What is a CPA

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A Certified Public Accountant (CPA) signifies the pinnacle of financial reliability and knowledge. According to the National Association of State Boards of Accountancy (NASBA), there are over 672,000 actively licensed CPAs in the US.

This staggering number underlines the importance of this profession in the financial landscape. CPAs are entrusted with critical tasks such as auditing financial statements, advising on tax matters, and guiding strategic financial planning for businesses and individuals.

This title is more than an achievement; it reflects a deep commitment to ethical practices and continual learning in the ever-changing world of accounting.

Let’s explore this designation in more detail.

What is a CPA?

The title of Certified Public Accountant represents a distinguished professional status granted to those who fulfill rigorous educational criteria, gain relevant experience, and successfully clear the CPA Exam. It signifies a high level of proficiency in key areas such as taking care of financial records, tax preparation, and auditing.

Key Takeaways

  • What is a CPA?: “CPA” is a professional designation. As trusted advisors, CPAs are essential in guiding both individuals and businesses through the intricacies of the financial world.
  • Diverse Responsibilities: Beyond traditional accounting, CPAs engage in auditing, tax services, forensic accounting, personal financial planning, and more, serving a wide range of individual and organizational financial needs, from public accounting firms to private institutions.
  • Educational Path: Becoming a CPA starts with a bachelor’s degree in accounting or a related field, followed by 150 semester hours of specific college coursework, often including a master’s degree or additional undergraduate courses. Practical experience under a licensed CPA’s supervision and passing an ethics exam are also common requirements for aspiring CPAs.
  • Rigorous CPA Exam: The CPA Exam tests candidates in core areas like auditing, financial accounting, and regulation, plus a discipline-specific section, ensuring their readiness for modern accounting challenges.
  • Salary Prospects: CPA salaries vary based on location, specialization, experience, and industry, with potential earnings ranging significantly across different roles and levels. This can range from $45,000 to $300,750.
  • Future Outlook: The CPA profession is evolving with technological advancements in AI and data analytics, the growing importance of cybersecurity, and an increasing focus on international tax law and sustainability.

Core Responsibilities of CPAs

The responsibilities and specializations of Certified Public Accountants provide a wide range of financial needs, serving both individuals and organizations across various industries.

Specialized Areas of Expertise

Those asking, “What is a CPA?” often assume that a CPA does just one type of job. But just like a doctor or a lawyer, CPAs often specialize in specific sectors, tailoring their services to meet unique client needs.

Not all accountants will prepare tax returns, nor will all perform auditing services, although many do. CPA certification allows an accounting professional to move into any of the following areas:

  • Public Accounting: Here, CPAs focus on auditing and consulting, ensuring financial statement accuracy, and advising on business operations and strategies.
  • Forensic Accounting: These CPAs specialize in investigative accounting, analyzing financial documents and data for legal cases, and fraud detection.
  • Tax Accounting: This specialization involves tax preparation and the reviewing of tax returns while advising on tax law compliance and strategies.
  • Management Accounting: CPAs in this field analyze financial data to inform business decisions, aiding in budgeting, performance evaluation, and cost management.
  • Government Accounting: Working within government agencies, these CPAs manage public funds, oversee budgeting, and ensure accurate financial reporting.
  • Internal Auditing: Specializing in internal controls and processes, these CPAs assess organizational compliance with laws and regulations and help mitigate risks.
  • Personal Financial Planning: Advising on investments, estate planning, and retirement strategies for individuals.
  • Consulting: Offering expert advice on business operations, financial strategies, and management practices.

The Path to Becoming a CPA

The path to becoming a CPA isn’t an easy one. Rigorous educational and experiential milestones mark it, each designed to ensure proficiency and ethical standards in the accounting profession. In fact, the test to become a CPA can be so difficult that roughly half of the people who take it will fail.

CPA Educational Requirements

The foundational step in a CPA’s journey is typically a bachelor’s degree in accounting or a closely relevant field such as finance or business administration. This degree lays the groundwork for accounting principles, business strategies, and financial laws. However, the educational journey doesn’t end there.

In most U.S. states, CPA candidates are required to complete 150 semester hours of coursework in college, which is 30 hours more than the standard four-year bachelor’s degree.

This additional requirement can be met by:

  • Pursuing a Master’s Degree: Many aspiring CPAs opt for a master’s degree in accounting or business administration to fulfill these extra hours. For instance, a Master of Accountancy (MAcc) program not only covers the additional hours but also offers in-depth knowledge in areas like advanced taxation, auditing, and financial reporting.
  • Additional Undergraduate Courses: Alternatively, some candidates choose to take extra courses during or after their bachelor’s program to reach the 150-hour threshold without pursuing a graduate degree.

CPA Experience Requirements

Beyond education, practical experience is crucial. Most states mandate a specific number of hours of work experience under the supervision of a licensed CPA. For example, California requires aspiring CPAs to complete at least one year (or 2,000 hours) of general accounting experience, which needs to be supervised by a licensed CPA.

