Chapter 2 – The CPA Profession

The CPA Profession

Chapter 2

©2006 Prentice Hall Business Publishing, Auditing 11/e, Arens/Beasley/Elder

2 - 1

Learning Objective 1

Describe the nature of CPA firms, what they do, and their structure.


2 - 2

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.

2 - 3



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.

2 - 4



Big Four international firms

National firms

Regional and large local firms

Small local firms


2 - 5

Activities of CPA Firms

Accounting and bookkeeping services

Tax services

Management consulting services


2 - 6

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


2 - 7

Organizational Structure

Proprietorship

Professional corporation

General partnership

Limited liability company

General corporation

Limited liability partnership


2 - 8

Hierarchy of a Typical

CPA Firm

Staff Level Experience Typical Responsibilities

Staff assistant

0-2 years

Performs most of the detailed audit work

Senior or in-charge auditor

2-5 years

Responsible for the audit field work, including supervising staff work


2 - 9

Hierarchy of a Typical

CPA Firm

Staff Level Experience Typical Responsibilities

Manager 5-10 years

Helps the plan, manages the audit, reviews work, and works with the client

Partner 10+ years

Reviews audit work and makes significant audit decisions


2 - 10

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.


2 - 11


Understand the role of the

Public Company Accounting

Oversight Board and the effects of the Sarbanes-Oxley Act on the CPA profession.


2 - 12

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.


2 - 13

Sarbanes-Oxley Act

SEC

PCAOB

(Public Company Accounting

Oversight Board)


2 - 14


Summarize the role of the

Securities and Exchange

Commission in accounting and auditing.


2 - 15


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.


2 - 16


Commission

Forms S-1 to S-16 Form 10-K

Form 8-K


Form 10-Q

2 - 17


Describe the key functions performed by the AICPA.


2 - 18

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.


2 - 19

Establishing Standards and Rules

The AICPA is empowered to set standards

(guidelines) and rules that all members

And other practicing CPAs must follow.


2 - 20

Establishing Standards and Rules

1. Auditing standards

2. Compilation and review standards

3. Other attestation standards

4. Consulting standards

5. Code of Professional Conduct


2 - 21

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


2 - 22

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.”

2 - 23


Vision for the Future

1. Continuing education and life-long learning

2. Competence

3. Integrity

4. Attuned to broad business issues

5. Objectivity


2 - 24


Use generally accepted auditing standards as a basis for further study.


2 - 25

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.


2 - 26


3. Due professional care is to be exercised in the planning and performance of the audit and the preparation of the report.


2 - 27

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.


2 - 28

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.


2 - 29

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.


2 - 30

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.


2 - 31

Summary of


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


2 - 32

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.


2 - 33

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.

2 - 34



Discuss the role of international auditing standards.


2 - 35

International Standards on Auditing

International Standards on Auditing (ISAs) are issued by the International Auditing

Practice Committee of the International

Federation of Accountants (IFAC).


2 - 36

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.


2 - 37


Identify quality control standards and practices within the accounting profession.


2 - 38

Elements of Quality Control

Independence, integrity, and objectivity

Personnel management

Acceptance and continuation of clients and engagements

Engagement performance

Monitoring


2 - 39

Relationships

Quality control standards

Generally accepted auditing standards

Division of

CPA firms


Peer review

2 - 40

CPAs Encouraged to Conduct

Themselves at a High Level

CPA examination

GAAS and interpretations

Continuing education requirements

Quality control

Conduct of

CPA firm personnel

Legal liability

Peer review

Division of

CPA firms PCAOB and SEC

Code of

Professional

Conduct


2 - 41

End of Chapter 2


2 - 42

Chapter 2 – The CPA Profession

Related documents

Products

Support

Chapter 2 – The CPA Profession

Related documents

Add this document to collection(s)

Add this document to saved

Suggest us how to improve StudyLib