We are surrounded by accounting firms. However, they often go unnoticed, until we need them. Accountants have a lot of pressure put on them because they are responsible when it comes to analyzing money - often, a lot of money.
It may be passing a poster on the subway for a big firm, like Deloitte, or stopping in at a neighborhood shop while their accountant is leafing through invoices. Not only do accountants pervade wide swathes of our corporate landscape, they also make it easier for us as consumers and employees to rely on everything from the local shop having milk to our pensions being paid.
But a lot of us know little to nothing about how accounting firms work, who works at them, and what are their qualifications. Here’s some basic information about this important profession.
Purpose of Accounting Firms
Accounting firms focus on various main functions.
One is to help businesses, organizations, and sometimes individuals keep track of their finances. By listing assets, monitoring values, and monitoring how funds are used, they provide an up-to-date financial scorecard, which their clients can rely on to make decisions about current expenditures and future financial commitments.
A related, but distinct area in which accounting firms are involved with is serving as a sort of watchdog when it comes to what organizations or individuals are doing with their money. Whether it is for the scrutiny of public accounts, regulatory compliance with tax demands, or making sure pension funds have sufficient assets to meet future obligations, accounting firms are critical to systems that help ensure the smooth operation of a wide range of civic and corporate interests that affect millions of people.
What Accounting Firms Do
Accounting firms are often large, complex professional practices that perform a dizzying array of functions.
Their basic role is keeping score financially. That means totting up receipts, invoices, check stubs, and wage slips. Then, they reconcile the results against bank statements and cash in the till. That may already sound like a lot of work for just a simple shop, but it is a huge task when it comes to large corporations with thousands of employees and activities split across multiple sites, sometimes using different currencies.
One form of keeping score is called an audit, which involves checking that the financial situation of the company is what it says it is. That is important knowledge for a variety of people, including shareholders, financial institutions thinking of lending money, and tax authorities and stakeholder groups, like the company’s retirees.
Accounting firms spend a lot of time collecting this sort of information, collating it, and analyzing it. They are well placed, not just to assess but to recommend. They can suggest ways in which a client can plan their taxes, improve their financial health, reduce costs, and change financial strategies.
But this sort of work threatens a conflict of interest between the accounting firm’s duty to provide accurate accounts and the attraction of additional billing revenue. Such conflicts of interest were sharply highlighted in the Enron failure, which led to the downfall of the accounting firm Arthur Andersen. Therefore, they are tightly regulated.
Best Accounting Firms
There are a lot of accounting firms, and they are often grouped by size.
The so-called “Big Four” consists of huge firms with global practices: PwC, KPMG, Deloitte, and Ernst and Young. They offer a wide range of services.
There are second-tier firms. These are smaller, but may still have dozens or even hundreds of partners. Some have a global reputation, like Grant Thornton, while others are local or regional leaders or niche specialists.
Then, there are thousands of local firms with anything from one accountant to offices that are passed down through the generations.
Accounting firms are regulated by industry bodies. Therefore, few are objectively bad. What makes a firm good depends on needs. Budget is important, as large firms often charge more. But there are also significant differences in sectorial expertise, geographic knowledge, and working style.
So, when choosing the best accounting firm for you or your company, consider several factors. Contact a local chamber of commerce to start assessing different accountants.
People Who Work at Accounting Firms
Accountants have a reputation for being boring and straight-laced, which is partly based on truth.
Accounting Firms need people who are detail-oriented, thorough, and able to deal with large amounts of data. They tend to attract people who are very smart, but not highly creative or eccentric. Many accountants have a degree in accountancy, while others have more general qualifications and additional accountancy qualifications.
Accounting firms are important and often not well understood. It is a fascinating world with lots of firms doing important work. Do you have an accountant who does your taxes every year? If not, find one who can help you with your financial status.