[Federal Register Volume 70, Number 93 (Monday, May 16, 2005)]
[Rules and Regulations]
[Pages 25753-25761]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 05-9648]



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  Federal Register / Vol. 70, No. 93 / Monday, May 16, 2005 / Rules and 
Regulations  

[[Page 25753]]



DEPARTMENT OF AGRICULTURE

Rural Utilities Service

7 CFR Part 1770

RIN 0572-AB77


Accounting Requirements for RUS Telecommunications Borrowers

AGENCY: Rural Utilities Service, USDA.

ACTION: Final rule.

-----------------------------------------------------------------------

SUMMARY: The Rural Utilities Service (RUS), an agency delivering the 
U.S. Department of Agriculture's Rural Development Utilities Programs, 
is amending its regulations on accounting policies and procedures for 
RUS Telecommunications Borrowers as set forth in RUS's regulations 
concerning Accounting System Requirements for RUS Telecommunications 
Borrowers. This final rule adopts some recent accounting changes made 
by the Federal Communications Commission (FCC). These changes include 
increasing the expense limit for some assets excluding personal 
computers, allowing tools and test equipment located in the central 
office to be expensed under the new limitation. This final rule affirms 
the use of Class A accounts by RUS borrowers; maintains the expense 
matrix requirements; maintains the requirement that borrowers request 
prior approval to record extraordinary items, prior period adjustments, 
and contingent liabilities; establishes policies and procedures to 
permit RUS borrowers to follow Prudent Utility Practice regarding the 
storage and retention of business records; and eliminates certain 
Telecommunications Plant Under Construction accounts. This final rule 
also adds three new accounting interpretations on Allowance for Funds 
Used During Construction, Reporting Comprehensive Income, and 
Disclosures About Pensions and Other Postretirement Benefits.

DATES: Effective June 15, 2005.

FOR FURTHER INFORMATION CONTACT: Ms. Diana C. Alger, Chief, Technical 
Accounting and Auditing Staff, Program Accounting Services Division, 
Rural Utilities Service, Stop 1523, Room 2221--South Building, U.S. 
Department of Agriculture, Washington, DC 20250, telephone number (202) 
720-5227.

SUPPLEMENTARY INFORMATION

Executive Order 12866

    This final rule has been determined to be not significant for 
purposes of Executive Order 12866 and, therefore, has not been reviewed 
by the Office of Management and Budget.

Executive Order 12988

    This final rule has been reviewed under Executive Order 12988, 
Civil Justice Reform. RUS has determined that this rule meets the 
applicable standards provided in section 3 of the Executive Order. In 
addition, all state and local laws and regulations that are in conflict 
with this rule will be preempted, no retroactive effort will be given 
to this rule, and, in accordance with Section 212(e) of the Department 
of Agriculture Reorganization Act of 1994 (7 U.S.C. 6912(e)), 
administrative appeal procedures, if any, must be exhausted before an 
action against the Department or its agencies may be initiated.

Regulatory Flexibility Act Certification

    RUS has determined that this final rule will not have a significant 
economic impact on a substantial number of small entities, as defined 
in the Regulatory Flexibility Act (5 U.S.C. 601 et seq.). The RUS 
telecommunications program provides loans to borrowers at interest 
rates and on terms that are more favorable than those generally 
available from the private sector. RUS borrowers, as a result of 
obtaining federal financing, receive economic benefits that exceed any 
direct economic costs associated with complying with RUS regulations 
and requirements.
    This rule implements provisions of the loan documents between RUS 
and those telecommunications utilities that borrow from RUS and 
represents an update of existing record retention requirements. The 
requirements reflect due diligence standards of both pubic and private 
lenders for borrowers in the telecommunications industry. Moreover, the 
requirements reflect generally accepted telecommunications industry 
standards and are consistent with requirements imposed by many State 
and Federal utility regulatory bodies. The rule is not expected to 
materially change the current practices of most RUS borrowers and 
consequently will not have a significant impact on the affected 
entities.

Executive Order 13132, Federalism

    The policies contained in this rule do not have any substantial 
direct effect on states, on the relationship between the national 
government and the states, or on the distribution of power and 
responsibilities among the various levels of government. Nor does this 
rule impose substantial direct compliance costs on state or local 
governments. Therefore, consultation with states is not required.

Information Collection and Recordkeeping Requirements

    This rule contains no new reporting or recordkeeping burdens under 
OMB control number 0572-0003 that would require approval under the 
Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq.).

National Environmental Policy Act Certification

    The Administrator of RUS has determined that this final rule will 
not significantly affect the quality of the human environment as 
defined by the National Environmental Policy Act of 1969 (42 U.S.C. 
4321 et seq.). Therefore, this action does not require an environmental 
impact statement or assessment.

Executive Order 12372

    This final rule is excluded from the scope of Executive Order 
12372, Intergovernmental Consultation, which may require a consultation 
with State and local officials. See the final rule related notice 
titled, ``Department Programs and Activities Excluded from Executive 
Order 12372'' (50 FR 47034).

Catalog of Federal Domestic Assistance

    The program described by this final rule is listed in the Catalog 
of Federal Domestic Assistance Program under No. 10.851, Rural 
Telephone Loans and Loan Guarantees; No. 10.852, Rural

[[Page 25754]]

Telephone Bank Loans; No. 10.857, Rural Broadband Access Loans and Loan 
Guarantees; and No. 10.854, Distance Learning and Telemedicine Loans 
and Grants. This catalog is available on a subscription basis from the 
Superintendent of Documents, the United States Government Printing 
Office, Washington, DC 20402. Telephone: (202) 512-1800.

