7 CFR 1773 Policy on Audits of RUS Borrowers

Pt. 1773

7 CFR Ch. XVII (1–1–17 Edition)
1773.11–1773.19

DISCLOSURE MATRIX—Continued

Interest Cost ..............................
Actuarial Gain ............................
Plan Amendments .....................
Benefits Paid .............................
Benefit obligation at end of year
Change in plan assets:
Fair value of plan assets beginning of year ............................
Actual return on plan assets .....
Employer Contribution ...............
Contributions by plan participants ......................................
Benefits Paid .............................
Fair value of plan assets at end
of year ....................................
Funded status:
Unrecognized net actuarial loss
(gain) ......................................
Unamortized prior service cost ..
Unrecognized transition obligation .........................................
Prepaid (Accrued) benefit cost ..
Weighted-average assumptions
as of December 31:
Discount rate .............................
Expected return on plan assets
Rate of compensation increase
Components of net periodic
benefit cost:
Service cost ...............................
Interest cost ...............................
Expected return on plan assets
Amortization of prior service
cost ........................................
Amortization of transition obligation .........................................
Recognized net actuarial loss ...
Net periodic benefit cost ...........

Public
entities

Nonpublic
entities

X
X
X
X
X

Subpart C—RUS Requirements for the Submission and Review of the Auditor’s
Report, Report on Compliance and on
Internal Control Over Financial Reporting, and Management Letter

X

X
X
X

X

X
X

X
X

X

X

1773.20 CPA’s submission of the auditor’s report, report on compliance, report on
compliance and on internal controls over
financial reporting, and management letter.
1773.21 Borrower’s review and submission of
the auditor’s report, report on compliance and on internal control over financial reporting, and management letter.
1773.22–1773.29 [Reserved]

X
X

X
X

X
X

X
X

X
X
X

X
X
X

Subpart D—RUS Reporting Requirements
1773.30 General.
1773.31 Auditor’s report.
1773.32 Report on compliance and on internal control over financial reporting.
1773.33 Management letter.
1773.34–1773.37 [Reserved]

Subpart E—RUS Required Audit Procedures
and Documentation
1773.38 Scope of engagement.
1773.39 Utility plant and accumulated depreciation.
1773.40 Regulatory assets.
1773.41 Extraordinary retirement losses.
1773.42 Clearing accounts.
1773.43 Capital and equity accounts.
1773.44 Long-term debt.
1773.45 Regulatory liabilities.
1773.46–1773.49 [Reserved]

X
X
X
X

X

X
X
X

X
X
X

[61 FR 39847, July 31, 1996, as amended at 70
FR 25758, May 16, 2005]

PART 1773—POLICY ON AUDITS OF
RUS BORROWERS

AUTHORITY: 7 U.S.C. 901 et seq., 1921 et seq.,
6941 et seq.
SOURCE: 56 FR 63360, Dec. 3, 1991, unless
otherwise noted.
EDITORIAL NOTE: Nomenclature changes to
part 1773 appear at 63 FR 38722, July 17, 1998.

Subpart A—General Provisions
Sec.
1773.1
1773.2

Subpart A—General Provisions

General.
Definitions.

Subpart B—RUS Audit Requirements

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[Reserved]

1773.3 Annual audit.
1773.4 Borrower responsibilities.
1773.5 Qualifications of CPA.
1773.6 Auditor communication.
1773.7 Audit standards.
1773.8 Audit date.
1773.9 Disclosure of fraud, illegal acts, and
other noncompliance.
1773.10 Access to audit-related documents.

§ 1773.1 General.
(a) This part implements those standard provisions of the security instrument utilized by the Rural Utilities
Service (RUS) for both electric and
telecommunications borrowers and by
the Rural Telephone Bank (RTB) for
its telecommunications borrowers. The
provisions require borrowers to prepare
and furnish to RUS, at least once during each 12-month period, a full and
complete report of its financial condition, operations, and cash flows, in

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Rural Utilities Service, USDA

§ 1773.2

form and substance satisfactory to
RUS, audited and certified by an independent certified public accountant
(CPA), satisfactory to RUS, and accompanied by a report of such audit, in
form and substance satisfactory to
RUS.
(b) This part 1773 applies to both RUS
and RTB borrowers. For the purposes
of RTB borrowers, as used in this part
1773, RUS means RTB and Administrator
means Governor unless the text indicates otherwise.
(c) This complies with the 1994 revision of Government Auditing Standards, issued by the Comptroller General of the United States, United
States General Accounting Office, including amendments dated May 13,
1999, and July 30, 1999.
(d) An auditor’s report, report on
compliance and on internal control
over financial reporting, and management letter are required to meet the
reporting provisions of the RUS security instrument.
(1) The auditor’s report must state
that the audit was conducted in accordance with generally accepted government auditing standards (GAGAS).
(2) The management letter must
state that the audit was conducted in
accordance with this part.
(3) A report of the audit, in form and
substance satisfactory to RUS, cannot
be issued unless and until an audit has
been performed in accordance with
GAGAS and this part.
(4) A borrower is in violation of provisions of its security instrument with
RUS if the borrower fails to provide an
audit performed in compliance with
GAGAS and this part. RUS security instruments normally provide for notice
and an opportunity to cure such violations before RUS can exercise certain
remedies.
(5) A report prepared in connection
with a review or compilation of financial statements, as defined in Statement of Standards for Accounting and
Review Services No. 1, Compilation and
Review of Financial Statements, does
not satisfy the requirements of the
RUS security instrument.
(6) A report, as described in Statement on Auditing Standards (SAS) No.
62, entitled ‘‘Special Reports’’, or in
SAS No. 75, entitled ‘‘Engagements to

Apply Agreed-upon Procedures to Specified Elements, Accounts, or Items of a
Financial Statement’’, does not satisfy
the RUS loan security instrument requirements.
(7) An annual report containing audited financial statements does not
satisfy the RUS security instrument
requirements.
(e) This part further implements
those provisions of the standard RUS
security instrument by setting forth
the criteria for CPAs to be deemed satisfactory to RUS and the audit procedures and documentation standards
that must be performed before a report
of the audit satisfactory to RUS can be
prepared and issued.
[56 FR 63360, Dec. 3, 1991, as amended at 61
FR 107, Jan. 3, 1996; 66 FR 27835, May 21, 2001]

§ 1773.2

Definitions.

As used in this part:
AA-PARA means Assistant Administrator, Program Accounting and Regulatory Analysis.
Administrator means the Administrator of RUS and, as provided in
§ 1773.2 (b), Governor.
AICPA means the American Institute
of Certified Public Accountants.
Audit means an examination of financial statements by an independent CPA
for the purpose of expressing an opinion on the fairness with which those
statements present financial position,
results of operations, and changes in
cash flows in conformity with generally accepted accounting principles
(GAAP) and for determining whether
the borrower has complied with applicable laws, regulations, and contracts
for those transactions and events reflected in the financial statements.
Borrower means an entity that has an
outstanding RUS, RTB, or FFB loan or
loan guarantee, or that has received a
grant for electric, telecommunications,
distance learning, or telemedicine purposes under the act.
CPA means certified public accountant. The terms CPA and CPA firm are
used interchangeably.
FFB means the Federal Financing
Bank, an instrumentality and wholly
owned corporation of the United
States.

