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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): May 16, 2000 (May 11, 2000)
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COMMUNITY BANCSHARES, INC.
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 000-16461 63-0868361
(State or Other Jurisdiction (Commission File (I.R.S. Employer
of Incorporation) Number) Identification Number)
MAIN STREET 35031
BLOUNTSVILLE, ALABAMA (Zip Code)
(Address of Principal Executive Offices)
(205) 429-1000
(Registrant's Telephone Number, Including Area Code)
NOT APPLICABLE
(Former Name or Former Address, If Changed Since Last Report)
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ITEM 4. CHANGES IN REGISTRANT'S CERTIFYING ACCOUNTANT
(a) On May 11, 2000, the Registrant's Board of Directors determined not
to retain the accounting firm of Dudley, Hopton-Jones, Sims and Freeman PLLP
("Dudley") as the Registrant's independent accountant for the year ending
December 31, 2000. Although the Board of Directors expressed its satisfaction
with Dudley's work as the Registrant's independent accountant, the Board
determined that because of the Registrant's growth, it needs access to the
technical support and research services provided by a national accounting firm.
During the past two fiscal years and in the first quarter of 2000 there have
been no disagreements between the Registrant and Dudley on any matter of
accounting principles or practices, financial statement disclosure or auditing
scope or procedure, nor has Dudley in either of the past two years issued an
adverse opinion or disclaimer of opinion with respect to the Registrant's
financial statements or qualified or modified its opinion as to uncertainty,
audit scope or accounting principles. A copy of a letter from Dudley dated May
16, 2000 addressed to the Securities and Exchange Commission regarding
Registrant's change in independent accountants is filed as Exhibit 16 hereto.
(b) On May 11, 2000 the Registrant's Board of Directors engaged KPMG LLP
("KPMG") as Registrant's independent accountant for the year ending December 31,
2000. KPMG was consulted by Registrant in August 1999 to determine the proper
accounting treatment of certain loans which were made at the Fort Payne, Alabama
Wal-Mart office of Registrant's subsidiary, Community Bank. KPMG issued a report
on the appropriate application of generally accepted accounting principles dated
October 14, 1999 to the Registrant in connection with the consultation which is
filed as Exhibit 99 hereto. The report addressed three issues identified by the
Registrant: (1) If the loans were individually evaluated for impairment would
the loans be considered impaired under Statement of Financial Accounting
Standards No. 114, Accounting by Creditors for Impairment of a Loan ("Statement
114")? (2) If the loans are impaired loans, should the expected insurance
proceeds under the Registrant's fidelity bond be included in the loans' expected
future cash flows in measuring impairment under Statement 114? (3) If the
insurance proceeds should not be included in measuring impairment, how should
the Registrant record the effect of the expected reimbursement? KPMG's
conclusions, all of which were based on the facts of the transaction provided by
management, were as follows: Issue (1) - The loans should be considered impaired
according to Statement 114; Issue (2) - The expected insurance proceeds should
not be included in the loans' expected future cash flows in measuring
impairment; and Issue (3) - If management expects to receive a full recovery of
the loss from its insurance carrier, the Registrant should recognize an asset
equal to the expected proceeds. The related income statement impact should be
included as a component of non-interest income. The Registrant had consulted
Dudley about these loans earlier in 1999. Dudley's conclusion at that time was
that the loans should be netted against the insurance proceeds and recorded as a
net transaction. After reviewing KPMG's report, Dudley agreed with the
conclusions of KPMG which were substantially the same as Dudley's earlier
conclusions.
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ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(c) The following exhibits are filed herewith:
<TABLE>
<CAPTION>
Exhibit Number Description
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<S> <C>
16 Letter dated May 16, 2000 from Dudley, Hopton-Jones, Sims and
Freeman PLLP to the Securities and Exchange Commission
99 Letter dated October 14, 1999 from KPMG LLP to the Registrant
</TABLE>
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
COMMUNITY BANCSHARES, INC.
By: /s/ Kennon R. Patterson, Sr.
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Kennon R. Patterson, Sr.
