Membership in the American Accounting Association is mude up primarily of accounting educators. although many practicing accountants arc members a:-; well, The mission of the AAA includes advancing accounting education and research.’ as well us influencing accounting practice. The focus of many of the AAA\ activities is Oil improving accounting education by hettcr preparing accounting professors and on advancing knowledge in the accounting discipline through research and publication. An important contribution of the AAA to the integrity of > accounting information is its impact-through accounting faculty on the many students who study accounting in college and subsequently become
Competence Judgment and Ethical Behavior
Preparing and presenting accounting information not a can be performed entirely by a computer or even by well-trained clerical personnel, A characteristic common to ult recognized pr<)fessions. including medicine. law, and uccounting; is the need for competent indlvldual practitioners t(1 solve problems using their prolcsslonul judgrncnt and applyinl: wong ethical xrandurds. The prnhlcn» encountered in the practice of a profession arc often complex. and ‘the specific clrcum-tanccs unique. In many cases. the well-being or others is directly affected by the work of u professional. To illustrate the importance of competence. professional judgment. and ethical behavior in thc prcparutinn of finnncial statements, consider the following complex issues that must-be addressed by the uccountant:
• At what point have certain complex transactions actually taken place. thereby making it necessary to include them in tinancial statements that are, ent to investors and creditors?
• At what point should an enterprise account for trnnsactions. that continue over a long period of time. such us u long-term ,contract to construct an illt~rstate highway?
• What constitutes adequate disclosure of information that would be expected by u reasonubly informed user of flnuncinl stuterncnts?
• At whut point arc n ‘compuny’s financial problems sufficient to question, whether ‘it will he able to remain in blisiness for the foreseeable future. and when should that informutlon be communicuted to users of its flnanciul statements? When have efforts by management to improve uhnt is, “window dress”) itsfinuncial statements crossed a line thut is inappropriate, making the financial statements actually misleading to investors ‘und creditors?
CAREERS IN ACCOUNTING
Accounting-along with such fields as architecture, engineering, law, medicine, and theology- is recognized as n profession. What distinguishes a profession from other disciplines? There is no widely recognized definition of a profession, but all of these field’ have several characteristics in common.
First, all professions involve a complex and evolving body of ‘knowledge. In DCcounting, the complexity and the ever-changjd~ nature of the business world, financial reporting requirements, management demands for increasingly complex information. and income tux laws certainly meet this criterion. – In all professions, practitioners must use their professional judgment to resolve many problems and dilemmas.
Throughout this text, we will point out situations requiring accountants to exercise professional judgment. Of greatest importance, however, is the unique responsibility of professionals to serve the public’s best interest, even at the sacrifice of personal advantage. This responsibility stems from the fact that the public has little technical knowledge in the professions, yet fair and competent performance by professionals is vital to the public’s health, safety, or well-being. The practice of medicine, for example, directly affects public health, while engineering affects public safety. Accounting ‘affects the public’s well-being in many ways, because accounting information is used in the allocation of economic resources throughout society. Thus accountants have a basic social contract to avoid being associated with misleading information.
Accountants tend to specialize in specific fields, as do the members of other professions. In terms of career opportunities.iaccounting may be divided into four broad areas: (I) public accounting. (2) manacemcnt accounting, (3) governmental accounting, and (4) accounting education.
Certified.public accountants offer a variety of accounting services to the public. These individuals may work in a CPA firm or as sole practitioners.
The work of public accountants consists primarily of auditing financial statements, income tax work, and management advisory services (management consulting). Providing management advisory services is, perhaps, the fastest-growing area in public accounting. The advisory services extend well beyond tax planning and accounting matters; CPAs advise management on such diverse issues as international mergers, manufacturing processes, and the introduction of new products. The entry of CPAs into the field of management consulting reflects the fact that financial considerations enter into almost every business decision.
A great many CPAs move froin public accounting into managerial positions with their client organizations. These “alumni” from public accounting often move directly into such top management positions as controller, treasurer, chief financial officer, or chief executive officer.
In contrast-to the public accountant who serves many clients, the management accountant works for one enterprise. Management accountants develop and interpret accounting information designed specifically to meet the various needs of management.
The chief accounting officer of an organization usually is called the chief financial officer (CFO) or controller. The term controller has been used to emphasize the fact that one basic purpose of accounting data is to aid in controlling business operations. The CPO or controller is part of the top management team, which is responsible for running the business, setting its objectives, and seeing that these objectives are met.
Knowing the cost of each business operation and of each m~nufactured product is essential to the efficient management of a business. Determining the per-unit cost of business activities and of manufactured products, and interpreting these cost data, comprise a specialized field called cost accounting
Large organizations usually maintain a staff of internal auditors. Internal auditing is the study of the internal control structure and evaluation of efficiency of many different aspects of the company’s operations, As employees, internal auditors are not independent of the organization. Therefore, they do not perform independent audits
of the company’s financial statements. , Careers in management accounting often lead to positions in top management-just as do careers in public accounting
Governmental agencies use accounting information in allocating their resources and in controlling their operations. Therefore, the need for management accountants in governrnental agencies is similar to that in business organizations.
The GAD:Who Audits the Goverilmimt
The General Accounting Office (GAO) audits many agencies of the federal government, as well as , some private organizations doing business with the government. The GAO reports its findings directly to Congress. Congress, in turn. often discloses these findings to tbe public.
GAO investigations may be designed either to evaluate the efficiency of an entity’s operations or 10 determine the fairness of accounting information reported to the governmen
The IRS: Audits of Income Tax Returns
Another govcrnmentnl agency that performs extensive auditing work is the Internal Revenue Service (IRS). The IRS handles the millions of income tux returns tiled annually by individuals and business organizations and frequently performs auditing functions to verify data contained in these returns.
The SEC: The “Watchdog” :of Financial Reporting
The ,SEC works closely with the FASB in establishing generally accepted accounting principles. Each year large publicly owned corporations must file audited financial statements with the SEC. If the SEC believes that a company’s financial statements arc deficient in any way. it conducts, an investigation. If the SEC concludes that federal securities laws have been violated, it initiates legal action against the reporting entity and responsible individuals.
Many other governmental agencies, including the FBI, the Treasury
Department, and the FDIC (Federal Deposit Insurance Corporation),
use accountants to audit compliance with governmental regulations and
Some accountants, including your instructor and the authors of this textbook, have chosen to pursue careers in accounting education. A position as an accounting faculty rncmber offers opportunities for teaching, research, consulting, and an unusual degree of freedom in .developing individual skills. Accounting educators contribute to the accounting.
profession in many ways. One, of course, lies in effective teaching; another, in publishing significant research findings; and a third, in influencing top students to pursue careers in accounting
Accounting as a “Stepping-Stone”
We have mentioned that many professional accountants leave their accounting careers for key positions in management or administration. An accounting background is invaluable in such positions, because top management works continuously with issues defined and described in accounting terms and concepts.
An especially useful stepping-stone is experience in public accounting. Public accountants have the unusual opportunity of getting an inside look at many different business organizations. which makes them particularly well suited for top management positions in other organizations.