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§ 1773.3

7 CFR Ch. XVII (1–1–17 Edition)

Fraud has the same meaning prescribed in SAS No. 82 entitled ‘‘Consideration of Fraud in Financial Statements’’.
GAAP means generally accepted accounting principles.
GAGAS means generally accepted
government auditing standards as set
forth in Government Auditing Standards, Standards for Audit of Governmental Organizations, Programs, Activities, and Functions, issued by the
Comptroller General of the United
States.
GAO means the General Accounting
Office.
Governor means the Governor of the
RTB.
Illegal act has the meaning prescribed
in SAS No. 54, entitled ‘‘Illegal Acts by
Clients’’.
OIG means the Office of Inspector
General, United States Department of
Agriculture.
OMB means the Office of Management and Budget.
Regulatory asset means an asset resulting from an action of a regulator as
prescribed in Statement of Financial
Accounting Standards (SFAS) No. 71,
entitled ‘‘Accounting for the Effects of
Certain Types of Regulation’’.
Regulatory liability means a liability
imposed on a regulated enterprise by
an action of a regulator as prescribed
in SFAS No. 71, entitled ‘‘Accounting
for the Effects of Certain Types of Regulation’’.
Related party has the meaning prescribed in SFAS No. 57, entitled ‘‘Related Party Disclosures’’.
Related party transaction has the
meaning prescribed in SFAS No. 57, entitled ‘‘Related Party Disclosures’’.
Reportable condition has the meaning
prescribed in SAS No. 60, entitled
‘‘Communication of Internal Control
Structure Related Matters Noted in an
Audit’’.
RTB means the Rural Telephone
Bank.
RUS means the Rural Utilities Service, an agency of the United States Department of Agriculture established
pursuant to Section 232 of the Federal
Crop Insurance Reform and Department of Agriculture Reorganization
Act of 1994 (Pub. L. 103–354, 108 Stat.
3178), successor to REA with respect to

administering certain electric and telecommunications programs. See 7 CFR
1700.1.
RUS Bulletin 1773–1, Policy on Audits
of RUS Borrowers, is a publication prepared by RUS that contains the RUS
regulation 7 CFR part 1773 and exhibits
of sample audit reports, financial
statements, and a management letter
used in preparing audit of RUS borrowers. This bulletin is available from
USDA, Rural Utilities Service, Program Development and Regulatory
Analysis, 1400 Independence Ave., SW.,
Stop 1522, Washington, DC 20250, or
available on the internet at http://
www.usda.gov/rus/.
SAS means Statement on Auditing
Standards as prescribed by the AICPA.
SEC Practice Section means the Securities and Exchange Commission Practice Section of the AICPA.
SFAS means Statements of Financial
Accounting Standards as prescribed by
the Financial Accounting Standards
Board.
State means any state or territory of
the United States, or the District of
Columbia.
Uniform System of Accounts means, for
telecommunications borrowers, the
Uniform System of Accounts for Telecommunications Companies, prescribed
by the Federal Communications Commission and published at 47 CFR part
32, as supplemented by RUS pursuant
to 7 CFR part 1770, Accounting Requirements for RUS Telephone Borrowers, subpart B, Uniform System of
Accounts, and for electric borrowers,
as contained in 7 CFR part 1767, Accounting Requirements for RUS Electric Borrowers, subpart B, Uniform
System of Accounts.
[56 FR 63360, Dec. 3, 1991, as amended at 59
FR 66440, Dec. 27, 1994; 60 FR 2874, Jan. 12,
1995; 63 FR 38722, July 17, 1998; 66 FR 27835,
May 21, 2001]

Subpart B—RUS Audit
Requirements
§ 1773.3 Annual audit.
(a) Each borrower must have its financial statements audited annually
by a CPA selected by the borrower and
approved by RUS as set forth in § 1773.4.
(b) Each borrower must establish an
annual as of audit date within twelve

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Rural Utilities Service, USDA

§ 1773.4

months of the date of receipt of the
first advance of funds from grants and
insured and guaranteed loans approved
by RUS and RTB and must prepare financial statements as of the date established.
(c) Until all loans made or guaranteed by RUS have been repaid, the borrower must furnish three copies of the
auditor’s report, report on compliance
and on internal control over financial
reporting, and management letter to
RUS within 120 days of the as of audit
date.
(d) A borrower that qualifies as a
unit of state or local government or Indian tribe as such terms are defined in
the Single Audit Act of 1984 (31 U.S.C.
7501 et seq.), the Single Audit Act
Amendments of 1996 (31 U.S.C. 7505 et
seq.) and OMB Circular A–133, Audits of
States and Local Government, and Non
Profit Organizations (which applies for
audits of fiscal years beginning prior to
December 26, 2014) and Subpart F of 2
CFR 200, Uniform Administrative Requirements, Cost Principles, and Audit
Requirements, as adopted by USDA
though 2 CFR 400 (which applies for fiscal years beginning on or after December 26, 2014) must comply with this part
as follows:
(1) A borrower that expends $500,000
under OMB Circular A–133 (for audits of
fiscal years beginning prior to December 26, 2014) and $750,000 under Subpart
F of 2 CFR part 200, as adopted by
USDA through 2 CFR part 400 (for audits for fiscal years beginning after December 26, 2014) or more in a year in
Federal awards must have an audit performed and submit an auditor’s report
meeting the requirements of the respective Single Audit Act requirements
(2) An entity with loans less than
$500,000 under OMB Circular A–133 (for
audits of fiscal years beginning prior to
December 26, 2014) and $750,000 under
Subpart F of 2 CFR part 200, as adopted
by USDA through 2 CFR part 400 (for
audits for fiscal years beginning on or
after December 26, 2014) in Federal
awards during the year must have an
audit performed in accordance with the
requirements of this part.
(3) A borrower must notify RUS, in
writing, within 30 days of the as of
audit date, of the total Federal awards
expended during the year and must

state whether it will have an audit performed in accordance with OMB Circular A–133 (for audits of fiscal years
beginning prior to December 26, 2014) or
Subpart F of 2 CFR part 200, as adopted
by USDA through 2 CFR part 400 (for
audits for fiscal years beginning on or
after December 26, 2014) or this part.
(i) A borrower that elects to comply
with this part must select a CPA that
meets the qualifications set forth in
§ 1773.5.
(ii) If an audit is performed in accordance with OMB Circular A–133 (for
audits of fiscal years beginning prior to
December 26, 2014) or Subpart F of 2
CFR part 200, as adopted by USDA
through 2 CFR part 400 (for audits for
fiscal years beginning after December
26, 2014, an auditor’s report that meets
the requirements of the respective single Audit Act requirements, will be sufficient to satisfy that borrower’s obligations under this part.
(e) OMB Circular A–133 and Subpart
F of 2 CFR part 200, as adopted by
USDA through 2 CFR part 400 do not
apply to audits of RUS electric and
telecommunications cooperatives and
commercial telecommunications borrowers.
[56 FR 63360, Dec. 3, 1991, as amended at 59
FR 659, Jan. 6, 1994; 63 FR 38722, July 17, 1998;
66 FR 27835, May 21, 2001; 79 FR 76004, Dec. 19,
2014]

§ 1773.4

Borrower responsibilities.

