Public Accounting: Independent Certified Public Accountant's Function

A comprehensive exploration of Public Accounting, focusing on the function of Certified Public Accountants (CPAs) and their roles in issuing an Accountant's Opinion or Auditor's Report.

Public Accounting involves the provision of accounting services to the public by Certified Public Accountants (CPAs). Unlike private accountants who work within a single organization, public accountants serve multiple clients, offering a variety of accounting and auditing services. The primary function of a CPA in public accounting is to provide an independent and objective opinion on the financial statements of an organization, culminating in an Accountant’s Opinion or Auditor’s Report.

The Role of the Certified Public Accountant (CPA)

Independence and Objectivity

CPAs must maintain independence and objectivity to ensure the credibility of their work. This independence is crucial as it establishes trust and reliability in the reports and opinions they issue, representing an unbiased evaluation of the financial health of the organization being audited.

Issuance of an Accountant’s Opinion or Auditor’s Report

The core function of a public accountant is to audit financial statements and, subsequently, provide an Accountant’s Opinion or Auditor’s Report. This process involves:

• Examining Financial Statements: Evaluating the accuracy, completeness, and conformity of financial statements with Generally Accepted Accounting Principles (GAAP) or other relevant accounting frameworks.
• Assessing Internal Controls: Reviewing and testing the company’s internal control systems to determine the reliability of its financial reporting.
• Gathering and Evaluating Evidence: Collecting substantial evidence to form a basis for the opinion on the financial statements.

Types of Auditor’s Reports

Unqualified Opinion

An unqualified opinion, often referred to as a clean opinion, signifies that the financial statements are presented fairly, in all material respects, in accordance with the applicable financial reporting framework.

Qualified Opinion

A qualified opinion indicates that, except for certain issues identified, the financial statements present a fair view of the company’s financial position. These issues are usually described in the Auditor’s Report’s basis for the qualified opinion section.

Adverse Opinion

An adverse opinion is issued when the financial statements do not present a fair view of the company’s financial position, often due to significant misstatements or non-compliance with GAAP.

Disclaimer of Opinion

A disclaimer of opinion is provided when the auditor is unable to obtain sufficient appropriate audit evidence to form an opinion on the financial statements.

Special Considerations in Public Accounting

Ethical Standards

CPAs are bound by ethical standards, which include principles of integrity, objectivity, professional competence, confidentiality, and professional behavior. These ethical standards are essential in maintaining public trust in the CPA’s work.

Continuous Education

Public accountants are required to engage in continuous professional education to keep up with changes in laws, regulations, and accounting standards.

Historical Context

Public accounting as a profession has evolved significantly since its inception. The establishment of formal accounting organizations and the creation of the CPA designation have played a pivotal role in setting and maintaining high standards within the field.

Applicability and Comparisons

Public vs. Private Accounting

• Public Accounting: Offers services to a variety of clients, includes auditing, taxation, consulting. CPAs are usually employed in public accounting firms.
• Private Accounting: Accountants work internally within a business. Their focus is on the internal financial management of their employer.

Related Terms

• Generally Accepted Accounting Principles (GAAP): A common set of accounting principles, standards, and procedures that companies use to compile their financial statements.
• Financial Accounting Standards Board (FASB): An organization that establishes financial accounting and reporting standards in the U.S.

FAQs

What is the primary purpose of an Auditor's Report?

The primary purpose of an Auditor’s Report is to provide an independent opinion on the fairness and accuracy of an organization’s financial statements.

What is the difference between a CPA and an accountant?

A CPA has met additional state licensing requirements, passed the CPA exam, and maintains continuous education. An accountant may have a degree in accounting but not the CPA certification.

How often should a company have an audit?

Public companies are generally required to have annual audits. Private companies may have audits less frequently, depending on legal, regulatory, or client requirements.

References

1. American Institute of CPAs (AICPA)
2. Financial Accounting Standards Board (FASB)
3. Securities and Exchange Commission (SEC)

Summary

Public accounting is a critical field that ensures the integrity and reliability of financial reporting. Certified Public Accountants play a vital role in providing independent assessments through the issuance of Accountant’s Opinions or Auditor’s Reports. Their work is governed by stringent ethical standards and continuous professional development, making public accounting an essential pillar of the financial system.