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 of each state.
CPA firms also provide many other services to
their clients, such as tax and consulting services.

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 Certified Public
Accounting Firms

The five largest CPA firms in the United States

are called the “Big Five” international CPA firms.
Three CPA firms in the United States are called
national firms because they have offices in most
major cities.

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 Certified Public
Accounting Firms

There are only approximately 100 regional

and large local CPA firms with professional
staffs of more than 50 people.
More than 95% of all CPA firms have fewer
than 25 professionals in a single-office firm.

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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

Staff Level Experience Typical Responsibilities

Staff Performs most of the
0-2 years
Assistant detailed audit work
Responsible for the audit
Senior
2-5 years field work, including
Auditor
supervising staff work

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 Hierarchy of a Typical
CPA Firm

Staff Level Experience Typical Responsibilities

Helps the plan, manages
Manager 5-10 years the audit, reviews work,
and works with the client
Reviews audit work and
Partner 10+ years makes significant audit
decision

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 Learning Objective 2

Discuss how e-commerce

and the Internet affect
CPA firm operations.

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 E-Commerce and
CPA Firm Operations
CPA firms are using the Internet
to market their services.
They also use the Internet to connect
their global professional staff.

Sender’s Receiver’s
mail mail
server server
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 Learning Objective 3

Describe the key functions

performed by the AICPA.

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 AICPA

The AICPA sets professional requirements for

CPAs, conducts research, and publishes
materials on many different subjects
related to accounting, auditing,
attestation and assurance services,
management consulting
services, and taxes.
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 Vision for the Future

The AICPA has established the CPA Vision Project

to provide a core purpose and a vision for the CPA
profession in the year 2011 and beyond.
The core purpose of the CPA Vision Project is
“CPAs…making sense of a changing
and complex world.”

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 Vision for the Future
The future success of the CPA profession
relies a great deal on public perceptions
of CPAs’ abilities and roles.
CPAs must become market driven and
not dependent on regulations to keep
them in business.
The market demands less audit and
accounting and more value-adding
consulting services.
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 Vision for the Future

Specialization is critical for the

future of the CPA profession.
The market demands that CPAs be
conversant in global business
practices and strategies.

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 Establishing Standards
and Rules

The AICPA is empowered to set standards

(guidelines) and rules that all members and
other practicing CPAs must follow.
The requirements are set by
committees made up of AICPA members.

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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

Supports research by its own

staff and provides grants to others
Writes and grades the CPA examination
Provides seminars and education in
a variety of subject matters

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 Learning Objective 4

Use generally accepted

auditing standards as a
basis for further study.

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 General Standards
1. The audit is to be performed by a person or
persons having adequate technical training
and proficiency as an auditor.
2. In all matters relating to the assignment,
an independence in mental attitude is to
be maintained by the auditor or auditors.
3. Due professional care is to be exercised in
the planning and performance of the audit
and the preparation of the report.
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 Standards of Field Work

1. The work is to be adequately planned and

assistants, if any, are to be properly
supervised.
2. A sufficient understanding of internal
control is to be obtained to plan the audit
and to determine the nature, timing, and
extent of tests to be performed.

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 Standards of Field Work

3. Sufficient competent evidential matter is to

be obtained through inspection, observation,
inquiries, and confirmations to afford a
reasonable basis for an opinion regarding
the financial statements under audit.

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 Standards of Reporting

1. The report shall state whether the financial

statements are presented in accordance with
generally accepted accounting principles.
2. The report shall identify those circumstances
in which such principles have not been
consistently observed in the current period
in relation to the preceding period.

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 Standards of Reporting

3. Informative disclosures in the financial

statements are to be regarded as reasonably
adequate unless otherwise stated in the report.
4. The report shall contain an expression of
opinion regarding the financial statements,
taken as a whole.

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 Summary of
General Standards
Generally Accepted Auditing Standards

General Field Work Reporting

1. Adequate training 1. Proper planning 1. Statements prepared in

and proficiency and supervision accordance with GAAP
2. Independence in 2. Internal control 2. Circumstances when
mental attitude understanding GAAP not followed
3. Due professional 3. Sufficient 3. Adequacy of disclosures
care competent 4. Expression of opinion
evidence on financial statements

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 Learning Objective 5

Discuss the role

of international
auditing standards.

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 International Standards
on Auditing

International Standards on Auditing (ISAs)

are issued by the International Auditing
Practice Committee of the International
Federation of Accountants (IFAC).

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 International Standards
on Auditing

IFAC is the worldwide organization

for the accountancy profession.
The IAPC works to improve the
uniformity of auditing practices and
related services throughout the world.

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 Learning Objective 6

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

Quality control Generally accepted

standards auditing standards

Division of Peer
CPA firms review

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 Learning Objective 7

Summarize the role of the

Securities and Exchange
Commission in accounting
and auditing.

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 Securities and Exchange
Commission

The overall purpose of the

Securities and Exchange Commission (SEC)
is to assist in providing investors
with reliable information upon
which to make investment decisions.

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 Securities and Exchange
Commission

Forms S-1 to S-16 Form 10-K

Form 8-K Form 10-Q

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 CPAs Encouraged to Conduct
Themselves at a High Level

CPA GAAS and

examination interpretations

Conduct of CPA firm personnel

Continuing education
requirements
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 CPAs Encouraged to Conduct
Themselves at a High Level

Peer
SEC
review

Conduct of CPA firm personnel

Quality control

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 CPAs Encouraged to Conduct
Themselves at a High Level

Legal Division of
liability CPA firms

Conduct of CPA firm personnel

Code of Professional
Conduct
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 End of Chapter 2

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