CPA vs Accountant | Is there any difference?
If all CPAs are accountants, what truly differentiates a CPA vs. an Accountant? Are they the same thing with different costs? Although they have similar qualities, they are quite different from one another.
A CPA is a certified accountant that can offer distinctive advantages and expertise, which is reflected by their more expensive wage.
An accountant that does not have a CPA certification usually lacks the extensive knowledge, education, and specialized advanced skill set. Accountants are better suited to help individuals and companies with simple needs or situations. However, keep in mind that you usually get what you pay for. Investing the extra money to use a CPA vs. accountant for simple or complex situations can be beneficial.
When it comes to selecting the most qualified and appropriate CPA or accountant, it’s helpful to define services needed and outcomes desired. The next step to discovering a CPA or accountant is to select 4-5 accounting firms. Once you have verified the legitimacy and standards of potential accounting firms, you can dive deeper into the CPAs or accountants within each firm. When you have your list of potential advisors narrowed down it’s highly recommended to meet them and ask plenty of questions.
An accountant or CPA can gain significant advantages by building trusted relationships. Therefore, you should ask your potential CPA or accountant almost anything that will help you gain trust in them. Requesting a couple personal and professional references is usually normal when qualifying a CPA or accountant. Keep reading to understand the primary differences between CPA vs. accountant.
Related: CPA Tax Accountant
What Is A CPA (Certified Public Accountant)?
A CPA is a qualified, licensed, and trusted accountant that can help individuals and business with the most complex situations. They also offer business or financial consulting. An accountant with a CPA certification symbolizes a proven master of critical elements involved in accounting. This can increase the value and advantages a CPA can provide you.
CPA Certification or Title is earned by passing the Uniform CPA Exam, meeting initial and continuing education standards, and completing the required amount of general accounting experience. CPAs are registered on a state level and must be registered in the state in which they practice.
What Does A CPA Do?
CPAs can serve as business advisors, decision makers, auditors, tax consultants, accounting consultants, and so on. CPAs offer a wide variety of services including…
- Financial statements (audited, reviewed, or compiled)
- Financial planning
- Forensic accounting
- Internal auditing
- Income tax
- Audit support
- IRS representation
- Tax filing and planning
- Environmental accounting
- Information Technology (IT)
- International accounting
CPAs operate in financial positions and must deliver the highest standard of knowledge and ethics. If you are dealing with complex situations you should hire a CPA.
A CPA usually charges more than a non-CPA accountant, so hire smart. Do your best to hire a well-qualified and reputable CPA. In most cases they are well worth the investment. CPAs can offer distinct advantages that we will discuss a little later on.
What Is An Accountant?
You might have noticed above that we mentioned a CPA is an accountant. The key to understanding this statement is to know that not all accountants can call themselves a CPA. An accountant can be simply defined as an individual that fulfills the job of inspecting and keeping financial records.
Technically anyone that meets the description of an accountant can call himself or herself an accountant. Most accountants should have a degree in accounting or business, but technically they are not required to.
Related: Tax Accountant Job Description
What Does An Accountant Do?
Some of the activities an accountant can perform are…
- Recording business transactions
- Keeping financial records
- Inspecting financial records
- Financial statements
- Management reports
- Tax reports
- Report company performance
- Creating processes
- Managing simple tax-related returns
- Maintaining general business accounts
In fairly simple situations an accountant can be an affordable option. If you can afford to use a CPA there’s a good chance you will benefit from the investment, even if your situation seems simple.
In an effort to increase efficiency, accountants can specialize in a variety of sub-fields such as:
- Tax accountants
- Cost accountants
- Payroll clerks
- Inventory accountants
- Billing clerks
- General ledger accountants
- Collection clerks
Differentiating Factors: CPA Vs. Accountant
Now that we have defined CPAs and accountants and what they do let’s focus on what differentiates CPAs and accountants.
#1. CPAs can represent your business in an IRS audit.
Perhaps one of the primary advantages of using a CPA is that they have the authority to represent your business during an IRS audit or other IRS related matters. A large testing portion of the Uniform CPA Exam is tax code. CPAs that pass the Uniform CPA exam can be considered tax code experts. In addition to representing your business before the IRS, CPAs can provide preventative measures to help you steer clear of the IRS.
