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CH 2

Large public accounting firms have more specialized functions and resources to audit diverse industries, while smaller local firms have one or two partners serving local businesses. The internet facilitates client services and internal communication through websites, research sharing, and video conferencing. Factors contributing to public accountants' competence include training, quality control standards, rules of conduct, regulatory agencies, and continuing research. Organizations promoting effective financial statement engagements provide professional guidance and continuing education, and conduct practice inspections. Canadian organizations involved in standard setting are CICA, CGAAC, and IFAC. Quality control in public accounting is established through professional rules and standards, and enforced through self-monitoring, provincial institutes, and CPAB inspections for public companies.

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106 views4 pages

CH 2

Large public accounting firms have more specialized functions and resources to audit diverse industries, while smaller local firms have one or two partners serving local businesses. The internet facilitates client services and internal communication through websites, research sharing, and video conferencing. Factors contributing to public accountants' competence include training, quality control standards, rules of conduct, regulatory agencies, and continuing research. Organizations promoting effective financial statement engagements provide professional guidance and continuing education, and conduct practice inspections. Canadian organizations involved in standard setting are CICA, CGAAC, and IFAC. Quality control in public accounting is established through professional rules and standards, and enforced through self-monitoring, provincial institutes, and CPAB inspections for public companies.

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amysilverberg
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© Attribution Non-Commercial (BY-NC)
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Chapter 2: The Public Accounting Profession Concept Check Answers C2-1 Page 27 How do the structures of small and

large public accounting firms differ? Large international or national firms have more specialist functions and a greater variety of support resources. They also have the resources and skills to audit publicly listed organizations from many different industries. Smaller, local firms may have only one or two partners who serve local business. C2-2 Page 27 How can the internet be used to facilitate client services and internal communication for public accounting firms? Websites can be used to provide information to clients, including results of research that could attract potential new clients. The Internet can also be used to transfer information back and forth among staff, including the use of Internet video conferencing to discuss working papers. This is particularly useful for international clients. C2-3 Page 32 What are the factors that contribute to the competence of the PA? PA=Public Accounting Factors that contribute to a PA's competence are training, quality control standards, professional rules of conduct, regulatory agencies, and continuing research. C2-4 Page 32 List the ways that the accounting professions and societies promote effective financial statement engagements. They provide professional guidance and continuing professional education. The also conduct practice inspection. C2-5 Page 32 Identify 3 organizations involved in standard setting for the PA organization. PA=Public Accounting The CICA, CGAAC, and IFAC are involved in setting standards. (In the United States, the PCAOB is also involved in setting standards.) C2-6 Page 40 What are the different ways that quality control is established and enforced for public accounting firms in Canada? Professional rules of conduct and GAAS provide the framework for conducting an effective audit. The PA firm could have quality control monitored or enforced by members of its own firm, by the provincial CA or CGA institute, or by the CPAB for publicly listed clients. C2-7 Page 40 Why is it important that Pas have high-quality financial statement audits? Poorly completed audits could result in incorrect audit opinions, resulting in

increased audit costs or loss of confidence in the PA profession. The PA and PA firms could also be sued (increased legal liability). SELF-STUDY QUIZZESAPPLICATION EXERCISES 1) DESCRIBE THE IaMPORTANT QUALITIES AN AUDITOR SHOULD POSSESS: In addition to technical competence obtained by a formal education in auditing and accounting, practical experience and continuing professional education are aspects of competence. The auditor must be technically qualified and experienced in those industries in which the auditor has clients. Recent court cases clearly demonstrate that in any case in which the public accountant or the accountants assistants are not qualified to perform the work, a professional obligation exists to acquire the requisite knowledge and skills, suggest someone else who is qualified to perform the work, or decline the engagement.

2) LIST 3 MAIN FACTORS THAT INFLUENCE THE ORGANIZATIONAL STRUCTURE OF ALL FIRMS: 1. The need for independence from clients. Independence permits auditors to remain unbiased in drawing conclusions about their clients financial statements. 2. The importance of a structure that encourages competence. The ability of the structure to encourage competence permits auditors to conduct audits and perform other services efficiently and effectively. 3. The increased litigation risk faced by auditors. In the last decade, firms have experienced increases in litigation-related costs. Some organizational structures afford a degree of protection to individual firm members. The organizational form used by many public accounting firms is that of a sole proprietorship or a partnership, although some provinces allow special-purpose limited liability partnerships or professional corporations.

3) WHO CONDUCTS PRACTICE INSPECTIONS AND WHAT IS THEIR PURPOSE? - Practice inspections and reviews are mandated and carried out by the provincial institutes. - Their purpose is to ensure that the member firms are conducting their practices in accordance with the standards of the Handbook and Rules of Professional Conduct,

and to provide assistance to firms to improve their practice if it is not in accordance. Public accounting firms that do not audit reporting issuers are not subject to the quality control inspection by the CPAB but are still required to have quality control standards in place.

Chapter Summaries
How are public accounting firms organized? Most accounting firms are set up as sole proprietorships or partnerships, although some are set up as limited liability partnerships. What are some of the largest public accounting firms? The six largest firms are Deloitte Touche Tohmatsu, KPMG International, PricewaterhouseCoopers, Ernst & Young, Grant Thornton, and BDO Dunwoody. What market forces ensure that audit and assurance engagements are completed to high standards of quality? The biggest threat is that a public accounting firm will be forced out of business due to legal liability. Provincial securities commissions and the CPAB are now involved to ensure that the quality of audits is high. Completion of audits to high ethical standards helps maintain the positive image of auditors. The use of technology in auditing, just as information technology has been adopted by other businesses, helps ensure the effective and efficient completion of audits. Which organizations develop and maintain the standards that public accountants use? In Canada, public accounting standards are the responsibility of the CICA. The CICA develops standards in consultation with many organizations and groups: other accounting organizations in Canada, CPAB, securities and exchange commissions, international and other national standard-setting organizations, individual PAs, and the business community. How are these standards enforced? Quality control inspections called practice inspections are conducted by the professional associations, the provincial institutes/ordre, and the CPAB. What is quality control, and how is it monitored? Quality controls are methods used by a public accounting firm to ensure that it meets its professional responsibilities. Table 2-3 describes some of the characteristics of quality control. Public

accounting firms are required to have a quality control manual and to monitor and enforce their quality procedures. Feedback from practice inspections, such as those of the CPAB, help monitor quality controls so that public accounting firms can engage in continuing improvement.

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