Demystifying the CPA Exam and Designation

There's been a couple of threads that have popped up lately about the CPA exam and whether it would be worth it for the authors try and pass it in lieu of other things, or in their spare time. Some of the comments by other posters lead me to believe there's a lot of misinformation or misconceptions about what a CPA actually is. I think it would be helpful to put some information out there to refer to later, as I feel these misconceptions might lead people away from the best path to achieving their goals.

This post is a mixture of my personal experiences as well as a lot of research on the subject, but seeing as there are other accountants/CPAs on this forum, I should note that this is based on my own personal view, and as such might differ from other posters' opinions.

So here we go

1. Passing the CPA exam makes me a CPA.

No. When people usually refer to a CPA (as an individual) they are referring to someone who is licensed by their state board of accountancy as a certified public accountant. While they do have to pass the CPA exam, there are other requirements that you have to meet in order to be a CPA. The main one that many outside of public accounting have issues meeting is the experience requirement, which is generally 1 or 2 years under the supervision of another CPA. If you're going into investment banking, a hedge fund, private equity, or other front office finance roles, the chance that you'll be working under another licensed CPA is remote, hence why it's pretty much pointless to try and become a licensed CPA in those roles. And just like the CFA designation, just because you've passed the CPA exam does not mean you can go around calling yourself a CPA. That's a big no-no.

2. Passing the CPA exam shows that I'm good at accounting.

Not necessarily. The CPA exam covers a HELL of a lot of information, and most of it not financial accounting related.
The CPA exam is broken into four parts: REG, BEC, AUD, and FAR. Out of these, the only ones that are semi-relevant for finance positions are BEC and FAR. REG covers taxation and business law, both of those you'll probably leave to your firm's own lawyers and tax accountants. AUD covers how to audit financial statements, which seems like it might be helpful, but only covers things like sampling a population or what materiality is. Again, this role will be left to your firm's internal and external auditors.

BEC covers a hodge-podge of topics, including economics, finance, and information systems. If you did well in your econ and finance courses, you're not going to gain any additional knowledge from this test. FAR, which covers all the financial accounting (including governmental and non-profit accounting), covers so much material that it's all basic high level stuff. If you did well in your intermediate financial accounting courses, you're not going to learn any more studying for this test.
If anything, the only real thing passing the CPA exam shows is that you're good at absorbing a ton of information and then taking tests on it. Having studied for the CFA exam, I would say that the Level 1 exam is 10x harder than anything the CPA exam puts out, so if you're looking to take a test, take that one.

3. Should I take the CPA exam to learn about accounting?

This is where I interject my personal opinion, so take it with a grain of salt. As noted earlier, only about two-thirds of one out of the four sections of the CPA exam covers financial accounting. None of it is new or more complex than what's covered in a financial accounting class. But if you have no accounting experience what-so-ever, would it be worth it to take it? I'm going to say no.

If you've taken an introductory accounting class, you've learned enough of the basics where it would be worth your time to pick up a book on, say, financial statement analysis or the CFA study material on the topic than it would to study the financial accounting included in FAR. This is mainly because 1) FAR doesn't teach you how to put all the puzzle pieces together, and 2) a lot of the technical financial accounting is useless in your job (i.e. proper journal entries). That being said, building a better understanding of accounting can't hurt you either.

If you have absolutely no accounting experience at all, you'd be better off taking a couple classes and then picking up a financial statement analysis book.

4. Getting the CPA designation is essential to move up in finance positions.

In IB/HF/PE type roles, definitely not. In private industry roles such as CFO, Controller, etc., not necessarily. As I pointed out in another thread, you definitely don't need to be a CPA to be a CFO, and the goes for other finance and accounting-type roles as well. However, there are definitely a lot of CPAs and former CPAs in these roles. Why? Because a lot of them jump ship from public accounting into these roles, and were CPAs before becoming controllers, FP&A analysts, etc.
What a lot of people seem to equate is that someone who is a CPA is good at financial accounting, which is not always true. I work in Tax at a Big 4 firm, and I'll have my CPA license in about 2 months. 98% of the time, my work doesn't deal with financial statements. So why then would I be good at analyzing them? Answer: I wouldn't be. Now, an auditor at a Big 4 who is also a CPA probably has a ton more experience than I do in that department, and would be better suited for that role. But if you're just looking for "CPA" on a resume, there's no way to tell.

