Certified Public Accountant: What Does the CPA Credential Entail?

What is the Definition of a Certified Public Accountant (CPA)?

A certified public accountant (CPA) is a professional designation given to licensed accountants. Each state's Board of Accountancy issues the CPA license. The American Institute of Certified Public Accountants (AICPA) offers materials to help you get your license. The CPA designation aids in the upholding of professional standards in the accounting sector. Other countries have analogous credentials to the CPA title, most notably the chartered accountant (CA) designation.

Understanding a Certified Public Accountant (CPA)

Not all accountants are CPAs. Those who earn the CPA credential distinguish themselves by signaling dedication, knowledge, and skill. CPAs are involved with accounting tasks such as producing reports that accurately reflect the business dealings of the companies and individuals for which they work. They are also involved in tax reporting and filing for both individuals and businesses. A CPA can help people and companies choose the best course of action in terms of minimizing taxes and maximizing profitability.

Obtaining the certified public accountant (CPA) designation requires a bachelor’s degree in business administration, finance, or accounting. Individuals are also required to complete 150 hours of education and have no fewer than two years of public accounting experience. To receive the CPA designation, a candidate also must pass the Uniform CPA Exam. Additionally, keeping the CPA designation requires completing a specific number of continuing education hours yearly.

The CPA Exam

The CPA exam has 276 multiple-choice questions, 28 task-based simulations, and three writing portions. These are divided into four main sections:

• Auditing and Attestation (AUD)
• Financial Accounting and Reporting (FAR)
• Regulation (REG)
• Business Environment and Concepts (BEC)

Multiple-choice questions count for 50% of the total score and tasked-based simulations count for the other 50%. You must score at least 75% to pass each section.

Candidates have four hours to complete each section, with a total exam time of 16 hours. Each section is taken individually, and candidates can choose the order in which they take them. Candidates must pass all four sections of the exam within 18 months. The beginning of the 18-month time frame varies by jurisdiction.

Important: The CPA designation is specific to the country in which the exam is taken, though it is a well-known program that is offered in many countries around the world. International equivalency exams are also offered so that CPAs can work in countries other than the one in which they were certified.

CPA Career Paths

CPAs have a wide range of career options available, either in public accounting (that is, working for an accounting firm) or corporate accounting (working inside a company), or in government service. Individuals with the CPA designation can also move into executive positions such as controllers or chief financial officers (CFOs).

Those earning the CPA generally end up as an accountant of some sort. That is, they put together, maintain, and review financial statements and related transactions for companies. Many CPAs file tax forms or returns for individuals and businesses. CPAs can perform and sign off on audits.

Though known for their role in income tax preparation, CPAs can specialize in many other areas, such as auditing, bookkeeping, forensic accounting, managerial accounting, and even aspects of information technology (IT).

The CPA designation isn’t required to work in corporate accounting or for private companies. However, public accountants⁠—which are individuals working for a firm, such as Deloitte or Ernst & Young, that provides accounting and tax-related services to businesses—must hold a CPA designation.

CPA Ethics

Certified public accountants are subject to a code of ethics. The AICPA requires that all CPA designation holders adhere to the Code of Professional Conduct, which lays out the ethical standards CPAs must adhere to.

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.

The CPA designation has become more important after the Sarbanes-Oxley (SOX) Act of 2002, which was passed partly in response to corporate financial scandals like the Enron affair.

Tip: To give yourself the best chance possible when taking the exam, taking one of the best CPA prep courses might be worth considering.

History of the CPA Designation

In 1887, 31 accountants created the American Association of Public Accountants (AAPA) to define moral standards for the accounting industry and U.S. auditing standards for local, state, and federal governments, private companies, and nonprofits. Renamed several times over the years, the organization has been known as the American Institute of Certified Public Accountants (AICPA) since 1957. The first CPAs received licenses in 1896.

In 1934, the Securities and Exchange Commission (SEC) required all publicly traded companies to file periodic financial reports endorsed by members of the accounting industry. The AICPA established accounting standards until 1973 when the Financial Accounting Standards Board (FASB) was launched to set standards for private companies.

The accounting industry thrived in the late 1990s due to large accounting firms expanding their services to include various forms of consulting. The Enron scandal in 2001 resulted in major changes in the accounting industry, including the fact that Arthur Andersen, one of the nation’s top accounting firms, went out of business. Under the Sarbanes-Oxley Act, which was passed in 2002, accountants were subject to tougher restrictions about their consulting assignments.

What Are the Responsibilities of a CPA?

Depending on their particular role, a CPA may be involved in one or more aspects of the accounting profession. CPAs can specialize in areas like forensic accounting, personal financial planning, and taxation. In addition, CPAs must complete continuing education requirements and uphold a standard of ethics.

What Can CPAs Do that Accountants Cannot?

CPA is a credential earned by accountants. As such, CPAs are often accountants that perform the same duties and functions as an accountant without the designation. CPAs, however, are granted certain roles that only they can perform. These include performing audits of public U.S. companies and preparing audited financial statements for a company, such as a balance sheet or an income statement.

Which is Better: an MBA or CPA?

The MBA is an academic masters degree in business administration. If you are interested in starting or running a business, the MBA is a comprehensive degree that may be better for you. The CPA is a professional designation earned by accountants. If you are a "numbers person" or interested only in the accounting profession, the CPA may be better for you.

Is Becoming a CPA Worth It?

Earning the CPA credential is a big-time commitment, and the exam process is difficult. Still, those with a CPA earn 25% more, on average, than non-CPA accountants. Also, accountants with a CPA certification tend to advance to positions of more responsibility within one to two years and often are promoted to senior-level jobs within a few years after that.

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