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If you need the complete document, download the WordPerfect version or Adobe Acrobat version, if available. ***************************************************************** Federal Communications Commission Washington, D.C. 20554 In reply refer to: RAO LETTER 24 Released: March 24, 1994 Adopted: March 24, 1994 Responsible Accounting Officers: Re: Accounting for Work Force Reduction Programs Recently, it has come to our attention that there is a lack of uniformity among the carriers in accounting for work force reduction programs under Part 32. Several carriers have announced work force reduction programs in 1993 and have indicated that they plan to record the entire effects on their 1993 SEC Form 10-K filing in conformance with GAAP. Some of these carriers propose to follow this same accounting under Part 32 while others propose to account for these programs under Part 32 as the programs are implemented. The reason for this letter, therefore, is to establish uniformity in accounting for these work force reduction programs and to remind carriers of the Commission's policy with respect to the application of GAAP under Part 32. The accounting reflected herein should be reported in the ARMIS filings that are due at the Commission on or before April 1, 1994. The Commission's policy on GAAP is set forth in Section 32.12(a) of its rules. This Section states that "The company's financial records shall be kept in accordance with generally accepted accounting principles to the extent permitted by this system of accounts." Thus, it is our belief that if a carrier is recording an event for financial reporting purposes pursuant to GAAP, then the carrier should also record this event for Part 32 federal accounting purposes unless Part 32 prohibits the action or we have specifically advised the carrier to do otherwise. The Commission's policy on new GAAP standards is set forth in Section 32.16(a) of its rules. This Section states that "[The company's records and accounts shall be adjusted to apply new accounting standards prescribed by the Financial Accounting Standards Board or successor authoritative accounting standard-setting groups, in a manner consistent with generally accepted accounting principles. Commission approval of a change in accounting standards will automatically take effect 90 days after the company informs this Commission of its intention to follow the new standard, unless the Commission notifies the company to the contrary ...]." The Commission's policy with respect to uniformity of accounting standards for the industry is contained in the GAAP Order. The GAAP Order included the following statements demonstrating our intention to maintain uniformity of accounting standards for telephone companies: To promote the needed consistency and uniformity industrywide to properly carry out our regulatory responsibilities, we are applying the same accounting standards to all carriers. Furthermore, in order to maintain control over the USOA so that uniformity is maintained for all carriers, the Commission will select the accounting method carriers are to use under GAAP when GAAP permits several accounting options. The carriers will use the accounting method selected by the Commission unless we grant them a waiver to do otherwise. Based on the above guidelines, we see no basis for carriers to give accounting recognition to work force reductions for Form 10-K purposes but not for Part 32 purposes. Since Part 32 does not specifically address work force reductions, the proper accounting should be determined by applying the criteria established under GAAP to the circumstances of the work force reduction. We see no way that the same GAAP criteria applied to the same facts can result in accounting recognition under GAAP in one instance and not another. Accordingly, carriers that are showing liabilities, and one-time charges for work force reductions in their 10-K reports for 1993 should reflect the work force reduction in their 1993 ARMIS filings. At the same time, we recognize that Part 32 accounting and reporting may require modification to accommodate the Commission's regulatory needs. We believe that the accounting for work force reductions is such a case. Carriers recording liabilities for work force reductions shall record such amounts in Accounts 4120, Other Accrued Liabilities, and 4360, Other Deferred Credits, for the current and noncurrent portions, respectively, and shall charge Account 7360, Other Nonoperating Income. When the restructuring expenses are actually paid or otherwise require Part 32 recognition (for example, adjustment of the transition benefit obligation for the reductions under SFAS 106), they will be charged to the appropriate Part 32 expense accounts with a credit to cash or other appropriate account. At the same time, the liability established in Accounts 4120 and 4360 will be debited and Account 7360 will be credited. This accounting will recognize the liability consistent with GAAP, will show the effect of the restructuring on net income, and will allow delayed recognition in the regulatory operating accounts until the detailed amounts are known and amounts have actually been paid. The balance in Account 4360 related to these entries should not be deducted from the ratebase because it arose from charges to a below the line account. This letter is issued pursuant to authority delegated under  0.291 of the Commission's Rules, 47 C.F.R.  0.291. Applications for review under Section 1.115 of the Commission's Rules, 47 C.F.R.  1.115, must be filed within 30 days of the date of this letter. See 47 C.F.R.  1.4(b)(2). If you have any questions, please contact the Chief of the Accounting Systems Branch at (202) 418-0810. Sincerely, Kenneth P. Moran Chief, Accounting and Audits Division Common Carrier Bureau