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What Is a Certified Public Accountant (CPA)?

What Is a Certified Public Accountant (CPA)?

Whether you’re a small-business owner trying to navigate accounting software or just an individual doing your taxes, you’ve probably thought about reaching out to a Certified Public Accountant, a.k.a. a CPA.

But what does it actually take to become a Certified Public Accountant, and what sets them apart from regular accountants? In this guide, we explain what a CPA does and how accountants can become CPAs.

What is a CPA?

CPA stands for “certified public accountant.” The CPA title is a professional certification issued in the United States. It’s awarded to people who have passed the CPA exam and met their state’s licensing requirements for training and experience. CPAs are typically only licensed in one state, but reciprocity laws may allow them to become licensed in additional states. To maintain their CPA designation, CPAs must complete continuing education requirements and uphold a standard of accounting ethics.

Earning a CPA certification opens up many opportunities for accountants both in terms of salary growth and upward mobility. While you don’t have to earn a CPA to practice as an accountant, many clients specifically seek out CPAs because licensure shows a stalwart commitment to accounting specialties and industry best practices. For this reason, many companies also require their in-house accountants to have a CPA license, especially if they want to be promoted to leadership positions with a higher salary.

However, one characteristic that sets CPAs apart from other accountants is the ability to represent their clients in any IRS disputes or communications.

Use QuickBooks to manage your accounting

If your business isn’t quite at the point of hiring a CPA or an internal accounting team, QuickBooks could be a more viable solution. QuickBooks automates accounting tasks, helps track and file taxes and produces useful financial reports to help you stay on track. And once you expand enough to require an expert’s help, a CPA or accountant can continue to use QuickBooks to manage your business’s finances or easily export what they need from the software.

What does a CPA do?

Certified public accountants can cover a variety of accounting tasks, and their particular specialities depend on their interests and career opportunities.

For example, some CPAs choose to concentrate on tax preparation for clients, whereas others focus on certain aspects of accounting such as internal auditing, income taxation or forensic accounting. Some may instead specialize in C-suite tracking, working their way up from financial manager to Chief Financial Officer. And because accounting can come in many shapes and sizes, CPAs can even choose between personal accounting, small-business accounting, midsize business accounting and enterprise accounting.

Whatever career path they choose, the goal of all CPAs remains the same: to support the financial health of the business while meeting or exceeding all legal, professional and ethical standards for accounting. CPAs play a key role in protecting companies and individuals from financial and legal liability.

What are the responsibilities of a CPA?

The day-to-day work of a CPA will vary a lot depending on their job and specialization. Here are some responsibilities a CPA might have:

  • Examining financial records to prepare tax returns or audit reports.
  • Preparing tax returns and filing them with the appropriate federal, state and local governments.
  • Preparing other financial records, such as budget reports and quarterly earnings reports.
  • Advising clients on taxes and financial decisions.
  • Reviewing financial accounts to identify and correct discrepancies.
  • Conducting forensic examinations to complete audits and detect financial crimes.

CPAs may use accounting software, such as QuickBooks, or their own manual systems to accomplish these tasks, or if they work for a firm, they may use internal software.

How to become a CPA

1. Get an applicable degree

The first step to becoming a Certified Public Accountant is to earn a bachelor’s degree that includes at least 150 credits hours of coursework. It is recommended but not required that you major in accounting or business, since you must complete a certain number of accounting-related credit hours. This exact number of hours varies from state to state and is set by each state’s accounting board.

You may consider earning a graduate degree in accounting to increase your chances of passing the CPA exam on your first try. However, a graduate degree is not required to sit for the CPA exam, and there are training courses that are specifically designed to help you study for the CPA exam if you need some extra help.

2. Take the CPA exam

The CPA exam is issued by the American Institute of Certified Public Accountants (AICPA). The test consists of four parts: three 4-hour Core sections and one 4-hour Discipline section of your choice. The Core sections are Auditing and Attestation (AUD), Financial Accounting and Reporting (FAR), and Taxation and Regulation (REG). The Discipline sections you can choose from are Business Analysis and Reporting (BAR), Information Systems and Control (ISC), and Tax Compliance and Planning (TCP).

You are not required to take all parts of the CPA exam at the same time, though you can schedule multiple parts for the same day if you want. However, most people find it easier to take one part of the exam at a time so that they can focus on studying only one set of topics. Once you pass the first part, you typically have 18 months to pass the other three to complete the exam.

3. Meet the final requirements and obtain your license

Once you pass all four parts of the exam, it’s time to obtain your license. This process varies from state to state, though it typically requires you to complete one full year of work experience as an accountant. In some states, you must get particular types of experience, such as auditing, to actually obtain your license.

4. Maintain your license

Once you have your CPA license, you must renew it every one to two years to keep it current. Most states require some kind of continuing education to keep your CPA license from lapsing, so check your state guidelines for more information.

Grow your accounting business with Xero

Accountants can partner with Xero to make the most of their business, simplifying accounting tasks while also managing client accounts with ease. With Xero’s many automations, you can open up your schedule for more clients. Plus, if you choose to bring other accountants into your business, you can collaborate effortlessly and stay connected through Xero online.

CPA vs. accountant: What is the difference?

All CPAs are accountants, but not all accountants are CPAs. There is no professional standard to call yourself an “accountant,” so anybody who does even a little bit of accounting work can call themselves an accountant. Most accountants have typically earned a bachelor’s degree in accounting, but not all of them necessarily have. Before hiring an accountant, it’s always a good idea to check their education and work history to see how much experience they have.

In contrast, CPAs are licensed by a professional governing body (AICPA) and they are held to both professional and fiduciary standards. They must meet certain educational requirements, pass the initial exam and fulfill continuing education requirements to maintain their license. In other words, the standards for CPAs are much stricter than those for general requirements.

Because of their more advanced training and education, CPAs can do some things that an accountant can’t, including signing off on tax returns and representing an individual or company in front of the IRS. Before hiring someone, carefully consider your business needs to determine whether you need an accountant or a full-fledged CPA.

But if you’re not quite sure if you need a professional’s services quite yet, accounting software is a popular, affordable solution for many businesses. Accounting tools can also grow with your business as your needs change — even if you do end up hiring an accountant or CPA later on.