Depending on the accounting professional you are, you may call your self any the following: Bookkeeper, Accountant, Controller, Tax Preparer, or CPA.
First, let me point out that there is titles based on function, and titles based on certifications or licenses. I believe it is a mayor disservice to clients when this is not clear and out on the open on the “status” of the accounting professional.
Please do not get me wrong, the license or certification that the accounting professional does not make the accountant good or better than another, it just identifies the legal limits on which their function will reach… I’ll discuss this later on.
For now, I would like to identify the most common group of accounting professionals that are one of these:
- Bookkeeper: this is the most misunderstood function in the profession. While some bookkeepers perform very basic functions such as writing checks and receiving payments in an accounting system; there are very experienced bookkeepers that will company prepare financial statements that are non-materially different from a CPA prepared financial statements. Some Bookkeepers will prefer to call themselves “Accountants” because of their knowledge and experience of accounting rules.
- Accountant (Non-CPA): typically a person that has an undergraduate degree in accounting. Or if not, has the equivalent working experience. An Accountant will typically apply Accounting rules that adjust the Bookkeeper’s work to comply with General Accepted Accounting Principles; however and non-CPA accountant may not sign the reports and attest to their fairness
- Controller: Controller is a Bookkeeper or Accountant that typically has responsibility over the control of the financial reporting and accounting procedures, this is a title mostly given to a Management level accounting individual that reports directly to the CFO or Director of Finances within an organization.
- Tax Preparer: typically means they prepare taxes as a profession. At the very least, this person would have a registered PTIN (Preparer’s Tax Identification Number) with the IRS. This person is registered with the IRS and pays its annual dues to be able to sign a tax return as a preparer
Before I move on to the “certified” or “licensed” titles, I will disclose that I have been practicing as a Non-CPA Accountant or Bookkeeper for longer I have been practicing as a CPA. So I am not trying to imply that that the current title or status of practitioner affects their work; I for one thought myself of a “Professional Accountant” before becoming a CPA, because of the functions I performed and the satisfied clients I had for 6 years as a practitioner.
So, on to the Major Designations:
- Enrolled Agent (EA): This certification is actually older that the CPA itself; dating back from 1884. An Enrolled Agent is typically a tax practitioner that will represent a taxpayer in front of he IRS during the preparation or even after if there is issues or audit. EA’s required 72 hours of continuing education every 3 years, they are regulated by the IRS at the federal level, unlike CPA’s that are regulated by the state they practice in. It is virtually impossible to become a EA if their if convicted of a felony in ANY state. There is approximately 48,000 EA’s in US.
- Certified Public Accountant (CPA): designation is maintained by the AICPA, examination and continued education is managed by NASBA, and official licensing is awarded by each state. In most states, a CPA has at least 150 college credits with a minimum amount in account, which is the equivalent of a bachelor’s degree in accounting and a post-graduate degree with concentration in Accounting. Most CPA’s would have a Master’s Degree in Taxation or Accounting; many have MBA’s with concentration in Accounting. A CPA must pass a 4-part examination that is a process of 1 year of study and testing to most candidates, less than 10% pass all four exams on the first try. CPA’s are required to do 80 hours of continuing education every 2 years.
- Registered Tax Return Preparer (RTRP): voluntary certification obtained from the IRS that requires the practitioner to pass an exam and have 15 hours of tax continuing education per year. It is very difficult to obtain this if the practitioner has had a felony of any type. RTRPs are bout 20,000 in the US.
- Certified Bookkeeper (CB): There are about 30,000 CB’s in the US. This designation is protected and managed by AIPB.org, a private organization not affiliated to any government body. The testing process of the CB is rigorous and some consider it to be a “mini-CPA” exam. A CB has demonstrated to have deep understanding of both bookkeeping and accounting functions.
- Certified Management Accountant (CMA): is the most respected Accounting certification after the CPA. The exam and Continued education requirements are almost as rigorous as the CPA. There is about 40,000 CMA’s according to IMANET.org.
