Before the FEDERAL COMMUNICATIONS COMMISSION Washington, D.C. 20554 In the Matter of ) ) Comprehensive Review of the ) Accounting Requirements ) CC Docket No. 99-253 and ARMIS Reporting Requirements for) Incumbent Local Exchange Carriers: Phase 1) NOTICE OF PROPOSED RULEMAKING Adopted: July 13, 1999 Released: July 14, 1999 Comment Date: August 23, 1999 Reply Comment Date: September 9, 1999 By the Commission: Commissioner Furchtgott-Roth issuing a statement. I. INTRODUCTION 1. To keep pace with changing conditions as the telecommunications industry becomes increasingly competitive, we are initiating a comprehensive review of the Commission's accounting and reporting requirements. In this comprehensive review, we plan to reevaluate our existing accounting and reporting requirements to determine whether they should be modified or eliminated as changes occur in the industry. We also consider the appropriate timing of accounting and reporting modifications to assure that we will continue to have the information we need to make informed decisions. We are conducting this comprehensive review in a manner that will allow the states, industry, and interested members of the public the opportunity to participate fully in our consideration of changes in our accounting and reporting requirements. 2. We are performing this comprehensive review in two phases. Phase 1, which commences with this Notice of Proposed Rulemaking (NPRM) and will conclude by the end of the year, will address accounting and reporting reform measures that can be implemented without delay and still retain sufficient information for the Commission and state commissions to meet their responsibilities. Phase 2, which will begin in the last quarter of 1999, will examine the current accounting and reporting structure and address long-term changes needed as local exchange markets become competitive. During this process, the Common Carrier Bureau will continue to work closely with the National Association of Regulatory Utility Commissioners (NARUC) and state commissioners so that, in addition to eliminating unnecessary reporting requirements, the Commission and states will focus on further steps necessary to eliminate unnecessary overlap of Federal and state reporting requirements. 3. In this first phase of the comprehensive review, we seek comment on the following accounting issues: eliminating or revising the matrix used to classify expenses in the Uniform System of Accounts (USOA); reducing the audit burdens on incumbent local exchange carriers (ILECs); adopting a de minimis exception to our affiliate transactions rules; eliminating the 15-day prefiling for cost pool changes; eliminating the notifications and approvals required in sections 32.13(a)(3) and 32.25; and revising the accounting requirements for sections 32.2002 and 32.2003. In addition, we seek comment on streamlining the reporting requirements in the ARMIS 43-02 USOA Report. Specifically, we seek comment on eliminating certain corporate information collected in the "C" series tables and on consolidating certain information into one table. We also seek comment on eliminating certain information concerning balance sheet accounts reported in the "B" series tables and income statement accounts reported in the "I" series tables. II. BACKGROUND 4. On May 18, 1999, as part of our biennial review under section 11 of the Communications Act of 1934, as amended (the Act), we adopted our Accounting Reductions Report and Order, and our ARMIS Reductions Report and Order. In the Accounting Reductions Report and Order, we streamlined the accounting requirements as follows:  reduced the accounting and cost allocation manual (CAM) requirements for mid-sized ILECs from Class A to Class B;  reduced the CAM audit requirements for mid-sized ILECs from a financial audit requiring a positive opinion every year to a less stringent attestation every two years;  reduced accounting details required to be maintained by consolidating several accounts;  eliminated the requirement in section 32.16 for filing projected future effects of an accounting change;  eliminated the requirement in section 32.2000(b) that carriers obtain Commission approval of journal entries made to record certain plant acquisitions; and  amended our rules to provide for recording all computer software in conformance with generally accepted accounting principles (GAAP). 5. In the ARMIS Reductions Report and Order, we streamlined the reporting requirements as follows:  reduced ARMIS reporting for mid-sized ILECs from Class A to Class B level of accounting;  eliminated 21 tables from the ARMIS 43-02 USOA Report for mid-sized carriers;  eliminated for all carriers the reporting of data pertaining to inside wire and payphone investment, and most equal access information;  eliminated an additional 48 rows of data from the ARMIS 43-01 Annual Summary Report and 43-04 Access Report; and  eliminated paper filing and diskette filing requirements. 