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2 - 2 - 11©2012 Prentice Hall Business Publishing, ©2012 Prentice Hall Business Publishing, Auditing 14/e,Auditing 14/e, Arens/Elder/Beasley Arens/Elder/Beasley
The CPA ProfessionThe CPA Profession
Chapter 2Chapter 2
©2012 Prentice Hall Business Publishing, ©2012 Prentice Hall Business Publishing, Auditing 14/e,Auditing 14/e, Arens/Elder/Beasley Arens/Elder/Beasley 2 - 2 - 22
Learning Objective 1Learning Objective 1
Describe the nature of CPA firms,Describe the nature of CPA firms,
what they do, and their structure.what they do, and their structure.
©2012 Prentice Hall Business Publishing, ©2012 Prentice Hall Business Publishing, Auditing 14/e,Auditing 14/e, Arens/Elder/Beasley Arens/Elder/Beasley 2 - 2 - 33
Certified Public Accounting Certified Public Accounting FirmsFirms
The legal right to perform audits is grantedto CPA firms by each state.
CPA firms also provide many other services totheir clients, such as tax and consulting services.
CPAs continue to develop new products and services—such as financial planning, business valuation and information technology.
©2012 Prentice Hall Business Publishing, ©2012 Prentice Hall Business Publishing, Auditing 14/e,Auditing 14/e, Arens/Elder/Beasley Arens/Elder/Beasley 2 - 2 - 44
Certified Public Accounting Certified Public Accounting FirmsFirms
Big Four international firms
National firms
Regional and large local firms
Small local firms
©2012 Prentice Hall Business Publishing, ©2012 Prentice Hall Business Publishing, Auditing 14/e,Auditing 14/e, Arens/Elder/Beasley Arens/Elder/Beasley 2 - 2 - 55
Certified Public Accounting Certified Public Accounting FirmsFirms
The four largest CPA firms in the United Statesare called the “Big Four” international CPA firms.
These four firms have offices in most majorcities in the United States and in manycities throughout the world.
©2012 Prentice Hall Business Publishing, ©2012 Prentice Hall Business Publishing, Auditing 14/e,Auditing 14/e, Arens/Elder/Beasley Arens/Elder/Beasley 2 - 2 - 66
Certified Public Accounting Certified Public Accounting FirmsFirms
©2012 Prentice Hall Business Publishing, ©2012 Prentice Hall Business Publishing, Auditing 14/e,Auditing 14/e, Arens/Elder/Beasley Arens/Elder/Beasley 2 - 2 - 77
Management consulting services
Tax services
Accounting and bookkeeping services
Activities of CPA FirmsActivities of CPA Firms
©2012 Prentice Hall Business Publishing, ©2012 Prentice Hall Business Publishing, Auditing 14/e,Auditing 14/e, Arens/Elder/Beasley Arens/Elder/Beasley 2 - 2 - 88
Structure of CPA FirmsStructure of CPA Firms
Three main factors influence the organizationalstructure 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.
©2012 Prentice Hall Business Publishing, ©2012 Prentice Hall Business Publishing, Auditing 14/e,Auditing 14/e, Arens/Elder/Beasley Arens/Elder/Beasley 2 - 2 - 99
Organizational StructureOrganizational Structure
Proprietorship
Professional corporation
General partnership
Limited liability company
General corporation
Limited liability partnership
©2012 Prentice Hall Business Publishing, ©2012 Prentice Hall Business Publishing, Auditing 14/e,Auditing 14/e, Arens/Elder/Beasley Arens/Elder/Beasley 2 - 2 - 1010
Staff Assistants
Hierarchy of a TypicalHierarchy of a TypicalCPA FirmCPA Firm
Seniors and In-charge Auditors
Managers
Partners
Breadth of Experience
10+ years
5-10
2-5
0-2
©2012 Prentice Hall Business Publishing, ©2012 Prentice Hall Business Publishing, Auditing 14/e,Auditing 14/e, Arens/Elder/Beasley Arens/Elder/Beasley 2 - 2 - 1111
Learning Objective 2Learning Objective 2
Understand the impact of the PCAOB Understand the impact of the PCAOB andand
Sarbanes-Oxley on the CPA profession.Sarbanes-Oxley on the CPA profession.
©2012 Prentice Hall Business Publishing, ©2012 Prentice Hall Business Publishing, Auditing 14/e,Auditing 14/e, Arens/Elder/Beasley Arens/Elder/Beasley 2 - 2 - 1212
This Act is considered by many observers tobe the most important legislation affectingthe auditing profession since the 1930s.
