ACC231-PPT-CH2-modified-week 4

Auditing and Assurance Services
Seventeenth Edition, Global Edition
Chapter 2
The CPA Profession
Week 4
Copyright © 2020 Pearson Education Ltd. All Rights Reserved.

Learning Objectives
2.1 Describe the nature of CPA firms and what they do
2.2 Describe the structure of CPA firms
2.3 Understand the role of the Public Company
Accounting Oversight Board and the effects of the
Sarbanes–Oxley Act on the CPA profession
2.4 Summarize the role of the Securities and Exchange
Commission in accounting and auditing
2.5 Describe the key functions performed by the AICPA
2.6 Understand the role of international auditing standards and
their relation to U.S. auditing standards
2.7 Use U.S. auditing standards as a basis for further study
2.8 Identify quality control standards and practices within the
accounting profession
Learning Objective 2.1
Describe the nature of CPA firms

and what they do

Certified Public Accounting Firms
Let’s watch the video below about the size
categories of CPA firms in USA.
https://www.youtube.com/watch?v=WYQJWBRoVAI

➢ Big Four international firms
➢ National firms
➢ Regional and large local firms
➢ Small local firms
2-5 Copyright © 2020 Pearson Education Ltd. All Rights Reserved.

The four largest CPA firms in the United States

are called the “Big Four” international CPA firms.
These four firms have offices throughout the

United States and in many cities throughout
the world.


The legal right to perform audits is granted

to CPA firms by regulation in each state.
CPA firms also provide many other services to

their clients, such as tax and advisory services.
CPA firms continue to develop new products

and services—such as financial planning,
business valuation, forensic accounting, and
information technology advisory services.
Let’s watch the video below about the different
services a CPA can perform.
https://www.youtube.com/watch?v=sVmjqCPTlAw
Describe the structure of CPA firms

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.

Organizational Structures of a CPA firm
Sole Proprietorship:
• Only firms with one owner can operate in this form.
• Provides no owner protection against litigation
General Partnership:
Same form as a sole proprietorship except that there are
2 or more owners.
General Corporation:
• An owner’s loss in a corporation is limited to the amount
invested.
• Most states prohibit CPA firms from organizing in this manner.

Organizational Structures of a CPA firm
Professional corporation (PC):

Although this form provides some legal liability, the amount of
protection can vary significantly from state to state.
Limited Liability Company (LLC):

Firm is taxed like a partnership, but the partners have limited
liability like a corporation.
Limited Liability Partnership (LLP):

• Partner’s are personally liable for partnership obligations, their
own acts, and the acts of those under their supervision.
• Not responsible for the acts of other partners or staff not under
their supervision.
Staff Levels and Responsibilities
Average
Staff Level Experience Typical Responsibilities
Performs most of the detailed audit

work.
Staff Assistant 0-2 years
Coordinates and is responsible for the
performance of audit procedures,
Senior or in- 2-5 years including supervising and reviewing
charge auditor staff work.
Helps the in-charge plan and manage
the audit, reviews the in-charge’s work,
Manager and 5-10 years and manages relations with the client. A
senior manager manager may be responsible for more
than one engagement at the same time.
Reviews the overall audit work and is
involved in significant audit decisions. A
Partner 10+ years partner is an owner of the firm and
therefore has the ultimate responsibility
for conducting the audit and serving the
Understand the role of the Public Company

Accounting Oversight Board and the effects of
the Sarbanes–Oxley Act on the CPA profession

Sarbanes–Oxley Act and Public
Company Accounting Oversight Board
Let’s watch the video below on the Sarbanes–Oxley
Act.
https://www.youtube.com/watch?v=xW9pSAwaeO0&t=59s

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.

