I usually get this questions quite a bit during my accounting and QuickBooks classes I teach…
While this may vary by state, size of organization and licensing requirements, there are some clear distinctions.
When you make an appointment with a doctor, are you ever asked if you’d mind seeing a Physician’s Assistant or a Nurse Practitioner instead? If you have a fairly minor medical issue, those options may be fine.
But what if you suspect something serious, a condition that may be life-threatening or require a referral to a specialist? You may opt to wait a day or two until a doctor is available.
Choosing a financial professional for your business is a bit more complicated. You have to ask yourself one question that may require a lot of deliberation: What level of service do you need?
Keeping the Books – The “Bookkeeper”
The term bookkeeper means precisely what it sounds like. These are individuals who understand and can perform the basic functions involved in maintaining financial “books.” Small businesses may hire them to simply manage income and expenses, and possibly payroll. They would provide services related to invoicing customers and paying bills owed to vendors.
Depending on the level of sophistication the company requires, they might maintain a General Ledger and record entries as debits and credits. They could also be responsible for generating simple reports. In larger businesses, a bookkeeper might only be responsible for one element of the accounting process, like Accounts Receivable. By definition, a bookkeeper does not require any special training or licensing, though employers often specify the qualifications they’re looking for, like a business degree or at least attendance in some accounting classes.
Also, not to confuse the function of a bookkeeper with an administrative assistant this function in the world of Small Business id often mixed and merged with the job of an office person doing tasks such as answering the phone, picking up the mail, organizing paperwork, etc… Unfortunately the role of a bookkeeper that is 100% focused on the function of keeping the books is often diluted by other office tasks. As the bookkeeper has more time to dedicate to the books and higher responsibilities such as internal controls, they start filling the role of an internal accountant.
Accountants are usually required to have more formal education than bookkeepers, like a bachelors’ degree or even a masters’ in accounting. In larger companies, they may supervise a lower level accounting staff or bookkeepers. Businesses require a great deal more of them than simply managing the flow of money in and out.
The level of responsibility required of accountants varies depending on the size and specific needs of the business served. But generally, they’re expected to be able to help management understand their financial status so they can make better business decisions. They do this by, for example:
- Establishing the company’s accounting systems and procedures
- Ensuring that work is done efficiently and accurately, and that financial data is safe
- Providing reports like balance statements and cash flow reports, and helping management understand their impact, and
- Suggesting ways to minimize expenses.
Being the tax preparer is not a title, or credential usually… is more often than not just a function. Anyone in a business can prepare the tax returns as long as they have been authorized to do so by management (wether is the business owner or a bookkeeper).
Now, tax preparation is very often done by a third party CPA (and I’ll explain a more precise meaning of that credential), but in fat, 3/4 of all registered paid preparers (with credentials such as PTIN, RTRP, EA, Attorney) are not CPAs. Very often the role of a CPA gets confused with that of the Tax Preparer, and although most small business CPAs focus on this function is not all they do.
The CPA – The Right Representation and Assurance is Crucial
While bookkeepers, accountants, or un-enrolled tax preparers, may prepare taxes for their employer or cliens, they cannot represent their clients in an IRS audit or even legally sign business tax returns for them. They must be an attorney, Enrolled Agent, or Certified Public Accountants (CPAs) to do that.
CPAs must pass a rigorous exam and be licensed by their state in order to practice. They must also stay current with tax laws. Because of their education and training, CPAs can more accurately review and interpret critical financial statements than accountants can. They’re sometimes employed by businesses, but often run their own independent practices.
But the original function of a CPA is not to prepare a tax return or represent a client for an IRS Audit. The most important function of a CPA is to sign-off financial statements that bear public faith… in other words they will sign a set of financial statements (Income Statements / Profit & Loss, Balance Sheet, Statement of cash flows, etc.) and deem them to be FAIRLY presented according to accounting principles. This signature may come in the form of:
- Compilation: basic revision of financial statements to make sure they are presented they way they should be. Costing varying from $500 to $5,000 for small businesses depending on complexity. This is strictly just an overview and does not represent an Review or Audit wich provides no assurance to the user of the financial statements, but at least the presentation follows basic accounting standards.
- Review: is a compilation with a few minimum requirements for the CPA to make some inquiries and analytical procedures to provide limited assurance of the fairness of the financial statements Cost vary from $1500 – $10,000 for small businesses.
- Audit: the CPA will provide an opinion that the the financial statements are fairly represented and are free of material misstatement (errors that many cause the financial statements to change enough to sway your opinion about the financial health of the business). This is a high level of assurance, takes the longest to complete, requires the CPA to understand internal controls of the business and assess the risk level for fraud or material errors. Audit Cost from $5,000 to $50,000 in a small business typically.
- Assurance Services: ranging from business planning with financial projections to the valuation of a business investment to cost reduction analysis. Basically any financial related study or report a CPA can issue using accounting standards and similar procedures as compilations/reviews/audits.
And lastly… there are some professionals in the accounting industry that do not do ANY of these functions, but provide support to it. Typically IT Consultant (dedicated to the accounting industry), QuickBooks ProAdvisors (typically experts in functionality of QuickBooks), and process/control consultants that help businesses speed up the day-to-day work without sacrificing the accuracy or quality of the books.
As you might expect, salaries vary greatly, with CPAs at the top of the food chain. But don’t shop for a financial professional by price. Determine the service level you need now, knowing that you can always grow into a higher one as your company expands.
Hector Garcia, RTRP
QuickBooks ProAdvisor & Registered Tax Return Preparer
QuickBooks Training Courses, South Florida