Difference Between Public and Private Accounting
The key difference between Public and Private Accounting is that Public accounting is the accounting of financial documents required to be disclosed to the public by the individual or corporation. In contrast, Private accounting is the accounting of the company’s financial information in which the accountant is generally employed as the internal manager.
The biggest question arises when you complete your graduation and are looking for career options to pursue. Now, if you intend to pursue a career in accounting, then the decision may come down to the choice between public and private accounting.
The decision may be driven by a few factors (not exhaustive), which include the expectation of the type of work, one’s personality traits, and career goals. This article attempts to provide insight into both types of accounting careers, which will help one determine which career path is the best for your future.
Table of contents
What is Public Accounting?
Public accounting is the type of accounting where an accountant acts as an independent third party with various client companies to examine the financial statements that a company is required to disclose to the public. The public accountant also supports the preparation of the financial statements to ensure fair representation of the client companies’ results, financial position, and cash flowsCash FlowsCash Flow is the amount of cash or cash equivalent generated & consumed by a Company over a given period. It proves to be a prerequisite for analyzing the business’s strength, profitability, & scope for betterment. .
- Essentially, a public accountant intends to validate the financial documents, reports, and disclosures from an outside perspective. A public accountant works for companies that provide third-party accounting services to others.
- Some of the examples of work of a public accountant include auditing, tax advisory, and consulting services. The Big FourThe Big FourBig Four refers to the top four accounting firms in the world that audit more than 80% of the US public companies. These firms are Deloitte, Pricewaterhouse Coopers, KPMG, and Ernst & Young. These firms have earned this title because of their huge size, good reputation and the worldwide reach in the field. (Deloitte, E&Y, KPMG, and PWC) are the prime examples of such public accounting firms globally.
- A public accountant must be a certified CPA (certified public accountant).
What is Private Accounting?
On the other hand, private accounting is the type of accountingType Of AccountingThere are different types of the accounting which an organization can follow as per the scope of its work and need of stakeholders. Some of them include financial accounting, forensic accounting, accounting information system, managerial accounting, taxation, auditing, cost accounting, etc. where a company employs an accountant to act as an internal manager and prepare and analyze its financial statement.
- The work of a private accountant revolves around setting up internal systems, which include the recording of business transactionsBusiness TransactionsA business transaction is the exchange of goods or services for cash with third parties (such as customers, vendors, etc.). The goods involved have monetary and tangible economic value, which may be recorded and presented in the company's financial statements. that is eventually the basis for the preparation of the financial statements.
- A private accountant works toward the benefit of a specific company. Additionally, the third-party, public accounting firms are the ones who review and audit the financial statements prepared by the private accounting professionals.
- The validation by the third party is an independent assessment to ensure that the private internal accounting practicesAccounting PracticesAccounting practice is a set of procedures and controls used by an entity's accounting department to keep track of accounting records and entries. Other reports are generated based on accounting records, such as financial statements, cash flow statements, fund flow statements, payroll, tax workings, payment and receipts statements, and so on, and they form the basis of the auditor's reliance while auditing the financial statements. meet reporting standards.
Public vs. Private Accounting Infographics
The public accountant is trained to develop proficiency in the analysis of accounting systems of companies and the validation of their financial disclosures. A public accountant must also be well versed with the accounting standards (GAAP or IFRS) governing the accounting standards followed in the preparation of the financial statements of client companies. On the other hand, a private accountant’s training helps in developing expertise in recording accounting transactions, which may include billings, accounts receivableAccounts ReceivableAccounts receivables is the money owed to a business by clients for which the business has given services or delivered a product but has not yet collected payment. They are categorized as current assets on the balance sheet as the payments expected within a year. and accounts payableAccounts PayableAccounts payable is the amount due by a business to its suppliers or vendors for the purchase of products or services. It is categorized as current liabilities on the balance sheet and must be satisfied within an accounting period., etc. However, owing to the nature and scope of the work, the knowledge of a private accountant may remain limited to certain areas of accounting only.
- Since a public accountant has to work with many client companies, they may develop experience in different industries. On the other hand, a private accountant works on the accounting of an individual company and, as such, develops strong knowledge about the concerned industry but has limited knowledge about other industries.
- A public accountant must be a certified CPA, while a private accountant is not compulsorily required to hold CPA certification. However, there are several other certifications for private accounting.
- Given the nature of work, a public accountant might be required to travel to the site of the client’s location and work for long hours to meet tight deadlines. On the other hand, the work of a private accountant is relatively stable, with very little to no travel (fixed work location) and regular hours.
- A public accountant may start their career as an entry-level accountant and advance through a senior accountantSenior AccountantA senior accountant is responsible for reporting costs, expenditure, profitability, margins and performs the lead accounting role in the organization. Their duties are more than a junior accountant, which included data compilation, journal entries, and populating balance sheets. position to eventually hold senior management positions like an audit partner in the firm. The career of a private accountant, on the other hand, also begins as an entry-level accountant but eventually advances into a senior management position in the company, like a chief financial officer (CFO).
Public vs. Private Accounting Comparative Table
|Basis for Comparison
|Trained in the analysis of accounting systemsAccounting SystemsAccounting systems are used by organizations to record financial information such as income, expenses, and other accounting activities. They serve as a key tool for monitoring and tracking the company's performance and ensuring the smooth operation of the firm. and validation of financial disclosures
|Expert in the recording of accounting transactionsRecording Of Accounting TransactionsAccounting Transactions are business activities which have a direct monetary effect on the finances of a Company. For example, Apple representing nearly $200 billion in cash & cash equivalents in its balance sheet is an accounting transaction. which eventually forms financial statements
|May be exposed to a plethora of industries given the nature of my work.
|Limited knowledge about industries other than the one they work in
|Must be a certified CPA
|Not compulsory to be a certified CPA, but it is an added advantage.
|May be required to travel to the site of the client’s location.
|Usually fixed work location with no travel.
|A significant number of companies
|Individual company for which they work
|May be required to work for long hours to meet tight deadlines.
|Relatively stable and regular work hours
|Must be comfortable interviewing clients
|Must be comfortable querying other departments of the same company
As can be seen from the above explanations, both accounting categories are very different and serve important roles in assessing a company’s financial statement in their unique ways; Both public and private accounting involve more or less similar kinds of job activities, skills, and education.
However, the distinctions can be seen in the skill developed after the fresh graduates join either career path. Public and private accounting can be seen as “external” accountants and “internal” accountants of a company, respectively. It is important to understand the various facets of the two in the pursuit of either career option. I hope the article helps you to decipher the two cost categories.
This has been a guide to Public vs. Private Accounting. Here we discuss the top differences between public and private accounting and infographics and a comparison table. You may also have a look at the following articles –