The CPA Profession Chapter 2 2 1 Copyright

Learning Objectives Describe the nature of CPA firms, what they do, and their structure.

Learning Objectives Describe the functions performed by the AICPA. Understand the role of international

1 Describe the nature of CPA firms, what they do, and their structure. 2

Certified Public Accounting Firms The legal right to perform audits is granted to CPA

Certified Public Accounting Firms Ø Big Four international firms Ø National firms Ø Regional

Certified Public Accounting Firms The four largest CPA firms in the United States are

Certified Public Accounting Firms 2 -8 Copyright © 2014 Pearson Education, Inc. Publishing as

Ø Accounting and bookkeeping services Ø Tax services Ø Management consulting services 2 -9

Structure of CPA Firms Three main factors influence the organizational structure of all firms:

Organizational Structure Ø Proprietorship Ø General Partnership Ø General Corporation Ø Professional Corporation Ø

Hierarchy of a Typical CPA Firm Average Experience 2 -12 Partners 10+ years Managers

2 Understand the role of the Public Company Accounting Oversight Board and the effects

This Act is considered by many observers to be the most important legislation affecting

Sarbanes-Oxley Act SEC PCAOB (Public Company Accounting Oversight Board) 2 -15 Copyright © 2014

3 Summarize the role of the Securities and Exchange Commission in accounting and auditing.

Securities and Exchange Commission The purpose is to assist in providing investors with reliable

Securities and Exchange Commission Ø Form S-1 Ø Form 8 -K Ø Form 10

4 Describe the key functions performed by the AICPA. 2 -19 Copyright © 2014

AICPA Performs the following services for CPAs: Ø Sets professional requirements Ø Conducts research

Establishing Standards and Rules 1. Auditing standards 2. Compilation and review standards 3. Other

Other AICPA Functions The CPA examination Research and Grants Publishes a variety of materials

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

Ø Classification of Statements on Auditing Standards Ø GAAS and Standards of Performance 2

IFAC is the worldwide organization for the accountancy profession. The IAASB works to improve

International Standards on Auditing 2 -26 Copyright © 2014 Pearson Education, Inc. Publishing as

6 Use U. S. auditing standards as a basis for further study 2 -27

GAAS 2 -28 Copyright © 2014 Pearson Education, Inc. Publishing as Prentice Hall.

General Standards 1. Adequate training and proficiency 2. Independence in mental attitude 3. Due

PCAOB Auditing Standards – United States Standards of Field Work 1. Proper planning and

Standards of Reporting 1. Statements prepared in accordance with GAAP 2. Circumstances when GAAP

PCAOB Public company audits 2 -32 ASB Private company audits Copyright © 2014 Pearson

The principles in the Preface of the Codification of Auditing Standards provide a framework

7 Identify quality control standards and practices within the accounting profession. 2 -34 Copyright

Ø Leadership responsibilities for quality Ø Relevant ethical requirements Ø Acceptance and continuation of

2 -36 Copyright © 2014 Pearson Education, Inc. Publishing as Prentice Hall.

CPAs Encouraged to Conduct Themselves at a High Level CPA examination Quality control Auditing

38 Copyright © 2014 Pearson Education, Inc. Publishing as Prentice Hall.

Copyright All rights reserved. No part of this publication may be reproduced, stored in

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Learning Objectives Describe the nature of CPA firms, what they do, and their structure. Understand the role of the Public Company Accounting Oversight Board and the effects of the Sarbanes-Oxley Act on the CPA profession. Summarize the role of the Securities and Exchange Commission in accounting and auditing. 2 -2 Copyright © 2014 Pearson Education, Inc. Publishing as Prentice Hall.

Learning Objectives Describe the functions performed by the AICPA. Understand the role of international auditing standards and their relation to U. S. auditing standards. Use U. S. auditing standards as a basis for further study. Identify quality control standards and practices within the accounting profession. 2 -3 Copyright © 2014 Pearson Education, Inc. Publishing as Prentice Hall.

Certified Public Accounting Firms The legal right to perform audits is granted to CPA firms by regulation in each state. CPA firms also provide many other services to their clients, such as tax and advisory services. CPA firms continue to develop new products and services—such as financial planning, business valuation, forensic accounting, and information technology advisory services. 2 -5 Copyright © 2014 Pearson Education, Inc. Publishing as Prentice Hall.

