WSR 08-01-027

PROPOSED RULES

BOARD OF ACCOUNTANCY


[ Filed December 10, 2007, 9:48 a.m. ]

Original Notice.

Preproposal statement of inquiry was filed as WSR 07-16-121.

Title of Rule and Other Identifying Information: WAC 4-25-750 What are the firm licensing requirements?

Hearing Location(s): Hilton Seattle Airport & Conference Center, Peninsula Room, 17620 International Boulevard, SeaTac, WA, on January 25, 2008, at 9:00 a.m.

Date of Intended Adoption: January 25, 2008.

Submit Written Comments to: Richard C. Sweeney, Executive Director, P.O. Box 9131, Olympia, WA 98507-9131, e-mail webmaster@cpaboard.wa.gov, fax (360) 664-9190, by January 15, 2008.

Assistance for Persons with Disabilities: Contact Cheryl Sexton by January 11, 2008, TTY (800) 833-6384 or (360) 664-9194.

Purpose of the Proposal and Its Anticipated Effects, Including Any Changes in Existing Rules: To align the rule with the Public Accountancy Act, chapter 18.04 RCW, and RCW 25.15.045 professional limited liability companies, and clarify ownership requirements for CPA firms. The board is also proposing other minor housekeeping language amendments.

Reasons Supporting Proposal: CPAs are continually asking: If they as an individual register as a professional limited liability company or a professional corporation, may be [the] professional limited liability company or professional corporation be an owner in a CPA firm. RCW 18.04.195 requires that a simple majority of the ownership of the licensed firm in terms of financial interests and voting rights of all owners shall be held by natural persons who are licensees or holders of a valid license issued under the Public Accountancy Act or by another state that entitles the holder to practice public accounting in this state. WAC 4-25-410(29) defines "natural person" as a living human being. A professional limited liability company or a professional corporation does not seem to fit this definition. But, the professional limited liability statute, RCW 25.15.045 allows a professional corporation or another professional limited liability company to be a member of a professional limited liability company. This statute and the Public Accountancy Act seem to be in conflict. To bring the board's rule in line with the professional limited liability company statute, the board is proposing to allow professional limited liability companies or professional corporations to be registered owners of CPA firms provided the professional limited liability company or professional corporation is registered with the board as a CPA firm and all owners of the professional limited liability company or professional corporation are licensed CPAs as required by RCW 25.15.045.

Statutory Authority for Adoption: RCW 18.04.055(8), 18.04.195, 18.04.205.

Statute Being Implemented: RCW 18.04.055(8), 18.04.195, 18.04.205.

Rule is not necessitated by federal law, federal or state court decision.

Name of Proponent: Primarily the Washington state board of accountancy, governmental.

Name of Agency Personnel Responsible for Drafting, Implementation and Enforcement: Richard C. Sweeney, CPA, Executive Director, (360) 586-0163.

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.

A cost-benefit analysis is not required under RCW 34.05.328. The board of accountancy is not one of the agencies required to submit to the requirements of RCW 34.05.328.

December 6, 2007

Richard C. Sweeney

Executive Director

OTS-1189.1


AMENDATORY SECTION(Amending WSR 05-01-137, filed 12/16/04, effective 1/31/05)

WAC 4-25-750   What are the CPA firm licensing requirements?   With the exception of out-of-state sole practitioning CPAs holding valid practice privileges in Washington state under WAC 4-25-756, attest services may only be offered or performed ((in)) by a CPA firm licensed by the board and meeting the requirements of this section. An entity wishing to use "CPA(s)" or "certified public accountant(s)" in the firm name must first obtain a license from the board.

(1) How may a CPA firm be organized? A CPA firm may be organized as:

(a) A proprietorship;

(b) A partnership;

(c) A professional corporation (PC) or professional service corporation (PS);

(d) A limited liability company (LLC);

(e) A limited liability partnership (LLP); or

(f) Any other form of legal entity authorized by statute for use by a CPA firm.

(2) What happens when a CPA firm alters its legal form? A change in the legal form of a firm constitutes a new firm. Accordingly, the new entity must first obtain a CPA firm license from the board.

(3) What are the ownership requirements for a CPA firm?

(a) All owners of a licensed CPA firm are required to:

(i) Be natural persons including CPA firms licensed in this state and organized as a professional limited liability company or as a professional corporation owned entirely by living human beings who are licensees in this state or holders of a valid license to practice public accountancy issued by another state;

(ii) Fully comply with the provisions of chapter 18.04 RCW; and

(iii) Be subject to discipline by the board for violations of chapter 18.04 RCW or 4-25 WAC;

(b) A simple majority of the ownership of the licensed firm in terms of financial interests and voting rights of all partners, owners, or shareholders must be:

(i) Licensees in this state or holders of a valid license to practice public accountancy issued by another state;

(ii) Entitled to practice public accounting in Washington state; and

(iii) Principally employed by the corporation or actively engaged in its business.

(c) At least one general partner of a partnership, one shareholder of a corporation, and one ((manager)) member of a limited liability company must be a licensee.

(d) Each CPA proprietor, partner, shareholder or ((manager)) member who is either a resident or is entering the state and practicing public accountancy in this state must hold a valid Washington state license or practice privileges.

