While both accountants and CPAs (Certified Public Accountants) work with financial statements, the distinction lies in a CPA’s licensure, which grants higher responsibilities.
This distinction not only affects the scope of work they can perform but also impacts their authority and the trust placed in their financial assessments.
This guide will walk you through the main differences and similarities between accountants and CPAs.
This guide is also related to our articles on bookkeeping vs. accounting, why accounting is important, and how to avoid accounting errors.
This article covers:
- accountant qualifications
- accountant vs CPA roles
- CPA vs accountant requirements
- accountant or CPA
Let’s dive in and unravel these distinctions, ensuring you’re well-prepared to decide who should handle the financial intricacies of your business.
The Role of an Accountant
An accountant is your go-to expert for all things numbers in your business. They track your company’s financial health, record income and expenses, and make sure your financial records are accurate and up to date.
Types of Accountants
- Staff Accountant: These are the all-rounders who manage day-to-day financial transactions, from payroll to invoicing.
- Management Accountant: Also known as cost, managerial, industrial, corporate, or private accountants, they play a key role in decision-making, budgeting, and planning by analyzing financial information.
Key Skills and Qualifications
To be good at their job, accountants need a mix of education and skills. Typically, they have a degree in accounting or a related field.
Skills like attention to detail, analytical thinking, and clear communication are must-haves. Also, they need to be proficient at using accounting software.
Industries and Areas Where Accountants Commonly Work
Accountants are needed everywhere! From retail, healthcare, to manufacturing, and even non-profits, every industry needs someone to keep an eye on the finances. They work in firms dedicated to accounting services, in private companies managing internal finances, or independently, offering their expertise to various clients.
The Role of a CPA
A Certified Public Accountant (CPA) is an accountant who’s passed the CPA exam and met all the requirements set by the state they work in. They do everything an accountant does but are licensed to tackle jobs that require a CPA licence like:
- filing tax returns
- auditing financial statements
- filing reports with the Securities and Exchange Commission (SEC)
Simply put, they’re accountants who are licensed to handle more regulatory tasks.
The Process of Becoming a CPA
- Education: CPAs usually need a degree in accounting plus extra college credits. A typical bachelors degree is 120 credits, while a CPA requires 150 credits.
- Exam: They must pass the CPA Exam, which is a rigorous test of their accounting skills and knowledge.
- Experience: Most states require CPAs to have some hands-on experience, typically two years, working under a licensed CPA.
Legal and Ethical Standards
CPAs are held to a high standard. They must follow strict ethical guidelines and professional standards to keep their license. This means they’re committed to protecting your business’s financial integrity and are bound by confidentiality rules, so they can’t share your financial info without your permission.
Types of Services CPAs Are Uniquely Qualified to Provide
- Auditing and Review Services: CPAs are the only accountants who can conduct independent audits of your company’s financial statements. This is crucial if you’re looking to attract investors or secure loans.
- Tax Planning and Preparation: While many accountants can help with taxes, CPAs have a deeper understanding of tax laws and can offer strategic advice to save you money.
- Consulting Services: CPAs provide advice on financial planning, risk management, and other areas to help your business grow and stay compliant with laws.
- Forensic Accounting: If you suspect fraud or need financial disputes resolved, CPAs can dig into the numbers, uncovering facts that stand up in court.
For small business owners, working with a CPA means you’re getting top-tier advice and services that can help not just with day-to-day financial management but also with planning for your business’s future.
Educational Paths for Accountants vs CPAs
Accountants typically need a bachelor’s degree in accounting or a related field. This sets the foundation for managing financial records, understanding tax laws, and handling day-to-day financial operations.
However, a college degree is not required to become an accountant.
CPAs go a step further. Beyond the bachelor’s degree, they often need additional coursework to hit a total of 150 semester hours that’s more than what’s required for a standard degree.
CPAs must complete continuing education hours every year to maintain their license and keep up with new laws and accounting practices. The exact number of hours varies by state.
In simple terms, becoming a CPA is like accounting plus; more education, a tough exam, and ongoing learning.
For accountants, the path is a bit shorter but still demands a solid educational foundation in finance and accounting.
Career Trajectories for Accountants and CPAs
- Accountants start their journey in roles like staff accountant, working on general financial tasks such as bookkeeping, payroll, and tax preparation. With experience, they can move into roles like a senior accountant or management accountant, focusing more on financial analysis and strategy.
- CPAs have a broader runway. Starting similar to accountants, they can quickly shift into higher-stakes roles such as audit or tax specialist, thanks to their license. CPAs often climb into leadership positions like Chief Financial Officer (CFO) or start their practices, offering specialized services.
Job Opportunities
- Accountants can specialize in areas like tax, payroll, or financial reporting and work across various industries, from small businesses to large corporations. Their skills are versatile, but they may be limited in performing audits or representing clients before the IRS.
- CPAs, on the other hand, are not just limited to accounting firms or finance departments. They’re also sought after in government agencies, non-profits, and education sectors. Their license allows them to conduct audits, offer tax advice, and interface with the IRS and state agencies on behalf of clients.
Salary Comparisons and Earning Potential
- Accountants have a solid earning potential, with salaries increasing based on experience, specialization, and the industry they work in. Generally, accountants can expect to start their careers earning a decent salary, with the potential to grow significantly as they gain experience and take on more complex roles.