Certified Public Accounting Firms Ø Big Four international firms Ø National firms Ø Regional and large local firms Ø Small local firms 2 -6 Copyright © 2014 Pearson Education, Inc. Publishing as Prentice Hall.

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 throughout the United States and in many cities throughout the world. 2 -7 Copyright © 2014 Pearson Education, Inc. Publishing as Prentice Hall.

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. 2 -10 Copyright © 2014 Pearson Education, Inc. Publishing as Prentice Hall.

Organizational Structure Ø Proprietorship Ø General Partnership Ø General Corporation Ø Professional Corporation Ø Limited Liability Company Ø Limited Liability Partnership 2 -11 Copyright © 2014 Pearson Education, Inc. Publishing as Prentice Hall.

Hierarchy of a Typical CPA Firm Average Experience 2 -12 Partners 10+ years Managers 5 -10 years Seniors and In. Charge Auditors 2 -5 Staff Assistants 0 -2 Copyright © 2014 Pearson Education, Inc. Publishing as Prentice Hall.

2 Understand the role of the Public Company Accounting Oversight Board and the effects of the Sarbanes-Oxley Act on the CPA profession. 2 -13 Copyright © 2014 Pearson Education, Inc. Publishing as Prentice Hall.

This Act is considered by many observers to be the most important legislation affecting the auditing profession since the 1930 s. The provisions of the Act apply to publicly held companies and their audit firms. 2 -14 Copyright © 2014 Pearson Education, Inc. Publishing as Prentice Hall.

Securities and Exchange Commission The purpose is to assist in providing investors with reliable information upon which to make investment decisions ØThe Securities Act of 1933 ØThe Securities Exchange Act of 1934 2 -17 Copyright © 2014 Pearson Education, Inc. Publishing as Prentice Hall.

AICPA Performs the following services for CPAs: Ø Sets professional requirements Ø Conducts research Ø Publishes materials related to services performed Empowered to set standards (guidelines) and rules 2 -20 Copyright © 2014 Pearson Education, Inc. Publishing as Prentice Hall.

Establishing Standards and Rules 1. Auditing standards 2. Compilation and review standards 3. Other attestation standards 4. Code of Professional Conduct 2 -21 Copyright © 2014 Pearson Education, Inc. Publishing as Prentice Hall.

Other AICPA Functions The CPA examination Research and Grants Publishes a variety of materials Provides seminars and continuing education 2 -22 Copyright © 2014 Pearson Education, Inc. Publishing as Prentice Hall.

IFAC is the worldwide organization for the accountancy profession. The IAASB works to improve the uniformity of auditing practices and related services throughout the world. 2 -25 Copyright © 2014 Pearson Education, Inc. Publishing as Prentice Hall.

PCAOB Auditing Standards – United States Standards of Field Work 1. Proper planning and supervision 2. Understanding of the entity 3. Sufficient appropriate evidence 2 -30 Copyright © 2014 Pearson Education, Inc. Publishing as Prentice Hall.

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 2 -31 Copyright © 2014 Pearson Education, Inc. Publishing as Prentice Hall.

The principles in the Preface of the Codification of Auditing Standards provide a framework for auditing standards. Statements on Auditing Standards (SASs) provide guidance to auditors in obtaining reasonable assurance to form an opinion on financial statements and are the most authoritative references available to auditors. 2 -33 Copyright © 2014 Pearson Education, Inc. Publishing as Prentice Hall.

Ø Leadership responsibilities for quality Ø Relevant ethical requirements Ø Acceptance and continuation of clients and engagements Ø Human resources Ø Engagement performance Ø Monitoring 2 -35 Copyright © 2014 Pearson Education, Inc. Publishing as Prentice Hall.

CPAs Encouraged to Conduct Themselves at a High Level CPA examination Quality control Auditing standards Continuing education requirements Conduct of CPA firm personnel Legal liability Peer review PCAOB and SEC 2 -37 Code of Professional Conduct AICPA practice and quality centers Copyright © 2014 Pearson Education, Inc. Publishing as Prentice Hall.

Copyright All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. Printed in the United States of America. 39 Copyright © 2014 Pearson Education, Inc. Publishing as Prentice Hall.