audit arens chapter2

2008 Prentice Hall Business Publishing, 2008 Prentice Hall Business Publishing, Auditing 12/e,Auditing 12/e, Arens/Beasley/Elder Arens/Beasley/Elder 2 - 1

The CPA Profession & Professional Ethics

Chapter 2

2008 Prentice Hall Business Publishing, 2008 Prentice Hall Business Publishing, Auditing 12/e,Auditing 12/e, Arens/Beasley/Elder Arens/Beasley/Elder 2 - 2 - 22

Learning Objective 1

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


Certified Public Accounting Firms

The legal right to perform audits is grantedto CPA firms by regulation of each state.

CPA firms also provide many other services totheir clients, such as tax and consulting services.


Certified Public Accounting Firms Big Four international firms

National firms

Regional and large local firms

Small local firms

PricewaterhouseCoopers, Deloitte Touche Tohmatsu, Ernst & Young, and KPMG

KAP Purwantono, Sarwoko, Sandjaja affiliate of Ernst & KAP Purwantono, Sarwoko, Sandjaja affiliate of Ernst & Young; KAP Osman Bing Satrio affiliate of Deloitte; KAP Young; KAP Osman Bing Satrio affiliate of Deloitte; KAP Sidharta, Sidharta, Widjaja affiliate of KPMG; KAP Haryanto Sidharta, Sidharta, Widjaja affiliate of KPMG; KAP Haryanto Sahari affiliate of PwCSahari affiliate of PwC


Certified Public Accounting Firms

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.


Management consulting services

Tax services

Accounting and bookkeeping services

Activities of CPA Firms


Structure 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.


Organizational Structure

Proprietorship

Professional corporation

General partnership

Limited liability company

General corporation

Limited liability partnership


Hierarchy of a TypicalCPA Firm

Staff Level Experience Typical Responsibilities

Staffassistant 0-2 years

Performs most of thedetailed audit work

Senior orin-chargeauditor

2-5 yearsResponsible for the auditfield work, includingsupervising staff work


Hierarchy of a TypicalCPA Firm

Staff Level Experience Typical Responsibilities

Manager 5-10 yearsHelps the plan, managesthe audit, reviews work,and works with the client

Partner 10+ yearsReviews audit work andmakes significant auditdecisions


E-Commerce andCPA Firm Operations

CPA firms are using the Internet to markettheir services.

Firm Web sites also feature online software toolsand databases to subscribers.

Firms take advantage of online resources anddatabases to help their staffs stay current on emerging business and standards-setting issues.



Understand the role of thePublic Company AccountingOversight Board and the effectsof the Sarbanes-Oxley Acton the CPA profession.


This Act is considered by many observers tobe the most important legislation affectingthe auditing profession since the 1930s.

Sarbanes-Oxley Act

The provisions of the Act apply to publiclyheld companies and their audit firms.


Sarbanes-Oxley Act

SEC

PCAOB(Public Company

AccountingOversight Board)

)


Sarbanes-Oxley Act

The PCAOB conducts inspections of registeredaccounting firms and assess their compliancewith the rules of the PCAOB and the SEC.



Summarize the role of theSecurities and ExchangeCommission in accountingand auditing.


The overall purpose of the Securities andExchange Commission (SEC) is to assist inproviding investors with reliable informationupon which to make investment decisions.

Securities and Exchange Commission


Securities and Exchange Commission

Form S-1

Form 8-K

Form 10-K

Form 10-Q



Describe the key functionsperformed by the AICPA.


The AICPA sets professional requirementsfor CPAs, conducts research, and publishesmaterials on many different subjects relatedto accounting, auditing, attestation andassurance services, managementconsulting services, and taxes.

AICPA


The AICPA is empowered to set standards(guidelines) and rules that all membersand other practicing CPAs must follow.

Establishing Standardsand Rules


Establishing Standardsand Rules1. Auditing standards

2. Compilation and review standards

3. Other attestation standards

4. Consulting standards

5. Code of Professional Conduct


Other AICPA Functions

Supports research by its own staff andprovides grants to others.

Writes and grades the CPA examination.

Provides seminars and education in avariety of subject matters.

Publishes a variety of materials.


Vision for the Future

The AICPA has established the CPA Vision Projectto provide a core purpose and a vision for the CPAprofession in the year 2011 and beyond.

