WSR 98-01-230

PROPOSED RULES

BOARD OF ACCOUNTANCY

[Filed December 24, 1997, 12:00 p.m.]

Original Notice.

Preproposal statement of inquiry was filed as WSR 97-22-078.

Title of Rule: WAC 4-25-622 Independence.

Purpose: To amend the rule to expand the independence requirement to include all attestation services as identified by the board and the accounting profession and to eliminate ambiguities between the Washington state regulations and the accounting professions' recognized standards.

Statutory Authority for Adoption: RCW 18.04.055(2).

Statute Being Implemented: RCW 18.04.055(2).

Summary: To require Washington certified public accountants (CPAs) in public practice to be independent in the performance of certain activities including an examination of prospective financial information.

Reasons Supporting Proposal: The existing rule requires Washington certified public accountants (CPAs) in public practice to be independent in the performance of certain activities including an examination of prospective financial information. Attestation engagements require independence for more than just an examination of prospective financial information. Amendment to the rule will expand the independence requirement to include all attestation services as identified by the board and the accounting profession and eliminate ambiguities between the Washington state regulations and the accounting professions' recognized standards. The goal of the amendment is to:

Promote clarity.

Ensure effective communication.

Ensure fairness in interpretation and application of the rule.

Promote efficiencies through minimizing gray areas.

Address the need to protect the public through regulation of the practice of public accountancy and enhancing the reliability of information.

Name of Agency Personnel Responsible for Drafting, Implementation and Enforcement: Dana M. McInturff, CPA, 210 East Union, Suite A, Olympia, (360) 664-9194.

Name of Proponent: Board of Accountancy, governmental.

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

Explanation of Rule, its Purpose, and Anticipated Effects: Independence is a rule of professional conduct necessary to establish and maintain high standards of competence and ethics of certified public accountants (CPAs) to protect the public interest.

Proposal Changes the Following Existing Rules: Expands the independence requirement to: (1) Include all attestation services as identified by the board and the accounting profession.

(2) Eliminate ambiguities between the Washington state regulations and the accounting professions' recognized standards.

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: Bank of California Building, 900 4th Avenue, 24th Floor, Attorney General Training Center, Seattle, WA, on Thursday, January 29, 1998, at 9:30 a.m.

Assistance for Persons with Disabilities: Contact Cheryl Sexton by January 26, 1998, TDD (800) 833-6384, or (360) 664-9194.

Submit Written Comments to: Dana M. McInturff, P.O. Box 9131, Olympia, WA 98507-9131, FAX (360) 664-9190, by January 28, 1998.

Date of Intended Adoption: January 29, 1998.

December 23, 1997

Dana M. McInturff, CPA

Executive Director

AMENDATORY SECTION (Amending WSR 93-22-046, filed 10/28/93, effective 11/28/93)

WAC 4-25-622 Independence. (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 ((a)) historical or prospective financial statement when the CPA's report does not disclose a lack of independence; or

(c) ((An examination of prospective financial information.)) Other attest engagements when required by board rules or other professional standards such as the statements of standards for attestation engagements.

(2) ((Independence shall be considered to be impaired if, for example, there existed any of the following transactions, interests or relationships in connection with reporting on financial statements:)) 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.

((The foregoing examples are not intended to be all inclusive.))