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 grantedto CPA firms by regulation of each state.CPA firms also provide many other services totheir clients, such as tax and consulting services.
4 Certified Public Accounting Firms Big Four international firmsNational firmsRegional and large local firmsSmall local firms
5 Certified Public Accounting Firms The four largest CPA firms in the United Statesare called the “Big Four” international CPA firms.These four firms have offices in most majorcities in the United States and in manycities throughout the world.
6 Activities of CPA Firms Accounting and bookkeeping servicesTax servicesManagement 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 encouragecompetence.3. The increased litigation risk faced by auditors.
9 Hierarchy of a Typical CPA Firm Staff LevelExperienceTypical ResponsibilitiesStaffassistant0-2 yearsPerforms most of thedetailed audit workSenior orin-chargeauditor2-5 yearsResponsible for the auditfield work, includingsupervising staff work
10 Hierarchy of a Typical CPA Firm Staff LevelExperienceTypical ResponsibilitiesManager5-10 yearsHelps the plan, managesthe audit, reviews work,and works with the clientPartner10+ yearsReviews audit work andmakes significant auditdecisions
11 E-Commerce and CPA Firm Operations CPA firms are using the Internet to markettheir services.Firm Web sites also feature online software toolsand databases to subscribers.Firms take advantage of online resources anddatabases to help their staffs stay current onemerging business and standards-setting issues.
12 Learning Objective 2 Understand the role of the Public Company AccountingOversight Board and the effectsof the Sarbanes-Oxley Acton the CPA profession.
13 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.
14 Sarbanes-Oxley Act SEC PCAOB (Public Company Accounting Oversight Board)
15 Sarbanes-Oxley Act The PCAOB conducts inspections of registered accounting firms and assess their compliancewith the rules of the PCAOB and the SEC.
16 Learning Objective 3 Summarize the role of the Securities and Exchange Commission in accountingand auditing.
17 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.
18 Securities and Exchange Commission Form S-1Form 8-KForm 10-KForm 10-Q
19 Learning Objective 4 Describe the key functions performed by the AICPA.
20 AICPA The AICPA sets professional requirements for CPAs, conducts research, and publishesmaterials on many different subjects relatedto accounting, auditing, attestation andassurance services, managementconsulting services, and taxes.
21 Establishing Standards and Rules The AICPA is empowered to set standards(guidelines) and rules that all membersand other practicing CPAs must follow.
22 Establishing Standards and Rules 1. Auditing standards2. Compilation and review standards3. Other attestation standards4. Consulting standards5. Code of Professional Conduct
23 Other AICPA Functions Writes and grades the CPA examination. Supports research by its own staff andprovides grants to others.Publishes a variety of materials.Provides seminars and education in avariety of subject matters.
24 Vision for the Future The AICPA has established the CPA Vision Project to provide a core purpose and a vision for the CPAprofession in the year 2011 and beyond.The core purpose of the CPA Vision Project is:“CPAs…making sense of a changing andcomplex world.”
25 Vision for the Future Five Core Values: 1. Continuing education and life-long learning2. Competence3. Integrity4. Attuned to broad business issues5. Objectivity
26 Learning Objective 5 Use generally accepted auditing standards as a basis forfurther study.
27 General Standards 1. The audit is to be performed by a person or persons having adequate technical trainingand proficiency as an auditor.2. The auditor must maintain independencein mental attitude in all matters relatingto the audit.
28 General Standards 3. The auditor must exercise due professional care in the performance of the audit and thepreparation of the report.
29 Standards of Field Work 1. The auditor must adequately plan the workand must properly supervise any assistants.2. The auditor must obtain a sufficient understandingof the entity and its environment, including itsinternal control, to assess the risk of materialmisstatement and to design further auditprocedures.
30 Standards of Field Work 3. The auditor must obtain sufficient appropriateaudit evidence by performing audit proceduresto afford a reasonable basis for an opinionregarding the financial statements under audit.
31 Standards of Reporting 1. The report shall state whether the financialstatements are presented in accordance withgenerally accepted accounting principles.2. The report shall identify those circumstancesin which such principles have not beenconsistently observed in the current periodin relation to the preceding period.
32 Standards of Reporting 3. Informative disclosures in the financialstatements are to be regarded as reasonablyadequate unless otherwise stated in the report.4. The report shall contain an expression ofopinion regarding the financial statements,taken as a whole.
33 Generally Accepted Auditing Standards General Standards1. Adequate training and proficiency2. Independence in mental attitude3. Due professional care
34 Generally Accepted Auditing Standards Standards of Field Work1. Proper planning and supervision2. Understanding of the entity3. Sufficient appropriate evidence
35 Generally Accepted Auditing Standards Standards of Reporting1. Statements prepared in accordance with GAAP2. Circumstances when GAAP not followed3. Adequacy of disclosures4. Expression of opinion on financial statements
36 Relationship Between GAAS and PCAOB Auditing Standards The term generally accepted auditing standardsis no longer used for public company audits.The term GAAS continues to be used for auditsof private companies.Public company audits refer to PCAOB auditingstandards.
37 Statements on Auditing Standards The 10 generally accepted auditing standardsare too general to provide meaningful guidance.SASs interpret the 10 generally acceptedauditing standards and are the mostauthoritative references available to auditors.
38 Statements on Auditing Standards Classification of Statements on Auditing StandardsGAAS and Standards of Performance
39 Learning Objective 6 Discuss the role of international auditing standards.
40 International Standards on Auditing International Standards on Auditing (ISAs)are issued by the International AuditingPractice Committee of the InternationalFederation of Accountants (IFAC).
41 International Standards on Auditing IFAC is the worldwide organizationfor the accountancy profession.The IFAC works to improve theuniformity of auditing practices andrelated services throughout the world.
42 Learning Objective 7 Identify quality control standards and practices within theaccounting profession.
43 Elements of Quality Control Independence, integrity, and objectivityPersonnel managementAcceptance and continuation of clientsand engagementsEngagement performanceMonitoring
44 Relationships Quality control standards Generally accepted auditing standardsAICPA practicesectionsPeerreview
45 CPAs Encouraged to Conduct Themselves at a High Level examinationGAAS andinterpretationsContinuingeducationrequirementsQualitycontrolConduct ofCPA firmpersonnelLegalliabilityPeerreviewAICPA practicesectionsPCAOBand SECCode ofProfessionalConduct