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Accounting Industry

About the accounting industry
Involved in assisting with the accounting for companies, groups, and organizations and proposing improvement measures and related policies in order to enhance the soundness of clients' accounting processes. Also, the job involves providing specialized knowledge and methods to verify (audit) the correctness and soundness of clients' accounting processes as a third party.

According to a study, total sales of accounting firms in the United States in 2019 is expected to reach 120 billion dollars. The average annual growth in the 5 years leading into 2019 is estimated to be 4.8%. There are roughly 102,200 accounting firms (audit service companies) in the United States with an estimate of about 540,000 total employees. The global market is roughly $464 billion dollars and is said to be one of the industries with the highest profit ratio.

Sakes of audit service
Sales of accounting firms
$120 billion(2019)
Average annual growth
Average annual growth
U.S. audit firms
U.S. accounting firms
Total estimate employees
Total estimate employees

Accounting firms are the only entity that has been approved to determine the credit level of financial reports created by clients (companies) from the perspective of a group of accounting specialists. In addition, since listed companies are legally obliged to disclose a financial report that has been audited by a third party, general business firms must request an audit by an accounting firm in order to observe this regulation. This is a reason why accounting firms describe their business activities as “assurance.”  

Further, each service carries the objective of increasing the reliability of the client (general business), supporting the observance of laws, and aiding in minimizing tax expenditure. These lead to the protection of investors and accordingly contribute to securing the healthy functionality of the capital market, which is one of the foundations of a free capitalist society. 

Industry classification
The tasks of an audit firm can be broadly classified into the 3 service fields of auditing, tax, and advisory. In addition to these 3 main departments, there may be more detailed specialist fields, such as financial accounting, management accounting, accounting IT systems, legal affairs, and legal accounting.

The most important responsibility is to assure the reliability of the financial statements created by client firms. Auditing is carried out to give an opinion on whether or not a general business firm’s financial statements are being created in accordance with accounting standards. In addition, receiving a financial audit from a third party is a legal requirement for companies that are publicly listed. Mid-to-small accounting service companies may be involved in the creation of financial statements to support the accounting departments of mid-to-small companies. 

Tasks that involve providing advice on the client company’s tax strategy and observance of the tax system (legal compliance), including tax economy, as experts on tax laws.

The main responsibilities involve providing advice on financial analysis, calculation of corporate valuation, due diligence *1, the SOX Act *2, and internal control *3 regarding a company that the client firm is investing or seeking to invest in or a company that the client firm is seeking to acquire. In addition, when a private company lists its shares on the market, there are services to prepare prior auditing and internal regulation in order to submit the necessary documents to the stock exchange or related authorities (for example a stock trading committee) and apply for public listing. Therefore, the advisory department of an auditing firm is positioned as a consulting department.
*1 Due Diligence: In the accounting industry, due diligence refers to research on investments, risk analysis, and calculating valuation by determining whether or not any decision or action would be subject to legal liability through prior research.
*2 The SOX Act: Laws that protect investors by increasing the reliability of information disclosed by general companies
*3 Internal Control: The construction of a framework to evaluate and improve the appropriateness of the business operations of a corporate organization

Financial Accounting
Tasks that involve auditing and reporting the financial information of a general business firm for external usage purposes. Generally, investors, potential investors, and creditors serve as the external users. In these instances, audit firms evaluate records of the corresponding company’s business transaction and create and submit the documents based on GAAP *4.
*4 GAAP (Generally Accepted Accounting Principles): Accounting principles that have been generally accepted as fair and proper

Management Accounting
Tasks that involve providing financial policies and analysis that support the decision-making of members of management at client firms in order to accomplish their objectives. Because the analysis of cost effectiveness serves as the foundation for internal policies and financial reports, each company has their own methods, meaning that this field is not always based on materials that comply with GAAP *4. Therefore, audit firms are utilized when external advice on finances and analysis is sought to accomplish objectives.
*4 GAAP (Generally Accepted Accounting Principles): Accounting principles that have been generally accepted as fair and proper

Accounting IT Systems
Presenting advice regarding system and infrastructure for processing and managing accounting data are the main services in this field. Demand in this field has been growing markedly in recent years through the increase of various forms of digital devices, rapid development of software, initial steps toward popularization of AI-based systems, and previously unavailable ability to automate and optimize. Furthermore, the rapid increase of cyber-attacks on companies is another cause for the growth of this field. Tech-related auditing and advising is a field that competes with the consulting industry.

