14.2 The Accounting Profession

Accounting plays a crucial role in business, with public and private accountants serving different functions. Public accountants work for firms, providing services to various organizations, while private accountants focus on internal financial matters for a single company.

The Sarbanes-Oxley Act of 2002 brought significant changes to the accounting profession. It established new oversight measures, increased executive accountability, and enhanced financial reporting standards. These reforms have improved transparency but also increased compliance costs for businesses.

The Accounting Profession

Public vs Private Accountants

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• Public accountants work for accounting firms providing services to various organizations including audits, tax preparation, and consulting while maintaining independence and objectivity in their work, and are required to hold a ###certified_public_accountant_(CPA)_0### license
• Private accountants work within a single company or organization handling internal financial reporting, budgeting, and cost management without the same level of independence requirements as public accountants, and may or may not hold a CPA license depending on their role and employer

Sarbanes-Oxley Act (SOX)

• Enacted in 2002 in response to high-profile corporate scandals (Enron, WorldCom) to restore public confidence in financial reporting and corporate governance
• Established the Public Company Accounting Oversight Board (PCAOB) to oversee audits of public companies, required executive certification of financial statements and internal controls, mandated auditor independence and prohibited certain non-audit services, and imposed stricter penalties for financial fraud and misconduct
• Increased focus on internal control testing and documentation, enhanced auditor independence requirements and communication with audit committees, and more rigorous financial reporting and disclosure standards

Impact of Accounting Reforms

• Improved transparency and reliability through more detailed and accurate financial disclosures and increased executive accountability for financial statements and internal controls
• Enhanced auditor independence via restrictions on non-audit services and mandatory audit partner rotation, and strengthened the role of audit committees in overseeing the financial reporting process
• Increased costs and compliance burdens, particularly for smaller public companies struggling with resources needed to meet reporting requirements
• Ongoing challenges in balancing costs and benefits of regulation while maintaining investor confidence and adapting to new technologies and evolving business models in financial reporting