Federal Register / Vol. 61, No. 81 / Thursday, April 25, 1996 / Rules and Regulations 18235

1Statement of Financial Accounting Standards

No. 114, ‘‘Accounting by Creditors for Impairment

of a Loan,’’ an amendment of SFAS Statement Nos.

5 and 15, dated May 1993, was subject to

mandatory implementation by institutions for fiscal

years beginning after December 15, 1994.

2Statement of Financial Accounting Standards

No. 118, ‘‘Accounting by Creditors for Impairment

of a Loan—Income Recognition and Disclosures,’’

an amendment of FASB Statement No. 114, dated

October 1994.

List of Subjects in 7 CFR Part 301

Agricultural commodities, Plant

diseases and pests, Quarantine,

Reporting and recordkeeping

requirements, Transportation.

PART 301—DOMESTIC QUARANTINE

NOTICES

Accordingly, 7 CFR part 301 is

amended as follows:

1. The authority citation for part 301

continues to read as follows:

Authority: 7 U.S.C. 150bb, 150dd, 150ee,

150ff, 161, 162, and 164–167; 7 CFR 2.22,

2.80, and 371.2(c).

2. In § 301.89–2, paragraphs (e)

through (n) are redesignated as

paragraphs (f) through (o), respectively,

and a new paragraph (e) is added, as

follows:

§ 301.89–2 Regulated articles.

* * * * *

(e) Tilletia indica (Mitra) Mundkur;

* * * * *

3. In § 301.89–3, paragraph (e), the

designation of quarantined areas is

amended by adding, in alphabetical

order, entries for Imperial County and

Riverside County in California, as

follows:

§ 301.89–3 Quarantined areas.

* * * * *

(e) * * *

* * * * *

California

Imperial County. The entire county.

Riverside County. That portion of

Riverside County in the Blythe and Ripley

areas bounded by a line drawn as follows:

Beginning at the intersection of State

Highway 62 and the Riverside-San

Bernardino County line, then east along the

Riverside-San Bernardino County line to its

intersection with the California-Arizona State

line; then south along the California-Arizona

State line to its intersection with the

Riverside-Imperial County line; then west

along the Riverside-Imperial County line to

its intersection with Graham Pass Road; then

northeast along Graham Pass Road to its

intersection with Chuckwalla Valley Road;

then west and northwest along Chuckwalla

Valley Road to its intersection with Interstate

Highway 10; then west along Interstate

Highway 10 to its intersection with State

Highway 177; then northeast and north along

State Highway 177 to its intersection with

State Highway 62; then northeast along State

Highway 62 to the point of beginning.

Done in Washington, DC, this 19th day of

April, 1996.

Terry L. Medley,

Acting Administrator, Animal and Plant

Health Inspection Service.

[FR Doc. 96–10260 Filed 4–24–96; 8:45 am]

BILLING CODE 3410–34–P

FARM CREDIT ADMINISTRATION

12 CFR Part 621

RIN 3052–AB54

Accounting and Reporting

Requirements

AGENCY: Farm Credit Administration.

ACTION: Final rule.

SUMMARY: The Farm Credit

Administration (FCA or Agency), by the

Farm Credit Administration Board

(Board), adopts as final without change

an interim rule amending its regulations

on high-risk assets. The interim rule was

adopted on November 17, 1994 (59 FR

60886, Nov. 29, 1994). The interim rule

reflected recent changes in generally

accepted accounting principles (GAAP)

that supported retention of existing

regulatory guidance for Farm Credit

System (System) institutions. Although

the need for immediate regulatory

action did not permit a public comment

period before the interim rule took

effect, the FCA requested postpromulgation public comment on the

interim rule. This final rule addresses

the comments received.

EFFECTIVE DATE: December 15, 1994.

FOR FURTHER INFORMATION CONTACT:

Linda C. Sherman, Policy Analyst,

Regulation Development, Office of

Examination, Farm Credit

Administration, McLean, VA 22102–

5090, (703) 883–4498, TDD (703) 883–

4444,

or

William L. Larsen, Senior Attorney,

Regulatory Operations Division,

Office of General Counsel, Farm

Credit Administration, McLean, VA

22102–5090, (703) 883–4020, TDD

(703) 883–4444.

