By Sharon Lassar, PhD, CPA (Florida)
John J. Gilbert Professor and Director of the School of Accountancy, University of Denver
A friend asked why I believe the 150-hour requirement is more of a barrier of entry to the accounting profession than a 120-hour requirement with added experience.
That is a great question. Although, it does not matter what I think. What have we learned through research? And, how good is the research?
The AICPA and several state societies have cited a study by the Illinois Society of CPAs to say the 150-hour rule is not one of the top 5 reasons students do not pursue a CPA. A leader in the profession told me privately that the Illinois study is “bunk.”
So why is the Illinois Society study questionable? First – the survey went to accounting students, graduates, and young professionals. It did not go to those who chose to study something other than accounting. Those who decide NOT to study accounting are not in the sample. Additionally, 89% of students who responded were already on a CPA track. We need to know whether the 150-hour rule prevents students from entering the pipeline. This study does not give us that information.
Second – I question the results. The participants selected three challenges or barriers associated with becoming a CPA. Workload time commitments and personal time commitments are the top two reasons. These variables sound like they might be capturing the same thing. We do not know how the results would change if these two highly correlated variables were collapsed into one called “time commitment.” An independent reviewer likely would have asked for this analysis, if the study was submitted for publication in a peer reviewed academic journal. The next three variables are similarly highly correlated: difficulty of the exam content, difficulty of applying for the exam, and fear of failure. With multiple highly correlated variables, the ability to pick only three, and the fact that the respondents were already in the pipeline and therefore had already sunk time and cost towards obtaining 150 credit hours, it is no wonder that the 150-hour rule is not in the top 5 barriers listed. Additionally, the impact of the 150-hour rule might already be captured with the time commitment variables.
The Center for Audit Quality (CAQ) recently released a more credible study. The AICPA should be reading and reacting to this study. The CAQ surveyed all business majors and asked those who did not study accounting, why not? Some interesting results from this study are that more than 40% of non-accounting majors considered majoring in accounting. Of those who considered majoring in accounting but decided against it, 60% cited not wanting to pursue 150 hours as either the major reason or part of the reason they did not study accounting. Of those who did not consider studying accounting, 54% cite not wanting to pursue 150 hours as part of the reason. For those who considered but decided against accounting, starting salary was the primary reason. That is a topic for another day.
Even more credible than the CAQ’s study is one by Dr. John Barrios, based on his dissertation, and published in what is unarguably one of the top three academic journals for accounting research. I encourage you to read it. You will gain an appreciation for the peer review process and an understanding of why it can take a long time to do a thorough academic study. Although I have read it a few times, I was fortunate to see Barrios present his findings. It was much easier to understand that way.
Barrios’s study tells us a great deal. But, relevant to this commentary, it tells us that implementation of the 150-hour rule resulted in about a 40% decline in the number of first-time candidates taking the CPA exam. The loss of pipeline was all through the distribution; both high-performing and low-performing students decided against pursuing the CPA after implementation of the 150-hour rule. And, through collected LinkedIn data, he shows that there is no difference in the career outcomes for those who became CPAs under a 150-hour regime and those who became CPAs under a 120-hour regime.
Satisfyingly, Barrios found value in earning a master’s degree. He did not find value in a hollow extra 30 credit hours. Those with a master’s degree are promoted faster. As the academic director of the MACC and STEM-Qualified Master of Science in Accounting, Technology, and Analytics at the University of Denver, I enjoy reading research that supports my personal observations. Our graduate degree holders are promoted quickly, given big raises, and constantly recruited by placement professionals.
Based on the research, I suggest states reduce the barrier to becoming a CPA and recognize the value of graduate education by requiring two years of experience for baccalaureate degree holders and one year of experience for graduate degree holders. Notice I did NOT say, 150 or 120 hours. The education requirement should be based on earning a degree, not random hours.