The CPA Profession Chapter http://www.authorstream.com/shengv n/ ©2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley 2-1 Learning Objective Describe the nature of CPA firms, what they do, and their structure ©2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley 2-2 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 —such as financial planning, business valuation and information technology ©2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley 2-3 Certified Public Accounting Firms Big Four international firms National firms Regional and large local firms Small local firms ©2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley 2-4 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 ©2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley 2-5 Certified Public Accounting Firms ©2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley 2-6 Activities of CPA Firms Accounting and bookkeeping services Tax services Management consulting services ©2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley 2-7 Structure of CPA Firms Three main factors influence the organizational structure of all firms: The need for independence from clients The importance of a structure to encourage competence The increased litigation risk faced by auditors ©2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley 2-8 Organizational Structure Proprietorship Professional corporation General partnership Limited liability company General corporation Limited liability partnership ©2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley 2-9 Hierarchy of a Typical CPA Firm Breadth of Experience Partners Managers Seniors and In-charge Auditors Staff Assistants ©2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley 10+ years 5-10 2-5 0-2 - 10 Statements on Auditing Standards Classification of Statements on Auditing Standards GAAS and Standards of Performance ©2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley - 22 International Standards on Auditing IFAC is the worldwide organization for the accountancy profession The IFAC works to improve the uniformity of auditing practices and related services throughout the world ©2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley - 23 International Standards on Auditing ©2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley - 24 Learning Objective Use U.S auditing standards as a basis for further study ©2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley - 25 GAAS ©2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley - 26 Generally Accepted Auditing Standards – United States General Standards Adequate training and proficiency Independence in mental attitude Due professional care ©2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley - 27 Generally Accepted Auditing Standards – United States Standards of Field Work Proper planning and supervision Understanding of the entity Sufficient appropriate evidence ©2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley - 28 Generally Accepted Auditing Standards – United States Standards of Reporting Statements prepared in accordance with GAAP Circumstances when GAAP not followed Adequacy of disclosures Expression of opinion on financial statements ©2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley - 29 Relationship Between GAAS and PCAOB Auditing Standards PCAOB Public company audits ©2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley GAAS Private company audits - 30 Statements on Auditing Standards 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 ©2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley - 31 Learning Objective Identify quality control standards and practices within the accounting profession ©2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley - 32 Elements of Quality Control Independence, integrity, and objectivity Personnel management Acceptance and continuation of clients and engagements Engagement performance Monitoring ©2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley - 33 Relationships ©2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley - 34 CPAs Encouraged to Conduct Themselves at a High Level CPA examination Quality control GAAS and interpretations Continuing education requirements Conduct of CPA firm personnel Peer review Legal liability AICPA practice sections PCAOB and SEC Code of Professional Conduct ©2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley - 35 End of Chapter ©2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/Elder/Beasley - 36 ... Understand the role of international auditing standards and their relation to U.S auditing standards ©2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/ Elder/Beasley - 21 Statements on Auditing. .. related to services performed Empowered to set standards (guidelines) and rules ©2012 Prentice Hall Business Publishing, Auditing 14/e, Arens/ Elder/Beasley - 18 Establishing Standards and Rules Auditing. .. Auditing 14/e, Arens/ Elder/Beasley 2-6 Activities of CPA Firms Accounting and bookkeeping services Tax services Management consulting services ©2012 Prentice Hall Business Publishing, Auditing