[Federal Register Volume 59, Number 4 (Thursday, January 6, 1994)]
[Rules and Regulations]
[Pages 657-661]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-196]
[[Page Unknown]]
[Federal Register: January 6, 1994]
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DEPARTMENT OF AGRICULTURE
Rural Electrification Administration
7 CFR Part 1773
RIN 0572-AA93
Policy on Audits of REA Borrowers
AGENCY: Rural Electrification Administration, USDA.
ACTION: Final rule.
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SUMMARY: This final rule revises and clarifies a provision of the
current regulation which requires a certified public accountant (CPA)
to state whether an electric borrower has complied with certain
provisions of its loan and security instruments. This final rule also
incorporates the illustrative management letter issued by the American
Institute of Certified Public Accountants in a Technical Practice Aid
dated November 11, 1992.
DATES: This rule is effective February 7, 1994. This rule applies to
audits prepared as of December 31, 1993, and thereafter.
FOR FURTHER INFORMATION CONTACT:
Ms. Roberta E. Detwiler, Chief, Technical Accounting and Auditing
Staff, Borrower Accounting Division, Rural Electrification
Administration, room 2222, South Building, U.S. Department of
Agriculture, Washington, DC 20250, telephone number (202) 720-5227.
SUPPLEMENTARY INFORMATION:
Executive Order 12866
This final rule is issued in conformance with Executive Order
12866.
Regulatory Flexibility Act Certification
The Administrator, REA, has determined that the Regulatory
Flexibility Act (5 U.S.C. 601 et seq.) does not apply to this final
rule.
Information Collection and Recordkeeping Requirements
In compliance with the Office of Management and Budget (OMB)
regulations (5 CFR part 1320) which implements the Paperwork Reduction
Act of 1980 (Pub. L. 96-511) and section 3504 of that Act, the
information collection and recordkeeping requirements have been
approved by the Office of Management and Budget (OMB) under control
number 0572-0095. Comments regarding these requirements may be sent to
the United States Department of Agriculture, Clearance Office, OIRM,
room 404-W, Washington, DC 20250 or to the Office of Management and
Budget, Office of Information and Regulatory Affairs, room 3201,
Washington, DC 20503.
National Environmental Policy Act Certification
The Administrator, REA, has determined that this final rule will
not significantly affect the quality of the human environment as
defined by the National Environmental Policy Act of 1969 (42 U.S.C.
4321 et seq.). Therefore, this action does not require an environmental
impact statement or assessment.
Catalog of Federal Domestic Assistance
The program described by this final rule is listed in the Catalog
of Federal Domestic Assistance Programs under number 10.850--Rural
Electrification Loans and Loan Guarantees. This catalog is available on
a subscription basis from the Superintendent of Documents, the United
States Government Printing Office, Washington, DC 20402.
Executive Order 12372
This final rule is excluded from the scope of Executive Order
12372, Intergovernmental Consultation. A Notice of Final Rule entitled
Department Programs and Activities Excluded from Executive Order 12372
(50 FR 47034) exempts REA and Rural Telephone Bank (RTB) loans and loan
guarantees, and RTB bank loans, to governmental and nongovernmental
entities from coverage under this Order.
Executive Order 12778
This final rule has been reviewed under Executive Order 12778,
Civil Justice Reform. This final rule:
(1) Will not preempt any state or local laws, regulations, or
policies, unless they present an irreconcilable conflict with this
rule;
(2) Will not have any retroactive effect; and
(3) Will not require administrative proceeding before parties may
file suit challenging the provisions of this rule.
Background
On December 3, 1991, REA published a final rule on part 1773, at 56
FR 63354, concerning audits of REA borrowers. Part 1773 implements the
standard REA security instrument provision requiring REA borrowers to
prepare and furnish to REA, at least once during each 12-month period,
a full and complete report of its financial condition, operations, and
cash flows, in form and substance satisfactory to REA, audited and
certified by an independent CPA, satisfactory to REA, and accompanied
by a report of such audit, in form and substance satisfactory to REA. A
report of the audit was defined in Sec. 1773.1 to include the auditor's
report, report on compliance, report on internal controls and
management letter.
