Chapter 2
The CPA Profession
Certified Publi A ountin� Firms
Types of CPA firms
- Bi� four international firms : Deloitte, PwC, E&Y, KPMG
- National/Re�ional firms : BDD
- Lo al firms serve lients within ommutin� distan es, for SME
A tivities of CPA firms
- A ountin� and bookkeepin� servi es
- Tax servi es
- Mana�ement onsultin� and risk advisory servi es
Stru ture of CPA firms
Three main fa tors infuen e the or�anizational stru ture of all firms:
1. The need for independen e from lients
2. The importan e of a stru ture to en oura�e ompeten e
3. The in reased liti�ation risk fa ed by auditors
Dr�anizational Stru ture
a. Proprietorship
- Firms with one owner
- Most have han�ed into more limited liability due to liti�ation risks
b. General Partnership
- The same as proprietorship but applies to multiple owners
- Less popular many other forms ofer le�al liability
. General Corporation
- Shareholders are liable only to the extent of their investment in the
orporation.
- Most CPA firms do not or�anize as �eneral orporation be ause
they are prohibited by law
d. Professional Corporation (PC)
- PC provides professional servi es and is owned by one or more
shareholders
- Some ofer personal liability prote tion
- Difi ult for a CPA firm with lients in diferent states
e. Limited Liability Company (LLC)
- Combines the most favorable of a �eneral orporation and �eneral
partnership
- Typi ally stru tured and taxed but its owners have limited liability
f. Limited Liabililty Partnership (LLP)
- Dwned by one or more partners
- Stru tured and taxed like a �eneral partnership, but the personal
liability prote tion is less than �eneral orporation or LLC.
, - Partners of an LLP are personally liable for the partnership’s debts
and obli�ations, their own a ts and a ts of others are under
supervision.
- Partners are not personally liable for liabilities arisin� from
ne�li�ent a ts of other partners and employees not under
supervision.
Hierar hy of a typi al CPA firm
10+ years of expertise
Partner Reviews overall audit and is involved in si�nifi ant audit
de isions.
Mana�er & 5-10 years of expertise
Senior Helps the in- har�e plan and mana�e the audit, review
the in- har�e's work, and mana�es relations with the
Mana�er lient
Senior or In- 2-5 years of expertise
har�e Coordinates and is responsible for the performan e of
audit pro edures, in ludin� supervisin� and reviewin�
Auditor staf work.
Staf in 0-2 years of expertise
Assistant Performs most of the detailed audit work.
Sarbanes-Dxley A t and Publi Company A ountin� Dversi�ht Board
Sarbanes-Dxley A t established the Publi A ountin� Dversi�ht
Board (PCADB), appointed and overseen by the SEC.
The PCADB provides oversi�ht for auditors of publi ompanies;
establishes auditin�, attestation and quality ontrol standards for
publi ompany audits; performs inspe tions of audit en�a�ements as
well as the quality ontrols at audit firms performin� those audits.
The CPA Profession
Certified Publi A ountin� Firms
Types of CPA firms
- Bi� four international firms : Deloitte, PwC, E&Y, KPMG
- National/Re�ional firms : BDD
- Lo al firms serve lients within ommutin� distan es, for SME
A tivities of CPA firms
- A ountin� and bookkeepin� servi es
- Tax servi es
- Mana�ement onsultin� and risk advisory servi es
Stru ture of CPA firms
Three main fa tors infuen e the or�anizational stru ture of all firms:
1. The need for independen e from lients
2. The importan e of a stru ture to en oura�e ompeten e
3. The in reased liti�ation risk fa ed by auditors
Dr�anizational Stru ture
a. Proprietorship
- Firms with one owner
- Most have han�ed into more limited liability due to liti�ation risks
b. General Partnership
- The same as proprietorship but applies to multiple owners
- Less popular many other forms ofer le�al liability
. General Corporation
- Shareholders are liable only to the extent of their investment in the
orporation.
- Most CPA firms do not or�anize as �eneral orporation be ause
they are prohibited by law
d. Professional Corporation (PC)
- PC provides professional servi es and is owned by one or more
shareholders
- Some ofer personal liability prote tion
- Difi ult for a CPA firm with lients in diferent states
e. Limited Liability Company (LLC)
- Combines the most favorable of a �eneral orporation and �eneral
partnership
- Typi ally stru tured and taxed but its owners have limited liability
f. Limited Liabililty Partnership (LLP)
- Dwned by one or more partners
- Stru tured and taxed like a �eneral partnership, but the personal
liability prote tion is less than �eneral orporation or LLC.
, - Partners of an LLP are personally liable for the partnership’s debts
and obli�ations, their own a ts and a ts of others are under
supervision.
- Partners are not personally liable for liabilities arisin� from
ne�li�ent a ts of other partners and employees not under
supervision.
Hierar hy of a typi al CPA firm
10+ years of expertise
Partner Reviews overall audit and is involved in si�nifi ant audit
de isions.
Mana�er & 5-10 years of expertise
Senior Helps the in- har�e plan and mana�e the audit, review
the in- har�e's work, and mana�es relations with the
Mana�er lient
Senior or In- 2-5 years of expertise
har�e Coordinates and is responsible for the performan e of
audit pro edures, in ludin� supervisin� and reviewin�
Auditor staf work.
Staf in 0-2 years of expertise
Assistant Performs most of the detailed audit work.
Sarbanes-Dxley A t and Publi Company A ountin� Dversi�ht Board
Sarbanes-Dxley A t established the Publi A ountin� Dversi�ht
Board (PCADB), appointed and overseen by the SEC.
The PCADB provides oversi�ht for auditors of publi ompanies;
establishes auditin�, attestation and quality ontrol standards for
publi ompany audits; performs inspe tions of audit en�a�ements as
well as the quality ontrols at audit firms performin� those audits.
