What is Accounting?
What exactly is accounting, and why do we need it? Accounting is a system by which economic information is identified, recorded, summarized and reported for the use of decision makers.
So what does that mean?
Put simply, accounting is the language of business. An accounting system essentially tracks all of the activities of an organization, showing when and where money has been spent and commitments have been made. This aids decision making by allowing managers to evaluate organizational performance, by indicating the financial implications of choosing one strategy over another and by highlighting current weaknesses and opportunities. It allows managers to take a step back, look at the organization, and assess how it is doing and determine where it should be going.
Accounting, however, is not the exclusive domain of Big Business. In all likelihood, you have been managing your own personal accounting system for years – it’s called your checking account. Every time you record an entry in your check ledger, you are acting like an accountant. Your check ledger is an accounting log of all of your deposit and withdrawal activities, helping you identify your cash inflows and outflows and letting you know how much money you have left in the bank. It lets you know where your money went and helps you make decisions on how to plan your future purchases and expenses. If this log is not regularly balanced for accuracy, you would have an inaccurate picture of your cash position and might spend more than you have (a common situation, given the popularity of overdraft protection features offered by banks).
You get the picture. Now, imagine these functions performed on more complicated items and on a much larger scale. While you might have 500 checkbook transactions in a year, many organizations might have that many transactions every minute. This is what an accountant does. And, just as you would eventually be lost without a relatively accurate checkbook, organizations would not be able to make useful decisions without an accurate accounting system. Anyone who has pulled out his or her hair trying to balance their checkbook should have an appreciation for both the importance and challenges of accounting.
So why would anyone choose a career in accounting as opposed to another business profession, like investment banking or management consulting? Isn’t accounting boring and tedious?
Accounting has always had an image problem, stuck in the public consciousness as a profession populated by math geeks who love crunching numbers but little else. While this stereotype may have been accurate at one point in history, it no longer presents an accurate picture of what the career is like. While the basic mechanics of accounting can certainly become tedious, such functions are increasingly becoming automated, with accountants focusing more on analysis, interpretation and business strategy.
In fact, accounting has been rated one of the most desirable professions available. According to The 2002 Jobs Rated Almanac, “accountant” was the fifth best job in terms of low stress, high compensation, lots of autonomy and tremendous hiring demand. Furthermore, the National Association of Colleges and Employers’ Summer 2004 Salary Survey ranked the accounting services industry first among the top ten employers with job offers for graduating college students.
Collegial Work Environment: Public accounting firms, particularly the Big Four firms (Deloitte Touche Tohmatsu, Ernst & Young, KPMG and PricewaterhouseCoopers), tend to hire large classes of newly graduated accountants. Being surrounded by so many people with similar interests and concerns makes acclimation to the firm and the job much more agreeable. It also provides fertile ground for networking opportunities. According to one public accountant:
I started with a class of almost 100 other college graduates, and we bonded quickly through all of the training and client work. While most of these people have since left the firm, I still keep in touch with most of them, which is great since they’ve all fanned out to dozens of interesting companies. I’ve already turned some of them into clients and am working on many others. The networking opportunity is tremendous.
Applicability To Many Functions: A strong knowledge of accounting is applicable across all management functions, including purchasing, manufacturing, wholesaling, retailing, marketing and finance. It provides a base from which to build broad knowledge about virtually all business functions and industries. As the collectors and interpreters of financial information, accountants develop comprehensive knowledge about what is occurring and close relationships with key decision makers, and are increasingly being called upon to offer strategic advice. Senior accountants or controllers are often selected as production or marketing executives because they have acquired in-depth general management skills.
Exposure To Different Companies: Public accounting offers rapid exposure to a number of different clients and activities, accelerating the attainment of skills and experience. According to one Big Four audit senior who specializes in entertainment industry clients:
I’ve been with the firm for less than three years, but I’ve become intimately involved in work for large industry players like Sony, Viacom and Disney, as well as for a good number of smaller entertainment and media companies. Being able to learn about the business of entertainment from the industry’s benchmark companies has really sped up my professional development. Few professions would have offered me such a great learning opportunity.
Better Hours And Less Stress Than Investment Banking And Management Consulting: The hours and travel required by the accounting profession are much less stressful and more predictable than that found in investment banking and consulting. In public accounting, you generally know you’ll be very busy for a few months out of the year and then settle in to a manageable 40- to 45-hour workweek, whereas I-bankers and consultants are notorious for regularly pulling 60-80 hour weeks (at least) and hopping on planes at a moment’s notice.