6. As these modifications were made, we recognized that further streamlining to our accounting rules and reporting requirements may be warranted but that such changes should be carefully determined after the views of all parties affected by the changes have been considered. Consequently, we have initiated this comprehensive review, which will complement the Commission's 2000 biennial regulatory review. In this proceeding, our objective is to adjust our accounting rules and reporting requirements to promote the competitive goals of the Telecommunications Act of 1996. We believe that, in this phase, we can provide immediate regulatory relief by reducing the accounting and reporting burden on the largest ILECs while retaining sufficient information needed for the Commission and state commissions to meet their responsibilities. III. DISCUSSION A. Accounting Rules 1. Expense Matrix 7. Section 32.5999(f) of the Commission's rules requires carriers to maintain disaggregated financial data in subsidiary record categories to be reported in an expense matrix. The Commission uses the detailed data contained in the carriers' expense subsidiary record categories in performing studies and trend analyses, and in its overall monitoring efforts. The additional information provided by the expense matrix helps the Commission analyze a carrier's expenses. In particular, the Commission has relied heavily upon the salaries and wages and rent data detailed in the expense matrix. For example, when the Financial Accounting Standards Board (FASB) promulgated new accounting standards for post-employment benefits and post-retirement benefits other than pensions, the Commission used the salaries and wages data in its analysis of the reasonableness of carrier projections related to implementation of the new accounting standards. The Commission also uses the salaries and wages data in calculating productivity factors used to adjust price cap indices. This expense data would be needed for future productivity studies if the price cap formula is revised. Expense matrix data is also used in tracking the salaries and wages and rents portion of maintenance expense in the analysis of service quality. Furthermore, carriers, competitors, and the Commission use the pole rents information detailed in the expense matrix in the formula to calculate carriers' pole attachment rates. 8. We tentatively conclude that we can eliminate the expense matrix or reduce it to the minimum amount necessary to meet other regulatory purposes. We believe that this information could be provided by the carriers on an as-needed basis even if the Commission did not prescribe it to be maintained. We seek comment on this tentative conclusion. Commenters should discuss whether it would be more burdensome to maintain and file the expense matrix or to keep such data, at the same level of disaggregation, for several years, to provide to the Commission if requested. We seek comment on whether, as an alternative, the reporting burden would be alleviated by reducing the expense matrix to two classifications: (1) salary and wages and (2) other. Commenters should specifically address whether this would affect the analysis of the price cap performance/productivity factor calculations. In addition, we seek comment on whether, and how, elimination of the expense matrix would affect the jurisdictional separations process, universal service support calculations, or service quality studies. 9. In the Accounting Reductions Report and Order, we required mid-sized ILECs to maintain subsidiary record categories to capture the pole attachment data currently provided in the Class A accounts. We believe it is necessary to require subsidiary records for data needed in pole attachment formulas to assure that the data is publicly available, uniformly maintained among the carriers, and maintained in a manner that can be audited. We propose that, if the expense matrix is eliminated, carriers maintain subsidiary records to provide the data used in the pole attachment formulas and report in their ARMIS reports the information necessary for the Commission, carriers, and competitors to calculate pole attachment rates. We seek comment on this proposal. 2. Audits 10. The Commission has established accounting safeguards governing the allocation of costs between the carriers' regulated and nonregulated activities. These safeguards are designed to promote fair cost allocations and to protect regulated ratepayers from absorbing the costs of nonregulated activities. One of the accounting safeguards, prescribed in section 64.904 of the Commission's rules, is that carriers obtain an independent audit of reported cost allocation data. Before adoption of the Accounting Reductions Report and Order, our rules required that the audit be performed annually for ILECs required to file cost allocation manuals, that it provide a positive opinion, that the reported data is presented fairly in all material respects, and that it be conducted in accordance with generally accepted auditing standards. 11. In the Accounting Reductions Report and Order, we revised the audit requirement for mid-sized ILECs. Under rules adopted in that Order, mid-sized ILECs are required to obtain a less stringent attestation every two years (covering the prior two year period) instead of an annual financial audit requiring a positive opinion. The financial audit requires that an ILEC's independent auditor provide assurance that the reported data are fairly reported. An attestation requires that the auditor provide assurance that specific management assertions are fairly stated. An attestation generally provides less assurance and is governed by less stringent standards of testing, reporting, and expression of opinion than the financial audits required by section 64.904 for large ILECs. 