How is a CPA different from an accountant or tax preparer?

In the world of accounting there are many different types of degrees, certifications and licenses. One of the most frequent questions I hear is, “How does a CPA differ from an accountant or tax preparer?” There are big differences not only in training, but also in the services each one can provide.

Certified Public Accountant (CPA)

This is the most prestigious of all accounting certifications and is earned when the accountant has received extensive training in a variety of topics. Licensed CPAs must also maintain their knowledge of tax and financial laws and regulations by attending continuing education courses every year.

CPAs are licensed by states in which they practice after completing the “four Es”: education, exam, experience, and ethics.

Education: All CPAs have obtained at least a bachelor’s degree from an accredited college or university. The majority of their courses are in accounting, business, finance, and economics. Many CPAs hold a Master’s degree as most states require candidates to have further education beyond the bachelor’s degree.

Exam: All CPAs have passed the Uniform CPA exam. This is the national exam that will test candidates on a range of topics beyond what is taught at the bachelor’s degree level. This requires candidates to work in the field or take additional courses to gain the requisite knowledge needed to pass the exam. The exam is quite rigorous, and only 50% of people pass the exam.

Experience: Each state has its own requirements for the number of years of experience required, but in general it’s about two to three years of working under the direct supervision of a licensed CPA.

Ethics: All candidates must pass an ethics exam written by the American Institute of CPAs.

Completing the “four Es“ takes most candidates six to ten years. Those who achieve this and become CPAs are highly regarded in their field, due to this extensive knowledge and training.

Accountant

An accountant can be anyone who works in the field of accounting. This can include individuals working in corporate bookkeeping, accounts payable, collections or any other number of jobs that deal with numbers and money. Individuals are trained on the job and therefore expertise is limited to work experience.

There are numerous certifications accountants can earn but a CPA is the only license in the accounting field. Additionally, no formal education is needed to become an accountant, although many do have college degrees.

Tax Preparer

A tax preparer is exactly that — someone who prepares taxes. Until recently, anyone could call themselves a tax preparer and charge clients to prepare any type of return. In 2011 the IRS created a new designation called the Registered Tax Return Preparer (RTRP). The intent was to make it harder for scam artists and those with very little knowledge of tax rules to harm innocent clients. In order to become a RTRP you need to pass a competency test and complete 15 hours of continuing education each year. Those with this designation are only allowed to prepare personal tax returns (form 1040).

Enrolled Agent

Enrolled agents are very similar to RTRPs. There is no education or experience necessary if you pass the Special Enrollment Examination. Another route to becoming an enrolled agent, is to have worked for the IRS for at least five years thereby possessing the proper technical experience.

Requirements for becoming a CPA, RTRP or Enrolled Agent are vastly different in terms of training and experience. Additionally, while RTRPs and Enrolled Agents can only prepare tax returns, CPAs are licensed to perform a number of other services, and have special training to do financial accounting for businesses and business consulting. Knowing the difference between these types of professionals is important to help you decide which one to choose for your services.

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Read the next installment in our Article Series:
Certified Public Accountants: What’s the difference?

Part Two: What kinds of services can a CPA provide?
As discussed in part one of this article series, a CPA is a professional who has demonstrated an in-depth knowledge of financial accounting, tax, business law, auditing, and general business. There are four main types of services a CPA provides: Assurance, Accounting, Taxes, and Business Consulting. Read more ...


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