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Weighing the Difference: CPAs vs. Accountants
Most people use the terms “accountant” and “CPA” (certifi ed public accountant) interchangeably, but there is a big difference.
The CPA designation carries enormous credibility in business and fi nancial circles. In fact, CPAs are among the most trusted business advisers, according to a recent survey conducted by the American Institute of Certifi ed Public Accountants (AICPA). This trust is not surprising considering the strict requirements to enter and stay in the profession. Achieving CPA status takes intelligence, ethics, integrity, and lifelong commitment.
Education and Experience All CPAs must be licensed by the State Board of Accountancy. License requirements vary from state to state, but Pennsylvania’s licensing requirements are summarized as follows: • Graduate from an accredited college or university with a bachelor’s degree or higher, and have at least 36 credits in accounting subjects. Total credit-hours must equal at least 150.
• Pass a four-part Uniform CPA Examination that tests the candidate in areas of fi nancial accounting and reporting, auditing and attestation, regulation, and business environment and concepts.
• Complete one year (1,600 hours) of work experience through employment in government, industry, academia, or public accounting of a caliber satisfactory to the State Board of Accountancy and verifi ed by an individual who is currently licensed to practice public accounting as a CPA.
• Complete 80 hours of continuing professional education every two years to stay current with rules and regulations in the fi nancial, accounting, and business world. Included in this requirement is an ethics component.
• Adhere to the high standards of independence, integrity, objectivity, and professional compliance.
• Comply with a strict code of ethics.
• Undergo a peer review every three years for CPAs performing attest activity with a public accounting fi rm. CPAs performing attest activities as a sole proprietor or in fi rms with less than three licensees can undergo peer reviews every fi ve years.
Capabilities of a CPA CPAs provide a wide range of services and are employed in many types of career areas, including the following: • Public accounting
• Other professional services fi rms
• Business and industry
• Government
• Education
• Nonprofi t organizations
CPAs in public practice are engaged by their clients for a variety of services, including accounting, forensic accounting, auditing, tax, personal fi nancial planning, technology consulting, and business valuation. CPAs in business serve as CFOs or CEOs, while others are responsible for accounting and fi nancial reporting procedures, implementing and managing internal controls and information systems, tax and business compliance, and other areas of business and fi nancial management.
www.picpa.org/resources
Accountants In contrast to CPAs, individuals who simply use the designation “accountant” are not licensed by the State Board of Accountancy. In Pennsylvania, they have no educational, experience, or ethical code requirements to which they must adhere. They are not permitted to perform audits or other attest functions. The CPA designation ensures a certain level of expertise that does not exist in conjunction with the title of “accountant” alone.
It is important to note that not all accountants are CPAs, although all CPAs are accountants. For more details about what it takes to become a CPA, visit www.picpa.org/futurecpas.
www.picpa.org/resources
Weighing the Difference
The Pennsylvania Institute of Certifi ed Public Accountants, with more than 22,000 members, advocates to strengthen the accounting profession and serve the public interest.
The PICPA offers resources for a variety of fi nancial topics.
▶ Budgeting ▶ College Debt ▶ Couples Finances ▶ Credit Cards ▶ Estate Planning
▶ Fraud ▶ Health Insurance ▶ Retirement ▶ Small Business
Visit www.picpa.org/resources to learn more
Saving For College 101
According to many online calculators, costs of tuition and fees for a four year public university in 2033 will be $185,000. For a private university, the total cost could hit $340,000. These numbers are staggering, but with careful planning you and your children will be better prepared to face these high costs.
529 Tuition Plans For many families, Section 529 plans are sensible and tax-savvy ways to meet future education expenses. They are offered in most states across the country, including Pennsylvania’s 529 Guaranteed Savings and 529 Investment plans. The money invested in 529 plans grows free of federal income tax, plus withdrawals from these plans are federally tax-free when beneficiaries use them for college expenses, including tuition and other related costs. There are no income restrictions, and anyone can open a 529 plan. Contribution limits vary from state to state. The maximum investment limit for Pennsylvania 529 college savings plans is $511,758. Unlike most accounts, 529 plans cannot be jointly owned, so a single account owner must be identified for each account.