12. We tentatively conclude that, if properly implemented, a less stringent audit requirement for the large ILECs will provide the necessary assurance that the carriers' cost allocations are consistent with our rules and at the same time result in significant savings in both time and money for the carriers. We note that in other instances the Commission requires something less than a positive opinion audit. For example, we have new audit requirements specifically for section 272 affiliates. Section 272 of the Act permits a BOC to manufacture equipment, originate in-region, interLATA telecommunications services, and provide interLATA information services only if it does so through one or more separate affiliates. The BOC and its affiliate(s) must, among other things, obtain a joint Federal/State audit every two years conducted by an independent auditor. Our rules require that the independent auditor perform an agreed-upon procedures engagement as specified by the regional Federal/State biennial oversight team. 13. We tentatively conclude that we can reduce our audit requirements for the large ILECs -- the BOCs and GTE -- by extending the same audit requirements to the large ILECs that we adopted for mid-sized ILECs in the Accounting Reductions Report and Order, i.e., allowing carriers to obtain an attestation, instead of an annual financial audit requiring a positive opinion. We seek comment on this tentative conclusion. Furthermore, we seek comment on whether we should adopt an audit requirement similar to the section 272 biennial audit, an agreed-upon procedures engagement, for the large ILECs. Commenters should discuss whether these alternatives would provide the necessary assurance that the reported cost allocation data is an accurate reflection of the carrier's CAM and the Commission's rules. Commenters should also discuss any other alternatives to an annual financial audit requiring a positive opinion. In addition, commenters should address whether the new audit procedure should be an annual requirement. 3. Affiliate Transactions Rules 14. In the Accounting Safeguards Order, the Commission amended the affiliate transactions rules for services provided by a carrier to its affiliate and services received by a carrier from its affiliate that are not subject to: (1) an existing tariff rate, (2) a publicly-filed agreement or statement, or (3) a qualified prevailing price valuation. Services provided by a carrier to its affiliate must be recorded at the higher of fair market value or fully distributed cost. Services received by a carrier from its affiliate must be recorded at the lower of fair market value or fully distributed cost. The Commission further required carriers to make a good faith determination of fair market value in those instances when a fair market value was not readily available so that the carrier could assign the appropriate value to the service when recording its value under the affiliate transactions rules. 15. Based on our experience enforcing these requirements over the past two years, we tentatively conclude that when the total annual value of transactions for that service is de minimis, the regulatory benefits of requiring carriers to make a good faith determination of the fair market value of a service are outweighed by the administrative cost and effort of making such a determination. We tentatively conclude that such a de minimis exception will not lessen the effectiveness of the Commission's affiliate transactions rules, and at the same time, will reduce the burden associated with the requirement that carriers make a good faith determination of fair market value. We, therefore, propose to eliminate the requirement that carriers make a good faith determination of fair market value for each service in which the total annual value of transactions for that service is less than $250,000. We propose that in such cases the service should be recorded at fully distributed cost, and carriers should continue to report such transactions in their cost allocation manuals and ARMIS reports. 16. We seek comment on our proposals and tentative conclusions. We also seek comment on whether a different threshold should serve to delineate the de minimis treatment. Commenters proposing a different threshold should explain why their proposed threshold should be higher or lower than $250,000. In addition, commenters should address whether affiliate transaction services conducted pursuant to sections 260, and 271-276 of the Act should be included in the services eligible for the de minimis exception. 4. Elimination of 15-Day Prefiling for Cost Pool Changes 17. Section 64.903 of the Commission's rules requires that carriers update their CAMs at least annually except that changes to the cost apportionment table and time-reporting procedures must be filed at least 15 days before the carrier plans to implement changes. Once a CAM change has been filed, the Chief, Common Carrier Bureau may suspend any such changes for a period not to exceed 180 days, and may thereafter allow the change to become effective. BellSouth claims that the 15-day special filing requirement for changes in cost pools discloses sensitive competitive service information. We tentatively conclude that we should eliminate the 15-day pre-filing requirement in order to eliminate any disclosure of sensitive data in advance of implementation of a service. If we adopt this proposal, carriers would file the necessary CAM changes contemporaneous with the implementation of the change. We seek comment on this tentative conclusion. 