AICPA Structure, Technical Standards and Examinations

History and Background of AICPA

AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS. 

Of the several professional accounting organizations, the largest and most influential is the American Institute of Certified Public Accountants (AICPA). Each member must be licensed as a CPA by some jurisdiction, but need not practice as a public accountant. Less than half of the AICPA’s  membership is in public practice; the majority of members are in industry, government, or education.

Structure and Constitution

In response to assertions from congressional staff, the AICPA undertook a major restructuring in 1977 to establish a more rigorous self-regulatory system. Even though concern over alleged shortcomings was not backed up by enacted legislation, the Institute created a Division for CPA Firms, whereas previously it had only individual memberships. Members of this division commit themselves to higher standards of quality and quality control, including triennial peer reviews of their quality control systems. Subsequent to the Sarbanes-Oxley Act, the AICPA created a structure of “Centers” to improve member service. The former Securities and Exchange Commission Practice Section (SECPS) became the Center for Public Company Accounting Firms. These Centers continue to evolve in terms of member composition and organization. As a result of a major change in policy approved by the Institute membership in 1988, all members in public practice will be subject to quality control reviews, even if they do not belong to the Division for CPA Firms. However, these reviews will not be as extensive as full peer reviews, and the AICPA will not release the results to the public. As discussed previously, the Sarbanes-Oxley Act has replaced the AICPA’s system of self-regulation and peer reviews for public companies with inspections by the newly created Public Company Accounting Oversight Board (PCAOB).The AICPA continues with its programs for audits and auditors not subject to PCAOB jurisdiction. The most significant services provided by the AICPA to its members and the public are discussed below.

Technical Standards of AICPA

(ii) Technical Standards. Despite the discontinuation of the APB and the creation of the FASB, the Institute still carries on limited accounting guidance through the Accounting Standards Executive Committee (AcSEC) and sets auditing standards for non-issuers through the Auditing Standards Board (ASB).

Prior to 2002, AcSEC examined accounting issues that had not reached the FASB’s agenda, or that the FASB had decided against adding to its agenda. Accordingly, AcSEC and the FASB were in frequent contact, and FASB staff members attend AcSEC meetings. The primary form of output from AcSEC was a Statement of Position (SOP), which must be followed by Institut members. Under SAS No. 69, “The Meaning of Present Fairly in Conformity with Generally Accepted Accounting Principles,” AcSEC SOPs are considered level b pronouncements in the GAAP hierarchy. SOPs constitute GAAP if no level a pronouncement exists. The Committee is composed of between 15 and 18 individuals representing various levels and segments of the profession. AcSEC issued an ED of a proposed SOP before issuing the final standard. In response to FASB concerns about the nature and authoritativeness of various standard-setting activities, AcSEC discontinued issuing SOPs. Subject to a transition plan accepted by both the FASB and the AICPA during the fall of 2002 regarding AcSEC projects in process, AcSEC and the AICPA will no longer issue general-purpose SOPs or ask the FASB to clear SOPs or practice bulletins. However, AcSEC will continue to issue Audit and Accounting Guides, which have an industry focus. The ASB is the organization that creates authoritative GAAS. It does so by issuing Statements on Auditing Standards (SAS). This 19-member group is composed of senior auditing specialists from major and small auditing firms, as well as from industry, government, user groups and education. It uses a thorough due process, including the issuance of exposure drafts of proposed standards and its ASB meetings are open to the public. Beginning in the late 1990s, the ASB actively participated in the Standards setting activities of the International Auditing and Attest Standards Board (IAASB), and has initiated the process of converging US and International Auditing Standards. In 2006, the ASB issued a series of new pervasive standards designed to enhance the risk assessment process and to clarify numerous auditor responsibilities. A motivating factor for the standards was the increased amount of public concern over the reliability of audit reports, in the wake of the Enron and Worldcom scandals, and litigation alleging auditors’ failures to protect the public against fraud and business collapses.

