Accounting Sector, 2007
U.S. Market Overview
The accounting sector encompasses firms that offer services such as auditing accounting records, designing financial and accounting systems, preparing financial statements, developing budgets, tax planning and preparation, processing payrolls, bookkeeping, and billing. Subsets of the accounting industry include: actuarial, merger and acquisition, and human resource consulting services. The American Institute of Certified Public Accountants boasts 328,000 members.
Accounting services generate $65 billion in annual revenue. According to the Survey of Current Business (October 2006), in 2005, U.S. cross-border sales of accounting, auditing and bookkeeping services amounted to $373 million, while imports totaled $957 million. This trade deficit is likely the result of U.S. firms increasingly outsourcing routine accounting activities to lower-cost markets. U.S. companies also sell accounting services through foreign subsidiaries. In 2004 (the most recent data available) foreign subsidiaries of U.S. companies realized receipts of $782 million and subsidiaries of foreign companies in the U.S. realized receipts of $71 million.
Deloitte Touche Tohmatsu, Ernst & Young, KPMG and PricewaterhouseCoopers dominate the global accounting industry. Following the Sarbanes-Oxley Act of 2002 and stipulations of the Public Company Accounting Oversight Board, most firms in the industry, including the “Big Four,” separated their accounting and auditing functions to avoid excessive regulatory fees.
The Federal Government, through the Securities and Exchange Commission (SEC), establishes standards for company reports by accounting firms. State governments conduct professional licensing examinations. The Financial Accounting Standards Board (FASB) establishes standards of financial accounting and reporting for issuers, auditors, and users of financial information. The SEC requires all overseas companies registered with them to conform to Generally Accepted Accounting Principles (GAAP).
Foreign firms filing with the SEC can use U.S. GAAP, their home country GAAP, or international standards, but when using the last two, must provide reconciliation to U.S. GAAP. FASB is cooperating with the International Accounting Standards Board to harmonize their agenda, and the SEC will remove its requirement for reconciliation if International Financial Reporting Standards (IFRS) reach a sufficient standard. On February 15, 2007, a draft IFRS for Small and Medium Entities (SME’s) was published, which if adopted by mid 2008, would create a less onerous global operating environment and advance opportunities for SME’s.