Forensic Accounting
Services that are related to legal affairs and legal battles and are positioned as a rather specialized field within accounting services. Assessment and analysis of legal risks and materials, viewpoints, and specialist knowledge that are required as proof for litigation are provided based on requests from the team of lawyers of the plaintiff or defendant.
Career path
Since audit firms have the corporate organization of a Limited Liability Partnership (LLP), similarly to law offices and consulting firms, a partner is the highest position in an audit firm, as is the case with LLPs in other industries. Below is a common career progression.

This is an executive position in which company stocks can be acquires. There are several levels of partners in Japanese accounting firms, and there may be a distinction between employee partners (like a director) and senior partners. In this case, after becoming a senior partner or above, it becomes an executive position.

Managing Director
A managerial position that is similar to being a partner without stocks.

Senior Manager
This position is held for roughly 3-5 years.

2-3 years after being promoted from a senior associate. As project leader, responsible in recruiting skilled members to the team. Also participate in the development of new solutions, expanding of clientele and training of personnel.

Senior associate
This position is held for 3-4 years after being promoted from an associate.

This position is typically the first 2 years after joining the company. Tasks are carried out while learning the basics of accounting. There is a need to process information correctly, precisely, and quickly. In Japan, the title of accountant may be used more frequently than associate.

When Changing Jobs
If you have experience as a senior associate or above:
It is common for employees within the audit department to transfer to the accounting, internal audit, or internal control department of a major general business firm, such as a trading company or insurance company. A transfer to a consulting company is not very rare either. A portion of trading companies and insurance companies have a practice of hiring mid-career accountants from the Big 4.
It is common for those in the tax department to transfer to a consulting firm specializing in tax.
It may be typical for those within the advisory department to transfer to the investment department of a general business firm. If the employee has experience, there would also be opportunities to transfer to an investment bank or consulting firm.
Qualifications and Qualities
A specific degree and/or qualifications may not be required when finding employment at an accounting firm, but having learned the basics of accounting is a prerequisite. In the United States common majors are accounting, finance, and MBAs. In Japan, there are many employees with academic background in commerce, economics, business administration, and law.
Some say that accounting services have existed for over 1,000 years, but majority believe that it was established as a specialized industry as it is today in England in the late 1800s. Several decades after the industrial revolution, accounting fraud rose as a result of the development and expansion in scale of industries, increase of corporate organizations, and growth in investment caused by the industrial revolution. As a result, accounting gained significance to increase the financial soundness of corporate management, while the necessity to prove the correctness of financial information from a fair and neutral standpoint grew stronger. The Great Depression of 1929 can be seen as another cause that strengthened the need for auditing.

The accounting industry, which was developed in the late 19th century, became complicated as a result of accounting fraud and the legislation and law reforms to prevent it. As a result, specialists with expert knowledge of regulations rose to prominence. European countries at the time set up institutions related to these qualified specialists, which led to the creation of the qualified position called registered accountant. This qualification no longer exists, but qualified positions, such as accountant, certified tax accountant, and especially CPA, became standard in this industry. These institutions were also set up in Japan 10-20 years after the changes in Europe and the United States.    

The demand for accounting services continued to grow through the mid-1900s as a result of endless cases of creative accounting and continuous law reforms. During this time, further specialization came to be required due to the formulation and reformation of commercial law, CPA law, Securities and Exchange law, financial reporting standards, financial statement regulations, audit standards, and various other related laws in advanced nations. Each time a major issue with accounting fraud came to light, related laws and standards were tightened. As a result, accounting departments of general business firms could no longer keep up with the changes. Also, the fact that it became a legal obligation for listed companies to receive a third-party (external) audit was a major contributing factor for the growth and stabilization of the audit firm industry.

Did you know? Big 4
There are 4 major companies in this industry called the Big 4, which are Deloitte, Ernst & Young (EY), KPMG, and PricewaterhouseCoopers(PwC), and they provide services in nearly all fields in the accounting industry. A majority of listed companies and private firms (unlisted companies) can be called a client of the Big 4.

Work experience at an accounting firm
Since major accounting firms are systemically mandated to receive various forms of training, employees are required to study new accounting standards, tax systems, and specialized audit methods for a specified amount of time almost every year. As a result, those that have spent several years at an accounting firm are seen by general business firms as immediate assets that have thoroughly and continuously studied this material and acquired specialist knowledge and skills.