The CPA Profession

1. The CPA Profession Chapter 2

2. Learning Objective 1 Describe the nature of CPA firms, what they do, and their structure.

3. Certified PublicAccounting 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.

4. Certified PublicAccounting Firms The four largest CPA firms in the United States are called the “Big Four” international CPA firms. These four firms have offices in most major cities in the United States and in many cities throughout the world.

5. Certified PublicAccounting Firms There are less than 200 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.

6. Activities of CPA Firms Accounting and bookkeeping services Tax services Management consulting services

7. 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

8. Organizational Structure Proprietorship Professional corporation General partnership Limited liability company General corporation Limited liability partnership

9. Staff Level Experience Typical Responsibilities Staff Assistant 0-2 years Performs most of the detailed audit work Senior Auditor 2-5 years Responsible for the audit field work, including supervising staff work Hierarchy of a TypicalCPA Firm

10. Partner 10+ years Reviews audit work and makes significant audit decisions Hierarchy of a TypicalCPA Firm Staff Level Experience Typical Responsibilities Manager 5-10 years Helps the plan, manages the audit, reviews work, and works with the client

11. Learning Objective 2 Discuss how e-commerce and the Internet affect CPA firm operations.

12. Receiver’s mail server 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 mail server

13. Learning Objective 3 Describe the key functions performed by the AICPA.

14. 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.

15. 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.”

16. 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.

17. Vision for the Future The market demands less audit and accounting and more value-adding consulting services. Specialization is critical for the future of the CPA profession. The market demands that CPAs be conversant in global business practices and strategies.

18. Establishing Standardsand 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.

19. Establishing Standardsand Rules 1. Auditing standards 2. Compilation and review standards 3. Other attestation standards 4. Consulting standards 5. Code of Professional Conduct

20. 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

21. Learning Objective 4 Understand the role of the Public Company Accounting Oversight Board and the effects of the Sarbanes-Oxley Act on the CPA profession.

22. 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.

23. PCAOB (5 members) Sarbanes-Oxley Act SEC

24. Learning Objective 5 Summarize the role of the Securities and Exchange Commission in accounting and auditing.

25. 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.

26. Securities and Exchange Commission Forms S-1 to S-16 Form 10-K Form 8-K Form 10-Q

27. Learning Objective 6 Use generally accepted auditing standards as a basis for further study.

28. 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.

29. General Standards 3. Due professional care is to be exercised in the planning and performance of the audit and the preparation of the report.

30. 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.

31. 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.

32. 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.

33. 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.

34. General Field Work Reporting 1. Adequate training and proficiency 2. Independence in mental attitude 3. Due professional care 1. Proper planning and supervision 2. Internal control understanding 3. Sufficient competent evidence 1. Statements prepared in accordance with GAAP 2. Circumstances when GAAP not followed 3. Adequacy of disclosures 4. Expression of opinion on financial statements Summary ofGeneral Standards Generally Accepted Auditing Standards

35. Learning Objective 7 Discuss the role of international auditing standards.

36. International Standardson Auditing International Standards on Auditing (ISAs) are issued by the International Auditing Practice Committee of the International Federation of Accountants (IFAC).

37. International Standardson 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.

38. Learning Objective 8 Identify quality control standards and practices within the accounting profession.

39. Elements of Quality Control Independence, integrity, and objectivity Personnel management Acceptance and continuation of clients and engagements Engagement performance Monitoring

40. Quality control standards Generally accepted auditing standards Division of CPA firms Peer review Relationships

41. Chapter Summary The nature of the CPA profession and the activities of CPA firms.

42. CPA examination GAAS and interpretations Continuing education requirements Quality control Legal liability Peer review Division of CPA firms PCAOB and SEC Code of Professional Conduct CPAs Encouraged to ConductThemselves at a High Level Conduct of CPA firm personnel

43. End of Chapter 2