The management letter is prepared by the CPA and addresses specific
internal control, compliance, and other program issues not typically
addressed in the standard auditor's report, report on internal
controls, or report on compliance. The requirements for preparing a
management letter are set forth in Sec. 1773.34, Management Letter.
This final rule revises and clarifies Sec. 1773.34(e). Section 1773.34
(e)(1)(i) for electric borrowers and Sec. 1773.34 (e)(2)(i) for
telephone borrowers requires CPAs to test compliance with the loan and
security instrument provision requiring borrowers to maintain
insurance. REA is currently reviewing its insurance requirements to
determine if these requirements are representative of current industry
standards. Therefore, until such time as REA's review is completed and
revisions, if any, to current policies are finalized, CPAs will not be
required to test for compliance with the mortgage provision relating to
insurance.
Section 1773.34(e)(1)(ii) for electric borrowers and
Sec. 1773.34(e)(2)(iii) for telephone borrowers requires CPAs to test
for compliance with the loan and security instrument provision
requiring funds to be deposited in banks or other depositories
designated in the loan documents or approved by REA. Because of the
many and varied investing activities available in today's economy, CPAs
have questioned the definition of funds and what, if any, investments
are affected. This final rule provides a definition of funds for
purposes of applying this part 1773.
Section 1773.34(e)(1)(iv) for electric borrowers and
Sec. 1773.34(e)(2)(iv) for telephone borrowers requires CPAs to review
the financial and statistical report and state whether the information
presented is in agreement with the borrower's records. CPAs have
questioned whether they are required to review a certified copy of the
report obtained directly from REA or whether they may review a copy
represented by the borrower as having been submitted to REA. This final
rule clarifies REA's requirement for CPAs to review a copy of the
financial and statistical report represented by the borrower as having
been submitted to REA.
Section 1773.34(e)(1)(iii) for electric borrowers and
Sec. 1773.34(e)(2)(ii) for telephone borrowers requires the CPA to
state whether an REA borrower has complied with the provision of its
loan and security instrument that requires a borrower to obtain written
approval of mortgagees to enter into any contract for the operation or
maintenance of all or any part of its property, or for the use of its
property by others. This requirement clearly goes beyond the scope of
government auditing standards because it requires all contracts, even
those that have little or no impact on financial statement amounts, to
be reviewed by the CPA for REA approval. This testing has, during the
effective period of part 1773, translated into increased audit fees. To
minimize the cost impact to REA borrowers yet provide REA the assurance
it requires, this final rule details the contracts that must be
reviewed by CPAs.
This final rule also incorporates the illustrative management
letter, as amended by these part 1773 revisions, issued by the American
Institute of Certified Public Accountants in a Technical Practice Aid
dated November 11, 1992. The illustrative letter properly addresses the
management letter requirements set forth in 7 CFR 1773.34 and includes
specific language to ensure compliance with the promulgated auditing
literature. As such, REA believes it is more informative than the
sample management letter previously provided in appendix C to part
1773.
Due to a procedural change within REA that will more efficiently
process and review audit reports submitted by REA borrowers, this final
rule also amends Sec. 1773.3, Sec. 1773.20, and Sec. 1773.21 to require
borrowers to submit to REA an additional copy of the audit, report on
compliance, report on internal controls, and management letter and
revises Sec. 1773.21 to require the submission of an additional copy of
borrowers' plans for corrective action.
Comments
A proposed rule entitled Policy on Audits of REA Borrowers,
published September 23, 1993, at 58 FR 49442, invited interested
parties to submit comments on or before November 22, 1993. Comments
were received from the National Rural Electric Cooperative Association
(NRECA) and two certified public accounting firms. The comments
submitted by NRECA were based upon an analysis performed by the
Accounting & Depreciation Committee, a subcommittee of the Generation
and Transmission Managers Association Technical Advisory Committee, and
were considered and concurred in by the NRECA Accounting and Tax
Committee.
One accounting firm agreed with the proposed revisions in all
respects. The other commenters agreed with the proposed revisions;
however, proffered additional revisions. The following paragraphs
address the additional revisions proposed by the commenters.
