Part 22.
TEXAS STATE BOARD OF PUBLIC ACCOUNTANCY
Chapter 501.
RULES OF PROFESSIONAL CONDUCT
Subchapter C. RESPONSIBILITIES TO CLIENTS
22 TAC §501.70
The Texas State Board of Public Accountancy (Board) proposes
an amendment to §501.70, concerning Independence.
The amendment to §501.70 will apply all applicable independence standards
to a CPA or licensed firm in a concise format.
William Treacy, Executive Director of the Board, has determined that for
the first five-year period the proposed amendment will be in effect:
A. the additional estimated cost to the state expected as a result of enforcing
or administering the amendment will be zero because the independence standards
are already applied to CPAs and firm license holders.
B. the estimated reduction in costs to the state and to local governments
as a result of enforcing or administering the amendment will be zero because
the independence standards are already applied to CPAs and firm license holders.
C. the estimated loss or increase in revenue to the state as a result of
enforcing or administering the amendment will be zero because the independence
standards are already applied to CPAs and firm license holders.
Mr. Treacy has determined that for the first five-year period the amendment
is in effect the public benefits expected as a result of adoption of the proposed
amendment will be efficient application and construction of independence standards
to CPAs and firm license holders.
The probable economic cost to persons required to comply with the amendment
will be zero because the independence standards are already applied to CPAs
and firm license holders.
Mr. Treacy has determined that a Local Employment Impact Statement is not
required because the proposed amendment will not affect a local economy.
The Board requests comments on the substance and effect of the proposed
amendment from any interested person. Comments must be received at the Board
no later than noon on February 15, 2002. Comments should be addressed to Amanda
G. Birrell, General Counsel, Texas State Board of Public Accountancy, 333
Guadalupe, Tower III, Suite 900, Austin, Texas 78701 or faxed to her attention
at (512) 305-7854.
Mr. Treacy has determined that the proposed amendment will not have an
adverse economic effect on small businesses because the independence standards
are already applied to CPAs and firm license holders by the existing rule.
The Board specifically invites comments from the public on the issues of
whether or not the proposed amendment will have an adverse economic effect
on small business; if the amendment is believed to have such an effect, then
how may the Board legally and feasibly reduce that effect considering the
purpose of the statute under which the amendment is to be adopted; and if
the amendment is believed to have such an effect, how the cost of compliance
for a small business compares with the cost of compliance for the largest
business affected by the amendment under any of the following standards: (a)
cost per employee; (b) cost for each hour of labor; or (c) cost for each $100
of sales. See Texas Government Code, §2006.002(c).
The amendment is proposed under the Public Accountancy Act, Tex.
Occupations Code, Section 901.151 (Vernon 2001) which authorizes the Board
to adopt rules deemed necessary or advisable to effectuate the Act.
No other article, statute or code is affected by this proposed amendment.
§501.70.Independence.
A certificate or registration holder in the performance of professional
services, including those who are not members of the AICPA, shall conform
in fact and in appearance to the independence standards established by the
AICPA and the board, and, where applicable, the U.S. Securities and Exchange
Commission, the General Accounting Office and other regulatory or professional
standard setting bodies.
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This agency hereby certifies that the proposal has been reviewed
by legal counsel and found to be within the agency's legal authority to adopt.
Filed with the Office of
the Secretary of State on January 17, 2002.
TRD-200200258
William Treacy
Executive Director
Texas State Board of Public Accountancy
Earliest possible date of adoption: March 3, 2002
For further information, please call: (512) 305-7848
22 TAC §501.81
The Texas State Board of Public Accountancy proposes an amendment
to §501.81, concerning Firm License Requirements.
The amendment to §501.81 will clarify that the rule also applies to
sole proprietorships.
William Treacy, Executive Director of the Board, has determined that for
the first five-year period the proposed amendment will be in effect:
A. the additional estimated cost to the state expected as a result of enforcing
or administering the amendment will be zero because the rule was intended
to apply to sole proprietorships and was so applied.
B. the estimated reduction in costs to the state and to local governments
as a result of enforcing or administering the amendment will be zero because
the rule was intended to apply to sole proprietorships and was so applied.
C. the estimated loss or increase in revenue to the state as a result of
enforcing or administering the amendment will be zero because the rule was
intended to apply to sole proprietorships and was so applied.
Mr. Treacy has determined that for the first five-year period the amendment
is in effect the public benefits expected as a result of adoption of the proposed
amendment will be efficient administration of the rule through the explicit
inclusion of sole proprietorships.
