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THE BREADTH OF ACCOUNTING

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ACCOUNTING REDEFINED

Accounting is financial marketing. It organizes, charts, and presents complex transactions and financial interrelationships in a reliable fashion. Not all information is necessarily useful. Of equal or greater importance is the accountant's assurance that information is verifiable, objective, accurate, and compiled in an unbiased way. In this complex economic world, information is critical, and the "information czars" are the professional accountants.

With the advent of computerized record keeping, the tasks required of bookkeepers, who work under the supervision of accountants, shifted from the tedious routine of making entries manually to the fast, efficient, but equally repetitive computer input duties now required. The knowledge of accounting at the data-entry level can be minimal, and little judgment is needed to record raw source data. Elementary bookkeeping can be simply learned with one or two years of high school training. In fact, on-the-job training can produce sufficient bookkeeping knowledge to perform at this level.

This article is intended for the student who aspires to participate in the unparalleled opportunities for accountants in the year 2013 and beyond. Training in accounting and other business fields, such as computer science at the college level, is required for those who hope to tap these opportunities.



The recognized mark of competence in professional accounting is obtained by passing the CPA examination. Large numbers of CPAs are employed in industry, education, and government positions, not solely in public accounting practice. The CPA certificate awarded by the fifty-four licensing jurisdictions in the United States has become an important benchmark of educational achievement for top management financial positions and an absolute requirement for the practice of public accounting.

The financial world and government bodies at the federal, state, and local levels place great importance on the work of independent public accountants. Financial statements audited by CPAs are mandated by public and private agencies in the interest of investors, credit grantors, and taxpayers. For example, the New York Stock Exchange requires that corporations having their capital stocks or bonds listed for trading on the exchange furnish their stockholders with financial statements audited by independent public accountants at least annually. The Securities and Exchange Commission (SEC) of the federal government also requires that companies coming under its jurisdiction furnish financial statements bearing the opinion of independent public accountants for review and approval before new securities of those companies can be offered to the public. In addition, the commission requires all companies coming under its jurisdiction to file with the SEC annual reports bearing the opinion of independent public accountants. Growing reliance on public accountants is very evident at all levels of government, particularly where an independent examination of organizations expending taxpayer taxation, computers, federal and state laws, and management operations. Noncertified accountants may generally perform accounting, tax, and management services to clients, but in virtually all states they are restricted from performing the audit function unless licensed as public accountants. Public accounting firms have been the most active recruiters of accounting graduates at colleges and universities. On campus, public accounting is considered to be one of the best ways to develop broad exposure to a wide variety of businesses and to have a chance to acquire specialized skills at an early stage in a career.

A beginning public accountant can expect to progress through several staff-level positions. Starting as a staff accountant includes helping those in charge of an audit engagement conduct the examination. The typical next level would be as an in-charge accountant with responsibility for planning and conducting an audit engagement. A major step forward comes in promotion to manager. This position carries responsibility for the supervision of the in-charge accounting staff. The last promotion is to partner of the firm. As partner, there is increased responsibility for supervision of managers and a direct participation in the decisions and operations impacting the firm itself. While certainly not only limited to public accounting, communication skills and self-confidence are important to real success in this field. Later in this book we will explore, in greater depth, the skills required for a successful public accountant.

Management/Industry Accounting

Management accountants are sometimes referred to as industry or private accountants as contrasted with their colleagues in public accounting. Titles such as controller, financial vice-president, treasurer, director of internal audit, chief accountant, cost accountant, internal auditor, accounting supervisor, and director of taxation describe the widely known and highly visible positions in the operations of a company. By the very nature of employment within a particular industry, management accountants automatically become specialists very quickly. It may be in accounting for a utility company, banking or other financial institution, retailing, manufacturing, or specialty service industry such as insurance.

From the tedious routine of making entries manually to the fast, efficient, but equally repetitive computer input duties now required. The knowledge of accounting at the data-entry level can be minimal, and little judgment is needed to record raw source data. Elementary bookkeeping can be simply learned with one or two years of high school training. In fact, on-the-job training can produce sufficient bookkeeping knowledge to perform at this level.

This book is intended for the student who aspires to participate in the unparalleled opportunities for accountants in the year 2000. Training in accounting and other business fields, such as computer science at the college level, is required for those who hope to tap these opportunities.

The recognized mark of competence in professional accounting is obtained by passing the CPA examination. Large numbers of CPAs are employed in industry, education, and government positions, not solely in public accounting practice. The CPA certificate awarded by the fifty-four licensing jurisdictions in the United States has become an important benchmark of educational achievement for top management financial positions and an absolute requirement for the practice of public accounting.

