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Chapter 4.5. Division of Workers' Compensation
Subchapter 1. Administrative Director--Administrative Rules
Article 4. Certification Standards for Health Care Organizations
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§9771.81 Financial Statements.

(a) Whenever pursuant to these rules or pursuant to an order or request of the Administrative Director under the Code a financial statement or other report is required to be audited or be accompanied by the opinion of a certified public accountant, such accountant shall be independent of the licensee, determined in accordance with Section 602.02 of Financial Reporting Release No. 1 issued by the Securities and Exchange Commission (Securities Act Release 6395, April 15, 1982).

(b) The financial statements shall be audited by an independent accountant in accordance with Rule 9771.60(e).

(c) Except as provided in subsection

(d), financial statements of an organization required pursuant to these rules must be on a combining basis with an affiliate, if the organization or such affiliate is substantially dependent upon the other for the provision of workers' compensation health care, management or other services. An affiliate will normally be required to be combined, regardless of its form of organization, if the following conditions exist:

(1) The affiliate controls, is controlled by, or is under common control with, the organization, either directly or indirectly (see subsections (c) and (d) of Rule 9771.60), and

(2) The organization or the affiliate is substantially dependent, either directly or indirectly, upon the other for services or revenue.

(d) Upon written request of an organization, the Administrative Director may waive the requirement that an affiliate be combined in financial statements required pursuant to these rules. Normally, a waiver will be granted only when

(1) the affiliate is not directly engaged in the delivery of workers' compensation health care or

(2) the affiliate is operating under an authority granted by a governmental agency pursuant to which the affiliate is required to submit periodic financial reports in a form prescribed by such governmental agency that cannot practicably be reformatted into the form prescribed by these rules (such as an insurance company).

(e) When combined financial statements are required by this section, the independent accountant's report or opinion must cover all the entities included in the combined financial statements. If the accountant's report or opinion makes reference to the fact that a part of the examination was performed by another auditor, the organization shall also file the individual financial statements and report or opinion issued by the other auditor.

(f) Organizations which have subsidiaries that are required to be consolidated under generally accepted accounting principles must present either

(1) consolidating financial statements, or

(2) consolidating schedules for the balance sheet and statement of operations, which in either case must show the organization separate from the other entities included in the consolidated balances.

(g) This section shall not apply to an organization which is a public entity or political subdivision.

(h) All filings of financial statements required pursuant to these rules must include an original and one copy.


Authority cited: Stats. 1997, Ch. 346, Section 5. Reference: Sections 4600.3, 4500.5 and 4600.6, Labor Code.


1. New section filed 4-15-98; operative 4-15-98. Submitted to OAL for printing only pursuant to Stats. 1997, Ch. 346, Section 5 (Register 98, No. 16).

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