[atlas:bill]

AN ACT Relating to restoring public confidence in the profession of public accountancy; amending RCW 18.04.015, 18.04.055, 18.04.065, 18.04.195, 18.04.295, 18.04.305, and 18.04.345; amending 2001 c 294 s 23 (uncodified); and declaring an emergency.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF WASHINGTON:

Sec. 1. RCW 18.04.015 and 2001 c 294 s 1 are each amended to read as follows:

(1) It is the policy of this state and the purpose of this chapter:

(a) To promote the dependability of information which is used for guidance in financial transactions or for accounting for or assessing the status or performance of commercial and noncommercial enterprises, whether public, private or governmental, by preventing conflicts of interest in the ownership of certified public accounting firms and separating the auditing function from any other interests, as well as by other means; and

(b) To protect the public interest by requiring that:

(i) Persons who hold themselves out as licensees or certificate holders conduct themselves in a competent, ethical, and professional manner;

(ii) A public authority be established that is competent to prescribe and assess the qualifications of certified public accountants, including certificate holders who are not licensed for the practice of public accounting;

(iii) Persons other than licensees refrain from using the words "audit," "review," and "compilation" when designating a report customarily prepared by someone knowledgeable in accounting;

(iv) A public authority be established to provide for consumer alerts and public protection information to be published regarding persons or firms who violate the provisions of chapter 294, Laws of 2001 or board rule and to provide general consumer protection information to the public; and

(v) The use of accounting titles likely to confuse the public be prohibited.

(2) The purpose of this act is to make revisions to chapter 234, Laws of 1983; chapter 103, Laws of 1992; and chapter 294, Laws of 2001 to: Limit ownership of certified public accounting firms to licensees, provide for a clear separation of auditing functions from any other interests, and prohibit contingency and referral fees.

(3) The purpose of chapter 294, Laws of 2001 is to make revisions to chapter 234, Laws of 1983 and chapter 103, Laws of 1992 to: Fortify the public protection provisions of chapter 294, Laws of 2001; establish one set of qualifications to be a licensee; revise the regulations of certified public accountants; make revisions in the ownership of certified public accounting firms; assure to the greatest extent possible that certified public accountants from Washington state are substantially equivalent with certified public accountants in other states and can therefore perform the duties of certified public accountants in as many states and countries as possible; assure certified public accountants from other states and countries have met qualifications that are substantially equivalent to the certified public accountant qualifications of this state; and clarify the authority of the board of accountancy with respect to the activities of persons holding licenses and certificates under this chapter. It is not the intent of chapter 294, Laws of 2001 to in any way restrict or limit the activities of persons not holding licenses or certificates under this chapter except as otherwise specifically restricted or limited by chapter 234, Laws of 1983 and chapter 103, Laws of 1992.

((~~(3)~~)) (4) A purpose of chapter 103, Laws of 1992, revising provisions of chapter 234, Laws of 1983, is to clarify the authority of the board of accountancy with respect to the activities of persons holding certificates under this chapter. Furthermore, it is not the intent of chapter 103, Laws of 1992 to in any way restrict or limit the activities of persons not holding certificates under this chapter except as otherwise specifically restricted or limited by chapter 234, Laws of 1983.

Sec. 2. RCW 18.04.055 and 2001 c 294 s 5 are each amended to read as follows:

The board may adopt and amend rules under chapter 34.05 RCW for the orderly conduct of its affairs. The board shall prescribe rules consistent with this chapter as necessary to implement this chapter. Included may be:

(1) Rules of procedure to govern the conduct of matters before the board;

(2) Rules of professional conduct for all licensees((,)) and certificate holders, ((~~and nonlicensee owners of licensed firms,~~)) in order to establish and maintain high standards of competence and ethics including rules dealing with independence, integrity, objectivity, and freedom from conflicts of interest;

(3) Rules specifying actions and circumstances deemed to constitute holding oneself out as a licensee in connection with the practice of public accountancy;

(4) Rules specifying the manner and circumstances of the use of the titles "certified public accountant" and "CPA," by holders of certificates who do not also hold licenses under this chapter;

