AEB_SM_CH02_1 - 1Chapter 2 The CPA Profession Review...

1Chapter 2
The CPA Profession
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Review Questions
2-1 The four major services that CPAs provide are:
1. Audit and assurance services Assurance services are independent
professional services that improve the quality of information for
decision makers. Assurance services include attestation services,
which are any services in which the CPA firm issues a report that
expresses a conclusion about the reliability of an assertion that is
the responsibility of another party. The four categories of attestation
services are audits of historical financial statements, attestation on
the effectiveness of internal control over financial reporting, reviews
of historical financial statements, and other attestation services.
2. Accounting and bookkeeping services Accounting services involve
preparing the client's financial statements from the client's records.
Bookkeeping services include the preparation of the client's
journals and ledgers as well as financial statements.
3. Tax services Tax services include preparation of corporate,
individual, and estate returns as well as tax planning assistance.
4. Management consulting services These services range from
suggestions to improve the client's accounting system to computer
installations.
2-2 The major characteristics of CPA firms that permit them to fulfill their
social function competently and independently are:
1. Organizational form A CPA firm exists as a separate entity to avoid an
employer-employee relationship with its clients. The CPA firm
employs a professional staff of sufficient size to prevent one client
from constituting a significant portion of total income and thereby
endangering the firm's independence.
2. Conduct A CPA firm employs a professional staff of sufficient size to
provide a broad range of expertise, continuing education, and
promotion of a professional independent attitude and competence.
3. Peer review This practice evaluates the performance of CPA firms in
an attempt to keep competence high.
2-3 The Public Company Accounting Oversight Board provides oversight for
auditors of public companies, including establishing auditing and quality control
standards for public company audits, and performing inspections of the quality
controls at audit firms performing those audits.
2-1

2-4 The purpose of the Securities and Exchange Commission is to assist in
providing investors with reliable information upon which to make investment
decisions. Since most reasonably large CPA firms have clients that must file
reports with the SEC each year (all companies filing registration statements
under the securities acts of l933 and l934 must file audited financial statements
and other reports with the SEC at least once each year), the profession is highly
involved with the SEC requirements.