Once a person is an accounting or finance-type role at a company, then it's also pointless for them to continue to be licensed CPAs. That's because the "P" in CPA stands for Public, which goes completely unnoticed by most people outside of public accounting. If you're providing attest work for public companies (i.e. auditing) as Big 4 accountants do, you have to be a CPA to sign off on stuff like tax returns or audit opinions. There's no rule or law that I'm aware of, though, that requires someone working at a company to be a CPA to do internal finance and accounting-type work.

That being said, there's a lot of public perception about CPAs. CPA = accountants, CPAs are (generally) trustworthy, CPAs are good at math/accounting, the list goes on. Former CPA/Big 4 accountants also like to hire CPAs/Big 4 accountants because of the standard they represent. That why a lot of accounting-related roles in private companies are littered with CPAs and former Big 4 accountants.

So if you're thinking you want to be a CFO down the line, I personally think it's more important to have relevant experience in the industry/role than it is to be a CPA. Not being a CPA is not going to stop you from being a CFO.

In short, becoming a licensed CPA can help you if you moving to an accounting-type role, if you have some relevant experience to back it up. But just passing the CPA will not give you a leg up against other candidates, especially if some of those candidates ARE licensed CPAs and have public accounting experience.

Comments (12)

Jan 21, 2015

It just goes to show your work experience is just as valuable, if not more than your designation. No recruiter is going to look at your letters and stop there. CPA/CFA tells me you have some sort of credibility and knowledge as a professional. What I really care about is work experience.

Worry more about what knowledge and skills you are learning from your career, and if these skills are needed in the job you want to end up at.

Jan 21, 2015

Great write up. I definitely think that the benefits of accounting translates into roles on the ER side of things, especially with valuation and being able to understand how a company should be accounting for and reporting their revenues and costs. I don't think it is a negative, but I would rather seek out the CFA for myself. Plus, with different states having a wide array of standards to be able to sit for the CPA, you could be like me and have a finance degree, but need a great deal of accounting coursework (plus X number of graduate level classes) to even be qualified to sit for it.

Jan 25, 2015

#3 is a great point for monkeys with finance backgrounds. I've seen several questions about getting the CPA to either learn accounting or demonstrate accounting competency to employers. I agree that it would be more valuable to take classes and/or self study different accounting concepts.

Jan 26, 2015

To add some clarity to point #3, you can't take the exam to learn accounting. Before you are able to register to take the exam, you must qualify as a candidate for the CPA with your state board of accountancy. The basic requirements are 150 hours of college credit and at least 30 hours of accounting beyond the basic accounting courses (some states may still be at 120 hours total, but I think all 50 states have moved to 150 now). Each state has its own additional requirements, but the above are pretty standard. If you haven't "learned" accounting by that point, taking the exam isn't going to help.

Jan 25, 2015

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Jan 25, 2015

SB'd. Awesome information about a topic that I've been thinking about for quite some time (though not for myself). I have a question:

Hypothetically speaking, say you just graduated from Baruch with a 3.0 GPA in accounting, have no full time work experience, no internship experience, but you manage to successfully pass the CPA designation. What career opportunities are available to you? Will passing the CPA test open any doors for you on its own?

Thanks again.

Jan 25, 2015
Esuric:

SB'd. Awesome information about a topic that I've been thinking about for quite some time (though not for myself). I have a question:

Hypothetically speaking, say you just graduated from Baruch with a 3.0 GPA in accounting, have no full time work experience, no internship experience, but you manage to successfully pass the CPA designation. What career opportunities are available to you? Will passing the CPA test open any doors for you on its own?

Thanks again.

Interesting question.

Obviously the best opportunities you're going to have are at public accounting firms. Several of the new hires for our firm this year are straight out of college with no prior accounting experience, or internship experience. In fact, I'd say between a third to a half of them haven't even taken a CPA exam yet. So having the CPA exam already passed may give you an (small) advantage compared other candidates. That being said, while public accounting jobs are no where near as competitive as finance jobs (IB, PE, HF, etc.), there's definitely going to be competition for positions. A 3.0 might be a little low for one of the Big 4 (especially if there's droves of other applicants with 3.5+ GPAs), but it's not impossible. If you want to go this route, networking will definitely give you a big boost getting in the door, more so than passing the CPA exam might. Once you do have a foot in the door, already passing the CPA exam would be a great selling point as to why hire you over other candidates.

Outside of public accounting, things get a little murkier from my experience. I've known a couple people go straight into private industry accounting jobs, where the hours are better, the pay less than public accounting, but otherwise they seem to enjoy it. The smaller you go though the more you get into "bookkeeping" territory, which is more of the stereotyped accounting role (recording transactions in books, keeping ledger and journals, doing payroll entry, etc.).