The Sarbanes-Oxley Act charges the PCAOB with establishing or adopting auditing standards applicable to audits of SEC registrants. The Sarbanes-Oxley Act clearly permits the PCAOB to adopt auditing standards issued by the ASB. The PCAOB adopted the AICPA authoritative literature as it stood in April 2003, and then began to write its own Standards, modifying that literature going forward. The PCAOB announced its vision of re-writing the entirety of existing auditing standards at some point. Since the PCAOB has so far not adopted any of the ASB Standards subsequent to SAS 101 on “Auditing Fair Value Measurements and Disclosures,” the two bodies of auditing Standards literature are now diverging at a rapid rate. Representatives of the ASB, PCAOB and GAO meet periodically to discuss issues of mutual interest. In addition, the PCAOB regularly monitors the activities of the IAASB. Many auditors of private and public companies are concerned today about the complexity and confusion of working in the long run in an environment where there are two main bodies auditing literature. Senior AICPA committees for specific industries provide other technical guidance. Their output is in the form of Industry Accounting and Auditing Guides. A member of the Institute is obliged to follow the provisions of these guides in auditing a client that belongs to one of the covered industries. Under SAS No. 69, “The Meaning of Present Fairly in Conformity with Generally Accepted Accounting Principles,” Industry Accounting and Auditing Guides (A&A) are considered level b pronouncements in the GAAP hierarchy. These A&A Guides constitute GAAP if no level a pronouncement exists. The PCAOB has indicated that it does not have an interest in publishing its own guides at this time.

In addition to these activities, the Institute staff also provides technical assistance to members who have encountered questions in conducting their accounting, auditing, and tax practices. Specifically, members can call or write the Institute staff with their questions and receive guidance on how to resolve them. In many cases, all that is needed is to steer the member to the right portion of the authoritative literature. In other cases, the members are seeking concurrence with a position they have reached on their own. Both services are especially valuable to adopt auditing standards issued by the ASB. The PCAOB adopted the AICPA authoritative literature as it stood in April 2003, and then began to write its own Standards, modifying that literature going forward. The PCAOB announced its vision of re-writing the entirety of existing auditing standards at some point. Since the PCAOB has so far not adopted any of the ASB Standards subsequent to SAS 101 on “Auditing Fair Value Measurements and Disclosures,” the two bodies of auditing Standards literature are now diverging at a rapid rate. Representatives of the ASB, PCAOB and GAO meet periodically to discuss issues of mutual interest. In addition, the PCAOB regularly monitors the activities of the IAASB. Many auditors of private and public companies are concerned today about the complexity and confusion of working in the long run in an environment where there are two main bodies auditing literature.

Senior AICPA committees for specific industries provide other technical guidance. Their output is in the form of Industry Accounting and Auditing Guides. A member of the Institute is obliged to follow the provisions of these guides in auditing a client that belongs to one of the covered industries. Under SAS No. 69, “The Meaning of Present Fairly in Conformity with Generally Accepted Accounting Principles,” Industry Accounting and Auditing Guides (A&A) are considered level b pronouncements in the GAAP hierarchy. These A&A Guides constitute GAAP if no level a pronouncement exists. The PCAOB has indicated that it does not have an interest in publishing its own guides at this time.

In addition to these activities, the Institute staff also provides technical assistance to members who have encountered questions in conducting their accounting, auditing, and tax practices. Specifically, members can call or write the Institute staff with their questions and receive guidance on how to resolve them. In many cases, all that is needed is to steer the member to the right portion of the authoritative literature. In other cases, the members are seeking concurrence with a position they have reached on their own. Both services are especially valuable to sole practitioners because they do not have colleagues to double check their research.

CPA Examinations 

(iii) Examinations. The AICPA produces, administers, and grades the Uniform CPA Examination under contract to individual state Boards of accountancy. This service includes writing the exam to specifications established through NASBA, maintaining security over the questions, delivering the exams to the sites, and reading and grading the exam. The Institute then sends the results to the state Board, which, in turn, notifies the candidates. The CPA Examination is today administered as a 14 hour computerized exam. The exam is offered periodically throughout the year, rather than only in May and November as previously was the case. The CPA exam covers: Auditing and Attestation, Financial Accounting and Reporting, Regulation, and Business Environment and Concepts.