Chapt 2 LO2 Flashcards
Describe the structure of CPA firms
what are partners of an LLP personally liable for?
the partnership’s debts and obligation, their own acts, and acts of others under their supervision.
do professional corporations offer personal liability protection similar to that of general corporation?
PC laws in some states offer this protection whereas protection in others states is minimal
how does the hierarchical structure of a CPA firm promote competence?
individuals at each level of the audit supervise and review the work of others at the level just below them in the organ structure
what are the attributes of a LLC that are like a general partnership and a general corporation?
general partnership- structured and taxed like them general corporation- owners have limited personal liability
what does the staff assistant do ?
perform most of the detailed audit work
a limited liability partnership is owned by who?
one or more partners
what is the factor “The need for independence from clients” which affects the structure of the firm mean?
independence permits auditors to to remain unbiased in drawing conclusions about the financial statements
the variation in personal liability protection in professional corporations makes it difficult for a CPA firm to operate as a PC when?
they have clients in different states
what do the big 4 and many smaller firms operate as?
LLP
what are Six organizational structures are available to CPA firms?
- Proprietorship 2. General Partnership 3. General Corporation 4. Professional Corporation 5. Limited Liability Companies 6. Limited Liability Partnership
what are parners of an LLP not personally liable for?
liabilities arising from negligent acts of other partners, and employees not under their supervision
which organization structures provide some protection for litigation loss? 4)
- General Corporation 2. Professional Corporation 3. Limited Liability Companies 4. Limited Liability Partnership
can accouting firms operate as a LLC
in most states. all states have LLC laws
what does the manager and senior manager do?
helps the in charge auditor plan and manage the audit, reviews the in charge or senior auditors work, and manages relations with the client. may be responsible for more than one engagement at the same time
what is the factor “The increased litigation risk faced by auditors” which affects the structure of the firm mean?
audit firms experience increase in litigation related costs. some orgainization structures afford a degree of protection to individual firm members
how is a LLP structured and taxed?
like a general partnership
what is the advantage of a general corporation?
shareholders are liable only to the extent of their investment in the corporation.
what is the personal liability protection of an LLP
less than that of general corporation or LLC
what is a limited liability company (LLC)?
a company that combines the most favorable attributes of a general corporation and a general partnership
except for the proprietorship, each structure results in an entity separate from the CPA personally , which helps promote what?
auditor independence
what does the senior or in charge auditor do?
coordinates and is responsible for the performance of audit procedures, including supervising and revewing staff work
why don’t most CPA firms organize as a general corporation?
because they are prohibited by law from doing so in most states
what is the factor “The importance of a structure to encourage competence” which affects the structure of the firm mean?
competence permits auditors to conduct audits and perform other services efficiently and effectilty
CPA firms vary in nature and range of services, which affects the structure of the firms. Three main factors that affect the structure of all firms are:
- The need for independence from clients 2. The importance of a structure to encourage competence- heirarch structure everyone checking everyones work 3. The increased litigation risk faced by auditors
what is a professional corporation?
provides professional services and is owned by one or more shareholders.
what does the partner do?
reviews the overall audit work and is involved in significant audit decision. is an owner of the firm and has the ultimate responsibility for conducting the audit and serving the client
