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2008 Prentice Hall Business Publishing,Auditing 12/e,Arens/Beasley/Elder 2 - 1

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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Firms

Big Four international firms

National firms

Regional and large local firms

Small local firms

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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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Management consulting services

Tax services

Accounting and bookkeeping services

Activities of CPA Firms

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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 corporationLimited liability partnership

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Hierarchy of a Typical

CPA Firm

Staff Level Experience Typical Responsibilities

Staffassistant

0-2 years Performs most of thedetailed audit work

Senior or

in-charge

auditor

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 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

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E-Commerce and

CPA Firm Operations

CPA firms are using the Internet to market

their services.

Firm Web sites also feature online software tools

and databases to subscribers.

Firms take advantage of online resources anddatabases to help their staffs stay current on

emerging business and standards-setting issues.

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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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This Act is considered by many observers to

be the most important legislation affecting

the auditing profession since the 1930s.

Sarbanes-Oxley Act

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

AccountingOversight Board)

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Sarbanes-Oxley Act

The PCAOB conducts inspections of registered

accounting firms and assess their compliance

with the rules of the PCAOB and the SEC.

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Summarize the role of the

Securities and Exchange

Commission in accounting

and auditing.

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The overall purpose of the Secu r i t ies and

Exchange Comm ission (SEC)is to assist in

providing investors with reliable information

upon which to make investment decisions.


Commission

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Commission

Form S-1

Form 8-K

Form 10-K

Form 10-Q

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Describe the key functions

performed by the AICPA.

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The AICPA sets professional requirements

for CPAs, conducts research, and publishes

materials on many different subjects relatedto accounting, auditing, attestation and

assurance services, management

consulting services, and taxes.

AICPA

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The AICPA is empowered to set standards

(guidelines) and rules that all members

and other practicing CPAs must follow.

Establishing Standards

and Rules

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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

Supports research by its own staff andprovides grants to others.

Writes and grades the CPA examination.

Provides seminars and education in a

variety of subject matters.

Publishes a variety of materials.

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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:

CPAsmaking 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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Use generally accepted auditing

standards as a basis for

further study.

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1. The audit is to be performed by a person or

persons having adequate technical training

and proficiency as an auditor.

2. The auditor must maintain independence

in mental attitude in all matters relating

to the audit.

General Standards

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General Standards

3. The auditor must exercise due professional

care in the performance of the audit and the

preparation of the report.

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1. The auditor must adequately plan the work

and must properly supervise any assistants.

2. The auditor must obtain a sufficient understanding

of the entity and its environment, including its

internal control, to assess the risk of material

misstatement and to design further auditprocedures.

Standards of Field Work

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3. The auditor must obtain sufficient appropriate

audit evidence by performing audit procedures

to afford a reasonable basis for an opinion

regarding the financial statements under audit.

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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 periodin relation to the preceding period.

Standards of Reporting

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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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Generally Accepted Auditing

Standards

General Standards

1.Adequate training and proficiency

2. Independence in mental attitude

3. Due professional care

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Standards


1. Proper planning and supervision

2. Understanding of the entity

3. Sufficient appropriate evidence

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Standards


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 auditingstandards.

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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.

Statements on Auditing

Standards

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GAAS and Standards of Performance

Statements on Auditing

Standards

Classification of Statements on Auditing Standards

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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 IFAC works to improve the

uniformity of auditing practices and

related services throughout the world.

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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

AICPA practicesections Peerreview

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CPAs Encouraged to Conduct

Themselves at a High Level

Legal

liability

AICPA practice

sections

Continuing

education

requirements

GAAS and

interpretations

Code of

Professional

Conduc t

CPA

examination

Qualitycontrol

Peer

review

PCAOB

and SEC

Conduct of

CPA firm

personnel

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End of Chapter 2

chapter 2

Documents

international cpa firms

largest cpa firms

grantedto cpa firms

nature of cpa firms

current onemerging business

cpa professionchapter

auditfield work

managesthe audit