Do CPA Firms Earning Differ Between Tax and Audit Services?
The question of whether CPA (Certified Public Accountant) firms earn more from audit or tax services is a common consideration among professionals in the accounting industry. Most CPA firms, particularly larger and mid-size firms, engage in both areas, while smaller firms often specialize in one or the other. In this article, we will explore the differences in earnings between these two service areas and provide insights based on industry experience.
Scope of Services by CPA Firms
Except for small CPA firms, which often focus primarily on one or two primary areas, most CPA firms undertake a broader range of services. Larger CPA firms typically provide a wide array of services, including both tax and audit work, as well as consulting, personal financial planning, and other specialized services. Due to the diverse nature of their work, these firms do not typically break down their income by specific service areas.
Mid-size CPA firms often offer both tax and audit services, but many smaller firms do not perform audit work. Instead, these smaller firms focus on client accounting, consulting, personal financial planning, and tax preparation and planning. Therefore, the question of which service line generates more revenue does not have a clear-cut answer. The primary factors influencing earnings vary based on the size of the firm and the nature of the services provided.
Income Dichotomy in CPA Firms
My experience suggests a dichotomy in income within CPA firms, particularly when considering different career stages. For the majority of their career, tax accountants tend to earn more than their audit counterparts. This discrepancy is driven by several key factors:
Technical Expertise and Perceived Value
Tax accountants require a significant amount of technical expertise, often involving a variety of specialized knowledge. They are highly valued for their ability to minimize a client's tax liability within the bounds of the law. This specialization and the perceived value of their work contribute to their higher earnings early in their careers.
Lowest Pay and Highest Understanding
Auditors, on the other hand, are generally lower paid but gain a more comprehensive understanding of a client's business operations. They are more likely to transition into upper management positions in their clients' organizations. This is especially true for larger businesses, which have a higher demand for controller and CFO roles. These roles require a deep understanding of the business processes and are less common than in-house tax experts.
Career Paths and Opportunities
The career paths and opportunities within CPA firms also influence earnings. Most partners at larger firms come from the audit side. This is because auditors have extensive client contact, which is crucial for building a strong professional network and developing client relationships. These roles, while lower paying in the short term, often present greater long-term opportunities for substantial income growth.
Impact of Career Stage and Firm Size
The relationship between earnings and career stage is also significant. Tax accountants typically earn more during the earlier and mid-stages of their careers. However, in larger firms, auditors have the potential to make significantly more later in their careers or as they move into upper management positions. This is due to the higher earning opportunities that come with senior-level roles in audit, such as controller or CFO positions.
Conclusion
The earnings of CPA firms between tax and audit services can vary widely based on the type of firm and the individual's career stage. While tax accountants may earn more early in their careers due to the complexity of their work and its perceived value, auditors have the potential to command higher salaries in later stages, particularly in larger firms where they can transition into key management roles.
For aspiring accountants and those considering their career paths, it is essential to consider both the immediate financial rewards and the long-term professional opportunities available in each area. Understanding these dynamics can help individuals make informed decisions about their professional development.