[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: 7CFR1773.6]

[Page 982-983]
 
                          TITLE 7--AGRICULTURE
 
    CHAPTER XVII--RURAL UTILITIES SERVICE, DEPARTMENT OF AGRICULTURE
 
PART 1773--POLICY ON AUDITS OF RUS BORROWERS--Table of Contents
 
                    Subpart B--RUS Audit Requirements
 
Sec. 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:

[[Page 983]]

    (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 Sec. 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 Sec. 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;
    (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]