Is it a Requirement for a Small Business to have a CPA?

First, it is important to distinguish the difference between a CPA and an Accountant. In general terms, an accountant is a professional who follows specific rules and regulations, including Generally Accepted Accounting Principals (GAAPs), which are rules set by the FASB (Financial Account Standards Board). CPAs are accountants who have passed a licensing examination in a particular state. Therefore, in other words, all CPAs are Accountants. Not all accountants are CPAs.

Requirements vs Reasoning

Generally, as small business is not required by law to have a CPA, however most small businesses engage and consult with a CPA to review their internal records and controls, manage accounting software, receive tax advice and what not. However, the reasoning of hiring a CPA almost always outweighs the latter option for small businesses.


A CPA is licensed by a state and must always keep up with current tax laws in order to maintain their license in good standing for that state. Accountants are not licensed. In order to get licensed as a CPA, an accountant takes a vigorous CPA exam over several days that include many facets of financial law. Once they receive their license, CPAs must also continue with the education requirement set by the state. Here are more about the standards that CPAs must follow at the AICPA.

Tax Laws

It is not necessary for all CPAs to understand and specialize in small business taxes, but most CPAs are much more familiar with tax laws than accountants. Understanding the tax code is a large piece of the CPA licensing exam and many CPAs take additional courses annually to keep up on the tax code. The tax laws in California change by the board of equalization.
While an accountant legally can sign and prepare your tax return, the designation of accountant does not provide assurance of certification, nor does it provide you with the ability to be represented before the IRS, even is this person is an accountant, as the IRS classifies this person as ‘unenrolled preparer”

The IRS requires are tax preparers to have a prepare tax identification number and the IRS is clear about the distinction between ‘enrolled agents, CPAs, attorney and unenrolled’.

Internal Financial Analysis

A bookkeeper does regular day to day activity of record keeping by inputting of business income and expense into a financial program, accountants review this input and prepare and analyze the financial reports and CPAs do more detailed analysis and advise on tax and financial matters. While being a CPA does not mean that sound advice is being provided, you should evaluate a CPA based on their reputation.

Finding the Right Solution for You

Find a CPA firm that includes bookkeeping and accounting services, and then you can separate the routine financial jobs from the tax and financial analysis done by the CPA.

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