Sarbanes-Oxley ActSarbanes-Oxley Act
The provisions of the Act apply to publiclyheld companies and their audit firms.
©2012 Prentice Hall Business Publishing, ©2012 Prentice Hall Business Publishing, Auditing 14/e,Auditing 14/e, Arens/Elder/Beasley Arens/Elder/Beasley 2 - 2 - 1313
Sarbanes-Oxley ActSarbanes-Oxley Act
SEC
PCAOB(Public Company
AccountingOversight Board)
©2012 Prentice Hall Business Publishing, ©2012 Prentice Hall Business Publishing, Auditing 14/e,Auditing 14/e, Arens/Elder/Beasley Arens/Elder/Beasley 2 - 2 - 1414
Learning Objective 3Learning Objective 3
Summarize the role of the Securities Summarize the role of the Securities andand
Exchange Commission in accounting Exchange Commission in accounting andand
auditing.auditing.
©2012 Prentice Hall Business Publishing, ©2012 Prentice Hall Business Publishing, Auditing 14/e,Auditing 14/e, Arens/Elder/Beasley Arens/Elder/Beasley 2 - 2 - 1515
The purpose is to assist in providing investorswith reliable information upon which to make investment decisions
The Securities Act of 1933The Securities Exchange Act of 1934
Securities and Exchange Securities and Exchange CommissionCommission
©2012 Prentice Hall Business Publishing, ©2012 Prentice Hall Business Publishing, Auditing 14/e,Auditing 14/e, Arens/Elder/Beasley Arens/Elder/Beasley 2 - 2 - 1616
Securities and Exchange Securities and Exchange CommissionCommission
Form S-1
Form 8-K
Form 10-K
Form 10-Q
©2012 Prentice Hall Business Publishing, ©2012 Prentice Hall Business Publishing, Auditing 14/e,Auditing 14/e, Arens/Elder/Beasley Arens/Elder/Beasley 2 - 2 - 1717
Learning Objective 4Learning Objective 4
Describe the key functions performed Describe the key functions performed by the AICPA.by the AICPA.
©2012 Prentice Hall Business Publishing, ©2012 Prentice Hall Business Publishing, Auditing 14/e,Auditing 14/e, Arens/Elder/Beasley Arens/Elder/Beasley 2 - 2 - 1818
Performs the following services for CPAs: Sets professional requirements Conducts research Publishes materials related to services
performed
AICPAAICPA
Empowered to set standards (guidelines)and rules
©2012 Prentice Hall Business Publishing, ©2012 Prentice Hall Business Publishing, Auditing 14/e,Auditing 14/e, Arens/Elder/Beasley Arens/Elder/Beasley 2 - 2 - 1919
Establishing StandardsEstablishing Standardsand Rulesand Rules
1. Auditing standards
2. Compilation and review standards
3. Other attestation standards
4. Code of Professional Conduct
©2012 Prentice Hall Business Publishing, ©2012 Prentice Hall Business Publishing, Auditing 14/e,Auditing 14/e, Arens/Elder/Beasley Arens/Elder/Beasley 2 - 2 - 2020
Other AICPA FunctionsOther AICPA Functions
Research and Grants
The CPA examination
Provides seminars and continuing education
Publishes a variety of materials
©2012 Prentice Hall Business Publishing, ©2012 Prentice Hall Business Publishing, Auditing 14/e,Auditing 14/e, Arens/Elder/Beasley Arens/Elder/Beasley 2 - 2 - 2121
Learning Objective 5Learning Objective 5
Understand the role of international Understand the role of international auditing standards and their relation auditing standards and their relation to U.S. auditing standards to U.S. auditing standards
©2012 Prentice Hall Business Publishing, ©2012 Prentice Hall Business Publishing, Auditing 14/e,Auditing 14/e, Arens/Elder/Beasley Arens/Elder/Beasley 2 - 2 - 2222
GAAS and Standards of Performance
Statements on Auditing Statements on Auditing StandardsStandards
Classification of Statements on Auditing Standards
©2012 Prentice Hall Business Publishing, ©2012 Prentice Hall Business Publishing, Auditing 14/e,Auditing 14/e, Arens/Elder/Beasley Arens/Elder/Beasley 2 - 2 - 2323
International StandardsInternational Standardson Auditingon Auditing
IFAC is the worldwide organizationfor the accountancy profession.
The IFAC works to improve theuniformity of auditing practices andrelated services throughout the world.
