[Code of Federal Regulations]
[Title 7, Volume 11]
[Revised as of January 1, 2006]
From the U.S. Government Printing Office via GPO Access
[CITE: 7CFR1773]
[Page 1024-1040]
TITLE 7--AGRICULTURE
CHAPTER XVII--RURAL UTILITIES SERVICE, DEPARTMENT OF AGRICULTURE
PART 1773_POLICY ON AUDITS OF RUS BORROWERS
Subpart A_General Provisions
Sec.
1773.1 General.
1773.2 Definitions.
Subpart B_RUS Audit Requirements
1773.3 Annual audit.
1773.4 Borrower responsibilities.
1773.5 Qualifications of CPA.
1773.6 Auditor communication.
1773.7 Audit standards.
1773.8 Audit date.
1773.9 Disclosure of fraud, illegal acts, and other noncompliance.
1773.10 Access to audit-related documents.
1773.11-1773.19 [Reserved]
Subpart C_RUS Requirements for the Submission and Review of the
Auditor's Report, Report on Compliance and on Internal Control Over
Financial Reporting, and Management Letter
1773.20 CPA's submission of the auditor's report, report on compliance,
report on compliance and on internal controls over financial
reporting, and management letter.
1773.21 Borrower's review and submission of the auditor's report, report
on compliance and on internal control over financial
reporting, and management letter.
1773.22-1773.29 [Reserved]
Subpart D_RUS Reporting Requirements
1773.30 General.
1773.31 Auditor's report.
1773.32 Report on compliance and on internal control over financial
reporting.
1773.33 Management letter.
1773.34-1773.37 [Reserved]
Subpart E_RUS Required Audit Procedures and Documentation
1773.38 Scope of engagement.
1773.39 Utility plant and accumulated depreciation.
1773.40 Regulatory assets.
1773.41 Extraordinary retirement losses.
1773.42 Clearing accounts.
1773.43 Capital and equity accounts.
1773.44 Long-term debt.
1773.45 Regulatory liabilities.
1773.46-1773.49 [Reserved]
Authority: 7 U.S.C. 901 et seq., 1921 et seq., 6941 et seq.
Source: 56 FR 63360, Dec. 3, 1991, unless otherwise noted.
Editorial Note: Nomenclature changes to part 1773 appear at 63 FR
38722, July 17, 1998.
[[Page 1025]]
Subpart A_General Provisions
Sec. 1773.1 General.
(a) This part implements those standard provisions of the security
instrument utilized by the Rural Utilities Service (RUS) for both
electric and telecommunications borrowers and by the Rural Telephone
Bank (RTB) for its telecommunications borrowers. The provisions require
borrowers to prepare and furnish to RUS, 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 RUS,
audited and certified by an independent certified public accountant
(CPA), satisfactory to RUS, and accompanied by a report of such audit,
in form and substance satisfactory to RUS.
(b) This part 1773 applies to both RUS and RTB borrowers. For the
purposes of RTB borrowers, as used in this part 1773, RUS means RTB and
Administrator means Governor unless the text indicates otherwise.
(c) This complies with the 1994 revision of Government Auditing
Standards, issued by the Comptroller General of the United States,
United States General Accounting Office, including amendments dated May
13, 1999, and July 30, 1999.
(d) An auditor's report, report on compliance and on internal
control over financial reporting, and management letter are required to
meet the reporting provisions of the RUS security instrument.
(1) The auditor's report must state that the audit was conducted in
accordance with generally accepted government auditing standards
(GAGAS).
(2) The management letter must state that the audit was conducted in
accordance with this part.
(3) A report of the audit, in form and substance satisfactory to
RUS, cannot be issued unless and until an audit has been performed in
accordance with GAGAS and this part.
(4) A borrower is in violation of provisions of its security
instrument with RUS if the borrower fails to provide an audit performed
in compliance with GAGAS and this part. RUS security instruments
normally provide for notice and an opportunity to cure such violations
before RUS can exercise certain remedies.
(5) A report prepared in connection with a review or compilation of
financial statements, as defined in Statement of Standards for
Accounting and Review Services No. 1, Compilation and Review of
Financial Statements, does not satisfy the requirements of the RUS
security instrument.
(6) A report, as described in Statement on Auditing Standards (SAS)
No. 62, entitled ``Special Reports'', or in SAS No. 75, entitled
``Engagements to Apply Agreed-upon Procedures to Specified Elements,
Accounts, or Items of a Financial Statement'', does not satisfy the RUS
loan security instrument requirements.
(7) An annual report containing audited financial statements does
not satisfy the RUS security instrument requirements.
(e) This part further implements those provisions of the standard
RUS security instrument by setting forth the criteria for CPAs to be
deemed satisfactory to RUS and the audit procedures and documentation
standards that must be performed before a report of the audit
satisfactory to RUS can be prepared and issued.
[56 FR 63360, Dec. 3, 1991, as amended at 61 FR 107, Jan. 3, 1996; 66 FR
27835, May 21, 2001]
Sec. 1773.2 Definitions.
As used in this part:
AA-PARA means Assistant Administrator, Program Accounting and
Regulatory Analysis.
Administrator means the Administrator of RUS and, as provided in
Sec. 1773.2 (b), Governor.
AICPA means the American Institute of Certified Public Accountants.
Audit means an examination of financial statements by an independent
CPA for the purpose of expressing an opinion on the fairness with which
those statements present financial position, results of operations, and
changes in cash flows in conformity with generally accepted accounting
principles (GAAP) and for determining whether the borrower has complied
with applicable laws, regulations, and contracts for those transactions
and events reflected in the financial statements.
[[Page 1026]]
Borrower means an entity that has an outstanding RUS, RTB, or FFB
loan or loan guarantee, or that has received a grant for electric,
telecommunications, distance learning, or telemedicine purposes under
the act.
CPA means certified public accountant. The terms CPA and CPA firm
are used interchangeably.
FFB means the Federal Financing Bank, an instrumentality and wholly
owned corporation of the United States.
Fraud has the same meaning prescribed in SAS No. 82 entitled
``Consideration of Fraud in Financial Statements''.
GAAP means generally accepted accounting principles.
GAGAS means generally accepted government auditing standards as set
forth in Government Auditing Standards, Standards for Audit of
Governmental Organizations, Programs, Activities, and Functions, issued
by the Comptroller General of the United States.
GAO means the General Accounting Office.