The financial world and government bodies at the federal, state, and local levels place great importance on the work of independent public accountants. Financial statements audited by CPAs are mandated by public and private agencies in the interest of investors, credit grantors, and taxpayers. For example, the New York Stock Exchange requires that corporations having their capital stocks or bonds listed for trading on the exchange furnish their stockholders with financial statements audited by independent public accountants at least annually. The Securities and Exchange Commission (SEC) of the federal government also requires that companies coming under its jurisdiction furnish financial statements bearing the opinion of independent public accountants for review and approval before new securities of those companies can be offered to the public. In addition, the commission requires all companies coming under its jurisdiction to file with the SEC annual reports bearing the opinion of independent public accountants. Growing reliance on public accountants is very evident at all levels of government, particularly where an independent examination of organizations expending taxpayer revenues is involved. Many such audits are required under the federal or state laws providing for these social programs. Many accountants find rewarding careers in government accounting positions, and their skills in organizing and analyzing financial information are important to the efficient operation of these public agencies.

THE ORIGIN AND DEVELOPMENT OF ACCOUNTING

Accounting in Ancient Times

A number of modern accounting concepts, such as internal control procedures as well as management accounting techniques, can be traced many times. Archaeologists and cultural anthropologists have found evidence in some form as far back as 3600 B.C. in ancient Babylonia. There have even been discoveries of small handmade polished objects dating back thousands of years earlier, objects that are surmised to have been used as gaming devices or scoring pieces. The first indication of modern bookkeeping dates from about 600 B.C. with the business and household practices of ancient Rome.

The Bible, which is considered to cover events between 1800 B.C. and A.D. 95, contains references to accounting. The concept of accounting controls, for example, appears to have been used to help ensure that an enterprise not be defrauded either by its employees or by outsiders. In references to the building of a temple, it can be inferred that accounts would have been kept if the contractors were less than honest. Also, accounting was viewed as a means of checking performance, as in a parable in which an owner, hearing that his steward is wasting money, says, "What is this I heard from you? Draw me up an account of your stewardship." In the area of resolving disputes between parties, the Bible states, "These are things you should not be ashamed of-keeping strict accounts with a traveling companion." The idea that keeping accounts would serve to reduce unnecessary conflict between parties seems evident. In sum, it appears that the Bible points out that financial account-ing are necessary to avoid fraud, to monitor agents or employees, and to reduce conflicts over resources. The Bible also has references to budgeting and the budgeting process and many managerial-related topics. For example, one reference asks, "Which of you here intending to build a tower would not first sits down and work out the cost to see if you had enough to complete it?"
The Development of Modern Accounting

In the fifteenth century, Italy was known for its commerce and trade, and, in 1494, Luca Paciolo, a Franciscan monk, published a treatise on double-entry bookkeeping, "Tractatus XI, Particularis de Computis," included in his Summa de Arithmetica. Although this treatise is the first-known significant writing on the subject, it is interesting to note that Paciolo did not claim that he invented or discovered bookkeeping but wrote about it as the method in use in Venice at that time. His statement gives us every reason to believe that double-entry bookkeeping had been the technique of financial recording by merchants and businessmen in Italy for some time prior to 1494^

Almost one hundred years later is the earliest recognition of financial record keeping as a specialized occupation. The records show that in Venice, in 1581, the first college of accountants was organized with power to regulate entry into the field. Admission requirements then bear a striking resemblance to regulations for entering the profession today. An applicant was required to submit a certificate of fitness signed by a magistrate, serve a six-year apprenticeship with a practicing accountant, and pass an examination.

Italy apparently was the leader in accounting for many years, but it appears that by about the eighteenth century, Scotland and England took the lead. Public accounting in a limited way was recognized in those countries during the latter part of the eighteenth century, but by the middle of the nineteenth century, there is tangible evidence of a separate profession of accounting developing. In 1854, a society of Scottish accountants, the Society of Accountants in Edinburgh, was formed, and not long thereafter, its members were designated as chartered accountants. In 1855, a similar society was organized in Glasgow, and during the next twenty-five years, several other accounting organizations came into being in various cities in England and Scotland. However, the Institute of Chartered Accountants of England and Wales, which was formed in 1880, probably had more to do with shaping the future of the accounting profession than did any of the other organizations up to that time.

During the 1800s, many British entrepreneurs made substantial financial investments in American enterprise and sent their public accountants to the United States to obtain objective reports. One English accountant was dispatched to the American Midwest during this period to look after the interest of the British owners of the Chicago, Burlington, and Quincy Railroad. He spent the rest of his working life in that railroad's accounting department. In this fashion, many other British accountants migrated to the New World, helping to establish the profession on this side of the Atlantic.

By the 1880s, there were a number of individuals and small firms practicing public accounting in this country, and in 1887, the first organization of public accountants, the American Association of Public Accounts, was formed. This association, with many changes over the years, is now the American Institute of Certified Public Accountants (AICPA), the largest and probably the most influential organization of professional accountants in the world.

Twentieth-Century Accounting

The passage of the income tax law of 1913 and establishment of the Securities and Exchange Commission in 1933 were tremendously stimulating to the accounting field in the twentieth century. Further, as government tapped corporations and individuals for income and other taxes and the tax code became ever more complex, experts were needed to delve into corporate and individual finances to determine what taxes were owed as well as for the purpose of helping to plan activities to minimize tax obligations. Similarly, the auditing duties of accountants were expanded and enhanced as the Securities and Exchange Commission, the stock exchanges, and the accounting profession began to give more and more attention to the types and amounts of information corporate financial statements were required to impart. Research and study of accounting and auditing principles governing such matters were pressed forward with increasing intensity.