Unfunded Mandates

    This rule contains no Federal mandates (under the regulatory 
provisions of Title II of the Unfunded Mandates Reform Act of 1995) (2 
U.S.C. 1501 et seq.) for State, local, and tribal governments for the 
private sector. Thus, this rule is not subject to the requirements of 
section 202 and 205 of the Unfunded Mandates Reform Act of 1995.

Background

    In order to facilitate the effective and economic operation of a 
business, adequate and reliable financial records must be maintained. 
Accounting records must provide a clear, accurate picture of current 
economic conditions from which management can make informed decisions 
in charting the company's future. The rate regulated environment in 
which a telecommunications carrier operates causes an even greater need 
for financial information that is accurate, complete, and comparable 
with that generated by other carriers. For this reason, the Federal 
Communications Commission (FCC) prescribes a Uniform System of Accounts 
(USoA) for the telecommunications industry.
    RUS, as a Federal lender and mortgagee, and in furthering the 
objectives of the Rural Electrification Act (RE Act) (7 U.S.C. 901 et 
seq.) has a legitimate programmatic interest and a substantial 
financial interest in requiring adequate records to be maintained. In 
order to provide RUS with financial information that can be analyzed 
and compared with the operations of other borrowers in the RUS program, 
all RUS borrowers must maintain financial records that utilize uniform 
accounts and uniform accounting policies and procedures. The standard 
RUS security instrument, therefore, requires borrowers to maintain 
their books, records, and accounts in accordance with methods and 
principles of accounting prescribed by RUS in the RUS USoA for its 
telecommunications borrowers.
    The RUS USoA parallels the USoA prescribed by the FCC for 
telecommunications utilities and, as such, is consistent with the 
standards of financial accounting in the telecommunications industry as 
a whole. As FCC amends its USoA, RUS reviews the appropriateness and 
applicability of each amendment and proposes revisions, as necessary, 
to the RUS USoA.
    In Docket 95-60, published in the Federal Register on July 23, 
1997, at 62 FR 39451, the FCC raised the expense limit on accounts 
2112, 2113, 2114, 2115, 2116, 2122, 2123, and 2124 (excluding personal 
computers) from $500 to $2000. RUS adopts this change.
    The FCC published Docket 98-81 in the Federal Register on September 
15, 1999, at 64 FR 50002. This order entailed a number of items that 
RUS has incorporated into its USoA.
    RUS is combining accounts 2114 through 2116 into a single new 
account 2114, Tools and Other Work Equipment. Because the assets 
recorded in these accounts are similar in nature and use similar 
depreciation rates, we believe that combining them would not adversely 
impact loan security issues or the consistent and comparable reporting 
of financial information to RUS. Nor would it affect reporting for 
ratemaking purposes.
    RUS is eliminating account 5010 and requiring that all nonregulated 
revenues be recorded in account 5280, Nonregulated Operating Revenue. 
This change requires carriers to maintain subsidiary record categories 
for each nonregulated revenue item recorded in this account. Our 
interest is in ensuring that nonregulated revenues be segregated from 
regulated revenues.
    Docket 98-81 also eliminated the requirement in 47 CFR 32.16 for 
filing projected future effects of an accounting change (revenue 
requirement study) and the requirement in 47 CFR 32.2000(b) that 
borrowers submit for approval, journal entries to record 
telecommunications plant acquisitions of more than $1 million Class A 
companies and more than $250,000 for Class B companies. Because the 
need for this level of approval no longer exists, RUS eliminates these 
requirements.
    The FCC published Docket 99-253 in the Federal Register on March 
28, 2000, at 65 FR 16328. This docket eliminated the 30-day 
notification requirement for establishment of temporary or experimental 
accounts found in 47 CFR 32.13(a)(3), eliminated the reclassification 
requirement for property held for more than 2 years in account 2002, 
Property Held for Future Telecommunications Use, and eliminated the 
reclassification requirement for projects held in account 2003, 
Telecommunications Plant Under Construction, and suspended for more 
than 6 months. RUS adopts these changes.
    The FCC has also eliminated the requirement for carriers to obtain 
prior approval before recording extraordinary items, contingent 
liabilities, and prior period adjustments as previously required in 47 
CFR 32.25. RUS is retaining this requirement for borrowers of the RUS 
Telecommunications Program.
    Additionally, this docket eliminated the expense matrix requirement 
found in 47 CFR 32.5999. The information provided by this matrix is 
invaluable for RUS in its analysis of the financial condition of 
borrowers. RUS, therefore, is retaining the expense matrix requirement.
    Because account 2004 has been eliminated from the FCC USoA, RUS is 
deleting accounts 2004.1, 2004.2, and 2004.3 from the accounts required 
under 7 CFR 1770.15 and renaming and redefining accounts 2003.1, 
2003.2, and 2003.4.
    In response to a change by the FCC of its revenue threshold for 
classification of Class A carriers, RUS is requiring that all borrowers 
using the Class A system of accounts as of May 10, 2004, are required 
to continue using this system and all new borrowers shall adopt the 
Class A system of accounts. RUS shall continue to require financial 
information that can be analyzed and compared with the operations of 
all other borrowers in the RUS program. For this reason, RUS borrowers 
must continue to maintain financial records that utilize uniform 
accounts and uniform accounting policies and procedures.
    To ensure that borrowers consistently report their financial 
operations and keep pace with the changing environment in which they 
operate, RUS is setting forth accounting interpretations that establish 
the reporting and disclosure requirements for Reporting Comprehensive 
Income and Disclosures about Pensions and Other Postretirement 
Benefits.
    RUS is revising 7 CFR part 1770 to change the word ``companies'' to 
``borrowers'' in all instances to better reflect the current nature of 
the industry. RUS is also specifically identifying the organizational 
unit within RUS to which requests for approval and interpretations 
should be addressed. This revision should assist borrowers in filing 
requests and should expedite the review process within RUS.
    On November 5, 2001, the FCC released its' ``Report and Order in CC 
Docket NOS. 00-199, 97-212, and 80-286 Further Notice of Proposed