Governor means the Governor of the RTB.
Illegal act has the meaning prescribed in SAS No. 54, entitled
``Illegal Acts by Clients''.
OIG means the Office of Inspector General, United States Department
of Agriculture.
OMB means the Office of Management and Budget.
Regulatory asset means an asset resulting from an action of a
regulator as prescribed in Statement of Financial Accounting Standards
(SFAS) No. 71, entitled ``Accounting for the Effects of Certain Types of
Regulation''.
Regulatory liability means a liability imposed on a regulated
enterprise by an action of a regulator as prescribed in SFAS No. 71,
entitled ``Accounting for the Effects of Certain Types of Regulation''.
Related party has the meaning prescribed in SFAS No. 57, entitled
``Related Party Disclosures''.
Related party transaction has the meaning prescribed in SFAS No. 57,
entitled ``Related Party Disclosures''.
Reportable condition has the meaning prescribed in SAS No. 60,
entitled ``Communication of Internal Control Structure Related Matters
Noted in an Audit''.
RTB means the Rural Telephone Bank.
RUS means the Rural Utilities Service, an agency of the United
States Department of Agriculture established pursuant to Section 232 of
the Federal Crop Insurance Reform and Department of Agriculture
Reorganization Act of 1994 (Pub. L. 103-354, 108 Stat. 3178), successor
to REA with respect to administering certain electric and
telecommunications programs. See 7 CFR 1700.1.
RUS Bulletin 1773-1, Policy on Audits of RUS Borrowers, is a
publication prepared by RUS that contains the RUS regulation 7 CFR part
1773 and exhibits of sample audit reports, financial statements, and a
management letter used in preparing audit of RUS borrowers. This
bulletin is available from USDA, Rural Utilities Service, Program
Development and Regulatory Analysis, 1400 Independence Ave., SW., Stop
1522, Washington, DC 20250, or available on the internet at http://
www.usda.gov/rus/.
SAS means Statement on Auditing Standards as prescribed by the
AICPA.
SEC Practice Section means the Securities and Exchange Commission
Practice Section of the AICPA.
SFAS means Statements of Financial Accounting Standards as
prescribed by the Financial Accounting Standards Board.
State means any state or territory of the United States, or the
District of Columbia.
Uniform System of Accounts means, for telecommunications borrowers,
the Uniform System of Accounts for Telecommunications Companies,
prescribed by the Federal Communications Commission and published at 47
CFR Part 32, as supplemented by RUS pursuant to 7 CFR Part 1770,
Accounting Requirements for RUS Telephone Borrowers, subpart B, Uniform
System of Accounts, and for electric borrowers,
[[Page 1027]]
as contained in 7 CFR Part 1767, Accounting Requirements for RUS
Electric Borrowers, subpart B, Uniform System of Accounts.
[56 FR 63360, Dec. 3, 1991, as amended at 59 FR 66440, Dec. 27, 1994; 60
FR 2874, Jan. 12, 1995; 63 FR 38722, July 17, 1998; 66 FR 27835, May 21,
2001]
Subpart B_RUS Audit Requirements
Sec. 1773.3 Annual audit.
(a) Each borrower must have its financial statements audited
annually by a CPA selected by the borrower and approved by RUS as set
forth in Sec. 1773.4.
(b) Each borrower must establish an annual as of audit date within
twelve months of the date of receipt of the first advance of funds from
grants and insured and guaranteed loans approved by RUS and RTB and must
prepare financial statements as of the date established.
(c) Until all loans made or guaranteed by RUS have been repaid, the
borrower must furnish three copies of the auditor's report, report on
compliance and on internal control over financial reporting, and
management letter to RUS within 120 days of the as of audit date.
(d) A borrower that qualifies as a unit of state or local government
or Indian tribe as such terms are defined in the Single Audit Act of
1984 (31 U.S.C. 7501 et seq.), the Single Audit Act Amendments of 1996
(31 U.S.C. 7505 et seq.) and OMB Circular A-133, Audits of States, Local
Governments, and Non-Profit Organizations (copy available from the
Executive Office of the President, Publication Services, 725 17th St.,
NW., Suite 2200, Washington, DC 20502; 202-395-7332), must comply with
this part as follows:
(1) A borrower that expends $300,000 or more in a year in Federal
awards must have an audit performed and submit an auditor's report
meeting the requirements of the Single Audit Act of 1984 and the Single
Audit Act Amendments of 1996.
(2) A borrower that expends less than $300,000 in Federal awards
during the year must have an audit performed in accordance with the
requirements of this part.
(3) A borrower must notify RUS, in writing, within 30 days of the as
of audit date, of the total Federal awards expended during the year and
must state whether it will have an audit performed in accordance with
the Single Audit Act of 1984 and the Single Audit Act Amendments of
1996, or this part.
(i) A borrower that elects to comply with this part must select a
CPA that meets the qualifications set forth in Sec. 1773.5.
(ii) If an audit is performed in accordance with the Single Audit
Act of 1984 and the Single Audit Act Amendments of 1996, an auditor's
report that meets the requirements of the Single Audit Act of 1984, and
the Single Audit Act Amendments of 1996, will be sufficient to satisfy
that borrower's obligations under this part.
(e) OMB Circular A-133, Audits of States, Local Governments, and
Non-Profit Organizations does not apply to audits of RUS electric and
telecommunications cooperatives and commercial telecommunications
borrowers.
[56 FR 63360, Dec. 3, 1991, as amended at 59 FR 659, Jan. 6, 1994; 63 FR
38722, July 17, 1998; 66 FR 27835, May 21, 2001]
Sec. 1773.4 Borrower responsibilities.
(a) Selection of a qualified CPA. The borrower's board of directors
is responsible for the selection of a qualified CPA that meets the
requirements set forth in Sec. 1773.5. When selecting a CPA, the
borrower should consider, among other matters:
(1) The qualifications of CPAs available to do the work;
(2) The CPA's experience in performing audits of utilities; and
(3) The CPA's ability to complete the audit and submit the reports
and management letter within 90 days of the as of audit date.
(b) Board approval of selection. The board's approval of a CPA must
be recorded by a board resolution that states:
(1) The CPA meets RUS's qualifications to perform an audit; and
(2) The borrower and CPA will enter into an audit agreement in
accordance with Sec. 1773.6.