The core purpose of the CPA Vision Project is:CPAsmaking sense of a changing andcomplex world.


Vision for the Future

1. Continuing education and life-long learning

2. Competence

3. Integrity

4. Attuned to broad business issues

5. Objectivity



Use generally accepted auditingstandards as a basis forfurther study.


1. The audit is to be performed by a person orpersons having adequate technical trainingand proficiency as an auditor.

2. The auditor must maintain independencein mental attitude in all matters relatingto the audit.

General Standards

Audit hrs dilaksanakan oleh seseorang/ lebih yg memiliki Audit hrs dilaksanakan oleh seseorang/ lebih yg memiliki keahlian & pelatihan teknis yg cukup sbg auditorkeahlian & pelatihan teknis yg cukup sbg auditor

Dalam semua hal yang berhubungan dengan perikatan, Dalam semua hal yang berhubungan dengan perikatan, independensi dalam sikap mental harus dipertahankan oleh independensi dalam sikap mental harus dipertahankan oleh auditorauditor


General Standards

3. The auditor must exercise due professionalcare in the performance of the audit and thepreparation of the report.

Dalam pelaksanaan audit dan penyusunan laporannya, auditor Dalam pelaksanaan audit dan penyusunan laporannya, auditor wajib menggunakan kemahiran professionalnya dengan cepat wajib menggunakan kemahiran professionalnya dengan cepat dan seksamadan seksama


1. The auditor must adequately plan the workand must properly supervise any assistants.

2. The auditor must obtain a sufficient understanding of the entity and its environment, including its internal control, to assess the risk of material misstatement and to design further Audit procedures.

Standards of Field Work

Pekerjaan hrs direncakanan sebaik-baiknya dan jika digunakan Pekerjaan hrs direncakanan sebaik-baiknya dan jika digunakan asisten harus disupervvisi dengan semestinyaasisten harus disupervvisi dengan semestinya

Pemahaman memadai ats pengendalian intern hrs diperoleh Pemahaman memadai ats pengendalian intern hrs diperoleh untuk merencanakan audit dan menentukan sifat, saat dan untuk merencanakan audit dan menentukan sifat, saat dan lingkup pengujian yang hrs dilakukanlingkup pengujian yang hrs dilakukan


Standards of Field Work

3. The auditor must obtain sufficient appropriateaudit evidence by performing audit proceduresto afford a reasonable basis for an opinion regarding the financial statements under audit.

Bukti audit kompeten yang cukup harus diperoleh melalui Bukti audit kompeten yang cukup harus diperoleh melalui inspeksi, pengamatan, permintaan keterangan dan konfirmasi inspeksi, pengamatan, permintaan keterangan dan konfirmasi sebagai dasar memadai untuk menyatakan pendapat atas sebagai dasar memadai untuk menyatakan pendapat atas laporan keuangan yang di auditlaporan keuangan yang di audit


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 suchprinciples have not been consistently observed in the currentPeriod in relation to the preceding period.

Standards of Reporting

Laporan Audit harus menyatakan apakah LK telah disusun Laporan Audit harus menyatakan apakah LK telah disusun sesuai dgn standard akuntansi yg berlaku umum di Indonesiasesuai dgn standard akuntansi yg berlaku umum di Indonesia

Lap. Auditor hrs menunjukkan, jika ada, ketidak konsistenan Lap. Auditor hrs menunjukkan, jika ada, ketidak konsistenan penerapan Standar Akuntansi dlm LK periode berjalan dg penerapan Standar Akuntansi dlm LK periode berjalan dg penerapan Standar Akuntansi dlm LK periode sblm-nyapenerapan Standar Akuntansi dlm LK periode sblm-nya


3. Informative disclosures in the financial statements are to beregarded as reasonably adequate unless otherwise stated in the report.

