How to Read a Financial Report, 9th Edition

19 CPAs AND FINANCIAL REPORTS

So, you are one of the stockholders in the business example we use throughout the book. You have just received a copy of the company’s annual financial report. Can you rely on the information in the annual report? Do the company’s accounting methods and disclosures abide with generally accepted standards? Having a certified public accountant (CPA) involved in the financial reporting process is a good idea. CPAs are the experts in accounting and financial reporting. You may know that CPAs audit financial reports, but they also provide a variety of financial reporting services as well as income tax and consulting services.

Certified Public Accountant (CPA)

A person needs to do three things to become a CPA. He or she must earn a college degree with a major in accounting with a fairly heavy load of accounting and auditing courses. The American Institute of Certified Public Accountants (AICPA) has encouraged all states to enact laws requiring five years of education. Most but not quite all states have passed such laws.

Second, a person must pass the national CPA exam, which is a rigorous exam testing knowledge in accounting, income tax, auditing, and business law. Third, a person must satisfy the experience requirement of the state in which he or she lives. State laws and regulations differ regarding the time and nature of public accounting experience that a person must have; one year is generally the minimum.

After the three requirements are completed—education, ...