[Federal Register: May 16, 2005 (Volume 70, Number 93)]
[Rules and Regulations]
[Page 25753-25761]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr16my05-1]
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Rules and Regulations
Federal Register
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[[Page 25753]]
DEPARTMENT OF AGRICULTURE
Rural Utilities Service
7 CFR Part 1770
RIN 0572-AB77
Accounting Requirements for RUS Telecommunications Borrowers
AGENCY: Rural Utilities Service, USDA.
ACTION: Final rule.
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SUMMARY: The Rural Utilities Service (RUS), an agency delivering the
U.S. Department of Agriculture's Rural Development Utilities Programs,
is amending its regulations on accounting policies and procedures for
RUS Telecommunications Borrowers as set forth in RUS's regulations
concerning Accounting System Requirements for RUS Telecommunications
Borrowers. This final rule adopts some recent accounting changes made
by the Federal Communications Commission (FCC). These changes include
increasing the expense limit for some assets excluding personal
computers, allowing tools and test equipment located in the central
office to be expensed under the new limitation. This final rule affirms
the use of Class A accounts by RUS borrowers; maintains the expense
matrix requirements; maintains the requirement that borrowers request
prior approval to record extraordinary items, prior period adjustments,
and contingent liabilities; establishes policies and procedures to
permit RUS borrowers to follow Prudent Utility Practice regarding the
storage and retention of business records; and eliminates certain
Telecommunications Plant Under Construction accounts. This final rule
also adds three new accounting interpretations on Allowance for Funds
Used During Construction, Reporting Comprehensive Income, and
Disclosures About Pensions and Other Postretirement Benefits.
DATES: Effective June 15, 2005.
FOR FURTHER INFORMATION CONTACT: Ms. Diana C. Alger, Chief, Technical
Accounting and Auditing Staff, Program Accounting Services Division,
Rural Utilities Service, Stop 1523, Room 2221--South Building, U.S.
Department of Agriculture, Washington, DC 20250, telephone number (202)
720-5227.
SUPPLEMENTARY INFORMATION
Executive Order 12866
This final rule has been determined to be not significant for
purposes of Executive Order 12866 and, therefore, has not been reviewed
by the Office of Management and Budget.
Executive Order 12988
This final rule has been reviewed under Executive Order 12988,
Civil Justice Reform. RUS has determined that this rule meets the
applicable standards provided in section 3 of the Executive Order. In
addition, all state and local laws and regulations that are in conflict
with this rule will be preempted, no retroactive effort will be given
to this rule, and, in accordance with Section 212(e) of the Department
of Agriculture Reorganization Act of 1994 (7 U.S.C. 6912(e)),
administrative appeal procedures, if any, must be exhausted before an
action against the Department or its agencies may be initiated.
Regulatory Flexibility Act Certification
RUS has determined that this final rule will not have a significant
economic impact on a substantial number of small entities, as defined
in the Regulatory Flexibility Act (5 U.S.C. 601 et seq.). The RUS
telecommunications program provides loans to borrowers at interest
rates and on terms that are more favorable than those generally
available from the private sector. RUS borrowers, as a result of
obtaining federal financing, receive economic benefits that exceed any
direct economic costs associated with complying with RUS regulations
and requirements.
This rule implements provisions of the loan documents between RUS
and those telecommunications utilities that borrow from RUS and
represents an update of existing record retention requirements. The
requirements reflect due diligence standards of both pubic and private
lenders for borrowers in the telecommunications industry. Moreover, the
requirements reflect generally accepted telecommunications industry
standards and are consistent with requirements imposed by many State
and Federal utility regulatory bodies. The rule is not expected to
materially change the current practices of most RUS borrowers and
consequently will not have a significant impact on the affected
entities.
Executive Order 13132, Federalism
The policies contained in this rule do not have any substantial
direct effect on states, on the relationship between the national
government and the states, or on the distribution of power and
responsibilities among the various levels of government. Nor does this
rule impose substantial direct compliance costs on state or local
governments. Therefore, consultation with states is not required.
Information Collection and Recordkeeping Requirements
This rule contains no new reporting or recordkeeping burdens under
OMB control number 0572-0003 that would require approval under the
Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq.).
National Environmental Policy Act Certification
The Administrator of RUS 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.
Executive Order 12372
This final rule is excluded from the scope of Executive Order
12372, Intergovernmental Consultation, which may require a consultation
with State and local officials. See the final rule related notice
titled, ``Department Programs and Activities Excluded from Executive
Order 12372'' (50 FR 47034).
Catalog of Federal Domestic Assistance
The program described by this final rule is listed in the Catalog
of Federal Domestic Assistance Program under No. 10.851, Rural
Telephone Loans and Loan Guarantees; No. 10.852, Rural
[[Page 25754]]
Telephone Bank Loans; No. 10.857, Rural Broadband Access Loans and Loan
Guarantees; and No. 10.854, Distance Learning and Telemedicine Loans
and Grants. This catalog is available on a subscription basis from the
Superintendent of Documents, the United States Government Printing
Office, Washington, DC 20402. Telephone: (202) 512-1800.
Unfunded Mandates
This rule contains no Federal mandates (under the regulatory
provisions of Title II of the Unfunded Mandates Reform Act of 1995) (2
U.S.C. 1501 et seq.) for State, local, and tribal governments for the
private sector. Thus, this rule is not subject to the requirements of
section 202 and 205 of the Unfunded Mandates Reform Act of 1995.
