Many people use “CPA” and “accountant” interchangeably, but they refer to different professional designations. In this comprehensive guide, we’ll explain the critical differences between CPAs vs accountants, the services they provide, and when to hire each one.
What is a CPA?
CPA stands for Certified Public Accountant. A CPA is an accountant who has passed the Uniform CPA Examination and met additional education and experience requirements to earn a CPA license. The exam covers four main areas: auditing and attestation, business environment and concepts, financial accounting and reporting, and regulation.
To become a CPA, candidates typically need:
- A bachelor’s degree with at least 150 semester hours of education, including 24-30 credits in accounting courses. Business degrees like finance or economics may also qualify.
- 1-2 years of professional work experience under the supervision of a CPA. This is known as the experience requirement and ensures candidates get real-world training.
- To pass the Uniform CPA Exam administered by the American Institute of CPAs (AICPA). The exam takes 14 hours to complete.
- To meet moral character requirements that vary by state. Applicants undergo background checks and may need letters of recommendation.
Once licensed, CPAs must complete continuing education to maintain their designation. Requirements are about 40 hours per year.
Critical Perks of Being a CPA
There are many advantages to becoming a certified public accountant:
- Prestige: A CPA license carries significant respect and demonstrates high competence in accounting and finance. Many employers specifically seek out CPAs.
- Career growth: CPAs can advance to senior and leadership positions like chief financial officer or partner. A CPA license signals readiness for more responsibility.
- Higher earning potential: CPAs earn 10-15% more than accountants with the same experience. The AICPA reports CPAs can earn over $100,000 annually.
- Flexibility: CPAs can work in public accounting at a firm, in private industry, government, education and many other sectors. It provides the freedom to change careers.
- Ability to be independent: Only licensed CPAs can legally own a public accounting firm or sign audit opinions and financial statements.
- Out-of-state mobility: Getting a license in one state allows CPAs to get reciprocity in other states relatively quickly. The exam does not need to be re-taken.
In summary, a CPA tax accountant near me unlocks more prestigious and lucrative career opportunities in accounting and finance. Although the CPA exam is challenging, becoming a CPA offers significant rewards.
What is an Accountant?
An accountant performs accounting services like financial reporting, budget analysis, auditing, tax preparation and financial planning. The term accountant encompasses many job titles and certifications, not just CPAs.
Below are some common types of accountants:
Bookkeepers handle basic accounting tasks like recording journal entries, reconciling accounts and producing financial statements. They ensure transactions are accurately captured in record-keeping systems. Bookkeepers usually need some formal education and on-the-job experience. Certifications like the Certified Bookkeeper (CB) credential may be earned.
Staff accountants maintain daily accounting operations. This includes month-end close, account reconciliations, expense/disbursement processing, fixed asset accounting and intercompany billing. A higher-level accountant usually supervises staff accountants. A bachelor’s degree in accounting or finance is required.
Forensic accountants investigate financial crimes like embezzlement, securities fraud and money laundering. Analyzing complex financial transactions and uncovering how funds were misused is central to this field. Forensic accountants often have law enforcement or investigative experience.
Management accountants create financial reports and analyses to help organizations budget, make business decisions and optimise efficiency. Duties may include cost accounting, variance analysis and reviewing operational performance. The Certified Management Accountant (CMA) is a standard credential.
This is not an exhaustive list, but it shows the diversity of existing accounting roles. Professionals may hold titles like accounts payable clerk, payroll specialist, cost accountant, accounts receivable manager, etc. Unlike a CPA, these positions usually do not require an accounting license.
Critical Differences Between CPAs and Accountants
While tax accountant CPA are technically a type of accountant, important distinctions exist between the two careers:
CPA License Requirement
The most significant difference is that “accountant” is a generic term while “CPA” is a title restricted to those who meet licensing requirements. Only individuals who pass the CPA exam and meet educational and experience milestones can call themselves a CPA.
Scope of Practice
CPAs can perform all the same tasks as other accountants, in addition to more complex services like auditing public companies, preparing compiled financial statements, and providing expert testimony in court. CPAs can do everything an accountant does, plus activities requiring a license.
