1. The Audit Standards’ Setting Process
Chapter 2

2. Learning Objective 1 Describe the nature of CPA firms,
what they do, and their structure.
Auditing plays an important role in society by reducing information risk and facilitating access to capital and that audit firms provide additional, value-added service to their clients.

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.
CPAs continue to develop new products and services- such as financial planning, business valuation and information technology.

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

5. Certified Public Accounting Firms5

6. 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.

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

8. 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.

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

10. Hierarchy of a Typical CPA Firm (1/2)
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

11. Hierarchy of a Typical CPA Firm(2/2)
Staff Level
Experience
Typical Responsibilities
Manager
5-10 years
Helps plan the audit, manages the audit, reviews work, and works with the client
Partner
10+ years
Reviews audit work and
makes significant audit
decisions

12. Hierarchy of a Typical CPA Firm
Staff Assistants
Seniors and
In-charge Auditors
Managers
Partners
Breadth of Experience
10+ years
5-10
2-5
0-2
Staff perform most of the audit field work.
Seniors are responsible for the field work and supervise the staff.
Managers help plan the audit, manage the audit, review the audit work and work with the client to resolve any issues identified.
Partners review all audit areas and makes significant decisions. The partner signs the audit report. 12

13. 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.

14. 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.

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

16. Sarbanes-Oxley Act The PCAOB conducts inspections of registered
accounting firms and assess their compliance
with the rules of the PCAOB and the SEC.

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

18. 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.

19. Learning Objective 4 Describe the key functions
performed by the AICPA.

20. 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.

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

22. Establishing Standards and Rules
1. Auditing standards
2. Compilation and review standards
3. Other attestation standards
4. Code of Professional Conduct

23. 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.

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

25. International Standards on Auditing
International Federation of Accountants
(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.

26. International Standards on Auditing
International Standards on Auditing (ISAs)
are issued by the International Auditing and Assurance Standards Board (IAASB) of the International Federation of Accountants (IFAC).

27. International Standards on Auditing
ISAs do not override a country's regulations governing the audit of financial or other information as each country’s own regulations generally govern audit practices. 27

28. Learning Objective 6
Use generally accepted auditing standards as a basis for further study

29. GAAS These standards represent the minimum standards of performance.29

30. Generally Accepted Auditing Standards- United States
General Standards
1. Adequate training and proficiency
2. Independence in mental attitude
3. Due professional care

31. U.S. Generally Accepted Auditing Standards General Standards
1. The auditor must have adequate technical training and proficiency to perform the audit.
2. The auditor must maintain independence
in mental attitude in all matters relating
to the audit.
3. The auditor must exercise due professional
care in the performance of the audit and the
preparation of the report.

32. Generally Accepted Auditing Standards – United States
Standards of Field Work
1. Proper plann and supervision
2. Understanding of the entity
3. Sufficient appropriate evidence

33. 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 of the financial statements whether due to
error or fraud, and to design further audit procedures.
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.

34. Generally Accepted Auditing Standards-United States
Standards of Reporting
1. Statements prepared in accordance with GAAP
2. Circumstances in which such principles have not
been consistently observed
3. Adequacy of disclosures
4. Expression of opinion on financial statements

35. Relationship Between GAAS and PCAOB Auditing Standards
Public company audits refer to PCAOB auditing standards.
The term GAAS continues to be used for audits of private companies.
The term generally accepted auditing standards is no longer used for public company audits.
The PCAOB initially adopted GAAS as interim standards.
Public
company
audits
Private
company
audits 35

36. Standards of Reporting
The report shall state in the auditor’s report whether the
Financial statements are presented in accordance with
generally accepted accounting principles (GAAP).
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.

37. Standards of Reporting (Cont’d)
3. When the auditor determines that Informative disclosures
in the financial statements are to be regarded as reasonably
adequate, the auditor must so state in the auditor’s report.
4. The auditor either express an opinion regarding the
financial statements, taken as whole, or state the an opinion
Cannot be expressed, in the auditor’s report. When the auditor
Cannot express an overall opinion, the auditor shall state the
Reasons therefor in auditor’s report. In all cases where an
Auditor’s name is associated with financial statement, the
Auditor should clearly indicate the character of the auditor’s
Work, if any, and the degree of responsibility the auditor is
taking, in the auditor’s report.

38. 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.

39. 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.

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

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

42. Relationships Quality control standards Generally accepted
auditing standards
AICPA practice
sections
Peer
review

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

44. 我國審計公報第46號 會計師事務所之品質管制 我國審計公報第44號 查核歷史性財務資訊之品質管制

45. End of Chapter 2