Background
In order to facilitate the effective and economic operation of a
business, adequate and reliable financial records must be maintained.
Accounting records must provide a clear, accurate picture of current
economic conditions from which management can make informed decisions
in charting the company's future. The rate regulated environment in
which a telecommunications carrier operates causes an even greater need
for financial information that is accurate, complete, and comparable
with that generated by other carriers. For this reason, the Federal
Communications Commission (FCC) prescribes a Uniform System of Accounts
(USoA) for the telecommunications industry.
RUS, as a Federal lender and mortgagee, and in furthering the
objectives of the Rural Electrification Act (RE Act) (7 U.S.C. 901 et
seq.) has a legitimate programmatic interest and a substantial
financial interest in requiring adequate records to be maintained. In
order to provide RUS with financial information that can be analyzed
and compared with the operations of other borrowers in the RUS program,
all RUS borrowers must maintain financial records that utilize uniform
accounts and uniform accounting policies and procedures. The standard
RUS security instrument, therefore, requires borrowers to maintain
their books, records, and accounts in accordance with methods and
principles of accounting prescribed by RUS in the RUS USoA for its
telecommunications borrowers.
The RUS USoA parallels the USoA prescribed by the FCC for
telecommunications utilities and, as such, is consistent with the
standards of financial accounting in the telecommunications industry as
a whole. As FCC amends its USoA, RUS reviews the appropriateness and
applicability of each amendment and proposes revisions, as necessary,
to the RUS USoA.
In Docket 95-60, published in the Federal Register on July 23,
1997, at 62 FR 39451, the FCC raised the expense limit on accounts
2112, 2113, 2114, 2115, 2116, 2122, 2123, and 2124 (excluding personal
computers) from $500 to $2000. RUS adopts this change.
The FCC published Docket 98-81 in the Federal Register on September
15, 1999, at 64 FR 50002. This order entailed a number of items that
RUS has incorporated into its USoA.
RUS is combining accounts 2114 through 2116 into a single new
account 2114, Tools and Other Work Equipment. Because the assets
recorded in these accounts are similar in nature and use similar
depreciation rates, we believe that combining them would not adversely
impact loan security issues or the consistent and comparable reporting
of financial information to RUS. Nor would it affect reporting for
ratemaking purposes.
RUS is eliminating account 5010 and requiring that all nonregulated
revenues be recorded in account 5280, Nonregulated Operating Revenue.
This change requires carriers to maintain subsidiary record categories
for each nonregulated revenue item recorded in this account. Our
interest is in ensuring that nonregulated revenues be segregated from
regulated revenues.
Docket 98-81 also eliminated the requirement in 47 CFR 32.16 for
filing projected future effects of an accounting change (revenue
requirement study) and the requirement in 47 CFR 32.2000(b) that
borrowers submit for approval, journal entries to record
telecommunications plant acquisitions of more than $1 million Class A
companies and more than $250,000 for Class B companies. Because the
need for this level of approval no longer exists, RUS eliminates these
requirements.
The FCC published Docket 99-253 in the Federal Register on March
28, 2000, at 65 FR 16328. This docket eliminated the 30-day
notification requirement for establishment of temporary or experimental
accounts found in 47 CFR 32.13(a)(3), eliminated the reclassification
requirement for property held for more than 2 years in account 2002,
Property Held for Future Telecommunications Use, and eliminated the
reclassification requirement for projects held in account 2003,
Telecommunications Plant Under Construction, and suspended for more
than 6 months. RUS adopts these changes.
The FCC has also eliminated the requirement for carriers to obtain
prior approval before recording extraordinary items, contingent
liabilities, and prior period adjustments as previously required in 47
CFR 32.25. RUS is retaining this requirement for borrowers of the RUS
Telecommunications Program.
Additionally, this docket eliminated the expense matrix requirement
found in 47 CFR 32.5999. The information provided by this matrix is
invaluable for RUS in its analysis of the financial condition of
borrowers. RUS, therefore, is retaining the expense matrix requirement.
Because account 2004 has been eliminated from the FCC USoA, RUS is
deleting accounts 2004.1, 2004.2, and 2004.3 from the accounts required
under 7 CFR 1770.15 and renaming and redefining accounts 2003.1,
2003.2, and 2003.4.
In response to a change by the FCC of its revenue threshold for
classification of Class A carriers, RUS is requiring that all borrowers
using the Class A system of accounts as of May 10, 2004, are required
to continue using this system and all new borrowers shall adopt the
Class A system of accounts. RUS shall continue to require financial
information that can be analyzed and compared with the operations of
all other borrowers in the RUS program. For this reason, RUS borrowers
must continue to maintain financial records that utilize uniform
accounts and uniform accounting policies and procedures.
To ensure that borrowers consistently report their financial
operations and keep pace with the changing environment in which they
operate, RUS is setting forth accounting interpretations that establish
the reporting and disclosure requirements for Reporting Comprehensive
Income and Disclosures about Pensions and Other Postretirement
Benefits.
RUS is revising 7 CFR part 1770 to change the word ``companies'' to
``borrowers'' in all instances to better reflect the current nature of
the industry. RUS is also specifically identifying the organizational
unit within RUS to which requests for approval and interpretations
should be addressed. This revision should assist borrowers in filing
requests and should expedite the review process within RUS.
