The CPA Pro ession

Cha!ter 2

2010 Prentice Hall Business Publishing, Auditing 13/e, Arens/Elder/Beasley

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Certi ied Public Accounting "ir#s

The legal right to !er or# audits is granted to CPA ir#s by regulation o each state$ CPA ir#s also !ro%ide #any other ser%ices to their clients, such as ta& and consulting ser%ices$ CPAs continue to de%elo! ne' !roducts and ser%ices- such as inancial !lanning, business %aluation and in or#ation technology$
2010 Prentice Hall Business Publishing, Auditing 13/e, Arens/Elder/Beasley 2-2

Certi ied Public Accounting "ir#s

Big "our international ir#s )ational ir#s *egional and large local ir#s +#all local ir#s

2010 Prentice Hall Business Publishing, Auditing 13/e, Arens/Elder/Beasley

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Acti%ities o CPA "ir#s

Accounting and boo..ee!ing ser%ices Ta& ser%ices -anage#ent consulting ser%ices

2010 Prentice Hall Business Publishing, Auditing 13/e, Arens/Elder/Beasley

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+tructure o CPA "ir#s

Three #ain actors in luence the organi0ational structure o all ir#s1 1$ The need or inde!endence ro# clients$ 2$ The i#!ortance o a structure to encourage co#!etence$ ($ The increased litigation ris. aced by auditors$

2010 Prentice Hall Business Publishing, Auditing 13/e, Arens/Elder/Beasley

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3rgani0ational +tructure
Pro!rietorshi! Pro essional cor!oration 4eneral !artnershi! 5i#ited liability co#!any 4eneral cor!oration 5i#ited liability !artnershi!
2010 Prentice Hall Business Publishing, Auditing 13/e, Arens/Elder/Beasley

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Hierarchy o a Ty!ical CPA "ir#

+ta 5e%el E&!erience Ty!ical *es!onsibilities +ta assistant +enior or in-charge auditor 0-2 years Per or#s #ost o the detailed audit 'or. *es!onsible or the audit ield 'or., including su!er%ising sta 'or.
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2-/ years

2010 Prentice Hall Business Publishing, Auditing 13/e, Arens/Elder/Beasley

Hierarchy o a Ty!ical CPA "ir#

+ta 5e%el E&!erience Ty!ical *es!onsibilities -anager Hel!s !lan the audit, #anages the audit, /-10 years re%ie's 'or., and 'or.s 'ith the client 108 years *e%ie's audit 'or. and #a.es signi icant audit decisions
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Partner

2010 Prentice Hall Business Publishing, Auditing 13/e, Arens/Elder/Beasley

5earning 3b:ecti%e 2
;nderstand the role o the Public Co#!any Accounting 3%ersight Board and the e ects o the +arbanes-3&ley Act on the CPA !ro ession$

2010 Prentice Hall Business Publishing, Auditing 13/e, Arens/Elder/Beasley

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+arbanes-3&ley Act
This Act is considered by #any obser%ers to be the #ost i#!ortant legislation a ecting the auditing !ro ession since the 19(0s$ The !ro%isions o the Act a!!ly to !ublicly held co#!anies and their audit ir#s$

2010 Prentice Hall Business Publishing, Auditing 13/e, Arens/Elder/Beasley

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+arbanes-3&ley Act
+EC

PCA3B <Public Co#!any Accounting 3%ersight Board=

2010 Prentice Hall Business Publishing, Auditing 13/e, Arens/Elder/Beasley

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+arbanes-3&ley Act
The PCA3B conducts ins!ections o registered accounting ir#s and assess their co#!liance 'ith the rules o the PCA3B and the +EC$

2010 Prentice Hall Business Publishing, Auditing 13/e, Arens/Elder/Beasley

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5earning 3b:ecti%e (
+u##ari0e the role o the +ecurities and E&change Co##ission in accounting and auditing$

2010 Prentice Hall Business Publishing, Auditing 13/e, Arens/Elder/Beasley

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+ecurities and E&change Co##ission

The o%erall !ur!ose o the Securities and Exchange Commission (SEC) is to assist in !ro%iding in%estors 'ith reliable in or#ation u!on 'hich to #a.e in%est#ent decisions$

2010 Prentice Hall Business Publishing, Auditing 13/e, Arens/Elder/Beasley

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+ecurities and E&change Co##ission

Form S-1 Form 8-K Form 10-K Form 10-Q

2010 Prentice Hall Business Publishing, Auditing 13/e, Arens/Elder/Beasley

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5earning 3b:ecti%e ,
>escribe the .ey unctions !er or#ed by the A?CPA$

