The CPA Profession

Chapter 2

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Learning Objective 1
Describe the nature of CPA firms,
what they do, and their structure.

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Certified Public Accounting

Firms
The legal right to perform audits is granted
to CPA firms by each state.

CPA firms also provide many other services to

their clients, such as tax and consulting service
CPAs continue to develop new products
and servicessuch as financial planning,
business valuation and information
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technology.

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Certified Public Accounting

Firms
Big Four international firms
National firms
Regional and large local firms
Small local firms

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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.

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Certified Public Accounting

Firms

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Activities of CPA Firms

Accounting and bookkeeping services
Tax services
Management consulting services

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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

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

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Hierarchy of a Typical
CPA Firm
Breadth of
Experience
Partners
Managers
Seniors and
In-charge Auditors
Staff Assistants
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10+ years
5-10
2-5
0-2
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Learning Objective 2
Understand the impact of the PCAOB ( Public
company oversight Board) and
Sarbanes-Oxley on the CPA profession.
Sarbanes Oxley established the PCAOB establishing
auditing and quality control standards
The PCAOB requires annual inspection for firms
audit more than 100 issuers once every three
years

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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.

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Sarbanes-Oxley Act
SEC

PCAOB
(Public Company
Accounting
Oversight Board)

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

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Securities and Exchange

Commission

The purpose is to assist in providing investors

with reliable information upon which to make
investment decisions
The Securities Act of 1933
The Securities Exchange Act of 1934

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1933 & 1934

1933 securities act requires most companies

planning to issue new securities to submit a
registration statement to the commission for
approval.
1934 requires public companies to provide
detailed annual reports with the commission

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Securities and Exchange

Commission

Form S-1 applies to new securities.

Form 8-Kis field to report significant events that are of interest to

investors such as acquisition of subsidiary
Form 10-K must be filled within 60-90 days after the close of each
Year , depending on the size of the company

Form 10-Q must be filled quarterly depending on the size of the co

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Securities and Exchange

Commission

Form S-1 applies to new securities.

Form 8-K is field to report significant
events that are of interest to public
investors such as acquisition of subsidiary
Form 10-K must be filled within 60-90
days after the close of each fiscal Year ,
depending on the size of the company
Form 10-Q must be filled quarterly
depending on the size of the company.

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

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AICPA
Performs the following services for CPAs:
Sets professional requirements
Conducts research
Publishes materials related to services
performed
Empowered to set standards (guidelines)
and rules
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Establishing Standards
and Rules
1. Auditing standards
2. Compilation and review standards
3. Other attestation standards
4. Code of Professional Conduct

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Other AICPA Functions

The CPA examination
Research and Grants
Publishes a variety of materials
Provides seminars and
continuing education
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Learning Objective 5
Understand the role of international
auditing standards and their relation
to U.S. auditing standards

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Statements on Auditing
Standards

Classification of Statements on Auditing Standa

GAAS and Standards of Performance

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International Standards
on Auditing
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.

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International Standards
on Auditing

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Learning Objective 6
Use U.S. auditing standards as a basis
for further study

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GAAS

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Generally Accepted Auditing

Standards United States
General Standards
1. Adequate training and proficiency
2. Independence in mental attitude
3. Due professional care

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Generally Accepted Auditing

Standards United States
Standards of Field Work
1. Proper planning and supervision
2. Understanding of the entity
3. Sufficient appropriate evidence

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Generally Accepted Auditing

Standards United States
Standards of Reporting

1. Statements prepared in accordance with GAAP

2. Circumstances when GAAP not followed
3. Adequacy of disclosures
4. Expression of opinion on financial statements
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Relationship Between GAAS

and PCAOB Auditing
Standards
PCAOB

Public
company
audits
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GAAS

Private
company
audits
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Statements on Auditing
Standards

The 10 generally accepted auditing standards

are too general to provide meaningful guidance
The 10 generally accepted
auditing standards and are the most
authoritative references available to auditors.

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

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Elements of Quality Control

Independence, integrity, and objectivity
Personnel management
Acceptance and continuation of clients
and engagements
Engagement performance
Monitoring
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Relationships

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CPAs Encouraged to
Conduct
Themselves at a High Level
CPA
examination

Quality
control

GAAS and
interpretations

Continuing
education
requirements

Conduct of
CPA firm
personnel

Peer
review

Legal
liability

AICPA practice
sections
PCAOB
and SEC

Code of
Professional
Conduct

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End of Chapter 2

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