On November 5, 2001, the FCC released its' ``Report and Order in CC
Docket NOS. 00-199, 97-212, and 80-286 Further Notice of Proposed
[[Page 25755]]
Rulemaking in CC Docket NOS. 00-199, 99-301, and 80-286'' addressing:
(1) The 2000 Biennial Regulatory Review--Comprehensive Review of the
Accounting Requirements and Automated Reporting Management Information
System (ARMIS) Reporting Requirements for Incumbent Local Exchange
Carriers: Phase 2, (2) Amendments to the Uniform System of Accounts for
Interconnection, (3) Jurisdictional Separations Reform and Referral to
the Federal-State Joint Board, and (4) Local Competition and Broadband
reporting. This order contains a number of items that RUS is
incorporating into its USoA.
The FCC created new subaccounts for accounts 2212, 2232, 6212,
6232, and 6620. Account 2212, Digital Electronic Switching, will have
subaccounts 2212.1, Circuit, and 2212.2, Packet. Account 2232, Circuit
Equipment, will have subaccounts 2232.1, Electronic, and 2232.2,
Optical. Account 6212, Digital Electronic Switching Expense, will have
subaccounts 6212.1, Circuit, and 6212.2, Packet. Account 6232, Circuit
Equipment Expense, will have subaccounts 6232.1, Electronic, and
6232.2, Optical. Account 6620, Services, will have subaccounts 6620.1,
Wholesale, and 6620.2, Retail. RUS adopts these changes.
The FCC revised Sections 32.1220(h) and 32.2311(f) of 47 CFR part
32 and eliminated the annual inventory requirement for materials and
supplies, and station apparatus in stock. Borrowers would be allowed
the latitude to determine the appropriate inventory validation
methodology based on risk assessment and existing controls. RUS adopts
this change.
Additionally, under 7 CFR part 32, Section 32.4999(L) the FCC
eliminated the ``treated traditionally'' requirement from incidental
activities. Revenues from minor nontariffed activities that are an
outgrowth of the borrower's regulated activities may be recorded as
regulated revenues under certain conditions. However, the FCC
maintained the other three requirements to provide safeguards to
prevent misuse of the incidental activities exception. RUS adopts this
change.
The FCC addressed the affiliate transaction rules under Section
32.27 in five distinct areas by: (1) Eliminating the requirement that
carriers make a fair market value comparison for asset transfers when
the total annual value of that asset is less than $500,000; (2) giving
carriers flexibility in valuing certain transactions by allowing the
higher or lower of cost or market valuation to operate as either a
floor or ceiling, depending on the direction of the transaction; (3)
lowering the percent of sales of assets or services to third parties,
from greater than 50 percent to 25 percent, in order to qualify for
prevailing price treatment in valuing affiliate transactions; (4)
maintaining the narrowly defined exception that provides when an
incumbent carrier purchases services from an affiliate that exists
solely to provide services to members of the carrier's corporate
family, the carrier may record the services at fully distributed cost
rather than applying the cost or market rule; and (5) maintaining the
affiliate transaction rules and not exempting nonregulated to
nonregulated transactions from the affiliate transaction rules. RUS
shall not adopt these changes.
The FCC modified Sec. 32.5280(c) so that incumbent local exchange
carriers (ILEC's) may group their nonregulated revenues into two
groups: One subsidiary record for all the revenues from regulated
services treated as nonregulated for federal accounting purposes
pursuant to the FCC order, and the second for all other nonregulated
revenues. RUS shall not adopt these changes.
Additionally, the FCC streamlined many of its accounting rules and
reporting requirements by reducing the number of Class A accounts from
296 to 164, and the number of Class B accounts from 113 to 82 accounts.
RUS shall not adopt this change.
On November 12, 2002, the FCC released an Order that suspended
implementation of four accounting and recordkeeping rule modifications
they previously adopted: (1) The consolidation of Accounts 6621 through
6623 into Account 6620, with subaccounts for wholesale and retail; (2)
the consolidation of Account 5230, Directory Revenue into Account 5200,
Miscellaneous Revenue; (3) the consolidation of the depreciation and
amortization expense accounts (Accounts 6561 through 6565) into Account
6562, Depreciation and Amortization Expense; and (4) the revised ``Loop
Sheath Kilometers'' data collection in Table II of ARMIS Report 43-07.
RUS agrees with this suspension.
The suspension will allow the recently established Federal-State
Joint Conference on Accounting Issues to review these rules before
carriers are required to implement them. However, those reforms
included in the FCC's November 5, 2001, Report and Order and Further
Notice of Proposed Rulemaking, took effect January 1, 2003.
Comments
A proposed rule entitled Accounting Requirements for RUS
Telecommunications Borrowers, published in the Federal Register, May
10, 2004, at 69 FR 25848, invited interested parties to submit comments
on or before July 9, 2004. No comments were received.
The following is supplemental information for use by broadband
providers, and in particular, the recipients of loans made under the
Rural Broadband Access Loans and Loan Guarantees Program (Pub. L. 101-
171). This information will be included in RUS Bulletin 1770B-1, ``Part
32, Uniform System of Accounts, and Supplementary Accounts Required of
REA Telephone Borrowers,'' as an appendix. This appendix provides an
overview of the Uniform System of Accounts required for all RUS
Telecommunications and Broadband Borrowers, along with items listed for
pertinent plant, revenue, and expense accounts.
