OVERVIEW
MANAGEMENT
PERFORMANCE
POSSIBILITIES
CAPITALS
ACTIVITIES
ACTORS
BURGESS
|
MANAGEMENT
THE CPA AND THE CHARTERED ACCOUNTANT Something about the value of a CPA or CA in the management of business Original article: https://strategiccfo.com/articles/accounting/cpas-are-specialized/ Peter Burgess COMMENTARY I came upon this article by accident, but it peaked my curiosity. It describes very well the huge differences that there are within the practice of accountancy. I am not a CPA, but qualified as a Chartered Accountant in London in the 1960s quite early in my adult life. At the time, the training to be a Chartered Accountant was by far the best training for senior management positions in the corporate world. One of my colleagues who had trained as a Chartered Accountant in the UK, but had not studied for a university undergraduate degree in either the UK or the USA, gained admission to the Harvard Business School for an MBA based on the rigor of the Chartered Accountancy training. There has been some 'coming together' of the CPA community in the USA and the CA community around the world but not enough for the CPA and the CA qualifications to have equivalency. I was associated with a group of CAs in the United States that worked for several years in the 1990s to get full reciprocity, but it failed. I consider my training as a Chartered Accountant to be of huge value, but at the same time I am concerned that the modern Chartered Accountant is much less qualified to address the issues of business, society and the environment than is needed at this time in history. This is a problem ... and to a great extent is the driver of the TrueValueMetrics initiative that I have been working on in my 'post career' life. Peter Burgess | ||
|
The Difference in CPAs
Looking back at my career I don’t know how many times I have introduced myself to someone and they ask, “Are you a CPA?” and I say yes. Then they tell me “you must be very busy with tax season” and I look at them with a bit of awe and try not to roll my eyes at them. Then I go into the discussion of the different roles that CPAs have and areas of interest they may specialize in. I have a current CPA license, but I do NOT hold myself out to be a CPA…I don’t even do my own taxes! I have a CPA that specializes in tax, and she prepares my annual federal return. What is a CPA? CPAs are Certified Public Accountants. They are individuals that have met the minimum requirements of studying accounting and passed the CPA exam in one of the 50 states. In other countries, they are called Chartered Accountants. In order to claim you are practicing CPA or a CPA firm, you must meet certain requirements that are dictated by regulators such as AICPA, FASB and SEC. This may be confusing, but for example, I hold a current CPA license…but I am NOT a practicing CPA and our firm is NOT a CPA firm. We do not perform any sort of attestation engagements. We do this on purpose. We do not market ourselves as CPAs because we don’t do things like audits. We do not want to be a CPA firm. Instead, we focus on helping companies with accounting problems and have the accounting work outsourced to us. We also provide consulting work. You do not have to be a CPA to do “accounting” but adhering to the frequently updated accounting principles and guidance provided by the AICPA, FASB and SEC will make you a better, more professional accountant. Keeping a current CPA license shows that you know and do this. Different Types of CPAs.. CPAs can specialize in many different areas. Some hold out to be practicing CPAs, others join CPA firms, and others have a current license but do not hold themselves out to be a CPA that practices and provides attestation engagements. You would not go to your cardiologist for a colonoscopy, so why would you to go your tax preparer who is a CPA for managerial financial statements? These are some areas that CPAs can specialize in:
This is not a knock on Tax CPAs. Most of them are very good at what they do, but it’s safe to say that someone who spends their entire full time work week on tax is not going to be the right person to assist you with running your business and preparing managerial financial statements per U.S. GAAP. Many tax returns are on a cash basis, and the tax preparer is assisting the business owner to minimize the tax liability. This means expense as much as you can and have the smallest net income or negative income if possible. In running a business and managerial accounting, we want to have the biggest bottom line as possible and highest margins. So, are you starting to see why there are two different roles? As managerial accountants (CPAs that know U.S. GAAP), we have experience running companies. We have been Controllers, CFOs, and CEOs of companies. We have managed through financial distress and economic down turns. We have managed payroll, treasury and other functions. We manage cashflow and we are focused on maximizing margins and cash flow. We want Earnings Before, Interest, Tax, Depreciation and Amortization (“EBITDA”) to be as high as possible because that means your operating cash flow will be high and the value of your business will be high. We want the value of your business to increase. Your tax preparer, who is an expert in their own field is only focused on the smallest bottom line as possible and the current tax law that is applicable. Monthly Financial Statements I am sure I will get some heat from good tax CPAs, but I am simply pointing out that we all have our own area of specialty. Business owners and CEOs need to understand that a Tax CPA may not be the best person to consult with about running your day-to-day operation or preparing your monthly financial statements. As a business leader you need a monthly management report that includes financial statements on an accrual basis per U.S. GAAP. You need KPIs and dashboards for both the financial and operating side of the business. You also need tools such as a budget, cash flow forecasts and flash reports. Margin analysis and cost accounting if you are a manufacturer. These are things that a good managerial accountant can provide you and something that the Tax CPA will likely not be able to provide or provide with little accuracy. Growing Companies Need More… It is just a fact of a growing company. When you are running a company with millions in revenue you will need more resources. A tax CPA for sure, attorney, insurance broker and a good accounting staff that is more than a Bookkeeper. Good managerial accounting is required for growing companies. You’ll eventually need a Controller, who is probably someone that holds a CPA license, and eventually a solid CFO. A solid professional accounting department will pay for itself. Do not be afraid to make that investment. The financial health of your business is critical, the only way to measure it is with professional accounting and solid financial reporting at the end of each month.
| The text being discussed is available at | https://strategiccfo.com/articles/accounting/cpas-are-specialized/ and |