This section of the FEDERAL REGISTER

contains notices to the public of the proposed

issuance of rules and regulations. The

purpose of these notices is to give interested

persons an opportunity to participate in the

rule making prior to the adoption of the final

rules.

Proposed Rules Federal Register

94615 

Vol. 89, No. 230 

Friday, November 29, 2024 

FARM CREDIT ADMINISTRATION 

12 CFR Parts 620 and 630 

RIN 3052–AD56 

Internal Control Over Financial 

Reporting 

AGENCY: Farm Credit Administration. 

ACTION: Proposed rule. 

SUMMARY: The Farm Credit 

Administration (FCA, we, or Agency) is 

seeking comments on this proposed rule 

to amend the reporting regulations to 

require Farm Credit System (System) 

associations that meet certain asset 

thresholds or conditions, as well as all 

System banks, to obtain annual 

attestation reports from their external 

auditors that express an opinion on the 

effectiveness of internal control over 

financial reporting (ICFR), are made in 

accordance with generally accepted 

auditing standards (GAAS) as 

promulgated by the American Institute 

for Certified Public Accountants 

(‘‘AICPA’’) or the Public Company 

Accounting Oversight Board’s 

(‘‘PCAOB’’) auditing standards, and 

accompany management’s assessment 

and be included with the System 

Institution’s annual report (these 

attestation reports are hereinafter 

referred to as ‘‘Attestation Reports’’). 

The proposed rule would also require 

Attestation Reports obtained by the 

Federal Farm Credit Banks Funding 

Corporation (Funding Corporation) be 

made in accordance with GAAS. 

DATES: Comments on this proposed rule 

must be submitted on or before January 

28, 2025. 

ADDRESSES: For accuracy and efficiency, 

please submit comments by email or 

through FCA’s website. We do not 

accept comments submitted by fax 

because faxes are difficult to process. 

Also, please do not submit comments 

multiple times; submit your comment 

only once, using one of the following 

methods: 

• Send an email to reg-comm@

fca.gov. 

• Use the public comment form on 

our website: 

1. Go to https://www.fca.gov. 

2. Click inside the ‘‘I want to. . .’’ 

field near the top of the page. 

3. Select ‘‘comment on a pending 

regulation’’ from the dropdown menu. 

4. Click ‘‘Go.’’ This takes you to the 

comment form. 

• Send the comment by mail to the 

following: Autumn R. Agans, Deputy 

Director, Office of Regulatory Policy, 

Farm Credit Administration, 1501 Farm 

Credit Drive, McLean, VA 22102–5090. 

We post all comments on the FCA 

website. We will show your comments 

as submitted, including any supporting 

information; however, for technical 

reasons, we may omit items such as 

logos and special characters. Personal 

information that you provide, such as 

phone numbers and addresses, will be 

publicly available. However, we will 

attempt to remove email addresses to 

help reduce internet spam. 

To review comments on our website, 

go to https://www.fca.gov and follow 

these steps: 

1. Click inside the ‘‘I want to. . .’’ 

field near the top of the page. 

2. Select ‘‘find comments on a 

pending regulation’’ from the dropdown 

menu. 

3. Click ‘‘Go.’’ This will take you to 

a list of regulatory projects. 

4. Select the project in which you’re 

interested. If we have received 

comments on that project, you will see 

a list of links to the individual 

comments. 

You may also review comments at the 

FCA office in McLean, Virginia. Please 

call us at (703)883–4056 or email us at 

reg-comm@fca.gov to make an 

appointment. 

FOR FURTHER INFORMATION CONTACT: 

Technical information: Aaron M. 

Livernois, Senior Policy Accountant, 

Office of Regulatory Policy, Farm Credit 

Administration, McLean, VA 22102– 

5090, (703) 883–4414, TTY (703) 883– 

4056. 

Legal information: Andra Grossman, 

Attorney Advisor, Office of General 

Counsel, Farm Credit Administration, 

McLean, VA 22102–5090, (703) 883– 

4323, TTY (703) 883–4056. 