List of Subjects in 7 CFR Part 1770
Loan programs--communications, Reporting and recordkeeping
requirements, Rural areas, Telecommunications, Uniform System of
Accounts.
0
For the reasons set out in the preamble, Chapter XVII of Title 7 of the
Code of Federal Regulations, part 1770, is amended to read as follows:
0
1. The authority citation for part 1770 continues to read as follows:
Authority: 7 U.S.C. 901 et seq.; 7 U.S.C. 1921 et seq.; Pub. L.
103-354, 108 Stat. 3178 (7 U.S.C. 6941 et seq.).
PART 1770--ACCOUNTING REQUIREMENTS FOR RUS TELECOMMUNICATIONS
BORROWERS
0
2. The heading for part 1770 is revised to read as set out above.
0
3. Subpart A (Sec. Sec. 1770.1-1770.9) is added to read as follows:
Subpart A--Preservation of Records
Sec.
1770.1 General.
1770.2 Designation of a supervisory official.
1770.3 Index of records.
1770.4 Record storage media.
1770.5 Periods of retention.
1770.6-1770.9 [Reserved]
Subpart A--Preservation of Records
Sec. 1770.1 General.
(a) This subpart establishes RUS polices and procedures for the
preservation of records of telecommunications borrowers.
[[Page 25756]]
(b) The regulations prescribed in this part apply to all books of
account, contracts, records, memoranda, documents, papers, and
correspondence prepared by or on behalf of the borrower as well as
those which come into its possession in connection with the acquisition
of property by purchase, consolidation, merger, etc.
(c) The regulations prescribed in this part shall not be construed
as excusing compliance with any other lawful requirements for the
preservation of records.
Sec. 1770.2 Designation of a supervisory official.
Each borrower shall designate one or more officials to supervise
the preservation of its records.
Sec. 1770.3 Index of records.
(a) Each borrower shall maintain a master index of records. The
master index shall identify the records retained, the related retention
period, and the locations where the records are maintained. The master
index shall be subject to review by RUS and RUS shall reserve the right
to add records, or lengthen retention periods upon finding that
retention periods may be insufficient for its purposes.
(b) At each office where records are kept or stored the borrower
shall arrange, file, and index the records currently at that site so
that they may be readily identified and made available to
representatives of RUS.
Sec. 1770.4 Record storage media.
Each RUS borrower has the flexibility to select its own storage
media subject to the following conditions:
(a) The storage media must have a life expectancy at least equal to
the applicable retention period provided for in the master index of
records, unless there is quality transfer from one media to another
with no loss of data. Each transfer of data from one media to another
must be verified for accuracy and documented.
(b) Each borrower is required to implement internal control
procedures that assure the reliability of, and ready access to, data
stored on machine-readable media. Internal control procedures must be
documented by a responsible supervisory official.
(c) The records shall be indexed and retained in such a manner that
they are easily accessible.
(d) The borrower shall have the hardware and software available to
locate, identify, and reproduce the records in readable form without
loss of clarity.
(e) At the expiration of the retention period, the borrower may use
any appropriate method to destroy records.
(f) When any records are lost or destroyed before the expiration of
the retention period set forth in the master index, a certified
statement shall be added to the master index listing, as far as may be
determined, the records lost or destroyed and describing the
circumstances of the premature loss or destruction.
Sec. 1770.5 Periods of retention.
(a) Except as provided for in paragraphs (b), (c), and (d) of this
section, record retention shall be consistent with Prudent Utility
Practice. Prudent Utility Practice shall mean any of the practices,
methods, and acts which, in the exercise of reasonable judgment, in
light of the facts, including but not limited to, the practices,
methods, and acts engaged in or approved by a significant portion of
the telecommunications industry prior thereto, known at the time the
decision was made, would have been expected to accomplish the desired
result consistent with cost effectiveness, reliability, safety, and
expeditiousness. It is recognized that Prudent Utility Practice is not
intended to be limited to optimum practice, method, or act to the
exclusion of all others, but rather is a spectrum of possible
practices, methods, or acts which could have been expected to
accomplish the desired result at the lowest reasonable cost consistent
with cost effectiveness, reliability, safety, and expedition.
(b) Records supporting construction financed by RUS shall be
retained until audited and approved by RUS.
(c) Records related to plant in service must be retained until the
facilities are permanently removed from utility service, all removal
and restoration activities are completed, and all costs are retired
from the accounting records unless accounting adjustments resulting
from reclassification and original costs studies have been approved by
RUS or other regulatory body having jurisdiction.
(d) Life and mortality study data for depreciation purposes must be
retained for 25 years or for 10 years after plant is retired whichever
is longer.
Sec. Sec. 1770.6--1770.9 [Reserved]
Subpart B--Uniform System of Accounts
0
4. Amend Sec. 1770.11 by revising paragraphs (b)(1) and (b)(2) to read
as follows:
Sec. 1770.11 Accounting system requirements.
* * * * *
(b) * * *
(1) RUS borrowers maintaining the accounts prescribed in 47 CFR
part 32 for Class A companies as of June 15, 2005, shall continue to do
so. RUS suspends implementation of the reduced number of Class A and B
accounts, until the Federal-State Joint Conference has reviewed them.
