1 the role of public accountant

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The Role of thePublic Accountant

Chapter 1


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McGraw-Hill/Irwin 2008 The McGraw-Hill Companies, Inc., All Rights Reserved.

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Learning Objectives:After studying this chapter, you will be able to

Describe what is auditing

Distinguish between auditing and

accounting Describe assurance services and non-

assurance services provided by CPAs.

Describe how CPA firms are typicallyorganized.

Differentiate the three main types of

audits


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uditing definition Auditing is the accumulation and

evaluation of evidence about information

to determine and report on the degree of

correspondence between the informationand established criteria.


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1-4Distinguish between auditing andaccounting ccountingis the recording, classifying,

and summarizing of economic events

for the purpose of providing financial

information used in decision making. uditingis determining whether recorded

information properly reflects the economic

events that occurred during the

accounting period.


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The Attest Function

Management

SubjectMatter

SuitableCriteria

The CPA

GathersEvidence

Subject

Matter*The Attest

Report

Issues

Report

*May be managements assertion about the subject matter.


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Forms of Attestation


7/15McGraw-Hill/Irwin 2008 The McGraw-Hill Companies, Inc., All Rights Reserved.

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Audit of Financial Statements

Management

PreparesFinancial

Statements

Criteria(e.g., GAAP)

The

Auditors

GathersEvidence

Financial

StatementsThe Auditors

Report

Issues

Report



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What Creates the Demand for Audits?

Audits lend credibility to information by reducinginformation risk, the risk that information is materiallymisstated

Financial statement misstatements arise due to-- Accidental errors

Lack of knowledge of accounting principles

Unintentional bias

Deliberate falsification

Audits do not directly address business risk, the riskthat a company will not be able to meet its financialobligations due to economic conditions or poormanagement decisions



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The Accounting ProfessionsCredibility Crisis

2000The Panel on AuditEffectiveness made a variety of

suggestions to improve audits. 2001Enron Bankruptcy

2002WorldCom Fraud

2002Sarbanes-Oxley Act 2003Public Company Accounting

Oversight Board began operations



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Types of Audits

Audits of Financial Statements

Compliance Audits

Operational Audits

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Types of Auditors

External Auditors

Internal Auditors

GAO Auditors

Tax Auditors

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AICPAs Traditional Role

Establishes Standards

Research and Publication

Continuing Professional Education Self-Regulation

CPA Examination

Note: The standards setting and regulationroles have been taken over by the SECand the PCAOB with respect to auditorsof public companies.

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PCAOB Role

Adopt auditing, attestation, quality control,

ethics and independence standards relating to

the preparation of audit reports

Oversee and discipline CPAs and CPA firmsthat audit public companies, including

Register firms

Perform inspections of firms

Conduct investigations and disciplinary proceedings

of firms

Sanction registered firms

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Types of Professional Services

Attestation and Assurance

Tax

Consulting

Accounting

Personal Financial Planning Litigation support

Fraud Investigation


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