A State By State Accounting Guide
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Public vs. Private Accounting

The Distinction Between Public Accounting and Private Accounting

The best way to understand the distinction between public accounting and private accounting is to think of public accountants as "external" accountants and private accountants as "internal" accountants. The most substantive criteria in determining public vs. private accounting has to do with who is ultimately served by the work being performed by the accountant. If the work is being performed strictly for the benefit of a specific company, it is safe to conclude that this is a function of private accounting. If the work being performed is done to satisfy regulatory requirements for transparency, then this can be said to be public accounting.

A Distinction Made Based on Employer

Public accountants and public accounting firms are not employed solely by any one client, and as such they are not part of the client's business or corporate structure. Private accountants, on the other hand, work for the specific company or business entity for which they offer accounting services.

As "external" accountants, public accountants provide services to a wide range of clients, who many include large corporations, small businesses, not-for-profit organizations, and government agencies. Private accountants do not have a "client" per se. Rather, they are employed by corporations and provide accounting services for their employers exclusively.
Private accountants may be employed as controllers or in-house accountants and provide services only to their employer. Public accountants, on the other hand, have a range of clients and are either self-employed or members or employees of public accounting firms.

Use of the Term “Public” in Public Accounting

The use of the terms "public" and "private" in this context can be confusing. Attorneys and law firms that provide services to a wide range of external clients are generally referred to as being in "private" practice.  However, accountants and accounting firms that operate based on a similar business model are referred to as engaging in "public" accounting.

The use of the terms "public" and "private" may have something to do with the perceived allegiance of the accountant in each case. The "private" accountant who works as an employee or officer of a single business entity owes his or her allegiance to that entity. Thus, he or she serves the "private" interests of that business entity.

A public accountant or accounting firm, on the other hand, provides services to a wide range of private clients and, in some cases, public or governmental agencies. However, because the public accountant is an "external" accountant, he or she is not susceptible to pressure to enhance the reputation of the client the way an employee would be. The welfare of the public accountant or accounting firm does not depend primarily on the welfare of the client. Because the public accountant and the client do not have identical interests, the public accountant can be more objective and unbiased in interpreting and presenting accounting data.

Thus, the allegiance of the public accountant actually belongs to the public and to the general ethical and professional standards promulgated by the accounting profession. The term "public" means that the public at large can and should be able to place its faith in the representations of public accountants and public accounting firms.

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