PROPOSED RULES
Supplemental Notice to WSR 10-18-090.
Preproposal statement of inquiry was filed as WSR 08-13-024.
Title of Rule and Other Identifying Information:
| • | Amend and decodify WAC 4-25-640 What are the requirements concerning records and clients confidential information? |
| • | New WAC 4-30-051 What are the requirements concerning client records, including response to requests by clients and former clients for records? |
| • | Amend and decodify WAC 4-25-670 What enforcement actions must be reported to the board? |
Hearing Location(s): Washington State Criminal Justice Training Commission, Classroom # C-220, 19010 First Avenue South, Burien, WA 98148, on January 27, 2011, at 9:00 a.m.
Date of Intended Adoption: January 27, 2011.
Submit Written Comments to: Cheryl M. Sexton, Rules Coordinator, P.O. Box 9131, Olympia, WA 98507-9131, e-mail cheryls@cpaboard.wa.gov, fax (360) 664-9190, by January 18, 2011.
Assistance for Persons with Disabilities: Contact Cheryl Sexton by January 20, 2011, TTY (800) 833-6384 or (360) 664-9194.
Purpose of the Proposal and Its Anticipated Effects, Including Any Changes in Existing Rules:
| WAC Section: | The Suggested Revision: | New WAC Section: | Grouping |
| 4-25-640 | • Renumbered to support regrouping
into like functions; • Separated into two rules - WAC 4-30-050 for the handling of client records that the credential person holds and safeguards and WAC 4-20-051 that identifies which of those records belong to the client.
|
4-30-050 | Ethics and Prohibited Practices |
| New | • Provides definitions for terms related to
client records for purposes of this section
and WAC 4-25-050 to clarify which records
belong to the client and which records
belong to the credentialed person. • Clarifies the credentialed person's responsibilities concerning the return of client records. • Expands the rule to include requirements regarding electronic records. • Conforms rule to AICPA Rule 501. |
||
| Changes to original proposal heard October
29, 2010: • Subsection (1)(a) - deleted "or prepared by" Reason: To conform to the wording of AICPA Rule 501. This wording also created some confusion relating to client prepared analytical schedules that should be considered proprietary. • Subsection (1)(c) - included", closing, combining or consolidating" after "adjusting" in the second sentence. Deleted "depreciation and amortization schedules, schedules supporting general ledger accounts, and other schedules supporting data in a report or tax return" in the second sentence. Added "that are" prior to "produced" in the second sentence. Reason: To conform to the wording of Rule 501. The additional schedules were previously included to help provide clarification. They did not produce that result. • Subsection (1)(d) - deleted "and" prior to the word "analysis" and added "," after analysis, and replace [replaced] "other proprietary programs prepared by" with "schedules prepared by the client at the request of the." Reason: To conform to the wording of Rule 501. The other terminology was previously included to help provide clarification. It did not produce the desired result. • Subsection (2)(a) - changed the word "should" to "must." Reason: Although AICPA Rule 501 states that such records "should" be returned to the client, current WAC 4-25-640 states in subsection (5) that such records "must" be returned to the client. Conforming to Rule 501 would delete the protection currently provided to Washington citizens under the existing WAC and would not be in the public interest. • Subsection (2)(b) - changed the word "should" to "must." Reason: See above. |
4-30-051 | Ethics and Prohibited Practices | |
| • Subsection (2)(c) - changed the word
"should" to "must." Reason: See above. • Subsection (4) - renumbered as (d) under subsection (2). Also deleted "in technologically based electronic formats (or technologically based electronic systems protected by copyright)" and replaced "every" with "a" prior to the word "reasonable" and deleted "technologically based electronic" in the first sentence. Also deleted the second sentence. Reason: Licensees found the references to electronic format and the definition of "reasonable" in the second sentence to be confusing. The remaining language in this section provides a clearer attempt to demonstrate the intent of the rule in protecting the public interest from punitive transition costs and allow them to prepare future reports prepared on a basis consistent with prior years. • Subsection (5) - renumbered to subsection (4). Also replaced "client records" with "records indicated in (1)(a), (1)(b) and (1)(c)." Reason: The use of the term "client records" inadvertently created a new term that was not defined. This change makes it clear which previously defined records are being referenced. • Subsection (6) - deleted. Reason: Wording in the Subsection was in conflict with other sections of the proposed WAC. It also created confusion with respect to which records are subject to client access. • Subsection (7) - renumbered as subsection (5). Reason: Changes to prior subsections. • Subsection (8) - renumbered as subsection (6). Reason: Changes to prior subsections. • Subsection (9) - renumbered as subsection (7). Reason: Changes to prior subsections. • Subsection (7)(b) - renumbered as (7)(c). Reason: See next change below. • New Subsection (7)(b) - Added "Provide the requested records in any format usable by the client." Reason: This language is included in Rule 501. Adding it to the WAC conforms the WAC to AICPA Rule 501. • Subsection (10) - renumbered as subsection (8). Reason: Changes to prior subsections. |
|||
| • Subsection (11) - renumbered as
subsection (9). Reason: Changes to prior
subsections. • Subsection (12) - renumbered as subsection (10). Reason: Changes to prior subsections. |
|||
| 4-25-670 | • Renumbered to support regrouping
into like functions. • Group with other rules related to board administration. • Adds clarifying language to subsection (1).
