Not legal advice. Requirements may change — always verify with your local government authority before applying. Last verified: .
The quick answer
- 1To perform attest services (audits, reviews, compilations), you must be a licensed CPA and the firm must be registered with the state board of accountancy. Bookkeeping and tax prep don't require CPA licensure.
- 2CPA licensure requires 150 college credit hours, passing all four sections of the Uniform CPA Exam, and 1–2 years of qualifying experience under a licensed CPA.
- 3Tax preparers need an IRS PTIN ($19.75/year). If your firm represents clients before the IRS, the relevant person needs a CPA license, Enrolled Agent status, or a law license.
- 4E&O (professional liability) insurance is required by state boards for CPA firm registration and by most clients as a condition of engagement. A solo firm pays $1,500–$4,000/year.
1. Two types of accounting firms: licensed vs. unlicensed services
The first decision when starting an accounting firm is which services you'll offer, because the regulatory requirements split sharply at the line between attest and non-attest work.
Attest services — audits, reviews, and compilations — are services where a CPA expresses assurance about the accuracy of financial statements prepared by someone else. These services are reserved for licensed CPAs by law in every state. Only a CPA can sign an audit report. Only a licensed CPA firm can perform these services. If you want to do attest work, you and your firm must be licensed.
Non-attest services — bookkeeping, payroll, tax preparation, financial planning, consulting — do not require CPA licensure. You can operate a profitable accounting business without ever becoming a CPA. These services are in high demand, especially among small businesses that need reliable bookkeeping and tax preparation but don't require audited financials.
The practical implication: if you're starting with bookkeeping and tax work and plan to grow into audit services later, build your firm now and pursue CPA licensure in parallel. If audit work is central to your business model from day one, you need a licensed CPA as a principal before you open.
2. CPA licensure: the full path
CPA licensure in the U.S. has three components: education, examination, and experience. All three must be completed before a license is issued. The requirements are set by each state's board of accountancy, but they are largely standardized through the Uniform CPA Exam and the NASBA model rules.
Education: 150 credit hours
All jurisdictions require 150 semester hours of college credit, including specified accounting and business coursework. The most common path is a 4-year accounting bachelor's degree (120 hours) plus a master's degree in accounting or taxation (an additional 30 hours). Some universities offer combined 5-year programs leading directly to 150 hours. The specific accounting and business course requirements vary by state — check your state board's requirements before selecting a program.
Examination: Uniform CPA Exam
The Uniform CPA Exam consists of three core sections (AUD, FAR, REG) and one discipline section of your choice. Each section is scored on a 0–99 scale with a passing score of 75. Sections passed remain valid for 18 months — if you don't complete all sections within that window, passed sections expire and must be retaken. Exam fees are paid to the state board of accountancy (which forwards them to NASBA/AICPA) — approximately $240–$340 per section depending on the state. Most candidates also purchase a CPA exam review course (Becker, Roger, Wiley) for $1,500–$4,000. Pass rates by section historically run 45–55%.
Experience: 1–2 years under a licensed CPA
Most states require 1–2 years of qualifying accounting experience under the direct supervision of a licensed CPA before granting a CPA license. The experience must typically include public accounting, government accounting, or a combination — the exact requirements vary. Some states accept industry or private accounting experience. The supervising CPA signs an experience verification form submitted to the state board. This is why most aspiring CPA firm owners spend time at a public accounting firm (Big 4, regional, or local) before going independent — it satisfies the experience requirement and builds the client relationships and technical knowledge needed to run a practice.
Form your business entity
Before applying for permits, you need a registered business. LegalZoom makes LLC formation fast and simple.
Form your LLC with LegalZoom →Affiliate disclosure · no extra cost to you
3. CPA firm registration with the state board
If your firm will offer attest services, you must register the firm (not just the individual CPAs) with the state board of accountancy. Firm registration requirements typically include:
- CPA ownership majority: Most states require that a majority of the firm's ownership — typically two-thirds or more — be held by licensed CPAs. Non-CPA owners are permitted in most states up to a minority position, but a non-CPA cannot be the majority owner or managing partner of a CPA firm that performs attest services.