So can a non-CPA accountant represent your business during an IRS audit? No, they cannot. This is one of the most obvious differences when comparing CPA vs. accountant. Let’s say you had an accountant prepare and sign your tax return (something an accountant should be capable of doing). Now the IRS is investigating the return. The accountant that prepared the return, or any non-CPA accountant, is unable to represent you during the investigation or audit. A non-CPA accountant is not considered a tax code expert like a CPA is. Using a CPA from the beginning can help you avoid encounters or audits with the IRS. It can also ensure you have proper representation in the event you do encounter an IRS audit or problem.
#2 CPAs can provide audited, reviewed, or compiled financial statements.
CPAs can provide audited or reviewed financial statements. Non-CPA accountants cannot provide audited or reviewed financial statements. This is another important and pretty obvious difference when comparing CPA vs. accountant.
Audited or reviewed financial statements might not ever be required for a small business to produce. Public companies, on the other hand, must produce audited statements. Whether these statements are required or not they can be beneficial to businesses. Plus, they help to ensure accurate information is being reported. The three main types of financial statements prepared by CPAs are audited, reviewed, and compiled.
#3. CPAs are required to pass the Uniform CPA Exam and abide by rigorous state licensing requirements.
To earn CPA certification, a qualified accountant must pass the Uniform CPA exam. To maintain CPA certification, one must satisfy continuing education and testing requirements. The fact that CPAs are required to comply with these requirements helps ensure they are up-to-date on information, changes, and issues relevant to the accounting world.
Prior to taking the Uniform CPA exam, qualified candidates should complete 150+ hours of college coursework, including:
- Specific educational coursework
- Upper-level accounting
- Core business classes
In addition, they are required to work under the supervision of a CPA for a minimum of one year after graduation. Once these requirements have been satisfied you are eligible to take the CPA exam. The CPA exam includes test topics such as auditing, business, and general accounting skills. A passing score is required to receive an official CPA certification.
The more education a CPA completes, the more appeal they can offer to potential clients. At minimum, a CPA should have a bachelors degree in accounting or business.
#4. CPAs owe their clients a fiduciary responsibility.
A fiduciary relationship involves a high level of trust between a trustee and beneficiary. CPAs have a fiduciary responsibility meaning they have a legal duty and power to act on behalf of and in the best interest of their clients while serving them in good faith. When using a CPA you trust them with important things such as money, financial planning, taxes, and so on. Having a fiduciary responsibility can be a heavily weighted factor when deciding to use a CPA vs. an accountant. Non-CPA accountants should act as a fiduciary but cannot be held to a fiduciary standard.
Fiduciaries are required to…
- Prioritize client interest before their own interest
- Use best practices
- Serve clients in good faith
- Provide all relevant information and facts
- Disclose and avoid any potential conflicts of interest to clients
- Provide accurate and thorough advice to the best of their ability
- Use client assets to benefit the client not themselves
#5. CPAs are usually tax code experts that can offer extensive knowledge about taxes and regulations.
When comparing CPAs vs. accountants you should consider the level of expertise, knowledge, and certification a CPA has to offer. While both CPAs and accountants can prepare a proper tax return, a CPA can offer extensive tax code knowledge as well. CPA education and licensing requirements, as well as tax code expertise, help ensure you take advantage of all possible benefits. In the event the IRS challenges a return, your CPA has the authority to represent you.
#6 CPAs are held to high professional standards and must comply with a strict code of ethics.
The cost of hiring a CPA can be justified or reflected by the high standards they are required to practice at. In addition to continuing education and licensing requirements, CPAs are required to follow the AICPA (Code of Professional Conduct). The path for ethical behavior created by the AICPA can impact the accounting field and the general business world.
The AICPA requires CPAs to:
- Act with integrity, due care, objectivity, and competence
- Maintain client confidentiality
- Disclose any commission or referral fees to clients
- Act in the public interest while providing financial services
#7. CPAs can provide detailed and thorough financial analysis while providing tax and financial advice.
A financial analysis performed by a CPA vs. an accountant is usually more valuable and thorough. A CPA and an accountant can both prepare a financial analysis, and typically even follow some of the same practices while doing so. Bookkeepers are commonly used by CPAs and accountants to input records such as business income and expenses into financial software. After the data is inputted, CPAs and accountants can review data and prepare and analyze financial reports.
If you are using an accountant this is usually where the extent of their financial analysis ends. If you are using a CPA, their analysis and review of data is generally more detailed and thorough. In addition, they can provide advice regarding tax and financial matters.
