Accounting, Auditing, and Bookkeeping Services
SIC 8721
NAICS 541211
Industry firms furnish accounting, bookkeeping, and related auditing services to organizations and individuals. Although accounting firms may offer data processing as part of their service, companies that provide strictly financial data processing services, such as for corporate payroll, are treated separately under the heading Data Processing Services.
Accounting, auditing, and bookkeeping are three dimensions of a single broad industry. Together, they provide businesses and individuals with the financial information they need to maintain stability and gauge and interpret fiscal health. Accountants and auditors perform a range of functions such as financial record keeping and analysis, business advising, and auditing for diverse employers or clients such as large corporations, non-profit organizations, government agencies, small companies, and wealthy individuals. In contrast, bookkeepers typically work in smaller firms, performing the financial record keeping for the companies for whom they work. Additional duties of bookkeepers may include producing financial statements and reports, preparing bank deposits and payroll checks, purchasing, and invoicing.
Rapid globalization of the accounting industry has accompanied the general globalization of commerce; major accountancy firms have grown from small national partnerships to multinational enterprises. Around the world, four large, multinational accounting and auditing firms dominated the industry in 2005. The "Big Four," ranked in order by 2004 revenue were Deloitte Touche Tohmatsu with revenues of US$16.4 billion, PricewaterhouseCoopers with US$16.3 billion, Ernst & Young International with US$14.5 billion, and KPMG International with US$13.4 billion.
The biggest change to hit the financial sector in decades was the Sarbanes-Oxley Act of 2002. The result of several large corporate scandals involving Enron, Arthur Andersen, and WorldCom, the Act set out criminal and civil penalties for securities violations, required auditors to be independent of their clients and increased the amount of disclosure required regarding financial statements, insider trading and executive compensation. Accounting firms saw themselves forced into a position of having to separate their auditing business from their consulting business in order to comply with the Act's independence requirements. The Act's new rules have also meant an increase in the requirements of firms and its auditors, and this in turn has meant increased costs. These increases have led many companies to move away from the Big Four accounting firms; in 2004 each of the Big Four lost more customers than they gained.
Most accounting firms are structured as partnerships rather than as corporations. In a corporation, the shareholders own the company but are financially liable only for the value of their vested interest. In a partnership, the partners are considered the firm's owners and bear unlimited personal liability for the firm. In most cases, firms are structured as partnerships for tax benefits—partnerships are not required to disclose profits. Accountants and auditors often draw criticism for their firms' structures. Critics argue that accountants—who owe their existence to public laws and are charged with the dissemination of financial information—should disclose more information about their businesses than they are currently required to do.
Most large accounting firms, with many offices across a country or around the world, have structures similar to co-operatives, where each firm is treated as a member of the organization, with each being treated as a separate and independent legal entity.
As defined by the U.S. Department of Labor there are four major fields of accounting: public accounting, management accounting, government accounting and auditing, and internal auditing.
Public accountants work for clients to provide a variety of accounting, tax, auditing and consulting services. While most public accountants specialize in one area, they may work for large accountancies that provide the full spectrum of services. Public accountants may also be involved with forensic accounting. They generally have a strong understanding of law, and are involved in investigating white collar crimes, bankruptcies, and contract disputes. Legislation enacted in 2002 now restricts the advice public accountants can give to clients if they are also involved with auditing their clients' financial statements.
Management accountants are also known by a host of other names: cost accountants, industrial accountants, corporate accountants and private accountants. Generally, they work for a company or organization directly, providing information necessary for internal management to make the decisions necessary to operate their companies, including those decisions relating to costs, performance, budgets and asset management.
Government accountants and auditors are public sector workers who ensure that government agencies, the private sector and individuals meet the requirements of regulations and taxation. Internal auditors are responsible for checking the accuracy of their organizations' financial records. Their work has increasingly involved the auditing and control of information technology systems used within a company.
In the 1990s accounting professionals moved increasingly toward the management side of the industry. However, outsourced consulting services already were being scaled back before the Enron scandal of 2002 hit because of problems in perceived, actual, or potential conflicts of interest between those hired from auditing firms to check the books of corporations and issue financial reports, and those who stood to make lucrative gains by working closely with corporate insiders as management consultants.
Accounting involves all management functions of an organization, including purchasing, manufacturing, wholesaling, retailing, and a variety of marketing and transportation activities. Senior accountants—or controllers armed with financial and accounting knowledge of their business—are often selected as production or marketing executives. Accounting firms rely on two major financial statements—the income statement and the balance sheet—to interpret the financial health of businesses. To obtain these statements, accountants analyze, record, quantify, accumulate, summarize, classify, report, and interpret numerous financial events and their cumulative effect on the organization. Accounting firms help clients make informed business decisions by evaluating an organization's performance and by indicating the possible financial implications of various business plans. Solid accounting practices are thus regarded as essential ingredients in the successful operation of almost all organizations and economies.
Although participation is not always mandatory, each field of accounting has its own certification procedures. In the U.S., public accountants can become licensed by a State Board of Accountancy. The American Institute of Certified Public Accountants (AICPA) provides a certification program for public accountants (CPA) which requires them to meet specific education, experience, and ethical standards. Most states require a CPA designation in order to grant a license. In addition, only CPAs are allowed to perform the audits on public companies, which are mandatory by the Securities Exchange Commission (SEC). Other voluntary certification programs exist that can be used to show that a certain level of competency and experience has been achieved in a specific field of accountancy. In the U.S., there are Certified Management Accountant and Certified Internal Auditor designations, to name two. Almost every country has its own certification organizations, and many such certifications are now recognized around the world.
The accounting industry is supervised by a number of governmental boards in each country, with increasing calls for a set core of international standards and regulations. This is particularly the case after the industry shake-up related to the Enron failure. In the United States, accounting rules and standards are set by the Financial Accounting Standards Board (FASB). In the United Kingdom, oversight of the industry is handled by the Accounting Standards Committee (ASC). Working on a more global scale, The International Accounting Standards Board (IASB) is an independent setter of accounting standards and is based in London, England. Board members come from nine countries around the world, but are often representatives for regions or for several countries. Additionally, the World Trade Organization's Council of Trade in Services, one of the WTO's three main subcouncils, established The Committee on Financial Services which reviews and makes suggestions regarding the global trade of financial services, examining regulatory developments affecting this group. In 2002 the World Trade Organization began a new round of negotiations to examine and improve worldwide accounting standards and practices.
Such committees are responsible for defining the rules and processes that accountants and auditors must follow to present a clear and honest picture of financial situations. Most of these committees also serve as the disciplinary bodies responsible for dealing with abuses or transgressions of acceptable accounting practices.
Off-balance-sheet financing, bizarre acquisition accounting...
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