New Standards Help Improve Credit Union Audits

By Anthony J. Mancuso, CPA

Standards to strengthen credit union audits were signed into law by President Clinton in August as part of a broad credit union act (H.R. 1151). The CPA profession pushed for the new provisions to rectify a 1996 National Credit Union Administration (NCUA) rule which allowed nonlicensed individuals to audit credit unions.

The law, which amends the Federal Credit Union Act of 1934, requires the following:

* Insured credit unions with assets greater than $10 million to file reports or statements with the NCUA that are consistent with GAAP, or are no less stringent than GAAP;

* Insured credit unions with assets of $500 million or more to have an annual independent audit of their financial statements performed in accordance with GAAS by independent CPAs or licensed public accountants; and

* Federal credit unions with assets greater than $10 million that use an independent auditor to perform the audit required by the credit union's supervisory committee to use an auditor licensed pursuant to the state's accounting laws.

The NCUA is the independent federal agency responsible for chartering, supervising, and insuring the nation's approximately 7,000 federal credit unions. The agency's rule stemmed from a reaction by credit unions concerning the costs of independent audits, especially to smaller credit unions. The AICPA had proposed other solutions, such as agreed-upon procedures, to satisfy the requirements within a reasonable cost framework, but the NCUA was determined not to prohibit non-CPAs from performing these audits.

In response to AICPA's view that the NCUA's rule was not in the public interest and could put credit unions' funds at risk, Congressman Bill McCollum (R-FL) sponsored the provision that was later incorporated as H.R. 1151. The AICPA also pointed out that the NCUA rule was in violation of most state accountancy statutes, which prohibit nonlicensed individuals from performing audits.