Public accounting refers to a business that provides accounting services to other firms. Public accountants provide accounting expertise, auditing, and tax services to their clients. These services usually fall into one of the following classifications:
- Assisting clients with the direct preparation of their financial statements. This can include the handling of many accounting functions on an outsourced basis.
- Auditing the financial statements of clients.
- Preparing tax returns for clients.
- Engaging in a variety of consulting activities for clients that do not necessarily relate specifically to accounting, such as the installation of large computer systems, advising on which controls to install, providing litigation support, or reconstructed damaged accounting records.
If a public accounting firm is hired to audit the financial statements of a client, then independence rules restrict the ability of the firm to provide many of the other services just noted. For example, a firm cannot prepare the financial statements of a client and audit those statements.
If a public accounting firm wants to engage in auditing activities for publicly held companies in the United States, the firm must first register with the Public Company Accounting Oversight Board (PCAOB), which imposes certain requirements and annual fees on these businesses. The result is that most smaller public accounting firms find it uneconomical to engage in audits of publicly held companies.
Public accounting firms employ large numbers of certified public accountants (CPAs). The certification was originally intended to designate a person as being qualified to conduct an audit. However, the license also implies a high level of accounting expertise, and so is used to justify higher billing rates by public accounting firms.
The skill sets needed to provide certain services to clients are highly specialized. Consequently, public accounting firms may be organized around a number of sub-specialties, each of which is staffed with employees whose training and experience are highly focused. For example, public accounting firms may market themselves as having particular expertise in areas as diverse as initial public offerings, fraud investigations, health care auditing, and litigation support for insurance claims.
The typical job titles used within a large public accounting firm (in ascending order) are:
- Senior Manager
- Office Managing Partner
- Regional Managing Partner
- Managing Partner