What Is a Certified Public Accountant (CPA)?

What Is a Certified Public Accountant (CPA)?

Let me tell you directly: A Certified Public Accountant (CPA) is a licensed accounting professional who has met rigorous examination, education, and experience requirements, allowing them to provide various financial services.

As a CPA, you're licensed after passing an examination administered by your state's Board of Accountancy. These state exams follow guidelines from The American Institute of Certified Public Accountants (AICPA). You can only take the Uniform CPA Exam if you already have professional experience and a bachelor's degree.

Other countries have similar certifications, like the chartered accountant (CA) designation that started in Scotland and is now used worldwide.

Key Takeaways

The CPA designation goes to qualified accountants who pass a rigorous exam called the Uniform CPA Exam. You must meet education, work, and exam requirements, including a bachelor’s degree—often in business administration, finance, or accounting—and 150 hours of education. You also need at least two years of public accounting experience. CPAs hold positions in public and corporate accounting, or even executive roles like controller or chief financial officer (CFO).

Role and Responsibilities of a CPA

Not every accountant is a CPA; only those licensed by their state's Board of Accountancy after passing the Uniform CPA Exam qualify. As a CPA, you prepare reports that accurately show the business dealings of companies and individuals who hire you. Many of us also prepare tax returns and advise on minimizing taxes.

To get the designation, you need a bachelor’s degree, usually with a major in business administration, finance, or accounting—though other majors work if you meet the accounting course minimums. You're required to complete 150 hours of education and have at least two years of public accounting experience. Passing the Uniform CPA Exam is essential, and maintaining the designation means completing continuing education hours.

The CPA Exam

The CPA exam is a 16-hour test with four sections, each taking up to four hours. It includes three core sections that everyone must complete and one discipline section you choose from three options.

The core sections are Financial Accounting and Reporting (FAR), Auditing and Attestation (AUD), and Taxation and Regulation (REG). For the discipline, you pick from Business Analysis and Reporting (BAR), Information Systems and Controls (ISC), or Tax Compliance and Planning (TCP).

Each section has multiple-choice questions and task-based simulations—for instance, AUD has 78 multiple-choice questions and seven simulations. You need at least 75% to pass, but pass rates are low; three sections are below 50%, with BAR at 41.04% being the hardest and TCP at 78.16% the easiest.

You get four hours per section, totaling 16 hours, and you can choose the order but must pass all within 18 months. International equivalency exams exist for working abroad.

CPA Career Paths

As a CPA, you have options in public accounting at firms, corporate accounting inside companies, or government service. You can move into executive spots like controller or CFO.

No matter where you work, you compile, maintain, and review financial statements and transactions. Many file tax forms for individuals and businesses and are authorized for audits. CPAs specialize in auditing, bookkeeping, forensic accounting, managerial accounting, or IT aspects.

You don't need a CPA for corporate or private company work, but public accountants at firms like Deloitte or Ernst & Young must have it to provide services to businesses.

CPA Ethics

CPAs follow a code of ethics set by the AICPA's Code of Professional Conduct. The Enron scandal shows what happens when CPAs ignore it—Arthur Andersen executives and CPAs faced charges for illegal practices.

Laws require CPAs to stay independent during audits and reviews. In Enron, Arthur Andersen CPAs lost independence by doing both consulting and auditing, violating ethics. The CPA designation gained importance after the 2002 Sarbanes-Oxley (SOX) Act, responding to scandals like Enron.

History of the CPA Designation

In 1887, accountants formed the American Association of Public Accountants (AAPA) to set moral standards and U.S. auditing standards for governments, companies, and nonprofits. Renamed over time, it's been the American Institute of Certified Public Accountants (AICPA) since 1957, with the first CPAs licensed in 1896.

By 1934, the SEC required publicly traded companies to file financial reports endorsed by accountants. The AICPA set standards until 1973, when the Financial Accounting Standards Board (FASB) took over for private companies.

The industry boomed in the late 1990s with firms expanding into consulting, but the 2001 Enron scandal changed everything, collapsing Arthur Andersen. Since the 2002 Sarbanes-Oxley Act, accountants face stricter consulting restrictions.

What Are the Responsibilities of a CPA?

CPAs compile, maintain, and review financial statements and transactions, prepare tax returns, and perform audits. Some specialize in forensic accounting, personal financial planning, or taxation. You must complete continuing education and uphold professional ethics.

What Can CPAs Do That Accountants Cannot?

A CPA is an accountant with a professional credential, sharing core tasks like preparing or reviewing financial docs. But CPAs can perform audits of public U.S. companies and prepare audited statements like balance sheets or income statements.

Which Is Better: an MBA or a CPA?

An MBA is a management degree for starting or running businesses. A CPA is a license signaling expertise for accountants, helping you advance in the field.

Is Becoming a CPA Worth It?

Earning a CPA takes time and the exam is tough, but CPAs earn 25% more on average than non-CPAs. They advance faster to responsible positions and senior jobs within a few years.

The Bottom Line

You can be an accountant without being a CPA, but the license adds a valuable credential. It means you've passed a national test adapted to your state, opening doors to jobs like auditing public companies that others can't do.