[[Page 25755]]

Rulemaking in CC Docket NOS. 00-199, 99-301, and 80-286'' addressing: 
(1) The 2000 Biennial Regulatory Review--Comprehensive Review of the 
Accounting Requirements and Automated Reporting Management Information 
System (ARMIS) Reporting Requirements for Incumbent Local Exchange 
Carriers: Phase 2, (2) Amendments to the Uniform System of Accounts for 
Interconnection, (3) Jurisdictional Separations Reform and Referral to 
the Federal-State Joint Board, and (4) Local Competition and Broadband 
reporting. This order contains a number of items that RUS is 
incorporating into its USoA.
    The FCC created new subaccounts for accounts 2212, 2232, 6212, 
6232, and 6620. Account 2212, Digital Electronic Switching, will have 
subaccounts 2212.1, Circuit, and 2212.2, Packet. Account 2232, Circuit 
Equipment, will have subaccounts 2232.1, Electronic, and 2232.2, 
Optical. Account 6212, Digital Electronic Switching Expense, will have 
subaccounts 6212.1, Circuit, and 6212.2, Packet. Account 6232, Circuit 
Equipment Expense, will have subaccounts 6232.1, Electronic, and 
6232.2, Optical. Account 6620, Services, will have subaccounts 6620.1, 
Wholesale, and 6620.2, Retail. RUS adopts these changes.
    The FCC revised Sections 32.1220(h) and 32.2311(f) of 47 CFR part 
32 and eliminated the annual inventory requirement for materials and 
supplies, and station apparatus in stock. Borrowers would be allowed 
the latitude to determine the appropriate inventory validation 
methodology based on risk assessment and existing controls. RUS adopts 
this change.
    Additionally, under 7 CFR part 32, Section 32.4999(L) the FCC 
eliminated the ``treated traditionally'' requirement from incidental 
activities. Revenues from minor nontariffed activities that are an 
outgrowth of the borrower's regulated activities may be recorded as 
regulated revenues under certain conditions. However, the FCC 
maintained the other three requirements to provide safeguards to 
prevent misuse of the incidental activities exception. RUS adopts this 
change.
    The FCC addressed the affiliate transaction rules under Section 
32.27 in five distinct areas by: (1) Eliminating the requirement that 
carriers make a fair market value comparison for asset transfers when 
the total annual value of that asset is less than $500,000; (2) giving 
carriers flexibility in valuing certain transactions by allowing the 
higher or lower of cost or market valuation to operate as either a 
floor or ceiling, depending on the direction of the transaction; (3) 
lowering the percent of sales of assets or services to third parties, 
from greater than 50 percent to 25 percent, in order to qualify for 
prevailing price treatment in valuing affiliate transactions; (4) 
maintaining the narrowly defined exception that provides when an 
incumbent carrier purchases services from an affiliate that exists 
solely to provide services to members of the carrier's corporate 
family, the carrier may record the services at fully distributed cost 
rather than applying the cost or market rule; and (5) maintaining the 
affiliate transaction rules and not exempting nonregulated to 
nonregulated transactions from the affiliate transaction rules. RUS 
shall not adopt these changes.
    The FCC modified Sec.  32.5280(c) so that incumbent local exchange 
carriers (ILEC's) may group their nonregulated revenues into two 
groups: One subsidiary record for all the revenues from regulated 
services treated as nonregulated for federal accounting purposes 
pursuant to the FCC order, and the second for all other nonregulated 
revenues. RUS shall not adopt these changes.
    Additionally, the FCC streamlined many of its accounting rules and 
reporting requirements by reducing the number of Class A accounts from 
296 to 164, and the number of Class B accounts from 113 to 82 accounts. 
RUS shall not adopt this change.
    On November 12, 2002, the FCC released an Order that suspended 
implementation of four accounting and recordkeeping rule modifications 
they previously adopted: (1) The consolidation of Accounts 6621 through 
6623 into Account 6620, with subaccounts for wholesale and retail; (2) 
the consolidation of Account 5230, Directory Revenue into Account 5200, 
Miscellaneous Revenue; (3) the consolidation of the depreciation and 
amortization expense accounts (Accounts 6561 through 6565) into Account 
6562, Depreciation and Amortization Expense; and (4) the revised ``Loop 
Sheath Kilometers'' data collection in Table II of ARMIS Report 43-07. 
RUS agrees with this suspension.
    The suspension will allow the recently established Federal-State 
Joint Conference on Accounting Issues to review these rules before 
carriers are required to implement them. However, those reforms 
included in the FCC's November 5, 2001, Report and Order and Further 
Notice of Proposed Rulemaking, took effect January 1, 2003.

