Addthis Arens Chapter02

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The CPA Profession

Chapter 2

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Learning Objective 1

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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

_{Big Four international firms}

_{National firms}

_{Regional and large 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

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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.

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Organizational Structure

_{Proprietorship}

_{Professional corporation}

_{General partnership}

_{Limited liability company}

_{General corporation}

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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 2-5 years

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Hierarchy of a Typical

CPA Firm

Staff Level Experience Typical Responsibilities

Manager 5-10 years

Helps plan the audit, manages the audit,

reviews work, and works with the client

Partner 10+ years

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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

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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

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Sarbanes-Oxley Act

SEC

PCAOB

(Public Company Accounting

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Sarbanes-Oxley Act

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Learning Objective 3

Summarize the role of the

Securities and Exchange

Commission in accounting

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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.

Securities and Exchange

Commission

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Securities and Exchange

Commission

 _{Form S-1}

_{Form 8-K}

_{Form 10-K}

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Learning Objective 4

Describe the key functions

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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.

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

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Other AICPA Functions

Supports research by its own staff and provides grants to others.

Writes and grades the CPA examination.

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Learning Objective 5

Discuss the nature of United States and international auditing standards

Generally Accepted Auditing Standards

General

qualifications and conduct

Field Work

performance of the audit

Reporting

results

Adequate training and proficiency

Independence in mental attitude

Proper planning and supervision

Sufficient understanding of the entity, its environment,

Whether statements were prepared in accordance with GAAP

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_{GAAS and Standards of Performance}

Statements on Auditing

Standards

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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

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International Standards

on Auditing

International Standards on Auditing (ISAs) are issued by the International Auditing and Assurance Standards Board (IAASB) of the International Federation of

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Learning Objective 6

Use generally accepted auditing standards

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Generally Accepted Auditing

Standards- United States

General Standards 1. Adequate training and proficiency

2. Independence in mental attitude

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1. The auditor must have adequate technical training and proficiency to perform the audit.

2. The auditor must maintain independence in mental attitude in all matters relating to the audit.

U.S. Generally Accepted Auditing

Standards

General Standards

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Generally Accepted Auditing

Standards – United States

Standards of Field Work 1. Proper planning and supervision

2. Understanding of the entity

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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 audit

procedures.

Standards of Field Work

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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

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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 period in relation to the preceding period.

Standards of Reporting

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Standards of Reporting

(Cont’d)(Cont’d)

3. Informative disclosures in the financial

statements are to be regarded as reasonably adequate unless otherwise stated in the report.

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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.

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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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AICPA Clarity and Convergence

Project

The AICPA Auditing Standards Board has undertaken a

significant effort to make GAAS easier to read,

understand and apply.

This project is similar to an effort by the International

Auditing and Assurance Standards Board to clarify

International Standards on Auditing. (IAASB).

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Learning Objective 7

Identify quality control standards

and practices within the

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Elements of Quality Control

_{Independence, integrity, and objectivity}

_{Personnel management}

_{Acceptance and continuation of clients} and engagements

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Relationships

Quality control standards

Generally accepted auditing standards

AICPA practice sections

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CPAs Encouraged to Conduct

Themselves at a High Level

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