Who Should Use A CPA Vs. Accountant?
If I haven’t said it enough I’ll say it again… if your financial situation is complex you should use a CPA. CPAs can assist individuals and businesses with a wide variety of needs and even issues.
Using a CPA can be a wise investment in situations such as…
#1. You have multiple sources of income
It’s becoming more common for people to have multiple sources of income, aka several side hustles. Many people are taking advantage of opportunities to earn income such as driving for Uber or Lyft, selling products online, delivering packages, and so on. Multiple sources of income can complicate taxes, but it can also offer potential write-off opportunities.
Hiring a CPA can be beneficial for situations involving multiple sources of income or 1099s. A CPA can help ensure you’re utilizing available tax write-offs that can potentially help lower your tax bill. They can also help you with retirement planning and more.
#2. You are a small business owner
If you own a small business the decision should be pretty clear as to which one to hire. A CPA can offer distinct advantages for you and your business. They can also provide more qualified representation should you run into any situation involving the IRS.
Another advantage of using a CPA vs. accountant is their ability to provide audited or reviewed financial statements. This can help your business operate more efficiently, produce more revenue, and ensure more accurate financial statements.
#3. You are dealing with IRS related matters or audits
When it comes to dealing with the IRS, you should hire a CPA. CPAs are certified accountants that are expected to deliver the highest standard of professionalism and expertise. CPAs have proven an in-depth understanding of tax code. CPAs should be qualified to speak the IRS language and ensure proper representation. In addition, during an audit CPAs can legally represent you in front of the IRS. Even situations that seem simple such as a request for a substantiation of expenses should deserve the attention of a CPA. Using the proper information and correct verbiage with the IRS is critical. Bottom line, if you want proper representation and a reduced risk of mistakes or future problems with the IRS, you should hire a CPA.
#4. Financial planning
If you want to ensure proper financial planning for your kids to go to college or your retirement you should hire a CPA. Hiring a CPA can be especially beneficial if your retirement is self-directed. Filing returns that include retirement assets and accounts can be complicated. A CPA can help you save time and hassle while providing peace of mind that your return is done properly. CPAs can assist you with other important areas of your financial portfolio, as well. Selecting a well-qualified and reputable CPA can help you maximize the benefits of using a CPA.
#5. Rental property owner
Certain kinds of tax deductions are usually available for rental property owners to take advantage of. If you own a rental property, using a CPA can be a valuable asset in your toolbox. They can help you take advantage of possible deductions and ensure returns are done properly and in a timely manner.
Don’t see your situation spelled out above? Still questioning if you should use a CPA? When determining if you need a CPA vs. accountant, remember that CPAs can help with a wide variety of complex or simple situations. Whether you actually need a CPA or not depends upon the complexity of your situation.
Additional situations that both CPAs and accountants can help with:
- Improving credit score
- Reducing debt
- What to do with $200,000+ annual income
- Business ventures (new or existing)
- Large financial gifts or donations
- Back tax owed
- Increase savings
Who Should Use An Accountant?
An accountant can assist individuals and businesses with a wide variety of services. You might notice that some services provided by an account seem similar to those provided by a CPA. This is true but a CPA is a higher qualified accountant that usually provides better representation, advice, and service.
Determine how simple or complex your situation is to help decide whether you need an accountant or a CPA. Accountants are typically more affordable than CPA’s but you get what you pay for most of the time. If you absolutely cannot afford to hire a CPA, seeking the help of an accountant is better than seeking no help at all. For simple situations you should be just fine using an accountant. Although, using a CPA gives you more protection and advantages.
Related: Virtual Accountant
When Should You Use A CPA?
There are a few pretty clear situations that require the use of a CPA.
#1. Complex situations
Whether you are an individual or business, if you are dealing with a complex financial or tax-related situation you should seek the help of a CPA. They can help devise the most appropriate plan for your situation to produce favorable short- and long-term results. They can also help incorporate proactive activities to simplify future returns, avoid future obstacles or IRS run-ins, and improve efficiency.
#2. IRS run-ins or audits
Whether the IRS contacts you with simple questions or requests to perform an audit, you should use a CPA. A CPA is a certified accountant that can represent you before the IRS. Non-CPA accountants cannot represent you before the IRS.
#3 Audited or reviewed financial statements
Business can require audited or reviewed financial statements that can be provided by a CPA. Non-CPA accountants cannot provide audited financial statements. Even if audited or reviewed financial statements are not required they can still be beneficial to your business. They can help ensure processes are working efficiently and information is accurate.
