There is understandable 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.
CFA vs. CPA: An Overview
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 into the institute's ranks. There are also minimum education requirements.
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, completing three six-hour tests, and gaining the necessary experience (currently four years) in the investment industry. People with these designations are expected to maintain strict codes of conduct and high standards of ethics and integrity.
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. 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, a CFA is qualified to perform personal financial planning and wealth management; he or she 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. CFAs' skills can also lead to other financial-sector professions, such as day trading.
A CPA is involved with producing reports that accurately reflect the business dealings of companies and individuals they work for. 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. 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.
- Both the CFA and CPA designations require passing 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.
Often, different financial analysts 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.
The CPA designation is required to be able to issue audited or reviewed financial statements.
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.