What is the difference between a Certified Public Accountant (CPA) and a Chartered Financial?

CPA is the title of qualified Certified Public Accountants in numerous countries in the English-speaking world. In the United States, the CPA is a license to provide accounting services to the public. CPA License is awarded by each of the 50 states for practice in that state. State licensing requirements vary, but the minimum standard requirements include passing the Uniform Certified Public Accountant Examination, currently requiring 150 semester units of college education, and a period of supervised and qualifying accounting-related experience.

Continuing professional education (CPE) is also required to maintain licensure.

Many other countries also use the title CPA to designate local public accountants.

CFA stands for Chartered Financial Analyst and is a certification earned through the CFA Institute. CFAs are specialists in investment management. Some popular job titles held by CFAs include portfolio manager, research analyst, and investment banker.

Why would I need a CPA firm instead of a bookkeeper?

A bookkeeper is normally hired or contracted to enter source document information into and accounting system of a Company. Depending on the internal control structure of the Company, bookkeepers may also perform general ledger account reconciliations, such as reconciling a bank statement to the “book balance” of the Cash in Bank account in the general ledger set of accounts. Reconciliations of other types of accounts are also sometimes done by bookkeepers as requested by a Company’s management.

A bookkeeper may prepare internal use financial statements from a Company’s set of reconciled books of account, for management to look over, check and perhaps to make decisions, based upon the reports if management feels the reports are fully reconciled.

By nature of the internal work, bookkeepers are not independent of the work they perform, reconciling internally generated reposts to the work internally prepared at a Company.  By contrast, an outside CPA for the Company may have greater independence in checking significant account balances against third party documents and may produce reports that have had additional procedures applied to them, to help increase reliability of reports on which significant financial decisions may be based. The level of assurance to be provided is something pre-negotiated between the Company and the CPA, generally distilled in an engagement letter to document the assurance level that the CPA may agree to provide to the Company about financial statements (such as a Balance Sheet, a Profit and Loss statement, or a Statement of Cash flows)

Due to professional accounting standards set for CPAs and that are coordinated / understood by the American Bankers Association, and the American Bar Association, financial institutions and regulatory bodies sometimes require a financial statement of a Company to be reported upon by a CPA, beyond the internally prepared statements from a Company’s internal bookkeeping staff.

When should I start looking for a CPA to help with a new business setup?

As soon as you begin to formulate the type of business you wish to establish, plan to meet with a CPA.  During this stage of your start-up, a CPA can help you understand the tax and accounting requirements for your type of business and assist you in a number of potential tax-related regulatory filings. Your choice of type of business entity is also an early critical decision to make in a knowledgeable manner. Your net income tax exposure can be higher or lower depending on the type of business entity you choose. Also, a CPA can often be a good referral source for a business attorney, perhaps one that has a specialty in your line or type of business.

Do I need to hire a CPA if I am audited by the IRS?

An ounce of prevention … as the old saying starts. A CPA can help you preemptively gather support documentation during the initial phase of a tax preparation engagement. This helps reduce the risk of losing otherwise-winnable matters that might arise during an audit by IRS.

On the back side of the process, when an IRS notice comes, the date on the notice and response time are super critical. Lead time is normally a very good ingredient in preparing a successful reply to an IRS notice. Avoid burning up half or more of the lead time needed to formulate a reply plan and lead time needed to gather supporting documents for the reply.

What is the advantage of using a CPA to prepare my taxes instead of using software like TurboTax?

TurboTax and a number of other self-help tax preparation software packages are generally very good.   The interview screen in these packages likewise.  A key to good tax work is to know what the questions mean.  Another key is to recognize that the” Q + A” approach to self – preparation of tax returns that you are your own limit in the knowledge of tax law at this “discussion table (with you and the software alone).

An experienced CPA in the tax preparation business may recognize tax issues simply related to the kind of business you have (and what would normally be sought out for deductibility by a CPA in tax practice).

A generic set of “canned” questions might not ask all the needed questions.