CPA Vs. Accountant: Deep Dive On CPA Services
#1. Financial statements
As we discussed earlier a CPA has the authority to produce audited, reviewed, and compiled financial reports or statements. In order to provide more reliable financial statements companies should have them reviewed or audited. The highest level of financial statement a CPA can provide is an audit. Dedicating additional resources to financial statements can help businesses determine their real needs. Determining the real needs of a business can help deliver the right level of service and improve decision-making.
#2 Financial planning
CPAs can assist individuals and companies with financial planning activities such as:
- Mergers and acquisitions
#3. Forensic or fraud accounting
Whether you or your business is the subject of a legal dispute, or perhaps just suspect something in the financial arena is off, you can use a CPA for forensic or fraud accounting services. When performing these services, a CPA can dive into accounting records to uncover evidence of criminal misconduct or illegal or fraudulent activity.
#4 Internal auditing
Periodic internal audits are required for many businesses. Typically, the goal is to ensure financial statements are being presented accurately and fairly and are in compliance with generally accepted accounting practices. The accounting firm usually examines financial records, processes and controls during an audit.
Internal audits performed by a CPA help ensure:
- Compliance of policies
- Proper keeping of records
- Effective financial practices that are supporting business growth and goals
#5. Income tax
If you could reduce the amount of income tax you pay wouldn’t that mean your actual take-home income would increase? Most of us are constantly searching for ways to maximize our income. Using a CPA can help you take advantage of possible tax deductions and improve planning to reduce your tax bill and improve your financial future.
#6. Audit and IRS support
One of the largest determining factors between using a CPA vs. accountant is perhaps the CPAs authority to represent you or your business before the IRS. Dealing with the IRS is a very serious topic. Whether the IRS is auditing you, questioning returns, or just requesting something that seems simple you should consult a CPA.
A CPA can help ensure you provide the right information and use IRS language. The last thing you want is to escalate a simple matter with the IRS into a serious problem by making a mistake or saying the wrong thing. Using a CPA can be a wise investment when dealing with the IRS.
#7. Tax filling and planning
Consulting with your CPA regularly about tax filling and planning can be beneficial in many ways, such as:
- Ensure financial reporting complies with current IRS regulations
- Determine tax liability
- Ensure filling deadlines and requirements are met
- Discover ways to reduce your tax bill
- Determine break-even points and cash-flow requirements
One of the key factors defining a CPA vs. an accountant is that all CPAs are accountants. But remember, not all accountants are CPAs. A CPA can usually provide the same services as an accountant and then some. CPA services should be more thorough and detailed. Keep reading to learn more about the services an accountant offers.
CPAs can consult and provide advice and assistance in financial and strategic areas to:
- Financial institutions
- Nonprofit organizations
- Government agencies
Businesses are often required to communicate relevant financial and non-financial information. This information is commonly provided to influence decisions. Decision-makers can gain confidence knowing assurance services were used to ensure the information is reliable and accurate. The demand for assurance services is increasing due to growing niche areas.
#11. Environmental accounting
The trend of protecting our environment seems to be impacting businesses in many ways. An increasing amount of resources are being dedicated to environmental issues. CPAs that offer environmental accounting services can conduct compliance audits and create and implement preventative systems.
#12. Information technology
CPAs with an extensive understanding of computer and data security are experiencing a time of great opportunity. CPAs with this skill set can design and execute advanced systems based on their client or organization’s needs. They can also help companies that gather information using computer systems. A CPA that offers IT services can evaluate the integrity, security, and practices being used to process and protect information. This is known as information technology services that can be offered by CPAs.
#13. International accounting
Demand for CPAs that offer a competent understanding of international trade laws is increasing simultaneously with our global economy.
Accountant Vs. CPA: Deep Dive on Accountant Services
#1. Recording business transactions
Accountants can be defined simply as someone who records business transactions, usually on behalf of an organization. They can use the recorded information to produce performance management reports and financial statements. Some examples of transactions that could involve an accountant are…
- Issuing or receiving invoices
- Accounts receivable
- Accounts payable
- Salary or wage payments
- Bank statements
- Cash accounts
#2. Keeping financial records
Keeping financial records is closely related to bookkeeping. Ensuring financial records are properly kept is an important duty that an accountant is commonly responsible for. It requires efficiency and attention to detail in order to ensure proper calculations and reports are produced.
