How to Select a CPA
A Certified Public Accountant (CPA) is a person who has met the requirements of California state law and has been issued a license to practice public accounting by the California Board of Accountancy.
A Public Accountant (PA) is a person who has met the requirements of California state law and has been issued a certificate of public accounting from the California Board of Accountancy.
Only persons who are licensed by the CBA may call themselves a Certified Public Accountant or Public Accountant.
CPAs and PAs are required to complete appropriate continuing education in order to be eligible to practice public accounting. A licensee who completes the required minimum hours and type of continuing education may have his / her license renewed as "active." A licensee who does not complete the required minimum hours and type of continuing education should renew his / her license as "inactive" and may not practice public accounting.
Word-of-mouth referrals from individuals who have used the services of a particular CPA are probably the best way to start your CPA selection. When selecting a CPA, you should also consider the following:
- Check the CPA's license status on the CBA License Lookup page or call the CBA at (916) 263-3680. Specifically, make sure the license status is clear and the expiration date has not passed. The search results on the license lookup page will also allow you to check how long the CPA has been licensed in California.
- Check whether the CBA has taken any enforcement action against the CPA. The CBA maintains an online alphabetical index of all disciplinary actions and license restrictions.
- Interview the prospective CPA either by telephone or in person. CPAs are authorized to perform a wide range of accounting services, including accounting, compilation preparation, management advisory, financial advisory, tax and consulting services; however, not all CPAs are authorized to sign reports on attest engagements. It is very important to ask what type of accounting work the CPA has experience in and typically performs. Compare the CPA's experience to your service needs.
- Ask what type of continuing education the CPA has taken recently. It is important to select a CPA who has completed continuing education consistent with the type of services you are seeking. Depending on the type of work the CPA performs, certain specialized continuing education may be required. For example, a CPA who engages in planning, directing, performing substantial portions of the work, or reporting on an audit, review, compilation, or attestation service, must complete a portion of his/her required continuing education hours in subject matter pertaining to financial statement preparation and/or reporting, auditing, reviews, compilations, industry accounting, attestation services, or assurance services.
- If the services you require include an audit, a review of financial statements, or an examination of prospective financial information, you need to be sure that the CPA signing the report is authorized and qualified to do so. It is important to understand that there is a distinction between a CPA who is authorized by law to sign reports on attest engagements and a CPA who is qualified (due to knowledge and experience) to perform the work that he or she is being hired to perform; this includes signing reports on attest engagements.
Authorized means the CBA has determined that the CPA completed a portion (minimum of 500 hours) of his/her experience required for licensure in attest work. The 500-hour minimum standard ensures entry-level exposure to attest engagements.
Qualified means that regardless of whether a CPA has met the minimum steps to be authorized to sign reports on attest engagements, s/he complies with applicable professional standards, which requires the CPA to undertake only those professional services that s/he can reasonably complete with professional competence, including achieving a level of competence that will assure that the quality of service meets the high level of professionalism required. It is the responsibility of the CPA to evaluate whether his/her specific education, experience, and judgment are adequate to perform the services being requested. As a result, it important to ask the CPA about his/her level and number of years of experience, continuing education, and recent peer review, if any.
- Before any work is done by the CPA, it is important to make certain that you receive an engagement letter detailing the work to be performed for you, who specifically will be performing the work, including whether the work is outsourced, confirming that all private and personal information is secure, and specifying the cost of the services.
- If the services you require include either reviewed or audited financial statements, you should ask the CPA for the results of his/her most recent peer review. Peer review is a systematic review of a firm's accounting and auditing services performed by a CPA who is unaffiliated with the firm being reviewed to ensure work performed conforms to professional standards.
Peer review is required of all California-licensed accounting firms, including sole proprietorships, that perform accounting and auditing services using the following professional standards:
Statements on Auditing Standards (SAS)
Statements on Standards for Accounting and Review Services (SSARS)
Statements on Standards on Attestation Engagements (SSAE)
Government Auditing Standards (Yellow Book)
Audits of non-Security Exchange Commission (SEC) issuers performed pursuant to the standards of the Public Company Accounting Oversight Board (PCAOB)
- Ask about the office hours of the CPA; determine whether the office is open year-round; inquire if the CPA is available to take telephone inquiries.
- CPAs are required to comply with CBA Regulations section 54.1. This regulation provides that no confidential information obtained by a CPA shall be disclosed without the client's permission. Therefore, you should ask whether the CPA discloses any of your confidential information to persons or entities outside the United States in connection with outsourcing any services provided by the CPA on your behalf. While other persons or entities may provide you with financial services, including tax preparation, it is important to be aware that CBA Regulations section 54.1 pertains only to licensees of the CBA.
- Be aware that if your CPA prepares your tax return and offers you a Refund Anticipation Loan (RAL), the CPA must comply with disclosure requirements specified in the California Accountancy Act and CBA Regulations. An RAL is a loan that allows a taxpayer to borrow against an anticipated income tax refund. These loans actually are made by banks, but are frequently offered by tax preparers including CPAs in conjunction with preparation of the tax return.
While these loans are most frequently described as an instant tax refund - as if they come directly from the California State Franchise Tax Board or Internal Revenue Service - they are in reality short-term loans that often have very high costs associated with them. Both the tax preparer and the lending institution often take commissions against the calculated tax refund - so the RAL is less than the amount of the actual tax return refund. CPAs offering RALs are required by CBA Regulations section 56 to make specified written disclosures to consumers, including the dollar amount the CPA will receive for facilitating the loan. These disclosures must be made at or before the time of making the referral to the lender or performing other activities to facilitate the loan, regardless of whether the taxpayer actually accepts the loan.
Attest Engagement: One in which the practitioner is engaged to issue, or does issue a written communication that expresses a conclusion about the reliability of a written assertion that is the responsibility of another party. Attest services include an audit, a review of financial statements, or an examination of prospective financial information; however, attest services do not include the issuance of compiled financial statements.
Audit: Examination of a client's accounting records by an independent Certified Public Accountant (CPA) or Public Accountant (PA) to formulate an opinion on financial statements and/or financial information. The auditor must follow generally accepted auditing standards.
Continuing Education: Acceptable continuing education (CE) is a formal program of learning that contributes directly to the professional competence of a licensee in public practice. For additional information on acceptable CE see Continuing Education.
Financial Statement: Contains financial information about an organization. The required financial statements are balance sheet, income statement, and statement of cash flows. They may be combined with supplementary information to depict the financial status or performance of the organization.
Peer Review: The study, appraisal, or review conducted in accordance with professional standards of the professional work of a licensee or registered firm by another licensee unaffiliated with the licensee or registered firm being reviewed.
Review of Financial Statement: To perform an inquiry and analytical procedures that permit a Certified Public Accountant or Public Accountant to determine whether there is a reasonable basis for expressing limited assurance that there are no material modifications that should be made to the financial statements in order for them to be in conformity with generally accepted accounting principles or, if applicable, with other comprehensive basis of accounting.