Prepaid tuition plans are designed for individuals who want to buy credits at certain state-run and private institutions at today’s prices, and use those credits in years to come. If a beneficiary chooses to go to a school
outside the plan list, generally the fund administrators determine how much tuition your investment would buy, on average, and give that refund in cash, minus administrative fees. Because these plans restrict school selection, their appeal is generally limited to those fairly certain of their school selection.
The 529 savings accounts are the more popular of the two types. They are sponsored by individual states and administered by investment houses. In Pennsylvania, the account is administered by Vanguard. Typically, these funds allow you to choose your investment from a pool of mutual funds, depending upon how aggressively or conservatively you decide to invest. Certain plans offer special advantages for in-state investors, so it’s important to take a look at your options.
What Is the Tax Treatment? The Pension Protection Act of 2006 made permanent the federal taxfree treatment of withdrawals for qualified expenses from all 529 plans. In some states, in-state residents also receive a state tax deduction or credit on contributions. Pennsylvania allows, within limits, a deduction for a contribution to a 529 plan, and exempts rollovers, earnings, and distributions on all qualified tuition programs from state income tax. The difference in the federal tax treatment is that some prepaid tuition plans
only allow for withdrawals for tuition, while others allow for other expenses such as room, board, books, and other equipment required for enrollment or attendance. When looking at different state plans, be sure to take this into consideration.
What Are the Contribution Restrictions? In most states anyone is eligible to participate in the plan, regardless of where they live. Some states, however, require either the student or contributor to be a resident. There is generally a difference in contribution levels between a college savings account and the prepaid tuition plan. The high maximum investment limit in Pennsylvania is $511,758 per beneficiary. For prepaid tuition plans, the maximum contributions are generally based on the current age of the child and the average cost at instate universities.
Can You Change Beneficiaries? If a beneficiary decides not to go to college, the designation on a 529 plan can be changed without income tax consequences to family members of the original beneficiary. There are gift-tax consequences, however, if the new beneficiary is of a younger generation than the original one. If a new beneficiary is not an option, and the account owner closes the plan, he or she is subject to income tax and a 10 percent penalty on earnings.
www.picpa.org/resources
What Are the Financial Aid Implications? While colleges and state and federal governments may help pay for some of a child’s education costs, the primary share falls to families. This portion is called the Expected Family Contribution (EFC). Two methods are used to calculate EFC. The federal methodology is used to determine federal financial aid eligibility. Some schools use this method, while others use an institutional methodology for eligibility for nonfederal financial aid. College savings accounts are viewed as an asset of the contributor under the federal methodology, so the financial aid officer could count up to 5.7 percent of the account balance when developing your child’s financial aid package. The institutional methodology also views college savings as a parental asset, which can be assessed at a rate between 3 percent and 5 percent, depending upon the total net asset amount. The federal methodology views prepaid tuition plans very differently. This money is viewed as an outside resource, similar to a scholarship. Potentially, financial aid need could be reduced dollar for dollar. The institutional methodology views prepaid plans the same as college savings accounts – as a parental asset - and can be assessed at a rate between 3 and 5 percent.
Choosing the Right Adviser Saving for college is important, but so is retirement planning and reducing debt. Be sure that you and your children are ready for the financial challenges that may arise in the future.
If you elect to work with a financial adviser, it is important that you find one who you feel comfortable working with, who looks at your overall financial goals, and who understands tax laws. Here are some key points you will want to discuss with candidates: • What are your qualifications?
• What is your educational background?
• Do you have any special designations?
• What are your areas of expertise?
• What is your investment approach?
• How often will you look at my portfolio?
• How are you compensated for your services? Note: Most CPAs do not work on commission, but are paid on a fee basis.
• How much can I expect to pay for your services? The right adviser will get to know you and then use that information with the financial knowledge he or she possesses to present the best options available to you.
www.picpa.org/resources
Saving for College 101
The Pennsylvania Institute of Certified Public Accountants, with more than 22,000 members, advocates to strengthen the accounting profession and serve the public interest.
