Chapter II

REVIEW OF RELATED LITERATURE AND STUDIES

This chapter presents a collection of related literature

and studies which were done by foreign and local authors. The

researcher found their works to be useful and helpful in

obtaining necessary information and a broader background

about the present study.

Foreign Literature

Accounting is the systematic and comprehensive recording

of financial transactions pertaining to a business.

Accounting also refers to the process of summarizing,

analyzing and reporting these transactions to oversight

agencies, regulators and tax collection entities. The

financial statements that summarize a large company's

operations, financial position and cash flows over a

particular period are a concise summary of hundreds of

thousands of financial transactions it may have entered into

over this period. Retrieved Date July 15, 2018, from

https://www.investopedia.com/terms/a/accounting.asp

A CPA is a certified public accountant who is licensed

by a state board of accountancy. To earn the prestige

associated with the CPA license, you are required to

demonstrate knowledge and competence by meeting high

educational standards, passing the CPA exam and completing a

specific amount of general accounting experience. The two

most important aspects of becoming a CPA are passing the

Uniform CPA Exam and meeting licensing requirements in the

state where you want to practice.

NASBA defines CPA license as the accounting profession’s

highest standard of competence, a symbol of achievement and

assurance of quality. Retrieved Date July 15, 2018, from

https://nasba.org/education/becomingacpa/

A CPA, or Certified Public Accountant, is a designation

reserved for accountants in the US who pass the CPA exam.

This designation shows an expertise in the field. To become

a CPA in the US, a student must pass the exam and meet other

state requirements such as gaining a certain amount of work

experience or furthered education. The CPA licenses

accountants to provide their services to the general public.

The CPA designation is taken very seriously, as its

requirements maintain that only the most knowledgeable

accounts can qualify. The designation is usually used behind

a person’s name to signify the level of experience, and is

often a punishable offense if it is used without actually

passing the exam and requirements. Retrieved Date: July 15, 2018, from

https://www.internationalstudent.com/study-accounting/

AICPA stressed, CPAs and accountants are not the same thing.

All CPAs are accountants, but not all accountants are Certified

Public Accountants (CPAs). The principal differences between

accountants and CPAs are education, experience, and opportunity.

Becoming a CPA is a challenging goal, but one very much within your

reach. From the smallest start-up to the largest government agency,

every business or organization requires the skills of a CPA. The

CPA credential is highly regarded. To a potential employer it means

high ethical standards as well as measurable experience, education,

and skills. CPAs work mainly in public accounting, business and

industry (corporate accounting), government, not-for-profit, and

education.

In order to become a CPA, there are education and experience

requirements you'll need to fulfill, and a Uniform CPA Exam that

you must pass. Receiving your CPA certification distinguishes you

from other business professionals – the benefits are increased

trust, opportunity, and financial reward.

 CPAs are many things. They are chief financial officers for

Fortune 500 companies and advisors to small neighborhood

businesses. They work for public accounting firms, both small and

large. They are well-respected strategic business advisors and

decision-makers. They act as consultants on many issues, including

taxes and accounting.

A CPA, or Certified Public Accountant, is a trusted financial

advisor who helps individuals, businesses, and other organizations

plan and reach their financial goals. Whatever those goals-saving

for a new home, opening a new office, or planning a multi-billion

dollar merger-CPAs can help.

Getting your CPA certification opens the kinds of doors that

can fast-track you into influential jobs in every industry. Whom

do you think the FBI recruits to investigate criminal fraud? What

profession is often a stepping-stone to holding positions like

Chief Financial Officer (CFO) and Chief Executive Officer (CEO)?

Who helps rock stars manage their money, and avoid going broke?

View the career opportunities section. Retrieved Date: July 15, 2018, from

https://www.aicpa.org/becomeacpa/gettingstarted/frequentlyaskedquestions.html

Franklin University emphasized, CPA is different than an

accountant. In fact, anyone who does any type of accounting

function – even someone without a degree – can call themselves

an accountant. A certified public accountant (CPA), however,

is someone who has earned a professional designation through

a combination of education, experience and licensing. In

addition to completing a program of study in accounting, and

acquiring professional work experience in public accounting,

a CPA candidate also must sit for and pass the Uniform CPA

Examination. The exam itself is developed and graded by the

American Institute of CPAs (AICPA). Licensing, however, is

done by state, district and county Boards of Accountancy.

After licensing, then and only then, may the person use the

designation and present themselves as a CPA. The CPA exam is

tough–intentionally so. In fact, the average passing rate in

2015 was, according to AICPA, just under 50 percent for all

four sections of the exam. Retrieved Date July 15, 2018, from

https://www.franklin.edu/blog/what-is-a-cpa-exactly-what-does-a-certified-public-accountant-do

In 1887, 31 accountants created the American Association

of Public Accountants (AICPA) to define moral standards for

the accounting industry and U.S. auditing standards for

local, state and federal governments, private companies and

non-profits. The AICPA also gives CPA certification exams.

