CPA vs. Accountant | Differences, and Similarities

Every business has books, and by that we mean financial books . If you want to run your business like a well-oiled machine, all of your financial data needs to be accurately written or recorded.  Then, that information needs to be analyzed professionally so that you can make smart financial decisions for the future of your company, such as:

• Whether it's a good year to expand the company
• How much of a tax break you can expect this year
• Whether you should hire more staff or fire some staff

The trouble is that most business owners don't have the time or accounting skills to do this themselves. So they hire accountants: specialized professionals who can look at financial data in detail and provide insight and advice, as well as perform bookkeeping tasks like payroll monitoring or similar jobs. CPAs are even more advanced in the accounting field. These are specialists often called upon to perform specific accounting tasks or to perform audits for companies.  Let's break down exactly what the differences and similarities between CPAs and accountants are and examine which of the two you should hire for your business. 

What is an Accountant?

An accountant is an educated professional that's a step above a bookkeeper in terms of financial understanding and skill.  In a nutshell, an accountant observes and analyzes financial information, such as income streams, expenses, and more to provide actionable advice to company executives and help them make the most of their financial situation. Whereas a bookkeeper records information from daily business activities – such as purchases made, customers or clients signed, and products sold – an accountant doesn't concern themselves with recording that information regularly. Instead, accountants take the information recorded by bookkeepers and use it to form comprehensive financial pictures for their executives or clients. Accountants are usually trained individuals who have a bachelor's degree in business , accounting, finance, mathematics, or a similar field in order to qualify for their complex work, though this is not universal. In addition to providing financial analysis and advice, accountants may also help with regular bookkeeping work and:

• Setting up and monitoring payroll
• Setting financial goals or benchmarks for a company
• Assisting companies during tax season to ensure that the companies get as big of a tax break as possible
• Maintaining business accounts

Accountants can be found working for practically any large business once it has support staff. They're very useful professionals and it’s a good idea to hire them once your business grows beyond being a small, self-run operation.

What is a CPA?

A CPA is a certified public accountant.  Thus, CPAs are types of accountants that have met certain state licensing requirements. In most cases, those requirements include a minimum level of education, such as a bachelor's degree in accounting, and certain experience requirements. Furthermore, all CPAs must pass the Uniform CPA Examination . This test is administered by the American Institute of CPAs, or AICPA. The test includes four sections and requires would-be CPAs to study vigorously to have a chance of passing. It’s a 16-hour computer-based test in total. There are four sections:

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

When taking the test, CPAs will find both multiple choice questions and essay questions. The exam has been around for almost 100 years.  In addition to performing some of the same duties as regular accountants, CPAs may also:

• Establish, maintain or update the accounting policies and procedures for a company
• Participate or oversee budget creation and financial planning
• Perform or oversee internal audits
• Prepare and generate reports for government audits if a company is audited, or to ensure that a company gets a good tax break during tax season
• Help prepare financial statements for company executives or boards
• Manage accounts receivable and payable

In some ways, CPAs can be thought of as “master accountants” or head accountants that may observe or supervise other accountants in the same organization. If an accountant is a step above a bookkeeper, a CPA is a step above a regular accountant. Note that, while the above duties are largely accurate, CPAs are not allowed to both audit and consult for the same organization or business. Doing so would result in a severe conflict of interest, as the CPA would be motivated to doctor the audit so that the company they worked for appeared to be perfect. Instead, CPAs performing auditing work must be hired by an auditing company or assigned to audit a given organization. Indeed, CPAs are required to adhere to a strict code of ethics whenever they are working. This is partially why so few accountants are CPAs – it takes significantly more education, an excellent moral code, and passing one of the hardest professional tests in the country to become one. However, accountants who are dedicated to their field may eventually decide to progress to become CPAs. CPAs earn significantly more money than regular accountants.

Accountant vs. CPA

• Accountants usually have bachelor's degrees, but not always. A CPA must have a bachelor's degree in accounting and have passed the CPA exam.
• An accountant can offer advice and form some plans for the financial situation of a business. A CPA can look at the big picture finances for a business and can offer extra assistance when it comes to tax codes.
• An accountant can create compilation reports. A CPA can also create audit reports and review official audit reports, so long as they do not work for the company they are auditing.
• An accountant cannot legally represent a client in court. A CPA can legally represent a client in court.

The last factor is particularly important if your company is ever audited by the IRS. If you don't already have a CPA, you can hire a CPA to represent your company legally in front of the IRS, as well as perform the audit alongside them.

When Do You Need an Accountant?

In general, it's a good idea to get an accountant for your business once general bookkeeping is no longer enough to keep your financial ducks in a row. Many startup companies or small businesses have owners who handle early accounting and bookkeeping themselves, tallying all financial transactions and keeping a sharp eye on income and expenses. But as companies grow, so too do their financial activities. Eventually, company owners may decide to hire bookkeepers to record transactions and make sure that all of their books are correct, especially for tax season and in the event of an IRS audit . It's a good idea to hire an accountant once you have more than two bookkeepers working for you, or even earlier if you can't spare the time to do your financial analyses yourself. This all depends on your income and how much cash you can spare, of course. But most accountants are more affordable than CPAs.

When Do You Need a CPA?

In contrast, you don't normally need a CPA, which is why there are fewer of them and many of them are hired on a contractual basis rather than as permanent staff. A CPA is most useful when you need an in-depth audit of your company for tax purposes or to adhere to IRS regulations or orders. Furthermore, CPAs can be very useful if your company has grown significantly over the last tax year and you want to make sure that you get the biggest tax break possible, even accounting for all the fluctuation in your company's value and assets. CPAs are excellent hires when you need to train multiple accountants, too . As advanced accountants, CPAs can provide valuable insight and advice to any accountants you do have on staff, ensuring that they help give you the consistent financial advice you need to run your company successfully. On the other hand, you can always hire a CPA permanently for your staff if you can afford it. Most companies who do this are significantly larger than your average startup, however. Experienced CPAs usually demand salaries well into the six figures given their high degree of education and specialization.

Summary

At the end of the day, CPAs and accountants are valuable professionals you can and should have to play a role in your business. However, it's likely wise to use accountants and CPAs slightly differently. For example, most medium to large businesses will benefit from having at least one accountant on staff permanently to help them with financial analysis and to make sure they don't do anything financially foolish without realizing it. In contrast, businesses can often hire CPAs on a contractual basis rather than keeping them on staff for the long term. For more resources on all things business, check out Seek Capital’s blog for all the funding and finance info to keep you educated and informed! Sources https://www.aicpa.org/becomeacpa/cpaexam.html https://nasba.org/education/becomingacpa/whatistheuniformcpaexam/ https://www.irs.gov/businesses/small-businesses-self-employed/irs-audits#:~:text=An%20IRS%20audit%20is%20a,amount%20of%20tax%20is%20correct .