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There’s No Stopping the Growth of Accounting Master’s Programs

You may have heard that accounting is the jim-dandiest college major around. Any site that throws up a lazy “Careers” section has accounting near the top of any “Best Careers” listicle. 
And we understand why. There’s tons of job security. It can be fun if you’re into numbers in a non-mathematical way. The pay can be decent. You know all this.
What’s often mentioned in passing is the possibility of prospective accountants needing a master’s degree should he or she wish to pursue a career as a CPA. Obtaining a master’s degree hasn’t always been a key consideration for anyone pursuing the field but over the last 10 years, numbers have increased significantly. Now, for our next trick, we’ll prove it!
To better appreciate the growth in popularity of the master’s degree for accountants let’s look at the leap in enrollment over the last decade.
Based on this table, enrollment in MA programs has increased 136% in 10 years. But why? Master’s programs can be ex-pens-ive and after four years of increasing debt, weight gain, dependency issues, and wearing pajamas everywhere, most students are ready to begin life in earnest. That means putting on big boys and girls clothes and joining the workforce.
But these numbers indicate that more and more accounting students are spending another year or two in master’s programs. Here’s the gist from the introduction to the AICPA report:
Nearly 15% of universities continue to receive more applications from qualified applicants than they can admit as they are constrained by limited spaces in the classroom. Even so, more than 60% of the universities predict increased enrollment in both MBA in accounting and MA in taxation. Hiring by public accounting firms also is at an all-time high, especially at the Master’s degree level, signaling the importance of the 150-hour rule for CPA licensure.
According to the AICPA report, a total of 16,370 accounting graduates (13,335 with bachelor’s degrees; 3,035 with master’s degrees) were hired by public accounting firms in 2001. In 2012, 40,350 accounting grads (23,793 with bachelor’s; 16,556 with master’s) were hired by public accounting firms. The increase in master’s hires is 441%!  
What has driven that growth? Yes, it appears to be the oh-so-important 150-hour rule. You know, the one that says you can only sit for the exam after you’ve endured an extra 25-30 hours of credits. Or…is it to be licensed? 
It can be very confusing as each state has its own requirements, but one thing that is certain is that, now, all fifty states1 now require 150 credit hours for licensure. In fact, the only U.S. jurisdiction that doesn’t require 150 hours is the Virgin Islands. Granted, this report is couple of years old, but the “importance” of the 150-hour rule is now grounded in mandate. You wanna be a CPA, you gotta have the credits.
Prior to the adoption of the 150-hour credit rule, here’s how the AICPA argued for the additional education:
There are a number of reasons why a traditional four-year undergraduate program is no longer adequate for obtaining the requisite knowledge and skills to become a CPA:
  • 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.
Now, if you’re on a budget, you can obtain your extra hours by, say, attending community college. Or maybe you decided to double major, coupling with finance or computer science or women’s studies, or cello performance or, yes, English. Any of these paths would be perfectly acceptable. 
Professor Eileen Taylor of North Carolina State University suggests that both financial cost and opportunity cost are factors worth considering, “The upfront cost of a [master’s] may be the cost of tuition, etc, plus the opportunity cost of one-year's salary is a big investment,” she wrote in an email to GC. She further explained that, “[D]epending on the focus of the MAC program one chooses, there is an opportunity to spend one more year dedicated to learning. From an academic's perspective, that opportunity is priceless, but only if students approach it as such.”  
The AICPA states that, “In most cases, the additional academic work needed to acquire the technical competence and develop the skills required by today's CPA is best obtained at the graduate level.”  
Okay, fine, but this is a bit confusing because, uh, what the hell are they talking about? Are they talking about people who want to sit for the CPA exam? If so, then that’s quite different from the statement that is made here:
The Uniform CPA Examination consists of multiple-choice questions and case studies that test the knowledge and skills required of entry-level CPAs.
That statement is repeated here. And here. NASBA says the same thing here about testing skills of “entry-level CPAs.”
On the other hand, does that mean the standard of “entry-level CPAs” now demands the “technical competence” and “skills” that are only provided by graduate study? And, therefore, the best way to prepare oneself for the CPA exam is to have an advanced level of knowledge of its content? If that’s what we’re talking about here, why not just require a master’s degree to sit for the exam?
When we asked the AICPA about their stance on master’s degrees they provided us with the following statement: “Licensure as a CPA is a combination of the Exam, Experience, and Education.  The AICPA supports the established criteria of the Uniform CPA Exam, 1 year of experience, and 150 credit hours.  The CPA Exam is a licensure exam, not a university graduation exam, and plays a critical role in the protection of the public interest.” Further, we were told that this is something that the AICPA keeps its eye on and that throughout it history the exam “has been targeted at entry level into the profession – as it is a licensure examination, not an educational graduation examination.”  The statement went on to say that the AICPA is currently conducting “a research study into what knowledge and skills are required of a newly licensed CPA.”  
If we’re talking about practicing CPAs, then may we submit to you that no graduate program in the country can possibly prepare anyone to acquire all the technical competence and skills supposedly needed by today’s modern CPA. 