SUPPLEMENTARY INFORMATION: 

I. Summary of Proposed Objectives and 

Amendments 

The objective of this proposed rule is 

to strengthen the safety and soundness 

of the System’s ICFR by requiring 

Attestation Reports from certain 

institutions. As further discussed in 

section II, complexity and concentration 

of System banks and their affiliated 

associations have changed dramatically 

since 2006 (the fiscal year before § 630.5 

was last amended), leading to an 

increased risk that an internal control 

weakness or failure, such as an 

undetected management error, 

negligence, or fraud event at one 

association could affect the safety and 

soundness of the entire System. By 

requiring certain associations to obtain 

an Integrated Audit, FCA’s proposed 

rule would help reduce undetected and 

evolving financial reporting risks in the 

System. 

The amendments in the proposed rule 

include changes to financial reporting 

requirements set forth in 12 CFR 620.3 

and 630.5 that: 

• Revise § 620.3 to mandate all 

System banks obtain an Attestation 

Report from their external auditors. 

• Revise § 620.3 to mandate all 

System associations that meet the 

following thresholds or conditions 

obtain an Attestation Report from their 

external auditors: 

Æ The association’s total assets were 

one percent or more of total System 

assets as of December 31 of the previous 

fiscal year; or 

Æ The association’s direct note 

payable to its bank was 15 percent or 

more of the bank’s direct loans to 

associations as of December 31 of the 

previous fiscal year; or 

Æ FCA staff determines that a material 

weakness exists in the association’s 

ICFR, or other developments have 

occurred or are expected to occur that 

could adversely impact, or result in 

significant changes to, the association’s 

ICFR that impacts the safety and 

soundness of the association. 

• Revise § 630.5(d)(2), to correspond 

with the proposed language in 

§ 620.3(d)(2) and (3) that an Attestation 

Report be made in accordance with 

GAAS. Refer to section II for additional 

information. 

FCA believes requiring associations to 

obtain an Attestation Report when their 

assets equal or exceed one percent of 

total System assets is appropriate 

because this threshold captures the 

associations that pose a systemic risk to 

the System. FCA also believes requiring 

associations to obtain an Attestation 


khammond on DSK9W7S144PROD with PROPOSALS
94616 Federal Register / Vol. 89, No. 230 / Friday, November 29, 2024 / Proposed Rules 

1Public Law 99–205, 99 Stat. 1678, Dec. 23, 1985. 

2Public Law 92–181, 85 Stat. 583, Dec. 10, 1971. 

3 71 FR 13040, 13043 (March 14, 2006). 

4AICPA Standard AU–C 940.05, An Audit of 

Internal Control over Financial Reporting that is 

Integrated with an Audit of the Financial 

Statements, section .05. 

5 Id. 

6 Id, section .01. 

7Two additional associations (as conditions of 

merger) will obtain Integrated Audits beginning in 

2026. 

8These figures do not include the Federal 

Agricultural Mortgage Association (Farmer Mac), 

although it is a System institution for purposes of 

the Farm Credit Act and FCA oversight. 

9Aside from total system assets, all information 

presented in the following paragraphs relating to 

2006 and 2023 data come from FCA’s Call 

Reporting System. Total system assets information 

is sourced from the Farm Credit Funding 

Corporation’s 2006 and 2023 Annual Information 

Statements. 

Report when their direct note payable to 

their bank equals or exceeds 15 percent 

of the bank’s direct loans to associations 

is appropriate because these 

associations hold a large concentration 

of their bank’s direct loans and may 

pose a systemic risk to the safety and 

soundness of their bank without 

meeting the one percent of total System 

assets. This requirement ensures 

associations that hold a large 

concentration of bank direct loans also 

obtain an Attestation Report. 

An association would generally have 

three fiscal years to obtain its 

Attestation Report. Additionally, the 

proposed rule also details how and 

when merging associations are to obtain 

Attestation Reports. 

All System banks currently obtain an 

Integrated Audit, as required by the 

Funding Corporation. FCA now 

proposes to formalize this requirement 

in this regulation. 

II. Background 

A. Law and Regulation 

The Farm Credit Amendments Act of 

1985 1 revised the Farm Credit Act of 

1971, as amended (Act),2 to require FCA 

regulate the disclosure and reporting 

practices of System institutions and 

require each System institution to 

prepare and publish annual financial 

reports to shareholders. Section 5.19(b) 

of the Act requires financial statements 

be prepared in accordance with 

generally accepted accounting 

principles (GAAP) and be audited by an 

independent public accountant. 