Comments

    A proposed rule entitled Accounting Requirements for RUS 
Telecommunications Borrowers, published in the Federal Register, May 
10, 2004, at 69 FR 25848, invited interested parties to submit comments 
on or before July 9, 2004. No comments were received.
    The following is supplemental information for use by broadband 
providers, and in particular, the recipients of loans made under the 
Rural Broadband Access Loans and Loan Guarantees Program (Pub. L. 101-
171). This information will be included in RUS Bulletin 1770B-1, ``Part 
32, Uniform System of Accounts, and Supplementary Accounts Required of 
REA Telephone Borrowers,'' as an appendix. This appendix provides an 
overview of the Uniform System of Accounts required for all RUS 
Telecommunications and Broadband Borrowers, along with items listed for 
pertinent plant, revenue, and expense accounts.

List of Subjects in 7 CFR Part 1770

    Loan programs--communications, Reporting and recordkeeping 
requirements, Rural areas, Telecommunications, Uniform System of 
Accounts.


0
For the reasons set out in the preamble, Chapter XVII of Title 7 of the 
Code of Federal Regulations, part 1770, is amended to read as follows:
0
1. The authority citation for part 1770 continues to read as follows:

    Authority: 7 U.S.C. 901 et seq.; 7 U.S.C. 1921 et seq.; Pub. L. 
103-354, 108 Stat. 3178 (7 U.S.C. 6941 et seq.).

PART 1770--ACCOUNTING REQUIREMENTS FOR RUS TELECOMMUNICATIONS 
BORROWERS

0
2. The heading for part 1770 is revised to read as set out above.

0
3. Subpart A (Sec. Sec. 1770.1-1770.9) is added to read as follows:
Subpart A--Preservation of Records
Sec.
1770.1 General.
1770.2 Designation of a supervisory official.
1770.3 Index of records.
1770.4 Record storage media.
1770.5 Periods of retention.
1770.6-1770.9 [Reserved]

Subpart A--Preservation of Records


Sec.  1770.1  General.

    (a) This subpart establishes RUS polices and procedures for the 
preservation of records of telecommunications borrowers.

[[Page 25756]]

    (b) The regulations prescribed in this part apply to all books of 
account, contracts, records, memoranda, documents, papers, and 
correspondence prepared by or on behalf of the borrower as well as 
those which come into its possession in connection with the acquisition 
of property by purchase, consolidation, merger, etc.
    (c) The regulations prescribed in this part shall not be construed 
as excusing compliance with any other lawful requirements for the 
preservation of records.


Sec.  1770.2  Designation of a supervisory official.

    Each borrower shall designate one or more officials to supervise 
the preservation of its records.


Sec.  1770.3  Index of records.

    (a) Each borrower shall maintain a master index of records. The 
master index shall identify the records retained, the related retention 
period, and the locations where the records are maintained. The master 
index shall be subject to review by RUS and RUS shall reserve the right 
to add records, or lengthen retention periods upon finding that 
retention periods may be insufficient for its purposes.
    (b) At each office where records are kept or stored the borrower 
shall arrange, file, and index the records currently at that site so 
that they may be readily identified and made available to 
representatives of RUS.


Sec.  1770.4  Record storage media.

    Each RUS borrower has the flexibility to select its own storage 
media subject to the following conditions:
    (a) The storage media must have a life expectancy at least equal to 
the applicable retention period provided for in the master index of 
records, unless there is quality transfer from one media to another 
with no loss of data. Each transfer of data from one media to another 
must be verified for accuracy and documented.
    (b) Each borrower is required to implement internal control 
procedures that assure the reliability of, and ready access to, data 
stored on machine-readable media. Internal control procedures must be 
documented by a responsible supervisory official.
    (c) The records shall be indexed and retained in such a manner that 
they are easily accessible.
    (d) The borrower shall have the hardware and software available to 
locate, identify, and reproduce the records in readable form without 
loss of clarity.
    (e) At the expiration of the retention period, the borrower may use 
any appropriate method to destroy records.
    (f) When any records are lost or destroyed before the expiration of 
the retention period set forth in the master index, a certified 
statement shall be added to the master index listing, as far as may be 
determined, the records lost or destroyed and describing the 
circumstances of the premature loss or destruction.


Sec.  1770.5  Periods of retention.

    (a) Except as provided for in paragraphs (b), (c), and (d) of this 
section, record retention shall be consistent with Prudent Utility 
Practice. Prudent Utility Practice shall mean any of the practices, 
methods, and acts which, in the exercise of reasonable judgment, in 
light of the facts, including but not limited to, the practices, 
methods, and acts engaged in or approved by a significant portion of 
the telecommunications industry prior thereto, known at the time the 
decision was made, would have been expected to accomplish the desired 
result consistent with cost effectiveness, reliability, safety, and 
expeditiousness. It is recognized that Prudent Utility Practice is not 
intended to be limited to optimum practice, method, or act to the 
exclusion of all others, but rather is a spectrum of possible 
practices, methods, or acts which could have been expected to 
accomplish the desired result at the lowest reasonable cost consistent 
with cost effectiveness, reliability, safety, and expedition.
    (b) Records supporting construction financed by RUS shall be 
retained until audited and approved by RUS.
    (c) Records related to plant in service must be retained until the 
facilities are permanently removed from utility service, all removal 
and restoration activities are completed, and all costs are retired 
from the accounting records unless accounting adjustments resulting 
from reclassification and original costs studies have been approved by 
RUS or other regulatory body having jurisdiction.
    (d) Life and mortality study data for depreciation purposes must be 
retained for 25 years or for 10 years after plant is retired whichever 
is longer.