(c) Notification of selection. When the initial selection or
subsequent change
[[Page 1028]]
of a CPA by a borrower has been made, the borrower must notify RUS, in
writing, at least 90 days prior to the as of audit date.
(1) RUS will notify the borrower, in writing, within 30 days of the
date of receipt of such notice, if the selection or change in CPA is not
satisfactory.
(2) Notification to RUS that the same CPA has been selected for
succeeding audits of the borrower's financial statements is not
required; however, the procedures outlined in this part must be followed
for each new CPA selected, even though such CPA may previously have been
approved by RUS to audit records of other RUS borrowers. Changes in the
name of a CPA firm are considered to be a change in the CPA.
(d) Audit engagement letter.The borrower must enter into an audit
engagement letter with the CPA that complies with Sec. 1773.6.
(e) Debarment certification. The borrower is responsible for the
receipt, from the selected CPA, of a lower tier covered transaction
certification, as required under the provisions of Executive Orders
12549 and 12689, Debarment and Suspension, and any rules or regulations
issued thereunder.
(f) Submission of auditor's report. The borrower must submit to RUS
the required auditor's report, report on compliance and on internal
control over financial reporting, and management letter as set forth in
Sec. 1773.21.
(1) An annual auditor's report, report on compliance and on internal
control over financial reporting, and management letter that fail to
meet the requirements detailed in this part will be returned to the
borrower with a written explanation of noncompliance.
(2) The borrower must, within 60 days of the date of the letter
detailing the noncompliance, submit corrected reports to RUS.
(3) If corrected reports are not received within 60 days of the date
of the letter detailing the noncompliance, RUS may notify the borrower
that a default has occurred under its security instrument or take other
appropriate action. The default notice will set forth the period of time
during which the default will be remedied.
(g) Submission of plan of corrective action. The borrower must
submit written comments to RUS on the findings and recommendations in
the auditor's report, report on compliance and on internal control over
financial reporting, and management letter. The borrower must also
submit to RUS:
(1) A written plan for corrective action taken or planned; and
(2) Comments on the status of corrective action taken on previously
reported findings and recommendations.
If corrective action is not necessary, a written statement
describing the reason it is not should accompany the auditor's report.
[56 FR 63360, Dec. 3, 1991, as amended at 66 FR 27835, May 21, 2001]
Sec. 1773.5 Qualifications of CPA.
For purposes of the RUS standard security instrument, any CPA that
meets the qualifications criteria of this section and enters into an
audit agreement with the borrower that complies with Sec. 1773.6, will
be considered satisfactory to RUS.
(a) Certification. The accountant that audits the financial
statements of an RUS borrower must be a CPA in good standing of some
state. The CPA does not have to be licensed by the state in which the
borrower is located; however, the CPA must abide by the rules and
regulations of professional conduct promulgated by the accountancy board
of the state in which the borrower is located.
(b) Independence. The CPA must be independent. A CPA will be
considered independent if the CPA:
(1) Meets the standards for independence contained in the AICPA Code
of Professional Conduct in effect at the time the CPA's independence is
under review;
(2) Does not have and has not had any direct financial interest or
any material indirect financial interest in the borrower during the
period covered by the audit; and
(3) Is not and was not, during the period under audit, connected
with the borrower as a promoter, underwriter, trustee, director,
officer, or employee.
(c) Peer review requirement. The CPA must belong to and participate
in a peer review program, and must have undergone a satisfactory peer
review of
[[Page 1029]]
the accounting and audit practice conducted by an approved peer review
program under paragraph (c)(4) of this section, unless a waiver is
granted under paragraph (c)(7) of this section. The reviewing
organization must not be affiliated with or have had its most recent
peer review conducted by the organization currently being reviewed
(reciprocal reviews). After the initial peer review has been performed,
the CPA must undergo a peer review of the accounting and audit practice
within 36 months of the issuance of the previous peer review or at such
additional times as designated by the peer review executive committee.
(1) A CPA that receives an unqualified peer review report will be
satisfactory to RUS provided that the CPA meets the other criteria set
forth in this section.
(2) If a CPA receives a qualified or adverse peer review report, the
CPA must undergo a second peer review within 18 months of the date of
the qualified or adverse report. A CPA that receives an unqualified
second peer review report will be satisfactory to RUS provided that the
CPA meets the other criteria set forth in this section.
(3) A CPA that receives a second qualified or adverse peer review
report will not be satisfactory to RUS.
(4) Approved peer review programs. The following peer review
programs are approved by RUS:
(i) The peer review programs conducted by the AICPA;
(ii) The peer review program conducted by the regulated audit
program group of the National Conference of CPA Practitioners; and
(iii) An independent peer review program that, in RUS's
determination, requires its members to:
(A) Ensure that the CPA can legally engage in the practice of
certified public accounting;
(B) Adhere to the quality control standards established by the
AICPA;
(C) Submit to peer reviews of the CPA's accounting and audit
practice every 36 months or at such additional times as designated by
its own executive committee; and
(D) Ensure that all professionals in the firm, including CPAs and
nonCPAs, take part in the qualifying continuing professional education
requirements of GAGAS, as set forth in paragraphs (c)(4)(iii)(D)(1) and
(c)(4)(iii)(D)(2). A qualified continuing professional education course
is one which meets the standards of the AICPA.
(1) An auditor responsible for planning, directing, conducting, or
reporting on government audits must complete, every two years, at least
eighty hours of continuing education and training which contributes to
the auditor's professional proficiency. At least twenty hours must be
completed in any one year of the two-year period; and
(2) An individual responsible for planning, directing, and
conducting substantial portions of the field work, or reporting on the
government audit must complete at least 24 of the 80 hours of continuing
education and training in subjects directly related to the government
environment and to government auditing. If the audited entity operates
in a specific or unique environment, auditors must receive training that
is related to that environment.
(5) Submission of reports. The CPA must submit to the Assistant
Administrator, Program Accounting and Regulatory Analysis, a copy of any
peer review report and accompanying letter of comment, if any, within 60
days of the date such report and letter of comment are released by the
peer review group.
(i) If the peer review report indicates that a follow-up review will
be made, the CPA must submit subsequent reports to the Assistant
Administrator, Program Accounting and Regulatory Analysis, within 60
days of the date such reports are released by the peer review group.
(ii) A peer review report must be submitted to the Assistant
Administrator, Program Accounting and Regulatory Analysis, at least once
every 36 months, or more frequently, if required by the peer review
program.
