Ah, credentials. Enrolled Agent (EA). Certified Public Accountant (CPA). Those of us who hold certifications are very proud of the time and effort put into achieving those coveted letters at the end of our names. But to those outside our industries, they mean little beyond… Uh ya… You must be qualified to do… well, something?
In the tax arena, you often see EA and CPA after people’s names. So what is the difference between an Enrolled Agent (EA) vs. Certified Public Accountant (CPA)? Is one really better than the other?
The answer-like all accounting questions- is: It depends.
Let’s break these credentials down by first defining each one, going through the licensing process, continuing professional education requirements, and finally, what they practice.
Enrolled Agent (EA)
Let’s jump into the Enrolled Agent by define precisely what this credential is:
So how does someone gain this privilege?
The EA Licensing Process
While there is no formal education requirement, aspiring EAs do have to complete a few steps on their way to representing taxpayers before the IRS.
Their first step is obtaining a PTIN (Preparer Tax Identification Number). The IRS established this unique number to help identify paid tax return preparers without exposing the preparer’s social security number. It’s now also required for anyone who prepares or assists in filing federal tax returns for compensation.
After obtaining a PTIN, the next step is to apply to take the Special Enrollment Examination (SEE). The Candidate Bulletin does an admirable job of laying out exactly what to expect from each of the 3 parts of this exam. The 3 Parts are broken down into 100 multiple choice questions covering the following topics (for 2020):
- SEE1: Part 1 — Individuals
- Preliminary Work with Taxpayer Data – 17 questions
- Income and Assets – 21 questions
- Deductions and Credits – 21 questions
- Taxation and Advice – 14 questions
- Specialized Returns for Individuals – 12 questions
- SEE2: Part 2 — Businesses
- Business Entities – 28 questions
- Business Financial Information – 39 questions
- Specialized Returns and Taxpayers – 18 questions
- SEE3: Part 3 — Representation, Practices and Procedures
- Practices and Procedures – 25 questions
- Representation before the IRS – 24 questions
- Specific Types of Representation – 19 questions
- Completion of the Filing Process – 17 questions
The Candidate Bulletin gets pretty specific with subsections and topics for each part. Candidates get 3.5 hours for each section, which can be taken in any order and scheduled during the testing window from May 1 – until Feb 28. The test is scored immediately, so you walk out happy or bummed. If you are unlucky and fail, the good news is you only have to wait 24 hours to retake the exam. You can try up to 4 times for EACH part of the exam from June to February before waiting until the next window. The pass rate for each section varies but is in the 60%-80% range.
Once the exam is passed, all that is left to do is apply for enrollment, pay the fee, and pass a suitability check. The suitability check determines if all tax compliance is up to date, your tax liabilities are paid and performs a criminal background check.
Tada! Enrolled Agent!
Certified Public Accountant (CPA)
A CPA is an accountant who has satisfied the educational, experience, and examination requirements of his or her jurisdiction necessary to be certified as a public accountant. CPAs audit financial statements of both publicly and privately held companies. They serve as consultants in many areas, including tax, accounting, and financial planning.
So what is involved in satisfying the education, experience, and exam?
The CPA Licensing Process
The road to CPA starts with education. In almost every U.S jurisdiction, CPA candidates are required to have 150 credit hours of education in accounting and business management education to qualify for licensure and sit for the exam. The specific breakdown varies by jurisdiction. However, generally, a minimum of 24 credits of accounting and 24 credits of business administration is required. (14 states allow less than 24 credits of business.)
Once education is completed, it’s time to apply for the exam. The Uniform CPA Examination can be taken in any US jurisdiction. Usually, candidates apply under the rules where they live. Due to the CPA exam being standardized, they can schedule to take the exam in any jurisdiction. The exam has 4 sections, and each section is divided into five testlets consisting of multiple-choice questions (MCQ), task-based- simulations (TBS), and written communication tasks (WCT). The sections break down as follows:
Unlike the scaled scoring of the SEE, the CPA exam is a weighted exam. Candidates also have to wait longer to find out if they’ve passed. Test results can take 7-14 days to be shared due to the task-based simulations. There is also a lower pass rate for the CPA Exam. In 2020, the pass rate for each section ranges from about 53% – 68%.
Aspiring CPAs are given 4 hours to complete each section. All 4 sections must be passed within 18 months. There are 4 testing windows running Jan. 1–March 10, April 1–June 10, July 1–Sept. 10 and Oct. 1–Dec. 10. While all parts of the exam may be scheduled in the same testing window, a failed section cannot be retaken in the same window. This creates pressure on candidates to ensure they are adequately prepared for all sections. They don’t want to schedule and pay for the exam sections unnecessarily.
After passing the daunting task of passing all the parts of the CPA Exam, there is still another requirement to meet. Experience. Each jurisdiction takes a slightly different view on when a candidate is ready to protect the public’s interest with the CPA credential. At least one year of experience under the supervision of a licensed CPA is required. Some states require up to 3 years of experience before they’ll hand over those coveted letters to new professionals.
More information on the exam content and the licensing rules for each jurisdiction can be found at the AICPA (American Institute of CPAs) and NASBA (National Association of State Boards of Accountancy) websites. The AICPA even has a handy “This Way to CPA” informational roadmap website to help interested parties learn more about each state’s licensure requirement.
Continuing Professional Education (CPE)
Whether a tax professional has gained their EA or CPA credential, both certifications require investing in staying current in changing laws and regulations in their respective fields.
For Enrolled Agents, they must invest in 72 hours of continuing education for each 3-year cycle they’ve been enrolled. The cycle is based on the last number of their social security number. EAs cannot lump 72 hours in one year (which would be a grueling two weeks). They must complete a minimum of 16 hours per year and a 2-hour ethics requirement each year. CPE providers must be approved by the IRS.
CPAs have a similar requirement. While the specific allocations by year are determined by the CPA’s ruling jurisdiction, most states require approximately 40 hours a year with an ethics requirement of around 2 hours a year. For example, Colorado’s CPE requirement is 80 hours over a biennial period ending on odd years with a 4-hour ethics requirement.
Who Does What?
When choosing a credential, it helps to look at what each is designed to do. Enrolled Agents have a niche. They’ve studied the tax code specifically. EAs prepare tax compliance and can represent taxpayers in disputes in front of the IRS the same way that a tax attorney could.
Certified Professional Accountants have spent additional time beyond the world of tax to focus on multiple facets of accounting and business management. They are required to have an understanding of operations, business law, information technology, and economic concepts. CPAs are educated to take a holistic approach to look at a company’s financial health, not just the tax effect. This is also the only certification that can issue an audited opinion on financial statements.
CPAs are employed in public and professional service firms, small businesses and industries, government, and education. They oversee and deploy a wide range of business services, including tax, auditing, accounting and financial reporting, and managing internal controls, to name a few.
As the saying goes, all CPAs are accountants; not all accountants are CPAs.
So Who Should You Choose?
It’s hard to say choose one over the other. It truly depends on the services you need. If you’re looking for a one-and-done tax service, an Enrolled Agent should be able to meet your needs. Depending on their experience, they might be able to expand on their services, as well.
To get a robust tax plan, one that includes your full financial picture, your best bet is a CPA. They’ll take a holistic look at your business and personal finances, consider your short and long-term goals, and optimize tax-saving and wealth-building strategies. To incorporate budgeting, cash flow analysis, and other accounting services, you are better served by a well rounded professional.
If you’d like to learn about our holistic approach, read more in our article: A Holistic Approach to Accounting