A CPA, also referred to as a certified public accountant, is an accounting professional that has met all the licensing requirements set by their state’s board of accountancy. To earn the CPA designation, you must meet stringent education and experience requirements and pass the extensive Uniform CPA examination. These professionals must also adhere to the Code of Professional Conduct set by the American Institute of Certified Public Accountants (AICPA).
Is a CPA the Same as an Accountant?
While all CPAs are accountants, not all accountants are CPAs. The major difference between these two professions is that CPAs must obtain a license in the state in which they work, and accountants do not. Accountants and CPAs handle many of the same duties. However, there are some duties, such as preparing audited financial statements, that only CPAs can perform.
This is an important factor because the Security and Exchange Commission (SEC) requires all publicly traded companies to file audited financial statements periodically. These companies must hire an outside, independent CPA to conduct these audits.
What Do CPAs Do?
As financial experts, CPAs handle a wide range of duties, including:
- Recording and maintaining company financial records
- Creating monthly, quarterly, and annual financial statements
- Conducting financial audits
- Certifying financial statements
- Providing financial advice
- Assisting with tax planning
- Preparing and filing tax returns for individuals and businesses
- Providing forensic accounting services
- Providing financial planning advice
The exact job responsibilities for each CPA depend directly on their specific position. For instance, some CPAs work for an accounting firm and primarily focus on providing financial and tax advice, preparing and filing tax returns, and conducting financial audits. On the other hand, CPAs who work within an organization’s financial department often handle in-house duties, such as recording and maintaining company records, posting adjustment entries as necessary, and creating financial statements.
There are many reasons why a company may want to work with a CPA instead of a standard accountant. First, CPAs have a proven knowledge base in all areas regarding financial record keeping and tax preparation. Secondly, these experts can provide professional advice regarding business planning and financial analysis. Finally, many CPAs specialize in tax planning and tax preparation. Their expertise can help companies improve their tax efficiency and, in many cases, lower their overall tax burden.
How to Become a CPA
CPAs must complete a stringent set of requirements to earn their license. Each state has its own set of requirements that are set by the state’s board of accountancy. CPAs must obtain a license in each state they work in. However, some states offer reciprocity programs that make obtaining multiple state licenses faster and easier.
While these licensing requirements may vary slightly from state to state, most require a minimum of:
CPAs must earn at least a bachelor’s degree in a related field, such as accounting, finance, or business administration. Some CPAs take an additional step by earning a master’s level degree, although most states don’t require this.
Additionally, CPAs must complete a minimum of 150 educational credit hours, with a portion of them being directly related to accounting or business studies. Since most bachelor’s programs only require graduates to complete 120 credit hours, CPAs must take additional undergraduate or graduate-level classes to meet this requirement. Some CPAs earn their master’s degree to meet this requirement.
Years of Experience
Accountants who graduate from a bachelor’s or master’s degree program cannot start out as a CPA. Instead, most states don’t allow accountants to apply for a CPA license until they have at least 2 years of on-the-job experience. This requirement ensures that accountants have some real-work experience in a financial setting prior to earning their CPA license.
Accountants who meet their state’s board of accountancy requirements can sit for the Uniform CPA Examination. This test is developed by the American Institute of Certified Public Accountants (AICPA) in conjunction with the National Association of State Boards of Accountancy (NASBA).
Successful completion of this examination is necessary to earn a CPA license. This examination consists of 276 multiple-choice questions, 28 work-related simulations, and 3 writing prompts. It’s broken down into four separate sections, including:
- AUD: The Auditing and Attestation section of the CPA exam covers financial standards and regulations pertaining to audits, including audits of governmental agencies, nonprofit organizations, and employee benefit plans. Completion of this section makes sure that CPAs have the knowledge and ability to conduct accurate audits and certify them.
- BEC: The Business Environment and Concepts section of the exam assesses accounting skills and knowledge pertaining to financial reporting. It covers topics such as information technology, operations management, economic analysis, financial management, and corporate governance policies.
- FAR: The Financial and Reporting section of the CPA exam covers accounting and financial reporting principles, standards, and regulations. It tests accountants’ knowledge regarding the various accounting frameworks, including the Financial Accounting Standards Board (FASB), Governmental Accounting Standards Board (GASB), American Institute of Certified Public Accountants (AICPA), and International Accounting Standards Board (IASB). Successful completion of this section of the exam shows that CPAs are knowledgeable in all forms of accounting practices.
- REG: The Regulation section of the CPA exam covers federal tax regulations for businesses and individuals. It also covers business law issues as well as ethics and professional responsibility.
All sections of the test are administered separately. You also can take these tests in any order you wish. You have 4 hours to complete each section of the exam. To pass, you must score at least a 75 in each of the four sections of the exam. This score does not represent the percentage of questions you got right on the exam. Rather, the AICPA uses a weighted scale process.
