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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 12 Released: April 11, 1988 Responsible Accounting Officers Re: Attestation Audits pursuant to the Joint Cost Order and Joint Cost Reconsideration Order (CC Docket 86-111) In prescribing rules for the separation of costs of regulated telephone services from costs of nonregulated activities, the Federal Communications Commission concluded that independent audits would be an important aid in implementing its commitment to monitor compliance with cost allocation requirements. The Commission further concluded that an appropriate level of assurance would be an examination leading to a positive opinion. Accordingly, the Commission required that each operating company have an independent audit performed annually and that a positive opinion audit report be submitted each year attesting to the accuracy of the carriers' cost allocations as reported to the Commission. In the process of complying with these requirements, questions have been raised regarding the Commission reports to which the auditors' attestation reports will apply, how and when they should be filed, and what the attestation covers. In this RAO letter we are responding to these questions. The auditors' reports should accompany the Report of Annual Revenue Requirement and Joint Cost Data, identified as Appendix C of the ARMIS Order (CC Docket 86-182, 2 FCC Rcd 5770 (1987)), aggregated to the operating company level; and attest to the accuracy of cost allocations reported therein, including the effects of transactions with affiliates. Both the auditors' reports and the Report of Annual Revenue Requirement and Joint Cost Data are to be filed April 1 of each year. In order to facilitate the submission of the attestations by the independent auditors, we have prepared a sample attestation letter designed to provide the assurances the FCC is seeking. The sample letter is intended as a guide and will encompass the requirements of the Joint Cost Order and the Joint Cost Reconsideration Order. The attestation letters will undoubtedly vary according to the circumstances and independent auditors should not view themselves as bound by the literal format of the sample letter. However, at a minimum, the letter should: 1. Identify the operating company entity; 2. Stipulate that the report is prepared for the Federal Communications Commission; 3. Identify the period covered by the report; 4. Stipulate that the report was prepared pursuant to Federal Communications Commission rules for the assignment and allocation of costs between regulated and nonregulated activities and for accounting for transactions with affiliates, including the valuation of assets and services in those transactions; 5. State that the examination was made in accordance with standards established by the American Institute of Certified Public Accountants and included such tests of the underlying records and such other procedures as were considered necessary under the circumstances; 6. Identify the scope and the extent of examination, including any limitations imposed on the scope of the work or extent of the examination by the carrier, its affiliates, or any other circumstances (References should be made here to attached work plans); 7. Provide an opinion of whether or not the methodologies in place are in conformity with the cost allocation manual approved by the Federal Communications Commission, are consistent with the Commission's rules for the assignment and allocation of costs between regulated and nonregulated activities, and are consistent with the accounting for transactions with affiliates, including the valuation of assets and services in those transactions. The opinion should also state whether or not the reported results are an accurate application of those methodologies. This Responsible Accounting Officer letter is issued under Section 0.291 of the Commission's rules. Applications for review under Section 1.115 of the Commission's rules must be filed within 30 days from the date indicated above (See Section 1.4(b)(4) of the Commission's rules). Sincerely, Kenneth P. Moran Chief, Accounting and Audits Division Attachment To: Secretary Federal Communications Commission We have examined the accompanying Report of Annual Revenue Requirement and Joint Cost Data for (Carrier Name), which was prepared for the Federal Communications Commission. The accompanying Report for the period ended (Date), was prepared pursuant to Federal Communications Commission rules for assignment and allocation of costs between regulated and nonregulated activities and for accounting for transactions with affiliates (47 CFR Sections 32.14, 32.23, and 32.27; and Section 64.901). Our examination was made in accordance with standards established by the American Institute of Certified Public Accountants and included such tests of the underlying records and such other procedures as we considered necessary under the circumstances. [Exceptions, if any]. These tests and procedures included ... [statement of scope and the extent of examination and any limitations on either the scope or the extent of the examination] [Reference should be made to attached work plans]. In our opinion, the methodologies in place are in conformity with the cost allocation manual approved by the Federal Communications Commission [Exceptions] and are consistent with the Commission's rules for the assignment and allocation of costs between regulated and nonregulated activities and for accounting for transactions with affiliates, including the valuation of assets and services in those transactions. The results contained in the accompanying report showing the separation of costs between regulated and nonregulated activities of (Carrier Name) are an accurate application of those methodologies.