(iii) A copy of the peer review report, accompanying letter of
comment, and the partners' inspections must be made available to OIG,
upon request.
(6) Waiver of the peer review requirement. (i) A CPA may request
that the Administrator, RUS, waive the peer review requirement. To be
eligible for a
[[Page 1030]]
waiver, the following criteria must be met:
(A) The firm has been in existence for less than 1 year from the
date of the request and has not been previously organized under a
different name;
(B) One of the partners organizing the firm has previously, within
18 months preceding the request, worked for a firm that has been peer
reviewed and the partner was partner-in-charge of audits of RUS
borrowers in the previous firm;
(C) The firm has enrolled in an approved peer review program; and
(D) The firm agrees to have the peer review conducted within 18
months of the date of the RUS waiver.
(ii) Waiver requests must address each of the criteria in paragraph
(c)(7)(i) of this section and should be submitted to the Assistant
Administrator, Program Accounting and Regulatory Analysis'.
[56 FR 63360, Dec. 3, 1991, as amended at 61 FR 107, Jan. 3, 1996; 63 FR
38722, July 17, 1998; 66 FR 27835, May 21, 2001]
Sec. 1773.6 Auditor communication.
(a) During the planning stages of a financial statement audit, GAGAS
and AICPA standards require the auditor to communicate certain
information regarding the nature and extent of testing and reporting on
compliance with laws and regulations and internal control over financial
reporting. The communication must include the nature of any additional
testing of compliance and internal control required by laws and
regulations or otherwise requested, and whether the auditors are
planning to provide opinions on compliance with laws and regulations and
internal control over financial reporting. This communication must take
the form of an audit engagement letter prepared by the CPA and formally
accepted by the board of directors or an audit committee representing
the board of directors. The engagement letter must also encompass those
items prescribed in SAS 83, entitled ``Establishing an Understanding
with the Client''. It must also include the following:
(1) The borrower and the CPA acknowledge that the audit is being
performed and the auditor's report, report on compliance and on internal
control over financial reporting, and management letter is being issued
in order to enable the borrower to comply with the provisions of RUS's
security instrument;
(2) The borrower and CPA acknowledge that RUS will consider the
borrower to be in violation of its security instrument with RUS if the
borrower fails to have an audit performed and documented in compliance
with GAGAS and this part;
(3) The CPA represents that he/she meets the requirements under this
part to be satisfactory to RUS;
(4) The CPA will perform the audit and will prepare the auditor's
report, report on compliance and on internal control over financial
reporting, and management letter in accordance with the requirements of
this part;
(5) The CPA will document the audit work performed in accordance
with GAGAS, the professional standards of the AICPA, and the
requirements of this part;
(6) The CPA will make all audit-related documents, including
auditor's reports, workpapers, and management letters available to RUS
or its representatives (OIG and GAO), upon request, and will permit the
photocopying of all audit-related documents; and
(7) The CPA will follow the requirements of reporting fraud and
illegal acts as outlined in Sec. 1773.9.
(b) The audit agreement may include such additional terms and
conditions as the CPA and borrower deem appropriate, including, but not
limited to:
(1) The CPA will report all audit findings to the board of directors
as required in Sec. 1773.20(b); and
(2) The auditor's report, report on compliance, report on compliance
and on internal controls over financial reporting, and management letter
with copies for transmittal to RUS, and supplemental lenders, if
applicable, will be submitted to the borrower's board of directors
within 90 days of the as of audit date;
(c) A copy of the audit agreement must be available at the
borrower's office for inspection by RUS personnel.
[[Page 1031]]
One copy of the current audit agreement must be maintained in the CPA's
workpapers or permanent file.
[56 FR 63360, Dec. 3, 1991, as amended at 61 FR 108, Jan 3, 1996; 63 FR
38722, July 17, 1998; 66 FR 27835, 27836, May 21, 2001]
Sec. 1773.7 Audit standards.
(a) The audit must be performed in accordance with GAGAS and this
part. The audit must be performed in accordance with GAGAS in effect at
the audit date unless the borrower is directed otherwise, in writing, by
RUS.
(b) The audit must include such tests of the accounting records and
such other auditing procedures that are sufficient to enable the CPA to
express an opinion on the financial statements and to issue the required
report on compliance and on internal control over financial reporting
and the management letter.
(c) Audit scope limitation. (1) The borrower will not limit the
scope of the audit to the extent that the CPA is unable to meet RUS's
audit requirements or to provide an unqualified opinion that the
financial statements are presented fairly in conformity with GAAP.
(2) The security instrument provision requiring the submission of a
report of the audit is not satisfied if the CPA must qualify the opinion
in the auditor's report due to limitations placed on the scope of the
audit by the borrower.
(3) If the CPA determines during the audit that an unqualified
opinion cannot be issued due to a scope limitation imposed by the
borrower, the CPA should use professional judgment to determine what
levels of the borrower's management should be informed.
(4) After informing the borrower's management, if the scope
limitation is not adequately resolved, the CPA should immediately
contact the AA-PARA, RUS, U.S. Department of Agriculture, Washington, DC
20250-1523. The AA-PARA will endeavor to resolve the matter with the
borrower.
[56 FR 63360, Dec. 3, 1991, as amended at 66 FR 27836, May 21, 2001]
Sec. 1773.8 Audit date.
(a) The annual audit must be performed as of the end of the same
calendar month each year unless prior approval to change the as of audit
date is obtained, in writing, from RUS.
(1) A borrower may request a change in the as of audit date by
writing to the AA-PARA at least 60 days prior to the newly requested as
of audit date.
(2) The time period between the prior as of audit date and the newly
requested as of audit date must be no longer than twenty-four months.
For example, a borrower that wishes to change its as of audit date from
December 31, 20X1, to June 30, must make the change effective no later
than June 30, 20X3.
(b) Comparative financial statements must be prepared and audited
for the twelve months ending as of the new audit date and for the twelve
months immediately preceding that period.
(c) A borrower that changes its as of audit date from December 31,
20X1, to June 30, 20X3, must have the CPA report on statements in the
following manner:
------------------------------------------------------------------------
Statements prepared as of
Previously issued statements new audit date
------------------------------------------------------------------------
12/31/20X1; 12/31/20X0 (Statement need not 6/30/20X3; 6/30/20X2.
be reissued).