In December 2006, FCA issued a final 

rule at 12 CFR 630.5(d) (71 FR 76111) 

that, in part, requires the Funding 

Corporation to require its external 

auditor to express an opinion on the 

Funding Corporation’s effectiveness of 

ICFR in preparing disclosures to 

investors in System-wide and 

consolidated bank debt obligations. 

When proposed, FCA stated that a 

System-wide opinion at the Funding 

Corporation level on ICFR would 

accomplish many of the same objectives 

as requiring an opinion on ICFR at the 

bank and association levels.3

Additionally, 12 CFR 620.3(d) of FCA 

regulations requires all System 

institutions with over $1 billion in total 

assets at the end of the prior fiscal year 

include in their annual reports a report 

by management assessing the 

effectiveness of ICFR. These institutions 

must also report to their board of 

directors and disclose in their quarterly 

and annual reports any material changes 

in ICFR during the reporting period. 

Associations with assets of less than $1 

billion in total assets do not have 

reporting requirements. 

As discussed below, the complexity 

and concentration of System banks and 

associations have changed dramatically, 

leading to an increased risk that an 

internal control weakness or failure at 

one institution could affect the safety 

and soundness of the entire System, due 

to the System’s cooperative structure. 

This proposed rule, if adopted, would 

decrease risks related to the detection 

and reporting of internal control 

weakness or failure. FCA believes an 

Integrated Audit will strengthen the 

safety and soundness of the System. 

B. Definitions Used in the Preamble 

Internal Control over Financial 

Reporting. ICFR is a process consisting 

of policies and procedures designed to 

assess financial statement risk and 

provide reasonable assurance that an 

institution prepares reliable financial 

statements.4

Audit of ICFR. An audit of ICFR is an 

audit of the design and operating 

effectiveness of an entity’s ICFR.5

Integrated Audit. An Integrated Audit 

is an audit of ICFR that is integrated 

with an audit of financial statements.6

An Integrated Audit also considers 

financial reporting systems related to 

ICFR. The auditor provides an opinion, 

known as an Attestation Report, on both 

the financial statements and ICFR in the 

annual financial statements. Attestation 

Report and Integrated Audit are used 

interchangeably in this preamble. 

C. Risks in the System Structure and 

Related ICFR Considerations 

The cooperative structure of the 

System creates a unique environment in 

which an adverse event at one 

institution could impact the entire 

System and affect the Funding 

Corporation’s ability to issue Systemwide disclosures on a timely, wellcontrolled basis as required in § 630.3. 

Moreover, debt securities are the joint 

and several obligations of the System 

banks and are not obligations of or 

guaranteed by the United States 

government. As such, any material 

weakness or other development, such as 

an undetected management error, 

negligence, fraud event, or failure, that 

have occurred, or are expected to occur, 

could adversely impact, or result in 

significant changes to ICFR at a bank or 

one or more of the associations that 

could impact investor confidence and 

public trust in the entire System. 

While the System has implemented 

standards, created workgroups, and 

employed other practices mentioned 

below, risks arise from inconsistencies 

in the design and implementation of 

ICFR at different institutions. Only the 

Funding Corporation, System banks, 

and one association (as a condition of 

merger) 7 obtain Integrated Audits, 

which exacerbates this risk of 

inconsistency. 

D. Risks Have Increased With Farm 

Credit System Growth and 

Consolidation 

When FCA issued 12 CFR 630.5(d) in 

December 2006, there were five System 

banks and 95 associations with $162.9 

billion in total System assets 8 with 

associations holding $100.7 billion.9

Since then, as of December 31, 2023, 

there are four System Banks (20 percent 

decrease) and 56 associations (41 

percent decrease). System assets totaled 

$507.8 billion (212 percent increase) 

and association assets totaled $308.4 

billion (206 percent increase). 

The average and median total asset 

size for associations has also increased 

markedly. As of December 31, 2006, 

associations averaged $1.1 billion in 

total assets and the median total asset 

size was $462 million. As of December 

31, 2023, associations averaged $5.5 

billion in total assets (420 percent 

increase), and the median total asset 

size was $1.8 billion (285 percent 

increase). 