(2) New borrowers under the RUS telecommunications program shall
maintain the accounts prescribed in 47 CFR part 32 for Class A
companies.
* * * * *
0
5. Amend Sec. 1770.13 by revising paragraph (d) to read as follows:
Sec. 1770.13 Accounting requirements.
* * * * *
(d) Interpretations of RUS accounting requirements shall be
referred to the Assistant Administrator, Program Accounting and
Regulatory Analysis, Rural Utilities Service.
0
6. Section 1770.15 is amended by:
0
A. Removing account entries 2004.1, 2004.2, and 2004.3;
0
B. Revising account entries 2003.1, 2003.2, and 2003.3; and
0
C. Adding new subaccount entries 2212, 2232, 6212, 6232, and 6620.
This revision and addition are to read as follows:
Sec. 1770.15 Supplementary accounts required of all borrowers.
[[Page 25757]]
------------------------------------------------------------------------
Class of company
------------------------------------------
Account No. Account title
------------------------------------------
A B
------------------------------------------------------------------------
* * * * * * *
2003.1................... 2003.1 Telecommunications Plant
Under Construction--Contract
This account shall include
all costs incurred in the
construction of
telecommunications plant
performed under contract and
the cost of software
development projects that
are not yet ready for their
intended use. Included among
these costs are contractor
payments and charges for
engineering, supervision,
taxes, insurance,
transportation, and other
costs incurred in contract
construction. This account
shall be maintained such
that the various items of
cost are readily
identifiable.
2003.2................... 2003.2 Telecommunications Plant
Under Construction--Force
Account
This account shall include
all costs incurred in the
construction of
telecommunications plant
performed by the borrowers'
own employees and the cost
of software development
projects performed by the
borrowers' own employees
that are not yet ready for
their intended use. Included
among these costs are
charges for material, labor,
engineering, supervision,
taxes, insurance,
transportation, supply
expense, and other costs
incurred in the
construction. This account
shall be maintained such
that the various items of
cost are readily identified.
Specific subaccounts should
be maintained to distinguish
individual projects.
2003.3................... 2003.3 Telecommunications Plant
Under Construction--Work
Orders
This account shall include
all costs incurred in the
construction of
telecommunication plant
performed under a work order
system or line extension
contract. This type of
construction generally
includes service
installations, subscriber
extensions, and minor plant
improvements after the
completion of the initial
system. Included among these
costs are charges for labor,
material and supplies,
transportation, payroll
taxes, insurance,
supervision, and other costs
incurred in the
construction. Subsidiary
records shall be maintained
to reflect the cost of the
individual jobs. These
records shall be reconciled
periodically with the
general ledger control
account. Specific
subaccounts should be
maintained to accumulate
costs incurred under line
extension contracts.
* * * * * * *
2212.1................... 2212.1 Digital Electronic Switching--
Circuit.
2212.2................... 2212.2 Digital Electronic Switching--
Packet.
* * * * * * *
2232.1................... 2232.1 Circuit Equipment--
Electronic.
2232.2................... 2232.2 Circuit Equipment--Optical.
* * * * * * *
6212.1................... 6212.1 Digital Electronic Switching
Expense--Circuit.
6212.2................... 6212.2 Digital Electronic Switching
Expense--Packet.
* * * * * * *
6232.1................... 6232.1 Circuit Equipment Expense--
Electronic.
6232.2................... 6232.2 Circuit Equipment Expense--
Optical.
* * * * * * *
6620.1................... 6620.1 Services--Wholesale.
6620.2................... 6620.2 Services--Retail.
* * * * * * *
------------------------------------------------------------------------
0
7. Section 1770.17 is added to read as follows:
Sec. 1770.17 Expense matrix.
The expense accounts shall be maintained by the following
subsidiary record categories, as appropriate to each account. Such
subsidiary record categories shall be reported as required by 47 CFR
part 43.
(a) Salaries and wages. This subsidiary record category shall
include compensation to employees, such as wages, salaries,
commissions, bonuses, incentive awards, and termination payments.
(b) Benefits. This subsidiary record category shall include payroll
related benefits on behalf of employees such as the following:
(1) Pensions;
(2) Savings plan contributions (company portion);
(3) Worker's compensation required by law;
(4) Life, hospital, medical, dental, and vision plan insurance, and
(5) Social Security and other payroll taxes.
(c) Rents. (1) This subsidiary record category shall include
amounts paid for the use of real and personal operating property.
Amounts paid for real property shall be included in Account 6121, Land
and Buildings Expense. This category includes payments for operating
leases but does not include payments for capital leases.
(2) This subsidiary record category is applicable only to the Plant
Specific Operations Expense accounts. Incidental rents, e.g., short-
term rental car expense, shall be categorized as Other Expenses (see
paragraph (d) of this section) under the account which reflects the
function for which the incidental rent was incurred.
(d) Other expenses. This subsidiary record category shall include
costs which cannot be classified to the other subsidiary record
categories. Included are material and supplies, including provisioning
(note also Account 6512, Provisioning Expense); contracted services;
accident and damage
[[Page 25758]]
payments, insurance premiums; traveling expenses and other
miscellaneous costs.
