What Is a Certified Public Accountant (CPA)?
A Certified Public Accountant (CPA) is a professional and licensed accounting professional, credentialed by a state or territory, that is able to provide public services such as tax preparation.
CPA Ethics
Certified public accountants are subject to a strict code of ethics. The American Institute of Certified Public Accountants mandates that all individuals who have earned the CPA designation must comply with the Code of Professional Conduct, which establishes the ethical guidelines to which CPAs must adhere.
The Enron scandal is an example of CPAs not adhering to such a code. Arthur Andersen company executives and CPAs were charged with illegal and unethical accounting practices. Federal and state laws require CPAs to maintain independence when performing audits and reviews. While consulting at Enron, Arthur Andersen CPAs did not maintain independence and performed both consulting services and auditing services, which violates the CPA code of ethics.
What Can CPAs Do that Accountants Cannot?
Prior to beginning to describe the functions of these individual financial experts, let us put this out in the open: all CPAs are accountants. However, not all accountants are CPAs. CPA stands for ‘Certified Public Accountant,’ and the accountant at the end of the acronym is there for a reason.
Here are the common duties of accountants:
- Documents financial transactions
- Audits financial documents
- Requests disbursements and verifies documentation in preparation for a payment
- Provides an overview of the financial status of an organization by synthesizing statements of profit and loss, balance sheets, and other miscellaneous documents
Your accountant is undeniably the go-to source for information regarding your business's financial situation. They combine their expertise to give an accurate picture of your organization's fiscal health, as well as the ability to forecast where things are headed in the future. Moreover, an experienced accountant will give suggestions on ways to augment your business's financial success.
Despite all of these crucial responsibilities, you may have noticed one conspicuous absence: taxes.
CPAs are the most suitable individuals to handle taxes. It's not that regular accountants don't understand taxes as they are likely to be well-informed. However, only a CPA can represent your business if your taxes are being audited by the IRS.
Unlike an ordinary accountant, a CPA has the distinction of providing you with tax planning and tax preparation. If you are wary of a tax audit from the IRS, then it is prudent to hire a CPA. They can use their expert knowledge of taxes to minimize the chances of such an audit—and if there is one, they can represent you. They will also be able to provide you with invaluable tips on how to minimize the amount of taxes you owe each year.
What does a CPA do?
Tax Advice and Planning
CPAs offer representation in front of the IRS in case of difficulty or audit and can reply to any inquiries by state or local tax boards. Advice is provided to limit your annual tax liability, helping to avoid audits or other questions from state or local government.
Audit and Assurance Services
Being audited by a Certified Public Accountant (CPA) is different from being called in for an audit by the Internal Revenue Service (IRS). In fact, having a CPA audit the financial and economic information of your business is a great way to stay clear of being an IRS summons. CPAs will give you an impartial report and ensure everything is in compliance with financial laws and tax regulations.
Assurance services are just a fancy way of saying that a CPA gathers all of the relevant info that a company’s decision-makers need—and assures that they understand it—so they can make good decisions for the business.
Forensic Accounting
This is commonly known as investigative accounting or fraud auditing. Your certified public accountant will assess the books and look for any signs of illegal activity such as embezzlement or tax evasion. In the unfortunate event of the disappearance of funds or the belief that a business partner is defrauding you, a CPA will help you find out the truth.
Management and Consulting
This one is often overlooked—a CPA can assist with the supervision or management of a company’s day-to-day financial operations and help provide strategic and long-range planning. This could include things like budgeting, cash management, financial planning, preparing financial statements for shareholders, coordinating risk management and insurance, providing investment advice, and helping with estate planning.
Is Becoming a CPA Worth It?
Becoming a Certified Public Accountant comes at a cost of effort and the testing procedure is rigorous. Even so, those with CPA credentials are rewarded with a 25% greater salary, on average, than unaccredited accountants.
Accountants with a CPA certification are often rewarded with promotions to higher-ranking roles within two years and can expect to reach a senior-level role in a few years.
