Thursday, November 19, 2009

How do I determine a quality accountant?

Recently I was involved in a web chat concerning the question "How do I determine a quality accountant?" At first it seemed like a straight forward question, but the responses brought out many important issues that surround this very basic question.

The first question is how do you define an accountant? Are you looking for basic bookkeeping, tax accounting, audit services or financial planning? All CPA's are accountants, but not all accountants are CPA's. For example, in the state of Texas you have to be a CPA to call yourself an accountant. The state board of public accountancy regulates, and punishes the improper use of either title. Other state may not be as strict. If what you're looking for is basic transactional processing, a bookkeeper may do fine. Bookkeepers sometime refer to themselves as accountants especially if they have an accounting degree. You don't have to have an accounting degree to be a bookkeeper.

So when you're looking for a quality accountant, what do you really want? As bookkeepers, accountants and CPA's chimed in a trend became evident. First of all let me say that no matter what I say at this point one side or the other will take issue. I am not a bookkeeper, accountant or CPA. I have a formal education and experience in Financial Analysis. So here is a rough summary of what I believe to be true and the dialog seemed to support.

Bookkeepers are extremely good and cost effective at transactional processing. They understand debit and credits. They understand amortization and depreciation. They can create the information required to develop a Profit and Loss Statement or Balance Sheet. A bookkeeper with a degree in accounting is better than one without. Four years of setting in a class room, not to mention the dedication to spend four years learning before you make a dime, says something. That is not to say a bookkeeper without a degree cannot be extremely affective.

CPA's in most cases would prefer not to do transactional processing. They can, they prefer not to and you'll pay a lot more for a CPA than a bookkeeper. Their higher level value is making sure that the accounting books truly reflect the condition on the company. Are funds applied in a consistent manner that can be used one year, two years or more out in the future to make sound management decisions? For example: Is the labor associated with a software engineer development, support or cost of sales? If not applied appropriately the business might determine that their development costs are too high when in fact it either has too many support issues or is too difficult to explain to prospects. Are sales taxes over stated? Can a cost of repair be capitalized as opposed to expensed? These are management decisions. How I go about fixing something might be partially determine by the way it is accounted.

My conclusion is that degreed bookkeepers are good for day-to-day transactional processing, but everything should be reviewed by a CPA before month-end close. If you just wait for tax time to roll around you may not retain the institutional knowledge required to give accurate guidance to your CPA. Once you know what you are looking for you can start to determine the attributes of a good one. We'll discuss that next.

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