------------------------------------------------------------------------
[ 56 FR 63360, Dec. 3, 1991, as amended at 66 FR 27835, 27836, May 21,
2001]
Sec. 1773.9 Disclosure of fraud, illegal acts, and other
noncompliance.
(a) In accordance with GAGAS, the auditor must design the audit to
provide reasonable assurance of detecting fraud that is material to the
financial statements and material misstatements resulting from direct
and material illegal acts, and noncompliance with the provisions of
contracts or grant agreements that could have a direct and material
effect on financial statements amounts.
(b) If specific information comes to the auditor's attention that
provides evidence concerning the existence of possible illegal acts that
could have a material indirect effect on the financial statements or
material noncompliance with the provisions of contracts
[[Page 1032]]
or grant agreements that could have a material indirect effect on the
financial statements, auditors should apply audit procedures
specifically directed to ascertaining whether an illegal act or
noncompliance with provisions of contract or grant agreements has
occurred.
(c) Pursuant to the terms of its audit engagement letter with the
borrower, the CPA must immediately report, in writing, all instances of
fraud 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 Assistant Administrator, Program Accounting and Regulatory
Analysis; and
(3) OIG, as follows:
(i) For the States of Delaware, District of Columbia, Maryland,
Pennsylvania, Virginia, West Virginia, Connecticut, Maine,
Massachusetts, New Hampshire, New Jersey, New York, Puerto Rico, Rhode
Island, Vermont and the Virgin Islands, report to USDA-OIG-Audit,
Northeast Region, Regional Inspector General, 6505 Belcrest Road, room
428-A, Hyattsville, Maryland 20782;
(ii) For the States of Alabama, Florida, Georgia, Kentucky,
Mississippi, North Carolina, South Carolina, and Tennessee, report to
USDA-OIG-Audit, Southeast Region, Regional Inspector General, 401 W.
Peachtree Street, NW., room 2328, Atlanta, Georgia 30365-3520;
(iii) For the States of Illinois, Indiana, Michigan, Minnesota,
Ohio, and Wisconsin, report to USDA-OIG-Audit, Midwest Region, Regional
Inspector General, 111 N. Canal Street, Suite 1130, Chicago, Illinois
60606;
(iv) For the States of Arkansas, Louisiana, New Mexico, Oklahoma,
and Texas, report to USDA-OIG-Audit, Southwest Region, Regional
Inspector General, 101 South Main, room 324, Temple, Texas 76501;
(v) For the States of Colorado, Iowa, Kansas, Missouri, Montana,
Nebraska, North Dakota, South Dakota, Wyoming, and Utah, report to USDA-
OIG-Audit, Great Plains Region, Regional Inspector General, P.O. Box
293, Kansas City, Missouri 64141; and
(vi) For the States of Alaska, Arizona, California, Hawaii, Idaho,
Nevada, Oregon, Territory of Guam, Trust Territories of Pacific, and
Washington, report to USDA-OIG-Audit, Western Region, Regional Inspector
General, 555 Battery Street, room 511, San Francisco, California 94111.
[56 FR 63360, Dec. 3, 1991, as amended at 61 FR 108, Jan. 3, 1996; 66 FR
27836, May 21, 2001]
Sec. 1773.10 Access to audit-related documents.
Pursuant to the terms of the audit agreement, the CPA must make all
audit-related documents, including auditors' reports, workpapers, and
management letters available to RUS, or its designated representative,
upon request and must permit RUS, or its designated representative, to
photocopy all audit-related documents.
Sec. Sec. 1773.11-1773.19 [Reserved]
Subpart C_RUS Requirements for the Submission and Review of the
Auditor's Report, Report on Compliance and on Internal Control Over
Financial Reporting, and Management Letter
Sec. 1773.20 CPA's submission of the auditor's report, report on
compliance, report on compliance and on internal controls over
financial reporting, 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 and on internal control over
financial reporting, 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 RUS.
(b) Communication with the board of directors. In addition to
providing sufficient copies of the auditor's report, report on
compliance and on internal control over financial reporting, and
management letter for each member of the borrower's board of directors,
RUS requires that the CPA report all audit findings to the borrower's
board of directors. RUS recommends that audit
[[Page 1033]]
findings be communicated orally; however, the communication may be oral
or written, at the borrower's discretion. If the information is
communicated orally, the CPA must document the communication by
appropriate memoranda or notations in the workpapers. If the CPA
communicates in writing, a copy of the written communication must be
included in the CPA's audit workpapers or permanent file.
(c) Matters to be communicated. Matters communicated to the board of
directors must include, but are not limited to the matters to be
communicated to the audit committee as prescribed in SAS No. 61,
entitled ``Communication with Audit Committee'',:
(1) The initial selection of and changes in significant accounting
policies;
(2) The methods used to account for significant or unusual
transactions and the effects of significant accounting policies in
controversial or emerging areas;
(3) The process utilized by management to formulate significant
accounting estimates and the basis for the CPA's conclusions regarding
the reasonableness of these estimates;
(4) Audit findings and recommendations, including audit adjustments
that either individually or in the aggregate have a significant effect
on the borrower's financial statements;
(5) The CPA's responsibility for other information presented with
the audited financial statements, any audit procedures performed, and
the results thereof;
(6) Any disagreements with management, whether or not satisfactorily
resolved, concerning matters that individually or in the aggregate may
be significant to the borrower's financial statements or the auditor's
report, report on compliance and on internal control over financial
reporting, or management letter;
(7) Significant matters that were the subject of consultations with
other accountants;
(8) Significant issues discussed with management with regard to the
initial or recurring retention of the CPA; and
(9) Any serious difficulties encountered in dealing with management
during the performance of the audit.
[56 FR 63360, Dec. 3, 1991, as amended at 59 FR 659, Jan. 6, 1994; 66 FR
27835, May 21, 2001]
Sec. 1773.21 Borrower's review and submission of the auditor's report,
report on compliance and on internal control over financial
reporting, and management letter.
(a) The borrower's board of directors should note and record receipt
of the auditor's report, report on compliance and on internal control
over financial reporting, and management letter and any action taken in
response to the reports or management letter in the minutes of the board
meeting at which such reports and management letter are presented.
(b) The borrower must furnish RUS with three copies of the auditor's
report, report on compliance and on internal control over financial
reporting, and management letter within 120 days of the as of audit
date. Any provision in RUS's security instrument that requires such
documents to be furnished to RUS in a shorter period of time may be
disregarded.