For starters, can we get a show of hands from those people who believe they learned more in their first year on the job than in all four years of college? 
Yes, I see that everyone has their hand up. 
Okay, then why does the AICPA believe that graduate programs are so great? Here’s what they say: 
Graduate-level programs are an excellent way to more fully develop skills such as communication, presentation, and interpersonal relations, and to integrate them with the technical knowledge being acquired.
That’s interesting because we’ve spoken to a slew of professors who hear back from accounting firms, year after year after year that accounting graduates are AWFUL communicators. Just awful. Horrendous, even. Unfortunately we don’t have raw data on this, so anecdotal opinions are the best you’ll get.
In 2014, accounting department chairman Michael Akers of Marquette University was quoted as saying, "The learning experience is different at the undergraduate level. What graduate programs are trying to do are provide lifelong skills – whether it be more on writing, communicating, analytical reasoning – that will benefit them down the road." 
Yet everything we know about accountants in general tells us otherwise, and our anecdotal evidence shows that no amount of time spent in school can teach accountants these skills.
At this point, some perspective from a real-life accounting firm might be good. For that, we went to none other than PwC.  
We spoke with Alexa Merschel, she runs the firm’s campus strategy in the U.S. and while she agrees that advanced degree programs are great for developing technical expertise, lots of the communication and other soft skills can be learned on the job where new hires “[learn] what’s expected.” 
Alexa also said that for PwC, candidates need to fit the “professional profile” the firm is seeking. Anyone who fits that mold well, holding a master’s degree or a bachelor’s, will get a serious look.
We’ll get more from Alexa in a minute but back to the the AICPA and other areas where master’s degrees allegedly provide an advantage: 
[I]t has been shown that students who get a graduate education have a substantially higher rate of success on the Uniform CPA Examination. 
Alrighty, then. How would you quantify “a substantially higher rate of success”? Ten percentage points? Twenty percentage points? 
According to our dusty copy of the 20102 NASBA Uniform CPA Examination Candidate Performance book, it’s more like just a few percentage points. Observe the pass rates for first-time exams takers:
  • FAR: 49.6% Bachelor’s, 53.4% Master’s, 51.5% overall
  • AUD: 49.4% Bachelor’s, 53.2% Master’s, 50.9% overall
  • REG: 52.5% Bachelor’s, 59.6% Master’s, 54.3% overall
  • BEC: 52.5% Bachelor’s, 60.2% Master’s, 54.9% overall
The greatest differential, as you can see, is 7.7 percentage points in BEC. Is that “substantially higher”? 
Professor Tim Louwers of James Madison University told us in an email that “[JMU] grad students do much better overall than our students who don’t take our graduate classes.” 
He says that many master’s programs “provide a candidate with additional knowledge for the exam beyond what they received in their undergraduate education.” He offered the example of a graduate auditing course that “covers stat sampling and goes in-depth on reviews and compilations,” topics that are not covered in undergraduate courses. He also mentioned government accounting and an advanced business law class that do not fit into the 120-hour curriculum.
And what about money? Let’s talk about money! Here’s what the AICPA claims:
[M]aster's degree holders receive starting salaries that are approximately 10 to 20 percent higher than the starting salaries of those with only bachelor's degrees. 
Our survey results found that the average salary for first-year associates with bachelor’s degrees is $56,430. The average salary for first-year associates was $56,405. That’s right, $25 less, for the master’s folks.
And of the total 1,288 survey respondents, 53% had master’s degrees with an average salary of $77,005. Forty-four percent stated that they only had a bachelor’s degree. Their average salary? $76,597. That’s a difference of $408. 
Besides our survey, there’s plenty of anecdotal evidence here, there and elsewhere all stating that the master’s degree does not result in a meaningful difference in salary.  Professor Taylor of North Carolina State also stated that upon graduation, “salaries are nearly identical for both degrees.”
But we also came across a 2011 Georgetown survey that found obtaining a graduate degree gave salaries a boost of 37%. 37%! That’s incredible. Or just plain crazy! Or maybe terrible math!
And, if I may go first person and speak from personal experience, my master’s degree — Masters of Science to be precise, Colorado State, ‘03 — most definitely did not result in 10-20% higher salary while I was in public accounting, certainly not 37%.
The AICPA told us that Robert Half’s Annual Salary Guide provides the salary and hiring trends, noting that in the 2015 guide it states “add 5-15 percent for graduate degrees or professional certifications.”
PwC’s Alexa Merschel said there multiple factors when determining salaries, such as position and field, so your degree is not a guarantee of better pay.
What about advancement? Back to the AICPA:
T]here is evidence that promotions to manager and partner and to corporate managerial positions are increasingly going to individuals with master's degrees.
Merschel told us that individual advancement is “based on lots of dimensions,” including “the quality of work someone is producing,” regardless of the degrees they hold.  We asked about this evidence and the AICPA again pointed to the Robert Half Annual Salary Guide, noting that it lists, “Desirable credentials […]: MBA (master of business administration) — for senior-level finance and analytical roles.”