Comment. Sections 1773.40 and 1773.45 state that the certified
public accountant's (CPA) workpapers must document whether all
regulatory assets and liabilities comply with the requirements of
Statement of Financial Accounting Standards No. 71, Accounting for the
Effects of Certain Types of Regulation, and have received REA approval.
REA telephone borrowers that comply with generally accepted accounting
principles as required by part 32 of the Federal Communications
Commission's Rules and Regulations, Uniform System of Accounts for
Telecommunications Companies, are not required to obtain specific REA
approval of regulatory assets and liabilities. Only REA electric
borrowers must seek such approval. Sections 1773.40 and 1773.45 should
be amended to specify that REA approval of regulatory assets and
liabilities must only be documented for REA electric borrowers.
Response. REA agrees with the comment and has revised Sec. 1773.40
and Sec. 1773.45 accordingly.
Comment. Section 1773.9(c) states that pursuant to the terms of its
audit agreement with the borrower, the CPA must immediately report, in
writing, all irregularities and all indications or instances of illegal
acts, whether material or not to: (1) The president of the borrower's
board of directors; (2) the Director, Borrowers Accounting Division;
and (3) the Office of Inspector General. This requirement goes beyond
that of generally accepted government auditing standards (GAGAS) which
limits reporting requirements for irregularities to material instances
and instances that cumulatively could have a material effect on the
financial statements. GAGAS further limits the reporting of illegal
acts to only the top official of the entity arranging for the audit.
REA should modify the requirements set forth in Sec. 1773.9(c) to
correspond with the GAGAS requirements.
Response. REA recognizes that certain procedures set forth in part
1773 exceed the requirements of a GAGAS audit and REA has acknowledged
that fact in the rule. The Office of Inspector General, in Departmental
Regulation No. 1700-1, Basic OIG Investigation/Audit Organization and
Procedures, sets forth certain requirements that all Federal agencies
within USDA must impose upon nonFederal auditors. One of these
requirements is that all irregularities or illegal acts, regardless of
materiality, discovered by nonFederal auditors be reported to the
Federal agency requiring the audit and to OIG for appropriate action.
For this reason, no revisions were made in the final rule.
Comment. Section 1773.6(a)(2) states that ``The borrower and CPA
acknowledge that REA regulations provide that if the borrower fails to
have an audit performed and documented in compliance with GAGAS and
this part, the borrower is in violation of its security instrument with
REA''. This language exceeds the applicable mortgage covenant and the
following language should be substituted: ``The borrower and CPA
acknowledge that REA will consider the borrower to be in violation of
its security instrument with REA if the borrower fails to have an audit
performed and documented in compliance with GAGAS and 7 CFR part 1773.
This acknowledgement shall not be considered a contractual admission
against interest by either the borrower or the CPA.''
Response. REA's proposed rule published on September 23, 1993, did
not include revisions to Sec. 1773.6(a)(2). Therefore, comments on this
section went beyond the scope of the proposal. REA is planning a
separate rulemaking procedures that will include changes in
Sec. 1773.6(a)(2) and REA will be soliciting comments at that time.
Comment. Certain disclosure and reporting requirements contained in
Sec. 1773.34 should include some consideration of materiality. The
concept of materiality is inherent in all audits. Strict compliance
with the existing policy has, however, resulted in reporting of
immaterial items of non-compliance.
Response. As previously discussed, REA recognizes that certain
procedures set forth in part 1773 exceed the requirements of a GAGAS
audit and REA has acknowledged that fact in the rule. Section 1773.34
sets forth REA's requirement that the CPA must prepare a management
letter and establishes the testing and reporting requirements for the
management letter.
Section 1773.34(e) sets forth certain provisions of REA's security
instrument that REA has determined are essential to the security of its
loans. CPAs auditing REA borrowers are, therefore, required to test for
compliance with the security instrument provisions set forth in
Sec. 1773.34. Because of the degree of reliance that REA places on the
CPAs' testing in these areas, REA has determined that materiality
should not be a factor upon which testing is based. REA has, however,
through the publication of this final rule, revised and eliminated many
of the unclear or burdensome requirements set forth in part 1773. For
this reason, no additional revisions were made to Sec. 1773.34.