(c) The borrower must furnish RUS with three copies of its plan for
corrective action, if any, within 180 days of the as of audit date.
(d) The borrower must furnish RUS, within 120 days of the as of
audit date, with a copy of each special report, summary of
recommendations or similar communications, if any, received from the CPA
as a result of the audit.
(e) All required submissions to RUS described in paragraphs (a)
through (d) of this section should be sent to: Assistant Administrator,
Program Accounting and Regulatory Analysis, Stop 1523, 1400 Independence
Ave., SW, Washington, DC 20250-1523.
[56 FR 63360, Dec. 3, 1991, as amended at 59 FR 659, Jan. 6, 1994; 66 FR
27835, 27836, May 21, 2001]
[[Page 1034]]
Sec. Sec. 1773.22-1773.29 [Reserved]
Subpart D_RUS Reporting Requirements
Sec. 1773.30 General.
(a) The CPA must prepare the following (examples of which are set
forth in RUS Bulletin 1773-1):
(1) An auditor's report;
(2) A report on compliance and on internal control over financial
reporting; and
(3) A management letter.
(b) The CPA should deliver the auditor's report, report on
compliance and on internal control over financial reporting, and
management letter (with copies as required in Sec. 1773.20) to the
borrower as soon as possible after completion of the audit but not more
than 90 days after the as of audit date.
[56 FR 63360, Dec. 3, 1991, as amended at 63 FR 38723, July 17, 1998; 66
FR 27835, 27836, May 21, 2001]
Sec. 1773.31 Auditor's report.
The CPA must prepare a written report on comparative balance sheets,
statements of revenue and patronage capital (or income and retained
earnings, depending upon the structure of the borrower) and statements
of cash flows. This report must be signed by the CPA, cover all
statements presented, and refer to the separate report on compliance and
on internal control over financial reporting issued in conjunction with
the auditor's report. The auditor's report should also state that the
report on compliance and on internal control over financial reporting is
an integral part of a GAGAS audit, and in considering the results of the
audit, this report should be read along with the auditor's report on the
financial statements.
[66 FR 27836, May 21, 2001]
Sec. 1773.32 Report on compliance and on internal control over
financial reporting.
As required by GAGAS, the CPA must prepare a written report
describing the auditors testing of compliance with applicable laws,
regulations, contracts, and grants, and on internal control over
financial reporting and present the results of those tests. This report
must be signed by the CPA and must include, as a minimum:
(a) The scope of the CPA's testing of compliance with laws and
regulations and internal control over financial reporting including
whether or not the tests performed provided sufficient evidence to
support an opinion on compliance or internal control over financial
reporting and whether the CPA is providing such opinions;
(b) If conditions believed to be material weaknesses considered to
be reportable conditions are disclosed, the report should identify the
material weaknesses that have come to the CPA's attention;
(c) If no reportable instances of non-compliance and no reportable
conditions were found, the CPA must issue a report as illustrated in RUS
Bulletin 1773-1.
(d) If material instances of non-compliance and reportable
conditions are identified, the CPA must issue a report as illustrated in
RUS Bulletin 1773-1.
(e) Other nonmaterial instances of noncompliance should not be
disclosed in the report on compliance and on internal control over
financial reporting, but should be reported in a separate communication
to the board of directors, preferably in writing. All such
communications must be documented in the workpapers and submitted to RUS
in compliance with Sec. 1773.21.
(f) If the CPA has issued a separate letter detailing immaterial
instances of noncompliance, the report on compliance and on internal
control over financial reporting must be modified to include a statement
such as:
We noted certain immaterial instances of noncompliance, which we
have reported to the management of (borrower's name) in a separate
letter dated (month, day, year).
(g) If the CPA has issued a separate letter to management to
communicate other matters involving the design and operation of the
internal control over financial reporting, the report on compliance and
on internal control over financial reporting must be modified to include
a statement such as:
However, we noted other matters involving the internal control over
financial reporting that we have reported to the management of
[[Page 1035]]
(borrower's name) in a separate letter dated (month, day, year).
(h) The report must contain the status of known but uncorrected
significant or material findings and recommendations from prior audits
that affect the current audit objective.
[63 FR 38723, July 17, 1998, as amended at 66 FR 27836, May 21, 2001]
Sec. 1773.33 Management letter.
The CPA must prepare a management letter that includes, at a
minimum, comments on:
(a) Audit procedures. State whether the audit has been performed in
accordance with this part;
(b) Special reports. State whether any special reports, summaries of
recommendations, or similar communications were furnished to the
borrower's management during the course of the audit or during interim
audit work, and provide a description of the information furnished;
(c) Accounting and records. Comment on the adequacy and
effectiveness of the borrower's accounting procedures, discuss the
general condition of the records, and outline any recommendations for
improvement. Comment on the adequacy and fairness of the methods used in
accumulating and recording labor, material, and overhead costs, and the
distribution of these costs to construction, retirement, and maintenance
or other expense accounts, and where appropriate, include:
(1) Whether continuing property records (CPRs) have been
established, are updated on a current basis, at least annually, and are
reconciled with the controlling general ledger plant accounts;
(2) Whether construction clearing accounts are cleared promptly of
costs of completed construction to the proper classified plant accounts
and whether depreciation was accrued on such completed construction from
the date the plant was placed in service;
(3) Whether retirements of plant are currently and systematically
recorded and properly priced;
(4) Whether all costs associated with retirements of plant are
properly accounted for in the accumulated provision for depreciation
accounts and comment on any unusual charges or credits to such accounts;
and
(5) Whether RUS approval was obtained for the sale, lease or
transfer of capital assets secured under the mortgage when approval is
required, and whether proceeds from the sale or lease of plant, material
or scrap were handled in conformance with RUS requirements.
(d) Materials control. Comment on the adequacy of the control over
materials and supplies.
(e) Compliance with RUS loan and security instrument provisions.
State whether the following provisions of RUS' loan and security
instruments have been complied with:
(1) For electric borrowers, provisions related to:
(i) The requirements for a borrower to obtain written approval of
mortgagees to enter into any contract for the management, operation, or
maintenance of the borrower's system if the contract covers all or
substantially all (90 percent) of the electric system. For purposes of
this part, the following contracts shall be deemed as requiring RUS
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 substantially all (90 percent) 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
(ii) The requirement for a borrower to prepare and furnish
mortgagees annual financial and statistical reports on the borrower's
financial condition and operations. For borrowers with a December 31
year end, the CPA must state whether the information represented by the
borrower as having
[[Page 1036]]
been submitted to RUS in its most recent December 31 RUS Form 7 or Form
12 is in agreement with the borrower's audited records. For borrowers
with a year end other than December 31, the CPA must state whether the
information appears reasonable based upon the audit procedures
performed. If the borrower represents that an amended report has been
filed as of December 31, the comments must relate to the amended report.
