Arens,Loebbecke; Auditing,8/E
2000 by Prentice Hall,Inc.
2
THE CPA PROFESSION
OOD AUDITING INCLUDES
GOOD CLIENT SERVICE
Arens,Loebbecke; Auditing,8/E
2000 by Prentice Hall,Inc.
Objective 2 - 1
Describe the nature of CPA firms,
what they do,and their structure.
CERTIFIED PUBLIC ACCOUNTING 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.
1,Big 4 International Firms - The four largest CPA firms in the United
States are called the,Big Four” international CPA firms.
2,National Firms - Three CPA firms in the United States are called national
firms because they have offices in most major cities.
3,Regional and Large Local Firms - There are only approximately
100 CPA firms with professional staffs of more than 50 people.
4,Small Local Firms - More than 95 percent of all CPA firms have
fewer than 25 professionals in a single-office firm.
Arens,Loebbecke; Auditing,8/E
2000 by Prentice Hall,Inc.
STRU CT UR E OF C PA FI RM S
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.
Arens,Loebbecke; Auditing,8/E
2000 by Prentice Hall,Inc.
Professional Corporation
Organizational Structures
General Corporation
Limited Liability Company
Proprietorship
General Partnership
Limited Liability Partnership
Arens,Loebbecke; Auditing,8/E
2000 by Prentice Hall,Inc.
1 9 9 7 S i z e
b y R e v e n u e F i r m *
N e t R e v e n u e -
U,S,O n l y
( i n $ m i l l i o n s ) P a r t n e r s P r o f e s s i o n a l
U,S,
O f f i c e s
P e r c e n t a g e o f
T o t a l R e v e n u e
f r o m A c c o u n t i n g
a n d A u d i t i n g / T a x e s /
M a n a g e m e n t
C o n s u l t i n g S e r v i c e s
B I G F I V E
1
2
3
4
5
A n d e r s e n W o r l d w i d e
P r i c e w a t e r h o u s e C o o p e r
E r n s t & Y o u n g
D e l o i t t e & T o u c h e
K P M G
$ 5,4 4 5,0
$ 4,8 4 4,5
$ 4,4 1 6,0
$ 3,6 0 0,0
$ 3,0 0 0,0
1,6 7 3
2,4 3 9
2,1 7 2
1,7 1 9
1,6 0 0
3 2,3 1 9
2 6,4 0 4
1 7,8 4 5
1 6,4 2 6
1 3,4 0 0
95
211
89
106
130
2 0 / 1 4 / 6 6
3 7 / 2 1 / 4 2
3 6 / 2 3 / 4 1
3 5 / 2 0 / 4 5
4 1 / 2 5 / 3 4
N A T I O N A L
6
7
8
G r a n t T h o r n t o n
M c G l a d r e y & P u l l e n
B D O S e i d m a n
$ 2 8 9,0
$ 2 7 0,1
$ 2 4 0,0
278
381
299
1,9 7 9
1,8 8 3
1,1 7 1
48
64
42
4 2 / 3 0 / 2 8
4 5 / 3 2 / 2 3
5 1 / 2 6 / 2 3
R E G I O N A L
9
10
11
12
13
C r o w e,C h i z e k & C o,
B a i r d K u r t z & D o b s o n
P l a n t e & M o r a n
C l i f t o n G u n d e r s o n & C o
M o s s A d a m s
$ 9 7,4
$ 9 0,0
$ 8 6,9
$ 7 4,8
$ 7 2,0
93
124
117
115
94
830
567
704
508
451
10
20
14
42
16
3 2 / 1 8 / 5 0
4 7 / 3 0 / 2 3
5 7 / 2 3 / 2 0
5 6 / 3 2 / 1 2
4 7 / 3 7 / 1 6
L A R G E L O C A L
50
75
F o l l m e r,R u d z e q i c z & C o
K a u f m a n R o s s i n & C o,
$ 1 8,3
$ 1 3,8
12
14
148
64
2
2
3 9 / 2 8 / 3 3
5 4 / 3 2 / 1 4
* Rankings reflect merger of Price Waterhouse and Cooper & Lybrand to form PricewaterhouseCooper,Information
for PricewaterhouseCooper is based on separately reported information for Price Waterhouse and Cooper & Lybrand.
