******************************************************** NOTICE ******************************************************** This document was converted from WordPerfect or Word to ASCII Text format. Content from the original version of the document such as headers, footers, footnotes, endnotes, graphics, and page numbers will not show up in this text version. All text attributes such as bold, italic, underlining, etc. from the original document will not show up in this text version. Features of the original document layout such as columns, tables, line and letter spacing, pagination, and margins will not be preserved in the text version. 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: 1600E . . . . . . . RAO Letter 29 . . . . . . . DA 00-265 Adopted: February 11, 2000 Released: February 14, 2000 Responsible Accounting Officer: Re: CAM Attest Requirements for Mid-sized Incumbent Local Exchange Carriers I. Introduction In this Responsible Accounting Officer (RAO) letter, we address the new cost allocation manual (CAM) attest requirements for mid-sized incumbent local exchange carriers (ILECs). Specifically, we establish procedures that will allow us to ensure that the CAM engagements continue to meet our regulatory needs by: (1) requiring submission of the engagement program for our review; (2) establishing standards for and providing a model of carrier assertion letters (See Attachment A); (3) providing a model attest opinion based on the American Institute of Certified Public Accountants' (AICPA) attestation standards (See Attachment B); and (4) establishing procedures for the issuance of further engagement guidance. In the Accounting Reductions Report and Order, the Commission streamlined the CAM audit requirements for mid-sized ILECs by requiring attestation engagements instead of financial audits and by having the engagement performed every two years instead of every year. The independent auditor engaged by the mid-sized ILEC must express a positive opinion that management's assertion regarding its cost allocation procedures is or is not fairly stated, in all material respects. II. Review of Engagement Program To ensure that these engagements continue to provide assurance that carriers comply with the Commission's cost allocation rules and to mitigate the need for costly post-engagement work, each independent auditor must submit its CAM engagement programs for our review at least 30 days prior to the commencement of the engagement. In the event we conclude that additional steps are necessary, we will communicate these additional steps to the independent auditor within 30 days and attempt to minimize the burden of any necessary changes. The auditors may consider the program sufficient to begin the engagement if we have not provided any additional procedures within 30 days. III. Assertion Letter Because the result of an attestation engagement is the independent auditor's opinion that an assertion by management is or is not fairly stated in all material respects, the extent of the auditor's testing depends on management's assertion. For these engagements, the auditor's opinion must state that the results contained in the carrier's ARMIS 43-03 Joint Cost Report (43-03 Joint Cost Report) for the applicable period are an accurate application of the requirements included in section 64.904(b) and are in conformance with its CAM. Therefore, we require that each carrier assert the same, i.e., that the results contained in its 43-03 Joint Cost Report for the applicable period are an accurate application of the requirements included in section 64.904(b) and are in conformance with its CAM. We provide a model assertion in Attachment A. We believe that, consistent with the Accounting Reductions Report and Order's goal of reducing the mid-sized ILECs' audit burden, the assertion should require less testing than that required by a financial audit. The independent auditor, however, must, at a minimum, test that the systems, processes, and procedures applied by the carrier to generate the carrier's 43-03 Joint Cost Report results comply with the Commission's rules and the carrier's CAM. Carriers may also tailor their assertions to reflect their unique operations and circumstances. If a carrier's assertion is different from the model assertion, it must submit the letter to the Accounting Safeguards Division (ASD) for ASD's approval within 30 days of the issuance of this RAO letter. The assertion letter will be considered approved 30 days from the date ASD receives it unless ASD notifies the carrier otherwise. Any subsequent assertion letters that are different from the model and have not already received ASD approval must also be submitted for ASD's approval before the start of the attestation engagement, and will be considered approved 30 days from the date ASD receives it unless ASD notifies the carrier otherwise. In any case, the final assertion letter should be filed with the independent auditor's opinion. IV. Management Representation Letter In a letter separate from its assertion, carrier management must represent that it is responsible for establishing and maintaining internal control structure policies and procedures to provide reasonable assurance that the carrier complies with the section 64.904(b) rules and with its CAM. We note that AICPA standards require that the independent auditor evaluate and test those internal controls. IV. Future Guidance In performing the attestation engagements, the independent auditors must follow ASD's guidance, which will be issued as necessary. This letter is issued pursuant to authority delegated 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 of the date of this letter. If you have any questions, please contact Hugh Boyle at (202) 418-0820 or Jos‚-Luis RodrĄguez at (202) 418-0810. Sincerely, Kenneth P. Moran Chief, Accounting Safeguards Division, Common Carrier Bureau Attachment A Model Assertion Name of Carrier Statement of Cost Allocation System Compliance For the Two Years Ended [date] and [date] Our cost allocation manual, as amended December 31, XXXX, has been filed with the Federal Communications Commission (Commission). The cost allocation manual complies with the Commission rules and regulations mentioned in the paragraph below and provides criteria against which our cost allocation system can be evaluated. The cost allocation system is supported by cost allocation methods that comply with the cost allocation manual and utilizes methods that permit preparation of the attached Automated Reporting Management Information System (ARMIS) 43- 03 Joint Cost Reports, for the years ended [date] and [date] in accordance with the cost allocation manual. The results reported in our ARMIS 43-03 Joint Cost Reports are an accurate application of the Commission's Joint Cost orders issued in conjunction with CC Docket No. 86-111 and the Commission's Accounting Safeguards proceeding in CC Docket No. 96-150 and the Commission's rules and regulations including sections 32.23, 32.27, 64.901 and 64.903 in force during the years ended [date] and [date], and our cost methodologies in place are in conformance with the cost allocation manual filed with the Commission, during the years ended [date] and [date]. [signed by an Officer of the Carrier] Attachment B Model Attest Opinion We have examined management's assertion, included in the accompanying ARMIS 43-03 Joint Cost Reports, that the results reported in [carrier name]'s ARMIS 43-03 Joint Cost Reports are an accurate application of the Commission's Joint Cost orders issued in conjunction with CC Docket No. 86-111 and the Commission's Accounting Safeguards proceeding in CC Docket No. 96-150 and the Commission's rules and regulations including sections 32.23, 32.27, 64.901 and 64.903 in force as of the date of this opinion, and [carrier name]'s cost methodologies in place are in conformance with the cost allocation manual filed with the Commission, during the years ended [date] and [date]. Management is responsible for [carrier name]'s compliance with those requirements. Our responsibility is to express an opinion on management's assertion about [carrier name]'s compliance based on our examination. Our examination was conducted in accordance with attestation standards established by the American Institute of Certified Public Accountants, and as directed by the Chief, Common Carrier Bureau, and, accordingly, included examining, on a test basis, evidence about [carrier name]'s compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe our examination provides a reasonable basis for our opinion. Our examination does not provide a legal determination on [carrier name]'s compliance with specified requirements. In our opinion, management's assertion that the results reported in [carrier name]'s ARMIS 43-03 Joint Cost Report are an accurate application of the aforementioned requirements, and are in conformance with the cost allocation manual filed with the Commission, during the two-year period ended December 31, [XXXX] is fairly stated, in all material respects. This report is intended solely for the information and use of [names of specified parties] and is not intended to be and should not be used by anyone other than these specified parties.