Certified public accountants (CPAs) can reduce the financial risk of a business; for this, they know more than auditors.
For example, in addition to a bachelor’s degree (the minimum requirement), CPAs must pass a legal exam, such as the United States Uniform CPA Examination, and have work experience.
CPAs are trained to provide financial advice to business executives.
To join a CPA, it is inexpensive to qualify them, whether they hire one or hire an outside service.
CPAs’ extensive education and experience provide a large salary, ranging from five to six figures, depending on experience and seniority. However, prices for their services vary depending on location.
Large corporations need CPA knowledge, and small businesses need it for various reasons, from preparing taxes to forecasting growth.
Migrating Business’ Financial Risk
How does CPA reduce business financial risk?
Internal control
Internal controls are an under-researched aspect of business growth, but their absence can be fatal. A study published in the Review of Accounting Research found that accounting fraud occurs in two out of five companies. As a result, openly traded businesses lose 1.6% of their collective capital annually. By 2021, losses are estimated at US$830 billion.
One of the most common cases is the misappropriation of business funds, sometimes called embezzlement. Without a proper way to control cash flow, unscrupulous employees can incur millions in legal fees. When the owner discovers fraud, the company will lose a lot, including closure.
Although a CPA is not required to audit a business, it can take on some necessary responsibilities to improve internal controls. Examples include:
- Checking receipts and other documents reflecting expenses.
- Asset verification and resource process assessment
- Instruct employees and clients on the importance of proper accounting.
- Conduct background checks on applicants and new employees
Because of this, a small business CPA is at the forefront of fighting corruption and fraud within a business or organization. International Federation of Accountants has highlighted that accountants are in the best position to reduce the impact of such actions in the public and private sectors, regardless of the scope of their work.
Tax compliance
In September, the Internal Revenue Service proclaimed it would use AI to target high-income businesses indebted millions in back dues.
- Among those on the list are dozens of important partnerships with over US$10 billion in assets. This revival of a federal agency that hasn’t been paid for years should be a wake-up call for business owners to meet their tax obligations. In September, the Internal Revenue Service publicized it would use AI to target high-income businesses who owe millions in taxes.
- Among those on the list are dozens of important partnerships with over US$10 billion in assets. This revival of a federal agency that has not been paid for years should be a wake-up call for business owners to meet their tax obligations.
- Smaller players with limited income and capital cannot afford to incur the agency’s wrath, as they are quickly fined. For example, late payment of taxes entails a penalty of 5% for each month of delay and can reach 25%.
- Many reasons for these delays include the fight to comply with federal tax laws. It also doesn’t help that the company is responsible for taxes other than income, such as payroll and employment taxes.
- Tax planning and preparation is the specialty of a CPA. While they are not as specialized in the system as licensed preparers, they have extensive knowledge of business tax policies, including potential tax benefits.
- The company that hires him usually does not need a tax preparer, especially if it requires non-tax expertise, such as preparing financial statements.
- CPAs are among the few professionals who can be granted a power of attorney, unlike tax preparers. With this authorization, they can represent a business before the IRS, obtaining its tax information and requesting disputed tax policies.
- A power of attorney remains in effect until the company ceases to operate or appoints another qualified person.
Financial audit
From time to time, the IRS conducts random independent audits of taxpayers’ tax returns.
While an audit has nothing to do with accidental error or potential fraud, it can understandably cause concern for business owners.
It’s estimated that these checks account for 1% of tax returns each year, but industries can increase their chances of getting one in a number of ways, not the least of which is the following.
- Increased revenue guarantees other tax changes
- Filing an income tax return when there is no taxable income
- Filing income taxes on investor and partner transactions
- Failure to report all taxable income, particularly if the IRS can trace it.
- Deductions include home office expenses or personal vehicle use for business purposes.
If you are selected for review, the agency will notify you by telephone or mail (never email).
Attached to the letter are other documents, most notably Form 4549, which outlines the agency’s proposed changes to your return in the future. Once received, you will have 30 days to review and, if necessary, challenge the offer.
However, filing a case with the IRS is similar to taking it to court because it requires proper evidence to support your arguments. One such document is the Certified Financial Statement, which can only be proficient by an independent CPA. Typical examples are balance sheets, cash flow statements, and income statements.
As mentioned earlier, a CPA can represent your business to the IRS. That’s why it’s never a bad idea to have someone work for you.
Business consultation
A desirable benefit is that starting a business does not require a business degree. If we talk about such famous names as Facebook and Microsoft, then you don’t need a higher education to do this.
Regardless of formal education, a startup owner must fight an uphill battle for long-term success. Product design and marketing are just the tip of the iceberg in business. Less exciting but important aspects, from tax management to employees and suppliers, lie below.
However, no other step in running a business is more important than the first step – the call to start it. You don’t want an idea that only sounds good on paper. Some experts recommend consulting with a CPA to determine its benefits and estimate costs.
In a sense, your first meeting with the CPA prepares your initiative for implementing the following steps. You will find a professional who, among other things, will help you separate your accounting tasks and tax obligations.
Conclusion
The various abilities of a CPA make it a fundamental part of the equivalence for business success. If you ever plan to hire someone, make the most of their multi-faceted skills by assigning them a key role in the organization.