The first CPAs received licenses in 1896.

In 1934, the Securities and Exchange Commission (SEC)

required all publicly traded companies to file periodic

financial reports endorsed by members of the accounting

industry. The AICPA established accounting standards until

1973, when the Financial Accounting Standards Board (FASB)

was launched to set standards for private companies.

The accounting industry thrived in the late 1990s due to

large accounting firms expanding their services to include

various forms of consulting. The Enron scandal in 2001

resulted in major changes in the accounting industry. Due to

the Enron scandal, Arthur Andersen, one of the top accounting

companies, went out of business. Under the Sarbanes-Oxley Act

established in 2002, accountants encountered tougher

restrictions about their consulting assignments. Retrieved Date July

15, 2018, from https://www.investopedia.com/terms/c/cpa.asp

Prabhat explains that CPA or Certified Public Accountant

and Accountant perform almost the same duties. But the fact

is that all accountants cannot be Certified Public Accounts

whereas all CPA’s are accountants.

An accountant is a person who looks after financial

records. An accountant would have good knowledge about

owner’s equity, cash flow, chart of accounts and balance sheet

and how these are going to affect the business. An accountant

is responsible for the accounting works of an individual or

a business firm. It is the accountant’s responsibility to

issue financial reports. Accountants need not be certified

professionals.
 On the other hand, CPA is a professional who is regulated

by the state. An accountant can become a CPA only if he passes

certain tests conducted by the respective Institutes of a

country. Though the requirements to become a certified Public

Accountant varies from one state to another, the basic thing

is that one has to undergo rigorous tests to qualify to become

a certified profession.

When comparing the works of both the professions, an

accountant cannot do the work that a Certified Public

Accountant can do.

An accountant cannot do the same work as a Certified

Public Accountant whereas a CPA can do all work of the

accountant. Unlike the Accountant, the Certified Public

Accountant has a higher position in the financial and business

circles. It is the Certified Public Accounts who are capable

of advising on the financial aspects of a company. The CPA

are trusted more than an accountant in financial matters.

Even if an accountant’s views are valued, the last word is

always from a Certified Public Accountant.

More than passing the test, the CPAs have to flow a

strict code of ethics. Every two-year, the CPAs should have

to complete 80 hours of professional education to keep up the

new trends in accounting.

Prabhat also summarized the following about the

difference between a CPA and an accountant:

All accountants cannot be Certified Public Accounts

whereas all CPA’s are accountants. An accountant cannot do

the work that a Certified Public Accountant can do. It is the

Certified Public Accounts who are capable of advising on the

financial aspects of a company. The CPA are trusted more than

an accountant in financial matters. Even if an accountant’s

views are valued, the last word is always from a Certified

Public Accountant. CPA is a professional who is regulated by

the state. It is the Certified Public Accounts who are capable

of advising on the financial aspects of a company more than

an accountant. Prabhat S., “Difference Between CPA and Accountant” September 11,

2010, Retrieved Date July 15, 2018, from http://www.differencebetween.net/business/finance-

business-2/difference-between-cpa-and-accountant/

The U.S. Bureau of Labor Statistics (BLS) reports that

accountant and auditor occupations, which includes Certified

Public Accountants (CPAs) among other accounting professions,

were projected to grow by 11 percent between 2014 and 2024.

The BLS notes that job prospects for CPAs, especially

individuals with graduate degrees, should be particularly

favorable because the need for accounting services has grown

due to the increased scrutiny resulting from new financial

regulations. Salary Statistics, the BLS reports that

accountants and auditors earned a median annual salary of

$67,190 in May 2015. Those employed in the District of

Columbia received the highest wages of all states, with annual

earnings averaging $93,000 as of May 2015. November 17, 2017, Retrieved

Date: July 15, 2018, from

https://study.com/articles/CPA_Employment_Outlook_and_Career_Profile.html

According to data from a survey conducted in November

2013 by the National Association of Colleges and Employers,

61% of accounting majors from the class of 2013 had received

at least one job offer – the third highest percentage of any

major.

The job-search site bright.com has recently released

findings which reinforce the NACE survey. As Time Magazine

reports, bright.com culled data from 70 million job postings,

as well as information on job applicants, and found that

“accounts and auditors” are the second most in-demand job

category for 2014. The article notes that “with more than 1

million of these folks employed in the U.S., accountants make

up one of the largest single blocks of above-average paying

jobs in the country.”