List of Subjects in 7 CFR Part 1773
Accounting, Electric power, Loan programs--communications, Loan
programs--energy, Reporting and recordkeeping requirements, Rural
areas, Telephone.
For the reasons set forth in the preamble, REA hereby amends 7 CFR
chapter XVII as follows:
PART 1773--POLICY ON AUDITS OF REA BORROWERS
1. The authority citation for part 1773 is revised to read as
follows:
Authority: 7 U.S.C. 901 et seq., 1921 et seq.)
2. In Sec. 1773.3, paragraph (c) is revised to read as follows:
Sec. 1773.3 Annual audit.
* * * * *
(c) Until all loans made or guaranteed by REA have been repaid, the
borrower must furnish three copies of the auditor's report, report on
compliance, report on internal controls, and management letter to REA
within 120 days of the as of audit date.
* * * * *
3. In Sec. 1773.20, paragraph (a) is revised to read as follows:
Sec. 1773.20 CPA's submission of the auditor's report, report on
compliance, report on internal controls, and management letter.
(a) Time limit. As soon as possible after completion of the audit,
but within 90 days of the as of audit date, the CPA should deliver the
auditor's report, report on compliance, report on internal controls,
and management letter to the president of the borrower's board of
directors. As a minimum, copies should be provided for each member of
the board of directors and the manager. Further, three copies must be
provided to the borrower for transmittal to REA.
* * * * *
4. In Sec. 1773.21, paragraphs (b) and (c) are revised to read as
follows:
Sec. 1773.21 Borrower's review and submission of the auditor's report,
report on compliance, report on internal controls, and management
letter.
* * * * *
(b) The borrower must furnish REA with three copies of the
auditor's report, report on compliance, report on internal controls,
and management letter within 120 days of the as of audit date. Any
provision in REA's security instrument that requires such documents to
be furnished to REA in a shorter period of time may be disregarded.
(c) The borrower must furnish REA with three copies of its plan for
corrective action, if any, within 180 days of the as of audit date.
* * * * *
5. Section 1773.34 is amended by removing paragraph (e)(1)(i),
redesignating paragraphs (e)(1)(ii) through (e)(1)(iv) as paragraphs
(e)(1)(i) through (e)(1)(iii) respectively and revising the newly
designated paragraphs, removing paragraph (e)(2)(i), redesignating
paragraphs (e)(2)(ii) through (e)(2)(iv) as paragraphs (e)(2)(i)
through (e)(2)(iii) respectively and revising the newly redesignated
paragraphs to read as follows:
Sec. 1773.34 Management letter.
* * * * *
(e) * * *
(1) * * *
(i) The requirement for funds to be deposited in banks or other
depositories designated in the loan documents or approved by REA. For
purposes of this part 1773, funds shall be defined as cash on deposit
in demand and time accounts, and certificates of deposit;
(ii) The requirement for a borrower to obtain written approval of
mortgagees to enter into any contract for the operation or maintenance
of all or any substantial part of its property, or for the use by
others of its property. For purposes of this part 1773, the following
contracts shall be deemed as requiring REA approval:
(A) Management contracts in which the borrower has contracted to
have another borrower or other entity manage its affairs;
(B) Management contracts in which the borrower has contracted to
manage another borrower or other utility system;
(C) Operations and maintenance contracts in which the borrower has
contracted to have another borrower or other entity operate and/or
maintain all or a substantial part (45% or more) of the physical plant
facilities of the borrower;
(D) Operations and maintenance contracts in which the borrower has
contracted to operate and maintain the physical plant facilities of
another borrower or other utility system; and
(E) Contracts between the borrower and its manager; and
(iii) The requirement for a borrower to prepare and furnish
mortgagees annual financial and statistical reports on the borrower's
financial condition and operations. The CPA must state whether the
information represented by the borrower as having been submitted to REA
in its most recent December 31 REA Form 7 or Form 12 is in agreement
with the borrower's records, and must comment on any exceptions noted.