(5) Rules specifying the educational requirements to take the certified public accountant examination;

(6) Rules designed to ensure that licensees' "reports on financial statements" meet the definitional requirements for that term as specified in RCW 18.04.025;

(7) Requirements for CPE to maintain or improve the professional competence of licensees as a condition to maintaining their license and certificate holders as a condition to maintaining their certificate under RCW 18.04.215;

(8) Rules governing firms issuing or offering to issue reports on financial statements or using the title "certified public accountant" or "CPA" including, but not limited to, rules concerning their style, name, title, and affiliation with any other organization, and establishing reasonable practice and ethical standards to protect the public interest;

(9) The board may by rule implement a quality assurance review program as a means to monitor licensees' quality of practice and compliance with professional standards. The board may exempt from such program, licensees who undergo periodic peer reviews in programs of the American Institute of Certified Public Accountants, NASBA, or other programs recognized and approved by the board;

(10) The board may by rule require licensed firms to obtain professional liability insurance if in the board's discretion such insurance provides additional and necessary protection for the public;

(11) Rules specifying the experience requirements in order to qualify for a license;

(12) Rules specifying the requirements for certificate holders to qualify for a license under this chapter which must include provisions for meeting CPE and experience requirements prior to application for licensure;

(13) ((~~Rules specifying the registration requirements, including ethics examination and fee requirements, for resident nonlicensee partners, shareholders, and managers of licensed firms;~~

~~(14)~~)) Rules specifying the ethics CPE requirements for certificate holders and owners of licensed firms, including the process for reporting compliance with those requirements;

((~~(15)~~)) (14) Rules specifying the experience and CPE requirements for licensees offering or issuing reports on financial statements; ((~~and~~

~~(16)~~)) (15) Any other rule which the board finds necessary or appropriate to implement this chapter; and

(16) The board shall adopt rules to prohibit either a licensee or a licensed firm from conducting any activity which would, or appear to the public to, compromise the integrity of the practice of public accounting. The rules shall, at a minimum, prohibit either a licensee or a licensed firm which provides services to a client of the nature of the issuance of audit reports or review reports on financial statements from providing significant consulting or other services to that client, unless the provision of those services clearly does not, and can not reasonably appear to the public, to compromise the integrity of the practice of public accounting. The rules shall be adopted to be effective no later than January 1, 2003.

Sec. 3. RCW 18.04.065 and 2001 c 294 s 6 are each amended to read as follows:

The board shall set its fees at a level adequate to pay the costs of administering this chapter. All fees for licenses, ((~~registrations of nonlicensee partners, shareholders, and managers of licensed firms,~~)) renewals of licenses, ((~~renewals of registrations of nonlicensee partners, shareholders, and managers of licensed firms,~~)) renewals of certificates, reinstatements of lapsed licenses, reinstatements of lapsed certificates, ((~~reinstatements of lapsed registrations of nonlicensee partners, shareholders, and managers of licensed firms,~~)) practice privileges under RCW 18.04.350, and delinquent filings received under the authority of this chapter shall be deposited in the certified public accountants' account created by RCW 18.04.105. Appropriation from such account shall be made only for the cost of administering the provisions of this chapter.

Sec. 4. RCW 18.04.195 and 2001 c 294 s 11 are each amended to read as follows:

(1) A sole proprietorship engaged in business in this state and offering to issue or issuing reports on financial statements or using the title CPA or certified public accountant shall license, as a firm, every three years with the board.

(a) The principal purpose and business of the firm shall be to furnish services to the public which are consistent with this chapter and the rules of the board;

(b) The sole proprietor shall hold a license to practice under RCW 18.04.215;

((~~(b)~~)) (c) Each resident person in charge of an office located in this state shall hold a license to practice under RCW 18.04.215; and

((~~(c)~~)) (d) The licensed firm must meet competency requirements established by rule by the board.