Sarbanes–Oxley Act and Public
Company Accounting Oversight Board
 The Sarbanes–Oxley Act established the
Public Company Accounting Oversight
Board (PCAOB) to:
Provideoversight for auditors of public
companies
Establish auditing, attestation, and quality
control standards for public company audits
Perform inspections of audit engagements
and the quality controls at audit firms
performing those audits

Summarize the role of the Securities and

Exchange Commission in accounting and
auditing

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
Securities Act of 1933 Securities Exchange Act

of 1934
Requires most companies
planning to issue new Requires companies to file
securities to the public detailed annual reports
to submit a registration with the commission in
statement to the SEC for order to have their
approval. securities publicly
traded on the stock
exchanges.
 The SEC oversees the PCAOB
 The SEC has considerable influence in

setting GAAP and disclosure requirements
for financial statements
 The SEC has power to establish rules for

any CPA associated with audited financial
statements submitted to the commission
 There are several important reports required by the
SEC that are of special interest to the auditors:
 Forms S1 to S16 – Completed when new
securities are to be issued to the public.
 Form 8K – Filed at the end of any month in which
a significant investor event has occurred (i.e.,
sale of subsidiary, change of auditor, etc.)
 Form 10-K – Filed annually within 90 days of the
close of each fiscal year. Includes audited
financial statements.
 Form 10-Q – Filed quarterly with financial
statements reviewed by the auditor.
Describe the key functions performed by

the American Institute of Certified Public
Accountants (AICPA)

American Institute of Certified Public
Accountants
Membership in the AICPA is voluntary and is
restricted to CPAs.
➢ Not all CPAs join and not all members are
practicing as independent auditors
AICPA performs the following services for CPAs:

➢ Sets professional requirements
➢ Conducts research
➢ Publishes materials on many different
subjects related to accounting, auditing,
attestation and assurance services,
management consulting services, and taxes
American Institute of Certified Public
Accountants
 The AICPA sets standards and rules that all
members and other practicing CPAs must follow:
Auditing standards
Preparation, compilation, and

review standards
Other attestation standards
Code of Professional Conduct

Other AICPA Functions
The CPA examination
Research and Grants
Publishes a variety of materials;

Journal of Accountancy; The CPA Journal
Provides seminars and

continuing education

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Auditing and Assurance Services

Seventeenth Edition, Global Edition

The CPA Profession

Copyright © 2020 Pearson Education Ltd. All Rights Reserved.

Describe the nature of CPA firms

Copyright © 2020 Pearson Education Ltd. All Rights Reserved.

Copyright © 2020 Pearson Education Ltd. All Rights Reserved.

➢ Big Four international firms

➢ Regional and large local firms

➢ Small local firms

2-5 Copyright © 2020 Pearson Education Ltd. All Rights Reserved.

The four largest CPA firms in the United States

These four firms have offices throughout the

Copyright © 2020 Pearson Education Ltd. All Rights Reserved.

Copyright © 2020 Pearson Education Ltd. All Rights Reserved.

The legal right to perform audits is granted

CPA firms also provide many other services to

CPA firms continue to develop new products

Describe the structure of CPA firms

Copyright © 2020 Pearson Education Ltd. All Rights Reserved.

Three main factors influence the organizational

1. The need for independence from clients.

Copyright © 2020 Pearson Education Ltd. All Rights Reserved.

Copyright © 2020 Pearson Education Ltd. All Rights Reserved.

Professional corporation (PC):

Limited Liability Company (LLC):

Limited Liability Partnership (LLP):

Performs most of the detailed audit

Understand the role of the Public Company

Copyright © 2020 Pearson Education Ltd. All Rights Reserved.

Copyright © 2020 Pearson Education Ltd. All Rights Reserved.

This Act is considered by many observers to

The provisions of the Act apply to publicly

Copyright © 2020 Pearson Education Ltd. All Rights Reserved.

Copyright © 2020 Pearson Education Ltd. All Rights Reserved.

Summarize the role of the Securities and

Copyright © 2020 Pearson Education Ltd. All Rights Reserved.

The purpose is to assist in providing investors with reliable

Securities Act of 1933 Securities Exchange Act

 The SEC oversees the PCAOB

 The SEC has considerable influence in

 The SEC has power to establish rules for

Describe the key functions performed by

Copyright © 2020 Pearson Education Ltd. All Rights Reserved.

AICPA performs the following services for CPAs:

Preparation, compilation, and

Other attestation standards

Code of Professional Conduct

The CPA examination

Research and Grants

Publishes a variety of materials;

Provides seminars and

Copyright © 2020 Pearson Education Ltd. All Rights Reserved.

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