PROPOSED RULES
Original Notice.
Preproposal statement of inquiry was filed as WSR 03-12-083.
Title of Rule: WAC 4-25-622 Independence.
Purpose: To promote the dependability of information used for guidance in financial transactions or for accounting for or assessing the status or performance of commercial and noncommercial enterprises and protect the public interest by requiring that persons who hold themselves out as licensed CPAs or certificateholders conduct themselves in a competent, ethical, and professional manner.
Statutory Authority for Adoption: RCW 18.04.055(2).
Statute Being Implemented: RCW 18.04.055(2).
Summary: Outlines when a CPA must be independent so that attest opinions, reports, conclusions, and judgments are impartial and viewed as impartial by parties expected to rely on the attest report.
Reasons Supporting Proposal: The board has serious concerns with the effectiveness of the current regulations governing CPA independence and the recent nationwide decline in confidence with CPAs' ethical standards.
Name of Agency Personnel Responsible for Drafting, Implementation and Enforcement: Dana M. McInturff, CPA, Olympia, Washington, (360) 586-0163.
Name of Proponent: Primarily the Washington State Board of Accountancy, governmental.
Rule is not necessitated by federal law, federal or state court decision.
Explanation of Rule, its Purpose, and Anticipated Effects: The rule requires Washington CPAs to be responsible for maintaining independence so that attest opinions, reports, conclusions, and judgments will be impartial and viewed as impartial by parties expected to rely on the attest report. This standard is needed to establish and maintain a high standard of ethics to address the need to protect the public. The goal of the amendment is to promote clarity, ensure effective communication, ensure fairness in interpretation and application of the rule, and promote efficiencies through minimizing gray areas.
Proposal Changes the Following Existing Rules:
(1) Changes the title of the rule to "When must a CPA or CPA firm be independent?"
(2) Replaces specific examples of impairment of independence with an overarching independence principle.
(3) Specifically states that CPAs and CPA firms are required to (1) comply with all applicable independence rules regulations, and the AICPA's code of conduct as referenced in board rule and (2) decline attest engagements where the CPA or CPA firm has a relationship that could lead a reasonable and foreseeable user to conclude that the CPA or CPA firm is not independent.
(4) Written in clear rule-writing format.
No small business economic impact statement has been prepared under chapter 19.85 RCW. The proposed rule will not have more than minor economic impact on business.
RCW 34.05.328 does not apply to this rule adoption. The Board of Accountancy is not one of the agencies required to submit to the requirements of RCW 34.05.328.
Hearing Location: Hilton Seattle Airport and Conference Center, 17620 Pacific Highway South, SeaTac, WA, on October 30, 2003, at 1:00 p.m.
Assistance for Persons with Disabilities: Contact Cheryl Sexton, by October 24, 2003, TDD (800) 833-6384 or (360) 664-9194.
Submit Written Comments to: Dana M. McInturff, Executive Director, P.O. Box 9131, Olympia, WA 98507-9131, e-mail danam@cpaboard.wa.gov, fax (360) 664-9190, by October 17, 2003.
Date of Intended Adoption: October 31, 2003.
August 12, 2003
Dana M. McInturff, CPA
Executive Director
OTS-6571.1
AMENDATORY SECTION(Amending WSR 98-12-049, filed 5/29/98,
effective 6/29/98)
WAC 4-25-622
((Independence.)) When must a CPA or CPA
firm be independent?
(((1) A CPA in public practice must be
independent in the performance of the following:
(a) An audit or review of a financial statement; or
(b) A compilation of historical or prospective financial statement when the CPA's report does not disclose a lack of independence; or
(c) Other attest engagements when required by board rules or other professional standards such as the statements of standards for attestation engagements.
(2) The following specific acts are examples of impairment of independence. The board does not intend this listing to be all inclusive.
(a) During the period of a professional engagement, or at the time of expressing an opinion, a CPA or a CPA's firm:
(i) Had or was committed to acquire any direct or material indirect financial interest in the enterprise.
(ii) Was a trustee of any trust or executor or administrator of any estate if such trust or estate had or was committed to acquire any direct or material indirect financial interest in the enterprise.
(iii) Had any joint closely-held business investment with the enterprise or with any officer, director, or principal stockholder thereof which was material in relation to the CPA's net worth or the net worth of the CPA's firm.
(iv) Had any loan to or from the enterprise or any officer, director, or principal stockholder of the enterprise except under certain circumstances for home mortgages, other secured loans, loans not material to the CPA's net worth, and various personal loans.
(b) During the period covered by the financial statements, during the period of the professional engagement or at the time of expressing an opinion, the CPA or a CPA's firm:
(i) Was connected with the enterprise as a promoter, underwriter, or voting trustee, a director or officer or in any capacity equivalent to that of a member of management or of an employee; or
(ii) Was a trustee for any pension or profit-sharing trust of the enterprise.)) When performing attest services, CPAs and CPA firms are responsible for maintaining independence so that attest opinions, reports, conclusions, and judgments will be impartial and viewed as impartial by parties expected to rely on the attest report. CPAs and CPA firms are required:
• To comply with all applicable independence rules, regulations, and the AICPA code of conduct as referenced in and required by WAC 4-25-631; and
• To decline attest engagements where the CPA or CPA firm has a relationship that could lead a reasonable and foreseeable user to conclude that the CPA or CPA firm is not independent.
Independence is not required when performing a compilation engagement provided the CPA's report discloses a lack of independence.
[Statutory Authority: RCW 18.04.055(2). 98-12-049, § 4-25-622, filed 5/29/98, effective 6/29/98. Statutory Authority: RCW 18.40.055. 93-22-046, § 4-25-622, filed 10/28/93, effective 11/28/93.]