Auditing and assurance services 14e by arens chapter 02

Certified Public Accounting Firms The legal right to perform audits is granted to CPA firms by each state.. Certified Public Accounting Firms  Big Four international firms  National fi

The CPA Profession

Chapter 2

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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

Certified Public Accounting

Firms

 Big Four international firms

 National firms

 Regional and large local firms

 Small local firms

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

cities throughout the world.

Certified Public Accounting

Firms

 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.

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

Learning Objective 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)

Learning Objective 3

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

Learning Objective 4

Describe the key functions performed by the AICPA.

Performs the following services for CPAs:

 Sets professional requirements

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

Publishes a variety of materials

Learning Objective 5

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

Learning Objective 6

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

Generally Accepted Auditing Standards – United States

Standards of Field Work

1 Proper planning and supervision

2 Understanding of the entity

3 Sufficient appropriate evidence

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

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

Learning Objective 7

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

Relationships

CPAs Encouraged to Conduct Themselves at a High Level

Legal liability

AICPA practice sections

Continuing education requirements

GAAS and interpretations

CPA examination

Quality control

Peer review

Conduct of CPA firm personnel

End of Chapter 2