1. The CPA Profession
Chapter 2

2. Describe the nature of CPA firms, what they do, and their structure.
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
The five largest CPA firms in the United States
are called the “Big Five” international CPA firms.
Three CPA firms in the United States are called
national firms because they have offices in most
major cities.

5. Certified Public Accounting Firms
There are only approximately 100 regional
and large local CPA firms with professional
staffs of more than 50 people.
More than 95% of all CPA firms have fewer
than 25 professionals in a single-office firm.

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
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
decision

11. Discuss how e-commerce and the Internet affect
Learning Objective 2
Discuss how e-commerce
and the Internet affect
CPA firm operations.

12. E-Commerce and CPA Firm Operations
CPA firms are using the Internet
to market their services.
They also use the Internet to connect
their global professional staff.
Sender’s
mail
server
Receiver’s
mail
server

13. Describe the key functions
Learning Objective 3
Describe the key functions
performed by the AICPA.

14. 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.

15. Vision for the Future The AICPA has established the CPA Vision Project
to provide a core purpose and a vision for the CPA
profession in the year 2011 and beyond.
The core purpose of the CPA Vision Project is
“CPAs…making sense of a changing
and complex world.”

16. Vision for the Future The future success of the CPA profession
relies a great deal on public perceptions
of CPAs’ abilities and roles.
CPAs must become market driven and
not dependent on regulations to keep
them in business.
The market demands less audit and
accounting and more value-adding
consulting services.

17. Vision for the Future Specialization is critical for the
future of the CPA profession.
The market demands that CPAs be
conversant in global business
practices and strategies.

18. Establishing Standards and Rules
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.

19. Establishing Standards and Rules
1. Auditing Standards
2. Compilation and Review Standards
3. Other Attestation Standards
4. Code of Professional Conduct

20. Other AICPA Functions Supports research by its own
staff and provides grants to others
Writes and grades the CPA examination
Provides seminars and education in
a variety of subject matters

21. Use generally accepted auditing standards as a
Learning Objective 4
Use generally accepted
auditing standards as a
basis for further study.

22. General Standards 1. The audit is to be performed by a person or
persons having adequate technical training
and proficiency as an auditor.
2. In all matters relating to the assignment,
an independence in mental attitude is to
be maintained by the auditor or auditors.
3. Due professional care is to be exercised in
the planning and performance of the audit
and the preparation of the report.

23. Standards of Field Work
1. The work is to be adequately planned and
assistants, if any, are to be properly
supervised.
2. A sufficient understanding of internal
control is to be obtained to plan the audit
and to determine the nature, timing, and
extent of tests to be performed.

24. Standards of Field Work
3. Sufficient competent evidential matter is to
be obtained through inspection, observation,
inquiries, and confirmations to afford a
reasonable basis for an opinion regarding
the financial statements under audit.

25. 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.

26. 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.

27. Summary of General Standards
Generally Accepted Auditing Standards
General
Field Work
Reporting
1. Adequate training
and proficiency
2. Independence in
mental attitude
3. Due professional
care
1. Proper planning
and supervision
2. Internal control
understanding
3. Sufficient
competent
evidence
1. Statements prepared in
accordance with GAAP
2. Circumstances when
GAAP not followed
3. Adequacy of disclosures
4. Expression of opinion
on financial statements

28. Learning Objective 5
Discuss the role
of international
auditing standards.

29. International Standards on Auditing
International Standards on Auditing (ISAs)
are issued by the International Auditing
Practice Committee of the International
Federation of Accountants (IFAC).

30. International Standards on Auditing
IFAC is the worldwide organization
for the accountancy profession.
The IAPC works to improve the
uniformity of auditing practices and
related services throughout the world.

31. Identify quality control standards and practices
Learning Objective 6
Identify quality control
standards and practices
within the accounting
profession.

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

33. Relationships Quality control standards Generally accepted
auditing standards
Division of
CPA firms
Peer
review

34. Summarize the role of the Securities and Exchange
Learning Objective 7
Summarize the role of the
Securities and Exchange
Commission in accounting
and auditing.

35. 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.

36. Securities and Exchange Commission
Forms S-1 to S-16
Form 10-K
Form 8-K
Form 10-Q

37. CPAs Encouraged to Conduct Themselves at a High Level
examination
GAAS and
interpretations
Conduct of CPA firm personnel
Continuing education
requirements

38. CPAs Encouraged to Conduct Themselves at a High Level
SEC
Peer
review
Conduct of CPA firm personnel
Quality control

39. CPAs Encouraged to Conduct Themselves at a High Level
Legal
liability
Division of
CPA firms
Conduct of CPA firm personnel
Code of Professional
Conduct

40. End of Chapter 2