- Responsible licensee: Each office location must have a designated licensed CPA who is responsible for the attest services performed from that location. This is similar to the pharmacist-in-charge concept — a named, licensed individual takes legal responsibility for the firm's professional conduct.
- Peer review: Most states require CPA firms that perform attest services to participate in a peer review program — an independent evaluation of the firm's accounting and auditing practices conducted every three years. Peer reviews are administered through the AICPA Peer Review Program or state society programs. Failing a peer review or not participating can result in firm permit revocation.
- Continuing professional education (CPE): Individual CPA licenses require ongoing CPE — typically 40 hours/year or 80 hours/biennial cycle — to remain active. Some of those hours must be in ethics. The firm registration renewal typically requires attestation that all CPAs in the firm are current on CPE.
- Fee: Firm registration fees range from $50 to $500/year depending on the state and firm size.
4. PCAOB registration for public company audits
The Public Company Accounting Oversight Board (PCAOB) was created by the Sarbanes-Oxley Act of 2002 to oversee the audits of public companies. Any accounting firm that audits companies registered with the SEC — including publicly traded companies, registered broker-dealers, and certain investment funds — must register with the PCAOB before performing that audit work.
PCAOB registration is not relevant to most small accounting firms starting out. It becomes relevant only if you pursue public company audit work. The registration process involves:
- Submitting Form 1 to the PCAOB with information about the firm's structure, audit clients, and key personnel
- Paying registration fees (currently $500 for firms with fewer than 100 public company clients plus annual fees based on audit revenue)
- Consenting to PCAOB inspections — annual for large firms (100+ public company clients), triennial for smaller firms
- Complying with PCAOB auditing standards (which are separate from AICPA standards used for private company audits)
- Maintaining independence requirements under both SEC and PCAOB rules
PCAOB-registered firms are publicly listed on the PCAOB website. An audit report signed by a firm that is not PCAOB-registered cannot be used in an SEC filing — this is an absolute bar, not a technicality that can be waived.
5. State highlights: CPA firm requirements by market
State board requirements for CPA firm registration vary. Here are the major markets:
| State | Board | Firm permit fee | Notable requirements |
|---|---|---|---|
| California | CA Board of Accountancy | $500 initial + $500/renewal | Requires CPA majority ownership; California requires peer review participation; unique California CPA experience requirement (1 year); CPE requirement is 80 hours/2 years with 4 hours ethics |
| Texas | TX State Board of Public Accountancy | $100/year | Firm registration required for attest services; peer review every 3 years; Texas uses the "two-year experience" standard; non-CPA ownership permitted up to 49% |
| Florida | FL Board of Accountancy (DBPR) | $100/year | CPA firm license required for attest services; peer review participation mandatory; CPE 80 hours/2 years; Florida requires 1 year experience (can be non-public); designated partner rule for each office |
| New York | NY State Board for Public Accountancy (NYSED) | $200 initial + $100/triennial | CPA firm registration required for attest; New York requires 1 year experience; peer review participation required; strict CPA ownership majority rule; CPE 40 hours/year |
Form your business entity
Before applying for permits, you need a registered business. LegalZoom makes LLC formation fast and simple.
Form your LLC with LegalZoom →Affiliate disclosure · no extra cost to you
6. Other licenses and registrations
IRS PTIN
Any paid preparer of federal tax returns must have a PTIN (Preparer Tax Identification Number) issued by the IRS. This applies to CPAs, Enrolled Agents, tax attorneys, and non-credentialed tax preparers alike. The PTIN must appear on every return the preparer signs. PTINs are renewed annually at a fee of $19.75/year. Applying takes 15 minutes at irs.gov/ptin.
Enrolled Agent status (optional but valuable)
Non-CPA accountants who want to represent clients before the IRS (in audits, collections, and appeals) can obtain Enrolled Agent (EA) status. The EA exam is a three-part test covering individual taxation, business taxation, and representation/ethics. EA status is granted by the IRS and allows unlimited practice rights before the agency — the same rights a CPA has for IRS representation purposes. The exam costs about $182 per part; preparation courses run $300–$700. For a non-CPA accounting firm that handles a lot of tax work, having at least one EA on staff is a significant competitive advantage.
