What’s the Difference Between CPAs vs. Accountants?
Sep 24, 2021 | By Michael Whitmire
As a company grows, understanding the flow of money and resources is crucial to success. However, many business owners need help understanding how that flow translates into financial statements. That means they need to hire an accounting professional to navigate the complexity. But who to hire?
Key Differences Between Accountant vs. CPA
To understand the difference between accountants and CPAs, let's start at the basic level of generating financial statements. The first step to creating a company's income statement and balance sheet is basic bookkeeping or the systematic recording of a business's financial transactions with the outside world. Every time a business buys, sells, or pays money for something, that transaction needs to be recorded in a company's books. Today's accounting software automates much of the detailed transaction recording.
Accounting is the process of compiling and organizing those complex transactions into financial statements and ensuring that transactions are reported following accounting principles. While accountants frequently also perform bookkeeping tasks, they generally work with transactional data at a higher level. They analyze the transactions to make sure they are categorized correctly. They look for patterns and relationships between the numbers that provide insights for the business owner. Accountants may create cash flow projections and compare the performance of a business to similar businesses. They monitor a business' accounts payable and accounts receivable for signs of trouble. Corporate accountants may also prepare tax returns for a business.
A CPA is the next step up. A CPA, or Certified Public Accountant, is an accountant who has undergone additional training and has passed exams to demonstrate a high level of competence across a broad range of business, legal, and accounting knowledge. All CPAs are accountants, and their job responsibilities may be identical to those of non-licensed CPAs. However, not all accountants have taken the additional steps to become licensed as CPAs.
What Is A Certified Public Accountant?
Certified Public Accountants are licensed by state boards of accountancy, so the licensing requirements vary a bit between different states. Despite the differences, all state boards require the same basic three E's: Education, Exam, and Experience.
Education: In general, to sit for the CPA exam, a candidate must have a bachelor's degree plus enough additional classes to reach 150 hours. Depending on the state education requirements, a candidate may not need a degree in accounting, but they do need to have taken (and passed) a certain number of accounting classes.
Exam: A candidate must pass the Uniform CPA Examination. The content for this exam is developed by the American Institute of Certified Public Accountants. This four-part, 16-hour exam covers the areas of Auditing and Attestation, Business Environment and Concepts, Financial Accounting and Reporting, and Regulation. The AICPA is currently in the process of revamping the certification process and the exam structure, with a new model to be rolled out in 2024.
Experience: Depending on the state, experience requirements can vary. Most states require one or two years of work experience. For example, in Alabama, CPA candidates must work either one year in public accounting or two years in industry or government.
When an accountant receives the CPA certification, they can do several things that non-licensed accountants cannot do. First, by federal statute, CPAs are the only ones who can perform the audit and attest work. While non-licensed staff accountants can perform the work of an audit, they must be supervised by a CPA, and a CPA must sign the report itself. Public companies need a CPA to file their reports with the Securities and Exchange Commission.
Second, CPAs have special rights to represent clients before the IRS. While a non-CPA can talk to the IRS on behalf of a client, those discussions are narrowly limited to IRS examinations of tax returns prepared by that person. In contrast, a CPA can work on behalf of a client to resolve a broad array of tax matters with revenue officers, appeals officers, and IRS attorneys.
Once licensed, CPAs must adhere to state laws governing the practice of accounting. They generally need to obtain a state-specified amount of continuing education every year. CPAs must perform their work in adherence with AICPA standards, which include a code of conduct. Violation of professional standards or their state licensure regulations can result in revocation of their CPA license, penalties, or even imprisonment.
Despite the public perception that CPAs only prepare tax returns, the work of CPAs is extremely varied. CPAs can also obtain additional certifications or credentials for specialized services. For example, the AICPA offers certifications in forensic accounting, business valuation, and financial planning. In cooperation with the Chartered Institute of Management Accountants (CIMA), the AICPA also offers certification as a Certified Global Management Accountant (CGMA), which includes training in areas especially relevant to accountants working in industry.
Is a CPA better than an accountant?
Not necessarily. While passing the CPA exam demonstrates competency in a broad area of accounting knowledge, accounting standards, business law, and state and federal tax codes, that body of knowledge does not always translate to useful advice and insights for business owners. The degree to which a CPA can offer useful advice to a business owner depends on their individual expertise and experience.
After years of work, both accountants and CPAs develop a depth of knowledge that provides a depth of insight into the inner workings of businesses. However, accountants in the U.S. are not subject to any licensure, education, or competence requirements. They may have an accounting degree, but they may have also learned their skills through informal education. Unlike CPAs, regular accountants do not need to adhere to any professional, ethical, or fiduciary standards.
Many companies — but not all — require their CFO to also be a CPA. For businesses, an accountant who has obtained the Certified Management Accountant, or CMA, credential from the Institute of Management Accountants (IMA), or the CGMA from the AICPA may possess knowledge and skills that may be more relevant than that of a CPA. Another useful credential for accountants in industry is the Chartered Financial Analyst (CFA). CFAs specialize in investment analysis.
Head to Head Comparison between Accountant vs. CPA
To help you understand which type of professional may best serve you, let's compare accountants and CPAs across several areas:
Education and Competency: CPAs are required to have a bachelor's degree plus additional coursework for a total of 150 hours. They must also pass the CPA exam and have at least one year of work experience in accounting. Accountants have no formal education or competency requirements, but many have an accounting degree.
Governing Bodies: CPAs are licensed by their state board of accountancy. The state boards require candidates to pass the CPA exam, which is developed and graded by the AICPA. CPAs must also adhere to the professional and ethical standards of the AICPA. Accountants are not under the jurisdiction of any formal governing body.
Audit and Attestation Services: Only CPAs are allowed to perform these services. Non-licensed, regular accountants can work on these engagements, but a CPA must supervise them.
Income Tax: The U.S. has no rules governing paid tax preparation or tax planning. Anyone can prepare and sign tax returns for others to pay. However, to ensure that a return is prepared in compliance with tax law, choosing a CPA or another certified professional such as an Enrolled Agent (EA) is wise. CPAs and EAs can both represent taxpayers before the IRS and have a detailed understanding of the tax code. Non-licensed accountants are extremely limited in their abilities to help with tax problems.
Advisor: Both CPAs and regular accountants can provide valuable advice and insights to their clients and the businesses they work in. Besides preparing tax returns — which not all CPAs do — CPAs can provide a wealth of other services, including cash flow management, business improvement, process optimization, and technology consulting.
Cost: In general, hiring a CPA is more expensive than hiring a non-licensed accountant. Wages for CPAs are generally higher than for regular accountants.
A Personal Choice
Which one is better for you? Much of that depends on your individual circumstances and the person's experience, knowledge, and competency. CPAs, who have a credential recognized by the government, can offer services such as audit and attest or tax representation that a regular accountant cannot. CPAs also have a broader view of business issues, including the possible tax ramifications of a financial transaction and the accounting principles that a business must use to report its financial results. However, an accountant with years of experience working inside a particular industry can provide insights, best practices, and know-how that a CPA who has only worked in public accounting firms may never have.
In the end, the best person for the job will be the one who best understands the business, its environment, and who can help the business achieve its goals.