(a) Selection of a qualified CPA. The
borrower’s board of directors is responsible for the selection of a qualified
CPA that meets the requirements set
forth in § 1773.5. When selecting a CPA,
the borrower should consider, among
other matters:
(1) The qualifications of CPAs available to do the work;
(2) The CPA’s experience in performing audits of utilities; and
(3) The CPA’s ability to complete the
audit and submit the reports and management letter within 90 days of the as
of audit date.
(b) Board approval of selection. The
board’s approval of a CPA must be recorded by a board resolution that
states:
(1) The CPA meets RUS’s qualifications to perform an audit; and

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§ 1773.5

7 CFR Ch. XVII (1–1–17 Edition)

(2) The borrower and CPA will enter
into an audit agreement in accordance
with § 1773.6.
(c) Notification of selection. When the
initial selection or subsequent change
of a CPA by a borrower has been made,
the borrower must notify RUS, in writing, at least 90 days prior to the as of
audit date.
(1) RUS will notify the borrower, in
writing, within 30 days of the date of
receipt of such notice, if the selection
or change in CPA is not satisfactory.
(2) Notification to RUS that the same
CPA has been selected for succeeding
audits of the borrower’s financial
statements is not required; however,
the procedures outlined in this part
must be followed for each new CPA selected, even though such CPA may previously have been approved by RUS to
audit records of other RUS borrowers.
Changes in the name of a CPA firm are
considered to be a change in the CPA.
(d) Audit engagement letter. The borrower must enter into an audit engagement letter with the CPA that complies with § 1773.6.
(e) Debarment certification. The borrower is responsible for the receipt,
from the selected CPA, of a lower tier
covered transaction certification, as
required under the provisions of Executive Orders 12549 and 12689, Debarment
and Suspension, and any rules or regulations issued thereunder.
(f) Submission of auditor’s report. The
borrower must submit to RUS the required auditor’s report, report on compliance and on internal control over financial reporting, and management
letter as set forth in § 1773.21.
(1) An annual auditor’s report, report
on compliance and on internal control
over financial reporting, and management letter that fail to meet the requirements detailed in this part will be
returned to the borrower with a written explanation of noncompliance.
(2) The borrower must, within 60 days
of the date of the letter detailing the
noncompliance, submit corrected reports to RUS.
(3) If corrected reports are not received within 60 days of the date of the
letter detailing the noncompliance,
RUS may notify the borrower that a
default has occurred under its security
instrument or take other appropriate

action. The default notice will set forth
the period of time during which the default will be remedied.
(g) Submission of plan of corrective action. The borrower must submit written comments to RUS on the findings
and recommendations in the auditor’s
report, report on compliance and on internal control over financial reporting,
and management letter. The borrower
must also submit to RUS:
(1) A written plan for corrective action taken or planned; and
(2) Comments on the status of corrective action taken on previously reported findings and recommendations.
If corrective action is not necessary,
a written statement describing the reason it is not should accompany the
auditor’s report.
[56 FR 63360, Dec. 3, 1991, as amended at 66
FR 27835, May 21, 2001]

§ 1773.5 Qualifications of CPA.
For purposes of the RUS standard security instrument, any CPA that meets
the qualifications criteria of this section and enters into an audit agreement with the borrower that complies
with § 1773.6, will be considered satisfactory to RUS.
(a) Certification. The accountant that
audits the financial statements of an
RUS borrower must be a CPA in good
standing of some state. The CPA does
not have to be licensed by the state in
which the borrower is located; however, the CPA must abide by the rules
and regulations of professional conduct
promulgated by the accountancy board
of the state in which the borrower is
located.
(b) Independence. The CPA must be
independent. A CPA will be considered
independent if the CPA:
(1) Meets the standards for independence contained in the AICPA Code of
Professional Conduct in effect at the
time the CPA’s independence is under
review;
(2) Does not have and has not had any
direct financial interest or any material indirect financial interest in the
borrower during the period covered by
the audit; and
(3) Is not and was not, during the period under audit, connected with the
borrower as a promoter, underwriter,
trustee, director, officer, or employee.

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§ 1773.5

(c) Peer review requirement. The CPA
must belong to and participate in a
peer review program, and must have
undergone a satisfactory peer review of
the accounting and audit practice conducted by an approved peer review program under paragraph (c)(4) of this section, unless a waiver is granted under
paragraph (c)(7) of this section. The reviewing organization must not be affiliated with or have had its most recent peer review conducted by the organization currently being reviewed
(reciprocal reviews). After the initial
peer review has been performed, the
CPA must undergo a peer review of the
accounting and audit practice within 36
months of the issuance of the previous
peer review or at such additional times
as designated by the peer review executive committee.
(1) A CPA that receives an unqualified peer review report will be satisfactory to RUS provided that the CPA
meets the other criteria set forth in
this section.
(2) If a CPA receives a qualified or
adverse peer review report, the CPA
must undergo a second peer review
within 18 months of the date of the
qualified or adverse report. A CPA that
receives an unqualified second peer review report will be satisfactory to RUS
provided that the CPA meets the other
criteria set forth in this section.
(3) A CPA that receives a second
qualified or adverse peer review report
will not be satisfactory to RUS.
(4) Approved peer review programs. The
following peer review programs are approved by RUS:
(i) The peer review programs conducted by the AICPA;
(ii) The peer review program conducted by the regulated audit program
group of the National Conference of
CPA Practitioners; and
(iii) An independent peer review program that, in RUS’s determination, requires its members to:
(A) Ensure that the CPA can legally
engage in the practice of certified public accounting;
(B) Adhere to the quality control
standards established by the AICPA;
(C) Submit to peer reviews of the
CPA’s accounting and audit practice
every 36 months or at such additional

times as designated by its own executive committee; and
(D) Ensure that all professionals in
the firm, including CPAs and nonCPAs,
take part in the qualifying continuing
professional education requirements of
GAGAS, as set forth in paragraphs
(c)(4)(iii)(D)(1) and (c)(4)(iii)(D)(2). A
qualified continuing professional education course is one which meets the
standards of the AICPA.
(1) An auditor responsible for planning, directing, conducting, or reporting on government audits must complete, every two years, at least eighty
hours of continuing education and
training which contributes to the auditor’s professional proficiency. At least
twenty hours must be completed in any
one year of the two-year period; and
(2) An individual responsible for planning, directing, and conducting substantial portions of the field work, or
reporting on the government audit
must complete at least 24 of the 80
hours of continuing education and
training in subjects directly related to
the government environment and to
government auditing. If the audited entity operates in a specific or unique environment, auditors must receive
training that is related to that environment.
(5) Submission of reports. The CPA
must submit to the Assistant Administrator, Program Accounting and Regulatory Analysis, a copy of any peer review report and accompanying letter of
comment, if any, within 60 days of the
date such report and letter of comment
are released by the peer review group.
(i) If the peer review report indicates
that a follow-up review will be made,
the CPA must submit subsequent reports to the Assistant Administrator,
Program Accounting and Regulatory
Analysis, within 60 days of the date
such reports are released by the peer
review group.
(ii) A peer review report must be submitted to the Assistant Administrator,
Program Accounting and Regulatory
Analysis, at least once every 36
months, or more frequently, if required
by the peer review program.
(iii) A copy of the peer review report,
accompanying letter of comment, and
the partners’ inspections must be made
available to OIG, upon request.