State tax preparer registration
A small number of states (Oregon, California, Maryland, New York, and a few others) require non-credentialed tax preparers to register with the state and complete continuing education. In Oregon, all paid tax preparers must be licensed through the Oregon Board of Tax Practitioners. In California, non-credentialed preparers must register with the California Tax Education Council (CTEC) and complete 60 hours of initial education. If you're starting a tax preparation service with non-credentialed preparers, check your state's requirements for preparer registration.
General business license
An accounting firm needs a standard general business license from the city or county where it operates, in addition to any state board registration. This is typically $50–$300/year and is straightforward.
7. Insurance requirements
The primary insurance concern for an accounting firm is professional liability (E&O) — claims that your professional services caused a client financial harm. Accounting E&O claims are not rare: tax errors that result in IRS penalties, audit opinions that later prove inaccurate, and financial advice that leads to investment losses are all scenarios that generate professional liability claims.
- Professional liability (E&O): Required by most state boards for CPA firm registration and by clients as a condition of engagement. A solo CPA firm pays $1,500–$4,000/year for $1M in coverage. Firms doing audit work pay more. The deductible structure matters — many E&O policies have $2,500–$10,000 deductibles per claim.
- Cyber liability: Accounting firms handle extremely sensitive financial data, Social Security numbers, tax returns, and payroll records. A data breach triggers notification obligations and potentially IRS reporting. Cyber insurance covers breach response costs, forensic investigation, client notification, and regulatory defense. Annual premiums for a small firm run $1,000–$3,000.
- General liability: Covers premises liability (clients visiting your office) and some non-professional claims. $1M per occurrence is standard. $500–$1,500/year for a small firm.
- Workers' compensation: Required once you have employees. Accounting and clerical workers' comp rates are low — roughly $0.50–$1.50 per $100 of payroll.
8. What an accounting firm actually costs to start
| Item | Low | High |
|---|---|---|
| LLC or PLLC formation + registered agent (year 1) | $150 | $600 |
| CPA exam fees (4 sections) | $960 | $1,400 |
| CPA exam review course | $1,500 | $4,000 |
| CPA license initial fee | $100 | $400 |
| CPA firm registration (if doing attest) | $100 | $500 |
| PTIN registration | $20 | $20 |
| General business license | $50 | $300 |
| Office space (home-based) or commercial lease | $0 | $3,000/mo |
| Accounting software (QuickBooks, Xero, etc.) | $600/yr | $4,000/yr |
| Tax preparation software (ProSeries, Drake, UltraTax) | $1,200/yr | $6,000/yr |
| Professional liability (E&O) insurance (year 1) | $1,500 | $4,000 |
| Cyber liability insurance | $1,000 | $3,000 |
| Working capital (6 months) | $10,000 | $60,000 |
| Total (solo CPA, home-based) | ~$17,000 | ~$30,000 |
| Total (small firm with staff and office) | ~$80,000 | ~$200,000 |
The education and exam costs (CPA path) are sunk costs before the firm opens. A home-based solo CPA practice has extremely low startup costs relative to most businesses — the real investment is in the years of education and licensure that precede it.
Frequently asked questions
Do you need to be a CPA to start an accounting firm?
You do not need to be a CPA to start an accounting business, but the answer depends on what services you plan to offer. Bookkeeping, payroll processing, tax preparation (with a PTIN), and management consulting do not require a CPA license. However, if you want to perform attest services — audits, reviews, and compilations — a CPA license is required in every state, and the firm itself must be registered with the state board of accountancy as a CPA firm. Using the title "CPA" or "Certified Public Accountant" without a license is illegal in every state and can result in criminal charges. Many non-CPA accounting businesses operate successfully under the title "accountant," "bookkeeper," or "tax professional" while avoiding the services that require CPA licensure.