 U.S. News and World Report develops their annual “Top

Jobs” rankings by comparing professions based on the number

of expected openings, advancement opportunities, career

fulfillment and salary expectations. For 2014, “accountant”

ranked as the third best business job. In addition, the

unemployment rate for accountants and auditors is 4.2% -

compared to a national unemployment rate of 6.7%.

Chris Ekimoff, CPA, a graduate of AICPA’s Leadership

Academy, stressed how obtaining a CPA license is a smart

career move. "The main focus after graduating from college is

getting your Certified Public Accountant license. Those three

letters [CPA] really make your career," Ekimoff says. "They

will identify you in the marketplace, in the business world

and in your career path as a professional willing to hold

yourself to a higher standard and operate under a set of

guidelines and principles that really set you apart."

Beyond the benefits Ekimoff outlines above, the Bureau

of Labor Statistics notes that a CPA license improves job

prospects with the accounting profession. In addition,

research from Robert Half’s 2014 salary guide for accounting

and finances notes that a professional certificate increases

pay by up to 10% - and that the CPA remains ‘the most sought

after designation’ for employers.

 Among the positive stats in the AICPA’s research are a

record 40,350 accounting graduates hired by public accounting

firms in 2012 and 89 percent of those firms forecasting the

same or increased hiring of graduates this year.

Combine all this great news with a BLS projection of 13%

growth in accounting jobs from 2012-2022, and future CPAs

have even more reasons to feel confident about their job

prospects as they enter the profession. Schiavone, James, “In the News:

The State of Accounting Jobs” January 31, 2014, Retrieved Date: July 15, 2018 from

http://blog.aicpa.org/2014/01/in-the-news-the-state-of-accounting-

jobs.html#sthash.9yET6oCe.dpbs

According to the latest quarterly report from the U.S.

Bureau of Labor Statistics (BLS). The jobless rate for

accountants, at 1.8 percent, has come down steadily from 4.2

percent in 2011, the year the BLS adopted new job

classifications.

Hiring an accountant is an essential move for businesses

to reduce costs, grow and strategize, diminish risk,

interpret data, and make decisions based on the financial

health of the company.

Accountants can wear many hats, serving as tax experts,

compliance specialists and business analysts, with additional

titles such as cost accountants and forensic accountants.

 An entry-level accountant with up to one year of

experience can prepare journal entries, assist with audit

fieldwork for operational and financial audits, reconcile and

balance general ledger accounts, and research and correct

account discrepancies. At the other end of the spectrum,

accounting managers, typically with five years of experience,

a bachelor’s degree and a professional accounting

certification, can maintain the general ledger system,

prepare financial statements, assist with regulatory

reporting, research accounting issues for compliance,

coordinate the budget process, and hire, train and supervise

accounting staff.

The Salary Guide reports the 2018 midpoint salary for

entry-level staff accountants as $45,000, accountants with

three to five years of experience as $60,000, senior

accountants as $75,000, and accounting managers as $90,000.

January 24, 2018, Retrieved Date: July 15, 2018 from https://www.roberthalf.com/blog/evaluating-

job-candidates/hiring-report-low-unemployment-rates-for-financial-professionals

Foreign Studies

Charron explained in her study that the demand for

accountants is increasing and majoring in accounting is again

very popular, but the number of accountants taking and passing

the CPA exam is not keeping pace. We approach this problem

by assessing potential candidates’ current progress and

outlook on taking the CPA exam as well as identifying certain

factors that contribute to this occurrence. We collected

survey data from 181 accounting alumni who had graduated from

three different business schools. Our results indicated that

while the overall interest in taking the CPA exam is very

high, the actual follow-through on these intentions may be

somewhat problematic. Nearly 20% of graduates who want to

take the exam had not accumulated the necessary credits to be

licensed. Moreover, of those graduates who are “exam ready”,

over 40% had not taken a single part, with nearly half of

those graduates having been “exam ready” for more than a year.

This may be due to the flexibility of the new exam which

appears to be creating a procrastination mind-set. Our

research indicates that specific incentives and assistance

were significantly related to individuals taking the exam.

We also found that the level of pressure perceived from

employers and the accommodations made to take the exam are

rather modest. In fact, while new hires perceive that passing

the CPA exam is very important to them personally, they

perceive that it is of only moderate importance to their

employers. These insights should prove valuable to the

accounting profession in understanding how recent graduates

approach the CPA exam as well as providing certain

prescriptions to increase the number of candidates working

toward and passing the exam. Charron, Kimberly, “Becoming a CPA: Evidence from

Recent Graduates” 2009, Retrieved Date: July 15, 2018, from

http://aejournal.com/ojs/index.php/aej/article/viewFile/112/85