5. Revision to Section 32.13, Accounts--general 18. Section 32.13(a)(3) of the Commission's rules permits carriers to establish temporary or experimental accounts provided they notify the Commission of the nature and purpose of the accounts within 30 days of establishing them. This requirement was adopted to allow the Commission to review the nature of the proposed temporary or experimental accounts prior to the effective date. Carriers use these temporary accounts as clearing accounts, which are closed each financial period and do not alter the Part 32 accounting structure. We tentatively conclude that this 30-day notification is not necessary because other accounting safeguards, such as ARMIS reporting and our audit program, together with our ability to obtain additional information as necessary, are sufficient for our regulatory oversight. Accordingly, we propose to modify section 32.13(a)(3) by eliminating the notification requirement. We seek comment on our tentative conclusion and proposal. 6. Revision to Section 32.25, Unusual items and contingent liabilities 19. Section 32.25 of the Commission's rules requires carriers to submit journal entries detailing extraordinary items, contingent liabilities, and material prior period adjustments for Commission approval before recording them in their books of account. This requirement was established as a safeguard to prevent carriers from inflating their rate base through the use of accounting adjustments. We tentatively conclude that prior Commission review of journal entries is not necessary for the Commission's regulatory oversight, and that other accounting safeguards, such as the ARMIS reporting and our audit program, together with our ability to obtain additional information as necessary, are sufficient to assure that carriers will comply with our accounting requirements. We tentatively conclude, therefore, that it is no longer necessary to require the routine filing of these journal entries. Accordingly, we propose to eliminate the section 32.25 filing requirement. We seek comment on our tentative conclusion and proposal. 7. Revision to Section 32.2002, Property held for future telecommunications use 20. Section 32.2002 of the Commission's rules requires that carriers record to Account 2002 the costs of property held for no longer than two years under a definite plan for use in telecommunications service. After two years, section 32.2002 requires that the carrier reclassify the cost of the property to Account 2006, Nonoperating plant. BellSouth states that this reclassification is burdensome and that the property could remain recorded in Account 2002, but be removed from the ratebase in a less burdensome manner. We tentatively conclude that we should allow carriers to maintain the costs in Account 2002 but we should require carriers to exclude the cost of such property, and the associated depreciation reserve, from the ratebase. The depreciation expense associated with such property should also be excluded from ratemaking considerations. These amounts would be reported in the ARMIS 43-01, column (e) All Other Adjustments and ARMIS 43-03, column (l) Other Adjustments. We believe that adoption of this tentative conclusion will provide the same protection for ratepayers while alleviating the burden on carriers to reclassify these costs to Account 2006. We seek comment on this tentative conclusion. 8. Revisions to Section 32.2003, Telecommunications plant under construction 21. Section 32.2003 of the Commission's rules requires that carriers record to Account 2003 the original cost of construction projects including all related direct and indirect costs as provided under section 32.2000(c). If the construction project has been suspended for six months or more, the cost of the project must be reclassified to Account 2006, Nonoperating plant. If the project is eventually abandoned, these costs must be charged to Account 7370, Special charges. BellSouth states that this reclassification is burdensome and that the property could remain recorded in Account 2003 but be excluded from the ratebase in a less burdensome manner. We tentatively conclude that carriers be permitted to maintain the costs in Account 2003 and that carriers be required to remove the cost of suspended projects after six months from the ratebase. Additionally, carriers would be required to discontinue capitalization of allowance for funds used during construction under section 32.2000(c)(2)(x) until construction is resumed. These amounts would be reported in the ARMIS 43-01, column (e) All Other Adjustments and ARMIS 43-03, column (l) Other Adjustments. Carriers would still charge Account 7370 if the project were abandoned. We believe that adoption of this tentative conclusion will provide the same protection for ratepayers while alleviating the burden on carriers to reclassifying these costs to Account 2006. We seek comment on this tentative conclusion. B. ARMIS Reporting Requirements 1. Reductions to ARMIS 43-02 USOA Report 22. In the ARMIS 43-02 USOA Report, carriers report their annual operating results for every account in the USOA. The USOA contains both balance sheet and income statement accounts which report the results of operational and financial events. Information provided by these accounts is used to review the overall investment and expense levels, affiliate transactions, property valuation, and depreciation rates of regulated carriers. The ARMIS 43-02 USOA Report contains a total of 27 tables, and is one of the most voluminous reporting requirements in ARMIS. The tables are set out in three series: (1) the "C" series, which includes 5 tables that provide corporate information; (2) the "B" series, which includes 15 tables that provide information about the balance sheet accounts of the carrier; and (3) the "I" series, which includes 7 tables that provide information about the carriers' income and expenses. 