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Copyright © 2014 Pearson Education Chapter 2 The Audit Standards’ Setting Process.

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Presentation on theme: "Copyright © 2014 Pearson Education Chapter 2 The Audit Standards’ Setting Process."— Presentation transcript:

1 Copyright © 2014 Pearson Education Chapter 2 The Audit Standards’ Setting Process

2 Copyright © 2014 Pearson Education 2-2 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.

3 Copyright © 2014 Pearson Education 2-3 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.

4 Copyright © 2014 Pearson Education Describe the nature of CPA firms, what they do, and their structure

5 Copyright © 2014 Pearson Education 2-5 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.

6 Copyright © 2014 Pearson Education 2-6  Big Four international firms  National firms  Regional and large local firms  Small local firms

7 Copyright © 2014 Pearson Education 2-7 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.

8 Copyright © 2014 Pearson Education 2-8

9 Copyright © 2014 Pearson Education 2-9  Accounting and bookkeeping services  Tax services  Management consulting services

10 Copyright © 2014 Pearson Education 2-10 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.

11 Copyright © 2014 Pearson Education 2-11  Proprietorship  General Partnership  General Corporation  Professional Corporation  Limited Liability Company  Limited Liability Partnership

12 Copyright © 2014 Pearson Education 2-12 Partners Managers Seniors and In- Charge Auditors Staff Assistants 10+ years 5-10 years Average Experience

13 Copyright © 2014 Pearson Education Understand the role of the Public Company Accounting Oversight Board and the effects of the Sarbanes-Oxley Act on the CPA profession

14 Copyright © 2014 Pearson Education 2-14 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.

15 Copyright © 2014 Pearson Education 2-15 SEC PCAOB (Public Company Accounting Oversight Board)

16 Copyright © 2014 Pearson Education Summarize the role of the Securities and Exchange Commission in accounting and auditing

17 Copyright © 2014 Pearson Education 2-17 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

18 Copyright © 2014 Pearson Education 2-18  Form S-1  Form 8-K  Form 10-K  Form 10-Q

19 Copyright © 2014 Pearson Education Describe the key functions performed by the AICPA

20 Copyright © 2014 Pearson Education 2-20 Performs the following services for CPAs:  Sets professional requirements  Conducts research  Publishes materials related to services performed Empowered to set standards (guidelines) and rules

21 Copyright © 2014 Pearson Education Auditing standards 2.Compilation and review standards 3.Other attestation standards 4.Code of Professional Conduct

22 Copyright © 2014 Pearson Education 2-22 The CPA examination Research and Grants Publishes a variety of materials Provides seminars and continuing education

23 Copyright © 2014 Pearson Education Understand the role of international auditing standards and their relation to U.S. auditing standards

24 Copyright © 2014 Pearson Education 2-24  Classification of Statements on Auditing Standards  GAAS and Standards of Performance

25 Copyright © 2014 Pearson Education 2-25 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.

26 Copyright © 2014 Pearson Education 2-26

27 Copyright © 2014 Pearson Education Use U.S. auditing standards as a basis for further study

28 Copyright © 2014 Pearson Education 2-28

29 Copyright © 2014 Pearson Education 2-29 General Standards 1. Adequate training and proficiency 2. Independence in mental attitude 3. Due professional care

30 Copyright © 2014 Pearson Education 2-30 Standards of Field Work 1. Proper planning and supervision 2. Understanding of the entity 3. Sufficient appropriate evidence

31 Copyright © 2014 Pearson Education 2-31 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

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

33 Copyright © 2014 Pearson Education 2-33 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.

34 Copyright © 2014 Pearson Education Identify quality control standards and practices within the accounting profession

35 Copyright © 2014 Pearson Education 2-35  Leadership responsibilities for quality  Relevant ethical requirements  Acceptance and continuation of clients and engagements  Human resources  Engagement performance  Monitoring

36 Copyright © 2014 Pearson Education 2-36

37 Copyright © 2014 Pearson Education 2-37 Auditing standards Continuing education requirements Legal liability Conduct of CPA firm personnel AICPA practice and quality centers Code of Professional Conduct PCAOB and SEC Peer review Quality control CPA examination

38 Copyright © 2014 Pearson Education 38

39 Copyright © 2014 Pearson Education 39 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.


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