- Chartered Financial Analyst (CFA): this is NOT an accounting designation, it is a FINANCIAL designation, most CFA’s would know basic accounting, at least being able to interpret a financial statement very well. There are 98,000 CFA’s according to CFAINSTITUTE.org
- Certified QuickBooks ProAdvisor: this is an accounting professional that specialized in working with, installing, or supporting QuickBooks accounting software either as a principal function or in combination of other. There are 65,000 ProAdvisors according to Intuit.com; nut the number of CERTIFIED ProAdvisors is unknown; as some ProAdvisors join the program because the great benefits of having the software and support for a very low annual fee.
- CPA’s will rarely also have a CB, EA, or RTRP combination, as the CPA tends to overshadows all other accounting and tax related designations. However, there are many CPA’s that are also Certified QuickBooks ProAdvisors.
- Many CB’s will be RTRP or EA, because that would be a Bookkeeper that also focuses on Tax Preparation as well
- Most non-CPA’s Certified QuickBooks ProAdvisors are also “Bookkeepers”, “Accountants” and/or “Tax Preparers”. An accountant or tax preparer that can also work with QuickBooks well is a big asset to many small businesses.
Billing Rates paid by the average small business to a 3rd party (non-employee) practitioner:
- CPA’s are normally charging $200 (give or take $50) per hour for accounting work such as Financial Statement and Tax Preparation. Attest work like Reviews and Audits tend to have a higher rate due to the higher risk involved on the work.
- CB, CMA, or “Accountant” are typically charging $100 (give or take $50) per hour for Bookkeeping and Financial Statement Preparation. Typically this type of Accountant has higher fees when is highly skilled with a software package such as QuickBooks.
- Enrolled Agents typically start their tax preparation fees at $250.
- Tax Preparer or PTIN holders are charging typically $175 per tax return. Fees tend to go up based on complexity of tax return.
- Bookkeepers that are not carry any designation or QuickBooks Certification are typically charging $35 to $65 per hour for contracted Bookkeeping work
- Certified QuickBooks ProAdvisors that do not have Accounting certifications but are highly skilled in the program and can train/support small businesses are able to get $75 to $125 per hour in some cases.
- CPA’s tend to have the least amount of limitations in the profession. They can instantly represent tax payers in front of the IRS without having to pass any sort of IRs examinations like EA’s. CPA’s can also sign Reviewed and Audited Financial Statements which are required by most banks before issuing larger loans. CPA’s registered with the SEC can present audited financial statements to the public that will reply on that information for investing.
- EA’s have virtually unlimited practicing power for Tax Returns and other IRS matters. Which is a benefit enjoyed by CPA’s and attorneys.
- RTRP’s can prepare tax returns but have limited representation rights with the IRS and in must cases required the tax payer present.
So… When do you need a CPA or Enrolled Agent?
Being a CPA or an EA does NOT guarantee a good tax professional. However, it does represent a designation that was hard to obtain and has a lot to loose it the practitioner would get disbarred for ethics or gross negligence.
You want to hire a CPA or EA to prepare your taxes if you want guarantee that the practitioner will have the capacity to represent you in case or an error or a tax audit.
It is important to point out that there are many unenrolled tax preparers that do great work out there, just limited when it comes to representation of the taxpayer in an audit or dispute. But there is nothing wrong with hiring and retaining an unenrolled Tax Prepare with a proper PTIN.
If you are working with a government contract, bank, or investment institution that requires “Compiled Financial Statements” that means that you need a CPA to prepare them; even more so if the financial statements must be “Reviewed” or “Audited” which are CPA terms.
How to choose?
In my experience, successful small business tend to retain 3 to 4 Accounting professionals:
- Internal Bookkeeper an Internal Comptroller that performs bank reconciliation functions and basic cash-basis financial statements
- External Accountant Consultant that is typically performing the function of both an accountant and a software consultant. Making sure that the accounting software (typically QuickBooks) is outputting the desired results and detects potential accounting errors generated from software/system glitches or wrong-use.
- CPA or EA for Annual and Quarterly Tax Preparation and general high level business consulting.
- (IF REQUIRED) CPA for Audited Financial Statements. Auditors cannot perform any other work for the business to retain independence.