Sec. Sec.  1770.6--1770.9  [Reserved]

Subpart B--Uniform System of Accounts

0
4. Amend Sec.  1770.11 by revising paragraphs (b)(1) and (b)(2) to read 
as follows:


Sec.  1770.11  Accounting system requirements.

* * * * *
    (b) * * *
    (1) RUS borrowers maintaining the accounts prescribed in 47 CFR 
part 32 for Class A companies as of June 15, 2005, shall continue to do 
so. RUS suspends implementation of the reduced number of Class A and B 
accounts, until the Federal-State Joint Conference has reviewed them.
    (2) New borrowers under the RUS telecommunications program shall 
maintain the accounts prescribed in 47 CFR part 32 for Class A 
companies.
* * * * *

0
5. Amend Sec.  1770.13 by revising paragraph (d) to read as follows:


Sec.  1770.13  Accounting requirements.

* * * * *
    (d) Interpretations of RUS accounting requirements shall be 
referred to the Assistant Administrator, Program Accounting and 
Regulatory Analysis, Rural Utilities Service.

0
6. Section 1770.15 is amended by:
0
A. Removing account entries 2004.1, 2004.2, and 2004.3;
0
B. Revising account entries 2003.1, 2003.2, and 2003.3; and
0
C. Adding new subaccount entries 2212, 2232, 6212, 6232, and 6620.
    This revision and addition are to read as follows:


Sec.  1770.15  Supplementary accounts required of all borrowers.

[[Page 25757]]



------------------------------------------------------------------------
             Class of company
------------------------------------------
               Account No.                         Account title
------------------------------------------
            A                     B
------------------------------------------------------------------------
 
                              * * * * * * *
2003.1...................          2003.1  Telecommunications Plant
                                            Under Construction--Contract
                                           This account shall include
                                            all costs incurred in the
                                            construction of
                                            telecommunications plant
                                            performed under contract and
                                            the cost of software
                                            development projects that
                                            are not yet ready for their
                                            intended use. Included among
                                            these costs are contractor
                                            payments and charges for
                                            engineering, supervision,
                                            taxes, insurance,
                                            transportation, and other
                                            costs incurred in contract
                                            construction. This account
                                            shall be maintained such
                                            that the various items of
                                            cost are readily
                                            identifiable.
2003.2...................          2003.2  Telecommunications Plant
                                            Under Construction--Force
                                            Account
                                           This account shall include
                                            all costs incurred in the
                                            construction of
                                            telecommunications plant
                                            performed by the borrowers'
                                            own employees and the cost
                                            of software development
                                            projects performed by the
                                            borrowers' own employees
                                            that are not yet ready for
                                            their intended use. Included
                                            among these costs are
                                            charges for material, labor,
                                            engineering, supervision,
                                            taxes, insurance,
                                            transportation, supply
                                            expense, and other costs
                                            incurred in the
                                            construction. This account
                                            shall be maintained such
                                            that the various items of
                                            cost are readily identified.
                                            Specific subaccounts should
                                            be maintained to distinguish
                                            individual projects.
2003.3...................          2003.3  Telecommunications Plant
                                            Under Construction--Work
                                            Orders
                                           This account shall include
                                            all costs incurred in the
                                            construction of
                                            telecommunication plant
                                            performed under a work order
                                            system or line extension
                                            contract. This type of
                                            construction generally
                                            includes service
                                            installations, subscriber
                                            extensions, and minor plant
                                            improvements after the
                                            completion of the initial
                                            system. Included among these
                                            costs are charges for labor,
                                            material and supplies,
                                            transportation, payroll
                                            taxes, insurance,
                                            supervision, and other costs
                                            incurred in the
                                            construction. Subsidiary
                                            records shall be maintained
                                            to reflect the cost of the
                                            individual jobs. These
                                            records shall be reconciled
                                            periodically with the
                                            general ledger control
                                            account. Specific
                                            subaccounts should be
                                            maintained to accumulate
                                            costs incurred under line
                                            extension contracts.
 
                              * * * * * * *
2212.1...................          2212.1  Digital Electronic Switching--
                                            Circuit.
2212.2...................          2212.2  Digital Electronic Switching--
                                            Packet.
 
                              * * * * * * *
2232.1...................          2232.1  Circuit Equipment--
                                            Electronic.
2232.2...................          2232.2  Circuit Equipment--Optical.
 
                              * * * * * * *
6212.1...................          6212.1  Digital Electronic Switching
                                            Expense--Circuit.
6212.2...................          6212.2  Digital Electronic Switching
                                            Expense--Packet.
 
                              * * * * * * *
6232.1...................          6232.1  Circuit Equipment Expense--
                                            Electronic.
6232.2...................          6232.2  Circuit Equipment Expense--
                                            Optical.
 
                              * * * * * * *
6620.1...................          6620.1  Services--Wholesale.
6620.2...................          6620.2  Services--Retail.
 
                              * * * * * * *
------------------------------------------------------------------------


0
7. Section 1770.17 is added to read as follows:


Sec.  1770.17  Expense matrix.

