I buried the link I’m about to share with you all in Footnotes last Friday; however, since its author intended for it to spur a conversation about the profession’s pipeline problem, I thought it best to highlight it in its own post should any of you feel like discussing it.
“In my view, the future of the CPA profession is at risk,” writes Yigal Rechtman, CPA, CFE, CITP, CISM in a letter to the editor published by The CPA Journal. Time to whip out an ancient Game of Thrones meme here:
The 2021 AICPA Trends in the Supply of Accounting Graduates and the Demand for Public Accounting Recruits report released a couple weeks ago tells us that the number of accounting graduates trended downward in the 2019–2020 academic year (most recent data available), with decreases of 2.8% and 8.4% at the bachelor’s and master’s levels, respectively; accounting grad numbers have been trending downward since 2015-16 with the 2019-20 number showing the most significant drop-off of recent years (3,391). Can we blame the pandemic for some of that? Maybe. We’d be wise to wait for the 2023 AICPA Trends report to see if the trend continues before getting too worked up about it.
The issue of the accounting pipeline problem has been discussed here ad nauseam but this is accounting so we really have so few things to talk about, why not throw a few more ideas into the flaming dumpster fire? Here are the reasons Rechtman gives for why the future of the CPA profession is at risk, an issue that could potentially cripple capital markets and therefore our capitalist system entirely:
- Lack of mission or purpose To counter this perception, the accounting profession could be rebranded as a foundational force of social stability and progress, and not just as “a job” with long hours and low return on investment (ROI) on education.
- A narrow focus on numbers Accounting provides a golden toolkit of critical thinking and information brokering that can work in both traditional and innovative ways. For example, every startup would benefit immensely from having a CPA among its founders.
- An exclusive brand. There is another way of putting this: Accounting is a profession whose brand has not been diluted. For example, the AICPA’s idea of expanding its membership by opening the certified in financial forensics (CFF) certification to non-CPAs runs counter to the exclusivity of the CPA brand.
- The pay isn’t worth the educational investment Here we need to make changes to the ROI calculus of education costs. The “fifth-year” experiment has had the unintended consequence of costing prospective entrants a 20% premium just for the chance of passing the CPA exam. With a 40% pass rate, this is a tough sell. It’s time to drop the fifth-year requirement.
Let’s talk about that last point. While it may be a tough sell, the AICPA has tried to sell it anyway. Here’s a list of reasons why a traditional four-year undergraduate program is no longer adequate for obtaining the requisite knowledge and skills to become a CPA (in their words):
- Significant increases in official accounting and auditing pronouncements and the proliferation of new tax laws have expanded the knowledge base that professional practice in accounting requires.
- Business methods have become increasingly complex. The proliferation of regulations from federal, state, and local governments requires well-educated individuals to ensure compliance. Also, improvements in technology have had a major effect on information systems design, internal control procedures, and auditing methods.
- The staffing needs of accounting firms and other employers of CPAs are changing rapidly. With more sophisticated approaches to auditing now in use, and with the increase in business demands for a variety of highly technical accounting services and greater audit efficiency, the requirements for effective professional practice have increased sharply. The demand for a large quantity of people to perform many routine auditing tasks is rapidly diminishing.
These bullet points may be true — the expansion of the entry-level CPA’s knowledge base certainly is, and will only be larger when the redesigned CPA exam launches in 2024 — but none of them make any mention of the value to the student who may be wondering if a master’s is literally and figuratively worth it (spoiler: it is literally not).
OK so the AICPA sucks at selling the fifth year requirement, whatever. Problem is the fifth year requirement sucks at selling itself, too.
A 2018 paper by John M. Barrios at University of Chicago Booth School of Business shows us that the 150-hour rule reduces the supply of accountants (you know, that whole pipeline thing everyone is worried about) AND doesn’t do much to improve the quality of the supply who are required to meet said rule:
Although the Rule reduces the number of entrants into the profession, an analysis of labor market outcomes shows that accountants subject to the Rule are more likely to be employed at a Big 4 public accounting firm and specialize in taxation. However, accountants subject to the Rule have the same likelihood of promotion, the same duration until promotion, and exit public accounting at faster rates than their non-Rule counterparts. Moreover, Rule accountants earn a wage premium relative to non-Rule accountants. These findings suggest that restrictive licensing laws reduced the supply of new CPAs and increased rents to the profession without drastically improving quality in the labor market.
Many years back when not all states required 150 hours, the state — sorry, Commonwealth — of Virginia realized that its then-extraordinary 150 hour requirement was causing the state to lose CPA candidates to other, less restrictive states, a side effect that was costing them money. “The Commonwealth doesn’t want to lose its valuable CPA candidates and wants to retain those Exam takers. In addition, reducing the requirement would have a positive impact on Virginia’s budget,” said the Virginia Society of CPAs. The issue was so urgent that then-governor Tim Kaine signed emergency legislation in May of 2009 allowing Virginia CPA exam candidates to sit for the exam with just 120 hours. So that’s a consideration too, the time and financial investment necessary to meet the 150 hour requirement could be partially contributing to the gap between high numbers of accounting graduates and mostly steady or even declining CPA exam candidate numbers. That decline means fewer application and exam fees collected by The Powers That Be (a.k.a The Dark Triad of the AICPA, NASBA, and Prometric along with individual state boards of accountancy), an issue that should certainly get their attention.
“Filling” the CPA pipeline is one of the AICPA’s primary strategic initiatives in 2022 and when we look at the list of things they’re doing toward this goal we see the bulk of it is marketing and PR. From the Trends report:
To address the US CPA pipeline’s downward trend, we collectively need to promote:
- K-12 and high school students interest in accounting
- University students majoring in accounting and other related majors
- University students deciding to sit for the CPA Exam
- CPA candidates securing the CPA license
- Young professionals further exploring sitting for the CPA Exam
- The promotion of the accounting profession and the CPA license globally
If the profession is that worried about the future (it ought to be), it’s time to have the difficult conversation about self-imposed barriers to the profession. Pushing for accounting to be classified as a STEM field and initiatives to plant the seed in kindergartners’ minds of accounting as a career may not be enough.
If things get really dire we could just abolish the CPA exam altogether but let’s maybe try some less extreme measures first, maybe starting with getting better at demonstrating the value of a career in accounting (firms, this is where you start paying people better) and justifying the burden of a fifth year of education for licensure. Yeah, that should do for a start.
Photo by cottonbro