2010 Prentice Hall Business Publishing, Auditing 13/e, Arens/Elder/Beasley

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A?CPA
The A?CPA sets !ro essional re@uire#ents or CPAs, conducts research, and !ublishes #aterials on #any di erent sub:ects related to accounting, auditing, attestation and assurance ser%ices, #anage#ent consulting ser%ices, and ta&es$

2010 Prentice Hall Business Publishing, Auditing 13/e, Arens/Elder/Beasley

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Establishing +tandards and *ules

The A?CPA is e#!o'ered to set standards <guidelines= and rules that all #e#bers and other !racticing CPAs #ust ollo'$

2010 Prentice Hall Business Publishing, Auditing 13/e, Arens/Elder/Beasley

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Establishing +tandards and *ules

1$ Auditing standards 2$ Co#!ilation and re%ie' standards ($ 3ther attestation standards ,$ Consulting standards /$ Code o Pro essional Conduct
2010 Prentice Hall Business Publishing, Auditing 13/e, Arens/Elder/Beasley 2 - 19

3ther A?CPA "unctions

Arites and grades the CPA e&a#ination$ +u!!orts research by its o'n sta and !ro%ides grants to others$ Publishes a %ariety o #aterials$ Pro%ides se#inars and education in a %ariety o sub:ect #atters$
2010 Prentice Hall Business Publishing, Auditing 13/e, Arens/Elder/Beasley 2 - 20

5earning 3b:ecti%e /
>iscuss the nature o ;nited +tates and international auditing standards

Generally Accepted Auditing Standards Field Work !er or#ance o the audit
Pro!er !lanning and su!er%ision +u icient understanding o the entity, its en%iron#ent, and its internal control +u icient a!!ro!riate e%idence

General @uali ications and conduct

Ade@uate training and !ro iciency ?nde!endence in #ental attitude >ue !ro essional care

Reporting results
Ahether state#ents 'ere !re!ared in accordance 'ith 4AAP Circu#stances 'hen 4AAP not consistently ollo'ed Ade@uacy o in or#ati%e disclosures E&!ression o o!inion on inancial state#ents
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2010 Prentice Hall Business Publishing, Auditing 13/e, Arens/Elder/Beasley

+tate#ents on Auditing +tandards

Classi ication o +tate#ents on Auditing +tandards 4AA+ and +tandards o Per or#ance

2010 Prentice Hall Business Publishing, Auditing 13/e, Arens/Elder/Beasley

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?nternational +tandards on Auditing

?"AC is the 'orld'ide organi0ation or the accountancy !ro ession$

The ?"AC 'or.s to i#!ro%e the uni or#ity o auditing !ractices and related ser%ices throughout the 'orld$

2010 Prentice Hall Business Publishing, Auditing 13/e, Arens/Elder/Beasley

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?nternational +tandards on Auditing

?nternational +tandards on Auditing <?+As= are issued by the ?nternational Auditing and Assurance +tandards Board <?AA+B= o the ?nternational "ederation o Accountants <?"AC=$

2010 Prentice Hall Business Publishing, Auditing 13/e, Arens/Elder/Beasley

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5earning 3b:ecti%e 2
;se generally acce!ted auditing standards as a basis or urther study

2010 Prentice Hall Business Publishing, Auditing 13/e, Arens/Elder/Beasley

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4enerally Acce!ted Auditing +tandards- ;nited +tates

4eneral +tandards 1$ Ade@uate training and !ro iciency 2$ ?nde!endence in #ental attitude ($ >ue !ro essional care

2010 Prentice Hall Business Publishing, Auditing 13/e, Arens/Elder/Beasley

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;$+$ 4enerally Acce!ted Auditing +tandards 4eneral +tandards

1$ The auditor #ust ha%e ade@uate technical training and !ro iciency to !er or# the audit$ 2$ The auditor #ust #aintain inde!endence in #ental attitude in all #atters relating to the audit$ ($ The auditor #ust e&ercise due !ro essional care in the !er or#ance o the audit and the !re!aration o the re!ort$
2010 Prentice Hall Business Publishing, Auditing 13/e, Arens/Elder/Beasley 2 - 26

4enerally Acce!ted Auditing +tandards B ;nited +tates

+tandards o "ield Aor. 1$ Pro!er !lanning and su!er%ision 2$ ;nderstanding o the entity ($ +u icient a!!ro!riate e%idence

2010 Prentice Hall Business Publishing, Auditing 13/e, Arens/Elder/Beasley

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+tandards o "ield Aor.

