Certified Public Accountants Law and Legal Definition
Certified public accountants (CPAs) provide a broad range of financial services to small businesses. These services include preparation of financial statements and tax returns, providing advice on various aspects of business (operations, management, etc.), and assisting in the development and installation of effective accounting systems.
Unlike large corporate enterprises, small business owners may not need continuous accounting services. Still, small business owners need to ensure that their enterprise operates in accordance with the complexities of modern finance, and that they have an informed understanding of the business's financial health in order to ensure that they can make sound business decisions. Many entrepreneurs and business owners turn to CPAs for help in these areas. For a small business, financial mismanagement can spell failure; choosing and using the services of a CPA are critical to business success.
The CPA has a comprehensive educational background. Each candidate must attend a four-year program in accounting at an accredited institution. A CPA must also pass a standard test for competency in the field. The CPA exam covers four main areas: Law and Professional Responsibility; Auditing Procedures; Accounting and Reporting (taxation and accounting); and Financial Accounting and Reporting. This exam is administered in every state by a state board of accounting.
Individual state boards also set up state regulations for professional licensing standards. This often means that CPAs are required to have professional experience. Each state has requirements that are peculiar to the state, and regulatory efforts are continuous. Recently, for instance, the Katrina hurricane and the devastation it caused has produced changes in CPA practices in Louisiana; in Michigan, new rules were instituted requiring that CPAs submit past work product for peer review in order to have their licenses renewed. A small business wishing to keep up-to-date with current practice can do so by contacting its state board.
There are several organizations for CPAs which also provide information and educate the public on the role of the CPA. The major national organization is the American Institute of Certified Public Accountants (AICPA). Its goals are to provide members with resources and information and to promote public awareness about the CPA profession. The AICPA sets a code of professional standards which serve as guidelines for CPAs in conduct and professional responsibility.
CPAs provide financial services to the general public—which can encompass both private citizens and business enterprises—rather than to one single company. They can act individually or as members of a public accounting firm. A CPA may provide service in one or more areas in which they have been trained, including the following:
- Financial Planning—A CPA may analyze assets, income, and spending in order to give a person a clear picture of his or her financial status. This can be done on an individual basis (retirement planning or investment planning) or on the business level (preparation of pension plans and business investments).
- Tax Preparation—A CPA can be a valuable resource to entrepreneurs seeking help in unraveling various tax codes and their impact on business. This function includes areas such as tax regulation compliance, consultation, and planning and representation.
- Management Advisory Services—Small business owners may need advice on anything from how to file for a business loan to the preparation of a budget. A CPA can assist businesses in preparing financial statements, budgets, strategic planning, and other financial advice.
- Accounting and Auditing—This involves verification of a company's accounting processes, documentation, and data to be certain they conform to accounting principles. In this function, the CPA makes sure that financial statements are in order.
CPAs often specialize in specific areas of the accounting practice, such as auditing and accounting, tax law, or management advisory. They may also specialize in certain industry areas, such as retail, health care, or restaurant businesses.
ENTREPRENEURS AND THE CPA
Entrepreneurs seeking a CPA should look for the following:
- Reasonable Prices—Most CPAs charge competitive rates, but it makes sense to check pricing to be sure that the CPA an entrepreneur is considering is not charging rates exorbitantly higher than his or her competitors. It is always advisable to request a letter from the firm or individual CPA that explicitly states the CPA's fee or billing rate. This letter may also specify the billing and payment methods.
- Good Reputation—Does the CPA come well recommended? Integrity is something people discuss when talking about people who work with financial information. Listening to other business owners can provide valuable information in making your own choices. In addition, trade associations, local business resource centers, and business organizations (such as a local chamber of commerce) are also potentially valuable sources of information when selecting a CPA. As you narrow the field of candidates down, ask for the names of other businesses they serve and follow up with those references.
- Quality and Timeliness of Service—A CPA who does not deliver quality services in a prompt and reliable fashion is of little use to a small business. "Although it seems that all CPAs are similar, they don't all provide the same level of service," noted Thomas Murray in LI Business News. "And while price is a factor in any business decision, your choice should be primarily based upon the added value you receive from your relationship with your CPA."
- Flexibility and Adaptability—Can the CPA's business or firm fit your needs? Some CPAs provide only auditing or tax services, while others offer a host of financial planning, retirement, pension, and other services. A business should choose a CPA which can grow as its needs change.
- Communicate—Business owners should be prepared to outline all the services that they believe they will need from their CPA. In some instances, a CPA may realize that the business owner is asking for a scope of services or a level of specialization that he/she cannot provide. If these obstacles can be identified early, both the entrepreneur and the accountant can save themselves a great deal of time and pursue other business opportunities.
Once a CPA has been selected, entrepreneurs should prepare to do some footwork to make the relationship a valuable one. The business owner should be prepared to keep accurate records, including invoices, payments, and amounts spent on business-related expenses. A little bookkeeping goes a long way to improving the service a CPA can provide.
Lane, Amy. "New Laws Tighten Rules, Penalties for Accountants." Crain's Detroit Business. 16 January 2006.
LaRose, Greg. "Louisiana CPA Board Adapts to Post-Katrina Conditions." New Orleans CityBusiness. 16 January 2006.
Murray, Thomas J. "Choosing Your Accountant." LI Business News. 12 May 2000.
"Net Not Always the Best for Choosing Advisors." LI Business News. 23 October 1998.
Shapiro, Leslie. "Future Services of Accountants—an AICPA Perspective." National Public Accountant. January/February 1997.
Hillstrom, Northern Lights
updated by Magee, ECDI
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