Purpose: 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.

Citation of Existing Rules Affected by this Order: Amending WAC 4-25-622 Independence.

Statutory Authority for Adoption: RCW 18.04.055(2).

Adopted under notice filed as WSR 98-01-230 on December 24, 1997.

Number of Sections Adopted in Order to Comply with Federal Statute: New 0, amended 0, repealed 0; Federal Rules or Standards: New 0, amended 0, repealed 0; or Recently Enacted State Statutes: New 0, amended 0, repealed 0.

Number of Sections Adopted at Request of a Nongovernmental Entity: New 0, amended 0, repealed 0.

Number of Sections Adopted on the Agency's Own Initiative: New 0, amended 1, repealed 0.

Number of Sections Adopted in Order to Clarify, Streamline, or Reform Agency Procedures: New 0, amended 1, repealed 0.

Number of Sections Adopted Using Negotiated Rule Making: New 0, amended 0, repealed 0; Pilot Rule Making: New 0, amended 0, repealed 0; or Other Alternative Rule Making: New 0, amended 1, repealed 0.

Effective Date of Rule: Thirty-one days after filing.

May 28, 1998

Cheryl M. Sexton

Confidential Secretary

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.))

[Statutory Authority: RCW 18.40.055. 93-22-046, § 4-25-622, filed 10/28/93, effective 11/28/93.]