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Organization of Public Accounting Firms
Organization of Public Accounting Firms
Public accounting firms vary in size, ranging from small sole proprietorships to large multinational organizations like the Big Four (Deloitte, EY, KPMG, and PwC). These firms often structure their organizations with different levels of staff and management, including:
- Partners
- Managers
- Senior (in-charge) accountants
- Staff accountants (or associates).
Firms may also organize their operations by service lines (e.g., audit, tax, advisory) or specialize by industry to leverage expertise across specific sectors such as healthcare, entertainment, or financial institutions.
Services Offered by Public Accounting Firms
Services Offered by Public Accounting Firms
Public accounting firms provide a wide range of professional services:
1. Auditing and Assurance Services: Includes traditional financial statement audits, which add credibility to financial information for stakeholders like investors and regulators. Assurance services may also cover nonfinancial information, such as cybersecurity risk assessments.
2. Tax Services: CPAs offer tax planning and compliance services for various types of taxation (e.g., income, estate, property). Small firms tend to focus heavily on tax-related services.
3. Advisory Services: These services include strategic consulting, financial planning, and risk management. However, advisory services for audit clients are restricted by regulations like the Sarbanes-Oxley Act to prevent conflicts of interest.
4. Other Services: Public accounting firms also provide engagements like compilations and reviews of financial statements, forensic accounting, and evaluations of internal controls. They may even verify nontraditional metrics, such as Academy Award vote counts or sports hall of fame balloting.
Public accounting firms' services and organizational structures reflect their dual role in meeting client needs and adhering to professional standards that ensure independence and objectivity.
Governmental Auditing
Governmental Auditing
Governmental auditing refers to audits conducted to ensure that public resources are used efficiently, economically, and effectively while complying with laws and regulations. Governmental auditors often focus on three main types of audits:
1. Financial Audits: Ensure financial statements are presented fairly in accordance with the applicable financial reporting framework.
2. Compliance Audits: Assess whether organizations comply with applicable laws, regulations, and grant requirements.
3. Performance Audits: Evaluate the efficiency, economy, and effectiveness of government programs, often aligning closely with operational audits.
The U.S. Government Accountability Office (GAO) sets standards for governmental auditing, known as the "Yellow Book," which emphasizes accountability in the use of taxpayer funds.
Internal Auditing
Internal Auditing
Internal auditing is an independent and objective assurance and consulting activity designed to add value and improve an organization's operations. It evaluates:
1. Risk Management: Helps in identifying and mitigating risks.
2. Control Systems: Reviews internal controls to ensure compliance with policies and laws.
3. Efficiency and Effectiveness: Assesses the organization's operations to improve resource use and achieve goals.
Internal auditors are employed by organizations or external service providers. They frequently perform operational audits and report findings to senior management and the board to improve decision-making and governance.
Operational Auditing
Operational Auditing
Operational audits examine an organization’s processes to provide recommendations for improving resource efficiency, effectiveness in achieving objectives, and compliance with policies. Unlike financial statement audits, operational audits focus on enhancing operational performance rather than verifying financial accuracy.
These audits often align with governmental and internal audit functions, particularly in performance reviews and compliance assessments. Examples include audits of departmental operations, quality control, or governance structures.
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