Certified Public Accountant
Certified Public Accountant (CPA) is the statutory title of qualified accountants in the United States who have passed the Uniform Certified Public Examination and have met additional state education and experience requirements for certification as a CPA & operate a CPA Firm. Accountants who have passed the Exam but have not either accomplished the required on-the-job experience in a CPA Firm or have previously met it but in the meantime have lapsed their continuing professional education are, in many states, permitted the designation “CPA Inactive” or an equivalent phrase. In most U.S. states, only CPAs who are licensed are able to provide to the public attestation (only a CPA Firm) (including auditing) opinions on financial statements. The exceptions to this rule are Arizona, Kansas, North Carolina and Ohio where, although the “CPA” designation is restricted, the practice of auditing is not.
Many states have a lower tier of accountant qualification (below that of CPA), usually entitled “Public Accountant” (with designatory letters “PA”). However the majority of states have closed the designation “Public Accountant” to new entrants, with only about 10 states continuing to offer the designation. Many PAs belong to the National Society of Accountants. The are not CPA Firms and are limited in the seervices they can provide.
Many states prohibit the use of the designations “Certified Public Accountant” or “Public Accountant” (or the abbreviations “CPA” or “PA”) by a person who is not certified as a CPA or PA in that state. As a result, in many circumstances, an out-of-state CPA Firm is restricted from using the CPA designation or designators letters until a license or certificate from that state is obtained.
Florida additionally prohibits the use of the designations “accountant” and “auditor” by a person not certified as a Florida CPA, unless that person is a CPA in another state, a non-resident of Florida, and otherwise meets the requirements for practice in Florida by out-of-state CPA firms and practitioners.
Many other countries also use the title CPA to designate local public accountants.
Services provided by CPAs
The primary functions CPA fulfills relate to assurance services, or public accounting. In assurance services, also known as financial audit services, CPA Firms attest to the reasonableness of disclosures, the freedom from material misstatement, and the adherence to the applicable generally accepted accounting principles (GAAP) in financial statements. CPAs can also be employed by corporations termed “the private sector” in finance functions such as Chief Financial Officer (CFO) or finance manager, or as CEOs subject to their full business knowledge and practice. These CPAs do not provide services directly to the public.
Although some CPA Firm serve as business consultants, the consulting role is under scrutiny following the corporate climate in the aftermath of the Enron scandal. This has resulted in divestitures in the consulting divisions by many accounting firms. This trend has since reversed. In audit engagements, CPA Firms are (and have always been) required by professional standards and Federal and State laws to maintain independence (both in fact and in appearance) from the entity for which they are conducting an attestation (audit and review) engagement. However, most individual CPAs who work as consultants do not work as auditors.
Whether providing services directly to the public or employed by corporations or associations, a CPA Firm can operate in virtually any area of finance including:
- Assurance and Attestation Services
- Corporate Finance (Merger & Acquisition, initial public offerings, share & debt issuings)
- Corporate Governance
- Financial Accounting
- Financial Analysis
- Financial Planning
- Forensic Accounting (preventing, detecting, and investigating financial frauds)
- Income Tax Preparation
- Information Technology, especially as applied to accounting and auditing
- Management Consulting and Performance Management
- Tax Preparation and Planning
While some CPA Firms are generalists and offer a range of services (especially those in small practices) many CPA Firms specialize in just one area and do not provide all the services listed above.
In order to become a CPA in the United States, the accountant must sit for and pass the Uniform Certified Public Accountant Examination (Uniform CPA Exam), which is set by the American Institute of Certified Public Accountants (AICPA) and administered by the National Association of State Boards of Accountancy (NASBA). The CPA was established in law on April 17, 1896.
Eligibility to sit for the Uniform CPA Exam is determined by individual State Boards of Accountancy. Typically the requirement is a U.S. bachelor’s degree which includes a minimum number of qualifying credit hours in accounting and business administration with an additional 1 year study. This requirement for 5 years study is known as the”150 hour rule” and has been adopted by the majority of state boards, although there are still some exceptions (e.g.California). This requirement mandating 150 hours of study has been adopted by 45 states.
