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At This Point It’s Almost Like the Gatekeepers of the Profession Want to Keep Minorities Out

a "no entry" sign blocking off a path

Hey guess what, everyone? We have fresh research that shows the 150 hour CPA licensure rule decreases the number of Black and Hispanic entrants to the profession. In this case, a 26% drop. Add this to the existing body of evidence that demonstrates two things: the 150 hour rule does not improve the quality of licensed CPAs (“Occupational Licensing and Accountant Quality: Evidence from the 15 -Hour Rule” by John Barrios) and the 150 hour rule is actively preventing minorities from pursuing this career path (“Keeping the 150 Hour Rule Is Making the Profession’s Diversity Problem More Pronounced,” authored by Sharon Lassar, PhD, CPA and the Increasing Diversity in the Accounting Profession Pipeline report from the Center for Audit Quality released in July 2023, among others).

The new research by MIT Sloan associate professor of accounting Andrew Sutherland, Mattias Uckert of University of Amsterdam, and Felix W. Vetter of University of Mannheim entitled Occupational Licensing and Minority Participation in Professional Labor Markets (Journal of Accounting Research, forthcoming) says both. From the abstract:

We find a 13% greater entry decline following the [150 hour rule’s] enactment for minority than nonminority CPA candidates. Our analyses of parental income and financial aid availability point to a socio-economic status channel explaining the differential entry declines. Studying exam passing patterns, professional misconduct, and job postings we find a deterioration, or at best, no change in CPA quality following enactment.

From MIT Sloan’s article about the paper:

In the field of accounting, some observers argue that the current logjam in talent can be traced back to a four-decades-old rule that was implemented by the American Institute of Certified Public Accountants: To obtain a CPA license, accountants must complete 150 credit hours (five years) of university study rather than 120 hours (four years).

At the time the rule was implemented, the AICPA said that students needed the additional hours of study to keep up with new tax laws and more sophisticated approaches to auditing.

Naturally this is why the additional 30 hours can be in anything, because underwater basket weaving covers tax law. In We Get to the Bottom of Why the 150 Hour Rule Doesn’t Require Specific Courses, we recently dug up a statement of AICPA policies published in the 80s — just as the 150 hour rule was being adopted by a handful of states — that talks about why additional education should be required for licensure. Good read for anyone interested in what is increasingly seeming like an arbitrary and nonsensical rule.

“Tuition in professional fields like accounting is expensive, and forgoing a year of income to complete a fifth year of college entails a sacrifice,” Sutherland said. “Naturally, the burden of such requirements tends to fall on those least able to afford the additional year.”

HMM. It’s almost like we knew this already. No sassiness toward Prof. Sutherland intended. This is from the CAQ report mentioned above:

While the research showed the 150 credit hour requirement is a barrier across the board, it is more conspicuous for Black and Hispanic nonaccounting students, and in particular those students who considered accounting but opted out, meaning that these students looked into accounting as a major but ultimately went elsewhere due to the additional credit hour requirement. These students perceive the rule as an expensive, time-consuming requirement to advance their future career. To be sure, these students see the CPA license as a valuable certification, but they don’t view it as worthwhile to pursue.

150-hour rule research by Center for Audit Quality, minority candidates

“the research showed the 150 credit hour requirement is a barrier across the board”

In looking at the data, the MIT research identified a 26% decline for minority CPAs versus a smaller 14% decline for nonminority CPAs. Can the profession afford double-digit declines in any candidates?

For anyone wondering “what about Asians?” we’ve got you. Researchers found no statistical entry decline for Asians, “whose average income and wealth are comparatively high.” Here’s what they did find though:

Second, following enactment [of the 150 hour rule], CPAs increasingly come from universities whose students have high parental income. Third, cross-sectional tests show that entry declines are concentrated in states offering the least financial aid. Moreover, the parental income and aid patterns are evident in both minority and nonminority subsamples, indicating that financing constraints influence how and for whom the 150-hour rule affects entry.

All the half-assed diversity initiatives in the world are useless (other than making leadership feel like they’re the good guys) if minorities — and those from low socioeconomic backgrounds — are effectively locked out from the profession.

Just another check in the “maybe the profession should reevaluate this whole 150 hour thing” column.

Occupational Licensing and Minority Participation in Professional Labor Markets [SSRN]
‘150-hour rule’ for CPA certification causes a 26% drop in minority entrants [MIT Sloan]

4 thoughts on “At This Point It’s Almost Like the Gatekeepers of the Profession Want to Keep Minorities Out

  1. From the MIT article – “Several of the Big Four — the largest professional accounting firms — are saying that if it weren’t for this rule, they’d be able to attract more and better candidates,” Sutherland said.

    The Big 4 throwing the AICPA under the bus, I think, marks the beginning of the end for the 150 hours.

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