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§ 1773.6

7 CFR Ch. XVII (1–1–17 Edition)

(6) Waiver of the peer review requirement. (i) A CPA may request that the
Administrator, RUS, waive the peer review requirement. To be eligible for a
waiver, the following criteria must be
met:
(A) The firm has been in existence for
less than 1 year from the date of the request and has not been previously organized under a different name;
(B) One of the partners organizing
the firm has previously, within 18
months preceding the request, worked
for a firm that has been peer reviewed
and the partner was partner-in-charge
of audits of RUS borrowers in the previous firm;
(C) The firm has enrolled in an approved peer review program; and
(D) The firm agrees to have the peer
review conducted within 18 months of
the date of the RUS waiver.
(ii) Waiver requests must address
each of the criteria in paragraph
(c)(7)(i) of this section and should be
submitted to the Assistant Administrator, Program Accounting and Regulatory Analysis’.

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[56 FR 63360, Dec. 3, 1991, as amended at 61
FR 107, Jan. 3, 1996; 63 FR 38722, July 17, 1998;
66 FR 27835, May 21, 2001]

§ 1773.6 Auditor communication.
(a) During the planning stages of a financial statement audit, GAGAS and
AICPA standards require the auditor to
communicate certain information regarding the nature and extent of testing and reporting on compliance with
laws and regulations and internal control over financial reporting. The communication must include the nature of
any additional testing of compliance
and internal control required by laws
and regulations or otherwise requested,
and whether the auditors are planning
to provide opinions on compliance with
laws and regulations and internal control over financial reporting. This communication must take the form of an
audit engagement letter prepared by
the CPA and formally accepted by the
board of directors or an audit committee representing the board of directors. The engagement letter must also
encompass those items prescribed in
SAS 83, entitled ‘‘Establishing an Understanding with the Client’’. It must
also include the following:

(1) The borrower and the CPA acknowledge that the audit is being performed and the auditor’s report, report
on compliance and on internal control
over financial reporting, and management letter is being issued in order to
enable the borrower to comply with the
provisions of RUS’s security instrument;
(2) The borrower and CPA acknowledge that RUS will consider the borrower to be in violation of its security
instrument with RUS if the borrower
fails to have an audit performed and
documented
in
compliance
with
GAGAS and this part;
(3) The CPA represents that he/she
meets the requirements under this part
to be satisfactory to RUS;
(4) The CPA will perform the audit
and will prepare the auditor’s report,
report on compliance and on internal
control over financial reporting, and
management letter in accordance with
the requirements of this part;
(5) The CPA will document the audit
work performed in accordance with
GAGAS, the professional standards of
the AICPA, and the requirements of
this part;
(6) The CPA will make all audit-related documents, including auditor’s
reports, workpapers, and management
letters available to RUS or its representatives (OIG and GAO), upon request,
and
will
permit
the
photocopying of all audit-related documents; and
(7) The CPA will follow the requirements of reporting fraud and illegal
acts as outlined in § 1773.9.
(b) The audit agreement may include
such additional terms and conditions
as the CPA and borrower deem appropriate, including, but not limited to:
(1) The CPA will report all audit findings to the board of directors as required in § 1773.20(b); and
(2) The auditor’s report, report on
compliance, report on compliance and
on internal controls over financial reporting, and management letter with
copies for transmittal to RUS, and supplemental lenders, if applicable, will be
submitted to the borrower’s board of
directors within 90 days of the as of
audit date;

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Rural Utilities Service, USDA

§ 1773.9

(c) A copy of the audit agreement
must be available at the borrower’s office for inspection by RUS personnel.
One copy of the current audit agreement must be maintained in the CPA’s
workpapers or permanent file.
[56 FR 63360, Dec. 3, 1991, as amended at 61
FR 108, Jan. 3, 1996; 63 FR 38722, July 17, 1998;
66 FR 27835, 27836, May 21, 2001]

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§ 1773.7

Audit standards.

(a) The audit must be performed in
accordance with GAGAS and this part.
The audit must be performed in accordance with GAGAS in effect at the audit
date unless the borrower is directed
otherwise, in writing, by RUS.
(b) The audit must include such tests
of the accounting records and such
other auditing procedures that are sufficient to enable the CPA to express an
opinion on the financial statements
and to issue the required report on
compliance and on internal control
over financial reporting and the management letter.
(c) Audit scope limitation. (1) The borrower will not limit the scope of the
audit to the extent that the CPA is unable to meet RUS’s audit requirements
or to provide an unqualified opinion
that the financial statements are presented fairly in conformity with
GAAP.
(2) The security instrument provision
requiring the submission of a report of
the audit is not satisfied if the CPA
must qualify the opinion in the auditor’s report due to limitations placed
on the scope of the audit by the borrower.
(3) If the CPA determines during the
audit that an unqualified opinion cannot be issued due to a scope limitation
imposed by the borrower, the CPA
should use professional judgment to determine what levels of the borrower’s
management should be informed.
(4) After informing the borrower’s
management, if the scope limitation is
not adequately resolved, the CPA
should immediately contact the AAPARA, RUS, U.S. Department of Agriculture, Washington, DC 20250–1523. The
AA-PARA will endeavor to resolve the
matter with the borrower.
[56 FR 63360, Dec. 3, 1991, as amended at 66
FR 27836, May 21, 2001]

§ 1773.8

Audit date.

(a) The annual audit must be performed as of the end of the same calendar month each year unless prior approval to change the as of audit date is
obtained, in writing, from RUS.
(1) A borrower may request a change
in the as of audit date by writing to
the AA-PARA at least 60 days prior to
the newly requested as of audit date.
(2) The time period between the prior
as of audit date and the newly requested as of audit date must be no
longer than twenty-four months. For
example, a borrower that wishes to
change its as of audit date from December 31, 20X1, to June 30, must make
the change effective no later than June
30, 20X3.
(b) Comparative financial statements
must be prepared and audited for the
twelve months ending as of the new
audit date and for the twelve months
immediately preceding that period.
(c) A borrower that changes its as of
audit date from December 31, 20X1, to
June 30, 20X3, must have the CPA report on statements in the following
manner:
Previously issued statements
12/31/20X1; 12/31/20X0
(Statement need not be reissued).

Statements prepared as of
new audit date
6/30/20X3; 6/30/20X2.

[ 56 FR 63360, Dec. 3, 1991, as amended at 66
FR 27835, 27836, May 21, 2001]

§ 1773.9 Disclosure of fraud, illegal
acts, and other noncompliance.
(a) In accordance with GAGAS, the
auditor must design the audit to provide reasonable assurance of detecting
fraud that is material to the financial
statements
and
material
misstatements resulting from direct
and material illegal acts, and noncompliance with the provisions of contracts or grant agreements that could
have a direct and material effect on financial statements amounts.
(b) If specific information comes to
the auditor’s attention that provides
evidence concerning the existence of
possible illegal acts that could have a
material indirect effect on the financial statements or material noncompliance with the provisions of contracts