(e) Clearances. This subsidiary record category shall include
amounts transferred to Construction accounts (see 47 CFR
32.2000(c)(2)(iii)), other Plant Specific Operations Expense accounts
and/or Account 3100, Accumulated Depreciation (cost of removal; see 47
CFR 32.2000(g)(1)(iii)), as appropriate, from Accounts 6112, Motor
Vehicles Expense, 6114, Tools and Other Work Equipment Expense, 6534,
Plant Operations and Administration Expense, and 6535, Engineering
Expense. There shall also be transfers to Construction or other Plant
Specific Operations Expense accounts, as appropriate, from Account
6512, Provisioning Expense. With respect to these expenses, companies
may establish such clearing accounts as they deem necessary to
accomplish substantially the same results, provided that within thirty
(30) days of the opening of such accounts, companies shall notify the
FCC of the nature and purpose thereof. Additional clearing accounts
affecting other expense areas may be established with prior approval of
the FCC. Should companies elect, the initial incurred subsidiary record
category identification may be carried through to the final accounts
without FCC approval.
0
8. Section 1770.25 is added to read as follows:
Sec. 1770.25 Unusual items and contingent liabilities.
Extraordinary items, prior period adjustments and contingent
liabilities shall be submitted to RUS for review before being recorded
in the company's books of account. The materiality of corrections of
errors in prior periods shall be measured in relation to the summary
account level used for reporting purposes for Class A companies, or in
relation to total operating revenues or total operating expenses for
Class B companies. For Class A companies, no correction in excess of
one percent of the aggregate summary account dollars or one million
dollars, whichever is higher, may be recorded in current operating
accounts without prior approval. For Class B companies, no correction
which exceeds one percent of total operating revenues or one percent of
total operating expenses, depending on the nature of the item, may be
recorded in current operating accounts without prior approval.
Subpart C--Accounting Interpretations
0
9. The Appendix to Subpart C is amended by:
0
A. Adding under ``Numerical Index'' and ``Number and Title'', in
numerical order, the new numbers and their respective titles;
0
B. Adding under ``Subject Matter Index'', in alphabetic order, new
subjects and their respective number, and
0
C. Add at the end of this Appendix, the new numbers and descriptions.
These additions are to read as follows:
Appendix to Subpart C to Part 1770--Accounting Methods and Procedures
Required of All Borrowers
* * * * *
Numerical Index
Number and Title
* * * * *
107 Allowance for Funds Used During Construction
108 Reporting Comprehensive Income
109 Disclosures About Pensions and Other Postretirement Benefits
Subject Matter Index
A
AFUDC--107
C
* * * * *
Comprehensive Income--108
* * * * *
D
Disclosures--109
* * * * *
I
Income, Other Comprehensive--108
O
Other Postretirement Benefits--109
P
Pensions--109
* * * * *
107 Allowance for Funds Used During Construction
A. Statement of Financial Accounting Standard No. 34,
Capitalization of Interest Cost, established the standards for
capitalizing interest cost as a part of the historical cost of
acquiring certain assets. In order to capitalize interest, the asset
must require a period of time to complete or to get it ready for its
intended use. This standard applies to all entities that construct
facilities for their own use and should be applied by RUS
Telecommunications borrowers as follows:
1. Only actual interest costs incurred on external borrowings
qualify to be capitalized. The interest rate used to calculate the
amount of interest to be capitalized is based on the companies
external borrowings. If a construction project is associated with
specific debt, the interest rate on that debt is used to calculate
interest cost to be capitalized. If the project is not associated
with a specific debt, a weighted average of the rates of all
existing debt shall be applied to expenditures for the project.
There is no materiality threshold for adoption of this standard (47
CFR 32.26).
2. If a borrower is involved in a joint construction project,
all determinations as to the amount of interest incurred and
qualified for capitalization must be based on individual financing
arrangements with regard to the Interest During Construction rules.
3. The capitalization period shall end when the asset is
substantially complete and ready for its intended use.
Disclosures
A. The following information with respect to interest cost shall
be disclosed in the financial statements or related notes:
1. For an accounting period in which no interest cost is
capitalized, the amount of interest cost incurred and charged to
expense during the period.
2. For an accounting period in which some interest cost is
capitalized, the total amount of interest cost incurred during the
period and the amount thereof that has been capitalized.
108 Reporting Comprehensive Income
A. In June 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 130, Reporting
Comprehensive Income. This statement requires that all items that
meet the definition of the components of comprehensive income be
reported in the financial statements for the period in which they
are recognized. Statement 130 establishes a distinction between
comprehensive income and other comprehensive income.
1. Comprehensive income is composed of net income and other
comprehensive income. The net income is the result of operations
resulting from the aggregation of revenues, expenses, gains and
losses that are not items that comprise other comprehensive income.
2. Other comprehensive income is composed of the following:
(a) Foreign currency items,
(b) Minimum pension liability adjustments, and
(c) Unrealized gains and losses on certain investments in debt
and equity securities. Gains or losses on investment securities
included in the net income of the current period that also had been
included in other comprehensive income as unrealized holding gains
or losses in a prior period must be adjusted (called
reclassification adjustments) in the presentation of other
comprehensive income in the current period.
