Preparing accounting students for a career in CPA financial planning

A career as a CPA financial planner is an alternative path for students who take an interest in taxation or consulting areas.   

Personal financial planning (PFP) involves a holistic approach to assisting individuals with their financial goals. PFP services include planning for retirement, education, succession, insurance, investments, and estates. Tax considerations are implicated in most every area of PFP, so annual tax preparation services provide an opportunity for CPAs to introduce additional services to clients. 

Also, it’s a career that offers the appeal of reduced billable hour pressure and higher earnings due to its recurring fee structure and use of automation.

For many years, the AICPA has encouraged experienced members providing tax services to add PFP as an additional revenue generator and credential opportunity, but the accounting profession is increasingly recognizing PFP as a vital expertise for new accountants. This recognition now extends to aspiring CPAs with the 2024 CPA Exam incorporating PFP questions for the first time. The PFP questions will be on the optional Tax Compliance and Planning (TCP) section of the exam.

As the evolving landscape of the accounting profession emphasizes PFP and as clients’ demand for holistic financial advice grows, it is important to prepare students with the financial planning skill set they need to be successful.  

Introducing PFP into accounting courses

The existing accounting curriculum is well-suited for PFP content without too much adjustment. Introducing practical exercises, in particular, equips students with a more comprehensive understanding of financial planning.

How to integrate PFP topics. Based on the new CPA Exam blueprint detailing PFP knowledge coverage, individual income taxation courses could incorporate topics such as qualified retirement plans, college savings plans, and planning goals. Business income taxation courses could cover the fiduciary-related topics of gift and estate planning and calculating investment returns net of tax.

Traditional topics covered in intermediate accounting courses, such as time value of money (TMV), contingencies, and accounting for pensions are areas in which to integrate PFP topics such as retirement planning, emergency funds, insurance for risk mitigation, qualified retirement plans, and college savings.

The value of an in-class exercise. A useful in-class exercise can be crafted using Microsoft Excel’s PV and PMT functions. For example, students can create a savings plan for their own retirement and learn to use Excel formulas for TVM calculations, while also applying their understanding of TVM to their personal financial goals.

The following in-class exercise is best in a computer lab, or when students bring their laptops to class.

To begin, students will use the PV function to determine the size of the nest egg they need to have saved on the day they retire. The syntax for the PV function is: PV (RATE, NPER, PMT, [FV], [TYPE]).

The arguments are defined as follows:

RATE: This argument, which is required for the function to work, represents the rate of return per period. For this example, the students should select a rate of return appropriate for their personal risk comfort and suitable for their retirement years.

NPER: This is another required argument. For this example, it represents the number of months each student expects to be retired.

PMT: This required argument is the amount the students want to withdraw from savings every month.

FV: This argument is optional and defaults to “0” if left blank. For this example, students should enter how much money they want to have at the end of their retirement period (i.e., do they want to provide an inheritance when they die?).

TYPE: This optional argument indicates whether payments are made (in this case, money withdrawn) at the beginning or end of each period. Students should enter 1 if money will be withdrawn at the start of each period. For the end of each period, type a “0” or leave this argument blank.  

After determining the PV, students will use the PMT function to determine how much money they need to set aside for retirement every month while they’re working to accumulate their desired nest egg by their retirement date.  

The syntax for the PMT function is PMT (RATE, NPER, PV, [FV], [TYPE]). For this example, the arguments should represent:

RATE: The rate of return per period (does not have to be the same as the rate in the PV calculation).

NPER: The number of months until retirement.

PV: The amount of money currently saved for retirement.

FV: The value of the nest egg calculated by the PV function in the first half of this exercise.

TYPE: Whether the payment to the nest egg is made at the beginning (1) or end (0 or blank) of each period.

Students can play with optimizing their retirement savings plan by considering how their results change if they work longer by delaying their retirement date (increasing the NPER), increase the risk (RATE), or spend less (PMT) in retirement. A follow-up case assignment is useful for students to calculate the retirement planning options for a fictitious client, using a similar workbook as above. Other personal financial calculations for this excel exercise could be calculating a car payment or a house payment.

The AICPA offers PFP resources that are useful in the classroom and PFP section memberships are free to students and professors. Examples of resources that would benefit students and professors include the Personal Financial Planning podcast, the Personal Finance Scorecard, and a video illustrating how a CPA can use a client’s tax return to provide valuable financial advice.

The AICPA provides a model curriculum for a PFP course. Students can also gain access to information on the three pathways to attain the Personal Financial Specialist (PFS) credential, which indicates a CPA’s expertise in PFP and also permits the CPA to offer as a service investment advice and portfolio management for clients.

Brianne C. Smith, Ph.D., CPA/PFS/ABV, is an assistant professor of accounting at Auburn University at Montgomery, Ala. To comment on this article or to suggest an idea for another article, contact Jeff Drew at Jeff.Drew@aicpa-cima.com.