What is Public Accounting?

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 Explained

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Key Takeaways

  • 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:

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.

Example

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:

  • It invites bids to select the top and the most reliable PAF in the US.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.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.

Differences between Public and Private Accounting

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.

Similarities between Public and Private Accounting

The major similarities between the two are listed as follows:

  • Public and private accountingPublic And Private AccountingThe accounting of financial documents that the corporation is compelled to disclose to the public is known as public accounting. Private accounting is the accounting of a company’s financial information in which the accountant works primarily for the internal manager.read more 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 financeFinanceFinance is a broad term that essentially refers to money management or channeling money for various purposes.read more.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 – 

Public accounting refers to providing a collection of financial or accounting services to one or more clients. Precisely, such services include preparing financial statements, auditing the statements, filing tax returns, advising on mergers and acquisitions, and so on.

Public accounting firms (PAFs) are engaged in providing public accounting services to individuals, public and private companies, non-profit organizations, and so on. Deloitte, Ernst & Young, PricewaterhouseCoopers, and KPMG are the top PAFs operating globally.

From an individual’s perspective, making a career in public accounting is certainly worth it. A certified public accountant (CPA) earns a good package and gains experience on various financial projects. In 2022, the average salary of an individual US CPA is $70,299 per annum.From an organization’s perspective too, availing public accounting services is worth it. This is because there is an assurance that the financial tasks will be completed on time and in accordance with the legal requirements.

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