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 each state.
CPA firms also provide many other services to
their clients, such as tax and consulting services.
CPAs continue to develop new products and
services—such as financial planning, business
valuation and information technology.
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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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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
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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
Breadth of Experience
Partners
Managers
10+ years
5-10
Seniors and
In-charge Auditors
2-5
Staff Assistants
0-2
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Learning Objective 2
Understand the impact of the PCAOB and
Sarbanes-Oxley 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 purpose is to assist in providing investors
with reliable information upon which to make
investment decisions
The Securities Act of 1933
The Securities Exchange Act of 1934
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Securities and Exchange
Commission
 Form S-1
 Form 8-K
 Form 10-K
 Form 10-Q
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Learning Objective 4
Describe the key functions performed by the
AICPA.
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AICPA
Performs the following services for CPAs:
 Sets professional requirements
 Conducts research
 Publishes materials related to services
performed
Empowered to set standards (guidelines)
and rules
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Establishing Standards
and Rules
1. Auditing standards
2. Compilation and review standards
3. Other attestation standards
4. Code of Professional Conduct
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Other AICPA Functions
The CPA examination
Research and Grants
Publishes a variety of materials
Provides seminars and
continuing education
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Learning Objective 5
Understand the role of international auditing
standards and their relation to U.S. auditing
standards
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Statements on Auditing
Standards
 Classification of Statements on Auditing Standards
 GAAS and Standards of Performance
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International Standards
on Auditing
IFAC is the worldwide organization
for the accountancy profession.
The IFAC works to improve the
uniformity of auditing practices and
related services throughout the world.
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International Standards
on Auditing
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Learning Objective 6
Use U.S. auditing standards as a basis for
further study
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GAAS
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Generally Accepted Auditing
Standards – United States
General Standards
1. Adequate training and proficiency
2. Independence in mental attitude
3. Due professional care
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Generally Accepted Auditing
Standards – United States
Standards of Field Work
1. Proper planning and supervision
2. Understanding of the entity
3. Sufficient appropriate evidence
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Generally Accepted Auditing
Standards – United States
Standards of Reporting
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
PCAOB
GAAS
Public
company
audits
Private
company
audits
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Statements on Auditing
Standards
The 10 generally accepted auditing standards
are too general to provide meaningful guidance.
SAS interpret the 10 generally accepted
auditing standards and are the most
authoritative references available to auditors.
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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
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CPAs Encouraged to Conduct
Themselves at a High Level
CPA
examination
Quality
control
GAAS and
interpretations
Continuing
education
requirements
Conduct of
CPA firm
personnel
Peer
review
Legal
liability
AICPA practice
sections
PCAOB
and SEC
Code of
Professional
Conduct
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End of Chapter 2
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