#3. Inspecting financial records
While an accountant cannot audit financial records, they can inspect and maintain them. Inspecting financial records can be an important part of effective bookkeeping and record keeping. Paying attention to detail and inspecting records on a regular basis can help prevent miscalculations, incorrect information, and so on.
#4. Financial statements
As we discussed earlier, accountants and CPAs can provide financial statements. However, financial statements provided by CPAs are typically more detailed and thorough. CPAs can also provide strategic and financial advice. Some of the primary recipients of financial statements are owners and operators of businesses and lenders. Accountants can prepare financial statements such as:
- Income statements
- Balance sheets
- Statement of cash flows
#5. Management reports
Accountants can provide useful management reports that are usually issued to the management team. These reports are typically customized based on the needs of each team or entity. Management reports can cover topics such as:
- Sales of product lines
- Cost variance investigations
- Sales returns
- Analysis of overtime incurred
#6 Tax reports
Various government entities can be issued tax reports making this an important service that can be offered by accountant. Tax reports typically cover detailed information on amounts paid for areas such as:
- Income taxes
- Property taxes
- Sales taxes
- Use taxes
#7. Report company performance
An accountant can add value and help improve business performance in many ways. Developing performance evaluations and reports can help fill in financial blanks, reduce expenses, improve efficiency, and more.
#8. Creating processes
Part of an accountant’s job is to make sure that assets are properly managed. A number of business processes can be related to asset management. Accountants can create and maintain processes that involve asset management. Some examples of these processes are:
- Customer shipments
- Receipts from suppliers
- Cash receipts (from customers)
Bookkeeping is considered one of the core functions of an accountant’s job. Ensuring that financial records are properly maintained can be critical to produce accurate calculations on business earnings and expenses. Bookkeeping can involve:
- Handling accounts payable
- Handling accounts receivable
- Creating balance sheets
- Tasks related to credits and debits
#10. Managing simple tax-related returns
Tax returns are an important part of comparing accountants vs. CPAs. If your returns are fairly basic or simple an accountant can usually assist you with preparation and returns. In addition, they can help you discover possible deductions that can help you save money. For complex returns, it’s recommended that you use a CPA for returns and financial planning.
#11. Maintaining general business accounts
Accountants usually record your financial records, which means they are probably keeping a close eye on general business accounts. Watching money flow and making sure it comes and goes to the right places is an essential function of maintaining general business accounts.
Cost Benefit Analysis of CPA vs. Accountant
Are you spending your money wisely? If you are interested in hiring a CPA or accountant there’s a good chance you want your finances looked over by a professional to ensure efficiency and maximization and proper allocation of funds.
When you look at the cost of a CPA vs. accountant you should replace the word “cost” with “investment.” CPAs and accountants can save you time, hassle, and even money. They can lower the risk of costly mistakes, help you take advantage of deductions, and improve spending and earnings.
Although, it’s pretty safe to say that a CPA will cost you more money upfront. On average a CPA earns about 15% – 20% more than an accountant. However, their qualifications, standards, and tax code and IRS expertise give them added value. If you are a small business owner you should almost always use a CPA vs. an accountant.
Tax Software Vs. CPAs or Accountants
Tax software can be used to file business returns but it’s not recommended. The upfront cost of using tax software might make it an attractive option. However, using tax software can result in increased risk for additional costs down the road. In addition, it can be time consuming.
Before deciding to use tax software you should take the time to calculate how much time it might take you and what your time is worth. This should be added to the upfront cost of the software. Using a CPA or accountant will have a higher upfront cost but in return you get a lower long-term risk. CPAs and accountants can save you time, money, and hassles while helping you avoid problems with the IRS.
Summary: CPA Vs. Accountant
Hopefully after reading this blog you have a good understanding of the differences between CPA and an accountant. Overall, a CPA is a certified accountant that is registered at the state level and must follow rigorous requirements. An EA is another kind of tax expert that can be useful in IRS situations. Similar to a CPA, an EA has the authority to represent you before the IRS. In some cases, they may offer a more affordable solution than using a CPA.
If you are a business owner you should visit your CPA or accountant on a regular basis. Communication, trust, and transparency are important qualities for your working relationship to flourish. Individuals may only visit their CPA or accountant once a year. This is pretty normal but if you can squeeze in additional phone calls or meetings with them it might be useful.