The CPA Profession

1. The CPA Profession Chapter 2

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

3. 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.

4. 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.

5. Certified Public Accounting Firms Big Four international firms National firms Regional and large local firms Small local firms

6. Activities of CPA Firms Accounting and bookkeeping services Tax services Management consulting services

7. 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

8. Organizational Structure Proprietorship Professional corporation General partnership Limited liability company General corporation Limited liability partnership

9. Staff Level Experience Typical Responsibilities Staff assistant 0-2 years Performs most of the detailed audit work Senior or in-charge auditor 2-5 years Responsible for the audit field work, including supervising staff work Hierarchy of a TypicalCPA Firm

10. Partner 10+ years Reviews audit work and makes significant audit decisions Hierarchy of a TypicalCPA Firm Staff Level Experience Typical Responsibilities Manager 5-10 years Helps the plan, manages the audit, reviews work, and works with the client

11. E-Commerce andCPA Firm Operations CPA firms are using the Internet to market their services. They also use the Internet to connect their global professional staff. Firms take advantage of online resources and databases to help their staffs stay current on emerging business and standards-setting issues.

12. Learning Objective 2 • Understand the role of the • Public Company Accounting • Oversight Board and the effects • of the Sarbanes-Oxley Act on • the CPA profession.

13. Sarbanes-Oxley Act This Act is considered by many observers to be the most important legislation affecting the auditing profession since the 1930s. The provisions of the Act apply to publicly held companies and their audit firms.

14. PCAOB (Public Company Accounting Oversight Board) Sarbanes-Oxley Act SEC

15. Learning Objective 3 • Summarize the role of the • Securities and Exchange • Commission in accounting • and auditing.

16. Securities and Exchange Commission 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.

17. Securities and Exchange Commission Forms S-1 to S-16 Form 10-K Form 8-K Form 10-Q

18. Learning Objective 4 • Describe the key functions • performed by the AICPA.

19. AICPA 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.

20. Establishing Standardsand Rules The AICPA is empowered to set standards (guidelines) and rules that all members And other practicing CPAs must follow.

21. Establishing Standardsand Rules 1. Auditing standards 2. Compilation and review standards 3. Other attestation standards 4. Consulting standards 5. Code of Professional Conduct

22. Other AICPA Functions Writes and grades the CPA examination Supports research by its own staff and provides grants to others Publishes a variety of materials. Provides seminars and education in a variety of subject matters

23. Vision for the Future The AICPA has established the CPA Vision Project to provide a core purpose and a vision for the CPA profession in the year 2011 and beyond. The core purpose of the CPA Vision Project is: “CPAs…making sense of a changing and complex world.”

24. Vision for the Future Five Core Values: 1. Continuing education and life-long learning 2. Competence 3. Integrity 4. Attuned to broad business issues 5. Objectivity

25. Learning Objective 5 • Use generally accepted • auditing standards as a • basis for further study.

26. General Standards 1. The audit is to be performed by a person or persons having adequate technical training and proficiency as an auditor. 2. In all matters relating to the assignment, an independence in mental attitude is to be maintained by the auditor or auditors.

27. General Standards 3. Due professional care is to be exercised in the planning and performance of the audit and the preparation of the report.

28. Standards of Field Work 1. The work is to be adequately planned and assistants, if any, are to be properly supervised. 2. A sufficient understanding of internal control is to be obtained to plan the audit and to determine the nature, timing, and extent of tests to be performed.

29. Standards of Field Work 3. Sufficient competent evidential matter is to be obtained through inspection, observation, inquiries, and confirmations to afford a reasonable basis for an opinion regarding the financial statements under audit.

30. Standards of Reporting 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.

31. Standards of Reporting 3. Informative disclosures in the financial statements are to be regarded as reasonably adequate unless otherwise stated in the report. 4. The report shall contain an expression of opinion regarding the financial statements, taken as a whole.

32. General Field Work Reporting 1. Adequate training and proficiency 2. Independence in mental attitude 3. Due professional care 1. Proper planning and supervision 2. Internal control understanding 3. Sufficient competent evidence 1. Statements prepared in accordance with GAAP 2. Circumstances when GAAP not followed 3. Adequacy of disclosures 4. Expression of opinion on financial statements Summary ofGeneral Standards Generally Accepted Auditing Standards

33. 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. Public company audits refer to PCAOB auditing standards.

34. Statements on Auditing Standards 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.

35. Learning Objective 6 • Discuss the role of international • auditing standards.

36. International Standardson Auditing International Standards on Auditing (ISAs) are issued by the International Auditing Practice Committee of the International Federation of Accountants (IFAC).

37. International Standardson Auditing IFAC is the worldwide organization for the accountancy profession. The IAPC works to improve the uniformity of auditing practices and related services throughout the world.

38. Learning Objective 7 • Identify quality control • standards and practices • within the accounting • profession.

39. Elements of Quality Control Independence, integrity, and objectivity Personnel management Acceptance and continuation of clients and engagements Engagement performance Monitoring

40. Quality control standards Generally accepted auditing standards Division of CPA firms Peer review Relationships

41. CPA examination GAAS and interpretations Continuing education requirements Quality control Legal liability Peer review Division of CPA firms PCAOB and SEC Code of Professional Conduct CPAs Encouraged to ConductThemselves at a High Level Conduct of CPA firm personnel

42. End of Chapter 2