[Code of Federal Regulations]
[Title 7, Volume 11]
[Revised as of January 1, 2003]
From the U.S. Government Printing Office via GPO Access
[CITE: 7CFR1773.1]

[Page 977-978]
 
                          TITLE 7--AGRICULTURE
 
    CHAPTER XVII--RURAL UTILITIES SERVICE, DEPARTMENT OF AGRICULTURE
 
PART 1773--POLICY ON AUDITS OF RUS BORROWERS--Table of Contents
 
                      Subpart A--General Provisions
 
Sec. 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 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.

[[Page 978]]

    (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]