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When individuals think of the word accountant, the acronym CPA comes to mind as well. However, management accountants, although less recognized and understood, contribute at least as much to the working of businesses today as public accountants. There are similarities and differences between these two closely related professions and they are both necessary in our current system of business. They also both follow codes of ethics that are increasingly important in the post-SOX (Sarbanes-Oxley) business world we live in today.

Public Accounting

Public accounting is involved in the preparation, auditing, and presentation of financial statements. The most common financial statements include the balance sheet, the income statement, and the statement of cash flows. The balance sheet lists an entity’s assets, liabilities, and owners equity accounts and is a snapshot of a certain date. As its name suggests, the balance sheet is essentially an equation that must balance. Assets = liabilities + owners equity. The income statement presents a time period and lists the entity’s revenues and expenses. The statement of cash flows shows how much of an entity’s cash was received and spent in operating, investing, and financing activities. This is perhaps the most important financial statement because it shows that an entity has (or does not have) enough cash to pay its creditors. It also shows where the cash is coming from and if this cash source is likely to be available in the future.

Essentially, public (or financial) accounting is concerned with (as its name suggests) the public. Financial accountants concern themselves with the objectivity, conservativeness, and transparency of information. The main users of financial accounting reports and information are external. Examples of external users include investors (current and potential), creditors, stockholders, and potential employees.

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