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CPA firms

CPA firms. Big Four (International) PricewaterhouseCoopers (PwC) Deloitte & Touche (D&T) KPMG Ernst & Young (E&Y). CPA Firms. National firms Regional Firms (50+ employees) Large local firms (>25 employees). Audit Review Compilation Tax Accounting Bookkeeping Consulting services.

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CPA firms

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  1. CPA firms • Big Four (International) • PricewaterhouseCoopers (PwC) • Deloitte & Touche (D&T) • KPMG • Ernst & Young (E&Y)

  2. CPA Firms • National firms • Regional Firms (50+ employees) • Large local firms (>25 employees)

  3. Audit Review Compilation Tax Accounting Bookkeeping Consulting services The big four have reduced their consulting services since Sarbanes-Oxley because of independence concerns CPA Firm Services

  4. Forms of CPA Firms • Proprietorship • General Partnership • Corporation (not allowed in some states) • Professional Corporation • Limited Liability Corporation (LLC) • Limited Liability Partnership (LLP)* • The LLP is the most popular form

  5. CPA staff • Partners • Managers • Supervisors • Seniors (In-charge) • Assistants/Juniors/Staff • The value of a CPA firm is not the individual staff person, but the many levels of review of the work.

  6. Sarbanes-Oxley • Established the Public Company Accounting Oversight Board (PCAOB) July 2002 • The PCAOB is overseen by the SEC

  7. PCAOB • Establishes Auditing Standards • Inspects Auditing Firms

  8. Securities and Exchange Commission • SEC created 1933 required registration statement • SEC 1934 required annual reports to be filed • Financial Statements are required as part of registration statement and annually thereafter • Form 10-K most important, required 60 days after year end or 90 days after year end

  9. Which Auditing Standards? • PCAOB for Public Companies • Companies that sell stock on large exchanges • Accounting Standards Board (AICPA) for Private companies • Companies closely held, partnerships, sole owners and not-for-profit • Pronouncements are called Statements on Auditing Standards (SAS’s) or AU (Codification of Auditing Standards)

  10. AICPA • American Institute of Certified Public Accountants • Research • Publishes books • advocates for CPA’s • Continuing Education • Sets standards (private companies)

  11. AICPA • Statements on Auditing Standards (SAS’s) or (AU) for private companies • Compilation and review standards (SSAR’s) • Other attestation standards • Consulting standards • Code of Professional Conduct

  12. AICPA • Publishes Journal of Accountancy • Writes CPA Exam and grades it • Continuing Education (CPE)

  13. International Standards • International Standards on Auditing (ISAs) • Issued by the International Auditing and Assurance Standards Board (IAASB) a subset of the International Federation of Accountants (IFAC). • The AICPA has revised its standards to converge with international standards but differences remain.

  14. GAAP vs GAAS • GAAP are standards to compile financial statements • GAAS are standards on how to conduct an Audit • They include the Principles and the Codification of Auditing Standards • The Principles Underlying an Audit are divided into 1) Purpose of an Audit, 2) Responsibilities, 3) Performance and 4) Reporting

  15. Purpose • Provide an opinion about the financial statements

  16. Responsibilities • Possess appropriate competence and capabilities • Comply with ethical requirements • Maintain professional skepticism and exercise professional judgment

  17. Performance • Obtain reasonable assurance about whether the financial statements are free from material misstatement • Plan work and supervise assistants • Determine and apply materiality level or levels • Identify and assess risks of material misstatement based on understanding of entity and its environment including internal controls. • Obtain sufficient appropriate audit evidence

  18. Reporting • Express opinion on financial statements in a written report • Whether financial statements presented fairly in accordance with financial reporting framework.

  19. PCAOB vs GAAS • PCAOB accepts GAAS for interim period • PCAOB has created 15 new standards which have then superseded GAAS on those topics. • PCAOB Standard #2 has been superseded by standard #5. • See www.pcaobus.org

  20. SAS’s—AU’sCodification of Auditing Standards • Statements on Auditing Standards are interpretations of the Principles Underlying an Audit • GAAS and SAS’s are minimum standards • SAS’s have two numbering systems • SAS number by order issued • AU-C number by area organized in the Codification • Most old SAS’s have been reissued under SAS 122-125

  21. AICPA help • Financial Reporting Whitepaper: The AICPA’s Guide to Clarified and Converged Standards for Auditing and Quality Control • Summary of Changes in Requirements from Statement on Auditing Standards (SASs) No 1 through 120 to Clarified SASs. • Substantive Differences Between International Standards on Auditing and GAAS

  22. Quality Control for CPA Firms • Leadership – Ethical Culture • Independence • Policies on acceptance of engagements • Human Resources: qualified, training, CPE • Policies on engagement performance • Monitoring-Quality control partner

  23. Peer Review • Another CPA firm audits if the subject firm is following Quality Control and GAAS • For public firms PCAOB inspections take the place of Peer Review • AICPA National Peer Review Committee non-SEC portion of practice (if inspected) • CPA firms auditing private companies must be reviewed every three years

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