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§ 1773.10

7 CFR Ch. XVII (1–1–17 Edition)

or grant agreements that could have a
material indirect effect on the financial statements, auditors should apply
audit procedures specifically directed
to ascertaining whether an illegal act
or noncompliance with provisions of
contract or grant agreements has occurred.
(c) Pursuant to the terms of its audit
engagement letter with the borrower,
the CPA must immediately report, in
writing, all instances of fraud and all
indications or instances of illegal acts,
whether material or not, to:
(1) The president of the borrower’s
board of directors;
(2) The Assistant Administrator, Program Accounting and Regulatory Analysis; and
(3) OIG, as follows:
(i) For the States of Delaware, District of Columbia, Maryland, Pennsylvania, Virginia, West Virginia, Connecticut, Maine, Massachusetts, New
Hampshire, New Jersey, New York,
Puerto Rico, Rhode Island, Vermont
and the Virgin Islands, report to
USDA-OIG-Audit, Northeast Region,
Regional
Inspector
General,
6505
Belcrest Road, room 428–A, Hyattsville,
Maryland 20782;
(ii) For the States of Alabama, Florida, Georgia, Kentucky, Mississippi,
North Carolina, South Carolina, and
Tennessee, report to USDA-OIG-Audit,
Southeast Region, Regional Inspector
General, 401 W. Peachtree Street, NW.,
room 2328, Atlanta, Georgia 30365–3520;
(iii) For the States of Illinois, Indiana, Michigan, Minnesota, Ohio, and
Wisconsin, report to USDA-OIG-Audit,
Midwest Region, Regional Inspector
General, 111 N. Canal Street, Suite
1130, Chicago, Illinois 60606;
(iv) For the States of Arkansas, Louisiana, New Mexico, Oklahoma, and
Texas, report to USDA-OIG-Audit,
Southwest Region, Regional Inspector
General, 101 South Main, room 324,
Temple, Texas 76501;
(v) For the States of Colorado, Iowa,
Kansas, Missouri, Montana, Nebraska,
North Dakota, South Dakota, Wyoming, and Utah, report to USDA-OIGAudit, Great Plains Region, Regional
Inspector General, P.O. Box 293, Kansas
City, Missouri 64141; and
(vi) For the States of Alaska, Arizona, California, Hawaii, Idaho, Ne-

vada, Oregon, Territory of Guam, Trust
Territories of Pacific, and Washington,
report to USDA-OIG-Audit, Western
Region, Regional Inspector General, 555
Battery Street, room 511, San Francisco, California 94111.
[56 FR 63360, Dec. 3, 1991, as amended at 61
FR 108, Jan. 3, 1996; 66 FR 27836, May 21, 2001]

§ 1773.10 Access to audit-related documents.
Pursuant to the terms of the audit
agreement, the CPA must make all
audit-related
documents,
including
auditors’ reports, workpapers, and
management letters available to RUS,
or its designated representative, upon
request and must permit RUS, or its
designated representative, to photocopy all audit-related documents.
§§ 1773.11–1773.19

[Reserved]

Subpart C—RUS Requirements for
the Submission and Review of
the Auditor’s Report, Report
on Compliance and on Internal Control Over Financial Reporting, and Management
Letter
§ 1773.20 CPA’s submission of the auditor’s report, report on compliance,
report on compliance and on internal controls over financial reporting, and management letter.
(a) Time limit. As soon as possible
after completion of the audit, but within 90 days of the as of audit date, the
CPA should deliver the auditor’s report, report on compliance and on internal control over financial reporting,
and management letter to the president of the borrower’s board of directors. As a minimum, copies should be
provided for each member of the board
of directors and the manager. Further,
three copies must be provided to the
borrower for transmittal to RUS.
(b) Communication with the board of directors. In addition to providing sufficient copies of the auditor’s report, report on compliance and on internal
control over financial reporting, and
management letter for each member of
the borrower’s board of directors, RUS
requires that the CPA report all audit
findings to the borrower’s board of directors. RUS recommends that audit

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Rural Utilities Service, USDA

§ 1773.21

findings be communicated orally; however, the communication may be oral
or written, at the borrower’s discretion. If the information is communicated orally, the CPA must document the communication by appropriate memoranda or notations in the
workpapers. If the CPA communicates
in writing, a copy of the written communication must be included in the
CPA’s audit workpapers or permanent
file.
(c) Matters to be communicated. Matters communicated to the board of directors must include, but are not limited to the matters to be communicated to the audit committee as prescribed in SAS No. 61, entitled ‘‘Communication with Audit Committee’’,:
(1) The initial selection of and
changes in significant accounting policies;
(2) The methods used to account for
significant or unusual transactions and
the effects of significant accounting
policies in controversial or emerging
areas;
(3) The process utilized by management to formulate significant accounting estimates and the basis for the
CPA’s conclusions regarding the reasonableness of these estimates;
(4) Audit findings and recommendations, including audit adjustments that
either individually or in the aggregate
have a significant effect on the borrower’s financial statements;
(5) The CPA’s responsibility for other
information presented with the audited
financial statements, any audit procedures performed, and the results thereof;
(6) Any disagreements with management, whether or not satisfactorily resolved, concerning matters that individually or in the aggregate may be
significant to the borrower’s financial
statements or the auditor’s report, report on compliance and on internal
control over financial reporting, or
management letter;
(7) Significant matters that were the
subject of consultations with other accountants;
(8) Significant issues discussed with
management with regard to the initial
or recurring retention of the CPA; and

(9) Any serious difficulties encountered in dealing with management during the performance of the audit.
[56 FR 63360, Dec. 3, 1991, as amended at 59
FR 659, Jan. 6, 1994; 66 FR 27835, May 21, 2001]

§ 1773.21 Borrower’s review and submission of the auditor’s report, report on compliance and on internal
control over financial reporting,
and management letter.
(a) The borrower’s board of directors
should note and record receipt of the
auditor’s report, report on compliance
and on internal control over financial
reporting, and management letter and
any action taken in response to the reports or management letter in the minutes of the board meeting at which
such reports and management letter
are presented.
(b) The borrower must furnish RUS
with three copies of the auditor’s report, report on compliance and on internal control over financial reporting,
and management letter within 120 days
of the as of audit date. Any provision
in RUS’s security instrument that requires such documents to be furnished
to RUS in a shorter period of time may
be disregarded.
(c) The borrower must furnish RUS
with three copies of its plan for corrective action, if any, within 180 days of
the as of audit date.
(d) The borrower must furnish RUS,
within 120 days of the as of audit date,
with a copy of each special report,
summary of recommendations or similar communications, if any, received
from the CPA as a result of the audit.
(e) All required submissions to RUS
described in paragraphs (a) through (d)
of this section should be sent to: Assistant Administrator, Program Accounting and Regulatory Analysis,
Stop 1523, 1400 Independence Ave., SW,
Washington, DC 20250–1523.
[56 FR 63360, Dec. 3, 1991, as amended at 59
FR 659, Jan. 6, 1994; 66 FR 27835, 27836, May
21, 2001]

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§§ 1773.22–1773.29
§§ 1773.22–1773.29

7 CFR Ch. XVII (1–1–17 Edition)

[Reserved]

Subpart D—RUS Reporting
Requirements
§ 1773.30 General.
(a) The CPA must prepare the following (examples of which are set forth
in RUS Bulletin 1773–1):
(1) An auditor’s report;
(2) A report on compliance and on internal control over financial reporting;
and
(3) A management letter.
(b) The CPA should deliver the auditor’s report, report on compliance and
on internal control over financial reporting, and management letter (with
copies as required in § 1773.20) to the
borrower as soon as possible after completion of the audit but not more than
90 days after the as of audit date.
[56 FR 63360, Dec. 3, 1991, as amended at 63
FR 38723, July 17, 1998; 66 FR 27835, 27836,
May 21, 2001]

§ 1773.31 Auditor’s report.
The CPA must prepare a written report on comparative balance sheets,
statements of revenue and patronage
capital (or income and retained earnings, depending upon the structure of
the borrower) and statements of cash
flows. This report must be signed by
the CPA, cover all statements presented, and refer to the separate report
on compliance and on internal control
over financial reporting issued in conjunction with the auditor’s report. The
auditor’s report should also state that
the report on compliance and on internal control over financial reporting is
an integral part of a GAGAS audit, and
in considering the results of the audit,
this report should be read along with
the auditor’s report on the financial
statements.

