Criticisms Grow About the Value of the 30-Extra Units

In his farewell tour, outgoing American Institute of Certified Public Accountants (AICPA) CEO Barry Melancon defended the 150-hour rule. He claims the extra year of schooling has "elevated" the profession, creating smarter, savvier CPAs. But has it really?

In the field of accounting, some observers argue that the current shortage of talent can be traced back to a four-decades-old rule that was implemented: To obtain a CPA license, accountants must complete 150 credit hours (five years) of university study rather than 120 hours (four years). The extra education raises many questions such as affordability, equal access, the usefulness of the 30-extra units, and whether the extra education enables accountants and auditors to better serve client needs and the public interest.

A 2023 BDO Alliance poll found that 80% of managing partners of CPA firms supported changing or eliminating the requirement. Some say the requirement is outdated and inequitable, and that it makes it difficult to attract skilled talent to the profession. Others say that the requirement doesn't improve service quality for consumers of CPA services.

CPA Salary Stagnation 

As Blake Oliver points out, CPA salaries have stagnated, while the AICPA actively works to keep those salaries low by promoting offshoring and automation. While big firms have become more profitable than ever, individual CPAs are worse off than they were in 1980 when you adjust what they get paid for inflation.

The median graduate working in accounting had a starting salary of $66,504 in 2021, compared with $97,562 in data science and $101,401 in tech, according to the Burning Glass Institute, a nonprofit that research employment trends.

More than 300,000 U.S. accountants and auditors have left their jobs in the past couple of years, a 17% decline in overall industry employment, according to the Bureau of Labor Statistics. Recruiters say experienced accountants are often moving into new roles in finance and technology. And the exodus is expected to worsen as baby boomers leave the workforce, with 75% of CPAs retiring or close to retiring in the next 15 years, according to the AICPA.

Pipeline Issues

The time is right for the accounting profession to rethink the pathways to licensure as a CPA. A growing number of critics have argued that the 150-credit hour education requirement can no longer be sustained because of pipeline problems that have led to a steep decline in the number of accounting graduates and first-time CPA exam takers. Some critics contend that the traditional bachelor’s degree program that includes 120 credit-hours is sufficient to produce a qualified graduate.

One of the reasons for the pipeline problem is the cost of the extra 30-hours of education and foregoing earning a salary while these units are completed. Paying for the extra units may be out of reach for some accounting students, especially minorities. This makes it more difficult to attract a diverse group of students to the accounting profession. Some students might turn to other majors as a result including finance and technology.

What are the Critics Saying?

Researchers at Utah State University collected data from 2006 to 2016 examining the effect of the 150-hour requirement on the number of first-time candidates sitting for the CPA exam and on candidate performance. The findings indicate that a reduction in the number of credit hours required to sit for the CPA exam increased the number of candidates, while an increase in the number of prerequisite hours reduced the number of candidates. The authors found no relationship between changes in the CPA exam requirements and pass rates or scores. They suggest that requiring 150 hours instead of 120 creates a potential barrier to entry for licensed CPAs with no accompanying increase in candidate quality (Stephenson and Meeham 2020).

A 2019 study by John Barrios, a University of Chicago Booth School of Business professor, found that the number of first-time CPA exam candidates decreased by 15% after states implemented the 150-hour requirement. Barrios observed this decline over multiple years. The study also found that work quality remained the same after the 150-hour requirement.

MIT Sloan researchers found no measurable difference in CPA quality due to the fifth year. Instead, the only impact has been a nosedive in the number of CPAs. Non-minority CPAs decreased by 14%, while some minority groups plummeted by a staggering 26%.

Research by Andrew Sutherland at MIT, and co-authors Mattias Uckert, and Felix W. Vetter, quantifies the impact of the 150-hour rule: It has dampened new entry into the field — particularly among minorities. The research shows that the 150-hour rule didn’t measurably improve CPA service quality but did create additional barriers to entry for minority candidates.

“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.”

Another problem with the 150-hour rule is that State Boards of Accountancy have discretion over when to enact the 150-hour rule. By 2015, all states and territories had adopted it, but most didn’t impose any requirements on what courses students must take to satisfy the rule. That means students can fulfill the requirement by taking humanities or other non-business-related classes.

Alternative Pathways

For the past several years, researchers have identified alternative paths to licensure that could alleviate the pipeline problems. Virtually all states now permit students to take the CPA exam after graduating with a bachelor’s degree or after completing 120 units. Completion of the 30 additional units would then be required before licensure. Recently, proposals have been made to additional 30-units until after give the experience requirement a more prominent role in licensing.

Perhaps because of the pressure being asserted by CPA firms and a lack of student demand, virtually all state boards of accountancy have modified their requirements to allow accounting students to take the CPA exam after completing a bachelor’s degree/120-hours.

Another factor to consider is whether one year of experience should replace the 30-unit requirement, or at least be an option. Future CPAs might benefit more from practical experience given the broadening of services provided to clients. Moreover, the work experience would help deal with barriers to entry, especially for minorities, assuming it's a salaried position. Accounting, auditing, and tax services have become more complicated and learning on the job may provide more benefits than remaining in school for one additional year. At my former employer--Cal Poly San Luis Obispo--the mantra was "learn by doing," and this is certainly appropriate for future CPAs.

Concluding Thoughts

I don’t think the answer is to delay the requirement for the 30-units until after licensure. I can only imagine if I were an accounting student and passed the CPA exam, then why would I need additional education to practice?

I believe the answer to providing the best education possible is not to add a 30-unit requirement but, instead, for the accounting curricula to be changed to better meet the current needs of accounting firms to best serve client needs and the public. Why doesn’t it? I can tell you from 40+ years of teaching accounting at the university level that faculty become possessive about the courses they teach so that it’s easier to add new courses to address “the state of the art” in the profession rather than meaningfully restructuring existing courses. Expanding the curricula brings the added benefits of needing to hire additional educators. The result is accounting departments and schools of business build on their turf thereby requiring additional resources from the university.

The AICPA may believe that dropping the additional 30-unit requirement would be a sign of weakness or failure on the profession’s part. After all, one of the motivating factors for establishing it was to raise the status of the accounting profession in the minds of the public. The goal was to make it look more like the legal and medical professions with regard to its licensing requirements. But, as they like to say in the southern part of the U.S., “that dog won’t hunt”—at least anymore.

Posted by Steven Mintz, Ph.D., aka Ethics Sage, on August 27, 2024. You can sign up for his newsletter and learn more about his activities at: https://www.stevenmintzethics.com/.