(2) For telecommunications borrowers, provisions relating to the
requirement for a borrower to obtain written approval of the mortgagees
to enter into:
(i) Any contract, agreement or lease between the borrower and an
affiliate other than as allowed under 7 CFR part 1744, subpart E;
(ii) The requirement for a borrower to prepare and furnish
mortgagees annual financial and statistical reports on the borrower's
financial condition and operations. For borrowers with a December 31
year end, the CPA must state whether the information represented by the
borrower as having been submitted to RUS in its most recent December 31
RUS Form 479 is in agreement with the borrower's audited records. For
borrowers with a year end other than December 31, the CPA must state
whether the information appears reasonable based upon the audit
procedures performed. If the borrower represents that an amended report
has been filed as of December 31, the comments must relate to the
amended report.
(f) Related party transactions. State whether all material related
party transactions have been disclosed in the notes to the financial
statements in accordance with SFAS No. 57, entitled ``Related Party
Disclosures''. If the audit did not disclose any related party
transactions considered to be material, either individually or in the
aggregate, so state;
(g) Depreciation rates. For electric borrowers, comment when the
depreciation rates used in computing monthly accruals are not in
compliance with RUS requirements (See RUS Bulletin 183-1, Depreciation
Rates and Procedures), which require the use of depreciation rates that
are within the ranges established by RUS for each primary plant account,
or with the requirements of the State regulatory body having
jurisdiction over the borrower's depreciation rates; and
(h) Deferred debits and deferred credits. For electric borrowers,
provide a detailed analysis of the totals reported as deferred debits
and deferred credits, including, but not limited to, margin
stabilization plans, revenue deferral plans, and expense deferrals. The
CPA must state whether RUS has approved, in writing, each regulatory
asset and liability.
(i) Investments. For electric and telecommunications borrowers,
provide a detailed schedule of all investments in subsidiary and
affiliated companies accounted for on either the cost or equity basis.
This requirement includes investments in corporations, limited liability
corporations and partnerships, joint ventures, etc. For all investments
list the name of the entity, ownership percentage, and the principal
business in which the entity is engaged. For investments recorded on the
cost basis include the original investment, advances, dividends declared
or paid in the current and prior years and the net investment. For
investments recorded on the equity basis include the ownership
percentage, original investment, advances, and current and prior years'
earnings and losses, including accumulated losses in excess of the
original investment.
[56 FR 63360, Dec. 3, 1991, as amended at 59 FR 659, Jan. 6, 1994; 61 FR
108, Jan. 3, 1996. Redesignated and amended at 63 FR 38723, July 17,
1998; 63 FR 40169, July 28, 1998; 66 FR 27830, May 21, 2001]
Sec. Sec. 1773.34-1773.37 [Reserved]
Subpart E_RUS Required Audit Procedures and Documentation
Sec. 1773.38 Scope of engagement.
(a) RUS requires that the audit procedures set forth in Sec. Sec.
1773.39 through 1773.45 be performed annually by the CPA during the
audit of the RUS borrowers' financial statements, which audit procedures
may be in addition to the conduct of a GAGAS audit.
[[Page 1037]]
(b) The CPA must exercise professional judgment in determining
whether any auditing procedures in addition to those mandated by GAGAS
or this part should be performed in order to afford a reasonable basis
for rendering the auditor's report, report on compliance and on internal
control over financial reporting, and management letter.
[56 FR 63360, Dec. 3, 1991, as amended at 66 FR 27835, May 21, 2001]
Sec. 1773.39 Utility plant and accumulated depreciation.
(a) General. The audit of these accounts must include tests of
additions, replacements, retirements, and changes. Based upon the CPA's
determination of materiality, an appropriate sample of transactions must
be selected for testing. The CPA's workpapers must document that he/she:
(1) Examined direct labor and material transactions to determine
whether the borrower's accounting records reflect a complete
accumulation of costs;
(2) Examined indirect costs and overhead charges to determine if
they conform to the Uniform System of Accounts;
(3) Reviewed the costs of completed construction and retirement
projects to determine if they were cleared promptly from the work in
progress accounts to the classified plant in service accounts and the
related depreciation reserves;
(4) Examined direct purchases of special equipment and general
plant;
(5) Determined the degree of accuracy and control of costing
retirements, including tests of salvage and removal costs;
(6) Reviewed the borrower's work order procedures; and
(7) Reviewed depreciation rates for adequate support, compared them
to RUS guidelines, and determined if they are in compliance.
(b) Construction work in progress. (1) The workpapers must include a
summary of open work orders reconciled to the general ledger. The CPA
must note on the summary any unusual or nontypical projects.
(2) Based upon the CPA's determination of materiality, an
appropriate sample of work orders must be selected for testing. The
CPA's workpapers must document that he/she:
(i) Reviewed equipment purchases charged to work orders, including
payments and receiving reports;
(ii) Reviewed contracts showing the scope of the work, the nature of
the contract, the contract amount, and scheduled payments and reviewed
supporting documents to determine that all services contracted for were
in fact rendered;
(iii) Reviewed time cards and pay rates for several employees who
allocate their time to work orders;
(iv) Reviewed the nature of material and supplies issued to the
project, traced amounts and quantities to supporting documents, and
reviewed the reasonableness of clearing rates for assignment of stores
expense to the work order;
(v) Reviewed the accuracy of the computation of overheads applied to
the work order; and
(vi) Reviewed other costs charged to the work order for support and
propriety.
(3) Based upon the CPA's determination of materiality, an
appropriate sample of completed contracts must be selected for testing.
The CPA's workpapers must document that he/she:
(i) Scheduled payments to contractors and traced to verify payments
and supporting invoices;
(ii) Traced contract costs to final closeout documents, to the
general ledger, and to the continuing property records; and
(iii) Verified the costs of owner furnished materials, if
applicable.