SUPPLEMENTARY INFORMATION:

I. Background

Substantial amendments to the FCA’s

regulations on Accounting and

Reporting Requirements at 12 CFR part

621 became effective on December 31,

1993. See 58 FR 48780, September 20,

1993. These regulations include

requirements and standards for

institutions to use in accounting for

high-risk assets and disclosing loan

performance characteristics. The

amendments promoted consistency with

industry practices in accounting and

reporting and ensured that FCA

regulatory requirements and standards

remained consistent with GAAP.

Subpart C of part 621 provides System

institutions and FCA examiners with

clear guidance on how to categorize,

account for, report, and disclose the

performance of high-risk assets. In

particular, the regulations provide

specific criteria for placing loans in

nonaccrual status, for using cash basis

versus cost recovery accounting

practices, for upgrading loans from

nonaccrual to accrual status, and for

aggregating nonaccrual loans. The

amended regulations promote consistent

financial reporting among System

institutions and Systemwide financial

statements that are comparable to those

of other federally regulated financial

institutions.

Subpart C was subject to a ‘‘sunset’’

provision when originally adopted,

because the FCA expected that aspects

of subpart C guidance might conflict

with the provisions of Statement of

Financial Accounting Standards (SFAS)

No. 114 when they were later

implemented by System institutions.1

However, in October 1994, the Financial

Accounting Standards Board (FASB)

amended SFAS No. 114 by adopting

SFAS No. 118.2 SFAS No. 118 removed

those elements of SFAS No. 114 that

would have conflicted with subpart C.

As a result, the FCA decided to retain

subpart C. To ensure the elimination of

the sunset provision before it

automatically rescinded subpart C at

year-end 1994, the FCA issued an

interim rule with a request for public

comment (59 FR 60886, Nov. 29, 1994).

II. Analysis of Public Comments

The FCA received one comment letter

on the interim rule. The letter was

submitted by the Farm Credit Council

(FCC) on behalf of its membership,

together with the Farm Credit System’s

Accounting Standards Work Group

under the direction of the Federal Farm

Credit Banks Funding Corporation.

The FCC recognizes the FCA’s efforts

to promote accounting and financial

reporting requirements consistent with

the current practices of commercial

banks. However, reiterating arguments

from their July 14, 1993 comment letter

on the proposed rule, the FCC continues

to express concern about adopting

specific accounting and financial

reporting rules rather than general

guidelines. The FCC believes the

regulations should be broad enough to

allow for evolutionary changes in GAAP

and notes that other regulators do not
18236 Federal Register / Vol. 61, No. 81 / Thursday, April 25, 1996 / Rules and Regulations

3 Joint Statement of the OCC, Federal Deposit

Insurance Corporation, Federal Reserve Board, and

Office of Thrift Supervision titled ‘‘Revised

Interagency Guidance on Returning Nonaccrual

Loans to Accrual Status’’ issued June 10, 1993.

include such specific rules in their

regulations. They urge the FCA to

rescind the interim rule. Rescission

would restore the sunset provision and

retroactively eliminate §§ 621.6, 621.7,

621.8, 621.9 and 621.10 (subpart C).

The FCC bases its concern on the

length of time necessary to amend FCA

regulations. The FCC warns that the

presence of specific requirements in the

regulations could cause the System’s

financial reporting process to conflict

with GAAP because the FCA would not

be able to change its regulations quickly

enough to remain current with GAAP

guidelines for the accounting and

financial reporting of high-risk assets.

The FCC also points out that if the

Agency were to lack a quorum of its

Board, as has occurred in the past, it

would be impossible to amend the

regulations to be consistent with

changes as may be required by GAAP.

The FCA observes in response that the

application of GAAP to specific areas of

accounting and financial reporting is

not always well defined. This has been

especially true of high-risk asset

accounting. GAAP has not consistently

provided specific authoritative guidance

in the area of problem loan accounting

and reporting until recently. While

other financial institution regulators

have addressed this issue by instituting

specific guidance in their call report

instructions, the FCA is addressing

them in the accounting regulations.

There is little substantive difference

between these two approaches. Both the

Office of the Comptroller of the

Currency’s (OCC) Call Report

instructions and the FCA’s regulations

are published in the Federal Register,

and both give the public an opportunity

to provide comments prior to

implementation of the revised policy

direction.

