The early 2000s saw multiple accounting scandals, including the crash of Enron and the folding of Arthur Andersen. Those crises shook the business world and led to the development of the Sarbanes-Oxley Act (SOX), which created a raft of new financial reporting regulations for companies to abide by.
With Enron nearly twenty years in the past and the dust from SOX finally settling, organizations are concentrating more on growth, investments, and strategic performance. Accurate books are still crucial, but for now, the real concern is competition and staying ahead of it.
As a result, many companies are hiring CFOs who don’t have traditional auditing and financial reporting experience, as CPAs do. Instead, they’re looking for MBAs with expertise in investment banking and similar areas. But do MBAs truly make better CFOs? Or are CPAs the better option?
What CPAs Bring to the CFO Role
A CPA typically has (at minimum) a bachelor’s degree in accounting. To earn the CPA designation, they must pass four specific tests: Auditing and Attestation, Business Environment and Concepts, Financial Accounting and Reporting, and Regulation. Each test can take months or years to study for. Once candidates pass all four tests, they can apply for their CPA license from their state.
Each state has different requirements that candidates must meet before they receive a license. In some states, you’ll need an advanced degree, like a master’s or an MBA, to earn your certification. Most states also impose an experience requirement, such as several years of work under a licensed CPA.
Becoming a CPA isn’t easy. It takes a lot of hard work, and once the person earns their license, they’ll need to undergo annual training to retain it.
Throughout the 2000s, most companies favored CPAs for the coveted CFO role. After all, a CPA had the technical knowledge critical for SOX compliance, a significant concern for public companies.
Many CPAs also had prior experience in audit positions at Big Four firms, which made them attractive to organizations that wanted to ensure they complied with financial regulations and maintained strong ties with their auditing companies.
However, CPAs generally aren’t known for being excellent communicators. The nature of their job requires exacting precision, much like you might expect from a doctor or certain types of legal professionals. They aren’t a sales-oriented bunch, and they’d likely rather hide in a hole than overstate a firm’s financial performance just to look good for investors.
What CPAs lack in persuasiveness and congeniality they make up for in trustworthiness. A quality CPA won’t mince words if they think your books are a mess or your latest project idea isn’t financially viable. That makes them highly valuable to CEOs who respect their expertise, especially executives who don’t have a financial background.
What MBAs Can Offer a Company
Selecting an MBA for the top financial role is becoming more common, especially among venture capital companies and startups with significant valuations. MBAs often have a background in investments or operations, which can add value to fledgling organizations looking for new capital.
MBAs typically have a visionary mindset, which helps them evaluate the potential of an organization given its current constraints. This visionary mindset complements a CEO’s forward-thinking focus, especially when the CEO has lofty objectives they want to achieve in the next few years.
An MBA is usually quite skilled in communications. If they come from an investment banking background, they’re typically used to interfacing with the board of directors, major investors, and executives of all shapes and sizes.
They know how to position a company as a solid investment, and they’ll dream up the metrics they need to translate their beliefs into reality.
MBAs are strong collaborators. They feel comfortable working with various departments in the company, including operations, marketing, and IT. That’s a critical skill many CPAs lack. It can help organizations that need to break down silos to align their teams and meet their goals strategically.
However, MBAs may not have the technical expertise necessary to oversee a company’s books and ensure compliance with regulations. While they can hand the task over to a CPA in a controller role or a similar position, they may overlook critical accounting issues that can come back to bite them later.
Which One Is the Better Fit for the CFO Role?
Choosing between a CPA and an MBA often depends on the company’s needs. A non-public company backed by venture capital or in its early startup days won’t be subject to the compliance and regulations that a public company is.
While a non-public company still needs to keep accurate books and ensure it files its taxes appropriately, it won’t fall apart if it misses a few journal entries in the general ledger. In those cases, an MBA is usually the better choice since they can “sell” the company to potential investors and steady the operations for future growth.
However, a CPA is generally the better option for the CFO role if the CEO oversees a public company. A CPA can keep a tight rein on the finance, accounting, and tax departments, ensuring that the organization doesn’t incur any severe fallout that can have significant repercussions.
A happy medium is hiring both a CAO and a CFO, particularly in public companies seeking to grow quickly. A CAO and a CFO with a strong partnership will keep the books aligned while preparing the company for conversations with interested investors.
MBA or CPA? Contributions to the CFO Role Differ
Choosing between a CPA and an MBA isn’t easy, especially if you have the funds for only one executive and you can’t source any candidates who have both a CPA and an MBA. Ideally, you should choose between a CPA and an MBA based on your business needs.
CEOs should also consider where they lack expertise. If they’re excellent communicators and feel comfortable interfacing with investors, a CPA can help ground them. However, an MBA may be a better fit if the CEO is introverted and technical.
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