The Uniform CPA Exam is one of the toughest professional examinations. According to the AICPA less than 50% of participants pass the BEC and REG sections and around 60% pass the REG and AUD sections. As little as 20% pass all four sections the first time.
If you don’t pass one or more sections of the exam, you’re able to retake it. The only condition is that you can’t take the same section twice within the same testing window. So, if you fail one or more sections of the exam, you must wait until the next open testing window to retake it.
While you can retake all sections of the Uniform CPA exam as often as you want, you must successfully pass all four sections within an 18-month timeframe. Otherwise, you must start the testing process all over.
Professional Code of Conduct
CPAs are also required to maintain the strict AICPA Code of Professional Conduct. This code covers issues, such as integrity, competence, conflicts of interest, confidentiality, and due care. CPAs found to break any section of this code of conduct risk losing their license and CPA designation.
Most states also require CPAs to complete a set number of continuing education credits every 1 to 2 years to maintain their license. While the number of required credits varies from state to state, it can be quite intensive. These continuing education courses help to keep CPAs up to date on any changes to financial standards and regulations as well as updates to the federal and state tax code.
CPA Career Paths
According to NASBA, there are more than 665,000 CPAs in the country. These professionals work in a number of different sectors, including:
CPAs working in the public sector typically work for an accounting firm. They may handle tax preparation and planning, financial advice, forensic accounting, auditing, or a number of other duties. These accountants are often required to maintain their CPA license.
Corporate accountants work inside a corporation or company. Typically, they hold roles within the accounting or financial department. These roles range from entry-level accountants to Chief Financial Officers. Some companies may require these accountants to have a CPA license, but this isn’t always the case.
CPAs also may work for governmental agencies at the local, state, or federal level. These professionals handle a wide range of roles. For instance, a government CPA may handle bookkeeping duties for the government, serve as a controller or financial planner, or even work as a forensic accountant. Government agencies may or may not require accountants to have a CPA designation.
Regulations for nonprofit accounting are slightly different from for-profit accounting. Large nonprofit organizations oftentimes hire CPAs or accountants with specialized training to confirm compliance. Roles within the nonprofit sectors include everything from bookkeeper and auditor to a financial planner and CFO.
As you can see from above, there are numerous roles CPAs can fill. Here’s a look at some of the most popular positions for CPAs.
- Auditor: Auditors examine financial records to check for accuracy, identify possible risks, and prepare and certify financial statements.
- Bookkeeper: Bookkeepers handle the day-to-day financial functions of the company, including recording financial transactions and adjustments, preparing financial statements, and analyzing financial records.
- Financial Planner: Financial planners help businesses, either in-house or as a consultant, and individuals meet their financial goals by developing investment and budgetary strategies.
- Controller: Controllers often serve as the head of the accounting department within a company. They oversee all financial functions of the company, including accounts receivable/accounts payable, financial transactions, payroll, and tax planning. They also assist in the development of financial strategies for the company.
- Tax Preparer: CPAs that offer tax services handle everything from tax preparation and filing to strategic tax planning for both individuals and business entities.
- Forensic Accountant: Forensic accountants typically work for government agencies, law firms, or corporations. They examine financial records to identify possible fraud and evidence of crimes.
- Chief Financial Officer: Chief Financial Officers, CFOs, typically serves as the head financial officer for corporations or large companies. They are responsible for overseeing all financial matters for the company, including protecting company assets, monitoring financial records, analyzing financial records, and conducting risk assessments.
- IT Accountant: IT accountants oversee and handle the development, implementation, and maintenance of financial software.
- Financial Analyst: As the name suggests, financial analysts analyze financial records and provide expert advice regarding financial planning, risk assessments, and forecasting.
Becoming a certified public accountant is an career choice worth considering for a number of reasons, including:
Job Security: Accountants, in general, enjoy a high level of job security, but CPAs are in even greater demand due to their high level of expertise. Companies and individuals will always seek out help with money management and financial planning. This demand for accountants is not expected to end at any time in the near future.
High Salaries: Many accountants also enjoy a higher-than-average salary. According to the Bureau of Labor Statistics, the average accountant earns over $77,000 per year, compared to the national average salary of $45,760, for all occupations. Due to their higher level of expertise, many CPAs can expect to earn more than the national average.
Career Growth Potential: A career as a CPA also offers career growth potential. This benefit holds true for all accounting sectors. For example, a CPA has the potential to move up from an entry-level accounting position to a top-level executive position, such as a CFO. CPAs can even open their own accounting firm.
Industry Recognition: Earning the credentials of a CPA is no easy feat. The CPA exam itself is one of the hardest professional exams available. Due to these factors, becoming a licensed CPA can award you recognition in the industry.
Becoming a CPA can be an excellent career option that provides great job security and higher-than-average earnings potential. While earning a CPA license can be difficult and take years to complete, it can be well worth the extra effort.