When comparing associations as of 

December 31, 2006, to associations as of 

December 31, 2023, asset sizes and 

concentrations for the associations that 

held either one percent of total System 

assets or 15 percent of their bank’s 

direct loans have also increased. 

As of December 31, 2006, 14 

associations held one percent or more of 

total System assets, with these 

associations holding a combined $57.6 

billion in total assets. As of December 

31, 2023, 12 associations held one 

percent or more of total System assets, 

with these associations holding a 


khammond on DSK9W7S144PROD with PROPOSALS
Federal Register / Vol. 89, No. 230 / Friday, November 29, 2024 / Proposed Rules 94617 

10SEC Study: Study and Recommendations on 

section 404(b) of the Sarbanes-Oxley Act of 2002 for 

Issuers With Public Float Between $75 and $250 

Million. 

combined $236.1 billion in total assets 

(310 percent increase). As of December 

31, 2006, the 14 associations cited above 

held 35 percent of total System assets. 

As of December 31, 2023, the 12 

associations cited above held 46 percent 

of total System assets (31 percent 

increase). 

System bank direct loans to 

associations have also become more 

concentrated. As of December 31, 2006, 

eight associations held 15 percent or 

more of their bank’s direct loans to 

associations (eight percent of 

associations). As of December 31, 2023, 

seven associations held 15 percent or 

more of their bank’s direct note. While 

the number of associations holding 15 

percent or more of their bank’s direct 

note decreased, the percentage of 

associations holding 15 percent or more 

of their bank’s direct loans increased (13 

percent of associations). As of December 

31, 2006, those eight associations held 

approximately 42 percent of all System 

bank direct notes to associations. As of 

December 31, 2023, the seven 

associations held approximately 60 

percent of all System bank direct notes 

to associations (42 percent increase). 

As associations become more 

complex, and the System has fewer 

overall associations, an ICFR weakness 

at one association can become 

significant to the association’s bank and 

the entire System. As associations 

become more complex, the effectiveness 

of ICFR becomes more important to the 

association, as well as to its bank and 

the System, more broadly. 

Additionally, the Farm Credit System 

Insurance Corporation (FCSIC), views 

concentration risk as an increasing 

concern. The association concentration 

mentioned above has significantly 

increased direct loan concentration for 

System banks, which in turn has 

impacted FCSIC’s risks of insuring 

System banks. Concentrated 

associations pose significant inherent 

risks to their banks and FCSIC’s 

Insurance Fund. FCA consulted with 

FCSIC on the proposed rule and FCSIC 

stated that it believes that an Integrated 

Audit requirement would provide 

further assurances on the integrity of 

financial and accounting information at 

the affected associations, as well as help 

mitigate large losses to the Insurance 

Fund that could result from undetected 

management errors, negligence, a fraud 

event, or failure. 

E. FCA Regulations Should Require 

Certain System Associations To Obtain 

an Attestation Report To Reduce 

Systemic Risk 

FCA regulatory requirements for ICFR 

audits are limited. As required by 

§ 630.5(d)(2), the Funding Corporation 

must obtain an Integrated Audit of the 

combined System-wide financial 

statements. However, there is no 

equivalent regulation at the association 

or Bank level. 

FCA believes requiring associations to 

obtain an Attestation Report when their 

assets equal or exceed one percent of 

total System assets is appropriate 

because this threshold captures the 

associations that pose a systemic risk to 

the System. FCA also believes requiring 

associations to obtain an Attestation 

Report when their direct note payable to 

their bank equals or exceeds 15 percent 

of the bank’s direct loans to associations 

is appropriate because these 

associations hold a large concentration 

of their bank’s direct loans and may 

pose a systemic risk to the safety and 

soundness of their bank without 

meeting the one percent of total System 

assets. This requirement ensures 

associations that hold a large 

concentration of bank direct loans also 

obtain an Attestation Report. 

F. Attestation Report Opinion for 

Individual Associations 

FCA acknowledges that System 

associations have an ICFR review 

performed by their System bank. System 

banks may impose monetary penalties, 

i.e., increased funding costs due to 

increased risks, if associations do not 

maintain adequate ICFR. Additionally, 

the external auditor of all significant 

associations (one percent or more of 

total System assets) performs additional 

ICFR reviews yearly and at all other 

associations on a three-year rotation. 