As hard as I worked as an accountant, my life has truly been swallowed by my I-banking job.
says one former auditor who, after attaining an MBA, is now an investment banker.
I pretty much work six days a week, with at least part of my Sunday spent on some work item or another. I actually had a life when I was an auditor – not anymore.
Great For Women: The profession has taken great strides to implement flexible work arrangements and other initiatives to provide lifestyle choices for women. According to the Bureau of Labor Statistics, women now account for approximately 60 percent of the accounting profession, with the outlook for women accountants looking bright. According to a CFO survey by Robert Half International, 58 percent of CFOs believe that the number of women accountants in management-level positions (such as vice president or chief financial officer) will increase in the next five years. According to one partner who has worked for several large firms:
At the risk of sounding politically incorrect, my 17 years of experience have shown me that women tend to make better accountants than men. In my observation, men often tend to be focused on the big picture, while women are more acutely aware of intricate detail. Well, accounting demands a detail-oriented approach more than any other skill, so you do the math.
Downers of Accounting Career
Lower Pay Than Investment Banking And Consulting: The more manageable lifestyle has its tradeoff: lower pay. On average, starting base salaries in accounting are 15 to 20 percent lower than investment banking or consulting, not including the bonus incentives that can significantly increase a banker’s or consultant’s overall pay package. According to the same former auditor/current investment banker from above:
I do make a lot more money as an I-banker – I mean a LOT – which does make up somewhat for losing my personal life, but it doesn’t feel that way all the time. Sometimes it seems that, if you divided my I-banking compensation by the number of hours I spend working, I would be making about minimum wage.
Bonus incentives are much smaller in public accounting, if they exist at all.
You’ll never become ‘stinkin’ rich’ on an accountant’s wage
adds one Big Four tax partner…..
….but I like to think that, since we are supposed to be conservative and intelligent in matters pertaining to money, we know best how to take care of our money and make it work for us. You will definitely lead a comfortable life.
Many Bosses With Different Priorities: Accountants, particularly public accountants, are usually assigned to multiple projects at any given time and must prioritize and, when needed, learn to say “no.” This is particularly true in public accounting, where multiple, simultaneous projects for different clients are commonplace. According to one auditor:
Juggling projects has honestly been the hardest part of my job. Forget the clients, they’re relatively easy to deal with – it’s the partners on those clients that get you. They all want you to focus on their projects first. On more than one occasion, a partner has screamed my head off, really got down and cursed, because of a perceived ‘lack of focus’ on my part. You just have to try to explain your situation, try to demonstrate that you have everything covered, and move on.
However, this premium on time management is also present in investment banking and consulting.
Relatively Conservative, Conformist Cultures: Accountants are generally looking to see if reported numbers conform to one set of regulations or another (Generally Accepted Accounting Principles, the Internal Revenue Code, SEC regulations, etc.). This emphasis on regulations (in fact, one might say that the entire accounting industry exists because of regulations) translates into a generally risk-averse culture and ethos that emphasizes conformity.
Pressure To Stay “Chargeable”: This is one of the subtler, yet highly sensitive parts of being an accountant. Like attorneys, public accountants generally work under billable hour arrangements (they are paid by clients for each hour billed). This means that they must account for every single hour they work and accurately allocate them to each project they work on, whether client-related or otherwise. Being “chargeable” means billing a high percentage of your hours to work performed for paying clients as opposed to non-billable projects. This tracking of billable hours, while often tedious, is absolutely crucial to the profession – it is the basis for how public accounting firms determine revenues, expenses, profitability, efficiency, performance and a host of other metrics. With such vital items at stake, timesheets and chargeability often are the subject of much stress and consternation.
Yeah, we can work 60 hours in a week
……says one audit senior……..
but not all of those hours are chargeable to a client. Some days, you can spend time on a proposal for new business, some time on developing a new product or service, and some time on performing general research on a specific issue. All of these activities are important to continued success, but they hurt you because none of them are chargeable to a specific client. In other words, the firm isn’t getting paid for this work. While the firm values this non-chargeable work, it doesn’t want you doing too much of it – it wants you out there making money for the firm. So when you find yourself doing this stuff, your chargeability goes down and your performance numbers suffer, which can hurt your reviews, your paycheck and ultimately your future at the firm. However, you can’t err on the other side either – you bill too many hours to your clients and you run the risk of going over budget and having the client give you the third degree on why the job is taking you so long. It can be pretty stressful.
Further reading: Accounting, Industry Trends and Outlook