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:
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) 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:
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.
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.
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.
According to the US Bureau of Labor Statistics (BLS), there were about 1.3 million accountants working in the United States as of 2012, mostly concentrated in urban centers. Data collected by BLS indicates that nearly a quarter of accountants work for firms specializing in public accounting, tax preparation, bookkeeping, and payroll services. About eight percent of accountants were self-employed that year.
The field of public accounting is expected to see strong job growth in the ten-year period ending in 2022. Nationwide, the number of accounting jobs is expected to increase by 13 percent. This will result in the net addition of nearly 167,000 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 continuing globalization of the economy will also lead to increased demand for accounting services and controls. 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 among accountants nationwide was $65,940 as of May 2014. The middle fifty percent earned between $51,130 and $87,530 annually, while those in the top ten percent earned an average of $115,950 that year.
Compare public accounting and private accounting here.