CFA vs. CPA: An Overview
There can be some confusion between different financial professionals and their designations. Accountants and analysts are both important members of the financial sector, but sometimes, the distinctions between the functions performed by the two are subtle.
A certified public accountant (CPA) is a person who has completed the Uniform Certified Public Accountant Examination, developed and administered by the American Institute of Certified Public Accountants, and who meets their state's requirements for membership in the institute's ranks. There are also minimum education requirements that candidates must meet.
A chartered financial analyst (CFA) is a person who has completed the requirements of the program set out by the CFA Institute. This includes having a bachelor's degree or gaining the necessary experience (currently three years) in the investment industry, as well as completing three different intensive examinations. People with these designations are expected to maintain strict codes of conduct and high standards of ethics and integrity.
Key Takeaways
- Both the CFA and CPA designations require passing certain intensive examinations and meeting educational requirements.
- A CFA generally analyzes financial reports, notably financial statements, while a CPA is most often the one that puts together or audits those reports.
- CFAs are best known for investment analysis and wealth planning, and CPAs tend to be associated with taxes, audits, and accounting.
- However, the two designations can apply to a wide range of roles and industries.
- Both certifications are recognized, standardized designations in the financial sector that can provide a great degree of career mobility and flexibility.
CFA: Chartered Financial Analyst
A CFA is often hired by investment management companies such as mutual funds, hedge funds, and private equity firms. A CFA analyzes the growth and profitability of companies as well as their creditworthiness and the amount of debt they carry.
In addition, CFAs are qualified to perform personal financial planning and wealth management; they can advise clients on the best investments to make for individual situations by analyzing goals and risk tolerance as well as considering different tax-advantaged investment plans, such as individual retirement accounts (IRAs) and Roth IRAs. CFA skills can also apply to other financial sector professions, such as day trading.
A CFA is likely to receive and analyze reports produced by a CPA or other accountant. Public companies produce annual reports that are often prepared by CPAs, and on the basis of these reports, CFAs then make recommendations to clients on how to invest in securities offered by these companies.
CPA: Certified Public Accountant
CPAs are involved with producing reports that accurately reflect the business dealings of the companies and individuals for which they work. They are also involved in tax reporting and filing. A CPA can help people and companies choose the best course of action in terms of minimizing taxes and maximizing profitability.
The CPA designation is required to issue audited or reviewed financial statements.
A CPA may advise on different forms of business organization (partnership, corporation, limited liability company, etc.) and the benefits and advantages of each in different situations. A CPA may choose to specialize in one or more areas. A CPA is also trained to advise clients who have been audited or require reports or records to be audited.
Special Considerations
Different financial analysts often provide different forecasts regarding the numbers reported in publicly traded companies' quarterly and annual reports. When many financial analysts give forecasts for one data point, a CFA can then calculate an analyst consensus estimate. These consensus estimates are widely followed by clients and companies alike.
Meanwhile, a CPA is often the one putting together or auditing the financial statements that a CFA may use when analyzing a company. Specifically, financial forecasts are usually made by CFAs, whereas the financial reports that they use as the basis for their forecasts are typically produced and audited by CPAs.
What Are Good Industries for a CFA or CPA?
Earning a CFA or a CPA can be a great choice for professionals who are seeking to take the next step in their careers. However, it's important to consider where each one can apply in terms of industry and job function.
A CFA is recognized internationally and can apply to a wide range of positions within the investment management sector as well as the finance industry in general. The CFA Institute proclaims that the CFA designation is "widely considered the apex for professional development in investment management" as well as "equip[ping] professionals with the versatility to take their career paths in different directions." For example, someone with a CFA may look to work in fintech, trading, accounting, risk analysis, consulting, commercial or investment banking, insurance, or portfolio, wealth, or asset management, to name just a few.
The CPA designation is specific to the country in which the exam is taken, though it is a well-known program that is offered in many countries around the world. International equivalency exams are also offered so that CPAs can work in countries other than the one in which they were certified. When someone has completed the requirements set out by the CPA program, they can work in most roles that provide financial services, whether at the personal or business level or in the private or public sector. They may specialize in areas such as financial reporting, auditing, taxation, and of course, accounting.
Salaries
Though compensation varies depending on the industry, location, experience, and role as well as the specific compensation package, someone with a CFA working as a portfolio manager (a common application) can expect to make a base salary of $126,000 according to a 2019 study conducted by the CFA Institute.
For someone with a CPA, the average salary range is reported to be between $70,235 to $461,014, as of July 17, 2022. The compensation will vary greatly depending on things like location, company, seniority, and specific role.
What Does CFA Mean?
CFA stands for chartered financial analyst. It is a designation earned by taking the three examinations administered by the CFA Institute in addition to completing the required work experience.
What Can You Do With a CFA?
People who hold a CFA can apply their experience to various positions within the finance and investment industry internationally. It is a prestigious and recognized achievement to hold a CFA in the investment management sector.
What Does CPA Mean?
CPA stands for certified public accountant. You can earn this designation by passing the Uniform CPA Exam, which comprises four sections, as well as holding a degree in accounting from a college or university. Another requirement is a certain amount of professional experience working in public accounting.
What Can You Do With a CPA?
When you earn a CPA, you can work in a wide range of sectors, providing a variety of different functions, such as consulting, business analysis and management, personal finance, auditing, reporting, compliance, taxation, and of course, accounting.
Is a CPA the Same as an Accountant?
All CPAs are by definition accountants, but not all accountants will have earned the CPA designation.
The Bottom Line
A CFA and a CPA are both recognized, standardized certifications that can provide a great degree of mobility and flexibility for a career in the financial sector. CPA stands for certified public accountant and can be a helpful designation in particular if you would like to issue audited or reviewed financial statements. CFA stands for chartered financial analyst and can be a helpful certification to pursue if you wish to work in the investment industry and beyond.