23. In light of the objectives we seek to achieve in Phase 1 of our comprehensive review, we are proposing significant reductions in reporting requirements in the ARMIS 43-02 USOA Report for the largest ILECs. For the reasons discussed below, we tentatively conclude that the filing burden imposed on the largest ILECs by ARMIS 43-02 USOA Report should be reduced by eliminating the requirement to file 14 of 27 tables, adding one short-form table, and changing the threshold level of reporting required in 3 of the remaining 13 tables. We propose eliminating or modifying the reporting requirements for the following tables: C-1 (Identity of Respondent); C-2 (Control Over Respondent); C-3 (Board of Directors and General Officers); C-4 (Stockholders); C-5 (Important Changes During the Year); B-8 (Capital Leases); B-9 (Deferred Charges); B-11 (Long-Term Debt); B-12 (Net Deferred Income Taxes); B-13 (Other Deferred Credits); B-14 (Capital Stock); and B-15 (Capital Stock and Funded Debt Reacquired or Retired During the Year); I-3 (Pension Costs); I-4 (Operating Other Taxes); I-5 (Prepaid Taxes and Accruals); I-6 (Special Charges); and I-7 (Donations or Payments for Services Rendered by Persons Other Than Employees). 24. We seek comment generally on our tentative proposal to streamline the ARMIS 43-02 USOA Report for the largest ILECs. Specifically, we seek comment on whether alternative sources of information would provide sufficient protection against the potentially anti-competitive practices we identified in the ARMIS Reductions Report and Order. For instance, we believe that much of the information contained in the series "C" tables can be obtained from the carrier's Form 10-K Annual Report filed with the Securities and Exchange Commission (SEC), as well as in other publicly available reports. We also believe that, to a large extent, balance sheet and income statement information reported in the series "B" and "I" tables may be obtained from underlying source data and can be readily provided by the carrier upon request. Although we continue to believe that access to information is crucial for our processes as well as for the state commissions, we believe access to this information may be more efficiently obtained through other sources. We also believe that the need for obtaining certain data on a regular basis may not be so vital to regulatory mandates as to outweigh the burden imposed on the ILECs in reporting this information. We seek comment on these overall tentative conclusions. 2. ARMIS 43-02 USOA Report: Table C Reductions 25. The "C" series tables of the ARMIS 43-02 USOA Report include five tables containing carrier and stockholder information. We believe we could reduce the burdens imposed on the carriers by modifying these tables. We believe that most of the data contained in C-1 (Identity of Respondent), C-2 (Control Over Respondent), and C-4 (Stockholders), are available in public filings. Our experience suggests that routine filing of information contained in C-3 (Board of Directors and General Officers) may not be needed if the information is made available upon request. We tentatively conclude that because carriers must publicly file most of the information in these tables with the SEC in their Form 10- K Annual Reports, which are available on the Internet, and because we may request and obtain this information as necessary, streamlining these reporting requirements will not impair our ability to perform necessary oversight functions but will reduce the filing burden on large ILECs. Certain basic information contained in these reports, however, may be needed for purposes of efficiency in administering and managing the database. Thus, we tentatively propose to consolidate all basic information into one table, which would generally provide information on the carrier's name, carrier's address, operating states, and executive officers. We seek comment on these proposals and tentative conclusions. 26. Table C-5 (Important Changes During the Year) provides information on significant events, such as extensions of systems, substantial portions of property sold, changes in direct and indirect control of the carrier, important contracts or agreements entered into, and important changes in service and rate schedules. We believe the reporting requirements for table C-5 could be streamlined by eliminating the requirement to report certain information. For instance, we believe that the data reported on changes in direct and indirect control may no longer be needed on a recurring basis. We believe this information may be available in the carrier's Form 10-K Annual Reports or in the carrier's cost allocation manuals, and where necessary, could be obtained from the carrier upon request. Thus, we tentatively conclude that the reporting requirements concerning changes in direct and indirect control of the carrier be eliminated. We seek comment on this tentative conclusion and proposal to modify table C-5 in this manner. We also believe that the information collected in table C-5 could be reduced further by collecting information only where the change involves a significant or material change. Thus, we seek comment on whether we should adopt a threshold amount for items reported in table C-5 (such as important contracts or agreements entered into, or important changes in service and rate schedules), and if so, what an appropriate threshold level would be. We seek comment on the above proposals for streamlining table C-5 reporting requirements. 