KEY FDIC AMENDMENT TAKES EFFECT
Businesses Will Be Impacted by Changes to the Annual Independent Audits and Reporting Requirement

The FDIC has amended Part 363 of its regulations by raising the asset-size threshold from $500 million to $1 billion for internal control assessments by management and external auditors. The changes, proposed in June of 2005, took effect on December 28, 2005.

The FDIC amendments significantly alter reporting requirements and audit committee membership rules. Under the amended rules, for institutions between $500 million and $1 billion in assets, for instance, only a majority of the members of the audit committee who must be outside directors are required to be independent of management – rather than all of the outside directors, as previously required. Here are some additional important points of the amendments:

• For covered institutions with between $500 million and $1 billion in total assets, management is no longer required to assess and report on the effectiveness of internal control over financial reporting, and external auditors are no longer required to examine and attest to management's internal control assertions.
• The amendments provide relief from these requirements to covered institutions with total assets of less than $1 billion only for purposes of Part 363. These covered institutions must continue to fully comply with the remaining provisions of Part 363, including the annual financial statement audit requirement.
• The amendments do not relieve public covered institutions from their obligations to comply with the provisions of the Sarbanes-Oxley Act and the Securities and Exchange Commission's implementing rules on internal control reporting by management and external auditors and, if applicable, audit committee independence.

The amendments apply to institutions whose fiscal years end on or after September 30, 2005.

For further information on the FDIC changes, please contact Frank Gonzalez at fgonzalez@mbafcpa.com or at (305) 373-5500