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[66 FR 27836, May 21, 2001]

§ 1773.32 Report on compliance and on
internal control over financial reporting.
As required by GAGAS, the CPA
must prepare a written report describing the auditors testing of compliance
with applicable laws, regulations, contracts, and grants, and on internal control over financial reporting and

present the results of those tests. This
report must be signed by the CPA and
must include, as a minimum:
(a) The scope of the CPA’s testing of
compliance with laws and regulations
and internal control over financial reporting including whether or not the
tests performed provided sufficient evidence to support an opinion on compliance or internal control over financial
reporting and whether the CPA is providing such opinions;
(b) If conditions believed to be material weaknesses considered to be reportable conditions are disclosed, the
report should identify the material
weaknesses that have come to the
CPA’s attention;
(c) If no reportable instances of noncompliance and no reportable conditions were found, the CPA must issue a
report as illustrated in RUS Bulletin
1773–1.
(d) If material instances of non-compliance and reportable conditions are
identified, the CPA must issue a report
as illustrated in RUS Bulletin 1773–1.
(e) Other nonmaterial instances of
noncompliance should not be disclosed
in the report on compliance and on internal control over financial reporting,
but should be reported in a separate
communication to the board of directors, preferably in writing. All such
communications must be documented
in the workpapers and submitted to
RUS in compliance with § 1773.21.
(f) If the CPA has issued a separate
letter detailing immaterial instances
of noncompliance, the report on compliance and on internal control over financial reporting must be modified to
include a statement such as:
We noted certain immaterial instances of
noncompliance, which we have reported to
the management of (borrower’s name) in a
separate letter dated (month, day, year).

(g) If the CPA has issued a separate
letter to management to communicate
other matters involving the design and
operation of the internal control over
financial reporting, the report on compliance and on internal control over financial reporting must be modified to
include a statement such as:
However, we noted other matters involving
the internal control over financial reporting
that we have reported to the management of

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Rural Utilities Service, USDA

§ 1773.33

(borrower’s name) in a separate letter dated
(month, day, year).

(h) The report must contain the status of known but uncorrected significant or material findings and recommendations from prior audits that
affect the current audit objective.
[63 FR 38723, July 17, 1998, as amended at 66
FR 27836, May 21, 2001]

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§ 1773.33

Management letter.

The CPA must prepare a management letter that includes, at a minimum, comments on:
(a) Audit procedures. State whether
the audit has been performed in accordance with this part;
(b) Special reports. State whether any
special reports, summaries of recommendations, or similar communications were furnished to the borrower’s
management during the course of the
audit or during interim audit work,
and provide a description of the information furnished;
(c) Accounting and records. Comment
on the adequacy and effectiveness of
the borrower’s accounting procedures,
discuss the general condition of the
records, and outline any recommendations for improvement. Comment on
the adequacy and fairness of the methods used in accumulating and recording
labor, material, and overhead costs,
and the distribution of these costs to
construction, retirement, and maintenance or other expense accounts, and
where appropriate, include:
(1) Whether continuing property
records (CPRs) have been established,
are updated on a current basis, at least
annually, and are reconciled with the
controlling general ledger plant accounts;
(2) Whether construction clearing accounts are cleared promptly of costs of
completed construction to the proper
classified plant accounts and whether
depreciation was accrued on such completed construction from the date the
plant was placed in service;
(3) Whether retirements of plant are
currently and systematically recorded
and properly priced;
(4) Whether all costs associated with
retirements of plant are properly accounted for in the accumulated provision for depreciation accounts and

comment on any unusual charges or
credits to such accounts; and
(5) Whether RUS approval was obtained for the sale, lease or transfer of
capital assets secured under the mortgage when approval is required, and
whether proceeds from the sale or lease
of plant, material or scrap were handled in conformance with RUS requirements.
(d) Materials control. Comment on the
adequacy of the control over materials
and supplies.
(e) Compliance with RUS loan and security instrument provisions. State
whether the following provisions of
RUS’ loan and security instruments
have been complied with:
(1) For electric borrowers, provisions
related to:
(i) The requirements for a borrower
to obtain written approval of mortgagees to enter into any contract for the
management, operation, or maintenance of the borrower’s system if the
contract covers all or substantially all
(90 percent) of the electric system. For
purposes of this part, the following
contracts shall be deemed as requiring
RUS approval:
(A) Management contracts in which
the borrower has contracted to have
another borrower or other entity manage its affairs;
(B) Management contracts in which
the borrower has contracted to manage
another borrower or other utility system;
(C) Operations and maintenance contracts in which the borrower has contracted to have another borrower or
other entity operate and/or maintain
all or substantially all (90 percent) of
the physical plant facilities of the borrower.
(D) Operations and maintenance contracts in which the borrower has contracted to operate and maintain the
physical plant facilities of another borrower or other utility system; and
(ii) The requirement for a borrower
to prepare and furnish mortgagees annual financial and statistical reports
on the borrower’s financial condition
and operations. For borrowers with a
December 31 year end, the CPA must
state whether the information represented by the borrower as having

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§§ 1773.34–1773.37

7 CFR Ch. XVII (1–1–17 Edition)

been submitted to RUS in its most recent December 31 RUS Form 7 or Form
12 is in agreement with the borrower’s
audited records. For borrowers with a
year end other than December 31, the
CPA must state whether the information appears reasonable based upon the
audit procedures performed. If the borrower represents that an amended report has been filed as of December 31,
the comments must relate to the
amended report.
(2) For telecommunications borrowers, provisions relating to the requirement for a borrower to obtain
written approval of the mortgagees to
enter into:
(i) Any contract, agreement or lease
between the borrower and an affiliate
other than as allowed under 7 CFR part
1744, subpart E;
(ii) The requirement for a borrower
to prepare and furnish mortgagees annual financial and statistical reports
on the borrower’s financial condition
and operations. For borrowers with a
December 31 year end, the CPA must
state whether the information represented by the borrower as having
been submitted to RUS in its most recent December 31 RUS Form 479 is in
agreement with the borrower’s audited
records. For borrowers with a year end
other than December 31, the CPA must
state whether the information appears
reasonable based upon the audit procedures performed. If the borrower represents that an amended report has
been filed as of December 31, the comments must relate to the amended report.
(f) Related party transactions. State
whether all material related party
transactions have been disclosed in the
notes to the financial statements in accordance with SFAS No. 57, entitled
‘‘Related Party Disclosures’’. If the
audit did not disclose any related party
transactions considered to be material,
either individually or in the aggregate,
so state;
(g) Depreciation rates. For electric
borrowers, comment when the depreciation rates used in computing monthly accruals are not in compliance with
RUS requirements (See RUS Bulletin
183–1, Depreciation Rates and Procedures), which require the use of depreciation rates that are within the