Beyond accounting in general it's definitely going to be situational, however most times I imagine you'll end up with the "Well that's great, but it doesn't give you any skills you need for the job, so what else do you have to offer?" type scenario. It likely though that at that point passing the CPA exam will make you no better or worse of than if you haven't passed.

Feb 3, 2015

.

"Yeah, you know whatcha doin."

Feb 3, 2015
crackjack:
Esuric:

SB'd. Awesome information about a topic that I've been thinking about for quite some time (though not for myself). I have a question:

Hypothetically speaking, say you just graduated from Baruch with a 3.0 GPA in accounting, have no full time work experience, no internship experience, but you manage to successfully pass the CPA designation. What career opportunities are available to you? Will passing the CPA test open any doors for you on its own?

Thanks again.

Interesting question.

Obviously the best opportunities you're going to have are at public accounting firms. Several of the new hires for our firm this year are straight out of college with no prior accounting experience, or internship experience. In fact, I'd say between a third to a half of them haven't even taken a CPA exam yet. So having the CPA exam already passed may give you an (small) advantage compared other candidates. That being said, while public accounting jobs are no where near as competitive as finance jobs (IB, PE, HF, etc.), there's definitely going to be competition for positions. A 3.0 might be a little low for one of the Big 4 (especially if there's droves of other applicants with 3.5+ GPAs), but it's not impossible. If you want to go this route, networking will definitely give you a big boost getting in the door, more so than passing the CPA exam might. Once you do have a foot in the door, already passing the CPA exam would be a great selling point as to why hire you over other candidates.

Outside of public accounting, things get a little murkier from my experience. I've known a couple people go straight into private industry accounting jobs, where the hours are better, the pay less than public accounting, but otherwise they seem to enjoy it. The smaller you go though the more you get into "bookkeeping" territory, which is more of the stereotyped accounting role (recording transactions in books, keeping ledger and journals, doing payroll entry, etc.).

Beyond accounting in general it's definitely going to be situational, however most times I imagine you'll end up with the "Well that's great, but it doesn't give you any skills you need for the job, so what else do you have to offer?" type scenario. It likely though that at that point passing the CPA exam will make you no better or worse of than if you haven't passed.

I think passing the exam right out of school is a great way to go, aside from the financial implications. If you do it on your own right out of school, you will have to pay for the classes/apps yourself. If you wait until you are working, many companies/orgs (including my own, a non profit) will pay for your classes and app fees. However, if you are working, especially at a big 4, or other public firm, your schedule will be pretty shitty, and you won't have as much time to dedicate to studying. Get it out of the way as soon as possible, and as close to the end of undergrad as possible, as you are still in that study/learn state of mind, and actually have the time.

"Yeah, you know whatcha doin."

Jan 26, 2015

Good point OnGBanker. I'm a CPA and have been working in public accounting for 6+ years (about to leave!!). I believe 150 credits (in most states) are needed to be licensed while only 120 are needed to be a candidate, but I could be wrong there. Either way in order to be approved as a candidate your coursework has to include a certain amount of accounting-related credits. For instance my major in college was technically "public accounting". I only needed 120 credits to be licensed so the school actually designed a major which would meet the coursework standards. I believe accounting work experience could possibly qualify you as a candidate instead, but you need a lot of years and those instances are very rare. The bottom line is if you didn't major or get a masters in accounting, don't worry about the CPA because you can't take it anyway.

Plus as mentioned the CPA exam won't really teach you accounting. Most of the material is tax, audit, business law, econ/finance. Even some of the accounting material may very well be irrelevant to most people, even those of us in accounting, ie. government and non-profit accounting.

For someone in finance or looking to move into finance, the CPA would be completely pointless. I imagine people in that line of work need financial statement knowledge, rather than accounting knowledge. Even the accounting portion of the CFA would be a better bet to teach you what you need than the CPA.

Best Response
Feb 4, 2015

I agree with most of the points here, but as someone who works in the F500 world I would have to say that the CPA adds a ton of value for someone with future aspirations of being a controller, VP of Finance, CFO, etc. I would say over 85% of the internal finance/accounting jobs that get posted with my company say "CPA Preferred". In most cases, they are less concerned with whether you have public accounting experience and more concerned with just seeing the 3 letters after your name.

It's important to remember that much of the value of the CPA is in how it is perceived by the people who pick up your resume. Although your point may be correct that people who pass the CPA may merely be good at studying and taking exams, many of the people who look at your resume don't see it that way. Most people in the industry are very impressed by people who have the credential and assume that they are intelligent individuals who have a mastery of accounting,

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Jun 20, 2018

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