What's the difference between a CPA and an Accountant?
There is a difference between a CPA and an accountant. As a general rule, accountants have bachelor's degrees in accounting. A Certified Public Accountant is a professional designation earned after completing education requirements, working in the accounting field, and passing an examination.
The requirements vary from state to state. In other words, a CPA is likely to possess more knowledge of accounting than someone who does not have the designation. Additionally, CPAs may perform certain duties that regular accountants cannot.
What is a CPA?
CPA stands for Certified Public Accountant. A certified public accountant (CPA) is an accountant who has extra credentials and expertise compared to regular accountants.
CPAs have met specific education and licensing requirements, as well as passed the CPA exam. As such, they are highly respected specialists in accounting.
American Institute of CPAs (AICPA) administers the Uniform CPA examination, which consists of four sections: Regulations, Financial Accounting, and Reporting Business Environment, and Auditing. CPA certification is often seen as a symbol of an accountant's commitment to high standards.
In most US states, only CPAs with licenses can provide financial statement opinions. The CPA designation comes with a certain expectation.
While all CPAs are accountants, not all accountants are CPAs.
Did you know?
Approximately 50% of accountants in the United States are CPAs
Requirements for CPA Licensure
To become a CPA, you must meet three E's. Education (four years of accounting education), Exam (Uniform CPA Examination), and Experience (varies depending on the state).
Each state's board of accountancy determines the laws and rules for their specific state, so be sure to check your state's requirements.
All Certified Public Accountants, however, take 150 credits in academic courses either at the undergraduate or master's level, and also sit for the four-part Uniform CPA exam.
What does a CPA do?
A certified public accountant analyzes and reports financial data. Their duties include:
- Developing, updating, and maintaining accounting policies and procedures, such as monitoring and reporting.
- Establishing or overseeing budgets.
- Ensuring accuracy of reporting through internal audits.
- Preparing and generating reports for tax purposes or government audits.
- Providing financial statements to the company's management or Board of Directors.
- Recommending and reviewing compensation, benefits, assets, and spending of company money.
- Managing accounts payable and receivable.
- Keeping up with changes in the financial industry and government regulations, then updating policies or procedures to conform with these changes.
While the above lists a number of responsibilities of a Certified Public Accountant, it is important to note that CPAs shouldn't offer auditing and consulting services to the same business, which would create a conflict of interest.
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CPAs vs Accountants
The main difference between Accountants and CPAs is that Accountants record and report the financial affairs of companies in such a way that shows the financial situation of each company, while CPAs are designated by the American Institute of Certified Public Accountants after passing the CPA examination.
Here are a few key distinctions in the duties of Accountants and CPAs:
|Must have a Bachelor's and have successfully passed the CPA certification exam||Generally has a bachelor's degree, preferably in accounting|
|Offers advice and insight about the big picture finances of a business, and can often offer a deeper knowledge of tax codes||Offers advice and insight about the big picture finances of a business|
Can create audit reports and review reports
|Can only create compilation reports|
Can legally represent a client
|Cannot legally represent a client|
In order to practice, CPAs must pass rigorous testing and fulfill strict requirements. Students who wish to become CPAs are required to complete 150 college credit hours including multiple hours of upper-level accounting, auditing, and core business courses.
A comprehensive test of business, tax, auditing, and general accounting skills must be passed after graduation and a year of experience under the supervision of a CPA. CPAs are required to take continuing education classes throughout their careers to stay up-to-date on accounting-related issues and changes.
To become a CPA, you need more than just a license. The profession also demands CPAs to adhere to a strict code of ethics and uphold higher standards than accountants.
Businesses that are required to have their financial statements audited or reviewed typically need a CPA to perform these tasks and provide the required reports.
As fiduciaries, CPAs are obligated and empowered to act on behalf of and in the best interest of their clients. An accountant who is not a CPA is not considered a fiduciary to their clients.
Tax returns can be properly prepared by accountants without a CPA certification, but CPAs offer clients distinct advantages that other accountants cannot.
Because CPAs are required to take rigorous licensing exams and attend continuing education courses, they are more knowledgeable about tax laws and codes. CPAs can also represent clients before the IRS if audit support is required, whereas non-CPA accountants cannot.
Is a CPA better than an Accountant?
While an accountant might be able to service your basic needs, the government recognizes a CPA as a credible expert in accounting and as a better qualified professional than an accountant to perform accounting duties.
Which is better between the two depends on your priorities, time, and cost. If you choose CPA, you will adhere to international laws, principles, and standards. It is comparatively more difficult to pass the CPA exam than any other accountancy certification.
Many small businesses can manage their financial operations effectively with an accountant. However, a CPA can be a valuable resource for other aspects of your business, including financial statement analysis, internal and external auditing, and tax planning.
Helpful Resource: Why hire a CPA for your business?
Should I use an Accountant or CPA for my business?
Accountants and CPAs are both valuable assets to businesses. In a perfect world, businesses would use accountants to manage day-to-day financial operations and CPAs for tax preparation, audits, and general consulting.
Small business owners should understand that, while they may not always need a CPA, there will be times when they do.
When to Use a CPA
It can be difficult to decide when to hire a CPA or an accountant in some cases. Sometimes, however, the decision is simple, for example when the following circumstances apply.
- When your taxes are complex: If you have a complicated tax return, call the tax expert.
- If you are just getting started: A CPA can help with the big picture and give advice on how to structure your business.
- If you’re being audited: A CPA can assist with the audit process. CPAs can also represent you in front of the IRS.
- If you're a public corporation: Public corporations are required by law to have audited financial statements prepared by a CPA.
When to Use an Accountant
Although CPAs can be useful in specific situations, they are not always the best choice.
- Routine transactions: Accountants are able to organize and record financial transactions easily.
- Management accounting: An accountant is the best choice for internal cost analysis. Additionally, an accountant can make suggestions for increasing revenue and reducing costs.
- Creating budgets: Staff accountants with access to departmental and company performance metrics are the best people to create a budget.
- Financial statement analysis: Financial statements can be analyzed by both accountants and CPAs. However, an accountant is best suited for routine analysis and reconciliation.