and struck out heading and text of subsec. (e). Text read as follows:
``(1) In general--An independent public accountant shall apply
procedures agreed upon by the Corporation to objectively determine the
extent of the compliance of any insured depository institution or
depository institution holding company with laws and regulations
designated by the Corporation, in consultation with the appropriate
Federal banking agencies.
``(2) Attestation requirements--Any attestation pursuant to
paragraph (1) shall be made in accordance with generally accepted
standards for attestation engagements.''
Subsec. (g)(1)(A). Pub. L. 104-208, Sec. 2301(b)(1), inserted ``,
except as provided in subparagraph (D)'' after ``management of the
institution''.
Subsec. (g)(1)(D). Pub. L. 104-208, Sec. 2301(b)(2), added subpar.
(D).
Subsec. (i)(3). Pub. L. 104-208, Sec. 2704(d)(14)(Z), which directed
substitution of ``Deposit Insurance Fund'' for ``affected deposit
insurance fund'', was not executed. See Effective Date of 1996 Amendment
note below.
1994--Subsec. (g)(2)(D). Pub. L. 103-325, Sec. 314(b), added subpar.
(D).
Subsec. (i). Pub. L. 103-325, Sec. 314(a), inserted par. (1)
designation and heading before ``Except with respect to'', redesignated
former par. (1) as subpar. (A) of par. (1), added subpar. (B) of par.
(1) and pars. (2) and (3), and struck out former par. (2) which read as
follows: ``either--
``(A) the institution has total assets, as of the beginning of
such fiscal year, of less than $5,000,000,000; or
``(B) the institution--
``(i) has total assets, as of the beginning of such fiscal
year, of more than $5,000,000,000 and less than $9,000,000,000;
and
``(ii) has 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.''
1992--Subsec. (b)(2)(A)(iii). Pub. L. 102-550, Sec. 1603(b)(3)(A),
substituted ``Corporation and'' for ``Corporation or''.
Subsec. (g)(3)(A)(i). Pub. L. 102-550, Sec. 1603(b)(3)(B),
substituted ``any appropriate'' for ``an appropriate''.
Subsec. (g)(5). Pub. L. 102-550, Sec. 1603(b)(3)(C), inserted ``and
each appropriate Federal banking agency'' after ``Corporation'' in two
places.
Effective Date of 1996 Amendment
Amendment by section 2704(d)(14)(Z) of Pub. L. 104-208 effective
Jan. 1, 1999, if no insured depository institution is a savings
association on that date, see section 2704(c) of Pub. L. 104-208, set
out as a note under section 1821 of this title.
Effective Date of 1992 Amendment
Amendment by Pub. L. 102-550 effective as if included in the Federal
Deposit Insurance Corporation Improvement Act of 1991, Pub. L. 102-242,
as of Dec. 19, 1991, see section 1609(a) of Pub. L. 102-550, set out as
a note under section 191 of this title.
Effective Date
Section 112(c), formerly 112(b), of Pub. L. 102-242, as redesignated
by Pub. L. 102-550, title XVI, Sec. 1603(b)(2)(A), Oct. 28, 1992, 106
Stat. 4079, provided that: ``The requirements established by the
amendment made by subsection (a) [enacting this section] shall apply
with respect to fiscal years of insured depository institutions which
begin after December 31, 1992.''