(2) A partnership engaged in business in this state and offering to issue or issuing reports on financial statements or using the title CPA or certified public accountant shall license as a firm every three years with the board, and shall meet the following requirements:

(a) The principal purpose and business of the partnership shall be to furnish services to the public which are consistent with this chapter and the rules of the board;

(b) At least one general partner of the partnership shall hold a license to practice under RCW 18.04.215;

((~~(b)~~)) (c) Each resident person in charge of an office in this state and each resident partner personally engaged within this state in the practice of public accounting shall hold a license to practice under RCW 18.04.215; and

(((c) A simple majority of the ownership of the licensed firm in terms of financial interests and voting rights of all partners or owners shall be held by natural persons who are licensees or holders of a valid license issued under this chapter or by another state that entitles the holder to practice public accounting in this state. The principal partner of the partnership and any partner having authority over issuing reports on financial statements shall hold a license under this chapter or issued by another state that entitles the holder to practice public accounting in this state; and))

(d) The licensed firm must meet competency requirements established by rule by the board.

(3) A corporation engaged in business in this state and offering to issue or issuing reports on financial statements or using the title CPA or certified public accountant shall license as a firm every three years with the board and shall meet the following requirements:

(a) ((A simple majority of the ownership of the licensed firm in terms of financial interests and voting rights of all shareholders or owners shall be held by natural persons who are licensees or holders of a valid license issued under this chapter or by another state that entitles the holder to practice public accounting in this state and is)) The principal purpose and business of the corporation shall be to furnish services to the public which are consistent with this chapter and the rules of the board; and

(b) Each shareholder of the corporation shall be a certified public accountant of some state holding a license to practice and shall be principally employed by the corporation or actively engaged in its business. No other person may have any interest in the stock of the corporation. The principal officer of the corporation and any officer or director having authority over issuing reports on financial statements shall hold a license under this chapter or issued by another state that entitles the holder to practice public accounting in this state;

((~~(b)~~)) (c) At least one shareholder of the corporation shall hold a license under RCW 18.04.215;

((~~(c)~~)) (d) Each resident person in charge of an office located in this state and each shareholder or director personally engaged within this state in the practice of public accounting shall hold a license under RCW 18.04.215;

((~~(d)~~)) (e) A written agreement shall bind the corporation or its shareholders to purchase any shares offered for sale by, or not under the ownership or effective control of, a qualified shareholder, and bind any holder not a qualified shareholder to sell the shares to the corporation or its qualified shareholders. The agreement shall be noted on each certificate of corporate stock. The corporation may purchase any amount of its stock for this purpose, notwithstanding any impairment of capital, as long as one share remains outstanding;

((~~(e)~~)) (f) The corporation shall comply with any other rules pertaining to corporations practicing public accounting in this state as the board may prescribe; and

((~~(f)~~)) (g) The licensed firm must meet competency requirements established by rule by the board.

(4) A limited liability company engaged in business in this state and offering to issue or issuing reports on financial statements or using the title CPA or certified public accountant shall license as a firm every three years with the board, and shall meet the following requirements:

(a) The principal purpose and business of the limited liability company shall be to furnish services to the public which are consistent with this chapter and the rules of the board;

(b) At least one ((~~member~~)) manager of the limited liability company shall hold a license under RCW 18.04.215;

((~~(b)~~)) (c) Each resident manager or member in charge of an office located in this state and each resident manager or member personally engaged within this state in the practice of public accounting shall hold a license under RCW 18.04.215; and

(((c) 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 this chapter or by another state that entitles the holder to practice public accounting in this state. The principal member or manager of the limited liability company and any member having authority over issuing reports on financial statements shall hold a license under this chapter or issued by another state that entitles the holder to practice public accounting in this state; and))

(d) The licensed firm must meet competency requirements established by rule by the board.

(5) Application for a license as a firm shall be made upon the affidavit of the proprietor or person designated as managing partner((~~, member,~~)) or shareholder for Washington. This person shall hold a license under RCW 18.04.215. The board shall determine in each case whether the applicant is eligible for a license. A partnership, corporation, or limited liability company which is licensed to practice under RCW 18.04.215 may use the designation "certified public accountants" or "CPAs" in connection with its partnership, limited liability company, or corporate name. The board shall be given notification within ninety days after the admission or withdrawal of a partner, shareholder, or member engaged in this state in the practice of public accounting from any partnership, corporation, or limited liability company so licensed.