    The expense accounts shall be maintained by the following 
subsidiary record categories, as appropriate to each account. Such 
subsidiary record categories shall be reported as required by 47 CFR 
part 43.
    (a) Salaries and wages. This subsidiary record category shall 
include compensation to employees, such as wages, salaries, 
commissions, bonuses, incentive awards, and termination payments.
    (b) Benefits. This subsidiary record category shall include payroll 
related benefits on behalf of employees such as the following:
    (1) Pensions;
    (2) Savings plan contributions (company portion);
    (3) Worker's compensation required by law;
    (4) Life, hospital, medical, dental, and vision plan insurance, and
    (5) Social Security and other payroll taxes.
    (c) Rents. (1) This subsidiary record category shall include 
amounts paid for the use of real and personal operating property. 
Amounts paid for real property shall be included in Account 6121, Land 
and Buildings Expense. This category includes payments for operating 
leases but does not include payments for capital leases.
    (2) This subsidiary record category is applicable only to the Plant 
Specific Operations Expense accounts. Incidental rents, e.g., short-
term rental car expense, shall be categorized as Other Expenses (see 
paragraph (d) of this section) under the account which reflects the 
function for which the incidental rent was incurred.
    (d) Other expenses. This subsidiary record category shall include 
costs which cannot be classified to the other subsidiary record 
categories. Included are material and supplies, including provisioning 
(note also Account 6512, Provisioning Expense); contracted services; 
accident and damage

[[Page 25758]]

payments, insurance premiums; traveling expenses and other 
miscellaneous costs.
    (e) Clearances. This subsidiary record category shall include 
amounts transferred to Construction accounts (see 47 CFR 
32.2000(c)(2)(iii)), other Plant Specific Operations Expense accounts 
and/or Account 3100, Accumulated Depreciation (cost of removal; see 47 
CFR 32.2000(g)(1)(iii)), as appropriate, from Accounts 6112, Motor 
Vehicles Expense, 6114, Tools and Other Work Equipment Expense, 6534, 
Plant Operations and Administration Expense, and 6535, Engineering 
Expense. There shall also be transfers to Construction or other Plant 
Specific Operations Expense accounts, as appropriate, from Account 
6512, Provisioning Expense. With respect to these expenses, companies 
may establish such clearing accounts as they deem necessary to 
accomplish substantially the same results, provided that within thirty 
(30) days of the opening of such accounts, companies shall notify the 
FCC of the nature and purpose thereof. Additional clearing accounts 
affecting other expense areas may be established with prior approval of 
the FCC. Should companies elect, the initial incurred subsidiary record 
category identification may be carried through to the final accounts 
without FCC approval.

0
8. Section 1770.25 is added to read as follows:


Sec.  1770.25  Unusual items and contingent liabilities.

    Extraordinary items, prior period adjustments and contingent 
liabilities shall be submitted to RUS for review before being recorded 
in the company's books of account. The materiality of corrections of 
errors in prior periods shall be measured in relation to the summary 
account level used for reporting purposes for Class A companies, or in 
relation to total operating revenues or total operating expenses for 
Class B companies. For Class A companies, no correction in excess of 
one percent of the aggregate summary account dollars or one million 
dollars, whichever is higher, may be recorded in current operating 
accounts without prior approval. For Class B companies, no correction 
which exceeds one percent of total operating revenues or one percent of 
total operating expenses, depending on the nature of the item, may be 
recorded in current operating accounts without prior approval.

Subpart C--Accounting Interpretations

0
9. The Appendix to Subpart C is amended by:
0
A. Adding under ``Numerical Index'' and ``Number and Title'', in 
numerical order, the new numbers and their respective titles;
0
B. Adding under ``Subject Matter Index'', in alphabetic order, new 
subjects and their respective number, and
0
C. Add at the end of this Appendix, the new numbers and descriptions.
    These additions are to read as follows:

Appendix to Subpart C to Part 1770--Accounting Methods and Procedures 
Required of All Borrowers

* * * * *

Numerical Index

Number and Title

* * * * *

107 Allowance for Funds Used During Construction

108 Reporting Comprehensive Income

109 Disclosures About Pensions and Other Postretirement Benefits

Subject Matter Index

A

    AFUDC--107

C

* * * * *
    Comprehensive Income--108
* * * * *

D

    Disclosures--109
* * * * *

I

    Income, Other Comprehensive--108

O

    Other Postretirement Benefits--109

P

    Pensions--109
* * * * *

107 Allowance for Funds Used During Construction

    A. Statement of Financial Accounting Standard No. 34, 
Capitalization of Interest Cost, established the standards for 
capitalizing interest cost as a part of the historical cost of 
acquiring certain assets. In order to capitalize interest, the asset 
must require a period of time to complete or to get it ready for its 
intended use. This standard applies to all entities that construct 
facilities for their own use and should be applied by RUS 
Telecommunications borrowers as follows:
    1. Only actual interest costs incurred on external borrowings 
qualify to be capitalized. The interest rate used to calculate the 
amount of interest to be capitalized is based on the companies 
external borrowings. If a construction project is associated with 
specific debt, the interest rate on that debt is used to calculate 
interest cost to be capitalized. If the project is not associated 
with a specific debt, a weighted average of the rates of all 
existing debt shall be applied to expenditures for the project. 
There is no materiality threshold for adoption of this standard (47 
CFR 32.26).
    2. If a borrower is involved in a joint construction project, 
all determinations as to the amount of interest incurred and 
qualified for capitalization must be based on individual financing 
arrangements with regard to the Interest During Construction rules.
    3. The capitalization period shall end when the asset is 
substantially complete and ready for its intended use.

Disclosures

    A. The following information with respect to interest cost shall 
be disclosed in the financial statements or related notes:
    1. For an accounting period in which no interest cost is 
capitalized, the amount of interest cost incurred and charged to 
expense during the period.
    2. For an accounting period in which some interest cost is 
capitalized, the total amount of interest cost incurred during the 
period and the amount thereof that has been capitalized.