The System has also implemented 

practices related to ICFR. In order to 

express an opinion on ICFR at the 

Funding Corporation, all associations 

must establish a system of internal 

controls. System associations must 

make quarterly assertions related to 

ICFR to the Funding Corporation. The 

System has also established an ICFR 

workgroup. This workgroup provides 

tools and training to System institutions 

on how to establish and maintain their 

ICFR environment. 

However, these additional ICFR 

reviews and practices are designed to 

support the ICFR opinion at the 

Funding Corporation and System Bank 

level and not the individual association 

level. FCA believes that the scope of 

such work is not adequate for an 

external auditor to express an opinion 

on the effectiveness of the individual 

association’s ICFR. Thus, FCA believes 

a regulation requiring an Attestation 

Report will provide an independent 

review of an association’s ICFR 

environment and reduce the probability 

and magnitude of an internal control 

weakness or failure. Additionally, an 

Attestation Report would examine 

different controls and in different detail 

than current requirements for 

management assessments. 

G. Benefits of Integrated Audits and 

Reduction of System Risks Justify Cost 

Integrated Audits are more robust 

than financial statement audits. The 

objective of a financial statement audit 

is to determine if the financial 

statements are presented fairly, in all 

material respects. As part of a financial 

statement audit, auditors obtain an 

understanding of a System Institution’s 

ICFR. Although a financial statement 

audit assesses factors that affect the 

risks of material misstatement on ICFR, 

the scope of work and level of testing is 

less than an Integrated Audit. An 

Integrated Audit is structured to achieve 

the same objectives as a financial 

statement audit and additionally tests 

the design and operating effectiveness of 

all ICFR controls that can have a 

material effect on the financial 

statements and provides an opinion on 

the controls. 

The Securities and Exchange 

Commission (SEC), has considered 

various studies when promulgating 

audit requirements for regulated entities 

that show Integrated Audits offer two 

benefits compared to financial statement 

audits: 

• Integrated Audits have been found 

to provide information to investors 

about the reliability of the financial 

statements. For example, a 2011 SEC 

Staff Study 10 highlighted evidence that 

Attestation Reports generally resulted in 

the identification and disclosure of 

material weaknesses that were not 

previously identified or whose severity 

was misclassified when identified by 

management in its assessment of ICFR. 

• The reliability of the financial 

statements can be enhanced through the 

execution of Integrated Audits. Studies 

considered in SEC Release No. 34– 

88365, Amendments to the Accelerated 

and Large Accelerated Filer Definitions, 

documented a significant correlation 

between audits of ICFR and the 

maintenance of better internal controls, 

thereby improving reliability of 

financial statements. The SEC also 

found that a failure to maintain effective 

ICFR has been associated with a higher 

rate of future restatements and lower 

earnings quality and a higher rate of 

future fraud revelations (among other 

things). 


khammond on DSK9W7S144PROD with PROPOSALS
94618 Federal Register / Vol. 89, No. 230 / Friday, November 29, 2024 / Proposed Rules 

11 12 U.S.C. 363.2 requires FDIC-insured 

institutions with $1 billion or more in total assets 

to obtain an Integrated Audit, among other 

requirements. 

12 12 U.S.C. 704.15(b)(2) requires NCUA corporate 

credit unions to obtain an Integrated Audit, among 

other requirements. 

13No changes are being proposed to the existing 

§ 620.3(d). The existing regulatory language is 

simply being restyled as proposed § 620.3(d)(1). 

The SEC Release No. 34–88365 noted 

the following: 

• Risks of fraud and financial 

statement restatements or misstatements 

were found to be greater for registrants 

that would not be subject to a 

requirement to obtain Attestation 

Reports. From 2003 to 2020, nonaccelerated U.S. filers (which did not 

obtain Attestation Reports) accounted 

for 62 percent of the total U.S. financial 

statement restatements. 

• Registrants not subject to a 

requirement to obtain Attestation 

Reports were found to have higher 

levels of ineffective ICFR compared 

with issuers subject to that requirement. 

