The other day during a conversation with a friend about the certified public accountant (CPA) exam, we discussed the exam’s difficulty, low pass rate, and the different areas a CPA can practice. Much like the medical field, CPAs specialize in a multitude of areas. There is a common misconception that all CPAs are the same--that is to say, we are all tax accountants. As someone who has been in the accounting profession for twenty-plus years, I can tell you, with certainty, this is inaccurate.
Generally, to become a CPA, an accountant must achieve the appropriate college credits and then pass the rigorous four-part exam. From there, they must obtain a certain amount of hours working with a licensed CPA. Once they fulfill this requirement, and other ethical testing requirements, they can put the three CPA initials after their name. However, this is where all similarities amongst CPAs skid to a halt.
Most accountants go into public accounting after they leave college. This is usually the fastest way to get the experience requirement for the CPA designation. When an accountant goes into public accounting, they are presented with two main paths: Tax or Audit.
Under the Tax path, accountants will process thousands of tax returns and learn all of the different IRS rules and regulations.
Under the Audit path, accountants will learn how to process and tie out financial numbers, as well as draft financial statements.
As time passes, each accountant will become more proficient in their respective area of expertise. For example, after doing ten years of tax returns, a tax accountant will be not be as strong at drafting financial statements. Of course, they will retain the knowledge they received through their course work, but their specialty will lie in preparation of tax returns vs. preparation of financial statements (and vice versa).
Historically, smaller CPA firms tend to be almost entirely made up of tax accountants. Some, due to compliance rules, don’t even bother to offer audit services. The mid-size firms will usually offer audit services. However, generally speaking, their auditors tend to make up only 15% of the total employees of the firm. This is usually a pretty good indicator the firm is simply a tax operation that offers some audit services.
One thing traditional CPA firms do really well is fill out historical compliance documents. A tax return is nothing more than a complicated compliance form. Likewise, an audit is nothing more than a financial statement that meets all of the compliance requirements of generally accepted accounting principles (GAAP). In other words, most services from a CPA firm are simply a commodity.
Most CPA firms struggle to provide forward looking analysis. This isn’t because they lack competence, but is solely due to their business model of performing compliance tax returns or drafting historical financial statements. They are trained to look to the past. Their staff are not trained to identify how to forecast your information, or how to discuss the different drivers of your revenue. And they are certainly not trained to fortify these drivers so you can make your money work harder for you.
So the next time you are talking to a CPA, find out what area they focus on. Are they tax accountants? Are they auditors? Do they have any experience in future looking analysis?
I developed Hovland Forensic & Financial because, after twenty years in the traditional accounting world, I was tired of looking at the past. I realized there is a better way to serve clients--with forward looking accounting. Yes, at Hovland Forensic & Financial we take your history in consideration as we assist you to develop a plan for the future. But your path is no longer tied only to your history. Instead, we show you how to utilize your history so you can move forward with the confidence that the future is abundant. We show you how to create a future filled with opportunity. It’s what makes us different.
Steven D Hovland, CPA, Cr.FA
Steve Hovland, a certified public and forensic accountant, Hovland brings to his duties more than 20 years of experience in audit and accounting services as well as forensic investigations. For additional information call (888) 878-0047.