(4) The CPA must review the borrower's procedures for unitization
and classification of work order and contract costs. Based upon the
CPA's determination of materiality, an appropriate sample of
transactions must be selected for testing. The CPA's workpapers must
document that he/she:
(i) Reviewed the tabulation of record units for construction from
the work order staking sheets to the tabulation of record units, to the
unitization sheets, and to the continuing property records;
[[Page 1038]]
(ii) Reviewed the procedures for unitizing and distributing costs of
completed construction to the plant accounts;
(iii) Verified that standard costs were being used;
(iv) Evaluated the basis for development of standard costs; and
(v) Determined that costs of completed construction were cleared
promptly from work in progress accounts.
(c) Continuing property records. Based upon the CPA's determination
of materiality, an appropriate sample of transactions must be selected
for testing. The CPA's workpapers must document that he/she:
(1) Determined whether the subsidiary plant records agree with the
controlling general ledger plant accounts;
(2) Noted differences in the workpapers; and
(3) Commented, in the management letter, on any discrepancies.
(d) Retirement work-in-progress. Based upon the CPA's determination
of materiality, an appropriate sample of transactions must be selected
for testing. The CPA's workpapers must document that he/she:
(1) Determined that plant retirements are currently and
systematically recorded and priced on the basis of the continuing
property records, and determined that costs of removal have been
properly accounted for;
(2) Explained the method used in computing the cost of units of
plant retired if continuing property records have not been established
and determined whether costs appeared reasonable; and
(3) Determined the manner in which net losses due to retirements
were accounted for and traced clearing entries to the depreciation
reserve, the plant accounts, and the continuing property records.
(e) Provision for accumulated depreciation. The CPA's workpapers
must include an analysis of transactions. Based upon the CPA's
determination of materiality, an appropriate sample of transactions must
be selected for testing. The CPA's workpapers must document that he/she:
(1) Verified the depreciation accruals for the period, including the
depreciation base;
(2) Reviewed the basis of the depreciation rates, any change in
rates and the reason therefor, and, if appropriate, determined whether
the rates are in compliance with RUS requirements or with the
requirements of the state regulatory body having jurisdiction over the
borrower's depreciation rates;
(3) Reviewed salvage and removal costs; and
(4) Searched for unrecorded retirements.
(f) Other reserves. The CPA's workpapers must include an account
analysis for all other material plant reserves, such as the reserve for
the amortization of plant acquisition adjustments. Based upon the CPA's
determination of materiality, an appropriate sample of transactions must
be selected for testing. The CPA's workpapers must document that
appropriate tests of transactions were performed.
(g) Narrative. The CPA must prepare and include in the workpapers a
comprehensive narrative on the scope of work performed, observations
made, and conclusions reached. Specific matters covered in this
narrative must include:
(1) The nature of construction and other additions;
(2) The control over, and the accuracy of pricing retirements;
(3) The accuracy of distributing costs to classified utility plant
accounts;
(4) An evaluation of the method of:
(i) Capitalizing the direct loadings on labor and material costs;
(ii) Distributing transportation costs and other expense clearing
accounts; and
(iii) Capitalizing overhead costs;
(5) The tests of depreciation;
(6) A review of agreements such as those relating to acquisitions,
property sales, and leases which affect the plant accounts; and
(7) Notations, if applicable, of RUS approval of property sales and
the propriety of the disposition of the proceeds.
[[Page 1039]]
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 RUS approval.
[59 FR 660, Jan. 6, 1994]
Sec. 1773.41 Extraordinary retirement losses.
The CPA's workpapers must contain an analysis of retirement losses,
including any required approval by a regulatory commission with
jurisdiction in the matter, or RUS, in the absence of commission
jurisdiction.
Sec. 1773.42 Clearing accounts.
The CPA's workpapers must contain an analysis of all clearing
accounts. Based upon the CPA's determination of materiality, an
appropriate sample of transactions should be selected for testing. The
CPA's workpapers must document that transactions were reviewed for
proper allocation between expense and capital accounts.
Sec. 1773.43 Capital and equity accounts.
(a) Capital stock. For privately owned companies, the workpapers
must include analyses of all stock transactions during the audit period.
Based upon the CPA's determination of materiality, an appropriate sample
of transactions must be selected for testing. The CPA's workpapers must
document that he/she:
(1) Reviewed the subsidiary records and reconciled them to the
general ledger control account;
(2) Reviewed authorizations and issuances or redemptions of capital
stock for proper approvals by the board of directors, stockholders, and
regulatory commissions;
(3) Determined that transactions were made in accordance with the
appropriate provisions of the articles of incorporation, bylaws, and RUS
loan documents; and
(4) Determined that transactions were recorded in accordance with
the Uniform System of Accounts.
(b) Memberships. For cooperative organizations, the workpapers must
include an analysis of the membership transactions during the audit
period. Based upon the CPA's determination of materiality, an
appropriate sample of transactions must be selected for testing. The
CPA's workpapers must document that he/she:
(1) Reviewed the subsidiary records and reconciled them to the
general ledger control account; and
(2) Determined that transactions were made in accordance with the
appropriate provisions of the articles of incorporation, bylaws, and RUS
loan documents.
(c) Patronage capital, retained earnings, margins, and other
equities. The workpapers must include an analysis of the patronage
capital, retained earnings, margins and other equities, and any related
reserve accounts. Based upon the CPA's determination of materiality, an
appropriate sample of transactions must be selected for testing. The
CPA's workpapers must document that he/she:
(1) Determined that the transactions were made in accordance with
the appropriate provisions of the articles of incorporation, bylaws, RUS
loan documents, Uniform System of Accounts, or orders of regulatory
commissions;
(2) Traced payments to underlying support; and
(3) Determined whether, under the terms of the RUS security
instrument, restrictions of retained earnings or margins are required
and, if so, whether they have been properly recorded.
Sec. 1773.44 Long-term debt.
The CPA's workpapers must document that he/she:
(a) Confirmed RUS, FFB, and RTB debt to the appropriate confirmation
schedule (RUS Form 690, Confirmation Schedule Obligation to the FFB as
of: or Form 691, Confirmation Schedule--Long-term Obligation to RUS as
of; or RTB Form 12, Confirmation Schedule);
(b) Confirmed other long-term debt directly with the lender;
(c) Examined notes executed or canceled during the audit period; and
(d) Tested accrued interest computations.
[[Page 1040]]
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 RUS approval.
[59 FR 660, Jan. 6, 1994]
Sec. Sec. 1773.46-1773.49 [Reserved]