Understanding the Certified Public Accountant (CPA) Designation

What Is a Certified Public Accountant (CPA)?

A certified public accountant (CPA) is a designation provided to licensed accounting professionals. The CPA license is provided by the Board of Accountancy for each state. The American Institute of Certified Public Accountants (AICPA) provides resources on obtaining the license. The CPA designation helps enforce professional standards in the accounting industry. Other countries have certifications equivalent to the CPA designation, notably, the chartered accountant (CA) designation.

Key Takeaways

• A certified public accountant (CPA) must meet education, work, and examination requirements—including holding a bachelor’s degree in business administration, finance, or accounting, and completing 150 hours of education. 
• Other requirements for the CPA designation include having two or more years of public accounting experience and passing the Uniform CPA Exam.
• CPAs generally hold various positions in public and corporate accounting, as well as executive positions, such as the controller or chief financial officer (CFO). 

Understanding a Certified Public Accountant (CPA)

Obtaining the certified public accountant (CPA) designation requires a bachelor’s degree in business administration, finance, or accounting. Individuals are also 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.

Additionally, keeping the CPA designation requires completing a specific number of continuing education hours yearly.

Certified Public Accountant (CPA) Career Paths

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

Someone earning a CPA degree generally ends up as an accountant of some sort. That is, they put together, maintain, and review financial statements and related transactions for companies. Many CPAs file tax forms or returns for individuals and businesses. CPAs can perform and sign off on audits.

Though known for their role in income tax preparation, CPAs can specialize in many other areas, such as auditing, bookkeeping, forensic accounting, managerial accounting, and information technology.

The CPA designation isn’t required to work in corporate accounting or for private companies. However, public accountants⁠—which are individuals working for a firm, such as Deloitte or Ernst & Young, that provides accounting and tax-related services to businesses—must hold a CPA designation.

Certified Public Accountant (CPA) Ethics

Certified public accountants are subject to a code of ethics. The APCIA 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 such a 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 has become 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 Certified Public Accountant (CPA)

In 1887, 31 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 large accounting firms expanding their services to include various forms of consulting. The Enron scandal in 2001 resulted in major changes in the accounting industry, including the fact that Arthur Andersen, one of the nation’s top accounting firms, went out of business. Under the Sarbanes-Oxley Act, which was passed in 2002, accountants were subject to tougher restrictions about their consulting assignments.