Certified public accountants (CPAs) are at the top of the accounting field. Whether you keep the books at a small office or review files for the IRS, accounting is a wide field with many professions in it. Certified public accountants are accounting professionals who have passed both the privately issued CPA exam and public licensing requirements. If you need someone to look at your money, they’re the cream of the crop. Here’s what you need to know about the CPA.
What Is a CPA?
Certified public accountant is a credential for financial and accounting professionals. A CPA is not synonymous with an accountant. Instead, the credential represents a licensed accountant who is empowered to file government and public documents such as audits and tax returns. This credential has two simultaneous components. The CPA is both:
- A professional credential issued by the American Institute of Certified Public Accountants (the AICPA);
- A professional license issued by each individual state.
The AICPA writes and distributes the CPA exam. While every state uses this exam as part of its local license requirements to become a CPA, each also has its own requirements for licensure. These typically involve some combination of residency in the state, education requirements, and minimum training and/or experience in accounting.
For example, to receive a CPA license in Massachusetts you must (in addition to passing the CPA exam) have:
- A bachelor’s degree;
- At least 150 cumulative credit hours of relevant education;
- A minimum of 30 undergraduate semester hours or 18 graduate hours in financial accounting, auditing, taxation and management accounting;
- At least 24 undergraduate semester hours or 18 graduate hours in business courses (excluding accounting courses);
- One year of experience at a public firm or three years at a non-public firm verified by a licensed CPA. Must demonstrate competency in providing services or advice using accounting attestation, compilation, management advisory, financial advisory, tax and consulting skills.
For a full list of every state’s CPA licensing requirements, please see the AICPA’s website here.
Readers should note that some outlets report that the AICPA requires 150 credit hours of relevant education to take the CPA exam. This is not true. The AICPA recommends that this is what a candidate will need in order to pass the exam, but only individual states impose actual requirements for CPA candidacy.
Every jurisdiction also requires that CPAs complete a certain number of continuing education hours. This is often measured every two years and each state has its own requirements.
CPA Exam Cost
Review courses for the exam can cost between $1,300 and $3,400, depending on which state administers it. The application fee alone is between $75 and $300.
While the price of each of the exam’s four stages varies by state, most states charge $120 per section. Registration fees for each section can be $75 per section or $300 for all four, depending on how many sections you think you can complete within six months. Signing up for one exam at a time will cost you $252, but will give you more time to complete all four sections.
The CPA’s ethics exam also carries a $150 to $200 fee, while licensing fees range from $50 to $500 per state. With most states requiring 40 hours of continuing education each year, the cost per hour can range from $20 to more than $125.
The average cost of taking the CPA exam is around $3,000. However, that doesn’t include the cost of retaking the exam, renewing prep courses, or the $336.55 cost of taking the exam if you’re an international candidate.
CPAs vs. Other Tax Professionals
To fully understand a CPA you have to know that accounting contains many different skill levels. Generally speaking the field has three (very broad) categories of professionals:
Certified Public Accountants
A certified public accountant is an accountant who has been licensed by the state to file public-facing financial statements. Common examples include:
- Audited financial statements required by law, such as a company must issue when it seeks investors or buyers;
- Financial statements issued to government regulators such as the SEC or IRS;
- Tax returns filed on behalf of the client.
Only a CPA can file taxes for their client. This is not something that a general accountant can typically do. In addition, a CPA will usually offer the same range of services as a general accountant.
This is the reason that the government requires that CPAs receive a license from the state. Any organization or individual is free to seek their own financial advice, but sometimes accountants have to file statements that third parties depend on. When a company seeks investors, for example, those investors need to know the company’s financial position. The licensure scheme of the CPA makes sure that the accountant who prepares that audit owes loyalty to more than just their employer. They will perform an audit honestly in order to preserve their own license.
A bookkeeper manages financial records for an individual or organization. They record purchases, sales, payments received, debts and other obligations. They are also responsible for keeping track of the organization’s cash holdings, making any payments and collecting any payments.
Essentially, a bookkeeper deals with cash flow. Their job does not deal with issues of law or complex financial arrangements.
While experience and education will help someone do this job better, anyone can be a bookkeeper. There are no legal requirements to do this job.
An accountant and a CPA are not necessarily the same thing. General accountants typically handle advanced financial concerns for their clients. This can include financial statements and outlooks, advice regarding regulatory compliance, and financial projections. An accountant will also often help a client manage their books, which also helps the organization or individual understand their cash flow and overall financial position.
A general accountant will also typically prepare taxes. This is one of their most common duties. However, outside of exceptional circumstances, a general accountant cannot file their client’s taxes for them. A general accountant can only handle internal advising for a client. They cannot conduct a public-facing audit, manage any government-facing concerns or file any financial documents with regulators.
While this may differ in your specific jurisdiction, as a general rule there are no legal requirements to work as a general accountant. This professional will almost always have a bachelor’s degree, typically in accounting or a related field.
While organizations may employ general accountants as part of their internal team, most look for CPAs when they hire external accountants. This is because CPAs can offer a full range of services, while ultimately a general accountant will run into legal limits on their authority.
Further, the CPA designation shows a degree of skill and training beyond what a general accountant has achieved.
Tax Planning Tips
- If you have concerns about both your finances and taxes, speaking with a financial advisor who’s also a CPA might benefit you. Finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- Many people could use advice from an accountant from time to time. Even if you fill out a basic 1040 and trust your company’s 401k, it may be worth talking to someone about your spending habits and how you could better achieve your goals.
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