ranges established by RUS for each primary plant account, or with the requirements of the State regulatory
body having jurisdiction over the borrower’s depreciation rates; and
(h) Deferred debits and deferred credits.
For electric borrowers, provide a detailed analysis of the totals reported as
deferred debits and deferred credits, including, but not limited to, margin stabilization plans, revenue deferral plans,
and expense deferrals. The CPA must
state whether RUS has approved, in
writing, each regulatory asset and liability.
(i) Investments. For electric and telecommunications borrowers, provide a
detailed schedule of all investments in
subsidiary and affiliated companies accounted for on either the cost or equity
basis. This requirement includes investments in corporations, limited liability corporations and partnerships,
joint ventures, etc. For all investments
list the name of the entity, ownership
percentage, and the principal business
in which the entity is engaged. For investments recorded on the cost basis
include the original investment, advances, dividends declared or paid in
the current and prior years and the net
investment. For investments recorded
on the equity basis include the ownership percentage, original investment,
advances, and current and prior years’
earnings and losses, including accumulated losses in excess of the original investment.
[56 FR 63360, Dec. 3, 1991, as amended at 59
FR 659, Jan. 6, 1994; 61 FR 108, Jan. 3, 1996.
Redesignated and amended at 63 FR 38723,
July 17, 1998; 63 FR 40169, July 28, 1998; 66 FR
27830, May 21, 2001]

§§ 1773.34–1773.37

[Reserved]

Subpart E—RUS Required Audit
Procedures and Documentation
§ 1773.38

Scope of engagement.

(a) RUS requires that the audit procedures set forth in §§ 1773.39 through
1773.45 be performed annually by the
CPA during the audit of the RUS borrowers’ financial statements, which
audit procedures may be in addition to
the conduct of a GAGAS audit.

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Rural Utilities Service, USDA

§ 1773.39

(b) The CPA must exercise professional judgment in determining whether any auditing procedures in addition
to those mandated by GAGAS or this
part should be performed in order to afford a reasonable basis for rendering
the auditor’s report, report on compliance and on internal control over financial reporting, and management
letter.

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[56 FR 63360, Dec. 3, 1991, as amended at 66
FR 27835, May 21, 2001]

§ 1773.39 Utility plant and accumulated depreciation.
(a) General. The audit of these accounts must include tests of additions,
replacements,
retirements,
and
changes. Based upon the CPA’s determination of materiality, an appropriate sample of transactions must be
selected for testing. The CPA’s
workpapers must document that he/
she:
(1) Examined direct labor and material transactions to determine whether
the borrower’s accounting records reflect a complete accumulation of costs;
(2) Examined indirect costs and overhead charges to determine if they conform to the Uniform System of Accounts;
(3) Reviewed the costs of completed
construction and retirement projects
to determine if they were cleared
promptly from the work in progress accounts to the classified plant in service
accounts and the related depreciation
reserves;
(4) Examined direct purchases of special equipment and general plant;
(5) Determined the degree of accuracy and control of costing retirements, including tests of salvage and
removal costs;
(6) Reviewed the borrower’s work
order procedures; and
(7) Reviewed depreciation rates for
adequate support, compared them to
RUS guidelines, and determined if they
are in compliance.
(b) Construction work in progress. (1)
The workpapers must include a summary of open work orders reconciled to
the general ledger. The CPA must note
on the summary any unusual or nontypical projects.
(2) Based upon the CPA’s determination of materiality, an appropriate

sample of work orders must be selected
for testing. The CPA’s workpapers
must document that he/she:
(i) Reviewed equipment purchases
charged to work orders, including payments and receiving reports;
(ii) Reviewed contracts showing the
scope of the work, the nature of the
contract, the contract amount, and
scheduled payments and reviewed supporting documents to determine that
all services contracted for were in fact
rendered;
(iii) Reviewed time cards and pay
rates for several employees who allocate their time to work orders;
(iv) Reviewed the nature of material
and supplies issued to the project,
traced amounts and quantities to supporting documents, and reviewed the
reasonableness of clearing rates for assignment of stores expense to the work
order;
(v) Reviewed the accuracy of the
computation of overheads applied to
the work order; and
(vi) Reviewed other costs charged to
the work order for support and propriety.
(3) Based upon the CPA’s determination of materiality, an appropriate
sample of completed contracts must be
selected for testing. The CPA’s
workpapers must document that he/
she:
(i) Scheduled payments to contractors and traced to verify payments and
supporting invoices;
(ii) Traced contract costs to final
closeout documents, to the general
ledger, and to the continuing property
records; and
(iii) Verified the costs of owner furnished materials, if applicable.
(4) The CPA must review the borrower’s procedures for unitization and
classification of work order and contract costs. Based upon the CPA’s determination of materiality, an appropriate sample of transactions must be
selected for testing. The CPA’s
workpapers must document that he/
she:
(i) Reviewed the tabulation of record
units for construction from the work
order staking sheets to the tabulation
of record units, to the unitization
sheets, and to the continuing property
records;

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§ 1773.39

7 CFR Ch. XVII (1–1–17 Edition)

(ii) Reviewed the procedures for unitizing and distributing costs of completed construction to the plant accounts;
(iii) Verified that standard costs were
being used;
(iv) Evaluated the basis for development of standard costs; and
(v) Determined that costs of completed
construction
were
cleared
promptly from work in progress accounts.
(c) Continuing property records. Based
upon the CPA’s determination of materiality, an appropriate sample of transactions must be selected for testing.
The CPA’s workpapers must document
that he/she:
(1) Determined whether the subsidiary plant records agree with the
controlling general ledger plant accounts;
(2)
Noted
differences
in
the
workpapers; and
(3) Commented, in the management
letter, on any discrepancies.
(d) Retirement work-in-progress. Based
upon the CPA’s determination of materiality, an appropriate sample of transactions must be selected for testing.
The CPA’s workpapers must document
that he/she:
(1) Determined that plant retirements are currently and systematically recorded and priced on the basis
of the continuing property records, and
determined that costs of removal have
been properly accounted for;
(2) Explained the method used in
computing the cost of units of plant retired if continuing property records
have not been established and determined whether costs appeared reasonable; and
(3) Determined the manner in which
net losses due to retirements were accounted for and traced clearing entries
to the depreciation reserve, the plant
accounts, and the continuing property
records.
(e) Provision for accumulated depreciation. The CPA’s workpapers must include an analysis of transactions.
Based upon the CPA’s determination of
materiality, an appropriate sample of
transactions must be selected for testing. The CPA’s workpapers must document that he/she:

(1) Verified the depreciation accruals
for the period, including the depreciation base;
(2) Reviewed the basis of the depreciation rates, any change in rates and
the reason therefor, and, if appropriate,
determined whether the rates are in
compliance with RUS requirements or
with the requirements of the state regulatory body having jurisdiction over
the borrower’s depreciation rates;
(3) Reviewed salvage and removal
costs; and
(4) Searched for unrecorded retirements.
(f)
Other
reserves.
The
CPA’s
workpapers must include an account
analysis for all other material plant reserves, such as the reserve for the amortization of plant acquisition adjustments. Based upon the CPA’s determination of materiality, an appropriate sample of transactions must be
selected for testing. The CPA’s
workpapers must document that appropriate tests of transactions were performed.
(g) Narrative. The CPA must prepare
and include in the workpapers a comprehensive narrative on the scope of
work performed, observations made,
and conclusions reached. Specific matters covered in this narrative must include:
(1) The nature of construction and
other additions;
(2) The control over, and the accuracy of pricing retirements;
(3) The accuracy of distributing costs
to classified utility plant accounts;
(4) An evaluation of the method of:
(i) Capitalizing the direct loadings on
labor and material costs;
(ii) Distributing transportation costs
and other expense clearing accounts;
and
(iii) Capitalizing overhead costs;
(5) The tests of depreciation;
(6) A review of agreements such as
those relating to acquisitions, property
sales, and leases which affect the plant
accounts; and
(7) Notations, if applicable, of RUS
approval of property sales and the propriety of the disposition of the proceeds.

