Transcript Chapter 2 – The CPA Profession

The CPA Profession
Chapter 2
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Learning Objective 1
Describe the nature of CPA firms,
what they do, and their structure.
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Certified Public Accounting Firms
The legal right to perform audits is granted
to CPA firms by regulation of each state.
CPA firms also provide many other services to
their clients, such as tax and consulting services.
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Certified Public Accounting Firms
The four largest CPA firms in the United States
are called the “Big Four” international CPA firms.
These four firms have offices in most major
cities in the United States and in many
cities throughout the world.
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Certified Public Accounting Firms
Big Four international firms
National firms
Regional and large local firms
Small local firms
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Activities of CPA Firms
Accounting and bookkeeping services
Tax services
Management consulting services
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Structure of CPA Firms
Three main factors influence the organizational
structure of all firms:
1. The need for independence from clients
2. The importance of a structure to encourage
competence
3. The increased litigation risk faced by auditors
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Organizational Structure
Proprietorship
Professional corporation
General partnership
Limited liability company
General corporation
Limited liability partnership
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Hierarchy of a Typical
CPA Firm
Staff Level Experience Typical Responsibilities
Staff
assistant
Senior or
in-charge
auditor
0-2 years
Performs most of the
detailed audit work
2-5 years
Responsible for the audit
field work, including
supervising staff work
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Hierarchy of a Typical
CPA Firm
Staff Level Experience Typical Responsibilities
Manager
Partner
Helps the plan, manages
5-10 years the audit, reviews work,
and works with the client
10+ years
Reviews audit work and
makes significant audit
decisions
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E-Commerce and
CPA Firm Operations
CPA firms are using the Internet to market
their services.
They also use the Internet to connect their
global professional staff.
Firms take advantage of online resources and
databases to help their staffs stay current on
emerging business and standards-setting issues.
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Learning Objective 2
Understand the role of the
Public Company Accounting
Oversight Board and the effects
of the Sarbanes-Oxley Act on
the CPA profession.
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Sarbanes-Oxley Act
This Act is considered by many observers to
be the most important legislation affecting
the auditing profession since the 1930s.
The provisions of the Act apply to publicly
held companies and their audit firms.
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Sarbanes-Oxley Act
SEC
PCAOB
(Public Company Accounting
Oversight Board)
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Learning Objective 3
Summarize the role of the
Securities and Exchange
Commission in accounting
and auditing.
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Securities and Exchange
Commission
The overall purpose of the Securities and
Exchange Commission (SEC) is to assist in
providing investors with reliable information
Upon which to make investment decisions.
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Securities and Exchange
Commission
Forms S-1 to S-16
Form 10-K
Form 8-K
Form 10-Q
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Learning Objective 4
Describe the key functions
performed by the AICPA.
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AICPA
The AICPA sets professional requirements
for CPAs, conducts research, and publishes
materials on many different subjects related
to accounting, auditing, attestation and
Assurance services, management
Consulting services, and taxes.
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Establishing Standards
and Rules
The AICPA is empowered to set standards
(guidelines) and rules that all members
And other practicing CPAs must follow.
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Establishing Standards
and Rules
1. Auditing standards
2. Compilation and review standards
3. Other attestation standards
4. Consulting standards
5. Code of Professional Conduct
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Other AICPA Functions
Writes and grades the CPA examination
Supports research by its own staff and
provides grants to others
Publishes a variety of materials.
Provides seminars and education in a
variety of subject matters
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Vision for the Future
The AICPA has established the CPA Vision Project
to provide a core purpose and a vision for the CPA
profession in the year 2011 and beyond.
The core purpose of the CPA Vision Project is:
“CPAs…making sense of a changing
and complex world.”
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Vision for the Future
1. Continuing education and life-long learning
2. Competence
3. Integrity
4. Attuned to broad business issues
5. Objectivity
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Learning Objective 5
Use generally accepted
auditing standards as a
basis for further study.
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General Standards
1. The audit is to be performed by a person or
persons having adequate technical training
and proficiency as an auditor.
2. In all matters relating to the assignment,
an independence in mental attitude is to
be maintained by the auditor or auditors.
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General Standards
3. Due professional care is to be exercised
in the planning and performance of the
audit and the preparation of the report.
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Standards of Field Work
1. The work is to be adequately planned
and assistants, if any, are to be
properly supervised.
2. A sufficient understanding of internal
control is to be obtained to plan the audit
and to determine the nature, timing, and
extent of tests to be performed.
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Standards of Field Work
3. Sufficient competent evidential matter is to
be obtained through inspection, observation,
inquiries, and confirmations to afford a
reasonable basis for an opinion regarding
the financial statements under audit.
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Standards of Reporting
1. The report shall state whether the financial
statements are presented in accordance with
generally accepted accounting principles.
2. The report shall identify those circumstances
in which such principles have not been
consistently observed in the current period
in relation to the preceding period.
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Standards of Reporting
3. Informative disclosures in the financial
statements are to be regarded as reasonably
adequate unless otherwise stated in the report.
4. The report shall contain an expression of
opinion regarding the financial statements,
taken as a whole.
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Summary of
General Standards
Generally Accepted Auditing Standards
General
Field Work
Reporting
1. Adequate training
and proficiency
2. Independence in
mental attitude
3. Due professional
care
1. Proper planning
and supervision
2. Internal control
understanding
3. Sufficient
competent
evidence
1. Statements prepared in
accordance with GAAP
2. Circumstances when
GAAP not followed
3. Adequacy of disclosures
4. Expression of opinion
on financial statements
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Relationship Between GAAS and
PCAOB Auditing Standards
The term generally accepted auditing standards
is no longer used for public company audits.
The term GAAS continues to be used for audits
of private companies.
Public company audits refer to PCAOB
auditing standards.
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Statements on Auditing Standards
The 10 generally accepted auditing standards
are too general to provide meaningful guidance.
SASs interpret the 10 generally accepted
auditing standards and are the most
Authoritative references available to auditors.
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Learning Objective 6
Discuss the role of international
auditing standards.
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International Standards
on Auditing
International Standards on Auditing (ISAs)
are issued by the International Auditing
Practice Committee of the International
Federation of Accountants (IFAC).
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International Standards
on Auditing
IFAC is the worldwide organization
for the accountancy profession.
The IAPC works to improve the
uniformity of auditing practices and
related services throughout the world.
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Learning Objective 7
Identify quality control
standards and practices
within the accounting
profession.
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Elements of Quality Control
Independence, integrity, and objectivity
Personnel management
Acceptance and continuation of clients
and engagements
Engagement performance
Monitoring
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Relationships
Quality control
standards
Generally accepted
auditing standards
Division of
CPA firms
Peer
review
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CPAs Encouraged to Conduct
Themselves at a High Level
CPA
examination
Quality
control
GAAS and
interpretations
Conduct of
CPA firm
personnel
Peer
review
PCAOB
and SEC
Code of
Professional
Conduct
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Continuing
education
requirements
Legal
liability
Division of
CPA firms
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End of Chapter 2
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