CPAs vs. Non-Certified Accountants - Clearing Up The Confusion

h I had a nickel for every time someone askedstatements audited or reviewed.
me what the difference is between CPAs andMarket conditions have brought on the use of
non-certified accountants. Essentially, non-certifiednon-certified accountants because,
accountants can simply hang up their shingle andcharacteristically, CPAs charge more for their
open their doors for business. There are noservices than non-certified accountants and
educational requirements. If they want to preparebookkeepers. CPAs are also bound to follow
taxes, most states require a certain number ofprecise standards when preparing financial
qualified hours of study plus continuing educationstatements, driving their costs higher. They have
hours each year.to conform because the State Board of
By contrast, CPAs have usually majored inAccountancy (regulatory agency that issues the
accounting in college; sat for CPA exams coveringcertificates) periodically reviews their work and, if
theory, practice, auditing, and law; worked for ancertain procedures are not followed, the
established accounting firm for two years; and,practitioner’s license could be put in
acquired five hundred hours of auditing time tojeopardy. At the same time, many small
earn their certification. In addition, they arebusinesses have limited funds, so naturally seek
required to complete a certain number of hoursways to save on accounting fees. Many small
of continuing education to maintain their license.business owners do their own books during the
Whoa! Why is it that one individual has to goyear. They then try to get a financial statement
through rigorous testing and on-the-job training toprepared as quickly and inexpensively as possible
become certified to practice accounting andby a professional at the end of the year in order
another can practice accounting without anyto file their tax returns.
formal training? It has to do with the concept ofA non-certified accountant can prepare a simple
“free enterprise”. Remember thefinancial statement that amply provides the
old adage, “Caveat Emptor”? Itinformation necessary to file a tax return. This is
means, “Let the buyer beware”. Innot to say that non-certified accountants will use
other words, it is the buyer’s responsibilityany information that is given to them. At
to choose a qualified professional.minimum, deposits and cash disbursement
But, there are some legal restrictions that defineinformation should be verified by a bank
the range of services that can be performed forreconciliation. A good accountant will question the
certified and non-certified accountants. Forclient for some kind of documentation if the
instance, there are three main types of financialfigures seem unreasonable. In most cases, banks
statements that can be prepared by accountants:accept a compiled financial statement, prepared
(1) audited, (2) reviewed, (3) compiled.by an outside accountant, whether a CPA or not.
Only a CPA can prepare an audited financialThis has created the so called “turf
statement. This process requires the CPA tobattles” in some states between CPAs
methodically examine and test the financialand non-certified accountants. These battles have
records of a company. A report is then issued bybeen fought all the way to the states’
the auditing accountants stating whether theysupreme courts. Usually the issue involved is the
found the information contained in the financialuse of “commercial free speech”.
statements to be presented fairly, in all materialThis is because some CPAs don’t want
respects.non-CPAs to be able to call themselves
In addition, only a CPA can prepare a reviewed“accountants”. In some cases,
financial statement. The review process is lessthey don’t want non-CPAs to be able to
involved than an audit but some testing is done toeven use the word “accounting”.
verify information. The CPA issues a reportIn Maryland, CPAs lost the battle. In California, a
describing the scope of the review, its limitations,compromise was reached whereby non-CPAs are
and findings.required to disclose that they are non-certified on
Both CPAs and non-certified accountants, includingany literature where they refer to themselves as
bookkeepers, can prepare compiled financialan “accountant”. Bookkeepers are
statements. A report is issued with compiledunaffected because it is understood that a
statements indicating that no auditing or reviewbookkeeper is not a CPA.
methods were used and that the financialIn California, there are approximately 20,000
statements were compiled using informationnon-certified, independent accountants. They like
provided by management.to call themselves “independent”
This means that, if you want to have yourbecause they are free from the restrictions of
financial statements audited or reviewed, youthe state boards and the American Institute of
must have a CPA perform that work. Obviously,Certified Public Accountants (AICPA). Most of
those services cost more than a compiled financialthese 20,000 people also prepare income taxes.
statement. Your circumstances may dictate aThe bottom line is that in all professions one finds
need for such services. For example, it may be aindividuals who provide varying degrees of quality
requirement for a bank loan to have your financialwork. All lawyers must past the bar examination.
statements audited. Or, other partners orThat doesn’t guarantee they will be good
stockholders may insist that the books be auditedlawyers. It is no different with CPAs. There are
or reviewed in order for them to feel secure ingood ones and bad ones. There are expert CPAs
their investment. Usually, these are businessesand inexperienced CPAs. Obviously, it is the same
that have a substantial net worth. Most smallfor non-certified accountants and bookkeepers. It
businesses will never need to have their financialis simply a matter of human nature.