(6) ((Licensed firms which fall out of compliance with the provisions of this section due to changes in firm ownership or personnel, after receiving or renewing a license, shall notify the board in writing within thirty days of its falling out of compliance and propose a time period in which they will come back into compliance. The board may grant a reasonable period of time for a firm to be in compliance with the provisions of this section. Failure to bring the firm into compliance within a reasonable period of time, as determined by the board, may result in suspension, revocation, or imposition of conditions on the firm's license.

~~(7)~~)) Fees for the license as a firm and for notification of the board of the admission or withdrawal of a partner, shareholder, or member shall be determined by the board. Fees shall be paid by the firm at the time the license application form or notice of admission or withdrawal of a partner, shareholder, or member is filed with the board.

((~~(8) Nonlicensee owners of licensed firms are:~~

~~(a) Required to fully comply with the provisions of this chapter and board rules;~~

~~(b) Required to be a natural person;~~

~~(c) Required to be an active individual participant in the licensed firm or affiliated entities as these terms are defined by board rule; and~~

~~(d) Subject to discipline by the board for violation of this chapter.~~

~~(9) Resident nonlicensee owners of licensed firms are required to meet:~~

~~(a) The ethics examination, registration, and fee requirements as established by the board rules; and~~

~~(b) The ethics CPE requirements established by the board rules.~~))

Sec. 5. RCW 18.04.295 and 2001 c 294 s 14 are each amended to read as follows:

The board shall have the power to: Revoke, suspend, refuse to renew, or reinstate a license or certificate; impose a fine in an amount not to exceed ten thousand dollars plus the board's investigative and legal costs in bringing charges against a certified public accountant, a certificate holder, a licensee, or a licensed firm((~~, or a nonlicensee holding an ownership interest in a licensed firm~~)); may impose full restitution to injured parties; or may impose conditions precedent to renewal of a certificate or a license((~~; or may prohibit a nonlicensee from holding an ownership interest in a licensed firm,~~)) for any of the following causes:

(1) Fraud or deceit in obtaining a license, or in any filings with the board;

(2) Dishonesty, fraud, or negligence while representing oneself as ((~~a nonlicensee owner holding an ownership interest in a licensed firm,~~)) a licensee((,)) or a certificate holder;

(3) A violation of any provision of this chapter;

(4) A violation of a rule of professional conduct promulgated by the board under the authority granted by this chapter;

(5) Conviction of a crime or an act constituting a crime under:

(a) The laws of this state;

(b) The laws of another state, and which, if committed within this state, would have constituted a crime under the laws of this state; or

(6) Cancellation, revocation, suspension, or refusal to renew the authority to practice as a certified public accountant by any other state for any cause other than failure to pay a fee or to meet the requirements of CPE in the other state;

(7) Suspension or revocation of the right to practice matters relating to public accounting before any state or federal agency;

For purposes of subsections (6) and (7) of this section, a certified copy of such revocation, suspension, or refusal to renew shall be prima facie evidence;

(8) Failure to maintain compliance with the requirements for issuance, renewal, or reinstatement of a certificate or license, or to report changes to the board;

(9) Failure to cooperate with the board by:

(a) Failure to furnish any papers or documents requested or ordered by the board;

(b) Failure to furnish in writing a full and complete explanation covering the matter contained in the complaint filed with the board or the inquiry of the board;

(c) Failure to respond to subpoenas issued by the board, whether or not the recipient of the subpoena is the accused in the proceeding;

(10) ((~~Failure by a nonlicensee owner of a licensed firm to comply with the requirements of this chapter or board rule; and~~

~~(11)~~)) Failure to comply with an order of the board.

