Presentation on theme: "THE CPA PROFESSION 2 OOD AUDITING INCLUDES GOOD CLIENT SERVICE."— Presentation transcript:
1 THE CPA PROFESSION2OOD AUDITING INCLUDESGOOD CLIENT SERVICE
2 3. Regional and Large Local Firms - There are less than ObjectiveCERTIFIED PUBLIC ACCOUNTING FIRMSDescribe the nature of CPA firms,what they do, and their structure.The legal right to perform audits is grantedto CPA firms by regulation of each state. CPAfirms also provide many other services to theirclients, such as tax and consulting services.1. Big 4 International Firms - The four largest CPA firms in the UnitedStates are called the “Big Four” international CPA firms.2. National Firms - Three CPA firms in the United States are called nationalfirms because they have offices in most major cities.3. Regional and Large Local Firms - There are less than200 CPA firms with professional staffs of more than 50 people.4. Small Local Firms - More than 95 percent of all CPA firms havefewer than 25 professionals in a single-office firm.
3 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.
5 LATE 90’s Revenue and Other Data for the largest CPA Firms in the United States* Rankings reflect merger of Price Waterhouse and Cooper & Lybrand to form PricewaterhouseCooper. Informationfor PricewaterhouseCooper is based on separately reported information for Price Waterhouse and Cooper & Lybrand.Source: Accounting Today (March 16-April 5, 1998), pp
6 FOR the 00’s Current approximation: Fiscal Year 2002 (this is the year SOX became law)Revenue (2) Prof. (2) Revenue %Rank Firm $ million Staff A&A Tax MAS OtherDeloitte & Touche , ,PwC , ,787 (a)Ernst & Young , ,KPMG , ,(a) Does not reflect sale of consulting practiceCurrent approximation:Firm A&A Tax MAS or OtherDeloitte & ToucheErnst & YoungPwCKPMG
7 Staff Levels and Responsibilities Hierarchy of Typical CPA FirmStaff Levels and ResponsibilitiesStaff Level Average Experience Typical ResponsibilitiesStaff Assistant years Performs most of the detailed audit work.Senior or in-charge years Coordinates and is responsible for the audit field work,auditor including supervising and reviewing staff work.Manager years Helps the in-charge plan and manage the audit, reviewsthe in-charge’s work, and manages relations with theclient. A manager may be responsible for more thanone engagement at the same time.Partner years Reviews the overall audit work and is involved insignificant audit decisions. A partner is an owner ofthe firm, and therefore has the ultimate responsibilityfor conducting the audit and serving the client.
8 Sarbanes-Oxley Act This Act is considered by many observers to be the most important legislation affectingthe auditing profession since the 1930s.The provisions of the Act apply to publiclyheld companies and their audit firms.
9 Sarbanes-Oxley Act AICPA AICPA SEC SEC PCAOB (Public Company NOW Vs. ThenPCAOB(Public CompanyAccountingOversight Board)AICPAAICPA
10 Sarbanes-Oxley Act The PCAOB conducts inspections of registered accounting firms and assess their compliancewith the rules of the PCAOB and the SEC.
11 Securities and Exchange Commission The overall purpose of the Securities andExchange Commission (SEC) is to assist inproviding investors with reliable informationupon which to make investment decisions.
12 Securities and Exchange Commission Form S-1 – new issuesForm 8-K – significant events (like press release)Form 10-K – annual FS’sForm 10-Q – quarterly FS’s
13 The requirements are set by committees made up of AICPA members. The AICPA is empowered to set standards (guidelines) and rules that all members and other practicing CPAs must follow.The requirements are set bycommittees made up of AICPA members.
14 There are four major areas in which the AICPA has authority to set standards and make rules. 1. Auditing Standards2. Compilation and Review Standards3. Other Attestation Standards4. Consulting Standards5. Code of Professional Conduct
15 ACCEPTED ADUITING STANDARDS SUMMARY OF GENERALLYACCEPTED ADUITING STANDARDSGenerally AcceptedAuditing StandardsReportingresultsGeneralqualificationsand conductField Workperformance ofthe auditWhether statementswere prepared inaccordance with GAAPCircumstances whenGAAP not consistentlyfollowedAdequacy of informativedisclosuresExpression of opinion onfinancial statementsAdequate trainingand proficiencyIndependence inmental attitudeDue professional careProper planning andsupervisionSufficient understandingof internal controlSufficient competentevidence
16 Relationship Between GAAS and PCAOB Auditing Standards The term GAAS is no longer used for publiccompany audits. Public company audits refer toPCAOB auditing standards.The term GAAS continues to be used for auditsof private companies.
17 Statements on Auditing Standards The 10 generally accepted auditing standardsare too general to provide precise guidance inall cases.SASs interpret the 10 generally acceptedauditing standards and are the mostauthoritative references available to auditors.
18 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 AuditingPractice Committee of the InternationalFederation of Accountants (IFAC).
19 1. Independence, integrity, and objectivity 2. Personnel Management3. Acceptance and Continuation of Clientsand Engagements4. Engagement Performance5. Monitoring
20 Audit QualityThe audit is often unobservable and difficult to quantifyAudit Quality = P (finding and reporting a FS breach)“Finding” = function of skill“Reporting” = function of independence level
21 Relationships among GAAS, Quality Control, Division of CPA Firms, and Peer ReviewQuality ControlStandardsGenerally AcceptedAuditing StandardsStandards applicable to a CPAfirm to aid in satisfyinggenerally accepted auditingstandardsStandards applicable to eachauditAICPA Practice sectionsCenter forPublic CompanyAudit FirmsPrivateCompaniesPracticeSectionOrganizations intended to helpfirms meet quality controlstandards and GAASPeer ReviewMethod to determine whethera CPA firm meets qualitycontrol standards
22 Conduct of CPA firm personnel Ways the Profession and Society Encourage CPAs to Conduct Themselves at a High LevelGAAS andinterpretationsCPAexaminationContinuingeducationrequirementsQualitycontrolConductofCPA firmpersonnelLegalliabilityPeer reviewAICPA practicesectionsSECCode ofProfessionalConduct