Supervision and Regulation Letters

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SR 16-2:

Interagency Advisory on External Audits of Internationally Active U.S. Financial Institutions

BOARD OF GOVERNORS
OF THE FEDERAL RESERVE SYSTEM
WASHINGTON, D.C. 20551

DIVISION OF BANKING
SUPERVISION AND REGULATION

SR 16-2
January 15, 2016

TO THE OFFICER IN CHARGE OF SUPERVISION AT EACH FEDERAL RESERVE BANK

SUBJECT:

Interagency Advisory on External Audits of Internationally Active U.S. Financial Institutions

Applicability: This guidance applies to internationally active financial institutions as defined below.

The Federal Reserve, together with the Federal Deposit Insurance Corporation (FDIC) and the Office of the Comptroller of the Currency, (the agencies) has issued the attached interagency advisory to communicate the agencies' support for the principles and expectations set forth in Parts 1 and 2, respectively, of the Basel Committee on Banking Supervision's (the BCBS) March 2014 guidance on "External audits of banks" (hereafter, referred to as "the BCBS external audit guidance").1 

In supporting these principles and expectations, the agencies acknowledge that the existing standards and practices in the United States are broadly consistent with the BCBS external audit guidance.  However, because of the legal and regulatory framework in the United States, certain differences exist between the standards and practices followed in the United States and the principles and expectations in the BCBS external audit guidance.  These differences are addressed in this advisory, which also describes the agencies' supervisory expectations for U.S. financial institutions within the scope of this advisory for incorporating the principles and expectations in the BCBS external audit guidance into their practices.  This advisory also outlines examiner responsibilities related to these supervisory expectations. 

The BCBS external audit guidance is intended for "internationally active banks" and is relevant for the management, audit committees, external auditors, and prudential supervisors of such financial institutions.  For purposes of this advisory, the agencies are defining "internationally active banks" as: 

  • Insured depository institutions that meet either of the following two criteria: (i) consolidated total assets of $250 billion or more; or, (ii) consolidated total on-balance sheet foreign exposure of $10 billion or more (referred to as "core banks"); and
  • U.S. depository institution holding companies that meet any of the following three criteria: (i) consolidated total assets (excluding assets held by an insurance underwriting subsidiary) of $250 billion or more; (ii) consolidated total on-balance sheet foreign exposure of $10 billion or more; or (iii) have a subsidiary depository institution that is a core bank.

Financial institutions within the scope of this advisory are directly or indirectly subject to the FDIC's regulation on Annual Independent Audits and Reporting Requirements (12 CFR Part 363)2 and supervisory guidance related to audits of financial institutions.3 

Reserve Banks are asked to distribute this letter to supervised financial institutions that are within the scope of this advisory in their districts, as well as to the appropriate supervisory and examination staff.  Questions regarding this letter should be directed to Joanne Wakim, Accounting Policy Manager, at (202) 912-4302; or Kevin Chiu, Accounting Policy Analyst, at (202) 912-4608.  In addition, institutions may send questions via the Board's public website.4 

signed by
Michael S. Gibson
Director
Division of Banking
Supervision and Regulation

Attachments:

Cross References:
  • SR letter 92-28, “Interagency Policy Statement on Coordination and Communication Between External Auditors and Examiners”
  • SR Letter 03-5, “Amended Interagency Guidance on the Internal Audit Function and its Outsourcing”
Notes:
  1. See http://www.bis.org/publ/bcbs280.pdf. Return to text
  2. The FDIC regulation (12 CFR Part 363) applies to any insured depository institution with respect to any fiscal year in which its consolidated total assets as of the beginning of such fiscal year are $500 million or more.  12 CFR 363.3(f) requires external auditors to comply with the independence standards and interpretations of the American Institute of Certified Public Accountants, the Securities and Exchange Commission, and the Public Company Accounting Oversight Board. Return to text
  3. For example, SR letter 92-28, "Interagency Policy Statement on Coordination and Communication Between External Auditors and Examiners," (July 23, 1992). Return to text
  4. See http://www.federalreserve.gov/apps/contactus/feedback.aspx. Return to text
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Last Update: January 27, 2016