Section 10. Definitions

As used in this chapter, forms instructions and orders relating to the securities registration, the following meanings shall apply:

"Certified financial statements" shall be defined as those financial statements prepared in accordance with generally accepted accounting standards, that are examined and reported upon with an opinion expressed by an independent accountant and shall include at least the following information:

1. Date of report, manual signature, city and state where issued and identification without detailed enumeration of the financial statements and schedules covered by the report;

2. Representations as to whether the audit was made in accordance with generally accepted auditing standards and designation of any auditing standards and designation of any auditing procedures deemed necessary by the accountant under the circumstances of the particular case which may have been omitted, and the reason for their omission; nothing in this regulation however shall be construed to imply authority for the omission of any procedure which independent accountants would ordinarily employ in the course of an audit for the purpose of expressing the opinions required under the regulation;

3. Statement of the opinion of the accountant in respect to the financial statements and schedules covered by the report and the accounting principles and practices reflected therein and as to the consistency of the application of the accounting principles, or as to any changes in such principles which would have a material effect on the financial statements;

4. Any matters to which the accountant takes exception shall be clearly identified, the exception thereto specifically and clearly stated, and, to the extent practicable, the effect of such exception on the related financial statements given.

"Financial statements" shall be defined as those reports, schedules and statements, prepared in accordance with generally accepted accounting principles, which contain at least the following information unless the context otherwise dictates:

1. Balance Sheet;

2. Statement of Income or Operations;

3. Statement of Shareholders' Equity or Members' Equity; and

4. Statement of Cash Flows.

"Independent accountant" shall be defined as any certified public accountant in good standing and entitled to practice as such under the laws of his principal place of business or residence, and who is, in fact, not controlled by or under common control with the entity or person being audited; for the purposes of this definition an accountant will be considered not independent with respect to any person or any of its parents, its subsidiaries, or other affiliates (i) in which, during the period of the accountant's professional engagement to examine the financial statements being reported on or at the date of the accountant's report, the accountant or the accountant's firm or a member thereof, had, or was committed to acquire, any direct financial interest or any material indirect financial interest; (ii) with which, during the period of the accountant's professional engagement to examine the financial statements being reported on, at the date of the accountant's report during the period covered by the financial statements, the accountant or the accountant's firm or a member thereof was connected as a promoter, underwriter, voting trustee, director, officer, or employee, except that a firm will not be deemed not independent in regard to a particular person if a former officer or employee of such person is employed by the firm and such individual has completely disassociated himself from the person and its affiliates covering any period of his employment by the person. For the purposes of this chapter, the term "member" means all partners in the firm and all professional employees participating in the audit or located in an office of the firm participating in a significant portion of the audit; and in determining whether an accountant may in fact be not independent with respect to a particular person, the Commission will give appropriate consideration to all relevant circumstances, including evidence bearing on all relationships between the accountant and that person or any affiliates thereof and will not confine itself to the relationships existing in connection with the filing of reports with the Commission.

"Unaudited financial statements" shall be defined as those financial statements prepared in accordance with generally accepted accounting principles, not accompanied by the statements and representations as set forth in subdivisions 2, 3, and 4 of the first definition of this section.

Historical Notes

Derived from Rule 400, Case No. SEC810005, eff. July 1, 1981; amended by Case No. SEC890040, eff. July 1, 1989; Volume 19, Issue 23, eff. July 1, 2003.

Statutory Authority

§§ 12.1-13 and 13.1-523.1 of the Code of Virginia.