If the borrower represents that an amended report has been filed as of
December 31, the comments must relate to the amended report.
(2) * * *
(i) The requirement for a borrower to obtain written approval of
the mortgagees to enter into any contract for the operation or
maintenance of property and for the use of mortgaged property by
others, or for services pertaining to toll traffic, operator
assistance, or switching. For purposes of this part 1773, the following
contracts shall be deemed as requiring REA approval:
(A) Any contract, agreement or lease between the borrower and an
affiliate other than as allowed under 7 CFR part 1744, subpart E;
(B) Any lease of a building or land; and
(C) Any other contract as defined in Sec. 1773.34 (e)(2)(i) except:
(1) Industry standard traffic settlement agreements involving
interexchange and long distance carriers which, in form and substance,
conform with contracts in general use in the telecommunications
industry;
(2) Billing and collecting agreements;
(3) Toll pooling arrangements involving National Exchange Carrier
Association and state associations;
(4) Directory services agreements; and
(5) Joint use agreements;
(ii) The requirement for funds to be deposited in banks or other
depositories designated in the loan documents or approved by REA. For
purposes of this part 1773, funds shall be defined as cash on deposit
in demand and time accounts, and certificates of deposit; and
(iii) The requirement for a borrower to prepare and furnish
mortgagees annual financial and statistical reports on the borrower's
financial condition and operations. The CPA must state whether the
information represented by the borrower as having been submitted to REA
in its most recent December 31 REA Form 479 is in agreement with the
borrower's records, and must comment on any exceptions noted. If the
borrower represents that an amended report has been filed as of
December 31, the comments must relate to the amended report.
* * * * *
6. Section 1773.40 is revised to read as follows:
Sec. 1773.40 Regulatory assets.
The CPA's workpapers must document whether all regulatory assets
comply with the requirements of SFAS No. 71. For electric borrowers
only, the CPA's workpapers must document whether all regulatory assets
have received REA approval.
7. Section 1773.45 is revised to read as follows:
Sec. 1773.45 Regulatory liabilities.
The CPA's workpapers must document whether all regulatory
liabilities comply with the requirements of SFAS No. 71. For electric
borrowers only, the CPA's workpapers must document whether all
regulatory liabilities have received REA approval.
8. Appendix C to Part 1773 is revised to read as follows:
Appendix C to Part 1773--Illustrative Independent Auditors' Management
Letter
REA requires that CPAs auditing REA borrowers provide a
management letter in accordance with Sec. 1773.34. REA requires that
this letter bear the same date as the auditor's report and be
addressed to the borrower's board of directors. The CPA is required
to sign the auditor's report, report on compliance, report on
internal controls, and management letter.
Illustrative Independent Auditors' Management Letter
March 15, 19x6
Board of Directors
[Name of Borrower]
[City, State]
We have audited the financial statements of [Name of Borrower]
for the year ended December 31, 19x5, and have issued our report
thereon dated March 15, 19x6. We conducted our audit in accordance
with generally accepted auditing standards, Government Auditing
Standards issued by the Comptroller General of the United States,
and 7 CFR part 1773, Policy on Audits of Rural Electrification
Administration (REA) Borrowers. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement.
In planning and performing our audit of the financial statements
of [Name of Borrower] for the year ended December 31, 19x5, we
considered its internal control structure in order to determine our
auditing procedures for the purpose of expressing an opinion on the
financial statements and not to provide assurance on the internal
control structure.
A description of the responsibility of management for
establishing and maintaining the internal control structure and the
objectives of and inherent limitations in such a structure is set
forth in our independent auditors' report on the internal control
structure dated March 15, 19x6, and should be read in conjunction
with this report.
Our consideration of the internal control structure would not
necessarily disclose all matters in the internal control structure
that might be material weaknesses under standards established by the
American Institute of Certified Public Accountants.