The PICPA offers resources for a variety of financial topics.
▶ Budgeting ▶ College Debt ▶ Couples Finances ▶ Credit Cards ▶ Estate Planning ▶ Fraud ▶ Health Insurance ▶ Retirement ▶ Small Business
Visit www.picpa.org/resources to learn more.
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Protecting Your Investments from Fraud
Scams attract unwitting investors with promises of huge profits in a short period of time. Here are seven tips from CPAs to help protect you against fraudulent investment schemes.
Know the person you are dealing with. Don’t let appearances fool you. Fraudulent promoters often create the illusion of a successful business by renting offi ce space, printing slick promotional materials, and issuing stock certifi cates. A legitimate investment professional must be properly licensed and registered with at least one of the following: • Financial Industry Regulatory Authority (FINRA) – www.fi nra.org/brokercheck
• Securities and Exchange Commission (SEC) – www.sec.gov
• Applicable state securities commission – www.psc.state.pa.us (for Pennsylvania) In addition to the investment professional being licensed, the products must usually be registered. To check out a particular investment you can go to www.sec.gov/edgar.shtml.
Be wary of any references provided by an unsolicited promoter. The person touting the investment could be a
company insider or paid promoter hired to tell you that the fi rm’s investments brought him or her enormous wealth. Also, question any high-profi le names a promoter claims have come aboard. Even high-profi le investors have been swindled.
Be wary of high-pressure telemarketers. Telemarketing is a legitimate way for businesses to contact potential customers, and many investment fi rms use this method. However, be wary of aggressive cold callers who tell you to “act now, before it’s too late!” Highpressure pitches are often used to get you to buy an investment before you have had a chance to understand and research it. Chances are these individuals are trying to fi ll their own pockets with your money. The elderly should be particularly cautious as some swindlers prey on older individuals.
Make sure an investment is consistent with your needs and fi ts your plan. Be sure that any investment presented to you meets your objectives. Before you put your money on the line, consider whether the investment makes sense for your age, long-term goals, liquidity needs, and tolerance for risk. If you don’t understand what you are being sold, get professional
advice from a CPA or don’t make the purchase.
Use caution when investing over the Internet. The Internet can be an excellent resource for investors, but it also can be dangerous. The Internet makes it easy for scammers to make their messages look credible. Without spending much time or money, anyone can build a website, send thousands of spam emails, and publish an offi cial-looking online investment newsletter. There are legitimate ways to buy stock over the Internet, but make sure you’re dealing with a genuine business engaged in a legitimate venture.
Obtain written fi nancial information. Before you invest, always obtain written fi nancial information about the investment, such as a prospectus, annual report, offering circular, and fi nancial statements. Take the time to read and understand these documents. If you don’t thoroughly understand the information, hire a CPA to help you make sense of the numbers and disclosures. In addition, you should always receive confi rmations of transactions and be able to access your account online.
www.picpa.org/resources
Don’t believe everything you hear. Bad information and false news reports are plentiful. Before you act on information from neighbors, friends, or an unknown Internet source, verify the facts by visiting the company’s website or contacting its investor relations department.
If it sounds too good to be true, it probably is.
Stay in charge of your money. This is vital if you want to protect your fi nancial future. Seek advice from a trusted fi nancial adviser, such as your CPA, in developing an investment strategy that addresses your unique needs. Then, be sure to monitor the performance of your investments regularly. Vigilance is one of the most effective ways to protect yourself against fraud.
www.picpa.org/resources
Protecting Your Investments from Fraud
The Pennsylvania Institute of Certifi ed Public Accountants, with more than 22,000 members, advocates to strengthen the accounting profession and serve the public interest.
The PICPA offers resources for a variety of fi nancial topics.
▶ Budgeting ▶ College Debt ▶ Couples Finances ▶ Credit Cards ▶ Estate Planning
▶ Fraud ▶ Health Insurance ▶ Retirement ▶ Small Business
Visit www.picpa.org/resources to learn more.
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