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 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.
©2013 Prentice Hall Business Publishing, Auditing 15/e, Arens/Elder/Beasley 2-3
 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 throughout the

United States and in many cities throughout
the world.

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 Certified Public Accounting
Firms
 TABLE 2-1 on page 26 should be inserted
into this slide.

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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
 General Partnership
 General Corporation
 Professional Corporation
 Limited Liability Company
 Limited Liability Partnership

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 Hierarchy of a Typical
CPA Firm
Average Experience

Partners 10+ years

Managers 5-10

Seniors and
In-charge Auditors 2-5

Staff Assistants 0-2

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 Learning Objective 2
Understand the role of the Public Company
Accounting Oversight Board and the
effects of the Sarbanes-Oxley Act on the
CPA profession.

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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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 Securities and Exchange
Commission
 Form S-1
 Form 8-K
 Form 10-K
 Form 10-Q

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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 Standards

 GAAS and Standards of Performance

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 International Standards
on Auditing
IFAC is the worldwide organization
for the accountancy profession.

The IAASB 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
 This frame needs to contain TABLE 2-3 on
page 35 of the text

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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 GAAS

Public Private
company company
audits audits

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 Statements on Auditing
Standards
The 10 generally accepted auditing standards
are too general to provide meaningful guidance.

SAS interpret 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

 Leadership responsibilities for quality

 Relevant ethical requirements
 Acceptance and continuation of clients
and engagements
Human resources
 Engagement performance

 Monitoring

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 Relationships

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 CPAs Encouraged to Conduct
Themselves at a High Level
Auditing
standards Continuing
CPA
education
examination
requirements

Quality Conduct of Legal

control liability
CPA firm
personnel
Peer AICPA practice
review and quality
centers
PCAOB Code of
and SEC Professional
Conduct
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 End of Chapter 2

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