B. Comprehensive income expressed as a formula would be:
Net Income items of other comprehensive income =
comprehensive income
While Statement 130 requires that comprehensive income should be
divided into two broad display classifications, net income and other
comprehensive income, it
[[Page 25759]]
does not prescribe a specific format for displaying comprehensive
income in the financial statements.
C. RUS Telecommunications borrowers that present a single
Statement of Operations and Patronage Capital should present the
components of other comprehensive income below the total for net
income and then present the reconciliation of patronage capital
(Retained Earnings). Borrowers that present a separate Statement of
Patronage Capital (or Retained Earnings) should display the
beginning balance of patronage capital (or retained earnings), net
income for the period, other items of comprehensive income and total
comprehensive income before the presentation of other items of
patronage capital (or retained earnings) for the period.
109 Disclosures about Pensions and Other Postretirement Benefits
A. Statement of Financial Accounting Standards (SFAS) No. 132,
Employers' Disclosures about Pensions and Other Postretirement
Benefits, issued in February 1998, is effective for fiscal years
beginning after December 15, 1998. This statement revises employers'
disclosure requirements for pension and other postretirement benefit
plans. It does not change the measurement or recognition of those
plans. The statement also permits reduced disclosures for nonpublic
entities, which are defined as any entity other than one:
1. Whose debt or equity securities trade in a public market
either on a domestic or foreign stock exchange or in the over-the-
counter market, including securities quoted only locally or
regionally,
2. That makes a filing with a regulatory agency in preparation
for the sale of any class of debt or equity securities in a public
market, or
3. That is controlled by an entity covered by 1 or 2 above.
Public Entities and Those Controlled by Public Entities
A. A commercial RUS Telecommunications borrower that meets the
definition of a public entity and sponsors one or more defined
benefit pension or postretirement benefit plan shall provide the
following information on a comparative basis for the statements
presented:
1. A reconciliation of beginning and ending balances of the
benefit obligation showing separately, if applicable, the effects
during the period attributable to each of the following:
(a) Service cost,
(b) Interest cost,
(c) Contributions by plan participants,
(d) Actuarial gains and losses,
(e) Foreign currency exchange rate changes,
(f) Benefits paid,
(g) Plan amendments,
(h) Business combinations,
(i) Divestitures,
(j) Curtailments,
(k) Settlements, and
(l) Special termination benefits.
2. A reconciliation of beginning and ending balances of the fair
value of plan assets showing separately, if applicable, the effects
during the period attributable to each of the following:
(a) Actual return on plan assets,
(b) Foreign currency exchange rate changes,
(c) Contributions by the employer,
(d) Contributions by plan participants,
(e) Benefits paid,
(f) Business combinations,
(g) Divestitures, and
(h) Settlements.
3. The funded status of the plans, the amounts not recognized in
the statement of financial position, and the amounts recognized in
the statement of financial position, including:
(a) The amount of any unamortized prior service cost.
(b) The amount of any unrecognized net gain or loss (including
asset gains and losses not yet reflected in market-related value).
(c) The amount of any remaining unamortized, unrecognized net
obligation or net asset existing at the initial date of application
of SFAS No. 87, Employers' Accounting for Pensions, or SFAS No. 106,
Employers' Accounting for Postretirement Benefits Other Than
Pensions.
(d) The net pension or other postretirement benefit prepaid
assets or accrued liabilities.
(e) Any intangible asset and the amount of accumulated other
comprehensive income recognized pursuant to paragraph 37 of SFAS No.
87, as amended.
4. The amount of net periodic benefit cost recognized, showing
separately:
(a) The service cost component,
(b) The interest cost component,
(c) The expected return on plan assets for the period,
(d) The amortization of the unrecognized transition obligation
or transition asset,
(e) The amount of recognized gains and losses, the amount of
prior service cost recognized, and
(f) The amount of gain or loss recognized due to a settlement or
curtailment.
5. The amount included within other comprehensive income for the
period arising from a change in the additional minimum pension
liability recognized pursuant to paragraph 37 of SFAS No. 87, as
amended.
6. On a weighted-average basis, the following assumptions used
in the accounting for the plans:
(a) Assumed discount rate,
(b) Rate of compensation increase (for pay-related plans), and
(c) Expected long-term rate of return on plan assets.
7. The assumed health care cost trend rate(s) for the next year
used to measure the expected cost of benefits covered by the plan
(gross eligible charges) and a general description of the direction
and pattern of change in the assumed trend rates thereafter,
together with the ultimate trend rate(s) and when that rate is
expected to be achieved.
8. The effect of a one-percentage-point increase and the effect
of a one-percentage-point decrease in the assumed health care cost
trend rates on (for purposes of this disclosure, all other
assumptions shall be held constant, and the effects shall be
measured based on the substantive plan that is the basis for the
accounting):
(a) The aggregate of the service and interest cost components of
net periodic postretirement health care benefit cost, and
(b) The accumulated postretirement benefit obligation for health
care benefits.
9. If applicable, the amounts and types of securities of the
employer and related parties included in plan assets, the
approximate amount of future annual benefits of plan participants
covered by insurance contracts issued by the employer or related
parties, and any significant transactions between the employer or
related parties and the plan during the period.
10. If applicable, any alternative amortization method used to
amortize prior service amounts or unrecognized net gains and losses
pursuant to paragraphs 26 and 33 of SFAS No. 87 or paragraphs 53 and
60 of SFAS No. 106.
