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;
(5)
Determined the degree of accuracy and control of costing retirements, including tests of salvage and removal costs;
(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:
(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;
(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:
(ii)
Traced contract costs to final closeout documents, to the general ledger, and to the continuing property records; and
(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;
(ii)
Reviewed the procedures for unitizing and distributing costs of completed construction to the plant accounts;
(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;
(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:
(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;
(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:
(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.