ACCTG 5510 1st Edition Lecture 2 Outline of Last Lecture I Auditing II Attestation Services a Defined b Five categories c Purpose d Function e Main types of audit Outline of Current Lecture I II III IV V VI VII VIII IX X XI XII XIII There are six organizational structures available to CPA firms Sarbanes Oxley Act Securities and Exchange Commission SEC Important forms for auditors AICPA American Institute of Certified Public Accountants Generally Accepted Auditing Standards GAAS Standard Unqualified Audit Report for non public entities The standard unqualified audit report is issued when the following conditions have been met Four Categories of Audit Reports Two Significant Audit reporting differences for public companies Lack of Consistent Application of GAAP Consistency vs Comparability Going Concern Current Lecture I There are six organizational structures available to CPA firms except for a proprietorship each structure results in a entity separate from the CPA personally which promotes independence The last four structures provide some protection from litigation loss a Proprietorship One owner b General Partnership The same as a proprietorship but with multiple owners not very popular because of legal risk c General Corporation Shareholders are only liable to the extent of their investment Most states prohibit CPA firms form taking this business form These notes represent a detailed interpretation of the professor s lecture GradeBuddy is best used as a supplement to your own notes not as a substitute d Professional Corporation PC Owned by one or more shareholders in some states a PC offers personal liability protections similar tot hat of a general corporation Due to differing state laws CPA firms with clients in multiple states have issues with this business form e Limited Liability Corporation 1 Combines the most favorable attributes of a general corporation and a general partnership 2 Structured and taxed like a general partnership 3 But owners have limited personal liability similar to that of a general corporation 4 All states have LLC laws and allow CPA firms to takes this form f Limited Liability Partnership 1 Owned by one or more partners 2 Structured and taxed like a general partnership 3 Personal liability of an LLP is less than that of a general corporation or an LLC 4 Partners are personally liable for partnership s debt obligations their own acts and acts of others under their supervision 5 Partners are not liable for liabilities arising from the negligent acts of other partners and employees not under their supervision 6 All of the Big Four are LLP s II Sarbanes Oxley Act a Established the Public Company Accounting Oversight Board PCAOB 1 Which is overseen by the SEC 2 They oversee audits of public companies and set audit standards 3 Perform inspection of quality controls at audit firms 4 Perform annual inspections fo accounting firms that audit more than 100 issuers and inspects other firms at least once every three years III Securities and Exchange Commission SEC a Securities Act of 1933 required companies planning to go public must submit a registration statement b Securities Act of 1934 required public companies to file detail annual reports with the commission along with an independent public accountant opinion c Regulation S X Accounting Series Releases and Accounting and Auditing Enforcement Releases are publications by the SEC that contain auditing and accounting issues applicable to CPA s involved with public companies IV Important forms for auditors a Form S 1 When company plans to issue new securities they must register suing this form in accordance with the securities act of 1933 b Form 8 K A report filed when there has been a significant event of interest in the company Example sale of subsidiary change in officer or director new product line or a change in auditors c Form 10 K This report must be filed annually within 60 90 days of the close of each fiscal year depending on the size of the company The report contains detailed audited financial statements d Form 10 Q A quarterly report for all public companies including financials which are reviewed by auditors V AICPA American Institute of Certified Public Accountants a Membership is voluntary b They set professional requirements for CPA s and c Set standards and rules that all members and other practicing CPA s must follow d Four major areas that the AICPA has authority to set rules and standards includes 1 Auditing standards Auditing Standards Board ASB issues pronouncements for all entities other than publicly traded companies called Statements on Auditing Standards SAS s 2 Compilation and Review Standards Accounting and Review Services Commission is responsible for issuing pronouncements concerning CPA s involved with the financial statements of private companies that are not audited Statements on Standards for Accounting and Review Services SSARS providing guidance for compilation and review services 3 Other Attestation Standards Statements on Standards for Attestation Engagements from a framework for attestation services 4 Code of Professional Conduct Professional Ethic Committee sets rules of conduct that must be met by CPA s e They write and grade the CPA exams f Publish a variety of materials including 1 Journal of Accountancy 2 Industry audit guides 3 Updates on the codification of statements on auditing standards and the code of professional conduct g As part of the required continuing education requirements they provide the CPExpress online learning library and the CPA Letter Daily VI Generally Accepted Auditing Standards GAAS a Fall in to three categories 1 General standards The is to be performed by a individual having proper technical training and proficiency as an auditor Independence in mental attitude is to be maintained Due professional care is to be exercised in the performance of the audit and the preparation of the report 2 Standards of field work The work is to be adequately planned with associates being properly supervised Sufficient understanding of internal controls is to be obtained to plan the audit and to determine the nature timing and extent of tests to be performed Sufficient appropriate evidential matter is to be obtained through inspection observation inquiries and confirmation to afford a reasonable basis for an opinion regarding the financial statements under audit 3 Reporting standards The report shall state whether the financial statements are presented in