The Colorado State Board of Accountancy allows Chartered Certified Accountants (ACCA), together with Chartered Accountants from eligible jurisdictions (Australia, South Africa, Canada, Ireland, New Zealand) automatic eligibility to sit for the Uniform CPA Exam as a Colorado candidate. As of December 9, 2009, ACCA members are not automatically eligible to sit for the Uniform CPA Exam.
Certain overseas qualified accountants seeking to become U.S. CPAs may be eligible to sit for the International Qualification Examination as an alternative to the Uniform CPA Exam.
The Uniform CPA exam tests general principles of state law such as the law of contracts and agency (questions not tailored to the variances of any particular state) and some federal law as well.
Other licensing and certification requirements
Although the CPA exam is uniform, licensing and certification requirements are imposed separately by each state’s laws and therefore vary from state to state.
State requirements for the CPA qualification can be summed up as the Three Es Education, Examination and Experience. The Education requirement normally must be fulfilled as part of the eligibility criteria to sit for the Uniform CPA and the Examination component is the Uniform CPA itself. Some states have a two tier system whereby an individual would first become certified as a CPA usually by passing the CPA exam. That accountant would then later be eligible to be licensed once a certain amount of work experience is accomplished. Other states have a one tier system whereby an individual would be certified and licensed at the same time when both the CPA exam is passed and the work experience requirement has been met.
Two-tier states include Alabama, Florida, Illinois, Montana, and Nebraska. The trend is for two-tier states to gradually move towards a one-tier system. Since 2002, the State Boards of Washington and South Dakota have ceased issuing CPA”certificates” and instead issue CPA”licenses,” and Illinois plans to follow suit in 2012.
A number of states are two-tiered, but require work experience for the CPA certificate, such as Ohio.
Work experience requirement
The experience component varies from state to state:
The two-tier states generally do not require work experience for a CPA certificate (it is required for a license to practice).
Some states, such as Colorado and Massachusetts, will waive the work experience requirement for those with a higher academic qualification compared to the state’s requirement to appear for the Uniform CPA
The majority of states still require work experience to be of a public accounting nature. However an increasing number of states, including Oregon, Virginia, Georgia and Kentucky will accept experience of a more general nature in the accounting area. This allows persons to obtain the CPA designation while working for a corporation’s finance function.
The majority of states require work experience to be verified by a licensed CPA Firm. This can cause difficulties for applicants based outside the United States. However, some states such as Colorado and Oregon will accept work experience certified by a Chartered Accountant as well.
Over 40 of the state boards now require applicants for CPA status to complete a special examination on ethics, which is effectively a fifth exam in terms of requirements to become a CPA. The majority of these will accept the AICPA self-study Professional Ethics for CPAs CPE course or another course in general professional ethics. Many states, however, require that the ethics course include a review of that state’s specific rules for professional practice.
Continuing Professional Education (CPE)
CPAs are required to take continuing education courses in order to renew their license. Requirements vary by state but the vast majority requires 120 hours of CPE every 3 years with a minimum of 20 hours per calendar year. The requirement can be fulfilled through attending live seminars, webcast seminars, or through self-study (textbooks, videos, online courses, all of which require a test to receive credit). As part of the CPE requirement, most states require their CPAs to take an ethics course during every renewal period. Again, ethics requirements vary by state but the courses range from 2 8 hours.
An accountant is required to meet the legal requirements of any state in which they want to practice. Also, the term”practice of public accounting” and similar terms are given definitions PA status under reciprocity to a CPA licensed in another state. CPAs from other states with less stringent educational requirements may not be able to benefit from these provisions. This does not affect those CPAs who do not plan to offer services directly to the public. Moreover, most states would grant the temporary practicing rights to a CPA of another state.
In recent years, mobility for CPAs has become a major issue of concern. Practice mobility for CPAs is the ability of a licensee to gain a practice privilege outside of their home state without getting an additional license in another state where they will be serving a client.