The need to interpret and explain the complexity of modern financial matters was not confined to large corporations alone. Nonprofit organizations, small companies, and individuals, too, were affected. In matters relating to taxes, investments, and estate planning, many people found it difficult to cope on their own and increasingly turned for help to accountants, especially to individual practitioners and those in smaller accounting firms. Today, for many families, the accountant has become an indispensable financial adviser.

WHERE DO ACCOUNTANTS WORK?

Where do you find accounting jobs? Accountants use their skills in working for a wide variety of business, financial, governmental, and educational entities. Within these organizations, accountants generally specialize in what they do. The major fields are public accounting, management or industry accounting, government accounting, and accounting education. As employees in major fields, accountants progress through phases of increasing specialization, such as cost accounting, auditing, taxation, management consulting services (particularly in the area of computer systems), and personal financial planning.

Public Accounting

When engaged in public accounting, accountants render professional services to the public as sole practitioners or as members of public ac-counting firms. Public accounting is considered a profession similar to the profession of medicine or law in its basic requirements for entry into practice.

Public accounting has as its foundation the rendering of audit ser-vices. The importance of independent audits to investors, financial institutions, regulatory agencies, and taxpayers has resulted in public accountants being licensed in every jurisdiction in the United States. In auditing, CPAs examine clients' financial statements and express a professional opinion on them. The role of independent attester is unique to CPAs. It is also necessary for CPAs to develop expertise in matters of taxation, computers, federal and state laws, and management operations.

Noncertified accountants may generally perform accounting, tax, and management services to clients, but in virtually all states they are restricted from performing the audit function unless licensed as public accountants. Public accounting firms have been the most active recruiters of accounting graduates at colleges and universities. On campus, public accounting is considered to be one of the best ways to develop broad exposure to a wide variety of businesses and to have a chance to acquire specialized skills at an early stage in a career.

A beginning public accountant can expect to progress through several staff-level positions. Starting as a staff accountant includes helping those in charge of an audit engagement conduct the examination. The typical next level would be as an in-charge accountant with responsibility for planning and conducting an audit engagement. A major step forward comes in promotion to manager. This position carries responsibility for the supervision of the in-charge accounting staff. The last promotion is to partner of the firm. As partner, there is increased responsibility for supervision of managers and a direct participation in the decisions and operations impacting the firm itself. While certainly not only limited to public accounting, communication skills and self-confidence are important to real success in this field. Later in this book we will explore, in greater depth, the skills required for a successful public accountant.

Management/Industry Accounting

Management accountants are sometimes referred to as industry or private accountants as contrasted with their colleagues in public accounting. Titles such as controller, financial vice-president, treasurer, director of internal audit, chief accountant, cost accountant, internal auditor, accounting supervisor, and director of taxation describe the widely known and highly visible positions in the operations of a company. By the very nature of employment within a particular industry, management accountants automatically become specialists very quickly. It may be in accounting for a utility company, banking or other financial institution, retailing, manufacturing, or specialty service industry such as insurance.

Although basic training as an accountant is required for entry into management accounting, specialized knowledge has to be acquired for the particular industry in which the accountant is employed. This training is obtained through continuing education courses and on-the-job experience. The CPA credential, as well as the MBA and specialized degrees in taxation, are valuable tools in seeking a career as a management accountant. The management accountant is responsible for developing, producing, and analyzing data useful for making business decisions and for reporting to internal and external interested parties. A solid educational background in accounting and related disciplines is essential for the person who wants to move to a top management position in industry.

Government Accounting

Government accountants are hired to work in an extremely wide range of positions in federal, state, and local governments. The federal government employs CPAs and non-CPAs in many of its agencies, such as the Internal Revenue Service, the General Accounting Office, and the Defense Contract Audit Agency. Similar to public accounting and management accounting, these positions invariably involve general accounting skills and specialization in more narrowly defined areas. The Internal Revenue Service, among other responsibilities, audits individual and corporate tax returns. The General Accounting Office is the key audit agency of the United States Congress. It assists in investigations to determine compliance with government policy and regulations covering government programs and the expenditure of public funds. Audits of defense contractors can involve many millions of dollars and are the major responsibility of the Defense Contract Audit Agency.

Accounting Education

Accounting educators are in great demand today. Supplying the increased need for trained accountants in public accounting and industry has put a significant strain on the availability of educators in accounting departments. Accounting educators are on the faculty of community colleges, colleges of business administration, and graduate schools of business. A growing trend is toward the establishment of schools of professional accountancy similar to those of other professions, such as architecture, law, and medicine. After beginning their careers as instructors, accounting educators may eventually be promoted to professor-ships.

We have only begun to gain some insight into the career opportunities available to accountants. The remaining chapters of this book will help you understand each of the fields of accounting, determine the skills and resources you will need, and get a picture of the structure of the ac-counting profession and the professional organizations to which accountants belong.
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