Auditing Assurance 14e ppt ch08

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The CPA ProfessionThe CPA ProfessionChapter 2Chapter 2

©2012 Prentice Hall Business Publishing, ©2012 Prentice Hall Business Publishing, Auditing 14/e,Auditing 14/e, Arens/Elder/Beasley Arens/Elder/Beasley 2 - 2 - 22

Learning Objective 1Learning Objective 1

Describe the nature of CPA Describe the nature of CPA firms,firms,

what they do, and their what they do, and their structure.structure.


Certified Public Certified Public Accounting FirmsAccounting Firms

The legal right to perform audits is grantedto CPA firms by each state.

CPA firms also provide many other services totheir 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 Statesare called the “Big Four” international CPA firms.

These four firms have offices in most majorcities in the United States and in manycities throughout the world.




Management consulting services

Tax services

Accounting and bookkeeping services

Activities of CPA FirmsActivities of CPA Firms


Structure of CPA FirmsStructure of CPA Firms

Three main factors influence the organizationalstructure 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 StructureOrganizational Structure Proprietorship Professional corporation General partnership Limited liability company General corporation Limited liability partnership


Staff Assistants

Hierarchy of a TypicalHierarchy of a TypicalCPA FirmCPA Firm

Seniors and In-charge Auditors

Managers

Partners

Breadth of Experience

10+ years

5-10

2-5

0-2



Understand the impact of the Understand the impact of the PCAOB andPCAOB and

Sarbanes-Oxley on the CPA Sarbanes-Oxley on the CPA profession.profession.


This Act is considered by many observers tobe the most important legislation affectingthe auditing profession since the 1930s.

Sarbanes-Oxley ActSarbanes-Oxley Act

The provisions of the Act apply to publiclyheld companies and their audit firms.


Sarbanes-Oxley ActSarbanes-Oxley Act

SEC

PCAOB(Public Company

AccountingOversight Board)



Summarize the role of the Summarize the role of the Securities andSecurities and

Exchange Commission in accounting Exchange Commission in accounting andand

auditing.auditing.


The purpose is to assist in providing investorswith reliable information upon which to make investment decisions

The Securities Act of 1933The Securities Exchange Act of 1934

Securities and Exchange Securities and Exchange CommissionCommission


Securities and Exchange Securities and Exchange CommissionCommission

Form S-1 Form 8-K Form 10-K Form 10-Q



Describe the key functions Describe the key functions performed by the AICPA.performed by the AICPA.


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

performed

AICPAAICPA

Empowered to set standards (guidelines)and rules


Establishing StandardsEstablishing Standardsand Rulesand Rules

1.Auditing standards

2.Compilation and review standards

3.Other attestation standards

4.Code of Professional Conduct


Other AICPA FunctionsOther AICPA Functions

Research and Grants

The CPA examination

Provides seminars and continuing education

Publishes a variety of materials



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


GAAS and Standards of Performance

Statements on Auditing Statements on Auditing StandardsStandards

Classification of Statements on Auditing Standards


International StandardsInternational Standardson Auditingon Auditing

IFAC is the worldwide organizationfor the accountancy profession.

The IFAC works to improve theuniformity of auditing practices andrelated services throughout the world.


International StandardsInternational Standardson Auditingon Auditing



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


GAASGAAS


Generally Accepted Generally Accepted AuditingAuditing

Standards – United Standards – United StatesStatesGeneral Standards

1. Adequate training and proficiency

2. Independence in mental attitude

3. Due professional care



Standards – United StatesStandards – United StatesStandards of Field Work

1. Proper planning and supervision

2. Understanding of the entity

3. Sufficient appropriate evidence



Standards – United Standards – United StatesStatesStandards 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 Relationship Between GAAS and PCAOB Auditing and PCAOB Auditing

StandardsStandards

PCAOB

Public company audits

Private company audits

GAAS


The 10 generally accepted auditing standardsare too general to provide meaningful guidance.

SAS interpret the 10 generally acceptedauditing standards and are the mostauthoritative references available to auditors.

Statements on Auditing Statements on Auditing StandardsStandards



Identify quality control Identify quality control standards and practices within standards and practices within the accounting profession.the accounting profession.


Elements of Quality Elements of Quality ControlControl

Independence, integrity, and objectivity Personnel management Acceptance and continuation of clientsand engagements

Engagement performance Monitoring


RelationshipsRelationships


CPAs Encouraged to CPAs Encouraged to ConductConduct

Themselves at a High Themselves at a High LevelLevel

Legalliability

AICPA practicesections

Continuingeducation

requirements

GAAS andinterpretations

Code ofProfessional

Conduct

CPAexamination

Qualitycontrol

Peerreview

PCAOBand SEC

Conduct ofCPA firmpersonnel


End of Chapter 2End of Chapter 2

Auditing Assurance 14e ppt ch08

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