Source,Accounting Today (March 16-April 5,1998),pp,18-20
TABLE 2-1 Revenue and Other Data for the largest CPA
Firms in the United States
Arens,Loebbecke; Auditing,8/E
2000 by Prentice Hall,Inc.
Hierarchy of Typical CPA Firm
AICPA’S,Just
for Students” Staff Levels and Responsibilities
Staff Level Average Experience Typical Responsibilities
Staff Assistant 0 - 2 years Performs most of the detailed audit work.
Senior or in-charge 2 - 5 years Coordinates and is responsible for the audit field work,
auditor including supervising and reviewing staff work.
Manager 5 - 10 years Helps the in-charge plan and manage the audit,reviews
the in-charge’s work,and manages relations with the
client,A manager may be responsible for more than
one engagement at the same time,
Partner 10 + years Reviews the overall audit work and is 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.
TABLE 2-2
Arens,Loebbecke; Auditing,8/E
2000 by Prentice Hall,Inc.
VISION FOR
THE FURURE
CPA Vision
Project
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.”
The future success of the CPA profession relies a
great deal on public perceptions ofCPAs’abilities
and roles.
CPAs must become market driven and not dependent
on regulations to keep them in business.
The market demands less audit and accounting and
more value-adding consulting services.
Specializationis critical for the future of the CPA
profession.
The market demands that CPAs be conversant in
global business practices and strategies.
Arens,Loebbecke; Auditing,8/E
2000 by Prentice Hall,Inc.
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.
Arens,Loebbecke; Auditing,8/E
2000 by Prentice Hall,Inc.
There are four major areas in which
the AICPA has authority to set
standards and make rules.
1,Auditing Standards
2,Compilation and Review Standards
3,Other Attestation Standards
4,Code of Professional Conduct
Arens,Loebbecke; Auditing,8/E
2000 by Prentice Hall,Inc.
SUMMARY OF GENERALLY
ACCEPTED ADUITING STANDARDS
Generally Accepted
Auditing Standards
General
qualifications
and conduct
Field Work
performance of
the audit
Reporting
results
Adequate training
and proficiency
Independence in
mental attitude
Due professional care
Proper planning and
supervision
Sufficient understanding
of internal control
Sufficient competent
evidence
Whether statements
were prepared in
accordance with GAAP
Circumstances when
GAAP not consistently
followed
Adequacy of informative
disclosures
Expression of opinion on
financial statements
Arens,Loebbecke; Auditing,8/E
2000 by Prentice Hall,Inc.
INTERNATIONAL STANDARDS
DEVELOPING HARMONY
International Standards on Auditing (ISAs) are generally
similar to U.S,GAAS,although there are some differences.
There is an interest and trend toward harmonization,which
means developing uniform accounting and auditing
standards throughout the world.
Arens,Loebbecke; Auditing,8/E
2000 by Prentice Hall,Inc.
Objective 2 - 4
Identify quality control standards and
practices within the accounting profession.
1,Independence,integrity,and objectivity
2,Personnel Management
3,Acceptance and Continuation of Clients
and Engagements
4,Engagement Performance
5,Monitoring
Arens,Loebbecke; Auditing,8/E
2000 by Prentice Hall,Inc.
Relationships among GAAS,Quality Control,
Division of CPA Firms,and Peer Review
Quality Control
Standards
Standards applicable to a CPA
firm to aid in satisfying
generally accepted auditing
standards
Division of CPA Firms
SEC
Practice
Section
Private
Companies
Practice
Section
Organizations intended to help
firms meet quality control
standards and GAAS
Generally Accepted
Auditing Standards
Standards applicable to each
audit
Peer Review
Method to determine whether
a CPA firm meets quality
control standards
Arens,Loebbecke; Auditing,8/E
2000 by Prentice Hall,Inc.
Objective 2 - 5
Summarize the role of the Securities and
Exchange Commission in Accounting and Auditing.
The overall purpose of the
Securities and Exchange Commission (SEC),
an agency of the federal government,
is to assist in providing investors with reliable
information upon which to make investment decisions.
Arens,Loebbecke; Auditing,8/E
2000 by Prentice Hall,Inc.
Ways the Profession and Society Encourage CPAs to Conduct
Themselves at a High Level
GAAS and
interpretationsCPA
examination
Quality
control
Peer review
Continuing
education
requirements
Legal
liability
Division of
CPA firms
Code of
Professional
Conduct
SEC
Conduct
of
CPA firm
personnel