- CPAs typically earn more than their non-certified counterparts from the get-go, thanks to the additional expertise and trust associated with the CPA designation. Whether they work in public accounting or for a private firm can influence their earning potential. CPAs who own their practices or reach top executive positions can see their earnings go even higher.
In a nutshell, both accountants and CPAs have valuable roles in the financial health of a business, but CPAs often have more opportunities when it comes to salary and the scope of job opportunities.
Legal Differences Between Accountants and CPAs
- Accountants have a solid base in handling day-to-day financial transactions, preparing financial statements, and managing bookkeeping. However, when it comes to auditing financial statements or representing clients in front of the IRS, they’re not authorized to do so without the CPA designation.
- CPAs are licensed by their state’s board of accountancy, which grants them the authority to audit financial statements and represent clients before the IRS.
Ethical Standards and Regulatory Bodies
- Both accountants and CPAs adhere to ethical standards, but CPAs follow more stringent guidelines enforced by the American Institute of Certified Public Accountants (AICPA) and state boards.
- CPAs are also required to complete ethics training as part of their continuing education, ensuring they stay up-to-date with legal and ethical standards in the accounting profession.
Impact of These Differences on Trust and Reliability
For small business owners, choosing a CPA over a non-certified accountant can provide peace of mind, knowing that your financial matters are handled by someone with a recognized level of expertise and legal authority.
This doesn’t mean accountants aren’t trustworthy, but the CPA designation carries a certain weight, especially in situations requiring audits or legal financial representation.
In simple terms, the main difference lies in what accountants and CPAs are legally allowed to do. CPAs can do everything an accountant can and more, including tasks that have significant legal implications, like audits.
This capability, combined with a stringent ethical code, makes CPAs particularly valuable to small business owners who need comprehensive financial expertise they can rely on.
Section 6: Choosing Between an Accountant and a CPA
There are many scenarios where hiring an accountant is sufficient. Such as:
- Routine Financial Management: For everyday financial tasks like bookkeeping, managing payrolls, or preparing straightforward tax returns, an accountant has got you covered.
- Budget Planning: If you need help setting up your budget or managing cash flow without complex requirements, an accountant can effectively guide you.
- Financial Statements: For preparing and analyzing financial statements without the need for an audit, an accountant can handle the job well.
The situations when a CPA is needed will include:
- Audits and Official Financial Reporting: When your business needs an official audit or you’re dealing with financial reporting that investors or banks will scrutinize, a CPA’s authority to sign off on these documents is crucial.
- Complex Tax Issues: CPAs have deep knowledge of tax codes and are well-equipped to handle complex tax planning strategies or issues, including representing you in front of the IRS if needed.
Considerations for Businesses and Individuals in Making This Decision
Cost: CPAs typically charge more than non-certified accountants due to their higher level of expertise and the additional services they can provide. Consider whether the higher cost is warranted.
Nature of Financial Needs: Evaluate the complexity of your financial needs. If you’re facing situations that require specialized knowledge or legal authority, such as audits or intricate tax planning, you probably need a CPA.
Future Growth and Complexity: If your business is growing or you anticipate more complex financial requirements in the future, starting a relationship with a CPA early on can be beneficial.
While an accountant can efficiently handle day-to-day financial operations and basic tax preparation, a CPA brings added value in situations requiring in-depth expertise, legal authority, and strategic planning.
Conclusion
We’ve covered a lot about the roles of accountants and CPAs, their paths to certification, what they’re legally allowed to do, and how to decide which one is right for your business. Here’s a quick recap:
- Accountants handle day-to-day financial tasks, like keeping your books, managing payroll, and preparing tax returns. They’re crucial for keeping your finances in check and helping with basic tax issues.
- CPAs go further. They can audit your books, tackle complex tax planning, and offer strategic financial advice. They’re your go-to for legal financial matters and when you need someone to represent you in front of the IRS.
When deciding who to hire, take a moment to think about what your business really needs. Do you need help with everyday financial management, or are you looking for someone to guide your business through growth and complex financial landscapes?
Choose wisely, and don’t shy away from investing in the right financial expertise. Whether you decide on an accountant or a CPA, you’re taking a crucial step toward ensuring your business’s success.
Next, check out our articles on understanding owner’s equity, double-entry accounting, and accounting statistics.
FAQ: Accountant vs CPA: What’s the Difference?
Here's some answers to commonly asked questions about Accountant vs CPA: What’s the Difference?
What’s the main difference between an accountant and a CPA?
An accountant manages day-to-day financial transactions, like bookkeeping and basic tax preparation. A CPA (Certified Public Accountant), on the other hand, has passed a rigorous exam and met strict requirements to earn a license that allows them to perform audits, represent clients before the IRS, and provide strategic financial advice. Essentially, while all CPAs are accountants, not all accountants are CPAs.
When should I hire a CPA instead of an accountant?
Consider hiring a CPA when your financial needs move beyond routine management and into more complex areas that require specialized knowledge or authority. This includes undergoing an official audit, tackling complex tax issues, or strategic financial planning for your business’s growth. A CPA’s expertise and legal authority to sign off on audits and represent you before the IRS make them indispensable in these scenarios.
How does the cost of hiring a CPA compare to an accountant?
Generally, CPAs charge more than accountants due to their higher level of expertise, education, and the specialized services they offer, such as audit representation and strategic tax planning. While the upfront cost may be higher, the value a CPA brings can significantly outweigh the expense, especially if your business is facing complex financial issues or planning for future growth. It’s important to weigh the potential return on investment when deciding between hiring an accountant or a CPA.
