The Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA) has specific requirements for financial institutions with over $500 million or $1 billion in assets. The measurement date for which these additional requirements become effective is the first day of the fiscal year after the applicable threshold has been crossed. FDICIA applies to individually chartered institutions. FDICIA asset thresholds are not evaluated on a consolidated level if a bank holding company holds multiple separately charted institutions. The Federal Reserve Y-6 does require an audit if the holding company’s consolidated assets exceed $500 million in assets. Below we dive into the FDICIA requirements for financial institutions that surpass the $500 Million and $1 Billion asset thresholds.
FDICIA Requirements for over $500 Million in Assets
After a bank has crossed $500 million in assets, the following additional FDICIA requirements will become effective:
- Comparative audited financial statements are due to the appropriate federal bank agency within 120 days after the fiscal year-end for non-public banking institutions. If you believe you’ll meet the $500 million threshold by the end of the current fiscal year, you’ll want to consider having an audit completed this year so that when the audit requirement is met next year, you already have comparative audited financial statements.
- Auditor independence rules also become more stringent once this asset level is reached. Among other items, auditors are no longer allowed to prepare the institution’s financial statements as a non-attest service with the audit. Since the audited financial statements are required to be comparative, this also applies to the year before crossing the $500 million mark. Management should evaluate if they have the resources internally to prepare the financial statements. If not, some institutions outsource this service to another accounting firm.
- Establishing an audit committee with mostly independent outside directors.
- A statement of management’s responsibilities for the following:
- Preparing the institution’s annual financial statements
- Establishing an adequate internal control structure for procedures for financial reporting
- Complying with laws and regulations relating to safety and soundness pertaining to insider loans and dividend restrictions
FDICIA Requirements for over $1 Billion in Assets
In addition to the above requirements, the following FDICIA requirements also apply to banks that cross $1 Billion in assets:
- All members of the audit committee must be outside directors.
- A management report on the effectiveness of the internal control structure as of the end of the fiscal year.
- Management must attest to the effectiveness of internal control over financial reporting. The auditor is also required to issue an opinion over the institution’s internal control over financial reporting in addition to the opinion on the financial statements. This is generally the heaviest lift in terms of additional requirements under FDICIA. It will likely require additional personnel, time, documentation and costs. The process for evaluating the internal control framework, documenting policies and procedures and testing should start well in advance of crossing the $1 billion threshold to ensure the institution is ready for implementation. Some financial institutions choose to outsource this function of their internal control process.
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