Public Accounting: Definition and Importance

Public accountingPublic accounting basically refers to the provision of accounting services to other firms, organizations, government agencies and individuals. It entails being a third party that analyzes the financial statements and systems of clients to establish if the financial statements that they produce are a fair representation of their financial position. Public accountants offer auditing and tax services to their clients. They also provide their clients with consultancy and advisory services relating to issues such as accounting systems, acquisition and mergers.

The main function of public accounting firms is to perform external audits of income statements, balance sheets, earnings reports and quarterly reports. A public accountant is required to evaluate the financial statements of their clients based on ‘Generally Accepted Auditing Standards’. In addition, the public accountant must make sure that the statements adhere to ‘Generally Accepted Accounting Principles’. As they do their audit, the public accountants must attest to the accuracy of the actual data used to prepare an organization’s or a company’s financial reports. This gives the financial reports an element of trustworthiness.

Public accounting plays a critical role in ensuring the integrity of the financial systems. Consumers and investors rely on the accuracy of the information provided by public accountants when they are evaluating the financial position of companies. This is the information that they will use when making investment decisions. Governments also use this information when making policies relating to the financial systems.

The information that is gleaned from external audits conducted by public accounting firms gives the investors an accurate image of the financial viability of public listed companies. The quarterly and annual reports that are issued by these companies inform the general public about their financial position and their prospects going forward. Investors utilize this information when they make their stock trading decisions.

Public accountants play a critical in streamlining the operations of businesses and organizations. Their expert insight is invaluable in the creation of accounting systems. The audits they prepare often contain a review of the client’s accounting system, giving guidance and outlining the corrective measures that need to be undertaken. For new businesses, the consultancy services provided by a public accountant will ensure that they get off on the right track in terms of presenting and recording financial information.