The FCA continues to believe that, in

areas such as high-risk accounting, the

promulgation of regulations covering

subjects not fully addressed by GAAP

can be an effective method of promoting

consistent accounting and reporting by

System institutions. Since its adoption,

the final regulation has improved the

internal consistency of System financial

disclosures regarding high-risk assets

and made System accounting and

reporting for such assets more

comparable to the practices of the rest

of the financial services industry. If

GAAP provides future guidance and

direction that conflicts with FCA

regulations, the FCA agrees that it is

important to respond to the changes.

The FCA believes that it can address

any inconsistencies that may develop

between its regulations and GAAP in a

timely fashion.

In support of its contention that the

detailed nature of FCA regulations

might make it difficult for the FCA to

keep up with evolving trends in

regulatory accounting guidance, the FCC

notes two apparent inconsistencies

between FCA regulations and the

approach taken by other federal bank

and thrift regulators. While not

commenting substantively on the

provisions, the FCC suggests that more

flexible accounting and financial

reporting guidelines would facilitate

keeping System financial reporting

consistent with other financial

institutions. As noted, the FCA agrees

with the broad goal of accounting and

reporting consistency between the

System and other financial institutions.

However, in certain circumstances, the

unique needs of the System may require

FCA guidance that may differ from the

approach of other regulators without

affecting broad comparability of System

financial reporting. This is the case with

respect to the two examples of

accounting and reporting guidance

noted by the FCC.

First, the FCC notes that § 621.9(a)

requires all contractual principal and

interest due on the loan to be paid and

the loan to be current before returning

a nonaccrual loan to accrual status. The

FCC compares this to guidance by other

financial institution regulators that

would permit institutions to return past

due loans to accrual status if they are

‘‘reasonably assured of repayment

within a reasonable time period.’’ 3

The FCA believes that any nonaccrual

loan must demonstrate performance in

order to be reinstated to accrual status.

An essential demonstration of

performance is that the loan be brought

current. Under the final regulation, this

must occur before an institution can

resume interest accrual on that asset.

However, the regulation also states that

‘‘[o]nce the ultimate collectibility of the

recorded investment is no longer in

doubt, payments received in cash on

such loan may qualify for recognition as

interest income,’’ (i.e., cash basis

accounting) if certain characteristics are

met at the time the payment is received.

Therefore, application of FCA’s

regulation results in an accounting

treatment of income recognition on such

assets similar to that allowed by the

other financial institution regulators.

In a second example, the FCC states

that the OCC allows for cash basis

interest income recognition on

nonaccrual loans with partial chargeoffs before complete recovery of the

charge-off. The FCC notes that this

differs from the requirement in § 621.8

that interest income cannot be

recognized on a nonaccrual loan with an

unrecovered partial charge-off. The FCA

believes that applying loan payments to

recover partial charge-offs prior to

recording interest income is a prudent

and appropriate approach to eliminating

doubt as to the loan’s ultimate

collectibility and is not inconsistent

with GAAP. In addition, this

requirement is mitigated by an

exception in cases where the prior

charge-off was taken as part of a formal

restructuring of the loan. The FCA

believes this approach is justified for

this type of asset in light of the unique

structure of the System and its

concentration of credit in limited

agricultural markets. Moreover, any

differences in income recognition

between the FCA and the OCC

requirements are likely to be temporary

if the loan continues to perform.

For the reasons stated in the interim

rule release, supplemented by the above

analysis and discussion, the FCA Board

adopts the interim rule amending 12

CFR part 621, which was published at

59 FR 60886 on November 29, 1994, as

final without change. The effective date

of this rule remains December 15, 1994.

The FCA will continue to follow closely

any further developments under GAAP

in the area of problem loan accounting

and reporting and will adjust its

requirements as necessary.

Dated: April 19, 1996.

Floyd F. Fithian,

Secretary, Farm Credit Administration Board.

[FR Doc. 96–10238 Filed 4–24–96; 8:45 am]

BILLING CODE 6705–01–P

DEPARTMENT OF TRANSPORTATION

Federal Aviation Administration

14 CFR Part 39

[Docket No. 95–SW–01–AD; Amendment

39–9577; AD 96–09–03]

Airworthiness Directives; Societe

Nationale Industrielle Aerospatiale and

Eurocopter France Model SA–365N,

N1, and N2 Helicopters

AGENCY: Federal Aviation

Administration, DOT.

ACTION: Final rule.

SUMMARY: This amendment adopts a

new airworthiness directive (AD),

applicable to Societe Nationale

Industrielle Aerospatiale and

Eurocopter France Model SA–365N, N1,