This hands-on experience is vital for understanding the real-world applications of accounting principles and practices.

CPA Exam Structure

To become a CPA, you must pass one of the most challenging professional exams: the Uniform CPA Exam. At the start of 2024, the CPA Exam underwent significant changes to better align with the evolving nature of the accounting profession.

Structure of the New Uniform CPA Examination

The updated CPA Exam is structured to test candidates across three core areas and one discipline-specific area, reflecting the real-world demands and skills required of modern CPAs:

CPA Exam Core Sections

  • Auditing and Attestation (AUD): This section evaluates a candidate’s understanding of auditing processes, including ethics, professional responsibilities, and the principles of conducting an audit.
  • Financial Accounting and Reporting (FAR): FAR tests knowledge of financial accounting standards, preparing financial statements, and applying various reporting requirements.
  • Taxation and Regulation (REG): This section covers federal taxation, ethics, professional responsibilities in tax practice, and business law.

Discipline-Specific Section

  • Candidates choose one of the following based on their career focus or interest:
    • Business Analysis and Reporting (BAR): Focused on financial statement analysis, corporate finance, and data management.
    • Information Systems and Controls (ISC): Concentrates on IT governance, systems, and controls integral to business processes.
    • Tax Compliance and Planning (TCP): specializes in advanced topics in tax compliance, planning, and ethics.

CPA Examination Format

Each section of the CPA Exam is designed to test a candidate’s depth of understanding and ability to apply problem-solving and critical-thinking skills in practical scenarios.

  • Exam Format: The exam sections consist of a combination of multiple-choice questions, task-based simulations, and written communication tasks. The format is intended to assess a candidate’s analytical skills, technical knowledge, and ability to apply concepts in real-world situations.
  • Scoring and Passing Criteria: Each section of the CPA Exam is scored on a scale of 0 to 100, with a passing score of 75 or higher. The scoring reflects a candidate’s competency in each area, ensuring they possess the necessary skills and knowledge.
  • Preparation and Study: Due to the exam’s comprehensive and challenging nature, candidates often invest significant time in preparation, utilizing study materials, review courses, and practice exams.

Ethics Exam

In addition to the CPA Exam, 35 states require candidates to pass an ethics exam. This exam, often provided by the American Institute of CPAs (AICPA), focuses on professional conduct and standards. This requirement is very state-specific. For example, Texas CPA candidates must pass the AICPA’s ethics exam, while Virginia hosts its own course. Florida doesn’t require an exam at all.

CPA Salaries

The salary of a CPA is a topic of considerable interest for those considering investing in a CPA designation. CPA salaries vary widely based on factors such as geographic location, area of specialization, years of experience, and the type of industry in which they work.

Factors Influencing CPA Salaries

  • Geographic Location: Salaries for CPAs can differ significantly from one region to another. Typically, metropolitan areas with a higher cost of living, such as New York City or San Francisco, offer higher CPA salary starting points when compared to smaller cities or rural areas.
  • Area of Specialization: CPAs who specialize in areas like forensic accounting, financial analysis, or information technology often get higher salaries due to the specialized skills and expertise required.
  • Experience Level: As with many professions, experience plays a crucial role in determining a CPA’s salary. Entry-level CPAs can expect to start with a modest salary, which increases substantially as they gain experience and take on more complex responsibilities.

Average CPA Salary Ranges

According to data from international human resource consulting firm Robert Half, salaries can range from $45,000 for a low-paying procurement specialist position to $300,750 for a CFO. According to their Global Report, most salaries will fall somewhere in between.

  • Entry-Level CPAs: At the start of their careers, CPAs can expect an average salary ranging from $45,000 to $176,000 annually, depending on their role. For example, a new property accountant makes an average of $66,750, while an entry-level financial project manager brings in around $106,000.
  • Mid-Level CPAs: With several years of experience, CPAs can see their salaries grow to between $57,500 and $265,000. In comparison, a plant controller averages $117,250, while a director of financial reporting makes $154,000
  • Senior-Level CPAs and Specialized Roles: Seasoned accounting professionals, those in managerial roles, or those with specialized skills can earn upwards of $70,000 to $300,750 or more. A forensic accountant with many years of experience can expect to earn $119,750, while those who climb the ladder to become treasurers can make $241,250 or more.

Additional Considerations

  • Bonuses and Benefits: Many CPAs also receive additional compensation in the form of bonuses, profit sharing, or other benefits, which can significantly increase their total earnings.
  • Self-Employment: CPAs who run their own practices have the potential to earn more, although this comes with the added responsibilities of business ownership and can vary widely.
  • Dual Certification Premium: Holding a CPA license and a CMA or other certification typically results in a salary premium compared to accountants with just a CPA.

