As an accountant, countless times I’ve received questions such as:
“What is a CPA?”
“Do you keep the books of your clients?”
“Do you file taxes all year long?”
“What test do you take to become an EA vs. CPA?”
While other jobs such as policemen & firemen and teachers & principals are specifically distinguishable by the general crowd, it’s a bit disheartening to me to see that people think EA, CPA, and a Bookkeeper all do the same job. To raise the awareness of the difference amongst these, I thought I’d provide a brief summary of the specifics of each job title.
Certified Public Accountant (CPA)
This title is probably the most familiar to many people, and accountants usually aim to become CPAs. CPA is a designation that is given to those who:
1) Complete the required semesters of accounting hours at an accredited educational institution (a Bachelor’s degree with 150 semester hours)
2) Pass all 4 parts of the CPA examination
3) Complete the required tax and audit hours under the supervision of a licensed CPA (usually 2 years in an accounting firm under the supervision of a CPA)
4) Complete other requirements that differ among each state
5) Maintain strict continuing education (40 hours per year)
Becoming a CPA is the most rigorous of the designations that we’re discussing, and they can work in diverse industries and job positions. They not only can become professional tax preparers and advisers, but can audit financial statements of companies, become consultants, become corporate accountants, etc. A CPA needs to have an understanding of all areas of accounting, such as general accounting, cost accounting, internal financial controls, tax law, and auditing. Also, a CPA’s background will allow flexibility in choosing a career.
Please refer to this page for further details: http://www.aicpa.org/BecomeACPA/GettingStarted/Pages/default.aspx
Enrolled Agent (EA)
Enrolled Agents only specialize in taxes and IRS problems. EAs have the authority given by the IRS to prepare and sign tax returns for individuals and entities, as well as represent them on tax issues.
The requirements to become an EA are less rigorous than a CPA, but are still not the easiest to complete.
The EA requirements are:
1) Gain the privilege of representing taxpayers before the IRS through experience as a former IRS employee, or pass the 3-part Special Enrollment Exam administered by the IRS (covers individual and business tax return preparation)
2) Maintain continuing education (at least 16 hours per year with 72 hours total in a three year period)
Please refer to this page for further details: http://www.irs.gov/Tax-Professionals/Enrolled-Agents/Enrolled-Agent-Information
Bookkeepers generally have the job of keeping the books of a company on a regular basis throughout the year. They are not accountants, per se, but they help accountants by recording day-to-day transactions and maintaining financial statements.
Becoming a bookkeeper usually does not require a college degree or any educational background, but a certification from the American Institute of Professional Bookkeepers can be obtained to further their career.
You may be asking yourself, do I need all three in my business? In most cases, every business does need a bookkeeper to maintain the company’s financial records. This can be done through a full-time employee or outsourced to your CPA (Note: not all CPA firms offer bookkeeping services, though they usually can refer you do someone who does).
As for an EA and CPA, you usually go with one or the other. Our firm Partner, David Knecht, wrote a great article explaining what type of tax help your company really needs. Mainly, it hinges on two factors, your projected growth and complexity of your business transactions. For the full explanation, check out David’s article here.
That concludes my breakdown of the differences of a CPA, EA, and a bookkeeper. I am currently working toward my CPA designation. I have completed three of the four parts of the CPA exam. If all goes as planned, I will take the last test this summer and will receive my CPA designation by the end of the year.
If you have any questions about this subject or about what type of help is best for your tax and bookkeeping situation, please comment below or contact us.