Aud15 PPT 02 RV

Chapter 2
2-1
Copyright © 2014 Pearson Education, Inc. Publishing as Prentice Hall.
Describe the nature of CPA firms, what
they do, and their structure.
Understand the role of the Public
Company Accounting Oversight Board
and the effects of the Sarbanes-Oxley Act
on the CPA profession.
Summarize the role of the Securities and
Exchange Commission in accounting and
auditing.
2-2
Describe the functions performed by the
AICPA.
Understand the role of international
auditing standards and their relation to U.S.
auditing standards.
Use U.S. auditing standards as a basis for
further study.
Identify quality control standards and
practices within the accounting profession.
2-3
1
Describe the nature of CPA firms,
what they do, and their structure.
2-4
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.
2-5
 Big Four international firms
 National firms
 Regional and large local firms
 Small local firms
2-6 Copyright © 2014 Pearson Education, Inc. Publishing as Prentice Hall.

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.
2-7
2-8
 Accounting and bookkeeping services
 Tax services
 Management consulting services
2-9
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.
2-10
 Proprietorship
 General Partnership
 General Corporation
 Professional Corporation
 Limited Liability Company
 Limited Liability Partnership
2-11
Average Experience
2-12
2
Understand the role of the Public Company
Accounting Oversight Board and the effects of
the Sarbanes-Oxley Act on the CPA profession.
2-13
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.
2-14
SEC
PCAOB
(Public Company
Accounting
Oversight Board)
2-15
3
Summarize the role of the Securities and Exchange
Commission in accounting and auditing.
2-16
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
2-17
 Form S-1
 Form 8-K
 Form 10-K
 Form 10-Q
2-18
4
Describe the key functions
performed by the AICPA.
2-19
Performs the following services for CPAs:
 Sets professional requirements
 Conducts research
 Publishes materials related to services
performed
Empowered to set standards (guidelines)

and rules
2-20
1. Auditing standards
2. Compilation and review standards
3. Other attestation standards
4. Code of Professional Conduct
2-21
The CPA examination
Research and Grants
Publishes a variety of materials
Provides seminars and

continuing education
2-22
5
Understand the role of
international auditing standards
and their relation to U.S.
auditing standards
2-23
 Classification of Statements on Auditing Standards
 GAAS and Standards of Performance
2-24
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.
2-25
2-26
6
Use U.S. auditing standards as a basis for
further study
2-27
2-28
General Standards
1. Adequate training and proficiency
2. Independence in mental attitude
3. Due professional care
2-29
Standards of Field Work
1. Proper planning and supervision
2. Understanding of the entity
3. Sufficient appropriate evidence
2-30
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
2-31
PCAOB ASB
Public Private
company company
audits audits
2-32
The principles in the Preface of the Codification
of Auditing Standards provide a framework for
auditing standards.
Statements on Auditing Standards (SASs)

provide guidance to auditors in obtaining
reasonable assurance to form an opinion on
financial statements and are the most
authoritative references available to auditors.
2-33
7
Identify quality control standards and practices
within the accounting profession.
2-34
 Leadership responsibilities for quality
 Relevant ethical requirements
 Acceptance and continuation of clients
and engagements
 Human resources
 Engagement performance
 Monitoring
2-35
2-36
Auditing Continuing
standards education
CPA
requirements
examination
Quality Conduct of Legal

control liability
CPA firm
personnel
Peer AICPA practice
review and quality
centers
Code of
PCAOB Professional
and SEC Conduct
2-37
38
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Chapter 2

CPA firms also provide many other services to

CPA firms continue to develop new products and

 Regional and large local firms

 Small local firms

2-6 Copyright © 2014 Pearson Education, Inc. Publishing as Prentice Hall.

These four firms have offices throughout the

 Management consulting services

1. The need for independence from clients.

The provisions of the Act apply to publicly

Empowered to set standards (guidelines)

2. Compilation and review standards

3. Other attestation standards

4. Code of Professional Conduct

Research and Grants

Publishes a variety of materials

Provides seminars and

 GAAS and Standards of Performance

The IAASB works to improve the

1. Adequate training and proficiency

2. Independence in mental attitude

3. Due professional care

1. Proper planning and supervision

2. Understanding of the entity

3. Sufficient appropriate evidence

1. Statements prepared in accordance with GAAP

2. Circumstances when GAAP not followed

4. Expression of opinion on financial statements

Statements on Auditing Standards (SASs)

Quality Conduct of Legal

All rights reserved. No part of this publication may be reproduced,

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