|
4-30-036 | Board Administration |
• Reorganize the rules resulting in renumbering and
grouping into like functions.
• Reflect concerns expressed by stakeholders.
Reasons Supporting Proposal: The board previously received written and oral testimony on these proposals. After considering the testimony, the board revised the original proposals to reflect the comments received. The board is now presenting those revisions for public comment.
The board's goal with all of its rule proposals is to:
• Promote clarity.
• Ensure effective communication.
• Ensure fairness in interpretation and application of the rules.
• Promote efficiencies through minimizing gray areas.
Statutory Authority for Adoption: For WAC 4-25-640 and 4-30-051 is RCW 18.04.055(2), 18.04.390 (4)(b), 18.04.405(1); and for WAC 4-25-670 is RCW 18.04.195 (13)(b), 18.04.215 (9)(b).
Statute Being Implemented: For WAC 4-25-640 and 4-30-051 is RCW 18.04.055(2), 18.04.390 (4)(b), 18.04.405(1); and for WAC 4-25-670 is RCW 18.04.195 (13)(b), 18.04.215 (9)(b).
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, Olympia, Washington, (360) 586-0163.
No small business economic impact statement has been prepared under chapter 19.85 RCW. The proposed rule(s) 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.
November 23, 2011 [2010]
Richard C. Sweeney, CPA
Executive Director
OTS-3785.2
AMENDATORY SECTION(Amending WSR 08-18-016, filed 8/25/08,
effective 9/25/08)
WAC 4-25-640
What are the requirements concerning
records and clients confidential information?
(1) Client:
The term "client" as used throughout ((this section)) WAC 4-30-050 and 4-30-051 includes former and current clients. For purposes of this section, a client relationship has been
formed when confidential information has been disclosed by a
prospective client in an initial interview to obtain or
provide professional services.
(2) ((Property of the licensee, CPA-Inactive certificate
holder, and/or nonlicensee firm owner: In the absence of an
express agreement between a licensee, CPA-Inactive certificate
holder, and/or nonlicensee firm owner and the client to the
contrary, all statements, records, schedules, working papers,
and memoranda made by a licensee incident to or in the course
of professional service to clients, except reports submitted
by a licensee, are the property of the licensee.
(3))) Sale or transfer of client records: No statement, record, schedule, working paper, or memorandum, including electronic records, may be sold, transferred, or bequeathed without the consent of the client or his or her personal representative or assignee, to anyone other than one or more surviving partners, shareholders, or new partners or new shareholders of the licensee, partnership, limited liability company, or corporation, or any combined or merged partnership, limited liability company, or corporation, or successor in interest.
(((4))) (3) Confidential client communication or
information: Licensees, CPA-Inactive certificate holders,
nonlicensee firm owners((, or employees of such persons)) must
not without the consent of the client or the heirs, successors
((or personal)), authorized representatives or employee of the
client disclose any confidential communication or information
pertaining to the client obtained in the course of performing
professional services.
(4) This rule does not:
(a) Affect in any way the obligation of those persons to comply with a lawfully issued subpoena or summons;
(b) Prohibit disclosures in the course of a quality review of a licensee's attest, compilation, or other reporting services governed by professional standards;
(c) Preclude those persons from responding to any inquiry made by the board or any investigative or disciplinary body established by local, state, or federal law or recognized by the board as a professional association; or
(d) Preclude a review of client information in conjunction with a prospective purchase, sale, or merger of all or part of the professional practice of public accounting of any such persons.
(((5) Client records: Licensees, CPA-Inactive
certificate holders, nonlicensee firm owners, and employees of
such persons must furnish to their client or heirs, successors
or personal representatives, upon request and reasonable
notice:
(a) A copy of records, schedules, and electronic documents of those persons, to the extent that such records and schedules would ordinarily constitute part of the client's records and are not otherwise available to the client; and
(b) Any accounting or other records belonging to, or obtained from or on behalf of, the client, that the licensee, CPA-Inactive certificate holder, or nonlicensee firm owner, or employees of such persons removed from the client's premises or received for the client's account, including electronic documents; but such persons may make and retain copies of such documents of the client when they form the basis for the professional services offered or rendered by those persons.