11. If applicable, any substantive commitment, such as past
practice or a history of regular benefit increases, used as the
basis for accounting for the benefit obligation.
12. If applicable, the cost of providing special or contractual
termination benefits recognized during the period and a description
of the nature of the event.
13. An explanation of any significant change in the benefit
obligation or plan assets not otherwise apparent in the other
disclosures.
B. RUS Telecommunications borrowers that sponsor two or more
pension or postretirement plans may aggregate the required
disclosures. If the disclosures are aggregated, the aggregate
benefit obligation and aggregate fair value of plan assets for plans
with benefit obligations in excess of plan assets must be disclosed.
C. RUS Telecommunications borrowers sponsoring defined
contribution plans shall disclose the amount of cost recognized for
defined contribution pension or other postretirement benefit plans
during the period separately from the amount of cost recognized for
defined benefit plans. The disclosures shall include a description
of the nature and effect of any significant changes during the
period affecting comparability, such as a change in the rate of
employer contributions, a business combination, or a divestiture.
Nonpublic Entities
A. RUS commercial and cooperative type borrowers that meet the
definition of a nonpublic entity, as previously defined, may elect
to meet the following reduced disclosure requirements:
1. The benefit obligation.
2. Fair value of plan assets.
3. Funded status of the plan.
4. Employer contributions.
5. Participant contributions.
6. Benefits paid.
7. The amounts recognized in the statement of financial
position, including the net pension and other postretirement benefit
prepaid assets or accrued liabilities and any intangible asset and
the amount of accumulated other comprehensive income recognized
pursuant to paragraph 37 of SFAS No. 87, as amended.
8. The amount of net periodic benefit cost recognized and the
amount included within
[[Page 25760]]
other comprehensive income arising from a change in the minimum
pension liability recognized pursuant to paragraph 37 of SFAS No.
87, as amended.
9. On a weighted-average basis, the following assumptions used
in the accounting for the plans: Assumed discount rate, rate of
compensation increase (for pay-related plans), and expected long-
term rate of return on plan assets.
10. The assumed health care cost trend rate(s) for the next year
used to measure the expected cost of benefits covered by the plan
(gross eligible charges) and a general description of the direction
and pattern of change in the assumed trend rates thereafter,
together with the ultimate trend rate(s) and when that rate is
expected to be achieved.
11. If applicable, the amounts and types of securities of the
employer and related parties included in plan assets, the
approximate amount of future annual benefits of plan participants
covered by insurance contracts issued by the employer or related
parties, and any significant transactions between the employer or
related parties and the plan during the period.
12. The nature and effect of significant nonroutine events, such
as amendments, combinations, divestitures, curtailments, and
settlements.
B. The majority of RUS Telecommunications borrowers will fall
within the definition of nonpublic entities with exception of those
held by publicly traded holding companies.
Multiemployer Plans
A. An RUS Telecommunications borrower shall disclose the amount
of contributions to multiemployer plans during the period. The
borrower may disclose total contributions to multiemployer plans
without disaggregating the amounts attributable to pensions and
other postretirement benefits. The disclosures shall include a
description of the nature and effect of any changes affecting
comparability, such as a change in the rate of employer
contributions, a business combination, or a divestiture.
B. In some cases, withdrawal from a multiemployer plan results
in an obligation to the plan for a portion of the plan's unfunded
accumulated postretirement benefit obligation. If it is either
probable or reasonably possible that (a) an employer would withdraw
from the plan under circumstances that would give rise to an
obligation or (b) an employer's contribution to the fund would be
increased during the remainder of the contract period to make up a
shortfall in the funds necessary to maintain the negotiated level of
benefit coverage, the employer shall apply the provisions of SFAS
No. 5, Accounting for Contingencies.
Disclosure Matrix
------------------------------------------------------------------------
Public Nonpublic
entities entities
------------------------------------------------------------------------
Change in benefit obligation:
Benefit obligation beginning of year........ X ............
Service Cost................................ X ............
Interest Cost............................... X ............
Actuarial Gain.............................. X ............
Plan Amendments............................. X ............
Benefits Paid............................... X ............
Benefit obligation at end of year........... X X
Change in plan assets:
Fair value of plan assets beginning of year. X ............
Actual return on plan assets................ X ............
Employer Contribution....................... X X
Contributions by plan participants.......... X X
Benefits Paid............................... X X
Fair value of plan assets at end of year.... X X
Funded status:
Unrecognized net actuarial loss (gain)...... X X
Unamortized prior service cost.............. X X
Unrecognized transition obligation.......... X X
Prepaid (Accrued) benefit cost.............. X X
Weighted-average assumptions as of December
31:
Discount rate............................... X X
Expected return on plan assets.............. X X
Rate of compensation increase............... X X
Components of net periodic benefit cost:
Service cost................................ X ............
Interest cost............................... X ............
Expected return on plan assets.............. X ............
Amortization of prior service cost.......... X X
Amortization of transition obligation....... X X
Recognized net actuarial loss............... X X
Net periodic benefit cost................... X X
------------------------------------------------------------------------
[[Page 25761]]
Dated: April 25, 2005.
Curtis M. Anderson,
Acting Administrator, Rural Utilities Service.
[FR Doc. 05-9648 Filed 5-13-05; 8:45 am]
BILLING CODE 3410-15-P