The Differences Between Public and Private Accounting
The differences between public and private accounting In order to understand the difference between public and private accounting, we must first understand what accounting is - The Differences Between Public and Private Accounting introduction. Accounting is simply an information system used to identify and communicate financial information to users of that information. Accurate, reliable and pertinent information is extremely important in evaluating a company’s financial position in order to attract investments. The accountant’s role is to ensure, that the information presented is in fact a truthful representation of the company.
Falsifying information, whether intentional or not can have serious, even legal implications for the accountant. That’s why accountants are very concerned with ethics. Public accountants are those accountants who provide services such as auditing, tax and financial planning to corporations. These accountants do not work for the organizations they provide these services for; rather these organizations are considered clients of the public accountants. They work outside of the corporation, if you will. Private accountants on the other hand, work for an organization or within a company’s accounting department.
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There are pros and cons to both facets of accounting; we will consider a few to construe the major differences between the two. To begin with, let’s look at the functional differences between the public and private accounting. Even though private accountants may produce internal audits, it is required, by law, that public accountants audit a company’s financial records and issue an unqualified opinion in order for those records to be accepted as true representation of that company’s financial position. Following the Enron scandal, accounting principles have become more stringent.
As such, public accountants must be aware of the dynamic changing environment in which they operate. Public accountants are credited with this extra responsibility because they must meet extended education requirements, pass the CPA exam and satisfy the necessary experience quota required to become certified. This is where the major difference lies between the two sides of the profession: all CPAs are accountants, but not all accountants are CPAs. Private accountants are also required to have an accounting or finance degree of some sort; after all it is a professional job.
They may not be charged with taking a special exam, but they can move up in rank by attaining certain Master degrees or Doctorates in their field. Additionally, public accountants are charged with tax preparation and planning services, consulting, financial planning, assurance and attestation services, budget analysis and the list goes on. Apart from the assortment of services they offer, there are many fields in public accounting that range from working with the FBI to forensic accounting, to being an independent CPA.
Here, we can see the variety in accounting, it’s not always about crunching the numbers, sometimes, like with forensic accounting, it’s about investigating the numbers. Private accountants prepare internal reports, budget analyses and many of the same functions as public accountants, except they do it for the company’s internal purposes. For instance, a private accountant can prepare an internal income statement that’s meant for management’s eyes only, which would not need to conform to GAAP. (However, publically issued income statements do need to conform to GAAP).
Personal qualities are also important in distinguishing between public and private accountants, namely communication skills. In any professional environment you have to be able to understand others and be understood by others; in public accounting you must take this skill set a step further. Excellent communication skills are a must. As a public accountant you represent a brand (the accounting firm you work for or yourself) and you must be able to communicate that brand to both present and potential clients; after all the more clients you acquire, the greater the growth potential you’ll have.
You have to sell yourself, your services and the services of your company. Also, you must know how to build relationships with people. The reason is that, as a public accountant, you’ll meet and work with people from various backgrounds and industries. Given the nature of public accounting, these professionals are held to higher standards regarding marketing, people and communication skills. Differences are also observed in lifestyle. Both public and private accountants are subject to stressful workloads, but public accountants are subject to more demanding deadlines.
Public accountants work for various clients in different industries and they must meet the expectations of all those clients. This means, longer work hours for public accountants, especially during the busy seasons. However, these accountants are compensated for their hard work via exponential growth opportunities, like making partner and salary increments. Private accountants also have opportunity for growth through promotions, from staff accountant to managerial accountant, maybe even to CFO. This brings us to the salary variances between the two kinds of accounting.
Note below the salary differences between public and private accounting firms, ranging from small to medium to large firms. 2011 Salary Guide Industry| Junior level 0-3 years| Senior Level 4-6 years| Public Accounting (Large firm)| $50,000-$72,000| $69,750-$167,250| Public Accounting (Medium)| $44,000-$64500| $63,000-$143,000| Public Accounting (Small)| $41,500-$58,250| $55,500-$116,500| Corporate Accounting (Large)| $38,500-$59,500| $58,250-$100,000| Corporate Accounting (Medium)| $36,500-$55,000| $52,750-$83,500| Corporate Accounting (Small)| $34,000-$50,000| $47,750-$75,500| Source (http://www. ncpa. org/student/career/salaries. aspx) The difference in average salaries is anything but subtle. There is higher demand for public accountants, mean higher paying jobs, financial security and job stability for those going the public route. Large public accounting firms, like the big 4, offer benefits beyond the dollars and big bonuses, like continued education. There is always an opportunity to further educate yourself with the firm’s dollars; and in turn salary advances within the firm for elevated positions.
But of course, private companies invest in their employees’ education also. Public and private accountants can be looked at as a part of a system, system of checks and balances where public accountants monitor the work of private accountants, for instance in auditing. This is not to undermine the job of private accountants of course; since they have great responsibility to their own corporations to make sure all financial statements are on point.
Corporate accountants have much ethical responsibility to the owners. Some may face conflicts from executives who wish them to keep records “off the books. ” Corporate accountants as well as public accountants face ethical decisions daily; as such there isn’t much advantage in this department for either sector of accounting As we’ve seen there are advantages and disadvantages to both sectors and sometimes there are grey areas where neither finds additional benefits.
Both fields are extremely important to the functioning of the financial world and the economy as a whole. Any decision to enter the public or private field depends heavily on the individual, their personality and their preferences. Do they like to work with different people, do they feel better working in a single place or environment, or are they in it for the money. The difference between public and private accounting is not all about the functions of these accountants, is also the difference between who these accountants are.