Agencies Issue Rules on Auditor Debarment
The banking agencies have issued final rules on the removal, suspension, and debarment of accountants performing audit services for larger banks. Under the new rules the agencies can, for good cause, remove, suspend, or bar an accountant or firm from performing audit and attestation services for banks with assets of $500 million or more. Section 36 of the FDI Act requires banks with more than $500 million in assets to obtain an annual independent audit. Section 36 also requires accountants to attest to management's assertions concerning internal controls over financial reporting.
Effective October 1, 2003, the agencies can remove, suspend or debar an accountant for "good cause" if the accountant does not possess the requisite qualifications to perform audit services, violates professional standards including those applicable to accountants under the Sarbanes-Oxley Act of 2002, gives false or misleading information to the agencies, or violates any law. Accountants and accounting firms may not perform audit services for banks if they have been removed, suspended, or debarred by one of the agencies, or have been subjected to certain disciplinary action by the SEC or the new Public Company Accounting Oversight Board. The agencies could immediately suspend an accountant upon reasonable belief that the accountant was engaged in wrongdoing and suspension was necessary to avoid harm to the bank or its depositors.
The new rules will increase the pressure that accountants are already experiencing under the Sarbanes-Oxley Act and the creation of the PCAOB.