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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: October 23, 1990 Responsible Accounting Officers Revised October 19, 1990; Re: Attestation Audits pursuant to the Joint Cost Order and Joint Cost Reconsideration Order (CC Docket 86-111) In CC Docket No. 86-111, the Commission established accounting safeguards which govern the allocation of telecommunications common carriers' costs between their regulated and nonregulated activities and the treatment of transactions between these carriers and their affiliates. Among these safeguards is the requirement that each Tier 1 local exchange carrier must have an audit performed annually by an independent auditor. The purpose of the audit is to provide a positive opinion on whether the carrier's cost allocation methodologies used in preparing reports to the Commission are in conformity with the cost allocation manual approved by the Commission and whether the reported results are an accurate application of those methodologies. Based on our review of the results of these audits of the carriers' 1988 and 1989 operations, we have concluded that additional work in examining source data and testing of allocation procedures and reported results should be performed in order to fully satisfy the Commission's requirements. The assurance the Commission seeks is essentially the same as that provided with a financial statement audit engagement. The financial statement audit engagement results in an opinion on whether the financial statements present fairly, in all material respects, the financial results of a company's operations. Among other things, the professional standards of field work for financial statement audit engagements provide additional assurance by specifically requiring auditors to obtain evidential matter through inspection, observation, inquiry, and confirmation to afford a reasonable basis for the statements under examination, and an evaluation of internal controls when those controls are relied upon in determining the extent of auditing procedures. We will rely on the professional judgment of the independent auditor for determinations of materiality as it relates to the scope of the audit; however, we expect that during the course of an audit, the discovery of any error or omission in excess of $1 million will result in a correction of the reported results. We hereby direct these audits to be performed and accompany the FCC Forms 43-03 due at the Commission on April 1 of each year, beginning with the audits of 1990 operations which are due April 1, 1991. The auditors' opinions shall apply to all data shown in columns (b) through (j) of the FCC Report 43-03, ARMIS Joint Cost Report. In order to facilitate the submission of the opinion letter, we have attached a sample letter which is designed to provide the assurance we are seeking. The sample letter is intended to be used as a guide and may vary according to the circumstances. Independent auditors should not view themselves as bound by the literal format of the sample letter. This Responsible Accounting Officer letter supersedes RAO Letter 12 as issued July 18, 1988 and is issued under Section 0.291 of the Commission's rules. Application for review under Section 1.115 of the Commission's rules must be filed within 30 days from the date of public notice of this action. See 47 C.F.R.  1.115(d). Sincerely, Kenneth P. Moran Chief, Accounting and Audits Division Attachment Attachment Page 1 of 2 FCC REPORT 43-03 ARMIS JOINT COST REPORT AUDIT SAMPLE OPINION LETTER (We have audited, in accordance with generally accepted auditing standards, the consolidated balance sheet of _______________ (the "Company") at December 31, 199X and the related consolidated statements of income, shareholders equity, and cash flows for the year then ended, and have also issued our report dated __________ 199X in which we expressed an unqualified opinion on those financial statements.) We have (also) audited the accompanying Company's Federal Communications Commission (the "FCC") Report 43-03, ARMIS Joint Cost Report (Columns (b) through (j)) for the year ended December 31, 199X. As described in Note 1, this report was prepared pursuant to the Company's Cost Allocation Manual, the FCC's Joint Cost Orders issued in conjunction with FCC Docket 86-111 and the FCC's published rules and regulations thereto (including 47 CFR Sections 32.23, 32.27 and 64.901) in force as of (date of audit report), 199X. This report was prepared for the purpose of complying with those rules and regulations and is not intended to be a complete presentation of the Company's financial statements. The FCC Report 43-03, ARMIS Joint Cost Report is the responsibility of the Company's management. Our responsibility is to express an opinion on the FCC Report 43-03, ARMIS Joint Cost Report based on our audit. We conducted our audit of the FCC Report 43-03, ARMIS Joint Cost Report in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the FCC Report 43-03, ARMIS Joint Cost Report is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the report. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall report presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the FCC Report 43-03, ARMIS Joint Cost Report referred to above presents fairly, in all material respects, the information of the Company required to be set forth therein for the year ended December 31, 199X, in accordance with the Company's Cost Allocation Manual, the FCC's Joint Cost Orders issued in conjunction with FCC Docket No. 86-111 and the FCC's published rules and regulations thereto (including 47 CFR Sections 32.23, 32.27 and 64.901) in force as of (date of Audit report), 199X. Attachment Page 2 of 2 NOTES TO __________ TELEPHONE COMPANY FCC REPORT 43-03, ARMIS JOINT COST REPORT 1. Basis of Presentation: The Federal Communications Commission (FCC), in the Joint Cost Orders issued in Docket No. 86-111, required that Tier 1 local exchange carriers prepare a Cost Allocation Manual (CAM) for the FCC's review and approval. The CAM describes the cost allocation system used by the Company to apportion costs between its regulated and nonregulated activities in accordance with the FCC's rules and regulations. The Company's CAM, as amended through _________________________ has been filed with the FCC. The Company's FCC Report 43-03, ARMIS Joint Cost Report was prepared pursuant to the Company's CAM, the FCC's Joint Cost Orders issued in conjunction with FCC Docket 86-111 and the FCC's published rules and regulations thereto (including 47 CFR Sections 32.23, 32.27 and 64.901) in force as of (Audit report date), 199X. This report was prepared for the purpose of complying with those rules and regulations and is not intended to be a complete presentation of the financial statements.