3. ARMIS 43-02 USOA Report: Table B Reductions 27. The "B" series tables contain data about the balance sheet accounts. Table B-1 (Balance Sheet) and Table B-2 (Statement of Cash Flows) are basic financial statements that are essential to our analysis of a carrier's financial condition. Several other supporting tables are important in our analysis of investment in and transactions with affiliates and in evaluating carrier depreciation reserves. We are not proposing changes in these tables. We believe, however, that several other tables in the "B" series need not be routinely reported as long as we have continued access to the underlying data and source documents supporting these tables. Further, we believe that the carrier's own accounting practices, which are governed by standard accounting practices and procedures and subject to internal and external audits, should assure that these accounts are properly maintained. Thus, we propose to eliminate the following "B" tables: B-8: (Capital Leases); B-9 (Deferred Charges); B-11 (Long-Term Debt); B-12 (Net Deferred Income Taxes); B-13 (Other Deferred Credits); B-14 (Capital Stock); and B-15 (Capital Stock and Funded Debt Reacquired or Retired During the Year). We seek comment on these tentative conclusions and proposals. We are concerned that we not eliminate information that may be needed to carry out our responsibilities. We ask parties to address this concern and whether information concerning these accounts are readily available from other sources, such as in the carrier's Annual 10-K Report or through other internal records. We also ask parties to identify specific needs for this information and whether alternative sources of information provide sufficient level of detail to meet these needs. 4. ARMIS 43-02 USOA Report: Table I Reductions 28. We have also examined the continuing need for routine reporting of information contained in the "I" series tables, specifically I-3 (Pension Costs); I-4 (Operating Other Taxes); and I-5 (Prepaid Taxes and Accruals). For the reasons stated above with respect to the accounts reported in the "B" series, we tentatively conclude that carriers should no longer be required to report the information required in tables I-3, I-4, and I-5 annually to the Commission. We believe that as long as we have continued access to underlying data and source documents supporting these tables, this information can be obtained from the ILECs on an as-needed basis. We seek comment on these tentative conclusions and proposals. 29. Our review of table I-6 (Special Charges) finds that the information reported in this table continues to be essential. Data reported in this table are below-the-line amounts, i.e., are not an allowable expense to be charged against regulated revenues. Special Charges reported on this table include lobbying expenses, membership fees and dues, abandoned construction projects amounting to $100,000 or more, penalties and fines amounting to $100,000 or more, and charitable, social, or other community welfare expenses. We find it necessary to maintain routine reporting of these items to ensure that these expenses, especially if material, are properly recorded on the ILECs' books. The $100,000 reporting threshold, however, for reporting abandoned construction projects, penalties and fines may be relatively immaterial in light of the strong revenue growth since the outset of ARMIS in 1989. We seek comment, therefore, on whether the reporting threshold should be raised to a higher amount and, if so, what amount to establish as the reporting threshold. 30. Similarly, our review finds that information reported in table I-7 (Donations or Payments for Services by Persons Other than Employees) continues to be essential for regulatory monitoring purposes to ensure that material costs claimed against regulated revenues are appropriate. The information reported in table I-7 requires that carriers report all amounts paid to academia; amounts exceeding $250,000 paid for advertising and information services, clerical and office services, computer and data processing services, personnel services, printing and design services, and security services; amounts exceeding $25,000 paid for audit and accounting services, consulting and research services, financial services, and legal services; and amounts exceeding $10,000 for membership fees and dues. Again, in light of the tremendous growth in ILEC revenues, the reporting thresholds may now be too low. We seek comment, therefore, on whether the reporting thresholds for each of the above mentioned payments to outside vendors should be raised to a higher amount and, if so, what amounts to establish as the reporting thresholds. IV. PROCEDURAL ISSUES A. Ex Parte Presentations 31. This is a permit but disclose rulemaking proceeding. Ex parte presentations are permitted, except during the Sunshine Agenda period, provided that they are disclosed as provided in the Commission's rules. See generally 47 C.F.R.  1.1202, 1.1203, and 1.1206. B. Regulatory Flexibility Analysis 32. The Regulatory Flexibility Act (RFA) requires that an initial regulatory flexibility analysis be prepared for notice-and-comment rulemaking proceedings, unless the agency certifies that "the rule will not, if promulgated, have a significant economic impact on a substantial number of small entities." The RFA generally defines "small entity" as having the same meaning as the terms "small business," "small organization," and "small governmental jurisdiction." In addition, the term "small business" has the same meaning as the term "small business concern" under the Small Business Act. A small business concern is one which: (1) is independently owned and operated; (2) is not dominant in its field of operation; and (3) satisfies any additional criteria established by the Small Business Administration (SBA). 