The tax code and regulations are thousands of pages. A Q + A check list approach to doing your own return on DIY / self – help tax software is unlikely going to be able to include every possible applicable tax question that relates to every possible tax situation.

How much does a CPA cost? What am I getting for my money?

 At a grocery store, most people know to not simply ask “How much does a bag of groceries cost”.

What is in the bag determines the check-out tab / cost.

A CPA / Tax preparer brings to the table the training, experience, and usually the inquisitive care about your situation. One common solution about this question for a person to simply purchase the commercial tax software package and “give it your best shot” in preparing your own return.

Then provide the same information, plus fill out the other data requests the CPA firm may want. Our firm has used this approach with clients who want that much involvement in the tax preparation process, and usually can save tax for a client, often exceeding $1,000.

On the other hand, a lot of our clients just want us to do the return from the get-go, and not be bothered with doing their own comparative analysis.

It is largely a personal preference, with regard to the approach we take to the engagement.

Some clients really enjoy the “Compare and Contrast” approach.  Other clients just want to get the returns prepared because they have more income –producing uses of their time, doing what they themselves have the training to do best, in their own field of endeavor.

Besides preparing tax returns, what else can a CPA do for me or my business?

 The phrase “More than a Tax Return” is often used in our firm.  Choosing an accounting method appropriate for managing your business may be a method different than available options for income tax reporting.  For example, a contractor may choose from among four different accounting methods for income tax reporting. But, depending on the nature / type of contracting the firm does, another method may be more appropriate for managing the decisions and reporting to banks / credit sources, etc.

The main goal usually is to choose an accounting method that helps you manage your business best, for internal reporting purposes, and then then choose a method that slows or controls reported profitability to a degree that income tax law (through public policy pressures in the past) might allow.

The Revenue Code has many business-friendly provisions that allow slower recognition of revenue and a faster deduction of expense than a firm would otherwise those as an accounting mother for internal management of the business.

Longer-term planning is another area that a CPA can provide prospective. Succession planning is important to a business and its owners.

Other areas of service to your business by a CPA could include:

  • Interfacing with your business attorney on supporting documentation for his / her legal work on your behalf
  • Follow up coordination on financial matters with your business credit sources
  • Interfacing with retirement plan administrators
  • Assistance with accounting portion of competency screening when hiring bookkeeping staff
  • Facilitating planning meetings such as annual budget / corporate planning. Corporate officers / family member interfacing on goals and objectives of your firm.
  • Adding perspective on reasonable compensation levels of key officers and staff

I run a small business, but don’t have time to do the books myself, can a CPA firm do that for me?

 A CPA or a competent staff member of the firm can do the data entry and reconciliations that a bookkeeper might otherwise do “in–house” at your business.  The CPA firm approach offers an advantage of only paying for the time you use at the CPA firm.  It is often a request by bookkeepers to have a full-time job, when the bookkeeping function at a Company may only need 10-15 hours per month, or less.

A Company can often make more money hiring staff that align with the product or service that the Company exists to provide, which, for most companies is something other than bookkeeping. Focus on what you do best and consider contracting with a CPA firm if bookkeeping and accounting functions are not a strength area of your office operation.

I use QuickBooks to manage my small business accounting, when/why would I need to hire a CPA?

The saying that “you get what you inspect, not what you expect” applies often in the context of this question.  Simply because debits and credits are all entered (which quick books does by default) does not mean that those debits and credits are in the right accounts.

We have seen instances where many transactions were posted to Company books as Owner Distributions (non-deductible, not a P+L item) that were in fact deductible expenses. Some instances have involved tens of thousands of dollars of tax that were successfully avoided, after making those kinds of suggested corrections.

Getting transactions into the Quick Books System is different, then making sure they are classified properly, posted to the correct accounts is an area where a CPA can be of great value.  Also, a periodic look-over by a CPA firm, such as quarterly, and reconciling accounts to outside source documents (Payroll tax returns, sales tax returns, lender statements, etc. can help make mid-course corrections during a year and reduce risk of decisions being made on inaccurate data.

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