Chapter 2 Notes

Question 1

Big four international firms

Answer 1

four largest CPA firms in the United States

Question 2

national firms

Answer 2

national accounting firms

Question 3

regional and large local firms

Answer 3

smaller local firms

Question 4

accounting and bookkeeping services

Answer 4

involves the preparing of financial statements

Question 5

tax services

Answer 5

preparing tax returns for clients

Question 6

management consulting services

Answer 6

services aimed to help clients improve their companies

Question 7

SOX

Answer 7

states that a company’s auditor can’t be its consultant

Question 8

things that influence structure of all firms

Answer 8

the need for independence from clients
the importance of a structure to encourage competence
the increased litigation risk faced by auditors

Question 9

proprietorship

Answer 9

firms with one owner

Question 10

general partnership

Answer 10

same as a proprietorship except it has multiple owners

Question 11

general corporation

Answer 11

involves shareholders who all own parts of the company

Question 12

professional corporation

Answer 12

similar to a LLC, certain states grant liability protection to these types of companies

Question 13

limited liability company

Answer 13

mix between a partnership and a corporation, it gets rid of liability for owners

Question 14

limited liability partnership

Answer 14

owned by one or more partners, taxed like an LLC, but partners are not liable for the actions of other partners and people not under their supervision

Question 15

hierarchy

Answer 15

partners/shareholders 10+ years
managers 5-10 years
supervisors 
seniors 2-5 years
staff assistants 0-2 years

Question 16

Public Company Accounting Oversite Board (PCAOB)

Answer 16

appointed and overseen by the SEC, provides oversite for auditors and establishes auditing and quality control standards for public company audits, and performs inspections of the quality controls at audit firms performing those audits

Question 17

Securities and Exchange Commission (SEC)

Answer 17

a federal agency, assists in providing investors with reliable info upon which to make investment decisions

Question 18

Form S-1

Answer 18

must be submitted to issue securities

Question 19

Form 8K

Answer 19

report filed to report events that are of significant interest to public investors

Question 20

Form 10K

Answer 20

This must be filed annually within 60-90 days after the close of each fiscal year, depending on the size of the company

Question 21

Form 10Q

Answer 21

this reports must be filed quarterly for all publicly held companies.

Question 22

American Institute of Certified Public Accountants (AICPA)

Answer 22

set rules and standards that CPA’s must follow:

1. auditing standards: the ASB issues Statements on Auditing Standards (SASs)
2. compilation and review standards: ARSC is responsible for issuing Statements on standards for accounting and review services (SSARS) this is for private companies
3. Other attestation standards: SSAE provides a framework for how attestation engagements should go
4. code of professional conduct: the ethics committee sets rules of conduct that CPAs are required to meet

Question 23

international standards on auditing (ISAs)

Answer 23

issued by the IAASB which is a part of IFAC, the worldwide organization for the accounting profession

Question 24

generally accepted auditing standards (GAAS)

Answer 24

describe standards for audits, based on principles that help fulfill two objectives:

1. obtain reasonable assurance that the financial statements as a whole are free from material mis-statement
2. report on the financial statements, and communicate as required by the GAAS in accordance with the auditor’s findings

Question 25

Clarified Codification

Answer 25

organized around four principles:

1. purpose of audit
2. personal responsibilities of the auditor
3. auditor actions in performing the audit
4. reporting

Question 26

pg 56

Answer 26

im on it