What is the 150-hour rule for CPA licensure?
All 55 U.S. jurisdictions (50 states plus DC, Guam, Puerto Rico, the Virgin Islands, and the Northern Mariana Islands) require 150 semester hours of college education to obtain a CPA license — 30 hours more than a standard 120-hour bachelor's degree. The 150 hours must typically include a specified number of accounting courses (30–36 hours in most states) and business courses (an additional 24–30 hours). Meeting the 150-hour requirement usually means pursuing a master's degree in accounting or taxation, a combined 5-year bachelor's/master's program, or a bachelor's degree with additional graduate coursework. The 150-hour requirement is a prerequisite to sitting for the CPA exam in most states, though some states allow you to sit for the exam with 120 hours and then complete the remaining 30 hours before licensure.
What is the Uniform CPA Exam, and how hard is it?
The Uniform CPA Exam is a four-section exam administered by the AICPA and NASBA. As of 2024, the exam has been restructured into three core sections (Auditing and Attestation/AUD, Financial Accounting and Reporting/FAR, and Taxation and Regulation/REG) plus one of three discipline sections (Business Analysis and Reporting, Information Systems and Controls, or Tax Compliance and Planning). Each section requires a score of 75 or higher on a 0–99 scale. The overall pass rate historically runs about 45–55% per section — it is a difficult exam. Candidates typically spend 300–400 total study hours across all sections and take 12–18 months to complete all four. Once you pass a section, you have 18 months to pass the remaining sections before the passed sections expire.
What is a CPA firm registration, and is it required?
Most states require accounting firms to register with the state board of accountancy if they offer attest services (audits, reviews, compilations) to the public under the CPA designation. The firm permit or registration is separate from the individual CPA license. To obtain firm registration, the firm must typically: be majority-owned (usually two-thirds) by licensed CPAs, have a licensed CPA as the responsible partner/officer for each office location, carry E&O insurance meeting state minimums, and meet state peer review requirements. Firms that only provide non-attest services (bookkeeping, tax preparation, consulting) generally don't need firm registration, though this varies by state. Some states require any firm using "CPA" in its name to register regardless of services offered.
What is PCAOB registration, and when is it required?
The Public Company Accounting Oversight Board (PCAOB) regulates auditors of public companies (companies registered with the SEC). If your accounting firm wants to audit any company whose securities are registered with the SEC — including public companies, broker-dealers, and certain investment funds — the firm must register with the PCAOB. Registration involves: submitting a Form 1 application, paying registration and annual fees (based on number of audit clients and firm size), agreeing to PCAOB inspections (annual for firms with more than 100 public company audit clients, triennial for smaller firms), and maintaining independence and quality control standards. PCAOB registration is not required for accounting firms that only serve private companies, nonprofit organizations, or government entities. Most small CPA firms starting out do not need PCAOB registration.
What is a PTIN, and does every accountant need one?
A Preparer Tax Identification Number (PTIN) is required from the IRS for any paid tax return preparer who prepares or assists in preparing federal tax returns. This includes CPAs, enrolled agents, tax attorneys, and non-credentialed tax preparers. The PTIN must be renewed annually; the fee is $19.75/year as of 2026. A PTIN is required for any person who prepares federal returns for compensation — it does not authorize you to represent clients before the IRS (that requires an Enrolled Agent credential, CPA license, or law license). CPAs automatically qualify for unlimited practice rights before the IRS with their CPA license; a PTIN is still required as the identifier on returns they prepare.
What insurance does an accounting firm need?
The critical insurance for any accounting firm is professional liability (E&O) insurance, which covers claims that your professional services caused a client financial harm — incorrect tax advice, audit errors, missed filings. E&O coverage is often required by state boards for CPA firm registration and by clients as a condition of engagement. A solo CPA firm with primarily individual and small business clients typically pays $1,500–$4,000/year for $1M in E&O coverage. Firms doing audit work or handling large corporate clients pay substantially more. In addition to E&O, accounting firms need general liability, cyber liability (given access to clients' financial and personal data), and workers' comp once they have employees.