Over 40 percent of non-accelerated filers 

(not required to obtain Auditor 

Attestations) had ineffective ICFR, 

compared to less than approximately 

nine and five percent of accelerated and 

large accelerated filers, respectively 

(accelerated filers were subject to 

Integrated Audit requirements). 

While the referenced SEC insights 

pertain to public companies, FCA 

believes that this information provides 

meaningful insights into reporting risks 

and their reduction at System 

institutions. Although there are costs in 

obtaining an Integrated Audit for each 

institution, there are safety and 

soundness benefits to the entire System. 

Consequently, FCA believes requiring 

certain System institutions to obtain 

Attestation Reports will reduce financial 

reporting risks described above that 

stem from significant changes in the 

complexity and concentration of System 

banks and associations justifying the 

cost to require certain associations 

obtain Integrated Audits. 

H. Integrated Audit Requirements of 

Similar Federal Financial Regulators 

When drafting the proposed rule, FCA 

reviewed the audit requirements that 

govern publicly traded financial 

institutions, institutions regulated by 

the Federal Deposit Insurance 

Corporation (FDIC),11 and other Federal 

financial institution regulatory 

agencies.12 In general, other regulators 

have established requirements that 

mandate a regulated entity engage an 

external auditor to conduct an annual 

audit of its financial statements as well 

as, under certain circumstances, an 

Integrated Audit. We reviewed other 

regulators thresholds and determined 

the compliance tailored and focused 

requirements in this proposal are more 

appropriate for the Farm Credit System 

than the asset minimums imposed by 

other regulators. 

I. An Integrated Audit Is Necessary at 

Certain Institutions, Including Certain 

Associations, To Strengthen the Safety 

and Soundness of the Entire System 

As discussed, the complexity and 

concentration of System banks and 

associations have changed dramatically 

leading to an increased risk that an 

internal control weakness or failure at 

one institution could affect the safety 

and soundness of the entire System, due 

to the System’s cooperative structure. 

An Integrated Audit will strengthen 

shareholder and investor confidence in 

the System’s ICFR. By requiring certain 

associations to obtain an Integrated 

Audit, FCA’s proposed rule would help 

reduce undetected and evolving 

financial reporting risks in the System. 

J. Transitional Considerations 

FCA acknowledges the effort and cost 

an association would bear to obtain and 

prepare for its first Integrated Audit. 

Therefore, FCA believes that the first 

Integrated Audit for associations should 

begin in the third full fiscal year after 

the effective date of this regulation, 

unless FCA determines it is appropriate 

to require an association to obtain an 

Attestation Report sooner because, as 

considered in § 620.3(d)(3)(i)(C), as 

proposed, material weaknesses in ICFR 

are identified or FCA has assessed that 

other developments have occurred, or 

are expected to occur, that could 

adversely impact, or result in significant 

changes to the association’s ICFR that 

impacts the safety and soundness of the 

association. FCA believes that three 

years should provide an adequate 

period of time to allow affected 

associations to prepare for their first 

Integrated Audit. 

All System banks currently obtain an 

Integrated Audit, as required by the 

Funding Corporation. Therefore, an 

Integrated Audit would be formally 

required for System banks upon the 

effective date of this regulation given 

that no transition period would be 

deemed necessary. 

III. Proposed Rule 

A. Amendments to § 620.3 

FCA proposes an amendment to 

§ 620.3 that would require an Integrated 

Audit: 

• By all Farm Credit System banks; 

• By associations with one percent or 

more of total System assets; 

• By an association when the direct 

note payable to its System bank is 15 

percent or more of the System bank’s 

direct loans to associations; or 

• when FCA’s Office of Examination 

(referred to as FCA staff in the 

regulatory text) determines that a 

material weakness in an association’s 

ICFR exists such that an Integrated 

Audit is warranted. This could be based 

on material weaknesses in ICFR controls 

or other developments which occurred, 

or are expected to occur, that could 

adversely impact, or result in significant 

changes to an association’s ICFR that 

impacts the safety and soundness of the 

association. 