(e) The principal partner of the partnership and any partner having authority over issuing reports on financial statements must be a licensee under the act or holder of a valid license to practice public accountancy issued by another state and must be entitled to practice public accounting in this state.

(f) The principal officer of the corporation and any officer or director having authority over issuing reports on financial statements must be a licensee under the act or holder of a valid license to practice public accountancy issued by another state and must be entitled to practice public accountancy in this state.

(g) The ((principal manager or)) managing member of a limited liability company and any member having authority over issuing reports on financial statements must be a licensee under the act or holder of a valid license to practice public accountancy issued by another state and must be entitled to practice public accountancy in this state.

(h) A nonresident CPA owner must be licensed to practice public accountancy in at least one state.

(i) A nonlicensee owner must:

(i) Be a natural person as defined by RCW 18.04.025;

(ii) Meet the good character requirements of RCW 18.04.105 (1)(a);

(iii) Comply with the act and board rules; and

(iv) Be an active individual participant in the licensed firm or affiliated entities as these terms are defined in WAC 4-25-410; and

(j) A resident nonlicensee firm owner must meet the requirements of WAC 4-25-752 and register with the board concurrent with submission of the firm license, or submission of an amendment to the firm license, to the board.

(4) What are the requirements for the firm's main office and a branch office? ((The)) A firm's main office located in this state must be under the direct supervision of a resident licensee.

A branch office is an office of a licensed CPA firm which is physically separated from the main office. A branch office operates under the ((CPA firm)) license of the main office.

(5) How do I apply for an initial CPA firm license? To apply for an initial CPA firm license you must use the application form(s) provided by the board and submit the completed form(s), all applicable fees, and all required documentation including the following to the board's office:

(a) The firm name;

(b) Address and telephone number of the main office and any branch offices of the firm;

(c) Name of the managing licensee of the main office;

(d) Licensee owners' names and the states in which they hold CPA licenses;

(e) Name(s) of all nonlicensee owners;

(f) Complete registration form(s), including the appropriate fee, for each resident nonlicensee owner; and

(g) Type of legal organization under which the firm operates.

An application is not complete and cannot be processed until all fees, required information, and required documentation is received by the board. Upon completion of processing, a CPA firm license will be mailed to the main office at the last address provided to the board.

The initial CPA firm license will expire on June 30 of the third calendar year following initial licensure.

(6) How do I renew a CPA firm license? To renew a CPA firm license you must use the form(s) provided by the board. In January of the year of expiration, a renewal form(s) will be mailed to the main office at the last address provided to the board. You must submit a properly completed renewal form(s), all applicable fees and all required documentation to the board by April 30th of the year of expiration. Failure to file a complete renewal form for a firm license by April 30 of the year of expiration will result in late fees. The board may waive, reduce, or extend the due date of renewal and/or late fees based on individual hardship including, but not limited to, financial hardship, critical illness, or active military deployment. A renewal application is not complete and cannot be processed until all fees, required information, and required documentation is received by the board. Upon completion of processing, the CPA firm license will be mailed to the main office at the last address provided to the board.

The CPA firm license will expire on June 30 of the third calendar year following the date of renewal.

(7) When must I notify the board of changes in the CPA firm? A CPA firm must provide the board written notification of the following within ninety days of its occurrence:

(a) Dissolution of a CPA firm;

(b) The occurrence of any event that would cause the firm to be in violation of RCW 18.04.195 or this rule; or

(c) An event that requires an amendment to a firm license.

(8) What events require a firm amendment? A CPA firm must provide written notification to the board, by submitting a firm amendment form and the appropriate amendment fee, within ninety days of the following events' occurrence:

(a) Admission or departure of an owner;

(b) Any change in the name of the firm; or

(c) Change in the managing licensee of the main office.

(9) How long do I have to correct noncompliance with licensure requirements due to a change in ownership or an owner's credentials? A CPA firm must notify the board within ninety days of any change in ownership or lapse of an owner's license, certificate, registration or practice privilege that has caused the firm's license to be out of compliance with licensure requirements and must correct the noncompliance within ninety days of the lapse, unless the board grants a longer time period due to individual hardship including, but not limited to, financial hardship, critical illness, or active military deployment.

[Statutory Authority: RCW 18.04.055(8), 18.04.195 and 18.04.205. 05-01-137, 4-25-750, filed 12/16/04, effective 1/31/05; 03-24-033, 4-25-750, filed 11/25/03, effective 12/31/03; 02-04-064, 4-25-750, filed 1/31/02, effective 3/15/02; 00-11-074, 4-25-750, filed 5/15/00, effective 6/30/00. Statutory Authority: RCW 18.04.055(8) and 18.04.205(3). 99-18-117, 4-25-750, filed 9/1/99, effective 1/1/00. Statutory Authority: RCW 18.04.055(3), 18.04.205(3) and 18.04.195. 96-12-061, 4-25-750, filed 5/31/96, effective 7/1/96. Statutory Authority: RCW 18.04.055. 93-22-089, 4-25-750, filed 11/2/93, effective 12/3/93.]

Washington State Code Reviser's Office