Is CPA a License or Certification?
When the topic of an accounting career comes up, you are likely to have heard the acronym CPA, which means Certified Public Accountant. Some questions may arise, however. Is CPA a license or a certification? It’s not always easy to answer particularly when it is compared to other professional credentials.
We are going to simplify it all in the context of this article– what a CPA is and is not, how it differs from other certifications, and why it is relevant to the world of accounting.
What is a CPA?
CPA is a professional qualification awarded to competent accountants in the United States. However, as opposed to most professional designations which are regarded as a certification, the CPA is a legal license, not a certification.
Let’s explore what that really means.
License vs. Certification: What’s the Difference?
To understand CPA, it is worth knowing the distinction between a license and a certification.
What is a License?
A license is an official permit to work in a particular field. It is a government issued paper, usually on the state level in the U.S. An individual has to be able to satisfy certain educational, experiential, and examination requirements in order to be licensed.
A license is the right of a person to do controlled work. Unlicensed practice in a licensed profession is normally prohibited.
Examples of licensed professionals:
- Doctors
- Lawyers
- Electricians
- CPAs
What is a Certification?
A certification is a voluntary award most often given by a non-governmental organization. This is typically earned by a person who has passed some standards or an exam, but it is not legally binding. Certifications do not mean a person is legally authorized to work in a field.
Examples include:
- Certified Management Accountant (CMA)
- Chartered Financial Analyst (CFA)
- Certified Internal Auditor (CIA)
So, is CPA a License or Certification?
CPA is a License
The CPA is a license issued by the respective State Boards of Accountancy in the U.S.
This license will provide you with the rights to offer services which include:
- Financial statement auditing
- Creating SEC-based reports
- Swearing financial statements
Only a person with a CPA license is allowed to do such tasks. This is why CPA is regarded as a professional under regulation.
Why the Confusion?
The misunderstanding is usually due to the vagueness on which the term certification is used. As you are allowed to be a CPA upon successfully taking an exam and satisfying the criteria, it may seem like a certification. The title has also the word Certified. But, legally speaking, it is a license, not merely a certification.
You can think of it like this:
- CPA license is like a driver’s license –it gives you the legal freedom to drive in the accounting field
- A certification is a bit more like a diploma– it demonstrates what you have learned, but does not grant you permission to drive legally
How Do You Get a CPA License?
To become a licensed CPA in the U.S., you must have the “Three Es”:
Education
Most of the states demand 150 semester hours of college coursework. This takes much more than a regular bachelor’s degree; hence, most people go ahead to complete a master’s degree in accounting or taxes.
Examination
You need to take the Uniform CPA Examination, a national test that is given by the American Institute of Certified Public Accountants (AICPA).
It includes four sections:
- Attestation and Auditing (AUD)
- Financial Accounting and Reporting (FAR)
- Regulation (REG)
- Business Environment and Concepts (BEC)
Note: The CPA exam is updated regularly, and thus, the sections can vary and change.
Experience
All states have a minimum work experience under the guidance of a licensed CPA. This normally takes between 1 to 2 years.
What Can You Do with a CPA License?
With CPA license, there are numerous high-level accounting positions available.
CPAs occupy some of the following jobs:
- Public Accountant
- Auditor
- Tax Advisor
- Forensic Accountant
- Chief Financial Officer (CFO)
- Controller
More to the point, only in the U.S. are CPAs are legally permitted to:
- Sign audit reports
- Prepare clients with the IRS in specific cases
- Offer assurance services
How is CPA Different from Other Certifications?
Numerous accounting credentials are valuable and yet not as legally binding as a CPA license.
CPA vs. CMA
CPA: A state regulated license
CMA: This is a certification provided by the IMA (Institute of Management Accountants) which specializes in management accounting and financial planning
CPA vs. CFA
CPA: Majoring in accounting, tax, and audit
CFA: This is an international mark in investment management that is provided by the CFA Institute
CPA vs. CIA
CPA: Necessary in public accounting
CIA: This involves internal audit, risk management, and internal controls involving organizations
Do You Need a CPA License to Work in Accounting?
Not necessarily. Many accountants in the private industry, government, or non-profit work without obtaining a CPA license.
However, if you want to:
- Work in public accounting
- Perform audits
- Sign financial reports
- Advance your career to executive finance
You will most likely need to obtain your CPA license.
Is a CPA License Valid in Every State?
CPA licenses are granted on a state level; however, most states enjoy the reciprocity. This means that you can, in most cases, transfer your license to a different state or be issued another license without the re-exam. Nevertheless, it is always advisable to seek confirmation with the board of accountancy in a particular state where you would be working.
Renewing Your CPA License
After attaining your CPA license, it is not over. To continue to have your license active, most states mandate you to accrue Continuing Professional Education (CPE) hours annually or after every few years. Failure to maintain your CPE will result in an inactive or revoked license.
