What is a certified public accountant (CPA)?

What does a CPA do?

A CPA is a highly qualified accountant with specialized training in financial and tax matters. CPAs handle a range of tasks, such as preparing and reviewing financial statements, conducting audits and providing tax planning and preparation services. They may also consult individuals and businesses regarding complex financial strategies.

According to Hector Castaneda, principal at Castaneda CPA & Associates, “CPAs undergo rigorous testing and education requirements to ensure a high level of expertise in financial matters. Many possess a graduate degree or secondary degree to meet the educational requirements needed before even sitting for the uniform exam.”

A CPA is an accountant with additional training in auditing, ethics and tax law.

CPAs can work in various roles and industries. Some work in corporate or public accounting; some provide consulting services. CPAs may also be employed by government agencies or nonprofits.

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CPA certification

Those who want to become CPAs must have one to two years of public accounting experience (depending on licensing state) before taking the Uniform CPA Examination, and obtain a license from their state board of accountancy. Prospective CPAs must not only get a related college degree, but they must also meet certain requirements for character and experience.

According to the National Association of State Boards of Accountancy (NASBA), the CPA exam consists of four sections:

• Auditing and Attestation
• Business Environment and Concepts
• Financial Accounting and Reporting
• Regulation

Each of these test sections lasts four hours. CPA candidates have 18 months to pass all four test sections with a score of 75 or more on each.

To maintain a CPA designation, CPAs who have passed the exam must also complete periodic continuing education coursework.

What's the difference between a CPA and an accountant?

The difference between a CPA and an accountant is fairly simple: Not all accountants are CPAs, but all CPAs are accountants who have submitted to more intense testing, training and licensing requirements. CPAs receive specialized education in areas such as auditing, tax law, ethics and financial analysis, which goes beyond the standard qualifications for accountants.

Accountants and CPAs both handle recordkeeping, tax preparation and other financial issues for companies and individuals. But, as Castaneda explained, “CPAs are generally merited with higher levels of expertise and creativity in their approach to optimizing tax savings while also achieving growth in their clients’ equity.”

The standard to which CPAs are held is another key difference. Castaneda explained it this way: “CPAs are held accountable to higher standards than non-CPA counterparts and have a fiduciary responsibility to the public. As such, they focus on high-level financial planning rather than more mundane and repetitive tasks.”

One of the most important aspects of being a CPA is having “unlimited representation rights” to act on behalf of clients before the IRS. Not all accountants have this ability, but a CPA can represent you in IRS dealings, including tax audits, payments, collections issues and appeals.

Why would you use a CPA?

Whether or not you need to use a CPA depends on the complexity of your tax situation. As Castaneda explained, “While most individuals do not need a CPA, high-worth individuals and most businesses should have at least one CPA to keep their business compliant and competitive in today’s complex environment. While many software and bookkeeping sources exist, a CPA is necessary for more complex endeavors.”

CPAs are commonly associated with preparing and filing taxes, but their expertise extends beyond that. They can assist you with the following:

• Tax planning
• Financial analysis
• Audits
• Navigating complex financial decisions

Unlike general accountants, CPAs are held to higher professional and ethical standards. They also have a fiduciary responsibility to act in the client’s best interest. This ethical component is one reason why some individuals and businesses choose CPAs over general accountants. A CPA can also act as your representative when dealing with the IRS.

The New Jersey Society of Certified Public Accounts explains that CPAs can also assist with tasks like:

• Personal financial planning
• Assurance services
• Bankruptcy and insolvency issues
• Management and business consulting
• Fraud investigations
• Divorce settlements
• Information technology issues

Castaneda noted that the decision to hire a CPA often depends on your financial needs. He likened CPAs to vehicles: “In this scenario, consider the CPA a top-of-the-line SUV and a non-CPA accountant like your reliable everyday car.” For complex financial situations, especially in business, CPAs may be the better choice.

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Bottom line

While all accountants handle financial reporting and other financial matters, a CPA must meet more meticulous education, testing and licensing requirements. These additional qualifications prepare CPAs to perform services beyond tax preparation, including financial planning, compliance and consulting.

Not everyone needs to hire a CPA to prepare taxes or manage finances, but for complex financial situations and businesses, it’s a good idea to hire a CPA. For example, in case of an audit or appeal, CPAs can represent you before the IRS.