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Rural Utilities Service, USDA

§ 1773.44

§ 1773.40 Regulatory assets.
The CPA’s workpapers must document whether all regulatory assets
comply with the requirements of SFAS
No. 71. For electric borrowers only, the
CPA’s workpapers must document
whether all regulatory assets have received RUS approval.
[59 FR 660, Jan. 6, 1994]

§ 1773.41 Extraordinary
retirement
losses.
The CPA’s workpapers must contain
an analysis of retirement losses, including any required approval by a regulatory commission with jurisdiction
in the matter, or RUS, in the absence
of commission jurisdiction.

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§ 1773.42 Clearing accounts.
The CPA’s workpapers must contain
an analysis of all clearing accounts.
Based upon the CPA’s determination of
materiality, an appropriate sample of
transactions should be selected for
testing. The CPA’s workpapers must
document that transactions were reviewed for proper allocation between
expense and capital accounts.
§ 1773.43 Capital and equity accounts.
(a) Capital stock. For privately owned
companies, the workpapers must include analyses of all stock transactions
during the audit period. Based upon the
CPA’s determination of materiality, an
appropriate sample of transactions
must be selected for testing. The CPA’s
workpapers must document that he/
she:
(1) Reviewed the subsidiary records
and reconciled them to the general
ledger control account;
(2) Reviewed authorizations and
issuances or redemptions of capital
stock for proper approvals by the board
of directors, stockholders, and regulatory commissions;
(3) Determined that transactions
were made in accordance with the appropriate provisions of the articles of
incorporation, bylaws, and RUS loan
documents; and
(4) Determined that transactions
were recorded in accordance with the
Uniform System of Accounts.
(b) Memberships. For cooperative organizations, the workpapers must in-

clude an analysis of the membership
transactions during the audit period.
Based upon the CPA’s determination of
materiality, an appropriate sample of
transactions must be selected for testing. The CPA’s workpapers must document that he/she:
(1) Reviewed the subsidiary records
and reconciled them to the general
ledger control account; and
(2) Determined that transactions
were made in accordance with the appropriate provisions of the articles of
incorporation, bylaws, and RUS loan
documents.
(c) Patronage capital, retained earnings, margins, and other equities. The
workpapers must include an analysis of
the patronage capital, retained earnings, margins and other equities, and
any related reserve accounts. Based
upon the CPA’s determination of materiality, an appropriate sample of transactions must be selected for testing.
The CPA’s workpapers must document
that he/she:
(1) Determined that the transactions
were made in accordance with the appropriate provisions of the articles of
incorporation, bylaws, RUS loan documents, Uniform System of Accounts, or
orders of regulatory commissions;
(2) Traced payments to underlying
support; and
(3) Determined whether, under the
terms of the RUS security instrument,
restrictions of retained earnings or
margins are required and, if so, whether they have been properly recorded.
§ 1773.44

Long-term debt.

The CPA’s workpapers must document that he/she:
(a) Confirmed RUS, FFB, and RTB
debt to the appropriate confirmation
schedule (RUS Form 690, Confirmation
Schedule Obligation to the FFB as of:
or Form 691, Confirmation Schedule—
Long-term Obligation to RUS as of; or
RTB Form 12, Confirmation Schedule);
(b) Confirmed other long-term debt
directly with the lender;
(c) Examined notes executed or canceled during the audit period; and
(d) Tested accrued interest computations.

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§ 1773.45

7 CFR Ch. XVII (1–1–17 Edition)

§ 1773.45 Regulatory liabilities.
The CPA’s workpapers must document whether all regulatory liabilities
comply with the requirements of SFAS
No. 71. For electric borrowers only, the
CPA’s workpapers must document
whether all regulatory liabilities have
received RUS approval.
[59 FR 660, Jan. 6, 1994]

§§ 1773.46–1773.49

[Reserved]

PART 1774—SPECIAL EVALUATION
ASSISTANCE FOR RURAL COMMUNITIES AND HOUSEHOLDS
PROGRAM (SEARCH)
Subpart A—General Provisions
Sec.
1774.1 General.
1774.2 Definitions.
1774.3 Availability of forms and regulations.
1774.4 Allocation of funds.
1774.5–1774.6 [Reserved]
1774.6 Equal opportunity requirements.
1774.7 Environmental requirements.
1774.8 Other Federal Statutes.
1774.9 [Reserved]

Subpart B—Grant Application Processing
1774.10 Applications.
1774.11 [Reserved]
1774.12 Eligibility.
1774.13 Limitations.
1774.14 Eligible grant purposes.
1774.15 Selection criteria.
1774.16 Grant application processing and approval.
1774.17 Grant closing and disbursement.
1774.18 Reporting requirements, accounting
methods and audits.
1774.19 Applications determined ineligible.
1774.20 Conflict of Interest.
1774.21–1774.23 [Reserved]
1774.24 Exception Authority.
1774.25–1774.99 [Reserved]
1774.100 OMB Control Number.
AUTHORITY: 7 U.S.C. 1926(a)(2)(C).
SOURCE: 75 FR 35963, June 24, 2010, unless
otherwise noted.

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Subpart A—General Provisions
§ 1774.1 General.
The purpose of the Special Evaluation Assistance for Rural Communities
and Household (SEARCH) Grant program is to provide financial assistance
to the neediest, eligible communities,

who lack financial resources to pay for
feasibility studies, design assistance
and technical assistance. This subpart
sets forth the general policies and procedures for making and processing
predevelopment
planning
SEARCH
grants for water and waste projects.
§ 1774.2

Definitions.

The following definitions apply to
subparts A and B of this part.
Agency. The Rural Utilities Service
of the United States Department of Agriculture (USDA) within the Rural Development mission area of the Under
Secretary for Rural Development. The
Processing Official will administer this
water and waste program on behalf of
the Rural Utilities Service.
Approval official. The Agency official
at the State level who has been delegated the authority to approve grants.
ConAct. Consolidated Farm and Rural
Development Act (7 U.S.C. 1926(a)(2)).
Design assistance. Preliminary design
and engineering analysis necessary for
an application for funding. Design assistance does not include financial assistance for development of plans, specifications, or bidding documents.
DUNS Number. Data Universal Numbering System number obtained from
Dun and Bradstreet and used when applying for Federal grants or cooperative agreements. A DUNS number may
be obtained at no cost, by calling 1–866–
705–5711.
Eligible entity. Entity that meets eligibility requirements to obtain a loan,
loan guarantee or grant under Paragraphs 1, 2 or 24 of Section 306(a) of the
ConAct (codified at 7 U.S.C. Section
1926(a)(1)(2) and (24)).
Feasibility study. Documentation associated with an objective analysis of
project-related technical engineering
or environmental impact analyses required to support applications for funding water or waste disposal projects
through USDA, Rural Utilities Service
or other agencies.
Financially distressed area. An area is
considered financially distressed if the
median household income of the area
to be served is either below the poverty

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