Presentation on theme: "2 THE CPA PROFESSION OOD AUDITING INCLUDES GOOD CLIENT SERVICE."— Presentation transcript:
2 THE CPA PROFESSION OOD AUDITING INCLUDES GOOD CLIENT SERVICE
Objective Describe the nature of CPA firms, what they do, and their structure. 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 regulation of each state. CPA firms also provide many other services to their clients, such as tax and consulting services. 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. 1. Big 4 International Firms - 1. Big 4 International Firms - The four largest CPA firms in the United States are called the “Big Four” international CPA firms. 2. National Firms - 2. National Firms - Three CPA firms in the United States are called national firms because they have offices in most major cities. 3. Regional and Large Local Firms - 3. Regional and Large Local Firms - There are less than 200 CPA firms with professional staffs of more than 50 people. 4. Small Local Firms - 4. Small Local Firms - More than 95 percent of all CPA firms have fewer than 25 professionals in a single-office firm.
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. 1. The need for independence from clients. 2. The importance of a structure to encourage competence. 3. The increased litigation risk faced by auditors.
Professional Corporation Organizational Structures General Corporation Limited Liability Company Proprietorship General Partnership Limited Liability Partnership
* * Rankings reflect merger of Price Waterhouse and Cooper & Lybrand to form PricewaterhouseCooper. Information for PricewaterhouseCooper is based on separately reported information for Price Waterhouse and Cooper & Lybrand. Source: Accounting Today (March 16-April 5, 1998), pp LATE 90’s Revenue and Other Data for the largest CPA Firms in the United States Firms in the United States LATE 90’s Revenue and Other Data for the largest CPA Firms in the United States Firms in the United States
Fiscal Year 2002 (this is the year SOX became law) Revenue (2) Prof. (2) Revenue % Rank Firm $ million Staff A&A Tax MAS Other 1 Deloitte & Touche 5,933 19, PwC 5,174 29,787 (a) Ernst & Young 4,515 15, KPMG 3,400 11, (a) Does not reflect sale of consulting practice Current approximation: Firm A&A Tax MAS or Other Deloitte & Touche Ernst & Young PwC KPMG FOR the 00’s
Hierarchy of Typical CPA Firm S taff L evels and R esponsibilities Staff Level Average Experience Typical Responsibilities Staff Assistant yearsPerforms most of the detailed audit work. Senior or in-charge yearsCoordinates and is responsible for the audit field work, auditorincluding supervising and reviewing staff work. Manager yearsHelps the in-charge plan and manage the audit, reviews the in-charge’s work, and manages relations with the client. A manager may be responsible for more than one engagement at the same time. Partner 10 + yearsReviews the overall audit work and is involved in significant audit decisions. A partner is an owner of the firm, and therefore has the ultimate responsibility for conducting the audit and serving the client.
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 ) SEC NOWVs.ThenNOWVs.Then
Sarbanes-Oxley Act The PCAOB conducts inspections of registered accounting firms and assess their compliance with the rules of the PCAOB and the SEC.
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. Securities and Exchange Commission
Form S-1 – new issues Form 8-K – significant events (like press release) Form 10-K – annual FS’s Form 10-Q – quarterly FS’s
The AICPA is empowered to set standards (guidelines) and rules that all members and other practicing CPAs must follow. The requirements are set by committees made up of AICPA members.
There are four major areas in which the AICPA has authority to set standards and make rules. 1. Auditing Standards 2. Compilation and Review Standards 3. Other Attestation Standards 4. Consulting Standards 5. Code of Professional Conduct
SUMMARY OF GENERALLY ACCEPTED ADUITING STANDARDS Generally Accepted Auditing Standards Generalqualifications and conduct Field Work performance of the audit Reportingresults Adequate training and proficiency Independence in mental attitude Due professional care Proper planning and supervision Sufficient understanding of internal control Sufficient competent evidence Whether statements were prepared in accordance with GAAP Circumstances when GAAP not consistently followed Adequacy of informative disclosures Expression of opinion on financial statements
Relationship Between GAAS and PCAOB Auditing Standards The term GAAS is no longer used for public company audits. Public company audits refer to PCAOB auditing standards. The term GAAS continues to be used for audits of private companies.
The 10 generally accepted auditing standards are too general to provide precise guidance in all cases. SASs interpret the 10 generally accepted auditing standards and are the most authoritative references available to auditors. Statements on Auditing Standards
INTERNATIONAL STANDARDS DEVELOPING HARMONY International Standards on Auditing (ISAs) are generally similar to U.S. GAAS, although there are some differences. There is an interest and trend toward harmonization, which means developing uniform accounting and auditing standards throughout the world. International Standards on Auditing (ISAs) are issued by the International Auditing Practice Committee of the International Federation of Accountants (IFAC).
1. Independence, integrity, and objectivity 2. Personnel Management 3. Acceptance and Continuation of Clients and Engagements and Engagements 4. Engagement Performance 5. Monitoring 1. Independence, integrity, and objectivity 2. Personnel Management 3. Acceptance and Continuation of Clients and Engagements and Engagements 4. Engagement Performance 5. Monitoring
Relationships among GAAS, Quality Control, Division of CPA Firms, and Peer Review Quality Control Standards Standards applicable to a CPA firm to aid in satisfying generally accepted auditing standards AICPA Practice sections Center for Public Company Audit Firms Private Companies Practice Section Organizations intended to help firms meet quality control standards and GAAS Generally Accepted Auditing Standards Standards applicable to each audit Peer Review Method to determine whether a CPA firm meets quality control standards
Ways the Profession and Society Encourage CPAs to Conduct Themselves at a High Level GAAS and interpretations interpretations CPAexaminationCPAexamination QualitycontrolQualitycontrol Peer review ContinuingeducationrequirementsContinuingeducationrequirements LegalliabilityLegalliability AICPA practice sections sections Code of ProfessionalConduct ProfessionalConduct SECSEC Conductof CPA firm personnelConductof personnel