4. The report shall contain an expression of opinion regardingthe financial statements, taken as a whole.

Standards of Reporting

Pengungkapan informatif dlm LK hrs dipandang memadai, Pengungkapan informatif dlm LK hrs dipandang memadai, kecuali dinyatakan lain dalam Lap. Auditorkecuali dinyatakan lain dalam Lap. Auditor

Lap. Auditor hrs memuat suatu pernyataan pendapat Lap. Auditor hrs memuat suatu pernyataan pendapat mengenai LK secara keseluruhan atau suatu asersi bahwa mengenai LK secara keseluruhan atau suatu asersi bahwa suatu pernyataan tertentu tidak dapat diberikansuatu pernyataan tertentu tidak dapat diberikan


Generally Accepted AuditingStandards

General Standards1. Adequate training and proficiency

2. Independence in mental attitude

3. Due professional care



Standards of Field Work1. Proper planning and supervision

2. Understanding of the entity

3. Sufficient appropriate evidence



Standards of Reporting1. Statements prepared in accordance with GAAP

2. Circumstances when GAAP not followed

3. Adequacy of disclosures

4. Expression of opinion on financial statements


Relationship Between GAAS and PCAOB Auditing Standards

The term generally accepted auditing standardsis no longer used for public company audits.

The term GAAS continues to be used for auditsof private companies.

Public company audits refer to PCAOB auditingstandards.


The 10 generally accepted auditing standardsare too general to provide meaningful guidance.

SASs interpret the 10 generally acceptedauditing standards and are the mostauthoritative references available to auditors.

Statements on Auditing Standards


GAAS and Standards of Performance

Statements on Auditing Standards

Classification of Statements on Auditing Standards



Discuss the role of internationalauditing standards.


International Standardson Auditing

International Standards on Auditing (ISAs)

I

are issued by the International AuditingPractice Committee of the InternationalFederation of Accountants (IFAC).


International Standardson Auditing

IFAC is the worldwide organizationfor the accountancy profession.

The IFAC works to improve theuniformity of auditing practices andrelated services throughout the world.



Identify quality control standardsand practices within theaccounting profession.


Elements of Quality Control

Independence, integrity, and objectivity

Personnel management

Acceptance and continuation of clientsand engagements

Engagement performance

Monitoring


Relationships

Quality controlstandards

Generally acceptedauditing standards

AICPA practicesections

Peerreview


Need for Ethics

Ethical behavior is necessary for a societyto function in an orderly manner.

The need for ethics in society is sufficientlyimportant that many commonly heldethical values are incorporated into laws.


CPAs Encouraged to ConductThemselves at a High Level

Legalliability

AICPA practicesections

Continuingeducation

requirements

GAAS andinterpretations

Code ofProfessional

Conduct

CPAexamination

Qualitycontrol

Peerreview

PCAOBand SEC

Conduct ofCPA firmpersonnel



Describe the purpose andcontent of the AICPACode of Professional Conduct.


Code of Professional Conduct

PrinciplesIdeal standards of ethical conductstated in philosophical terms.They are not enforceable.

Rules ofconduct

Minimum standards of ethicalconduct stated as specific rules.They are enforceable.

Interpretationsof the rulesof conduct

Interpretation of the rules of conduct bythe AICPA Division of Professional Ethics.They are not enforceable, but apractitioner must justify departure.


Code of Professional Conduct

Ethicalrulings

Published explanations and answersto questions about the rules ofconduct submitted to the AICPA bypractitioners and others interestedin ethical requirements.They are not enforceable, but apractitioner must justify departure.


Ethical Principles

1. Responsibilities:Professionals should exercise sensitive andmoral judgments in all their activities.

2. The public interest:Members should accept the obligation to actin a way that will serve and honor the public.


Ethical Principles

3. Integrity:Members should perform all responsibilitieswith integrity to maintain public confidence.

4. Objectivity and independence:Members should be objective, independent,and free of conflicts of interest.


Ethical Principles

5. Due care:Members should observe the professionsstandards and strive to improve competence.

6. Scope and nature of services:A member in public practice should observe the Code of Professional Conduct.


9 Ethical Principles

1. Tanggung Jawab Profesi2. Kepentingan Umum3. Integritas4. Objektivitas5. Kompetensi & Kehati-hatian Profesional6. Kerahasiaan7. Perilaku Professional8. Standar Teknis


Standards of Conduct

Principles

Rules ofconductSubstandard

conduct

Ideal conductby practitioners

Minimum levelof conduct bypractitioners

2008 Prentice Hall Business Publishing, 2008 Prentice Hall Business Publishing, Auditing 12/e,Auditing 12/e, Arens/Beasley/Elder Arens/Beasley/Elder 2 - 55

End of Chapter 2

audit arens chapter2

Documents

international cpa firms

largest cpa firms

grantedto cpa firms

nature of cpa firms

services totheir clients

deloitte touche tohmatsu

kpmgkap purwantono

united statesare