Chairman, Chief Executive Officer and President
Date: May 16, 2000
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EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Number Description
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<S> <C>
16 Letter dated May 16, 2000 from Dudley, Hopton-Jones, Sims and
Freeman PLLP to the Securities and Exchange Commission
99 Letter dated October 14, 1999 from KPMG LLP to the Registrant
</TABLE>
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EXHIBIT 16
May 16, 2000
Securities and Exchange Commission
Washington, D.C. 20549
Ladies and Gentlemen:
We have read Item 4 of Form 8-K dated May 16, 2000, of Community Bancshares,
Inc. and are in agreement with the statements contained therein.
Very truly yours,
/s/ Dudley, Hopton-Jones, Sims & Freeman PLLP
Dudley, Hopton-Jones, Sims & Freeman PLLP
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EXHIBIT 99
October 14, 1999
Mr. Michael A. Bean
Executive Vice President
Community Bank
Gentlemen:
We have been engaged to report on the appropriate application of generally
accepted accounting principles to the specific transaction described below. This
report is being issued to Community Bank (the Bank) for assistance in evaluating
accounting principles for the described specific transaction. Our engagement has
been conducted in accordance with standards established by the American
Institute of Certified Public Accountants.
DESCRIPTION OF THE TRANSACTION
The facts, circumstances, and assumptions relevant to the specific transaction
as provided to us by management of the Bank are as follows:
The Bank has a number of auto loans that are in default. The Bank filed an
insurance claim with its fidelity bond insurance carrier to recover the carrying
amount of the loans. The Bank reasonably expects to receive the full carrying
amount of the loans from the insurance carrier.
ACCOUNTING ISSUES
Issue 1. If the loans are individually evaluated for impairment would the
loans be considered to be impaired under Statement of
Financial Accounting Standards No. 114, Accounting by Creditors
for Impairment of a Loan (Statement No. 114)?
Issue 2. If the loans are impaired loans, should the expected insurance
proceeds be included in the loans' expected future cash flows in
measuring impairment under Statement No. 114?
Issue 3. If the insurance proceeds should not be included in measuring
impairment, how should the Bank record the effect of the expected
reimbursement?
APPROPRIATE ACCOUNTING PRINCIPLES
Issue 1. Paragraph 8 of Statement No. 114 states that "a loan is
impaired when, based on current information and events, it is
probable that a creditor will be unable to collect all amounts
due in according to the contractual terms of the loan
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agreement ... all amounts due according to the contractual terms
means that both the contractual interest payments and the
contractual principal payments of a loan will be collected as
scheduled in the loan agreement." Since the loans are in default
and all amounts due according to the contractual terms will not
be collected, the loans are considered to be impaired according
Statement No. 114. The expected proceeds from the insurance claim
are not amounts that are due according to the contractual terms
of the loan agreement, and accordingly, would not be considered
in determining whether the loans are impaired.
Issue 2. Paragraph 13 of Statement No. 114, states that "...a creditor
shall measure impairment based on the present value of
expected future cash flows discounted at the loan's effective
interest rate, except that as a practical expedient, a
creditor may measure impairment based on a loan's observable
market price, or the fair value of the collateral if the loan
is collateral dependent. Regardless of the measurement method,
a creditor shall measure impairment based on the fair value of
the collateral when the creditor determines that foreclosure
is probable."
Based on the foregoing, we believe that the Bank should measure
impairment as the difference between the carrying value of the
loans and the present value of the expected future cash flow from
the borrowers. Since the expected proceeds from the insurance
carrier are not legally a part of the expected future cash flows
from the borrowers, and the expected insurance proceeds would not
be considered collateral, such proceeds should not be included in
measuring impairment.
Issue 3. Statement of Concepts No. 6, Elements of Financial Statements
(CON6) defines an assets as "probable future economic benefits
obtained or controlled by a particular entity as a result of
past transactions or events." Based on the facts of this case,
management expects to receive a full recovery of the loss from
its insurance carrier. This right to reimbursement represents
a future economic benefit. Accordingly, we believe that the
Bank should recognize an asset equal to the expected proceeds.
The related income statement impact would be included as a
component of non-interest income.
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The ultimate responsibility for the decision on the appropriate application of
generally accepted accounting principles for an actual transaction rests with
the preparers of the financial statements who should consult with their
continuing accountants. Our judgement on the appropriate application of
generally accepted accounting principles for the described specific transaction
is based solely on the facts provided to us as described above; should these
facts and circumstances differ, our conclusions may change.
Very truly yours,
KPMG, LLP