1$ The auditor #ust ade@uately !lan the 'or. and #ust !ro!erly su!er%ise any assistants$ 2$ The auditor #ust obtain a su icient understanding o the entity and its en%iron#ent, including its internal control, to assess the ris. o #aterial #isstate#ent and to design urther audit !rocedures$ ($ The auditor #ust obtain su icient a!!ro!riate audit e%idence by !er or#ing audit !rocedures to a ord a reasonable basis or an o!inion regarding the inancial state#ents under audit$
2010 Prentice Hall Business Publishing, Auditing 13/e, Arens/Elder/Beasley 2 - 29

4enerally Acce!ted Auditing +tandards-;nited +tates

+tandards o *e!orting 1$ +tate#ents !re!ared in accordance 'ith 4AAP 2$ Circu#stances 'hen 4AAP not ollo'ed ($ Ade@uacy o disclosures ,$ E&!ression o o!inion on inancial state#ents

2010 Prentice Hall Business Publishing, Auditing 13/e, Arens/Elder/Beasley

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+tandards o *e!orting
1$ The re!ort shall state 'hether the inancial state#ents are !resented in accordance 'ith generally acce!ted accounting !rinci!les$

2$ The re!ort shall identi y those circu#stances in 'hich such !rinci!les ha%e not been consistently obser%ed in the current !eriod in relation to the !receding !eriod$

2010 Prentice Hall Business Publishing, Auditing 13/e, Arens/Elder/Beasley

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+tandards o *e!orting

<ContCd=

($ ?n or#ati%e disclosures in the inancial state#ents are to be regarded as reasonably ade@uate unless other'ise stated in the re!ort$

,$ The re!ort shall contain an e&!ression o o!inion regarding the inancial state#ents, ta.en as a 'hole$

2010 Prentice Hall Business Publishing, Auditing 13/e, Arens/Elder/Beasley

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*elationshi! Bet'een 4AA+ and PCA3B Auditing +tandards

The ter# generally acce!ted auditing standards is no longer used or !ublic co#!any audits$ The ter# 4AA+ continues to be used or audits o !ri%ate co#!anies$ Public co#!any audits re er to PCA3B auditing standards$
2010 Prentice Hall Business Publishing, Auditing 13/e, Arens/Elder/Beasley

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+tate#ents on Auditing +tandards

The 10 generally acce!ted auditing standards are too general to !ro%ide #eaning ul guidance$ +A+s inter!ret the 10 generally acce!ted auditing standards and are the #ost authoritati%e re erences a%ailable to auditors$

2010 Prentice Hall Business Publishing, Auditing 13/e, Arens/Elder/Beasley

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A?CPA Clarity and Con%ergence Pro:ect

The A?CPA Auditing +tandards Board has underta.en a signi icant e ort to #a.e 4AA+ easier to read, understand and a!!ly$ This !ro:ect is si#ilar to an e ort by the ?nternational Auditing and Assurance +tandards Board to clari y ?nternational +tandards on Auditing$ <?AA+B=$

2010 Prentice Hall Business Publishing, Auditing 13/e, Arens/Elder/Beasley

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5earning 3b:ecti%e 6
?denti y @uality control standards and !ractices 'ithin the accounting !ro ession$

2010 Prentice Hall Business Publishing, Auditing 13/e, Arens/Elder/Beasley

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Ele#ents o Duality Control

?nde!endence, integrity, and ob:ecti%ity Personnel #anage#ent Acce!tance and continuation o clients and engage#ents Engage#ent !er or#ance -onitoring
2010 Prentice Hall Business Publishing, Auditing 13/e, Arens/Elder/Beasley 2 - (6

*elationshi!s
Duality control standards 4enerally acce!ted auditing standards

A?CPA !ractice sections

Peer re%ie'

2010 Prentice Hall Business Publishing, Auditing 13/e, Arens/Elder/Beasley

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CPAs Encouraged to Conduct The#sel%es at a High 5e%el

CPA examination GAAS and interpretations Continuing education requirements

Quality control

Conduct o" CPA "irm personnel

Legal liability

Peer review PCAO and S!C Code of Professional Conduct

AICPA practice sections

2010 Prentice Hall Business Publishing, Auditing 13/e, Arens/Elder/Beasley

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End o Cha!ter 2

2010 Prentice Hall Business Publishing, Auditing 13/e, Arens/Elder/Beasley

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