Public accounting: A closer look

Deloitte has created an e-learning website for those interested in learning about accountancy and corporate governance.

The website has a number of short courses on a wide range of subjects – for more information please visit www.deloittelearning.com.

In this article the first of a series of articles on Deloitte e-learning we explore the role of the public accountant.

Etablished profession

In 1998, archaeologists discovered clay tablets in the tomb of Egyptian King Scorpion – dating back to 3300 BC these tablets contained what many believe to be the earliest evidence of writing and included accounting records of linen and oil delivered to the king as taxes. Thus it can be said that one of the first known uses of the written word was for accounting.

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Advances in accounting practices have accompanied most major advances in civilization.

The Greeks used account books to record balances, loans and money changing.

In fact, there is even evidence of cash transfers for customers through affiliate banks in different Greek cities.

In the Roman Empire, each household was required to maintain a set of books recording receipts, payments, assets and liabilities-resulting in the formation of an elaborate government treasury and sophisticated system of taxation.

Rise of public accounting

The notion of the public accountant was developed in Scotland in the early 1800s.

Here, in the commercial centres of Edinburgh and Glasgow, employees of merchants and solicitors performed bookkeeping tasks and eventually opened their own businesses.

The profession spread to the United States in the late 1800s as a result of the increasingly industrialized society.

As American business grew exponentially and government regulation increased, the 20th Century saw the rise of the public accounting industry as we know it today.

Accountants were required to take on new skills beyond mere bookkeeping. They became business advisors, employing a range of knowledge and resources previously unknown-a tradition that continues to this day.

Today, public accounting continues to evolve as a result of four key drivers in today’s business environment: globalization, business complexity, technological innovation and increased regulation.

Globalization

As trade barriers are reduced, international communication becomes easier, and deregulation trends continue, the lines between national boundaries and time zones are increasingly blurred.

Huge, international merger activity is moving at an astonishing rate – and international organizations struggle to meet the complex regulatory environment created in a true global business environment.

Business complexity

Business is much more complex today than ever before.

Extended enterprise relationships, complex financial instruments and innovative compensation programs, these are only a few of the many new developments in business operations – programs and arrangements that require the intense scrutiny of a variety of specialists (including public accountants) to manage properly.

Increased regulation

With globalization and increasingly complex business structures, today’s companies operate at the centre of a web of regulatory requirements – and the penalties for running afoul of the law are significant. Companies look to their auditors for guidance in negotiating this complex terrain.

Technological innovation

Advances in technology are allowing companies to move faster and do more. Meanwhile, demands for accountability and disclosure are increasing resulting in greater requirements on public accountants for speed and accuracy.

Fortunately, in the face of such sweeping change, sturdy regulatory structures and standards are in place to help ensure that companies and their advisors are operating properly.

This system was formally put in place following the stock market crash of 1929, which led to strong criticism of financial reporting practices.

As part of the response, the US Congress passed The Securities Act of 1933 & The Securities Exchange Act of 1934, which regulate and govern the securities industry in the US. These Acts also created the Securities and Exchange Commission, which continues to monitor and enforce compliance with the Acts.

In addition, the accounting industry itself is actively self-regulatory.

In the United States, where many of the largest accounting firms are based, accountants must pass a rigorous examination to be licensed as a CPA.

Professional associations such as the American Institute of Certified Public Accountants help make sure that standards are kept current, and members are abreast of the latest information on the industry. In addition to these professional bodies there is a strict code of professional conduct and a number of professional principles by which all qualified accountants must abide.

The goal is to serve the public interest with integrity, objectivity and independence.

Similarly, globalization has necessitated a worldwide effort to develop internationally accepted accounting and financial reporting standards.

To this end, the International Accounting Standards Board and the International Auditing and Assurance Standards Board were created to help ensure compliance with international regulations.

A broad range of countries and global organizations continue to develop and refine these standards.

As business evolves, so does accounting.

In July 2002, in light of a number of major corporate scandals, US Congress passed the Sarbanes Oxley Act of 2002 in what is a major reform of corporate accountability in the United States.

Its rules regarding financial disclosure and oversight dramatically impact public companies and auditors and the act has resulted in major changes to the accounting profession – indeed, to the very structure of many accounting firms.

But the accounting industry has repeatedly demonstrated its capacity to improve and adjust its standards to meet ever-changing needs – and to ensure that companies around the world adhere to time-honoured traditions of transparency and accuracy, ever since the earliest days in 3300 BC.

Cindy Duval is a Senior Manager at Deloitte responsible for Professional Development. Cindy has over ten years of public practice experience, nine of which were spent in the Assurance & Advisory Department of Deloitte.

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