Describe the nature of CPA firms, what

they do, and their structure.

Understand the role of the Public
p y Accountingg Oversight
g Board
Company
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.

Chapter 2
The Audit
Standards Setting
Process

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Describe the functions performed by the

AICPA.
Understand the role of international
auditingg standards and their relation to U.S.
auditing standards.
Use U.S. auditing standards as a basis for
further study.

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

Identify quality control standards and

practices within the accounting profession.
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2-4

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Big Four international firms

The legal right to perform audits is granted

to CPA firms by regulation in each state.

National firms
CPA firms
fi
also
l provide
id many other
th services
i
tto
their clients, such as tax and advisory services.

Regional and large local firms

CPA firms continue to develop new products and

servicessuch as financial planning, business
valuation, forensic accounting, and information
technology advisory services.
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Small local firms

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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.

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Accounting and bookkeeping services

Tax services
Management consulting services

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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.

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Average Experience

Proprietorship
General Partnership
General Corporation

Partners

10+ years

Managers

5-10 years

Seniors and InCharge Auditors

2-5

Staff Assistants

0-2

Professional Corporation
Limited Liability Company
Limited Liability Partnership

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This Act is considered by many observers to

be the most important legislation affecting
the auditing profession since the 1930s.

Understand the role of the Public Company

Accounting Oversight Board and the effects of
the Sarbanes-Oxley Act on the CPA profession.

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The provisions of the Act apply to publicly

held companies and their audit firms.

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SEC

Summarize the role of the Securities and Exchange

Commission in accounting and auditing.

PCAOB
(Public Company
Accounting
Oversight Board)

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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

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Form S-1
Form 8-K
Form
F
10-K
10 K
Form 10-Q

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4
Describe the key functions
performed by the AICPA.

Performs the following services for CPAs:

Sets professional requirements
Conducts research
Publishes materials related to services
performed

Empowered to set standards (guidelines)

and rules
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The CPA examination

1. Auditing standards
2. Compilation and review standards

Research and Grants

3. Other attestation standards

4. Code of Professional Conduct

Publishes a variety of materials

Provides seminars and
continuing education

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Classification of Statements on Auditing Standards

GAAS and Standards of Performance

Understand the role of

international auditing standards
and their relation to U.S.
auditing standards

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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.

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6
Use U.S. auditing standards as a basis for
further study

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General Standards

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Standards of Field Work

1. Adequate training and proficiency

1. Proper planning and supervision

2. Independence in mental attitude

2. Understanding of the entity

3. Due professional care

3. Sufficient appropriate evidence

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Standards of Reporting
1. Statements prepared in accordance with GAAP

PCAOB

ASB

Public
company
audits

Private
company
audits

2. Circumstances when GAAP not followed

3. Adequacy of disclosures
4. Expression of opinion on financial statements

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The 10 generally accepted auditing standards

are too general to provide meaningful guidance.
SAS interpret the 10 generally accepted
auditing standards and are the most
authoritative references available to auditors.

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7
Identify quality control standards and practices
within the accounting profession.

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Leadership responsibilities for quality

Relevant ethical requirements
Acceptance and continuation of clients
and engagements
Human resources
Engagement performance
Monitoring

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CPA
examination

Quality
control

Auditing
standards

Continuing
education
requirements

Conduct of
CPA firm
personnel

Legal
liability

Peer
review
PCAOB
and SEC

Code of
Professional
Conduct

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AICPA practice
and quality
centers

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Copyright

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

stored in a retrieval system, or transmitted, in any form or by any
means, electronic, mechanical, photocopying, recording, or otherwise,
without the prior written permission of the publisher. Printed in the
United States of America.
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