Good news for smaller credit unions: a new regulatory change is set to provide greater flexibility around auditing requirements. The National Credit Union Administration (NCUA) Board recently voted to eliminate the Supervisory Committee Guide (the Guide), last updated in 1999, and to replace it with simplified guidance. Credit Unions with less than $500 million in assets can elect to have a full financial statement audit or a Supervisory Committee Audit, following specific procedures outlined in the Guide.
A few significant changes are underway, now that the NCUA has issued the Final Rule on Supervisory Committee Audits and Verifications. The Final Rule, which goes into effect 90 days after publication in the Federal Register, replaces the Guide with a simplified appendix, making it easier for credit unions to complete the audit process. Instead of referring to the numerous requirements laid out in the Guide, credit unions may now find guidance for Supervisory Committee Audits in the Appendix to Part 715 of the regulations. The Appendix establishes minimum requirements for testing account balances and internal controls. Specifically, the Appendix requires any credit union performing a Supervisory Committee Audit to look at the following areas:
- Review of Board of Director minutes
- Testing and confirming certain types of asset and liability accounts
- Testing material equity, income and expense accounts
- Testing unrecorded liabilities
- Reviewing key internal controls
- Testing the methodology and mathematical accuracy of the allowance for loan and lease losses
- Testing loan delinquency and charge-offs
The Final Rule also eliminates two audit alternatives that credit unions seldom used: conducting either a balance sheet only audit or a Report on Examination of Internal Control over Call Reporting.
Lastly, the Final Rule eliminates a previous requirement affecting engagement letters for financial statement audits. Currently, a credit union must name a target date of delivery for written reports in an engagement letter with an outside auditor, and the date must be within 120 days of the end of the fiscal year. The Final Rule, when it goes into effect, will allow for more flexibility, by eliminating the 120-day requirement. Note engagement letters still need to indicate an estimated target delivery date.