Sec. 6. RCW 18.04.305 and 2001 c 294 s 15 are each amended to read as follows:

The board may revoke, suspend, or refuse to renew the license issued to a firm if at any time the firm does not meet the requirements of this chapter for licensing, or for any of the causes enumerated in RCW 18.04.295, or for any of the following additional causes:

(1) The revocation or suspension of the sole-practitioner's license or the revocation or suspension or refusal to renew the license of any partner, manager, member, or shareholder;

(2) The revocation, suspension, or refusal to renew the license of the firm, or any partner, manager, member, or shareholder thereof, to practice public accounting in any other state or foreign jurisdiction for any cause other than failure to pay a fee or to meet the CPE requirements of the other state or foreign jurisdiction;

(3) ((~~Failure by a nonlicensee owner of a licensed firm to comply with the requirements of this chapter or board rule; or~~

~~(4)~~)) Failure of the firm to comply with the requirements of this chapter or board rule.

Sec. 7. RCW 18.04.345 and 2001 c 294 s 17 are each amended to read as follows:

(1) No person may assume or use the designation "certified public accountant-inactive" or "CPA-inactive" or any other title, designation, words, letters, abbreviation, sign, card, or device tending to indicate that the person is a certified public accountant-inactive or CPA-inactive unless the person holds a certificate. Persons holding only a certificate may not practice public accounting.

(2) No person may hold himself or herself out to the public or assume or use the designation "certified public accountant" or "CPA" or any other title, designation, words, letters, abbreviation, sign, card, or device tending to indicate that the person is a certified public accountant or CPA unless the person holds a license under RCW 18.04.215.

(3) No firm may hold itself out to the public as offering to issue or issuing reports on financial statements, or assume or use the designation "certified public accountant" or "CPA" or any other title, designation, words, letters, abbreviation, sign, card, or device tending to indicate that the firm is composed of certified public accountants or CPAs, unless the firm is licensed under RCW 18.04.195 and all offices of the firm in this state are maintained and registered under RCW 18.04.205.

(4) No person, partnership, limited liability company, or corporation offering accounting services to the public may hold himself, herself, or itself out to the public, or assume or use along, or in connection with his, hers, or its name, or any other name the title or designation "certified accountant," "chartered accountant," "licensed accountant," "licensed public accountant," "public accountant," or any other title or designation likely to be confused with "certified public accountant" or any of the abbreviations "CA," "LA," "LPA," or "PA," or similar abbreviations likely to be confused with "CPA."

(5) No licensed firm may operate under an alias, a firm name, title, or "DBA" that differs from the firm name that is registered with the board.

(6) No person may sign, affix, or associate his or her name or any trade or assumed name used by the person in his or her business to any report designated as an "audit," "review," or "compilation," unless the person holds a license to practice under RCW 18.04.215 and a firm license under RCW 18.04.195, and all of the person's offices in this state are licensed under RCW 18.04.205.

(7) No person may sign, affix, or associate a firm name to any report designated as an "audit," "review," or "compilation," unless the firm is licensed under RCW 18.04.195 and 18.04.215, and all of its offices in this state are maintained and registered under RCW 18.04.205.

(8) No person, partnership, limited liability company, or corporation not holding a license to practice under RCW 18.04.215 may hold himself, herself, or itself out to the public as an "auditor" with or without any other description or designation by use of such word on any sign, card, letterhead, or in any advertisement or directory.

(9) No person, partnership, limited liability company, or corporation holding a license to practice under RCW 18.04.215 may accept a commission, referral fee, or contingent fee for the performance of a professional service or the referral of a client to a product or service.

Sec. 8. 2001 c 294 s 23 (uncodified) is amended to read as follows:

(1) By December 1, 2002, the board of accountancy shall report to the senate committee on labor, commerce, and financial institutions and the house committee on commerce and labor, or successor committees, on the implementation of ((~~this act~~)) the 2001 and 2002 acts, including but not limited to the provisions ((~~governing~~)) prohibiting nonlicensee owners of CPA firms, protecting the integrity of and public confidence in the profession of public accounting, and the fiscal impacts of the legislation.

(2) This section does not affect the board's authority to proceed with implementation of ((~~this act~~)) the 2001 and 2002 acts.

(3) This section expires January 1, 2003.

NEW SECTION. Sec. 9. This act is necessary for the immediate preservation of the public peace, health, or safety, or support of the state government and its existing public institutions, and takes effect immediately.