The American Bankers Association has recommended to banking regulators that only financial institutions with total insured deposits of more than $10 billion should be required to establish the outside audit committees ordered in the Federal Deposit Insurance Corporation Improvement Act of 1991.
"The auditing and accounting provisions of the FDICIA will place a phenomenal regulatory burden on our members," said Bill O'Halloran, chairman of the ABA Accounting Committee and senior vice president/comptroller of Atlanta-based Sun-Trust Banks.
Robert Storch, FDIC chief accountant, said the $10 billion threshold may be a reasonable number," but he emphasized that the team working on the regulations probably wouldn't be ready with a draft proposal until July.
The ABA in a five-page commentary on sections 11 2 and 121 of the FDICIA. the auditing and accounting provisions, said those institutions that must form outside audit committees should be given a full year to get the panels in place.
In reference to an FDICIA requirement that audit committees have access to outside counsel." the trade group said the regulations should permit financial institutions to hire lawyers on an "as-needed" basis to avoid excessive legal costs. Regulated institutions should not typically have to keep outside attorneys on a retainer basis, the ABA said.
Meanwhile, it emphasized that those selected to serve on audit committees should include. but not be limited to, individuals:
* With current or previous management responsibility of a business or a significant segment of a business, or who have had financial or audit experience with a business.
* Who have served on the audit committee of a company for at least one year.
* Who have served on the board of directors of a financial institution for at least two years or the audit committee of an institution for at least one year.
The ABA said all differences between regulatory accounting principles and generally accepted accounting principles should be eliminated in favor of GAAP. Any RAP principles the regulators believe should be continued could be treated as adjustments to the risk-based capital of commercial banks and savings and loan associations, the ABA said.
The ABA also said the regulators should avoid defining or interpreting GAAP either by regulation or in their call report instructions. Defining and interpreting GAAP is the responsibility of the accounting community, the ABA said.
Mark-to-market accounting requirements in section 121 also concern the ABA. Specifically. the provision instructs the regulators to develop jointly a method of providing supplemental disclosure of the market values of assets and liabilities.
If market value is required, the ABA said, it should not go beyond the guidance provided by the Financial Accounting Standards Board in Statement of Financial Accounting Standards 107, which goes into effect next year. SFAS 107 will require the disclosure of the market value of all a company's financial instruments.
If a holding company provides such market value disclosures. the ABA said, then its insured subsidiaries should not have to furnish duplicative information, the ABA said.
Although section 121 permits it, the trade association said the regulators should not alter the way of accounting for off-balance-sheet items.
"If the regulators determine that additional disclosures are needed, such disclosures should be consistent with and not go beyond the existing GAAP requirements for disclosure of off-balance-sheet items." the ABA said.
Concerning the annual financial reports mandated by the FDICIA. the ABA said time extensions should be granted for unusual and unanticipated situations.