Why Your External CPA is Not Your CFO

When Your CPA is the Wrong CFO

Why Tax-Minimizing Accountants Shouldn't Control Your Agency’s Financial Reporting.

While visiting an agency in my travels this past year, I was attempting to tell the VP Finance about the finance and accounting best practices in their agency. She said that she would have to pass these thoughts on to “Joe”. Joe, who has a CPA, was the CFO of the shop and did not have any direct experience with the agency world.
In the advertising world, you wouldn’t let your media buyer dictate creative direction. So why let your tax accountant control your financial reporting?

If you're an agency principal relying on your external CPA to “run the books,” chances are they’re doing it through a single lens: how to pay as little tax as legally possible. Worse. Not knowing what KPI’s and accounting practices are adhered to in the agency business.

That sounds smart—until you realize it’s actively damaging your ability to run and grow the agency.

What Happens When the Tax Tail Wags the Agency Dog

1. Cash-Basis Reporting Destroys Strategic Visibility

In the U.S., many CPAs still prepare cash-basis income statements for agencies under the IRS’s $27 million revenue threshold. Why? Because it simplifies the tax filing.
But cash accounting means this month’s revenue is just what got collected, not what was earned, unless you need a lesson on the difference between revenue and earnings. It tells you how much money hits your bank, not whether your agency is actually profitable.
Result: You have no idea how your current work is performing. Your income statement is a lagging indicator at best—and misleading at worst.

2. Aggressive Expense Recognition Kills Accuracy

To lower reported profit, tax-focused CPAs often recommend prepaying or front-loading expenses. In some cases, that means deliberately pulling costs into a period just to shrink taxable income.
Result: You get a distorted, unusable profit and loss statement. Spikes in expenses and revenue aren’t operational—they’re tax-driven.

3. No Revenue Matching = No Client or Job-Level Truth

Tax returns don’t care about aligning income with effort. But you ought to. If you’re billing upfront but delivering over months, or if you're halfway through a project with major costs incurred, your internal financials need to match costs and revenue
properly. Without this, client profitability reports are fiction.

4. WIP and Deferred Revenue: Ignored in Tax-Only Books

Cash or tax-basis CPAs often skip vital balance sheet concepts like:

• WIP (Work in Progress): Revenue earned but not yet billed. 

• Deferred Revenue: Cash received for work not yet performed.

Skipping these is fine for tax forms, but it means your internal financials can’t support
forecasting, pricing, or performance management unless all you care about is tax
minimization.

5. No Segmentation, No Insight

Tax reporting doesn’t require breaking things down by department, service line, or client. But agencies must understand which parts of their business are profitable.

Without internal segmentation, you can’t:

• Spot underperforming teams.

• Justify headcount.

• Price work appropriately.

Two Sets of Books: One for the IRS, One for the Business

Let’s be clear: Your CPA is essential. But their job is to ensure compliance and minimize your tax burden, not to optimize your decision-making.

Here’s what healthy agencies do:

• Bookkeeping and reporting = accrual-based, segmented, and WIP-aware.

• Tax returns = year-end adjustments, possibly on a cash basis (in the U.S.).

Don’t let your tax structure dictate your internal operations. Use accounting for what it’s meant to do: provide clear insight into your agency’s performance.

What to Do Instead

• Build your internal financial reporting around accrual accounting—even if your tax return uses cash basis.

• Track work in progress, deferred revenue, and labor recovery inside Workamajig or your ERP.

• Insist on monthly internal reporting that reflects how your business runs, not how the IRS wants it formatted.

• Treat your external CPA as a compliance partner, not your controller or CFO.

Final Word

Letting your CPA—who is focused entirely on minimizing taxes—drive your financial
reporting is like letting your IT vendor write your marketing plan. It's not their job. It's not their strength. And it doesn't serve your growth. In fact, you could teach your “CFO” a thing or two.
Run your agency with clarity, not just compliance.

If you need some help in navigating this reporting into your accounting structure, please reach out.

Sincerely,
Vince Dong, CPA