The probable economic cost to persons required to comply with the amendment
will be zero because the rule was intended to apply to sole proprietorships
and was so applied.
Mr. Treacy has determined that a Local Employment Impact Statement is not
required because the proposed amendment will not affect a local economy.
The Board requests comments on the substance and effect of the proposed
amendment from any interested person. Comments must be received at the Board
no later than noon on February 15, 2002. Comments should be addressed to Amanda
G. Birrell, General Counsel, Texas State Board of Public Accountancy, 333
Guadalupe, Tower III, Suite 900, Austin, Texas 78701 or faxed to her attention
at (512) 305-7854.
Mr. Treacy has determined that the proposed amendment will not have an
adverse economic effect on small businesses because the rule is only clarifying
an existing application of the rule.
The Board specifically invites comments from the public on the issues of
whether or not the proposed amendment will have an adverse economic effect
on small business; if the amendment is believed to have such an effect, then
how may the Board legally and feasibly reduce that effect considering the
purpose of the statute under which the amendment is to be adopted; and if
the amendment is believed to have such an effect, how the cost of compliance
for a small business compares with the cost of compliance for the largest
business affected by the amendment under any of the following standards: (a)
cost per employee; (b) cost for each hour of labor; or (c) cost for each $100
of sales. See Texas Government Code, §2006.002(c).
The amendment is proposed under the Public Accountancy Act, Tex.
Occupations Code, Section 901.151 (Vernon 2001) which authorizes the Board
to adopt rules deemed necessary or advisable to effectuate the Act.
No other article, statute or code is affected by this proposed amendment.
§501.81.Firm License Requirements.
(a)
A Firm
, including a sole proprietorship,
may
not provide attest services or use the title
"CPA," "CPAs,"
[
(b)
An individual may not provide attest services unless:
(1)
the individual has a license or registration issued under
the Act; and
(2)
the individual offers the attest services through an entity
holding a firm license.
(c)
Each advertisement or written promotional statement that
refers to a CPA's designation and his or her association with an unlicensed
entity in the client practice of public accountancy must include the disclaimer:
"This firm is not a CPA firm." The disclaimer must be included in conspicuous
proximity to the name of the unlicensed entity and be printed in type not
less bold than that contained in the body of the advertisement or written
statement. If the advertisement is in audio format only, the disclaimer shall
be clearly declared at the conclusion of each such presentation.
(d)
The requirements of subsection (c) of this section do not
apply with regard to a certificate or registration holder performing services:
(1)
as a licensed attorney at law of this state while in the
practice of law or as an employee of a licensed attorney when acting within
the scope of the attorney's practice of law; or
(2)
as an employee, officer, or director of a federally-insured
depository institution, when lawfully acting within the scope of the legally
permitted activities of the institution's trust department.
(e)
On the third determination by the board that a certificate
holder has practiced without a license or through an unregistered entity in
violation of subsection (c) of this section, the individual's certificate
shall be subject to revocation and may not be reinstated for at least 12 months
from the date of the revocation.
This agency hereby certifies that the proposal has been reviewed
by legal counsel and found to be within the agency's legal authority to adopt.
Filed with the Office of
the Secretary of State on January 17, 2002.
TRD-200200259
William Treacy
Executive Director
Texas State Board of Public Accountancy
Earliest possible date of adoption: March 3, 2002
For further information, please call: (512) 305-7848
(a)
A certificate or registration
holder must be independent in fact and in appearance when performing an engagement
in which the certificate or registration holder will issue a report on financial
statements of any client, except for a report in which lack of independence
may be cured by disclosure under applicable professional standards.]
(b)
Independence will be considered
to be impaired if, for example, during the period of the professional engagement
or at the time of expressing an opinion, the certificate or registration holder:]
(1)
had or was committed to acquire any direct
or material indirect financial interest in the client;]
(2)
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 client;]
(3)
had any joint closely-held business investment
with the client or any officer, director, partner, or principal stockholder
thereof which was material in relation to the net worth of the certificate
or registration holder; or]
(4)
had any loan to or from the client or any officer,
director, partner, or principal stockholder thereof other than certain "grandfathered
loans" and "other permitted loans" which will not be considered to impair
independence.]
(A)
Grandfathered loans-Loans from a financial
institution made under that institution's normal lending procedures, terms,
and requirements, and that meet the other specified conditions stated herein.
