Preheat oven to 350 degrees F. In mixer bowl, beat butter, sugar and eggs together until light and fluffy.

Mix flour, cocoa, baking soda, baking powder and salt together. Mix water and vanilla together.

Remove beaters and add flour mixture to egg mixture alternately with water. Fold until smooth.

Spread batter in a greased 8 inch square pan. Bake for 30 minutes, until top of cake springs back when touched lightly. Remove from oven and cool.

Melt butter. Sprinkle in flour and salt. Stir to blend. Remove from heat.

Stir in milk, all at once. Return to moderate heat and cook, stirring constantly, until thick and smooth (don't worry if it separates a little).

Remove from heat and stir in icing sugar and vanilla. Set in a pan of ice water and stir until the frosting is thick enough to spread. Stir in nuts.

Spread over top of the cooled cake.