When it comes to managing your business’ financial matters, you have many options. Small businesses often default to bookkeepers or accountants, but there are services that only a CPA can provide. CPAs provide the highest level of service when it comes to tax preparation and audits.
If you are in the process of hiring an accounting professional, it’s essential to understand what a CPA can do that an accountant cannot.
What Can a CPA Do That an Accountant Can’t?
Represent Taxpayers Before the IRS
An accountant can prepare your tax returns, but only a CPA can represent you before the IRS. If you are faced with an audit, receive a notice from the IRS, or are facing other tax issues, you may want to consider IRS tax representation. And, only a CPA, tax attorney, or enrolled agent can provide representation.
When dealing with the IRS, a CPA can:
- Interact with the IRS on your behalf
- Enter into agreements with the tax agency on your behalf.
- Provide explanations and other information related to the tax matter.
Form 2848 (Power of Attorney and Declaration of Representative) gives your CPA the right to act on your behalf and review your tax information. Both you and your tax professional will need to sign this form. Once signed, the IRS will deal with your CPA regarding the tax matter at hand.
Representation can save you time and stress. Audits and other tax matters are complex and not something that any business or individual should handle on their own. CPAs have the expertise and experience to handle these types of scenarios.
It’s also important to remember that, despite having an army of workers, the IRS isn’t always perfect. Does the IRS make mistakes? Yes, and your CPA can help rectify the situation by providing data to the IRS. Their representation can ultimately save you time and money if the IRS makes a mistake.
Provide Advanced Education and Experience
CPAs are licensed professionals who must meet specific educational requirements set by the American Institute of Certified Public Accountants, or AICPA. These requirements ensure that CPAs have the expertise and experience to provide a high level of service.
Requirements vary by state, but they typically include a certain number, of course, hours and working experience under a licensed CPA. For example, in California, individuals must:
- Pass the Uniform CPA Exam.
- Meet educational standards. Potential CPAs must have a bachelor’s degree with 24-semester units in business and accounting courses each and 150-semester units of education.
- Have at least one year of general accounting experience that is supervised by an actively licensed CPA.
- Pass the CPA Professional Ethics Exam.
CPAs must meet a much higher standard for education and experience than an accountant, which will benefit your business over the long term. In addition, a CPA’s advanced expertise means that they are generally more knowledgeable about tax codes and less likely to make an error that can trigger an audit. They may also be able to find deductions and other tax benefits that your accountant may miss. These findings can help your business save money on taxes.
In order to maintain their licenses, CPAs must complete continuing professional education, or CPE, courses every year. While requirements vary, some complete as many as 80 hours of CPE each year. These courses help CPAs stay up to date with the latest tax changes and reporting requirements.
An accountant’s experience and qualifications can vary greatly. Some have decades of experience and are experts in their field. Others have limited experience and knowledge. The requirements to become a licensed CPA alone guarantee a more advanced level of expertise and knowledge.
Provide an Ethical Obligation
Accountants are under no legal obligation to act in their best interests (although most do). CPAs, on the other hand, are.
The AICPA requires CPAs to follow a code of conduct, which includes:
- Maintaining client confidentiality
- Disclosing any conflicts of interest
- Acting in the public’s best interest and honoring the public’s trust.
- Remaining objective
- Maintaining integrity
CPAs are fiduciaries, which means that they are legally obligated to act in the best interests of their clients. They are licensed and regulated by their respective state’s board of accountancy. Accountants don’t have to meet this same standard of care.
Prepare Audited Financial Statements
Only a CPA can prepare audited financial statements. When auditing financial statements, CPAs review expense reports, budgets, accounts payable, and other accounting documents. After reviewing these documents, they will provide a written opinion on whether the financial statements were prepared using accepted accounting standards.
Audited financial statements provide many benefits.
- If you have investors or stakeholders, having your statements audited by a CPA will give them peace of mind that your books are accurate. It can also attract new investors because they can be confident that your business is financially sound and following the accepted accounting standards.
- If you need to borrow money to expand your operations or invest in new equipment, audited financial statements may help you secure a lower interest rate on your loan.
- Audits can help you detect internal control deficiencies that may lead to fraud.
- In many cases, audits can help businesses find tax savings and reduce their tax burden.
An accountant cannot prepare audited financial statements – only a CPA can.
Offer Advice and Guidance on Financial Matters
CPAs have a wealth of experience and knowledge that you can leverage to overcome challenges or find the best course of action to financial success.
CPAs often act as consultants and can help business owners make sound financial decisions regarding taxes, growth, expansion, and other big decisions. A CPA can also educate you on tax matters and financial statements so that you can make better business decisions.
A CPA offers many advantages over an accountant. While a CPA isn’t necessarily the right choice for every business or individual, their services can prove to be invaluable if you have to deal with the IRS or make a big financial decision. In addition, their licensing, experience, and fiduciary duties give peace of mind and reduce the risk of costly errors.