©2012 Prentice Hall Business Publishing, ©2012 Prentice Hall Business Publishing, Auditing 14/e,Auditing 14/e, Arens/Elder/Beasley Arens/Elder/Beasley 2 - 2 - 2424
International StandardsInternational Standardson Auditingon Auditing
©2012 Prentice Hall Business Publishing, ©2012 Prentice Hall Business Publishing, Auditing 14/e,Auditing 14/e, Arens/Elder/Beasley Arens/Elder/Beasley 2 - 2 - 2525
Learning Objective 6Learning Objective 6
Use U.S. auditing standards as a basis Use U.S. auditing standards as a basis for further studyfor further study
©2012 Prentice Hall Business Publishing, ©2012 Prentice Hall Business Publishing, Auditing 14/e,Auditing 14/e, Arens/Elder/Beasley Arens/Elder/Beasley 2 - 2 - 2626
GAASGAAS
©2012 Prentice Hall Business Publishing, ©2012 Prentice Hall Business Publishing, Auditing 14/e,Auditing 14/e, Arens/Elder/Beasley Arens/Elder/Beasley 2 - 2 - 2727
Generally Accepted AuditingGenerally Accepted AuditingStandards – United StatesStandards – United States
General Standards
1. Adequate training and proficiency
2. Independence in mental attitude
3. Due professional care
©2012 Prentice Hall Business Publishing, ©2012 Prentice Hall Business Publishing, Auditing 14/e,Auditing 14/e, Arens/Elder/Beasley Arens/Elder/Beasley 2 - 2 - 2828
Generally Accepted AuditingGenerally Accepted AuditingStandards – United StatesStandards – United States
Standards of Field Work
1. Proper planning and supervision
2. Understanding of the entity
3. Sufficient appropriate evidence
©2012 Prentice Hall Business Publishing, ©2012 Prentice Hall Business Publishing, Auditing 14/e,Auditing 14/e, Arens/Elder/Beasley Arens/Elder/Beasley 2 - 2 - 2929
Generally Accepted AuditingGenerally Accepted AuditingStandards – United StatesStandards – 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
©2012 Prentice Hall Business Publishing, ©2012 Prentice Hall Business Publishing, Auditing 14/e,Auditing 14/e, Arens/Elder/Beasley Arens/Elder/Beasley 2 - 2 - 3030
Relationship Between GAAS Relationship Between GAAS and PCAOB Auditing and PCAOB Auditing
StandardsStandards
PCAOB
Public company
audits
Private company
audits
GAAS
©2012 Prentice Hall Business Publishing, ©2012 Prentice Hall Business Publishing, Auditing 14/e,Auditing 14/e, Arens/Elder/Beasley Arens/Elder/Beasley 2 - 2 - 3131
The 10 generally accepted auditing standardsare too general to provide meaningful guidance.
SAS interpret the 10 generally acceptedauditing standards and are the mostauthoritative references available to auditors.
Statements on Auditing Statements on Auditing StandardsStandards
©2012 Prentice Hall Business Publishing, ©2012 Prentice Hall Business Publishing, Auditing 14/e,Auditing 14/e, Arens/Elder/Beasley Arens/Elder/Beasley 2 - 2 - 3232
Learning Objective 7Learning Objective 7
Identify quality control standards and Identify quality control standards and practices within the accounting practices within the accounting profession.profession.
©2012 Prentice Hall Business Publishing, ©2012 Prentice Hall Business Publishing, Auditing 14/e,Auditing 14/e, Arens/Elder/Beasley Arens/Elder/Beasley 2 - 2 - 3333
Elements of Quality ControlElements of Quality Control
Independence, integrity, and objectivity
Personnel management
Acceptance and continuation of clientsand engagements
Engagement performance
Monitoring
©2012 Prentice Hall Business Publishing, ©2012 Prentice Hall Business Publishing, Auditing 14/e,Auditing 14/e, Arens/Elder/Beasley Arens/Elder/Beasley 2 - 2 - 3434
RelationshipsRelationships
2 - 2 - 3535©2012 Prentice Hall Business Publishing, ©2012 Prentice Hall Business Publishing, Auditing 14/e,Auditing 14/e, Arens/Elder/Beasley Arens/Elder/Beasley
CPAs Encouraged to CPAs Encouraged to ConductConduct
Themselves at a High LevelThemselves at a High Level
Legalliability
AICPA practicesections
Continuingeducation
requirements
GAAS andinterpretations
Code ofProfessional
Conduct
CPAexamination
Qualitycontrol
Peerreview
PCAOBand SEC
Conduct ofCPA firm
personnel
2 - 2 - 3636©2012 Prentice Hall Business Publishing, ©2012 Prentice Hall Business Publishing, Auditing 14/e,Auditing 14/e, Arens/Elder/Beasley Arens/Elder/Beasley
End of Chapter 2End of Chapter 2