CPA vs. Accountant, How Is A CPA Different From An Accountant?

A CPA is different from an accountant who is not a CPA in many respects:

1. Higher level of knowledge and practical experience with serving clients

Knowledge and experience are derived from working with clients from each industry to develop an understanding of their business practices and applying their circumstances to the Internal Revenue Service code.

Knowledge and experience are not derived from taking a “book” test (CPA exam).

A degreed accountant pursuing public accounting and a CPA both begin with the same background and education. Each one uses their initial knowledge, maintains their continuing education, and develops an understanding of business practices within each industry.    

How a person applies their knowledge and experience makes the difference between a good CPA/Accountant and a bad CPA/Accountant.

2. Greater experience with issues involving independence and objectivity.

In accounting terms, issues that involve independence and objectivity are audits, compilations and reviews. Only an accountant with a CPA designation is allowed to sign your audit, compilation or review.  The purpose of requiring a CPA to sign your audit, compilation or review is so that any third party (for example, your bank) that received your information would know that if a CPA signed the document, it meant that the CPA was completely independent and had no financial interest in the results. Therefore, indicating that the financials were written from an objective point of view.

For example, your business applies for a loan. Then, the bank requires an audit of your business as part of the loan approval process. When the bank receives the audited financial statements, they already know that the CPA that prepared the financial statements is required to be 100% independent from the business and is not going to benefit from the business loan if it is approved. Therefore, the bank has a higher level of confidence that the financial statements are not misleading the lender for financial gain.

Obviously, an audit is not required every time a loan is applied for. Many times the lender will accept financial statements prepared for management use.

An accountant can prepare a variety of financial statements and analysis that provide the business with insightful information concerning the operations and profitability of the business. These are labeled: (1) Internal use financial statements, (2) Un-audited financial statements, and (3) Management use only financial statements. The expense of preparing internal use financial statements is considerably less than paying for an audit. 

In addition to the financial statements, spreadsheets can be prepared to track trends in inventory, expenses, cash flow, and profitability, while comparing the trends to averages in your industry. These spreadsheets provide invaluable tools for the business owner and/or manager, allowing them to adjust business practices without waiting until the end of the year, thereby increasing overall profitability of the business.  

3. Credentials.

Per Wikipedia, “A credential is an attestation of qualification, competence, or authority issued to an individual by a third party with a relevant de jure or de facto authority or assumed competence to do so.”

A credential is a diploma, a degree, a certificate, or a certification that proves that an individual has completed a particular course of study and passed some form of test.

Would you want to hire: (1) a CPA that just passed the CPA exam? (2) an accountant that just graduated from college? (3) a CPA that has been in business for 10 years? Or (4) an accountant that has over sixteen (16) years of continuous hands on, practical application in varied fields including mergers & acquisitions, audit, due diligence, forecasting and projections, IRS negotiations and resolution, and business formation both as a once recognized and licensed CPA and now accountant, making Alert Financial Services adept, accessible, and affordable for all your accounting needs?

Your answer is still based upon experience. This leads back to the fact that how a person applies their knowledge and experience actually makes the difference between a good CPA/accountant and a bad CPA/accountant. 

4. More experience working with other professional such as attorneys, brokers and agents, fiduciaries and trustees.

Experience is not unique to CPA’s. Any accountant that maintains a client base will develop relationships with their clients’ attorneys, brokers, bankers, and agents.

5. A CPA can practice before U.S. Tax Court

While this is a true statement, the next time you talk to a CPA, ask them when was the last time they went to tax court for a case. The answer in over 98% of the cases will be NEVER.

There are only a handful of CPA’s that specialize in taking cases all the way to tax court. If you have a tax issue that needs to go to tax court, your CPA will most likely seek out either another CPA that specializes in taking cases to tax court or hiring a tax attorney to represent the case in tax court.

This is the same procedure an accountant would follow to insure your best interests are represented by experts that actually practice in tax court on a regular basis. 

Conclusion...

An experienced accountant can provide you and your business with the information needed to analyze, predict, and timely adjust business practices to increase the profitability of your business.

At the same time, an experienced accountant is not constrained by the additional paperwork involved with documenting a CPA’s independence and objectivity. Not to mention, the additional required documentation adds billable hours to your CPA’s invoice for services, making the same job by a CPA cost more than using an experienced account.

Therefore, a logical choice would be to use an experienced accountant to prepare internal use financial statements, spreadsheet analysis, and income tax preparation, then only pay for the additional services of a CPA as their services, such as an audit or tax court representation, are actually needed.