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To become A CPA (Chartered Public Accountant) is a dream for many people: a CPA is a highly-respected professional with good work-life balance and stable income regardless of economic cycle.

In the US, the CPA qualification can be obtained by fulfilling the “3Es”: Education, Exam and Experience. Having said that, did you know that there is a way to “get around” and get a legitimate CPA license without any relevant experience? I am going to explain how you can achieve that in this article.

How To Become A CPA In The US: An Overview

First of all, you’ll need to understand that the CPA license is granted by State Board of individual states and jurisdictions in the United States instead of the government at the federal level. Therefore, there exist a total of 55 slightly different CPA exam requirements among the different jurisdictions in the US.

In general, the various State Boards of Accountancy require CPA candidates to have at least a Bachelor degree, but a Master’s degree with 150 credit hours is preferred. A minimum number of accounting and business courses is also required.

Once you fulfill the education requirement, you are qualified to sit for the CPA Exam. While the CPA exam requirement varies by state, the exam itself is the same for all: This is a tough 14-hour exam divided into 4 sections, covering financial accounting, auditing, tax and regulation together with business law, information systems and ethics. The exam is offered in a computerized format so candidates can actually take the 4 sections separately and at any given time during the testing window.

How To Become A CPA Without Accounting Experience

After passing the CPA exam, most candidates have to fulfill the working requirements ranging from one to five years depending on the degree obtained and the relevancy of work.

However, there are two states – Colorado and Massachusetts – that you can actually get a full CPA license without any relevant experience. In fact, there is no need of any working experience at all!

For Colorado, as long as you fulfill the full 150 semester units requirement, you can go through the “education in lieu of experience” option to get licensed in the State of Colorado. For Massachusetts, in addition to the 150 hour requirement you’ll need a graduate degree in accounting, finance, taxation or business to obtain a “non-reporting license” without working experience. This license allows the aspiring CPA to do everything except attestation and signing of the audit report.

There are some drawbacks in getting the CPA qualification this way. For example, certain restrictions may apply if you want to practice in a CPA firm outside the state.

Having said that, if you would like to get the CPA title for credential enhancement purposes and plan to work in non-public accounting field (i.e. accounting and finance in businesses and corporations instead of being an auditor), then this CPA qualification is as good as it gets for you.

In accrual accounting, revenues and expenses are reported in the period when transactions occur, regardless of whether payment has been received. While this practice may seem strange at first, many Americans use it everyday without thinking about it. Consider credit cards. Whenever someone uses a credit card, there is no cash changing hands, only an understanding that if everything runs smoothly, the purchaser will pay their credit card company who in turn will reimburse the seller. This is a form of accrual accounting.

Another form of accrual accounting is accounts receivable. When retailers sell products on credit (think of the countless advertisements offering “no money down, no payments until the next year”), this is an example of accounts receivable. In this case, a retailer agrees to accept payments over time in exchange for a good or service. For example, if a shopper were to purchase a $1,000 television on credit from TV Shack, there would be an agreement that they would pay the store back in monthly payments until the full $1,000 is paid off. This $1,000 to be paid off in time would be considered accounts receivable.

The store is able to report the $1,000 sale in the current period even though it will not be receiving payment until a later date. The net realizable value, in this case $1,000, is what the store will receive back from the customer if the customer pays his debts according to the agreement. It reports that it has made a $1,000 sale, based on the assumption that it will be receiving the cash eventually. But what if the customer is unable to pay back the loan on time? What if the customer is unable to pay back the debt in full? Or at all? This would mean that the $1,000 revenue that was reported by the company was never realized. In other words, the company is out $1,000 that it told investors that it had. This phenomenon is known as bad debt.

Businesses know that in some cases they will not recoup what they have lent, but rather than abandon lending, these firms take precautions against bad debt. In some cases, businesses will only lend to the most qualified buyers. In others, the businesses simply demand a larger down payment and charge a higher rate of interest to less qualified buyers. Anyone who has purchased a home is familiar with these strategies that businesses take to insulate themselves from defaults. Many have heard of subprime mortgages, fewer know that this is simply an example of offering mortgages with higher interest rates to buyers who are more likely to default. These are simply methods that companies use to improve their chances of getting their loans paid back.

Another method businesses use to hedge bad loans is a bad debts expense. Also known as an uncollectible debt expense, firms are able to calculate with some degree of accuracy the amount of money that they will need to set aside in case some of their loans are not repaid. In some cases, firms simply assume that a given percent of their loans will default and set aside this percentage of their total loans. In others, the businesses keep track of which loans are most likely to default in order to determine their bad debts expense. This money that is set aside is known as the loan loss reserve.

There is some concern that companies’ loan loss reserves are inadequate in the face of an economic downturn. Using the percentage model noted earlier, these firms only keep a fraction of the money that they have lent out on hand in case of defaults. This is not unlike the fractional reserve system that our banks use. And like a run on a bank, if for some reason enough of the debtors default on their loans, the company may not have enough money to write off these expenses. Because of this vulnerability, there is a concern that many companies are not as healthy as they may appear.

Recall from above the example where TV Shack lent someone $1,000 to buy a television on credit and then reported $1,000 profit before the customer had begun to pay it off. This may be fine in good economic times, and the customer will likely be able to pay off his debt. But if the economy declines, the customer may not be able to pay the debt because of unforeseen circumstances. TV Shack feels the impact of this as well because they do not get all or any of their $1,000. Because of this, TV Shack is weaker than it looks on paper. TV Shack’s investors were unintentionally misled when they read TV Shack’s statements reporting $1,000 profit that will never come. For this reason there is concern that the current methods for dealing with bad debt in accrual accounting are inadequate.