(c) Licensees, CPA-Inactive certificate holders, nonlicensee firm owners, and/or employees of such persons must not refuse to return client records, including electronic documents, pending client payment of outstanding fees.
(6) Audit and review record retention requirements: For a period of seven years after a licensee concludes an audit or review such persons must retain the following records and documents, including electronic records unless hard copies of such exist:
(a) Records forming the basis of the audit or review;
(b) Records documenting audit or review procedures applied;
(c) Records documenting evidence obtained including financial data, analyses, conclusions, and opinions related to the audit or review engagement; and
(d) Records documenting conclusions reached by the licensee in the audit or review engagement.))
[Statutory Authority: RCW 18.04.055(2), 18.04.390 (4)(b), 18.04.405(1). 08-18-016, § 4-25-640, filed 8/25/08, effective 9/25/08; 05-01-137, § 4-25-640, filed 12/16/04, effective 1/31/05; 03-24-033, § 4-25-640, filed 11/25/03, effective 12/31/03. Statutory Authority: RCW 18.04.055(2). 02-22-082, § 4-25-640, filed 11/5/02, effective 12/31/02. Statutory Authority: RCW 18.40.055 [18.04.055]. 93-22-046, § 4-25-640, filed 10/28/93, effective 11/28/93.]
(a) A sanction, order, suspension, revocation, or modification of a license, certificate, permit or practice rights by the SEC, PCAOB, IRS, or another state board of accountancy for any cause other than failure to pay a professional license fee by the due date or failure to meet the continuing professional education requirements of another state board of accountancy; or
(b) Charges filed by the SEC, IRS, PCAOB, another state board of accountancy, or a federal or state taxing, insurance or securities regulatory body that the licensee, CPA-Inactive certificate holder, or nonlicensee firm owner committed a prohibited act that would be a violation of board ethical or technical standards.
(2) ((Individual licensees and sole proprietors are to
report action pursuant to subsection (1) of this section taken
against the individual's license and/or the license of the
sole proprietorship.
(3))) Licensed CPA firms with more than one licensed owner are not required to report on action taken against owners, principals, partners, or employees.
(((4))) (3) If you hold a license or CPA-Inactive
certificate issued through the foreign reciprocity provisions
of the act, you must notify the board of any investigations
undertaken, or sanctions imposed, by a foreign credentialing
body against your foreign credential within thirty days of
receiving notice that an investigation has begun or a sanction
was imposed.
[Statutory Authority: RCW 18.04.195 (13)(b), 18.04.215 (9)(b). 08-18-016, § 4-25-670, filed 8/25/08, effective 9/25/08. Statutory Authority: RCW 18.04.195 (10)(b) and 18.04.215 (9)(b). 05-01-137, § 4-25-670, filed 12/16/04, effective 1/31/05; 03-24-033, § 4-25-670, filed 11/25/03, effective 12/31/03.]
The following sections of the Washington Administrative
Code are decodified as follows:
| Old WAC Number | New WAC Number |
| 4-25-640 | 4-30-050 |
| 4-25-670 | 4-30-036 |
OTS-3786.2
NEW SECTION
WAC 4-30-051
What are the requirements concerning client
records, including response to requests by clients and former
clients for records?
(1) The following terms are defined
below solely for use with this section:
(a) Client provided records are accounting or other records belonging to the client that were provided to the licensee, CPA-Inactive certificate holder, and/or nonlicensee firm owner and employees of such persons by or on behalf of the client.
(b) Client records prepared by the licensee, CPA-Inactive certificate holder, and/or nonlicensee firm owner are accounting or other records (for example, tax returns, general ledgers, subsidiary journals, and supporting schedules such as detailed employee payroll records and depreciation schedules) that the licensee, CPA-Inactive certificate holder, and/or nonlicensee firm owner and employees of such persons was engaged to prepare for the client.
(c) Supporting records are information not reflected in the client's books and records that are otherwise not available to the client with the result that the client's financial information is incomplete. For example, supporting records include adjusting, closing, combining or consolidating journal entries (including computations supporting such entries), that are produced by the licensee, CPA-Inactive certificate holder, and/or nonlicensee firm owner and employees of such persons during an engagement.
