Public Accounting

Public accounting refers to the practice of providing accounting, taxation, audit, and consultancy services to different clients. The clients can be individuals, private firms, government organizations, charitable trusts, and so on. The purpose of providing such services is to ensure transparency and accuracy of the client’s financial statements.

A public accounting firm (PAF) can be a sole proprietorship, partnership or corporation. These firms employ certified public accountants (CPA) to provide accounting services as a third party. They help their clients meet the legal business requirements and stay GAAP (generally accepted accounting principles) compliant.

• Public accounting refers to rendering services like bookkeeping, taxation, audit, and consultancy to clients within or outside the country.
• A public accounting firm (PAF) must hire CPAs and be GAAP compliant.
• A PAF must register with the Public Company Accounting Oversight Board (PCAOB) to conduct an audit of a public company in the United States.
• It involves providing services externally as a third party, while private accounting involves providing services internally to the company in which one is employed.

Public accounting services are provided by PAFs on an ongoing basis. Before conducting an audit of a public company in the United States, the PAFs need to register with the Public Company Accounting Oversight Board (PCAOB). The PCAOB regulates the audit activities of the public companies and is compliant with the Sarbanes-Oxley Act, 2002.

These firms provide the following services to their clients:

• Prepare financial statements: The PAFs help their clients prepare financial statements. Such firms ensure that the financial statements of their clients are complete in all aspects before being disclosed to the public.
• Audit financial statements: The PAFs conduct an audit of the financial statements of their clients. However, the audit cannot be conducted by the same PAF that prepared the financial statements. In such cases, the client may have to avail the services of two different PAFs, one for preparing financial statements and the other for auditing them. By conducting an audit, the PAFs ensure that their client follows the financial reporting standards of the country.
• Prepare and file tax returns: The PAFs file tax returns on behalf of their clients. This ensures that the returns are filed on time and in accordance with the policies of the federal government.
• Consult on business matters: The PAFs provide a range of consulting services to their clients. The consulting areas include tax planning, mergers and acquisitions, payroll processing, bank reconciliation, accounting practices, and so on.

When a PAF registers with the PCAOB, it needs to pay a certain amount as the fees. Moreover, the firm has to comply with the requirements of the board.

A public company, ABC, wants a PAF to audit its financial statements. State the way ABC will attain its goal, given that it operates in the US.

The procedure followed by ABC is stated as follows:

1. It invites bids to select the top and the most reliable PAF in the US.
2. It validates that the selected PAF is registered with the PCAOB. Moreover, the accountant to be hired must possess a public accounting certificate or the CPA title.
3. It submits the necessary documents to the accountant of the PAF. Once the audit is complete, ABC pays the remuneration or the public accounting salary for the services availed by it.

The major differences between the two are listed as follows:

• Public accounting involves a third party (PAFs) to provide financial services to its clients. Private accounting involves availing services of an accountant employed within the company.
• Public accounting is external accounting, while private accounting is internal to the company.
• PAFs usually hire CPAs (certified public accountants), whereas private accountants need not necessarily hold this certification.
• PAFs handle all the financial tasks (like audit, taxation, consultancy, etc.) of their clients. On the other hand, the private accountant may perform only the assigned tasks (like preparing budgets, making journal entries, reconciling accounts, etc.). In this context, a public accountant has diverse experience that a private accountant may not possess.
• Public accountants work for long hours and travel for business projects frequently, while private accountants usually work for the typical office hours and do not travel much.

The major similarities between the two are listed as follows:

• Public and private accounting fields require the accountant to possess at least a bachelor’s degree. However, to progress to higher positions, one may need to pursue advanced courses in finance.
• In public and private accounting, the accountant must possess good communication skills. The reason is that the public accountant needs to deal with multiple clients, while the private accountant needs to interview candidates for different roles. Both accountants also need strong organizational skills to meet the deadlines of their jobs.
• Public and private accountants must have in-depth subject knowledge. Moreover, the accountants of both fields get competitive salaries in the industry.

While choosing a career, one must select public accounting if the aim is to learn about several businesses or industries. Private accounting must be chosen if one wants to learn about a specific business. Even though both accounting fields are equally rewarding, one must consider the long-term goals and career aspirations before making a choice.

This has been a guide to Public Accounting and its meaning. Here we explain how it works, its services, firms with examples. You can learn more from the following articles - 

• Forensic Accounting
• Governmental Accounting
• Consolidation Accounting