Accountants work in almost any industry – healthcare, technology, manufacturing, etc. CPAs also work broadly but cluster in accounting, tax, audit and financial advisory firms. Public accounting firms like Deloitte or PwC employ many CPAs.
On average, CPAs earn higher salaries than accountants. One study showed certified accountants earn over $100,000 annually, compared to around $70,000 for staff accountants. Positions requiring a CPA license pay more.
Within the accounting field, being a CPA carries more prestige and respect. It signifies completing rigorous exam requirements and conveys higher skill, knowledge and experience.
State boards of accountancy regulate CPAs and must follow rules of professional conduct. Accountants only have formal oversight if they pursue voluntary certifications.
While both perform accounting functions, CPAs differentiate themselves through CPA licensure, specialized services, higher earnings, and legal compliance.
When Should You Hire a CPA vs. an Accountant?
Deciding whether to hire among accountant vs CPA depends on your needs:
Situations When a CPA Is Recommended
- Auditing financial statements – Public companies are required to have CPAs audit their financial reports for accuracy and compliance. Even private companies often hire CPAs to ensure quality independent audits.
- Public offerings – CPAs are involved with initial public offerings (IPOs), stock issuances and other SEC filings and transactions. Their expertise is critical for securities regulatory compliance.
- Forensic accounting – CPAs and certified fraud examiners uncover financial statement fraud. Their knowledge of auditing procedures and investigative skills are essential.
- Business valuation – CPAs are experts in business valuation for sales, mergers and acquisitions, economic loss claims, and divorce proceedings. Credentials like the Certified Valuation Analyst (CVA) signal specialized expertise.
- Tax planning and preparation – For complex tax situations like multi-state or international tax issues, estate and gift planning, and representing clients in IRS audits, experienced CPAs are best equipped to handle concerns.
Situations When an Accountant Usually Suffices
- Bookkeeping – Bookkeepers can handle tasks like recording transactions, issuing invoices, reconciling accounts, producing monthly statements, and payroll.
- Individual tax preparation – Accountants can typically prepare personal tax returns accurately, especially for those with straightforward tax situations.
- Accounts payable/receivable – Managing incoming and outgoing payments is standard for accountants without CPA-level credentials.
- Controllership – At smaller companies, accountants can take on controller responsibilities like preparing financial reports, managing budgets, and ensuring accurate books.
When to Work with a CPA Firm vs. Independent CPA
Once you decide to hire a certified public accountant, choosing between a CPA firm or an independent CPA is another consideration. Below are some differences:
- Offer more resources like specialized departments for tax, audit, advisory services, etc.
- Allow staff to develop expertise in specific niches
- Provide opportunities to work with more prominent clients
- Enable new CPAs to learn from senior professionals
- Require collaboration across large teams
- May have higher overhead costs built into fees
- Service many business types by industry group
- Offer a more customized, personal approach
- Are owned and operated by 1-2 CPAs
- Have lower overhead to keep fees down
- May specialize in specific industries or services
- Enable close client relationships and attentiveness
- Provide continuity working with the same individual regularly
- Have bandwidth limitations in how many clients they can take on
Warning Signs of a Bad CPA
While most CPAs are ethical, some warning signs to watch for include:
- Missed deadlines or rushed jobs
- Lack of explanation for their recommendations
- Unwillingness to sign a formal engagement letter
- Vague pricing or constantly increasing fees
- High turnover of staff on your projects
- Limited availability and slow response times
- Excessively promoting fringe services like unrelated consulting
- Social media posts showing excessive alcohol use or unprofessional behavior
- Typos, math errors or sloppy work
- Hesitation sharing client references
A few red flags do not necessarily mean a CPA is fraudulent or incompetent. However, multiple issues may indicate poor service. Before engaging any CPA, conduct due diligence like verifying their license, reading reviews, and understanding their qualifications.
How My Tax Team Can Help
For expert CPA services and strategic accounting advice, partner with My Tax Team. Our experienced CPAs serve small businesses and individuals in Chicago, IL and surrounding areas.
Our Services Include:
- Tax preparation and planning
- Audit and attestation
- Consulting on accounting system implementation
- Business valuation
- Litigation support
Contact us today to schedule a consultation! We look forward to helping you achieve your financial goals through strategic accounting.