108 Reporting Comprehensive Income

    A. In June 1997, the Financial Accounting Standards Board issued 
Statement of Financial Accounting Standards No. 130, Reporting 
Comprehensive Income. This statement requires that all items that 
meet the definition of the components of comprehensive income be 
reported in the financial statements for the period in which they 
are recognized. Statement 130 establishes a distinction between 
comprehensive income and other comprehensive income.
    1. Comprehensive income is composed of net income and other 
comprehensive income. The net income is the result of operations 
resulting from the aggregation of revenues, expenses, gains and 
losses that are not items that comprise other comprehensive income.
    2. Other comprehensive income is composed of the following:
    (a) Foreign currency items,
    (b) Minimum pension liability adjustments, and
    (c) Unrealized gains and losses on certain investments in debt 
and equity securities. Gains or losses on investment securities 
included in the net income of the current period that also had been 
included in other comprehensive income as unrealized holding gains 
or losses in a prior period must be adjusted (called 
reclassification adjustments) in the presentation of other 
comprehensive income in the current period.
    B. Comprehensive income expressed as a formula would be:

Net Income  items of other comprehensive income = 
comprehensive income

    While Statement 130 requires that comprehensive income should be 
divided into two broad display classifications, net income and other 
comprehensive income, it

[[Page 25759]]

does not prescribe a specific format for displaying comprehensive 
income in the financial statements.
    C. RUS Telecommunications borrowers that present a single 
Statement of Operations and Patronage Capital should present the 
components of other comprehensive income below the total for net 
income and then present the reconciliation of patronage capital 
(Retained Earnings). Borrowers that present a separate Statement of 
Patronage Capital (or Retained Earnings) should display the 
beginning balance of patronage capital (or retained earnings), net 
income for the period, other items of comprehensive income and total 
comprehensive income before the presentation of other items of 
patronage capital (or retained earnings) for the period.

109 Disclosures about Pensions and Other Postretirement Benefits

    A. Statement of Financial Accounting Standards (SFAS) No. 132, 
Employers' Disclosures about Pensions and Other Postretirement 
Benefits, issued in February 1998, is effective for fiscal years 
beginning after December 15, 1998. This statement revises employers' 
disclosure requirements for pension and other postretirement benefit 
plans. It does not change the measurement or recognition of those 
plans. The statement also permits reduced disclosures for nonpublic 
entities, which are defined as any entity other than one:
    1. Whose debt or equity securities trade in a public market 
either on a domestic or foreign stock exchange or in the over-the-
counter market, including securities quoted only locally or 
regionally,
    2. That makes a filing with a regulatory agency in preparation 
for the sale of any class of debt or equity securities in a public 
market, or
    3. That is controlled by an entity covered by 1 or 2 above.

Public Entities and Those Controlled by Public Entities

    A. A commercial RUS Telecommunications borrower that meets the 
definition of a public entity and sponsors one or more defined 
benefit pension or postretirement benefit plan shall provide the 
following information on a comparative basis for the statements 
presented:
    1. A reconciliation of beginning and ending balances of the 
benefit obligation showing separately, if applicable, the effects 
during the period attributable to each of the following:
    (a) Service cost,
    (b) Interest cost,
    (c) Contributions by plan participants,
    (d) Actuarial gains and losses,
    (e) Foreign currency exchange rate changes,
    (f) Benefits paid,
    (g) Plan amendments,
    (h) Business combinations,
    (i) Divestitures,
    (j) Curtailments,
    (k) Settlements, and
    (l) Special termination benefits.
    2. A reconciliation of beginning and ending balances of the fair 
value of plan assets showing separately, if applicable, the effects 
during the period attributable to each of the following:
    (a) Actual return on plan assets,
    (b) Foreign currency exchange rate changes,
    (c) Contributions by the employer,
    (d) Contributions by plan participants,
    (e) Benefits paid,
    (f) Business combinations,
    (g) Divestitures, and
    (h) Settlements.
    3. The funded status of the plans, the amounts not recognized in 
the statement of financial position, and the amounts recognized in 
the statement of financial position, including:
    (a) The amount of any unamortized prior service cost.
    (b) The amount of any unrecognized net gain or loss (including 
asset gains and losses not yet reflected in market-related value).
    (c) The amount of any remaining unamortized, unrecognized net 
obligation or net asset existing at the initial date of application 
of SFAS No. 87, Employers' Accounting for Pensions, or SFAS No. 106, 
Employers' Accounting for Postretirement Benefits Other Than 
Pensions.
    (d) The net pension or other postretirement benefit prepaid 
assets or accrued liabilities.
    (e) Any intangible asset and the amount of accumulated other 
comprehensive income recognized pursuant to paragraph 37 of SFAS No. 
87, as amended.
    4. The amount of net periodic benefit cost recognized, showing 
separately:
    (a) The service cost component,
    (b) The interest cost component,
    (c) The expected return on plan assets for the period,
    (d) The amortization of the unrecognized transition obligation 
or transition asset,
    (e) The amount of recognized gains and losses, the amount of 
prior service cost recognized, and
    (f) The amount of gain or loss recognized due to a settlement or 
curtailment.
    5. The amount included within other comprehensive income for the 
period arising from a change in the additional minimum pension 
liability recognized pursuant to paragraph 37 of SFAS No. 87, as 
amended.
    6. On a weighted-average basis, the following assumptions used 
in the accounting for the plans:
    (a) Assumed discount rate,
    (b) Rate of compensation increase (for pay-related plans), and
    (c) Expected long-term rate of return on plan assets.
    7. The assumed health care cost trend rate(s) for the next year 
used to measure the expected cost of benefits covered by the plan 
(gross eligible charges) and a general description of the direction 
and pattern of change in the assumed trend rates thereafter, 
together with the ultimate trend rate(s) and when that rate is 
expected to be achieved.
    8. The effect of a one-percentage-point increase and the effect 
of a one-percentage-point decrease in the assumed health care cost 
trend rates on (for purposes of this disclosure, all other 
assumptions shall be held constant, and the effects shall be 
measured based on the substantive plan that is the basis for the 
accounting):
    (a) The aggregate of the service and interest cost components of 
net periodic postretirement health care benefit cost, and
    (b) The accumulated postretirement benefit obligation for health 
care benefits.
    9. If applicable, the amounts and types of securities of the 
employer and related parties included in plan assets, the 
approximate amount of future annual benefits of plan participants 
covered by insurance contracts issued by the employer or related 
parties, and any significant transactions between the employer or 
related parties and the plan during the period.
    10. If applicable, any alternative amortization method used to 
amortize prior service amounts or unrecognized net gains and losses 
pursuant to paragraphs 26 and 33 of SFAS No. 87 or paragraphs 53 and 
60 of SFAS No. 106.
    11. If applicable, any substantive commitment, such as past 
practice or a history of regular benefit increases, used as the 
basis for accounting for the benefit obligation.
    12. If applicable, the cost of providing special or contractual 
termination benefits recognized during the period and a description 
of the nature of the event.
    13. An explanation of any significant change in the benefit 
obligation or plan assets not otherwise apparent in the other 
disclosures.
    B. RUS Telecommunications borrowers that sponsor two or more 
pension or postretirement plans may aggregate the required 
disclosures. If the disclosures are aggregated, the aggregate 
benefit obligation and aggregate fair value of plan assets for plans 
with benefit obligations in excess of plan assets must be disclosed.
    C. RUS Telecommunications borrowers sponsoring defined 
contribution plans shall disclose the amount of cost recognized for 
defined contribution pension or other postretirement benefit plans 
during the period separately from the amount of cost recognized for 
defined benefit plans. The disclosures shall include a description 
of the nature and effect of any significant changes during the 
period affecting comparability, such as a change in the rate of 
employer contributions, a business combination, or a divestiture.