A material weakness is a condition in which the design or
operation of the specific internal control structure elements does
not reduce to a relatively low level the risk that errors or
irregularities in amounts that would be material in relation to the
financial statements being audited may occur and not be detected
within a timely period by employees in the normal course of
performing their assigned functions. However, we noted no matters
involving the internal control structure and its operation that we
consider to be a material weakness as defined above. [If a material
weakness was noted, refer the reader to the independent auditors'
report on internal control structure.]
7 CFR 1773.34 requires comments on specific aspects of the
internal control structure, compliance with specific REA loan and
security instrument provisions, and other additional matters. We
have grouped our comments accordingly. In addition to obtaining
reasonable assurance about whether the financial statements are free
from material misstatements, at your request, we performed tests of
specific aspects of the internal control structure, of compliance
with specific REA loan and security instrument provisions, and of
additional matters. The specific aspects of the internal control
structure, compliance with specific REA loan and security instrument
provisions, and additional matters tested include, among other
things, the accounting procedures and records, materials control,
compliance with specific REA loan and security instrument provisions
set forth in 7 CFR 1773.34 (e)(1), [for telephone borrowers, 7 CFR
1773.34 (e)(2)], related party transactions, and depreciation rates.
[For electric borrowers:] The additional matters tested also include
a schedule of deferred debits and credits, upon which we express an
opinion. In addition, our audit of the financial statements also
included the procedures specified in 7 CFR 1773.38-.45. Our
objective was not to provide an opinion on these specific aspects of
the internal control structure, compliance with specific REA loan
and security instrument provisions, or additional matters, and
accordingly, we express no opinion thereon.
No reports (other than our independent auditors' report, our
independent auditors' compliance report, and our independent
auditors' report on the internal control structure, all dated March
15, 19x6) or summary of recommendations related to our audit have
been furnished to management.
Our comments on specific aspects of the internal control
structure, compliance with specific REA loan and security instrument
provisions, and other additional matters as required by 7 CFR
1773.34 are presented below.
Comments on Certain Specific Aspects of the Internal Control Structure
We noted no matters regarding [Name of Borrower]'s internal
control structure and its operation that we consider to be a
material weakness as previously defined with respect to:
--The accounting procedures and records [list other comments];
--The process for accumulating and recording labor, material, and
overhead costs, and the distribution of these costs to construction,
retirement, and maintenance or other expense accounts [list other
comments]; and,
--The materials control [list other comments].
Comments on Compliance With Specific REA Loan and Security Instrument
Provisions
Management's responsibility for compliance with laws,
regulations, contracts, and grants is set forth in our independent
auditors' report on compliance dated March 15, 19x6, and should be
read in conjunction with this report. At your request, we have
performed the procedures enumerated below with respect to compliance
with certain provisions of laws, regulations, and contracts. The
procedures we performed are summarized as follows:
--Procedure performed with respect to the requirement to maintain
all funds in institutions whose accounts are insured by an Agency of
the Federal Government:
1. Obtained information from financial institutions with which
[Name of Borrower] maintains funds that indicated that the
institutions are insured by an Agency of the Federal Government.
--Procedures performed with respect to the requirement for a
borrower to obtain written approval of the mortgagee to enter into
any contract for the operation or maintenance of property, or for
the use of mortgaged property by others [see Sec. 1773.34(e)(2)(i)
for additional telephone borrower requirements in accordance with 7
CFR 1773.34(e)] for the year ended December 31, 19x5 of [Name of
Borrower]:
1. Obtained and read a borrower prepared schedule of new written
contracts entered into during the year for the operation or
maintenance of its property, or for the use of its property by
others as defined in Sec. 1773.34(e)(1)(ii) [Sec. 1773.34(e)(2)(i)
for telephone borrowers].
2. Reviewed Board of Director minutes to ascertain whether
board-approved written contracts are included in the borrower-
prepared schedule.
3. Noted the existence of written REA [and other mortgagee]
approval of each contract listed by the borrower.
--Procedure performed with respect to the requirement to submit REA
Form 7 or Form 12 [Form 479 for telephone borrowers] to the REA:
1. Agreed amounts reported in Form 7 or Form 12 [Form 479 for
telephone borrowers] to [Name of Borrower]'s records.
