Public accountants provide services to a wide variety of clients that include individual taxpayers, large businesses, government agencies, non-profits and educational institutions. The services performed by public accountants generally fall within three categories:
- Accounting and auditing services that involve maintaining financial records and preparing and auditing financial statements for use by outside investors and banks.
- Tax services that involve the preparation of tax returns as well as advising clients on tax deductions, tax planning, and other tax-related issues.
- Consulting services, which can involve financial planning services for individuals as well as business consultation services to help management design, develop and implement accounting systems and employee compensation packages.
External Auditing and Attestation
The primary function of public accountants and public accounting firms is to conduct external audits of balance sheets, income statements, quarterly reports, and earnings reports. Public accountants must evaluate their clients’ financial statements based on GAAS (Generally Accepted Auditing Standards) and ensure that the statements have been prepared in accordance with GAAP (Generally Accepted Accounting Principles).
The use of the word “public” in the term public accounting highlights the importance of the services these professionals provide to the general populace when conducting external audits. Investors and consumers depend on the accuracy of accounting information when evaluating the financial status of companies, and when making decisions about what to do with their financial resources. The integrity of the financial system as a whole depends largely upon the ability of public accountants to perform external audits competently.
The external auditing services provided by public accounting firms are crucial to providing the investment community with an accurate picture of the financial viability of publicly traded companies. These companies issue quarterly and annual reports to inform the public of their financial status and prospects. Investors use the information contained in these reports to make decisions about which stocks to buy and sell.
When public accountants audit these reports, they check the actual data used to create the financial claims made by the companies so as to ensure their accuracy. When public accountants attest to the completeness and accuracy of a company’s reports, they are performing what are known as attestation services by giving their word that the company’s financial statements are true. Audit and attestation performed by a public accountant lends an element of trustworthiness to a company’s financial reports.
Generally Accepted Accounting Principles (GAAP)
Generally Accepted Accounting Principles (GAAP) are the rules that public accountants must comply with when preparing financial statements. These standards are formulated by the Financial Accounting Standards Board (FASB), a not-for-profit organization created by and for accountants to promulgate these principles, as well as to amend them as needed. The use of these uniform standards allows investors, shareholders, banks, regulatory agencies, and financial analysts to understand and analyze financial statements more efficiently.
The use of uniform standards in the preparation of financial statements also allows for easy side-by-side comparison of the companies that issue them. This is often called an “apple to apple” comparison, because when two different companies are using the same standards to report income and liabilities, it is much easier to understand the comparative significance of the data.
The GAAP rules change over time and in response to perceived needs. While GAAP may change in response to changing circumstances, what matters most is that at any given time the business community applies these principals uniformly.
There are more than 150 separate rules encompassed by GAAP. However, the rules as a whole seek to emphasize and reinforce certain principles within public accountancy:
- Principle of regularity
- Principle of consistency
- Principle of sincerity
- Principle of the permanence of methods
- Principle of non-compensation
- Principle of prudence
- Principle of continuity
- Principle of periodicity
- Principle of full disclosure/materiality
- Principle of good faith
GAAP rules only apply to the practice of public accounting within the United States. As the globalization of the world economy intensifies, the pressure upon the U.S. increases to adopt International Financial Reporting Standards (IFRS), which are used worldwide and can also be applied to American companies. It is expected that in the future IFRS will become the predominant system of standards used in the United States as well.
Becoming Licensed as a Certified Public Accountant
Certified Public Accountants (CPAs) are licensed by the state Board of Accountancy in the state in which they choose to practice. Although it is not necessary to be licensed or certified to work as a public accountant, those who do not hold a CPA license are barred from performing auditing and attestation services, which limits the scope of their practice privileges considerably.
Specific requirements for CPA licensure vary somewhat from state to state, although there is a general uniformity as all states work to fully integrate the protocols of the Uniform Accountancy Act. The uniform academic requirements are a bachelor’s degree, at minimum, from programs that total 150 semester hours. Candidates must also pass the Uniform CPA Examination as well as participate in one year (2000 hours) of work experience in the accounting field under the supervision of a licensed CPA. State Boards of Accountancy also require CPAs to acquire a specific number of continuing professional education credits in order to renew their licenses.
A few states still license non certified public accountants (PAs); however, the PA credential is gradually being phased out. Most states currently allow existing non certified public accountants to practice with grandfathered practice privileges, but have closed the credential to new candidates.
Public Accounting Education and Degrees
Working as a professional in the field of public accounting generally requires a minimum of a bachelor’s degree with a major in accounting and finance, or a bachelor’s in business administration with a concentration in accounting.
CPA licensure requires 150 semester hours of credit, which surpasses the 120 hours generally required for obtaining a bachelor’s degree. For this reason, many students interested in a career in public accounting pursue graduate degrees through colleges or universities offering advanced degrees in accounting. There are options for very specifically targeted MBA programs specific to accounting, as well as more general MBAs in accounting and finance.
Career Prospects and Salary Potential in Public Accounting
According to the US Bureau of Labor Statistics (BLS), there were about 1.4 million accountants working in the United States as of 2020, mostly concentrated in urban centers. It’s a diverse field that presents a lot of options for anybody with the right skills. Data collected by BLS indicates that in the industries with the highest concentration of accountants and auditors, nearly 35 percent work for firms specializing in public accounting, tax preparation, bookkeeping, and payroll services. About 6.5 percent worked for companies involved in oil and gas extraction, another 5 percent worked for hedge funds and other investment pools. And rounding out the industries with the highest concentration of accountants, another eight percent were split about evenly between employee benefit funds and office administrative services.
As an overall proportion of the accounting workforce, some of the highest numbers of accountants work in enterprise management positions, state and local government, and for real estate firms.
The field of public accounting is expected to see steady job growth in the ten-year leading up to 2029. Nationwide, the number of accounting jobs is expected to increase by 4 percent. This is expected to result in the net addition of nearly 61,700 new accounting jobs.
Much of this growth is expected to come as a result of the increasingly complex and frequently changing laws and regulations at both the federal and state level relating to corporate governance and accountability, internal auditing, and financial reporting and compliance.
The global nature of the economy will continue to place a demand on accounting services and controls for corporations doing business outside the United States. Job prospects will be especially bright for public accountants with CPA licenses, advanced degrees and additional specialized certifications.
According to data collected by BLS, the median annual salary for accountants nationwide was $73,560 per year as of May 2020. The bottom ten percent earned $45,220 annually, while those in the top ten percent earned more than $128,680 that year
May 2020 U.S. Bureau of Labor Statistics salary and labor market information for Accountants and Auditors is based on national data, not school-specific information. Conditions in your area may vary. Data accessed April 2021.