If you are in business, you have likely considered using an accountant or a CPA to handle certain aspects of your business finances. But did you know that not every accountant becomes a CPA? It’s important to understand the difference, especially since inaccuracies, misstatements, and errors in financial documents can affect core functions within a company. You should certainly know more about who is handling your finances.
The term CPA or Certified Public Accountant is a designation earned by qualified accountants who meet a set of stringent requirements. The CPA designation is reserved for individuals who have met the following qualifications:
1. Completed a college or university program of accounting. Many states require 150 hours of education to become a CPA, and most likely a bachelor’s degree.
2. Passed the Uniform Certified Public Accountant (CPA) Examination, which is administered by the American Institute of Certified Public Accountants (AICPA).
3. Completed the required amount of work experience according to the state in which they are pursuing licensure. Each state has their own CPA requirements, but most states require at minimum two years of experience.
4. In addition, the candidate may need to pass an additional ethics exam, depending on their state requirements.
After meeting these requirements, the state board of accountancy issues CPA practice licenses. Note: some states may have different rules about the order that CPA candidates receive their certificate and licensure.
Most CPAs are members of the state society or the AICPA, must complete continuing professional education to remain in good standing.
CPA Mobility
Historically, CPAs were not permitted to practice outside the state where they are licensed. However, there is an ongoing effort to implement a uniform system (CPA mobility) that will permit a duly licensed CPA to render services in states where they have no license. As of 2014, all 50 states the District of Columbia, Puerto Rico, the U.S. Virgin Islands, the Commonwealth of the Northern Mariana Islands, and Guam have passed some type of CPA mobility law. Some of these laws were only recently passed, and the implementation of full CPA mobility is underway.
In order to have their CPA license deemed “substantially equivalent,” a CPA must meet several requirements. First, they must first hold a baccalaureate degree with at least 150 credit hours of education. This degree does not actually have to be in the area of accounting or finance, although a background in a subject related to accounting is highly recommended. Second, they must have at least a year of experience working as a CPA. Finally, they must pass the Uniform CPA Examination.
The role of the CPA
The main role of the CPA is to perform independent assurance services (also known as financial audit services) that generally confirm the accuracy and adherence to generally accepted accounting principles (GAAP) of financial statements and disclosures.
A CPA may also serve as the Chief Financial Officer (CFO) or as a consultant in the private sector However, they are barred from auditing companies to which they have any ties to preserve the independence of the audit. CPAs may also prepare income tax filings and perform tax audits for individuals.
Do I need a CPA for my business?
You may not need a CPA for the day-to-day financial transactions of your business that you can tackle on your own or hand off to a bookkeeper. However, when it comes to taxes, AICPA will be more familiar with the tax code. If a CPA prepares and signs the tax return, they can represent you before the Internal Revenue Service (IRS) in an audit or handle tax issues that arise. Note that if you use a paid tax preparer who is not a CPA, the individual must have a Preparer Tax Identification Number (PTIN) from the Internal Revenue Service.
Aside from operations and taxes, a CPA can analyze financial reports, identify problem areas, and provide advice for better tax and financial management.
Most small businesses don’t need to have a CPA on the payroll as a full-time employee, but it may be practical to develop a relationship with a CPA or have one on retainer. Because of their continued education requirement, CPAs are more likely to have extensive, updated knowledge of important financial and tax laws. For more information on the requirements for CPAs, refer to the American Institute of CPAs.