WSR 01-07-033



[ Filed March 15, 2001, 1:28 p.m. ]

Original Notice.

Preproposal statement of inquiry was filed as WSR 00-19-010.

Title of Rule: WAC 4-25-410 Definitions.

Purpose: To define terms used throughout the board's rules, chapter 4-25 WAC.

Statutory Authority for Adoption: RCW 18.04.055(11).

Statute Being Implemented: RCW 18.05.055(11) [18.04.055(11)].

Summary: This amendment adds the definition of terms "commissions," "referral fees," and "contingent fees" as it applies to Washington state regulations.

Reasons Supporting Proposal: The existing rule, WAC 4-25-410, excludes the definition of "commissions," "referral fees," and "contingent fees." These terms are used by the accounting profession and throughout the board rules. In January 2001 the board amended WAC 4-25-626 What restrictions govern commissions, referral, and contingent fees? Amending WAC 4-25-410 will clearly define the use of the terms as they apply to Washington state regulations. The goal of the amendment is to promote clarity; ensure effective communication; ensure fairness in interpretation and application of board rules; promote efficiencies through minimizing gray areas; and address the need to protect the public through regulation of the practice of the public accountancy and enhancing the reliability of information.

Name of Agency Personnel Responsible for Drafting, Implementation and Enforcement: Dana M. McInturff, CPA, 711 South Capitol Way, #400, Olympia, (360) 586-0163.

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: The rule defines terms used throughout the board's rules to provide clarity for users. The amendment of the rule will: (1) Present the rule in a clear concise format; (2) present the rule in simplified, easier to understand, language; and (3) add definitions for terms that are not currently defined.

Proposal Changes the Following Existing Rules: Amendment of the rule: (1) Lists the specific generally accepted auditing standards, standards for attestation engagements and standards for accounting and review services to the definition of "attest"; (2) deletes the explanation of a "valid certificate"; (3) adds CPA firm and organization to the definition for "client"; (4) adds a definition for "commissions and referral fees"; (5) adds a definition for "contingent fees"; and (6) adds a definition for "CPA" and "certified public accountant."

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: Capitol Court Building, 110 Capitol Way South, 11th and Capitol Way, Room 135, Olympia, WA, on April 27, 2001, at 9:30 a.m.

Assistance for Persons with Disabilities: Contact Cheryl Sexton by April 20, 2001, 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 April 26, 2001.

Date of Intended Adoption: April 27, 2001.

March 7, 2001

Dana M. McInturff, CPA

Executive Director


AMENDATORY SECTION(Amending WSR 98-12-020, filed 5/27/98, effective 6/27/98)

WAC 4-25-410   Definitions.   For purposes of these rules the following terms have the meanings indicated:

(1) "Act" means the Public Accountancy Act codified as chapter 18.04 RCW.

(2)(((a))) "Attest services" are services performed by a licensee in accordance with:

(a) Statements on Auditing Standards and related Auditing Interpretations issued by the American Institute of Certified Public Accountants (AICPA) including subsequent amendments;

(b) Statements on Standards for Accounting and Review Services and related Accounting and Review Services Interpretations issued by the AICPA including subsequent amendments; and

(c) Statements on Standards for Attestation Engagements and related Attestation Engagements Interpretations issued by the AICPA including subsequent amendments.

(3) "Audit," "review," and "compilation" are terms reserved ((by the public accountancy profession to identify forms of reports on financial statements that express differing levels of assurance. Professional standards setting bodies, such as the American Institute of Certified Public Accountants (AICPA), specify form and content of these reports.

(b) "Attest services" include services performed by a certified public accountant in accordance with generally accepted auditing standards, standards for attestation engagements and standards for accounting and review services)) for use by licensees under the act.

(((3))) (4) "Board" means the board of accountancy created by RCW 18.04.035.

(((4))) (5) "Certificate" means a certificate as a certified public accountant issued under ((this chapter)) the act, or a corresponding certificate issued by another state or foreign jurisdiction that is recognized in accordance with the reciprocity provisions of ((RCW 18.04.180 and 18.04.183. "Valid CPA certificate" means the holder has fully complied with continuing professional education requirements or the board has granted specific exemption from continuing professional education requirements, with or without restricting use of the CPA title)) the act.

(((5))) (6) "Client" means the person or entity that retains a ((CPA)) certified public accountant (CPA), or the CPA's firm or organization, through other than an employer/employee relationship((, for the performance of professional services)).

(((6))) (7) "Commissions and referral fees" are compensation arrangements where:

(a) The primary contractual relationship for the product or service is not between the client and the CPA;

(b) The CPA is not primarily responsible to the client for the performance or reliability of the product or service;

(c) The CPA adds no significant value to the product or service; or

(d) A third party instead of the client pays the CPA for the products or services.

(8) "Contingent fees" are fees established for the performance of any service pursuant to an arrangement in which no fee will be charged unless a specified finding or result is attained, or in which the amount of the fee is otherwise dependent upon the finding or result of such service.

(9) "CPA" or "certified public accountant" means a person holding a certificate under this act.

