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
Big Four international firms
National firms
Regional and large local firms
Small local firms

5. 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.

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. Hierarchy of a Typical CPA Firm
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

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

11. 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.

12. 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.

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

14. Sarbanes-Oxley Act The PCAOB conducts inspections of registered
accounting firms and assess their compliance
with the rules of the PCAOB and the 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
Form S-1
Form 8-K
Form 10-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 Standards and Rules
The AICPA is empowered to set standards
(guidelines) and rules that all members
and other practicing CPAs must follow.

21. Establishing Standards and Rules
1. Auditing standards
2. Compilation and review standards
3. Other attestation standards
4. 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. Learning Objective 5 Understand the role of international
Auditing standards and their relation
to U.S. auditing standards.

24. International Standards on Auditing U.S. GAAS
PCAOB Auditing Standards

25. Learning Objective 6 Use U.S. 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. The auditor must maintain independence
in mental attitude in all matters relating
to the audit.

27. General Standards 3. The auditor must exercise due professional
care in the performance of the audit and the
preparation of the report.

28. Standards of Field Work
1. The auditor must adequately plan the work
and must properly supervise any assistants.
2. The auditor must obtain a sufficient understanding
of the entity and its environment, including its
internal control, to assess the risk of material
misstatement and to design further audit
procedures.

29. Standards of Field Work
3. The auditor must obtain sufficient appropriate
audit evidence by performing audit procedures
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. Generally Accepted Auditing Standards
General Standards
1. Adequate training and proficiency
2. Independence in mental attitude
3. Due professional care

33. Generally Accepted Auditing Standards
Standards of Field Work
1. Proper planning and supervision
2. Understanding of the entity
3. Sufficient appropriate evidence

34. Generally Accepted Auditing Standards
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

35. 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.

36. Statements on Auditing Standards
Classification of Statements on Auditing Standards
GAAS and Standards of Performance

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

38. Relationships Quality control standards Generally accepted
auditing standards
Audit practice
and quality centers
Peer
review

39. CPAs Encouraged to Conduct Themselves at a High Level
examination
GAAS and
interpretations
Continuing
education
requirements
Quality
control
Conduct of
CPA firm
personnel
Legal
liability
Peer
review
AICPA practice
sections
PCAOB
and SEC
Code of
Professional
Conduct

40. End of Chapter 2