Grandfathered loans must, at all times, be current as to all terms and such
terms shall not be renegotiated after the latest of the dates in clauses (i)-(iv)
of this subparagraph. Grandfathered loans include those which:]
(i)
existed as of January 1, 1997;]
(ii)
were obtained from a financial institution
prior to its becoming a client requiring independence;]
(iii)
were obtained from a financial institution
for which independence was not required and that were later sold to a client
for which independence is required; or]
(iv)
were obtained from a firm's financial institution
client requiring independence, by a borrower prior to his or her becoming
a member of the firm or registration holder, such as:]
(I)
loans obtained by the certificate or registration
holder which are not material to the net worth of the borrower;]
(II)
home mortgages; and]
(III)
other secured loans in which the collateral
must equal or exceed the remaining balance of the loan at January 1, 1997,
and at all times thereafter.]
(B)
Other permitted loans-Personal loans obtained
from a financial institution client from which independence is required which
were made under that institution's normal lending procedures, terms and requirements.
Such loans must, at all times, be kept current as to all terms. Other permitted
loans include:]
(i)
automobile loans and leases collateralized
by the automobile;]
(ii)
loans of the surrender value under terms of
an insurance policy;]
(iii)
loans fully collateralized by cash deposits
at the same financial institution; and]
(iv)
credit cards and cash advances on checking
accounts with an aggregate balance not paid currently of $5,000 or less.]
(c)
Independence also will be
considered to be impaired if, during the period covered by the financial statements,
during the period of the professional engagement, or at the time of issuing
his report, the certificate or registration holder:]
(1)
was connected with the client 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 any employee;]
(2)
was a trustee for any pension or profit-sharing
trust of the client;]
(3)
receives or had a commitment to receive from
the client or third party, with respect to services or products procured or
to be procured by or for the client, compensation for other than the performance
of professional services that is material in relation to the aggregate normally-recurring
fees charged annually to the client for reports on financial statements;]
(4)
had a commitment from the client for a contingent
fee in violation of §501.72 of this title (relating to Contingency Fees);
or]
(5)
had an engagement to provide for the supervision
of an individual as provided for in §511.124(a)(1) of this title (relating
to Acceptable Supervision).]
(d)
Independence will be presumed
to be impaired if the certificate or registration holder performs audit services,
other than for charitable organizations, for a fee that is less than the direct
labor cost reasonably expected, at the time the engagement was accepted, to
be incurred in performing such services. For this purpose direct labor costs
means the total compensation of the person or persons expected to perform
the service for the time they are expected to serve on the audit plus all
payroll expenses related to such compensation.]
(e)
A certificate or registration
holder's independence may be impaired by a close relative's association with
a client. Close relatives are defined as spouses and dependent persons, whether
or not related, and defined as dependent and non-dependent children, grandchildren,
stepchildren, brothers, sisters, parents, grandparents, parents-in-law, and
their respective spouses.]
(1)
Certificate and registration holders must consider
whether the strength of personal and business relationships between the certificate
or registration holder and the close relative would lead a reasonable person
who is aware of all the facts to conclude that the situation poses an unacceptable
threat to the certificate or registration holder's objectivity and appearance
of independence. In reaching this conclusion, the certificate or registration
holder should consider the specific association with the client.]
(2)
A certificate or registration holder's independence
will be presumed to be impaired with respect to a client if:]
(A)
during the period of the professional engagement
or at the time of expressing an opinion, the certificate or registration holder
participating in the engagement has knowledge of a close relative who has
a material financial interest in the client;]
(B)
during the period covered by the financial
statements, during the period of the professional engagement, or at the time
of expressing an opinion:]
(i)
the certificate or registration holder participating
in the engagement has a close relative who could exercise significant influence
over the operative, financial, or accounting policies of the client or is
otherwise employed in a position in which the close relative's activities
are normally an element of or subject to significant internal accounting controls;]
(ii)
a proprietor, shareholder, or individual in
a managerial position in a certificate or registration holder's office, has
a close relative who could exercise significant influence over the client's
operating, financial, or accounting policies, if that proprietor, shareholder
or individual participates in a significant portion of the engagement.]
(f)
The examples of impaired independence
described in subsections (b)-(e) of this section are not intended to be all-inclusive.]
Subchapter D. RESPONSIBILITIES TO THE PUBLIC
"CPA's,"
] "CPA Firm," "Certified Public Accountants," "Certified Public
Accounting Firm," or "Auditing Firm" or any variation of those titles unless
the firm holds a
firm
[
Firm
] license.