CHAPTER 1

The Role of the Public Accountant in the American Economy

Brief Topical Outline A. What do auditors do? 1. 2. 3. 4. 5. Assurance services (PowerPoints 1-2,3) The attest function (PowerPoints 1-4,5,6,7) What is a financial statement audit? (PowerPoints 1-8,9,10) The demand for audits (PowerPoint 1-11) Major auditing developments of the 20th century (PowerPoint 1-12) Consideration of internal control Reliance upon sampling, rather than complete verification Emphasis upon "fairness" of statements Increased liability to third parties Increased concern with auditing compliance and internal control Increased concern with detecting fraudulent financial reporting The accounting professions credibility crisis in the 21st century (PowerPoint 1-13) Enron bankruptcy and WorldCom fraud Andersen Conviction Sarbanes-Oxley Act of 2002 Public Company Accounting Oversight Board

6.

B.

Types of audits 1. 2. Audits of financial statements (PowerPoint 1-14) Compliance audits (IRS, bank examinations, GAO) (PowerPoint 1-15)

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Operational audits Principal purpose: recommendations to improve efficiency and effectiveness Auditors' report consists of ideas and recommendations, not an opinion as to compliance with recognized criteria Integrated audits (Sarbanes-Oxley Act) provides assurance on both the financial statements and the effectiveness of internal control over financial reporting.

C.

Other types of auditors (PowerPoint 1-16) 1. 2. 3. Internal auditors (PowerPoint 1-17) Government Accountability Office (PowerPoint 1-18) Internal Revenue Service agents (PowerPoint 1-19)

D.

The public accounting profession 1. 2. Other types of services American Institute of Certified Public Accountants (PowerPoint 1-20) Establishing standards (for public companies this function has been taken over by the Public Companies Accounting Oversight Board) (PowerPoint 1-21) Research and publication (PowerPoint 1-22) Continuing professional education (PowerPoint 1-23) Professional regulation (PowerPoint 1-24) The CPA Examination (PowerPoint 1-25) State Boards of Accountancy (PowerPoint 1-26) Professional development for CPA firm personnel Continuing education

3. 4. 5. 6. E.

Institutions affecting auditors' professional environment 1. 2. 3. 4. 5. 6. 7. Auditing Standards Board (establishes auditing standards for auditors of nonpublic companies) Financial Accounting Standards Board (establishes accounting standards in the U.S.) (PowerPoint 1-27) Governmental Accounting Standards Board (establishes accounting standards for state and local government units) Federal Accounting Standards Advisory Board (establishes accounting standards for the federal government) Public Company Accounting Oversight Board (PowerPoint 1-28) Securities and Exchange Commission (PowerPoints 1-29,30) Types of professional services (PowerPoint 1-31) Attestation and assurance Tax services Consulting services Accounting and review services Litigation support services Fraud investigation services Personal financial planning Organization of the public accounting profession (PowerPoints 1-32,33,34) Structure of CPA firms (PowerPoint 1-35)

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10.

Responsibilities of the professional staff (PowerPoint 1-36) Partners Managers Seniors Staff assistants Elements of public accounting work (PowerPoint 1-37)