Because the electronic age makes conducting business across state borders an everyday occurrence, there is a critical need for states to adopt a uniform mobility system that will allow licensed CPAs to provide services across state lines without unnecessary burdens that do not protect the public interest.
Currently, each state has its own rules, regulations and requirements to allow out-of-state CPAs to provide services in that state, resulting in a patchwork system that is inefficient and increasingly difficult to navigate.
The American Institute of Certified Public Accountants (AICPA) and the National Association of State Boards of Accountancy (NASBA) have analyzed the current system for gaining practice privileges across state lines and have concluded it simply does not work.
Compliance and enforcement of the existing system is almost impossible, with multiple, cumbersome processes and disparities in requirements and fees. Business realities, including an increase in interstate commerce and virtual technologies require a uniform system that allows fluid practice across state lines.
Implementation of a uniform provision would allow consumers to receive timely services from the CPA best suited to the job, regardless of location, without the hindrances of unnecessary filings, forms and increased costs that do not protect the public interest.
Businesses today are often located in multiple states and have compliance responsibilities in multiple jurisdictions and a uniform process will give CPAs the flexibility to better serve these clients.
Uniform adoption of the substantial equivalency provision included in the Uniform Accountancy Act (the model bill for CPA regulation written and endorsed jointly by AICPA and NASBA) will create a system similar to the nation’s driver license that will provide CPAs with mobility while retaining and strengthening state boards’ ability to protect the public interest.
Prior to 2007, four states (Ohio, Missouri, Virginia and Wisconsin) had practice mobility laws in place for CPAs. In 2007, seven more states (Tennessee, Texas, Illinois, Indiana, Maine, Rhode Island and Louisiana) enacted new practice mobility laws for CPAs.
As of April 29, 2009 a total of 39 states have enacted this law. They are: Arkansas, Arizona, Colorado, Connecticut, Delaware, Florida, Georgia, Idaho, Illinois, Iowa, Indiana, Kansas, Kentucky, Louisiana, Maine, Maryland, Michigan, Minnesota, Mississippi, Missouri, Montana, Nebraska, New Jersey, New Mexico, North Dakota, Ohio, Oklahoma, Pennsylvania, Rhode Island, South Carolina, South Dakota, Tennessee, Texas, Utah, Virginia, Washington, West Virginia, Wisconsin and Wyoming. In addition, 8 other states have similar legislation pending before them (Alabama, Hawaii, Massachusetts, Nevada, New Hampshire, North Carolina, Oregon and Vermont).
The CPA designation is granted by individual state boards, not the American Institute of Certified Public Accountants (AICPA). Membership in the AICPA is not obligatory for CPAs, although some CPAs do join. To become a full member of AICPA, the applicant must hold a valid CPA certificate or license from at least one of the fifty-five U.S. state/territory boards of accountancy; some additional requirements apply.
AICPA members approved a proposed bylaw amendment to make eligible for voting membership individuals who previously held a CPA certificate/license or have met all the requirements for CPA certification in accordance with the Uniform Accountancy Act (UAA). The AICPA announced its plan to accept applications from individuals meeting these criteria, beginning no later than January 1, 2011.
State CPA association membership
CPAs may also choose to become members of their local state association or society (also optional). Benefits of membership in a state CPA association range from deep discounts on seminars that qualify for continuing education credits to protecting the public and profession’s interests by tracking and lobbying legislative issues that affect local state tax and financial planning issues.
CPAs who maintain state CPA society memberships are required to follow a society professional code of conduct (in addition to any code enforced by the state regulatory authority), further reassuring clients that the CPA is an ethical business professional conducting a legitimate business who can be trusted to handle confidential personal and business financial matters. State CPA associations also serve the community by providing information and resources about the CPA profession and welcome inquiries from students, business professionals and the public-at-large.
CPAs are not normally restricted to membership in the state CPA society in which they reside or hold a license or certificate. Many CPAs who live near state borders or who hold CPA status in more than one state may join more than one state CPA society.