Preproposal statement of inquiry was filed as WSR 06-17-014.
Title of Rule and Other Identifying Information: WAC 4-25-820 What are the requirements for participating in quality assurance review (QAR)?
Hearing Location(s): Hilton Seattle Airport & Conference Center, 17620 Pacific Highway South, SeaTac, WA, on June 15, 2007, at 8:00 a.m.
Date of Intended Adoption: June 15, 2007.
Submit Written Comments to: Richard C. Sweeney, Executive Director, P.O. Box 9131, Olympia, WA 98507-9131, e-mail firstname.lastname@example.org, fax (360) 664-9190, by June 4, 2007.
Assistance for Persons with Disabilities: Contact Cheryl Sexton by June 4, 2007, TTY (800) 833-6384 or (360) 664-9194.
Purpose of the Proposal and Its Anticipated Effects, Including Any Changes in Existing Rules: The current rule refers to attest standards but limits the QAR program to review of only reports and historical financial statement presentations (audit, review, or compilation) in accordance with generally accepted accounting principles (GAAP) or an other comprehensive basis of accounting (OCBOA). This excludes the review of reports by certified public accountants (CPAs) on internal controls, performance audits, forecasts, projections, and agreed upon procedures covered by the attestation standards. These types of reports are routinely issued by CPA firms. The proposed amendment clarifies that the statute and board rules cover all reports by licensees on information produced by management and expands the QAR review to cover more than reports on historical statements.
Reasons Supporting Proposal: The board is charged with protection of the public interest and ensuring the integrity and dependability of financial information as it relates to the licensure of CPAs and CPA firms 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. The purpose of the QAR program is to monitor licensees' compliance with attest standards.
Statutory Authority for Adoption: RCW 18.04.055(9).
Statute Being Implemented: RCW 18.04.055(9).
Rule is not necessitated by federal law, federal or state court decision.
Agency Comments or Recommendations, if any, as to Statutory Language, Implementation, Enforcement, and Fiscal Matters: The expanded review of all attest services will become effective with the 2008 QAR cycle.
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.
May 1, 2007
Richard C. Sweeney, CPA
(2) Structure and implementation.
(a) The board will annually appoint a quality assurance review committee to perform the following functions:
(i) Review of financial statements and the reports of licensees thereon to assess their compliance with applicable professional standards;
(ii) Review of licensees' attestation reports and information covered by those reports for conformity with applicable professional standards;
(iii) Improvement of reporting practices of licensees through education and rehabilitative measures; and
(iii) Referral of cases requiring further investigation
to the board; and
(iv) Such other functions as the board may assign to the committee.
(b) Once every three years the board will require each licensed firm to participate in the board's quality assurance review program. Participating firms will be notified by the board in January of the reporting requirement, and participating firms will be required to submit a quality assurance review status form, along with the appropriate fee, by the following April 30th. Failure to submit a complete quality assurance review status form postmarked by the April 30th due date, will result in the assessment of late fees. The board may waive late fees based on individual hardship including, but not limited to, financial hardship, critical illness, or active military deployment.
(c) Each participating firm shall submit, for each of its offices, one licensee report and the information covered by that report, for each of the following types of service or any other service the Board determines:
a cCompilation report on historical financial
a rReview report on historical financial statements,
an aAudit report on historical financial statements,
• Agreed-upon procedures
• Internal controls
• Performance audits, and
A firm shall select these reports from all reports prepared during the twelve months preceding the date of board request or, if no reports have been issued within the last twelve months, from all reports during the preceding three years.
If reports issued by all offices of a firm are reviewed
and issued in a controlled, centralized process, only one
each of the type of licensee reports, including the
information covered by the reports, specified above need be
submitted by the firm as a whole.
(d) The board may exempt from the requirement of (c) of
this subsection any firm
which that has participated in a
board-approved peer review program within the three years
immediately preceding the date of board request.
(e) Firms requesting exemption must submit a copy of an unmodified report, letter of comments, response to letter of comments, if applicable, and letter of acceptance from the reviewing organization. Firms that receive modified peer review reports may request exemption, but must submit copies of such reports and related correspondence, at the discretion of the board, for consideration on an individual basis.
(e) (f) Any documents submitted in accordance with (c) of
this subsection may have the name of the client, the client's
address, and other identifying factors omitted, provided that
the omission does not render the type or nature of the entity
undeterminable. Dates may not be omitted. (f) (g) Reports submitted to the committee pursuant to
(c) of this subsection and comments of reviewers, the
committee and the board on such reports or workpapers relating
thereto, shall also be preserved in confidence except to the
extent that they are communicated by the board to the
licensees who issued the reports or disclosure is required
under administrative procedure rules or by direction of a
court of law. (g) (h) The committee's review of financial statements
and the licensee reports of the licensees and other
information covered by those reports thereon shall be directed
toward the following:
(i) Presentation of the financial statements covered by
the licensee reports and/or other information covered by those
reports in conformity with
generally accepted accounting
principles or other comprehensive basis of accounting, if
applicable professional standards for presentation and
(ii) Compliance by licensees with
auditing standards applicable attestation standards; and
Compliance by licensees with other professional
(iv) Compliance by licensees with the rules of the board and other regulations relating to the practice of public accounting.
(h) (i) If the board determines that a report and/or
other information covered by the report referred to the board
by the committee is substandard or seriously questionable with
respect to applicable professional standards, the board may
take one or more of the following actions:
(i) Send the licensee a letter of comment detailing the perceived deficiencies and require the licensee to develop quality control procedures to ensure that similar occurrences will not occur in the future;
(ii) Require any licensee who had responsibility for issuance of a report, or who substantially participated in preparation of the report and/or related workpapers, to successfully complete specific courses or types of continuing education as specified by the board;
(iii) Require that the licensee responsible for a substandard report submit all or specified categories of its reports to a preissuance review in a manner and for a duration prescribed by the board. The cost of the preissuance review will be at the firm's expense;
(iv) Require the licensee responsible for a substandard report to submit to a peer review conducted in accordance with standards acceptable to the board. The cost of the peer review will be at the licensee's expense;
(v) Require the licensee responsible for substandard work to submit to on-site field review or other investigative procedures of work product and practices by board representatives in order to assess the degree or pervasiveness of substandard work. The board may assess the costs of such field review or procedures to the licensee if the results of such investigative efforts substantiate the existence of substandard work product;
(vi) Initiate an investigation pursuant to RCW 18.04.295, 18.04.305, and/or 18.04.320.
(i) (j) The board may solicit and review licensee reports
financial statements and/or other information covered by the
reports related reports of licensees from clients, public
agencies, banks, and other users of financial statements such
information. In gathering information about the attest work
of licensees, the board may make use of investigators.
[Statutory Authority: RCW 18.04.055(9). 05-01-135, § 4-25-820, filed 12/16/04, effective 1/31/05; 02-04-064, § 4-25-820, filed 1/31/02, effective 3/15/02. Statutory Authority: RCW 18.04.055. 94-02-071, § 4-25-820, filed 1/4/94, effective 2/4/94.]
Reviser's note: RCW 34.05.395 requires the use of underlining and deletion marks to indicate amendments to existing rules. The rule published above varies from its predecessor in certain respects not indicated by the use of these markings.
Reviser's note: The typographical errors in the above section occurred in the copy filed by the agency and appear in the Register pursuant to the requirements of RCW 34.08.040.