The results of our tests indicate that, with respect to the
items tested, [Name of Borrower] complied, except as noted below, in
all material respects, with the specific REA loan and security
instrument provisions referred to below. With respect to items not
tested, nothing came to our attention that caused us to believe that
[Name of Borrower] had not complied, in all material respects, with
those provisions. The specific provisions tested, as well as any
exceptions noted, include the requirements that:
--The borrower maintains all funds in institutions whose accounts
are insured by an Agency of the Federal Government [list all
exceptions];
--The borrower has obtained written approval of the REA [and other
mortgagees] to enter into any contract for the operation or
maintenance of property, or for the use of mortgaged property by
others as defined in Sec. 1773.34(e)(1)(ii) [Sec. 1773.34(e)(2)(i)
for telephone borrowers] [list all exceptions]; and
--The borrower has submitted its Form 7 or Form 12 [Form 479 for
telephone borrowers] to the REA and the Form 7 or Form 12 [Form 479
for telephone borrowers], Financial and Statistical Report, as of
December 31 19x5, represented by the borrower as having been
submitted to REA is in agreement with the [Name of Borrower]'s
records in all material respects [list all exceptions].
Comments on Other Additional Matters
In connection with our audit of the financial statements of
[Name of Borrower], nothing came to our attention that caused us to
believe that [Name of Borrower] failed to comply with respect to:
--The reconciliation of subsidiary plant records to the controlling
general ledger plant accounts addressed at 7 CFR 1773.34(c)(1) [list
all exceptions];
--The clearing of the construction accounts and the accrual of
depreciation on completed construction addressed at 7 CFR
1773.34(c)(2) [list all exceptions];
--The retirement of plant addressed at 7 CFR 1773.34(c) (3) and (4)
[list all exceptions];
--Sales of plant material, or scrap addressed at 7 CFR 1773.34(c)(5)
[list all exceptions];
--The disclosure of material related party transactions, in
accordance with Statement of Financial Accounting Standards No. 57,
Related Party Transactions, for the year ended December 31, 19x5, in
the financial statements referenced in the first paragraph of this
report addressed at 7 CFR 1773.34(f) [list all exceptions]; and
--For electric borrowers only: depreciation rates addressed at 7 CFR
1773.34(g) [list all exceptions].
Detailed Schedule of Inventory Differences
A detailed schedule of differences between physical inventory,
perpetual inventory records, and the general ledger (identifying
gross overages and gross shortages) is provided below. This schedule
is not a required part of the basic financial statements but is
supplementary information required by 7 CFR 1773.34(d). We have
applied certain limited procedures, which consisted principally of
inquiries of management regarding the method of measurement and
presentation of the supplementary information. However, we did not
audit the information and express no opinion on it. [Disclose the
disposition of inventory differences.]
[The detailed schedule of inventory differences would be included
here. The word ``unaudited'' should appear in the title of the
schedule.]
For Electric Borrowers Only: Detailed Schedule of Deferred Debits and
Deferred Credits
Our audit was made for the purpose of forming an opinion on the
basic financial statements taken as a whole. The detailed schedule
of deferred debits and deferred credits required by 7 CFR 1773.34(h)
and provided below is presented for purposes of additional analysis
and is not a required part of the basic financial statements. This
information has been subjected to the auditing procedures applied in
our audit of the basic financial statements and, in our opinion, is
fairly stated in all material respects in relation to the basic
financial statements taken as a whole.
[The detailed schedule of deferred debits and deferred credits would
be included here. The total amount of deferred debits and deferred
credits as reported in the schedule must agree with the totals
reported on the Balance Sheet under the specific captions of
``Deferred Debits'' and ``Deferred Credits''. Those items that have
been approved, in writing, by REA should be clearly indicated.]
This report is intended solely for the information and use of
the board of directors, management, and the REA and supplemental
lenders. However, this report is a matter of public record and its
distribution is not limited.
Name of Firm-----------------------------------------------------------
Michael V. Dunn,
Acting Under Secretary, Small Community and Rural Development.
[FR Doc. 94-196 Filed 1-5-94; 8:45 am]
BILLING CODE 3410-15-M