Nonpublic Entities

    A. RUS commercial and cooperative type borrowers that meet the 
definition of a nonpublic entity, as previously defined, may elect 
to meet the following reduced disclosure requirements:
    1. The benefit obligation.
    2. Fair value of plan assets.
    3. Funded status of the plan.
    4. Employer contributions.
    5. Participant contributions.
    6. Benefits paid.
    7. The amounts recognized in the statement of financial 
position, including the net pension and other postretirement benefit 
prepaid assets or accrued liabilities and any intangible asset and 
the amount of accumulated other comprehensive income recognized 
pursuant to paragraph 37 of SFAS No. 87, as amended.
    8. The amount of net periodic benefit cost recognized and the 
amount included within

[[Page 25760]]

other comprehensive income arising from a change in the minimum 
pension liability recognized pursuant to paragraph 37 of SFAS No. 
87, as amended.
    9. On a weighted-average basis, the following assumptions used 
in the accounting for the plans: Assumed discount rate, rate of 
compensation increase (for pay-related plans), and expected long-
term rate of return on plan assets.
    10. The assumed health care cost trend rate(s) for the next year 
used to measure the expected cost of benefits covered by the plan 
(gross eligible charges) and a general description of the direction 
and pattern of change in the assumed trend rates thereafter, 
together with the ultimate trend rate(s) and when that rate is 
expected to be achieved.
    11. If applicable, the amounts and types of securities of the 
employer and related parties included in plan assets, the 
approximate amount of future annual benefits of plan participants 
covered by insurance contracts issued by the employer or related 
parties, and any significant transactions between the employer or 
related parties and the plan during the period.
    12. The nature and effect of significant nonroutine events, such 
as amendments, combinations, divestitures, curtailments, and 
settlements.
    B. The majority of RUS Telecommunications borrowers will fall 
within the definition of nonpublic entities with exception of those 
held by publicly traded holding companies.

Multiemployer Plans

    A. An RUS Telecommunications borrower shall disclose the amount 
of contributions to multiemployer plans during the period. The 
borrower may disclose total contributions to multiemployer plans 
without disaggregating the amounts attributable to pensions and 
other postretirement benefits. The disclosures shall include a 
description of the nature and effect of any changes affecting 
comparability, such as a change in the rate of employer 
contributions, a business combination, or a divestiture.
    B. In some cases, withdrawal from a multiemployer plan results 
in an obligation to the plan for a portion of the plan's unfunded 
accumulated postretirement benefit obligation. If it is either 
probable or reasonably possible that (a) an employer would withdraw 
from the plan under circumstances that would give rise to an 
obligation or (b) an employer's contribution to the fund would be 
increased during the remainder of the contract period to make up a 
shortfall in the funds necessary to maintain the negotiated level of 
benefit coverage, the employer shall apply the provisions of SFAS 
No. 5, Accounting for Contingencies.

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



[[Page 25761]]

    Dated: April 25, 2005.
Curtis M. Anderson,
Acting Administrator, Rural Utilities Service.
[FR Doc. 05-9648 Filed 5-13-05; 8:45 am]
BILLING CODE 3410-15-P