ACC231 Ch2

The size categories of CPA firms

• Big Four international firms

• National/Regional firms

• Local firms

Big Four international firms

• Deloitte

• PwC

• Ernst & Young

• KPMG

Additional services of CPA Firms

• Accounting and bookkeeping services

• Tax services

• Management consulting and risk advisory services

• Business valuation

• Forensic accounting المحاسبة الجنائية

• Corporate responsibility and sustainability reporting

• Information technology advisory services

Main factors influence the organizational structure of all firms:

• The need for independence from clients

• The importance of a structure to encourage competence

• The increased litigation risk faced by auditors

organizational structures available to CPA firms:

• Proprietorship

• General Partnership

• General Corporation

• Professional Corporation

• Limited Liability Company

• Limited Liability Partnership

Staff Levels

• Staff assistant

• Senior or in-charge auditor

• Manager and senior manager

• Partner

Staff assistant experience & responsibility

• 0-2 years

• Performs most of the detailed audit work

Senior or in-charge auditor experience & responsibility

• 2-5 years

• Coordinates and is responsible for the performance of audit procedures

• Supervising and reviewing staff work.

Manager and senior manager experience & responsibility

• 5-10 years

• Helps the in-charge plan and manage the audit, reviews the in-charge’s work.

• manages relations with the client.

A manager may be responsible for more than one engagement at the same time.

Partner experience & responsibility

• 10 years+

• Reviews the overall audit work

• Involved in significant audit decisions.

A partner is an owner of the firm and therefore has the ultimate responsibility for conducting the audit and serving the client.

The reasons the Sarbanes–Oxley Act established the Public Company Accounting Oversight Board (PCAOB)

• Provide oversight for auditors of public companies

• Establish auditing, attestation, and quality control standards for public company audits

• Perform inspections of audit engagements and the quality controls at audit firms performing those audits (every 1-3 years)

The role of the Securities and Exchange Commission (SEC)

• Most companies who want to go public must submit a registration statement for approval.

• The SEC assists in providing investors with reliable information upon which to make investment decisions.

• The SEC has considerable influence in setting GAAP and disclosure requirements for financial statements

• The SEC has the power to establish rules for any CPA associated with audited financial statements submitted to the commission

The important reports required by the SEC that are of special interest to the auditors

• Form S-1

• Form 8-K

• Form 10-K

• Form 10-Q

the key functions performed by the AICPA

• Sets professional requirements for CPAs

• Conducts research

• Publishes materials on many different subjects related to

  • accounting,

  • auditing,

  • attestation and assurance services,

  • management consulting services,

  • taxes

The standards and rules set by the AICPA, that all members and other practicing CPAs must follow

• Auditing standards

• Preparation, compilation, and review standards

• Other attestation standards

• Code of Professional Conduct

International Standards on Auditing (Application)

applicable to entities outside the U.S.

AICPA Auditing Standards (Application)

applicable to private entities in the U.S.

PCAOB Auditing Standards (Application)

applicable to public companies and other SEC registrants, including broker-dealer.

The objectives of the principles that form the basis of an audit provide a framework to help auditors

• Assure reasonably accurate financial statements, free from material misstatement due to fraud or error.

• Report on the financial statements, and communicate as required by GAAS, according to the auditor’s findings

Is the U.S. auditing Standards’ principles are requirement?

The principles are not requirements and do not carry authority, but they provide structure for the Codification

المبادئ ليست متطلبات ولا تحمل سلطة، ولكنها توفر هيكلًا للتدوين

The structure of Codification is organized around the following principles:

• Purpose of an audit

• Responsibilities

• Performance

• Reporting

Ways to Encourage CPAs to Conduct Themselves at a High Level

• Quality control

• Peer review

• CPA Examination

• Auditing standards

• PCAOB and SEC

• Continuing education requirements

• Code of Professional Conduct

• AICPA practice and quality centers

• Legal liability