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The Role of the Public Accountant in the American Economy

This chapter explored the nature of assurance services, the attest function, independent audits, and the auditing profession. To summarize:
  1. CPAs provide a wide array of information enhancement services referred to as assurance services. Currently, the primary type of assurance services provided by CPAs involves attestation. When performing attestation services, CPAs enhance the reliability of information by issuing an examination, review, or agreed-upon procedures report on subject matter or an assertion that is the responsibility of another party. In the case of financial statement audits, the report most frequently includes an opinion about whether management’s financial statements conform to generally accepted accounting principles.
  2. Since audits involve examinations of financial information by independent experts, they increase the credibility of the information contained in the statements. Decision makers both within and outside the organization can use audited financial information with confidence that it is not likely to be materially misstated. Audits reduce information risk and, therefore, they reduce the overall risk of making various types of economic decisions.
  3. The nature and emphasis of auditing has changed over the years. Auditing began with the objective of detecting fraud by examination of all, or most, business transactions. Today the objective of an audit is to attest to the fairness of the financial statements. Because of the large size of business organizations, audits necessarily involve the use of sampling techniques based on the auditors’ consideration of the organization’s controls. CPAs also are being asked to assume more responsibility for attesting to compliance with laws and regulations, and to the effectiveness of controls.
  4. The auditing profession is much broader than auditors involved in public accounting; it also includes internal auditors and various governmental auditors, such as auditors of the General Accounting Office and the Internal Revenue Service.
  5. Various professional and regulatory organizations have a significant influence on the auditing profession, including the American Institute of Certified Public Accountants, the Financial Accounting Standards Board, the Governmental Accounting Standards Board, the Federal Accounting Standards Advisory Board, the Public Company Accounting Oversight Board, the Securities and Exchange Commission, and the Institute of Internal Auditors.
  6. In addition to performing attestation engagements, public accounting firms offer tax services, consulting services, and accounting and review services. public accounting firms range in size from sole practitioners to the large international firms referred to as the Big 4 firms. The professional staff of a typical medium-to-large public accounting firm includes partners, managers, senior accountants, and staff assistants.
After studying this chapter, you should be able to:

Describe the character of assurance services.

Identify assurance services that involve attestation.

Describe the nature of financial statement audits.

Explain why audits are demanded by society.

Describe how the credibility of the accounting profession was affected by the large number of companies reporting accounting irregularities in 2001 and 2002.

Explain the regulatory process for auditors of public companies and auditors of nonpublic companies.

Contrast the various types of audits and types of auditors.

Describe how public accounting firms are typically organized, and the responsibilities of auditors at the various levels in the organization.

Discuss how the major professional and regulatory organizations affect the accounting profession.

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