(d) Licensee, CPA-Inactive certificate holder, and/or nonlicensee firm owner working papers include, but are not limited to, audit programs, analytical review schedules, statistical sampling results, analyses, and schedules prepared by the client at the request of the licensee, CPA-Inactive certificate holder, and/or nonlicensee firm owner and employees of such persons.
(2) When a client or former client (client) makes a request for client-provided records, client records prepared by the licensee, CPA-Inactive certificate holder, and/or nonlicensee firm owner, or supporting records that are in the custody or control of the licensee, CPA-Inactive certificate holder, and/or nonlicensee firm owner that have not previously been provided to the client, the licensee, CPA-Inactive certificate holder, and/or nonlicensee firm owner should respond to the client's request as follows:
(a) Client provided records in the licensee, CPA-Inactive certificate holder, and/or nonlicensee firm owner custody or control must be returned to the client.
(b) Client records prepared by the licensee, CPA-Inactive certificate holder, and/or nonlicensee firm owner must be provided to the client, except that client records prepared by the licensee, CPA-Inactive certificate holder, and/or nonlicensee firm owner may be withheld if the preparation of such records is not complete.
(c) Supporting records relating to a completed and issued work product must be provided to the client.
(d) Persons subject to this subsection developing and maintaining such records, or schedules should make a reasonable effort to provide the required information and data to the client in a format useable by the client to avoid the cost to the client of duplicate reentry of individual transaction or other information into the client's or successor custodian's recordkeeping system.
(3) The licensee, CPA-Inactive certificate holder, and/or nonlicensee firm owner is not required to convert records that are not in electronic format to electronic format. However, if the client requests records in a specific format and the licensee, CPA-Inactive certificate holder, and/or nonlicensee firm owner was engaged to prepare the records in that format, the client's request should be honored.
(4) Licensees, CPA-Inactive certificate holders, nonlicensee firm owners, and/or employees of such persons must not refuse to return or provide records indicated in subsection (1)(a), (b), and (c) of this section including electronic documents, pending client payment of outstanding fees.
(5) Once the licensee, CPA-Inactive certificate holder, and/or nonlicensee firm owner and employees of such persons has complied with the requirements in subsection (2) of this section, he or she is under no ethical obligation to comply with any subsequent requests to again provide such records or copies of such records. However, if subsequent to complying with a request, a client experiences a loss of records due to a natural disaster or an act of war, the licensee, CPA-Inactive certificate holder, and/or nonlicensee firm owner should comply with an additional request to provide such records.
(6) Licensee, CPA-Inactive certificate holder, and/or nonlicensee firm owner working papers are the licensee, CPA-Inactive certificate holder, and/or nonlicensee firm owner property and need not be provided to the client under provisions of this section; however, such requirements may be imposed by state and federal statutes and regulations, and contractual agreements.
(7) In connection with any request for client-provided records, client records prepared by the licensee, CPA-Inactive certificate holder, and/or nonlicensee firm owner and employees of such persons, or supporting records, the licensee, CPA-Inactive certificate holder, and/or nonlicensee firm owner may:
(a) Charge the client a reasonable fee for the time and expense incurred to retrieve and copy such records and require that such fee be paid prior to the time such records are provided to the client;
(b) Provide the requested records in any format usable by the client;
(c) Make and retain copies of any records returned or provided to the client.
(8) Where a licensee, CPA-Inactive certificate holder, and/or nonlicensee firm owner is required to return or provide records to the client, the licensee, CPA-Inactive certificate holder, and/or nonlicensee firm owner should comply with the client's request as soon as practicable but, absent extenuating circumstances, no later than forty-five days after the request is made. The fact that the statutes of the state in which the licensee, CPA-Inactive certificate holder, and/or nonlicensee firm owner practices grants the licensee, CPA-Inactive certificate holder, and/or nonlicensee firm owner a lien on certain records in his or her custody or control does not relieve the licensee, CPA-Inactive certificate holder, and/or nonlicensee firm owner of his or her obligation to comply with this section.
(9) A licensee, CPA-Inactive certificate holder, and/or nonlicensee firm owner is under no obligation to retain records for periods that exceed applicable professional standards, state and federal statutes and regulations, and contractual agreements relating to the service(s) performed.
(10) Audit and review record retention requirements: For a period of seven years after a licensee concludes an audit or review such persons must retain the following records and documents, including electronic records unless hard copies of such exist:
(a) Records forming the basis of the audit or review;
(b) Records documenting audit or review procedures applied;
(c) Records documenting evidence obtained including financial data, analyses, conclusions, and opinions related to the audit or review engagement; and
(d) Records documenting conclusions reached by the licensee in the audit or review engagement.
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