An association would generally have 

three fiscal years to obtain its 

Attestation Report. Additionally, the 

proposed rule also details how and 

when merging associations will obtain 

Attestation Reports.13

B. Amendment to 12 CFR 630.5(d)(2) 

With respect to the Funding 

Corporation, the proposed rule would 

amend § 630.5(d)(2) to require that an 

Attestation Report be made in 

accordance with GAAS to correspond to 

proposed language in § 620.3(d)(2) and 

(3). 

IV. Regulatory Flexibility Act 

Pursuant to section 605(b) of the 

Regulatory Flexibility Act (5 U.S.C. 601 

et seq.), FCA hereby certifies that the 

proposed rule will not have a significant 

economic impact on a substantial 

number of small entities. Each of the 

banks in the Farm Credit System, 

considered together with its affiliated 

associations, has assets and annual 

income in excess of the amounts that 

would qualify them as small entities. 

Therefore, Farm Credit System 

institutions are not ‘‘small entities’’ as 

defined in the Regulatory Flexibility 

Act. 

List of Subjects 

12 CFR Part 620 

Accounting, Agriculture, Banks, 

banking, Reporting and recordkeeping 

requirements, Rural areas. 

12 CFR Part 630 

Accounting, Agriculture, Banks, 

banking, Organization and functions 

(Government agencies), Reporting and 

recordkeeping requirements, Rural 

areas. 

For the reasons stated in the 

preamble, the Farm Credit 

Administration proposes to amend 12 

CFR parts 620 and 630 as follows: 


khammond on DSK9W7S144PROD with PROPOSALS
Federal Register / Vol. 89, No. 230 / Friday, November 29, 2024 / Proposed Rules 94619 

PART 620—DISCLOSURES TO 

SHAREHOLDERS 

■ 1. The authority citation for part 620 

continues to read as follows: 

Authority: Secs. 4.3, 4.3A, 4.19, 5.9, 5.17, 

5.19 of the Farm Credit Act (12 U.S.C. 2154, 

2154a, 2207, 2243, 2252, 2254); sec. 424, Pub. 

L. 100–233, 101 Stat. 1568, 1656 (12 U.S.C. 

2252 note); sec. 514, Pub. L. 102–552, 106 

Stat. 4102, 4134. 

■ 2. Amend § 620.3 by revising 

paragraph (d) to read as follows: 

§ 620.3 Accuracy of reports and 

assessment of internal control over 

financial reporting. 

* * * * * 

(d) Assessment of internal control 

over financial reporting. (1) Annual 

reports of those institutions with over 

$1 billion in total assets (as of the end 

of the prior fiscal year) must include a 

report by management assessing the 

effectiveness of the institution’s internal 

control over financial reporting. The 

assessment must be conducted during 

the reporting period and be reported to 

the institution’s board of directors. 

Quarterly and annual reports for those 

institutions with over $1 billion in total 

assets (as of the end of the prior fiscal 

year) must disclose any material 

change(s) in the internal control over 

financial reporting occurring during the 

reporting period. 

(2) All System banks must require 

their external auditor to issue an annual 

attestation report, which must express 

an opinion on the effectiveness of 

internal control over financial reporting. 

The attestation report must be made in 

accordance with generally accepted 

auditing standards, as promulgated by 

the American Institute for Certified 

Public Accountants or the Public 

Company Accounting Oversight Board’s 

auditing standards, if applicable. The 

resulting attestation report must 

accompany management’s assessment of 

internal control over financial reporting 

(as required by paragraph (d)(1) of this 

section) and be included in the bank’s 

annual report. 

(3) Any System association that meets 

the criteria in paragraphs (d)(3)(i)(A) 

through (C) of this section must engage 

its external auditor to issue an annual 

attestation report, which must express 

an opinion on the effectiveness of 

internal control over financial reporting. 

The attestation report must be made in 

accordance with generally accepted 

auditing standards, as promulgated by 

the American Institute for Certified 

Public Accountants or the Public 

Company Accounting Oversight Board’s 

auditing standards, if applicable. The 

resulting attestation report must 

accompany management’s assessment of 

internal control over financial reporting 

(as required by paragraph (d)(1) of this 

section), if applicable, and be included 

in the association’s annual report. 

