CPAs vs. Non-Certified Accountants -- Clearing Up the Confusion
by John Day
(Author of Real Life Accounting for Non-Accountants, an online course in
accounting basics. He has written 3 e-Books pertaining to small business
accounting and writes a monthly newsletter on accounting issues.)
I wish I had a nickel for every time someone asked me what the DIFFERENCE is between Certified Public Accountants and non-certified accountants.
NON-CERTIFIED
ACCOUNTANTS
Essentially, non-certified accountants can simply hang up their shingle and
open their doors for business. There are no educational REQUIREMENTS. If
they want to prepare taxes, most states require a certain number of qualified
hours of study plus continuing EDUCATION hours each year.
CERTIFIED PUBLIC ACCOUNTANTS
By contrast, Certified Public Accountants have usually MAJORED in accounting
in college; sat for exams covering theory, practice, auditing, and law; worked
for an established accounting firm for two years; and acquired five hundred hours
of auditing time to earn their CERTIFICATION. In addition, they are required
to complete a certain number of hours of continuing education to maintain their
license.
WHAT??
Whoa! Why is it that one individual has to go through rigorous testing and
on-the-job training to become certified to practice accounting and another
can practice accounting without any formal training? It has to do with the
concept of "free
enterprise." Remember the old adage, "Caveat Emptor"? It means, "Let the buyer
beware." In other words, it is the buyer's RESPONSIBILITY to choose a QUALIFIED
professional.
A FEW LIMITS
But, there are some legal RESTRICTIONS that define the range of services
that can be performed for certified and non-certified accountants. For instance,
there are three main types of financial STATEMENTS that can be prepared by
accountants: (1) audited, (2) reviewed, (3) compiled.
WHO CAN DO WHAT
Only a Certified Public Accountant can prepare an AUDITED financial statement.
This process requires the Certified Public Accountant to methodically examine
and test the financial records of a company. A report is then issued by the auditing
accountants stating whether they found the information contained in the financial
statements to be presented FAIRLY, in all material respects.
ANOTHER LIMITATION
In addition, only a Certified Public Accountant can prepare a REVIEWED financial
statement. The review process is less involved than an audit but some testing
is done to VERIFY information. The Certified Public Accountant issues a report
describing the scope of the review, its limitations, and findings.
SOME SHARED
RESPONSIBILITIES
Both Certified Public Accountants and non-certified accountants, including
bookkeepers, can prepare COMPILED financial statements. A report is issued
with compiled statements indicating that no auditing or review methods were
used and that the financial statements were compiled using information provided
by MANAGEMENT.
WHEN TO
CALL ON A CPA
This means that, if you want to have your financial statements audited or
reviewed, you must have a Certified Public Accountant perform that work.
Obviously, those services COST more than a compiled financial statement.
Your circumstances may dictate a NEED for such services. For example, it
may be a requirement for a bank loan to have your financial statements audited.
Or, other partners or stockholders may insist that the books be audited or
reviewed in order for them to feel secure in their investment. Usually, these
are businesses that have a substantial net worth. Most small businesses will
never need to have their financial statements audited or reviewed.
THE SHIFT
Market conditions have brought on the use of non-certified accountants because,
characteristically, Certified Public Accountants charge more for their services
than non-certified accountants and bookkeepers. Certified Public Accountants
are also bound to follow precise STANDARDS when preparing financial statements,
driving their costs higher. They have to conform because the State Board
of Accountancy (regulatory agency that issues the certificates) periodically
REVIEWS their work and, if certain procedures are not followed, the practitioner's
license could be put in jeopardy. At the same time, many small businesses
have limited funds, so naturally seek ways to save on accounting fees. Many
small business owners do their own books during the year. They then try to
get a financial statement prepared as quickly and inexpensively as possible
by a professional at the end of the year in order to file their tax returns.
WORKING WITH A NON-CERTIFIED
ACCOUNTANT
A non-certified accountant can prepare a simple financial statement that
amply provides the information necessary to file a tax RETURN. This is not
to say that non-certified accountants will use any information that is given
to them. At minimum, deposits and cash disbursement information should be
verified by a bank reconciliation. A good accountant will question the client
for some kind of DOCUMENTATION if the figures seem unreasonable. In most
cases, banks accept a compiled financial statement, prepared by an outside
accountant, whether a Certified Public Accountantor not.
SOME HEAD-BUTTING
This has created the so called "turf battles" in some states between Certified
Public Accountants and non-certified accountants. These battles have been fought
all the way to the states' supreme courts. Usually the issue involved is the
use of "commercial free speech." This is because some Certified Public Accountants
don't want non-certified accountants to be able to call themselves ACCOUNTANTS.
In some cases, they don't want non-CPAs to be able to even use the word "accounting." In
Maryland, Certified Public Accountants lost the battle. In California, a compromise
was reached whereby non-certified accountants are required to DISCLOSE that they
are non-certified on any literature where they refer to themselves as an "accountant." Bookkeepers
are unaffected because it is understood that a bookkeeper is not a Certified
Public Accountant.
A FINE BALANCE
In California, there are approximately 20,000 non-certified, independent
accountants. They like to call themselves "INDEPENDENT" because they are free from the restrictions
of the state boards and the American Institute of Certified Public Accountants
(AICPA). Most of these 20,000 people also prepare income taxes.
CHOOSE WISELY
The bottom line is that in all professions one finds individuals who provide
varying degrees of QUALITY work. All lawyers must pass the bar examination.
That doesn't GUARANTEE they will be good lawyers. It is no different with
Certified Public Accountants. There are good ones and bad ones. There are
expert Certified Public Accountants and inexperienced Certified Public
Accountants. Obviously, it is the same for non-certified accountants and
bookkeepers. It is simply a matter of human nature.
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