33. This Notice of Proposed Rulemaking proposes to eliminate or revise the matrix used to classify expenses in the Uniform System of Accounts (USOA); reduce the audit burdens on incumbent local exchange carriers (ILECs); adopt a de minimis exception to the Commission's affiliate transactions rules; eliminate the 15-day prefiling for cost pool changes; eliminate the notifications and approvals required in sections 32.13(a)(3) and 32.25; and revise the accounting requirements for sections 32.2002 and 32.2003. In addition, with respect to ARMIS reporting requirements, the Notice of Proposed Rulemaking seeks comment on eliminating certain corporate information collected in the "C" series tables and on consolidating certain information into one table. The Notice of Proposed Rulemaking also seeks comment on eliminating certain information concerning balance sheet accounts reported in the "B" series tables and income statement accounts reported in the "I" series tables. 34. Neither the Commission nor SBA has developed a definition of "small entity" specifically applicable to LECs. The closest definition under SBA rules is that for establishments providing "Telephone Communications, Except Radiotelephone," which is Standard Industrial Classification (SIC) code 4813. Under this definition, a small entity is one that, including affiliates of the entity, employs no more than 1,500 persons. 35. We certify that the proposals in this Notice of Proposed Rulemaking, if adopted, will not have a significant economic impact on a substantial number of small entities. Pursuant to long-standing rules, ILECs with annual operating revenues equal to or exceeding the indexed revenue threshold must comply with the Commission's record keeping rules and CAM audit requirements. The Commission proposes to reduce certain of these CAM and record retention requirements. These changes should be easy and inexpensive for ILECs to implement and will not require costly or burdensome procedures. We therefore expect that the potential impact of the proposal rules, if such are adopted, is beneficial and does not amount to a possible significant economic impact on affected entities. If commenters believe that the proposals discussed in the Notice require additional RFA analysis, they should include a discussion of these issues in their comments. 36. The Commission's Office of Public Affairs, Reference Operations Division, will send a copy of this Notice of Proposed Rulemaking, including this initial certification, to the Chief Counsel for Advocacy of the Small Business Administration. A copy will also be published in the Federal Register. C. Paperwork Reduction Act 37. As part of our continuing effort to reduce paperwork burdens, we invite the general public to take this opportunity to comment on information collections contained in this Notice of Proposed Rulemaking, as required by the Paperwork Reduction Act of 1995, Pub. L. No. 104-13. Public and agency comments are due at the same time as other comments on this Notice of Proposed Rulemaking. Comments should address: (a) whether the proposed collection of information is necessary for the proper performance of the functions of the Commission, including whether the information shall have practical utility; (b) the accuracy of the Commission's burden estimates; (c) ways to enhance the quality, utility, and clarity of the information collected; and (d) ways to minimize the burden of the collection of information on the respondents, including the use of automated collection techniques or other forms of information technology. D. Comment Filing Procedures 38. Pursuant to sections 1.415 and 1.419 of the Commission's rules, 47 C.F.R.  1.415, 1.419, interested parties may file comments on or before August 23, 1999, and reply comments on or before September 9, 1999. Comments may be filed using the Commission's Electronic Comment Filing System (ECFS) or by filing paper copies. 39. Comments filed through the ECFS can be sent as an electronic file via the Internet to . Generally, only one copy of an electronic submission must be filed. If multiple docket or rulemaking numbers appear in the caption of this proceeding, however, commenters must transmit one electronic copy of the comments to each docket or rulemaking number referenced in the caption. In completing the transmittal screen, commenters should include their full name, Postal Service mailing address, and the applicable docket or rulemaking number. Parties may also submit an electronic comment by Internet e-mail. To get filing instructions for e-mail comments, commenters should send an e-mail to ecfs@fcc.gov, and should include the following words in the body of the message, "get form