(i)The requirements of this section 

apply to associations if: 

(A) The association’s total assets 

equaled one percent or more of total 

System assets as of the prior fiscal year; 

(B) The total direct note payable to the 

association’s funding bank was 15 

percent or more of the funding bank’s 

total direct loans to associations as of 

the prior fiscal year; or 

(C) FCA staff determines that a 

material weakness exists in the 

association’s internal control over 

financial reporting, or other 

developments have occurred or are 

expected to occur that could adversely 

impact, or result in significant changes 

to the association’s internal control over 

financial reporting that impacts the 

safety and soundness of the association. 

(4) An association shall comply with 

paragraph (d)(3) of this section at the 

end of the third full fiscal year after the 

effective date of this rule, or the date on 

which the association meets the criteria 

in paragraphs (d)(3)(i)(A) through (C) of 

this section, whichever is later, unless 

FCA staff determines it appropriate to 

require an earlier compliance date. 

Associations that merge during the 

fiscal year shall determine the 

compliance date as follows: 

(i) If, on the effective date of the 

merger, one or more of the merging 

associations must comply with 

paragraph (d) of this section, the merged 

association shall be required to comply 

with paragraph (d)(3) of this section. 

(ii) If, on the effective date of the 

merger, paragraph (d)(4)(i) of this 

section does not apply, and one or more 

of the merging associations is within the 

timeframe prescribed in paragraph (d)(4) 

of this section, the merged association 

shall be required to comply with 

paragraph (d)(3) of this section on the 

earliest compliance date of the merging 

associations as of the day immediately 

preceding the effective date of the 

merger. 

(iii) If, on the effective date of the 

merger, paragraphs (d)(4)(i) through (ii) 

of this section do not apply, but the 

merged association meets the criteria in 

paragraphs (d)(3)(i)(A) through (C) of 

this section, the merged association 

shall comply with paragraph (d)(3) of 

this section at the end of the third full 

fiscal year after the effective date of the 

merger. 

(5) If an association no longer meets 

the criteria in paragraph (d)(3)(i)(A) or 

(B) of this section, an attestation report 

under paragraph (d)(3) of this section is 

not required. 

(6) An attestation report shall no 

longer be required under paragraph 

(d)(3)(i)(C) of this section if FCA staff 

determines that: 

(i) The association has no material 

weaknesses in internal control over 

financial reporting; or 

(ii) No material event exists or is 

expected to exist that impacts the 

reliability of the association’s financial 

disclosures; and 

(iii) No other indication of material 

risk exists in the association’s internal 

control over financial reporting that 

impacts the safety and soundness of the 

association. 

PART 630—DISCLOSURE TO 

INVESTORS IN SYSTEMWIDE AND 

CONSOLIDATED BANK DEBT 

OBLIGATIONS OF THE FARM CREDIT 

SYSTEM 

■ 3. The authority citation for part 630 

continues to read as follows: 

Authority: Secs. 4.2, 4.9, 5.9, 5.17, 5.19 of 

the Farm Credit Act (12 U.S.C. 2153, 2160, 

2243, 2252, 2254); sec. 424, Pub. L. 100–233, 

101 Stat. 1568, 1656 (12 U.S.C. 2252 note); 

sec. 514, Pub. L. 102–552, 106 Stat. 4102, 

4134. 

■ 4. Amend § 630.5 by revising the 

heading to paragraph (d) and paragraph 

(d)(2) to read as follows: 

* * * * * 

(d) Assessment of internal control 

over financial reporting. 

* * * * * 

(2) The Funding Corporation must 

require its external auditor to issue an 

attestation report, which must express 

an opinion on the effectiveness of 

internal control over financial reporting. 

The attestation report must be made in 

accordance with generally accepted 

auditing standards, as promulgated by 

the American Institute for Certified 

Public Accountants or the Public 

Company Accounting Oversight Board’s 

auditing standards, if applicable. The 

resulting attestation report must 

accompany management’s assessment of 

internal control over financial reporting 

(as required by paragraph (d)(1) of this 

section) and be included in the annual 

report. 

Dated: November 21, 2024. 

Ashley Waldron, 

Secretary to the Board, Farm Credit 

Administration. 

[FR Doc. 2024–27657 Filed 11–27–24; 8:45 am] 

BILLING CODE 6705–01–P 


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