The Future of CPAs

The landscape of the accounting profession, especially for certified public accountants, is undergoing a significant transformation driven by rapid technological advancements and evolving global financial landscapes. As we look towards the future, several key trends are set to redefine the role of CPAs.

Technological Integration and the Role of CPAs

  • Automation and Artificial Intelligence (AI): The integration of AI and automation in accounting processes does not just alter the methodologies but also enhances the efficiency and accuracy of financial analysis and reporting. CPAs are increasingly leveraging these technologies for routine tasks, allowing them to focus more on strategic advisory roles.
  • Advanced Data Analytics: The ability to interpret and analyze complex data sets is becoming a crucial skill for CPAs. With businesses generating vast amounts of financial data, CPAs are expected to provide deeper insights and foresight into financial planning and business strategy.
  • Cybersecurity Expertise: As financial transactions and records become more digitized, the importance of cybersecurity in safeguarding sensitive financial information has escalated. CPAs are now playing a pivotal role in implementing and overseeing robust cybersecurity measures to protect against data breaches and fraud.

Global Financial Regulations and Compliance

  • International Tax Law and Compliance: The global business environment is increasingly interconnected, leading to more complex international tax and regulatory environments. CPAs are required to stay abreast of these changes, advising clients on compliance and optimal tax strategies across different jurisdictions.
  • Sustainability Reporting and Social Responsibility: There is a growing trend towards sustainability and social responsibility in business operations. CPAs are finding themselves at the forefront of this movement, guiding companies toward sustainable financial practices and reporting on environmental, social, and governance (ESG) factors.

FAQs

Is a CPA Actually Worth It?

Yes, obtaining a CPA license is generally worth it. CPAs often have better career advancement opportunities, command higher salaries, and are recognized for their expertise and credibility. The CPA designation also opens doors to a diverse range of job roles in various sectors, enhancing job security and professional growth.

What is the Work of a CPA?

CPAs perform a variety of tasks, including auditing financial statements, preparing and filing tax returns, providing financial advice, and conducting forensic accounting investigations. They also play strategic roles in financial planning, business consulting, and management accounting, serving both individual and organizational clients.

What is a CPA vs Accountant?

While all CPAs are accountants, not all accountants are CPAs. A CPA is an accountant that has successfully passed the CPA exam and met additional state certification and experience requirements. CPAs are qualified to perform tasks that regular accountants cannot, such as auditing financial statements or filing reports with the Securities and Exchange Commission (SEC).

What Does CPA Mean?

CPA stands for Certified Public Accountant. It is a designation given to accountants who have passed the CPA Exam and met specific state education and work experience requirements. CPAs are recognized for their expertise in accounting, tax, and financial advisory services.

How Long Does It Take to Become a CPA?

Becoming a CPA usually takes around 7-8 years, including completing a bachelor’s degree (4 years), gaining the required additional credit hours (1-2 years), and acquiring relevant work experience (1-2 years). Passing the CPA exam itself can also take several months to a year, depending on the candidate’s preparation and exam schedule.

Can CPAs Provide Legal Advice?

CPAs cannot provide legal advice unless they also hold a legal qualification. While they are experts in tax law and compliance, their role is primarily in financial, tax, and accounting matters. For legal advice, particularly in complex legal-financial intersections, consulting a qualified attorney is recommended.

What Are the Continuing Education Requirements for CPAs?

CPAs need to complete continuing professional education (CPE) to maintain their license. The requirements vary by state but typically involve completing a certain number of CPE hours every 1-3 years. These courses keep CPAs updated on changes in accounting practices, tax laws, and other relevant areas.

Do CPAs Need to Be Good at Math?

While CPAs need to have strong numerical skills, they don’t necessarily need to excel in advanced mathematics. More important are analytical skills, an understanding of accounting principles, proficiency in data analysis, and the ability to interpret financial data to make informed decisions.

What’s the Difference Between a CPA and a CMA?

A CPA focuses on external financial reporting, auditing, tax matters, and regulatory compliance. A CMA, on the other hand, specializes in internal financial management, including strategic planning, financial analysis, and organizational decision-making. Both have distinct roles in the accounting and finance field.

Should I Get a CPA and a CMA?

Deciding to obtain both a CPA and a CMA depends on your career objectives. A CPA is essential for careers in public accounting and taxation, while a CMA is geared towards internal management accounting and financial strategy. Having both can broaden your expertise and career opportunities, but it requires a significant investment of time and resources. Consider your long-term career goals and the specific skills each certification offers to determine if pursuing both is the right path for you.

Sources:

Profile Image of Bryce Welker

Bryce Welker is a regular contributor to Forbes, Inc.com, YEC and Business Insider. After graduating from San Diego State University he went on to earn his Certified Public Accountant license and created CrushTheCPAexam.com to share his knowledge and experience to help other accountants become CPAs too. Bryce was named one of Accounting Today’s “Accountants To Watch” among other accolades.

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