Certified Public Accountant: What the CPA Credential Means

What Is a Certified Public Accountant (CPA)?

A certified public accountant (CPA) is a licensed professional who has passed an examination administered by a state's Board of Accountancy.

State CPA exams are created under guidelines issued by The American Institute of Certified Public Accountants (AICPA). The Uniform CPA Exam can only be taken by accountants who already have professional experience in the field and a bachelor's degree.

Other countries have equivalent certifications, notably the chartered accountant (CA) designation created in Scotland and now used in many countries.

Role and Responsibilities of a CPA

Not all accountants are CPAs. Accountants who are CPAs are licensed by their state's Board of Accountancy after passing the Uniform CPA Exam.

CPAs prepare reports that accurately reflect the business dealings of the companies and individuals that hire them. Many prepare tax returns for individuals or businesses and advise them on ways to minimize taxes.

Obtaining the CPA designation requires a bachelor’s degree, typically with a major in business administration, finance, or accounting. Other majors are acceptable if the applicant meets minimum requirements for accounting courses.

Candidates are required to complete 150 hours of education and have no fewer than two years of public accounting experience. To receive the CPA designation, a candidate also must pass the Uniform CPA Exam.

Keeping the CPA designation requires completing a number of continuing education hours.

The CPA Exam

The CPA exam has 276 multiple-choice questions, 28 task-based simulations, and three writing portions. These are divided into four main sections: 

• Auditing and Attestation (AUD)
• Financial Accounting and Reporting (FAR)
• Regulation (REG)
• Business Environment and Concepts (BEC)

Multiple-choice questions count for 50% of the total score and tasked-based simulations count for 50% in three of the four sections. The section with writing tasks are worth 15% and task-based simulations count for 35%.

It takes a score of at least 75% to pass each section.

Candidates have four hours to complete each section, with a total exam time of 16 hours. Each section is taken individually, and candidates can choose the order in which they take them but must pass all four sections of the exam within 18 months.

CPA Career Paths

CPAs have a wide range of career options available in public accounting (that is, working for an accounting firm), corporate accounting (working inside a company), or government service. Individuals with the CPA designation can also move into executive positions such as controller or chief financial officer (CFOs).

Regardless of their employer, most CPAs compile, maintain, and review financial statements and related transactions. Many CPAs file tax forms or returns for individuals and businesses. CPAs are authorized to perform and sign off on audits.

Though known for their role in income tax preparation, CPAs can specialize in other areas such as auditing, bookkeeping, forensic accounting, managerial accounting, and even aspects of information technology (IT).

A CPA license isn’t required to work in corporate accounting or for private companies. However, public accountants⁠—individuals working for firms such as Deloitte or Ernst & Young that provide accounting and tax-related services to businesses—must hold CPA designations.

CPA Ethics

Certified public accountants are subject to a code of ethics. The AICPA requires that all CPA designation holders adhere to the Code of Professional Conduct, which lays out the ethical standards CPAs must adhere to.

The Enron scandal is an example of CPAs not adhering to the code. Arthur Andersen company executives and CPAs were charged with illegal and unethical accounting practices.

Federal and state laws require CPAs to maintain independence when performing audits and reviews. While consulting at Enron, Arthur Andersen CPAs did not maintain independence and performed both consulting services and auditing services, which violates the CPA code of ethics.

The CPA designation became more important after the Sarbanes-Oxley (SOX) Act of 2002, which was passed partly in response to corporate financial scandals like the Enron affair.

History of the CPA Designation

In 1887, a group of accountants created the American Association of Public Accountants (AAPA) to define moral standards for the accounting industry and U.S. auditing standards for local, state, and federal governments, private companies, and nonprofits. Renamed several times over the years, the organization has been known as the American Institute of Certified Public Accountants (AICPA) since 1957. The first CPAs received licenses in 1896.

In 1934, the Securities and Exchange Commission (SEC) required all publicly traded companies to file periodic financial reports endorsed by members of the accounting industry. The AICPA established accounting standards until 1973 when the Financial Accounting Standards Board (FASB) was launched to set standards for private companies.

The accounting industry thrived in the late 1990s due to the expansion by large accounting firms into various forms of consulting. The Enron scandal in 2001 resulted in major changes in the accounting industry, not least the collapse of Arthur Andersen, one of the nation’s top accounting firms. Since the Sarbanes-Oxley Act passed in 2002, accountants have been subject to tougher restrictions concerning their consulting assignments.

The Bottom Line

You can be an accountant without being a certified public accountant, but earning a CPA license adds a valuable credential to your resume. It means you've passed a nationally recognized test that has been modified to reflect your state's regulations. It opens the way to jobs that other accountants can't take on, such as performing audits of public companies.