Wrapping up:

For these reasons, leading professional organizations such as the AICPA, the National Association of State Boards of Accountancy, and the Federation of Schools of Accountancy have consistently supported the 150-hour education requirement for entry into the accounting profession.
Okay, fine, the AICPA, NASBA, and FSA have all taken a position — they love the 150-hour rule and they think the best to get those extra credits is by way of a master’s program. Then you’ll be all set to crush the exam and obtain the most priceless professional credential the world has ever known.
But is a master’s program really the best way to prepare students for the accounting profession? 
If you can admit that not everyone thrives in a classroom environment and if you can further admit many of the crucial skills to be a successful CPA can be learned on the job, you should be able to conclude that maybe, just maybe, a master’s program is not the best route for everyone.
And yet people are still piling into graduate programs. Why? Somehow, students have it in their heads that the best way to get their accounting career off to a great start is to enter a graduate program. 
To illustrate this belief, check out this Reddit thread from 2013 entitled “The Growing Need for a Master’s Degree.” It includes a hilariously lopsided list of pros (six elaborately detailed) and cons (one: cost) and states: 
I think mainly Big 4 are the only ones actually restricting positions to Graduate students, but I have noticed many firms are prioritizing their hiring towards Graduate Students over the Undergraduates with 150 hours.
Alright, alright, alright. What the hell is this? “actually restricting positions to graduate students”? 
This is one of those ridiculous statements on the Internet begging to be debunked. In order to do that, we go back to what Alexa Merschel said. She told us that PwC “doesn’t restrict positions to anyone,” and they assess each candidate in a number of different areas including leadership, relationship building and business acumen, none of which are directly related to obtaining a master’s degree.” 
In other words, as far as PwC goes, any claim that some positions are restricted to candidates with master’s degrees is patently false.  
Going back to the AICPA Trends report, in 2000-2001, 37,855 bachelor’s and 9,700 master’s degrees were awarded. In 2011-2012, 61,334 bachelor’s and 20,843 master’s degrees were awarded. Those are significant increases. 
The latest numbers come out later this year but what we do know is that AICPA President, CEO and reigning Sexiest CGMA Alive Barry Melancon has admitted, despite the growth in enrollment in undergraduate accounting programs, the number of people sitting for the CPA exam has remained the same. Which, as Adrienne reported, is probably just Barry making a mountain out of a molehill.
When we asked the the AICPA about this gap, they reiterated their “Market Analysis study to better understand the CPA candidate and licensure pipeline,” and said that the study is set to be completed in the Spring of 2016. 
PwC’s Merschel had a slightly different perspective, telling GC that “coupling accounting with other areas of study [may] lead to other opportunities that may not directly align with the CPA exam.” In other words, an accounting major could have a double major in, say, computer science where there are some decent career opportunities. Or maybe (s)he decided to go on to law school or whatever else the kids are doing these days. The job market has improved, so some graduates may have different career paths in mind that don’t have the non-cyclical appeal of accounting. 
Now that we’ve sufficiently beaten this to death, here are a couple of facts:
  • There is no shortage of jobs for accounting graduates, master’s degree or no master’s degree. Just search LinkedIn for accounting jobs and you’ll find thousands of open positions that won’t require a master’s.
  • Higher education is getting more expensive and will continue to get more expensive. Here’s U.S. News and World Report’s top accounting programs and their tuition for 2015 in case you need to be reminded. 
And now I’ll offer a few thoughts:
  • The nation-wide mandated 150 credit hours has either: a) created a barrier to licensure that the AICPA did not anticipate. Or b) the AICPA not only anticipated the barrier, they manufactured it.
  • Despite the cost, time and effort to obtain a master’s in accounting, more graduates than ever are choosing to obtain one.
  • The slight dip in number of people taking the CPA exam is a sign of either: a) normalizing numbers after the bumrush in 2011 or b) cracks in the CPA shield.
The AICPA issued us a statement saying, “In order to secure the CPA license, the Examination, additional education, and relevant work experience are required beyond a university undergraduate degree.” 
If someone is interested in becoming a CPA, should they opt for a different field of study, get additional hours at a community college or just mash together whatever 30 hours they need? Or, yes, should they get a master’s degree? 
Meh, I’m hedging here but the answer is different for everyone. However, the idea that anyone who wants to be in public accounting will be best served by obtaining a master’s degree is suspect at best and flat-out wrong at worst. And with so many people continuing to pour into accounting as a field of study, it should be expected that a large number of those graduates will not be interested in adding to their student loan debt load.
The accounting profession wants you to believe that the best route to success is through their carefully manicured path that includes a pit-stop of indeterminate length in public accounting. And now that 150 credit hours is the law of the land for licensure, the profession heartily recommends getting a master’s degree to satisfy that requirement.
We do not necessarily recommend that. Unless you want to, of course. And if you don’t, don’t. Earn the credits some other way and join us in the real world ASAP so you can figure out what you really want to do.  

1 If you want to get technical, Colorado isn’t official until July 1, 2015, but for all intents and purposes, all 50 are 150.
2 We reached out to NASBA for more recent data and will update this as soon as we have it.