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a< X   (  T-  #&J\  P6Q#{&P#Federal Communications Commission`~(#2DA 881060 ă  yx}dddy(l #^\  P6Q,P# Federal Communications Commission #&J\  P6Q#{&P#у  Y-%#XP\  P6Q[hXP#Washington, D.C. 20554#&J\  P6Q#{&P#у  T-`(#R#&J\  P6Q#{&P# In reply refer to:  Ys-U #XP\  P6Q[hXP#RAO Letter 12 (#  X.-" Released: July 18, 1988 (# (#\ Responsible Accounting Officers Re: Attestation Audits pursuant to the Joint Cost Order and Joint Cost Reconsideration Order (CC Docket 86-111)     v As originally issued on April 11, 1988, RAO Letter No. 12 noted that in prescribing  d(#rules for the separation of costs of regulated telephone services from costs of nonregulated  d(#activities, the Federal Communications Commission had concluded independent audits would be  d(#an important aid in implementing its commitment to monitor compliance with cost allocation  d(#;requirements. It also noted the Commission's conclusion that an appropriate level of assurance  d(#would be an examination leading to a positive opinion. Further, it noted the Commission's  d(#requirements that each operating company have an independent audit performed annually and  d(#that a positive opinion audit report be submitted each year attesting to the accuracy of the  d(#carrier's cost allocations as reported to the Commission. RAO Letter No. 12 responded to  d(#questions that had been raised regarding the Commission reports to which the auditors'  d(#attestation reports would apply, how and when they should be filed, and what the attestation  Y-would cover.  v On May 12, 1988, the United States Telephone Association (USTA) requested  d(#reconsideration of several phrases in one of the seven items we identified among the minimum requirements for acceptable attestation letters.  v The major issue raised in USTA's request was whether the independent auditors are  d(#hresponsible for (a) ascertaining that the accounting underlying the reports is consistent with the  d(#JCommission's joint cost rules generally, or (b) consistent with the FCC approved cost manuals.  YZ- d(#USTA cited paragraph 253 of the Joint Cost Order as evidence of the Commission's intention  d(#I to have the attestation apply to whether carrier accounting was consistent with the FCC approved  d(#manuals, as opposed to whether the manuals reflected the Commission's cost allocation rules.  Y- d(#[Further, USTA cited paragraph 186 of the Order on Reconsideration as evidence that the  d(#+ Commission did not want auditors to duplicate the manual review process the Commission would  d(#-be performing. Specifically, USTA requests that we delete several phrases from the seventh  d(#Krequirement on page 2 of RAO Letter No. 12, as originally issued. We have enclosed these phrases in brackets and repeated the seventh requirement in its entirety below:  (   O =XX 7. Provide an opinion whether or not the methodologies in place are in  O =conformance with the cost allocation manual approved by the Federal  O =Communications Commission, [are consistent with the Commission's rules for  O =Qthe assignment and allocation of cost between regulated and nonregulated  O =@activities and are consistent with the accounting for transactions with affiliates,  O =including the valuation of assets and services in those transactions.] The"p),**UU--"  O =Bopinion should also state whether or not the report results are an accurate application of those methodologies.(#  (   v It was always the intention in RAO Letter No. 12, to have the independent auditors verify  d(#compliance with cost manuals the Commission has approved. In RAO Letter No. 12, as  d(#originally issued, reference to the Commission's Docket 86-111 rules was intended to emphasize  d(#that we wanted independent auditors to be responsible for transactions with affiliates, as well as  d(#Ythe assignment and allocation of costs between regulated and nonregulated activities conducted  d(#within the same corporate entity. Essentially the same results can be accomplished if, during  d(#Zthe process of reviewing the cost manuals, we assure ourselves that affiliate transactions are  d(#adequately covered and the accounting methodology described is consistent with the  d(#Commission's rules for affiliate transactions. We believe our reviews of the cost manuals to  d(#date have accomplished this result and we plan to continue this process. As we see it, this  d(#leaves as the next logical step, verification that the actual practice matches the description of the accounting methodology in the cost manual.   v =The auditors' reports should accompany the Report of Annual Revenue Requirement and  Y- d(#Joint Cost Data, identified as Appendix C of the ARMIS Order (CC Docket 86-182, 2 FCC Rcd  d(#5770 (1987), aggregated to the operating company level; and should attest to the accuracy of  d(#cost allocations reported therein, including the effects of transactions with affiliates. Both the  d(#Jauditors' reports and the Report of Annual Revenue Requirement and Joint Cost Data are to be filed April 1 of each year.  v In order to facilitate the submission of the attestations by the independent auditors, we  d(#whave prepared a sample attestation letter designed to provide the assurances the FCC is seeking.  Y- d(#The sample letter is intended as a guide and will encompass the requirements of the Joint Cost  Yr- d(#Order and the Joint Cost Reconsideration Order. The attestation letters will undoubtedly vary  d(#Jaccording to the circumstances, and independent auditors should not view themselves as bound  d(#,by the literal format of the sample letter which we have amended pursuant to the discussion in this letter. At a minimum the letter should: ` `  Y}-1. Identify the operating company entity; ` `  Y7-2.XStipulate that the report is prepared for the Federal Communications Commission;(#  Y-3. XIdentify the period covered by the report;(# ` `  Y!- v 4.XStipulate that the report was prepared pursuant to Federal Communications Commission  v rules for the assignment and allocation of costs between regulated and nonregulated  v activities and for accounting for transactions with affiliates, including the valuation of assets and services in those transactions;(#  Y%- v 5.XState that the examination was made in accordance with standards established by the  v American Institute of Certified Public Accountants and included such tests of the  v >underlying records and such other procedures as were considered necessary under the"',C)C)UU +" circumstances;(#  Y- v 6. XIdentify the scope and the extent of examination, including any limitations imposed on  v the scope of work or extent of the examination by the carrier, its affiliates, or any other circumstances (References should be made here to attached work plans);(#  Y.- v 7.XProvide an opinion of whether the methodologies in place are in conformity with the cost  v manual approved by the Federal Communications Commission. The opinion should also state whether the reported results are an accurate application of those methodologies.(#     v This Responsible Accounting Officer letter supersedes RAO Letter No. 12, as issued  d(#April 11, 1988 and is issued under Section 0.291 of the Commission's rules. Applications for  d(#review under Section 1.115 of the Commission's rules must be filed within 30 days from the  Y9 -release date indicated above (See Section 1.4(b)(4) of the Commission's rules). ` `  hhCqppSincerely,   ` `  hhCq ` `  hhCqppKenneth P. Moran ` `  hhCqppChief, Accounting and Audits Division Attachment",C)C)UU" -YATTACHMENT  Y-To: Secretary Federal Communications Commission     N` ` We have examined the accompanying Report of Annual Revenue Requirement and  Y - d(#Joint Cost Data for (Carrier Name), which was prepared for the period ended (Date), pursuant  d(#to Federal Communications Commission rules for assignment and allocation of costs between  d(#regulated and nonregulated activities and for accounting for transactions with affiliates (47 CFR  d(#Sections 32.14, 32.23, and 32.27; and Section 64.901). Our examination was made in  d(#accordance with standards established by the American Institute of Certified Public Accountants  d(#and included such tests of the underlying records and such other procedures as we considered  d(#necessary under the circumstances [except for ...]. These tests and procedures included ...  d(#h[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 consistent with the cost manual  d(#approved by the Federal Communications Commission [except for ...]. The results contained  d(#in the accompanying report showing the separation of costs between regulated and nonregulated  YD-activities of (Carrier Name) are an accurate application of those methodologies. ` `  hhCqppSignature