the cpa profession · ©2012 prentice hall business publishing, auditing 14/e, arens/elder/beasley...

2 - 1 ©2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley

The CPA Profession

Chapter 2

©2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley 2 - 2

Learning Objective 1

Describe the nature of CPA firms,

what they do, and their structure.


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.



Big Four international firms

National firms

Regional and large local firms

Small local 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.


Management consulting services

Tax services

Accounting and bookkeeping services

Activities of CPA Firms


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.


Organizational Structure

Proprietorship

Professional corporation

General partnership

Limited liability company

General corporation

Limited liability partnership


Staff Assistants

Hierarchy of a Typical CPA Firm

Seniors and In-charge Auditors

Managers

Partners

Breadth of Experience

10+ years

5-10

2-5

0-2



Understand the impact of the PCAOB and

Sarbanes-Oxley on the CPA profession.


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.


Sarbanes-Oxley Act

SEC

PCAOB (Public Company

Accounting Oversight Board)



Summarize the role of the Securities and

Exchange Commission in accounting and

auditing.


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

Securities and Exchange Commission


Securities and Exchange Commission

Form S-1

Form 8-K

Form 10-K

Form 10-Q



Describe the key functions performed by the AICPA.


Performs the following services for CPAs: Sets professional requirements Conducts research Publishes materials related to services

performed

AICPA

Empowered to set standards (guidelines) and rules


Establishing Standards and Rules

1. Auditing standards

2. Compilation and review standards

3. Other attestation standards

4. Code of Professional Conduct


Other AICPA Functions

Research and Grants

The CPA examination

Provides seminars and continuing education

Publishes a variety of materials



Understand the role of international auditing standards and their relation to U.S. auditing standards


GAAS and Standards of Performance

Statements on Auditing Standards

Classification of Statements on Auditing Standards


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.


International Standards on Auditing



Use U.S. auditing standards as a basis for further study


GAAS


Generally Accepted Auditing Standards – United States

General Standards

1. Adequate training and proficiency 2. Independence in mental attitude 3. Due professional care



Standards of Field Work

1. Proper planning and supervision 2. Understanding of the entity 3. Sufficient appropriate evidence



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


Relationship Between GAAS and PCAOB Auditing Standards

PCAOB

Public company

audits

Private company

audits

GAAS


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.

Statements on Auditing Standards



Identify quality control standards and practices within the accounting profession.


Elements of Quality Control

Independence, integrity, and objectivity

Personnel management

Acceptance and continuation of clients and engagements

Engagement performance

Monitoring


Relationships


CPAs Encouraged to Conduct Themselves at a High Level

Legal liability

AICPA practice sections

Continuing education

requirements

GAAS and interpretations

Code of Professional

Conduct

CPA examination

Quality control

Peer review

PCAOB and SEC

Conduct of

CPA firm

personnel


End of Chapter 2

the cpa profession · ©2012 prentice hall business publishing, auditing 14/e, arens/elder/beasley...

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