(10) "CPE" means continuing professional education (see also "Interactive CPE").

(((7))) (11) "Enterprise" means any person or entity, whether organized for profit or not, with respect to which a CPA performs professional services.

(((8))) (12) "Firm" means ((a sole proprietorship, a corporation, a limited liability company, or a partnership)) an entity licensed under the provisions of this chapter.

(((9))) (13) "Generally accepted accounting principles" (GAAP) is ((a technical)) an accounting term that encompasses the conventions, rules, and procedures necessary to define accepted accounting practice at a particular time. It includes not only broad guidelines of general application, but also detailed practices and procedures. Those conventions, rules, and procedures provide a standard by which to measure financial presentations.

(((10))) (14) "Generally accepted auditing standards" (GAAS) are ((broad conceptual)) guidelines and procedures, promulgated by the ((American Institute of Certified Public Accountants ())AICPA(())), for conducting individual audits of historical financial statements. ((They include general standards, standards of field work, and reporting standards.

(11))) (15) "Holding out" means any representation to the public by the use of restricted titles as set forth in ((RCW 18.04.345)) the act by a person or firm that the person or firm is a certified public accountant and that the person or firm offers to perform any professional services to the public as a certified public accountant. "Holding out" shall not affect or limit a person not required to hold a certificate under this chapter or a person or firm not required to hold a license under this chapter from engaging in practices identified in ((RCW 18.04.350(6))) the act.

(((12))) (16) "Interactive self-study program" means a CPE program designed to use ((interactive)) learning methodologies that simulate a classroom learning process by employing software or administrative systems that provide significant ongoing interactive feedback to learners regarding their learning progress.

(((13))) (17) "Licensee" means the holder of a valid license issued under ((chapter 18.04 RCW)) the provisions of this act.

(((14))) (18) "Public practice" or the "practice of public accounting" means performing or offering to perform by a person or firm holding ((itself)) out to the public as a licensee, for a client or potential client, one or more kinds of services involving the use of accounting or auditing skills, including the issuance of "audit reports," "review reports," "compilation reports," or "attestation reports" on financial statements, or one or more kinds of management advisory, or consulting services, or the preparation of tax returns, or the furnishing of advice on tax matters.

(((15))) (19) "Quality assurance review" (QAR) ((means a)) is the process, established by and conducted at the direction of the board, of study, appraisal, or review of one or more aspects of the professional work of a ((person)) licensee or firm ((in the practice of public accountancy)), by a ((person or persons)) licensee(s) who ((hold certificates and who are)) is not affiliated with the ((person)) licensee or firm being reviewed.

(((16))) (20) "Quality review" means a study, appraisal, or review of one or more aspects of the professional work of a ((person)) licensee or firm ((in the practice of public accountancy)), by a ((person or persons)) licensee(s) who ((hold certificates and who are)) is not affiliated with the ((person)) licensee or firm being reviewed, including a peer review, or any internal review or inspection intended to comply with quality control policies and procedures but not including a "quality assurance review."

(((17))) (21) "Reciprocity" means board recognition of licenses, certificates or other professional accounting credentials that the board will rely upon in full or partial satisfaction of CPA certification or licensing requirements. ((This board may grant reciprocity, by rule, to CPAs from other states or to certain professional accountants from countries whose credentials are recognized by this board. Board recognition of professional credentials issued by other state accountancy boards or foreign credentialing bodies is conditioned on those bodies' agreements to grant reciprocity to this board's licensees.

(18))) (22) "Referral fees" see definition of "commissions and referral fees" in subsection (7) of this section.

(23) "Reports on financial statements" means any reports or opinions prepared by ((certified public accountants)) licensees, based on services performed in accordance with generally accepted auditing standards, standards for attestation engagements, or standards for accounting and review services, as to whether the presentation of information 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, conforms with generally accepted accounting principles or other comprehensive bases of accounting. The term does not include incidental financial data included in management advisory services reports to support recommendations to a client.

(((19))) (24) "Rules of professional conduct" means principles and rules adopted by the board to govern ((CPAs')) the conduct of CPAs while representing themselves to others as CPAs. The rules apply to ((CPAs whether engaged in public practice or otherwise engaged in providing professional services while)) all persons using the CPA title.

(((20))) (25) "Statements on standards for accounting and review services" (SSARS) are standards, promulgated by the ((American Institute of Certified Public Accountants ())AICPA(())), to give guidance to ((CPAs)) licensees who are associated with the financial statements of nonpublic companies and issue compilation or review reports.

(((21))) (26) "Statements on standards for attestation engagements" are guidelines, promulgated by the ((American Institute of Certified Public Accountants ())AICPA(())), for use by ((CPAs)) licensees in attesting to assertions involving matters other than historical financial statements and for which no other standards exist.

[Statutory Authority: RCW 18.04.055(11). 98-12-020, 4-25-410, filed 5/27/98, effective 6/27/98; 94-23-071, 4-25-410, filed 11/15/94, effective 12/16/94.]

Washington State Code Reviser's Office