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Has the 150-Hour Requirement to be a Licensed CPA Outlived its Usefulness?

Barriers to Entry as a CPA

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 30 extra 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.

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).

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 extra units would then be required before licensure. Recently, proposals have been made to 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.

Increasingly, universities are providing internship credit toward the degree. While many universities allow internship credit, and state boards of accountancy count it toward meeting the 150-hour requirement, students still spend extra time and money for these credits. A growing trend is for universities to partner with Big-4 CPA firms to jointly sponsor the extra hours while providing scholarships or work experience in targeted areas, such as taxation.

The American Institute of CPAs (AICPA) and the National Association of State Boards of Accountancy (NASBA) recently launched an innovative post-graduate program in 2023 with the Tulane School of Professional Advancement (SoPA). The program blends rigorous online learning with on-the-job professional experience for college accounting graduates, offering a less costly and more flexible way to complete the 150-hour course credit requirement to become a licensed CPA. Tulane SoPA piloted the academic ELE program for prospective CPA candidates that can reduce their cost of education, allow them to earn a paycheck, and advance their careers at the same time. More programs of this kind are needed. CPA

The Experience Pathway

The Minnesota Society of CPAs introduced legislation to broaden the path to CPA licensure in that state including the following options as identified by Linda Wedul.

  1. 150-college credit hours with one year of experience. This is the current requirement in Minnesota.
  2. 120-college credit hours with an accounting degree or equivalent with two years of accounting experience. This would be a new, additional pathway.
  3. 120-college credit hours with an accounting degree or equivalent, one year of experience and 120-continuing professional education credits within one year of licensure. This would be a new, additional pathway.

These options do not lower the bar; it is broadening the path. All candidates [still] must pass the CPA exam, which is the unifying element among all the jurisdictions and passing the exam demonstrates competency to practice as a CPA. Moreover, by using additional work experience to count toward the licensing requirements, candidates can “enter the workforce more quickly, creating an opportunity for additional professional training to become a successful CPA and reduces the cost to become a CPA. This also supports efforts to reach minority and first-generation college students.

Conclusions

In summary, some of the factors that have been causing the pipeline problem include:

  • CPA firms have not supported the need for extra education, oftentimes hiring accounting graduates before they complete the 150-credit hour requirement.
  • Questions persist whether the 30 extra credit hours leads to higher CPA exam passing rates.
  • Questions persist whether the extra education makes for a more qualified accounting professional.

One of the biggest obstacles is if one or more states change the 150-hour requirement, the ability for CPAs to work across state lines, or mobility, is threatened because of the education/experience requirements may deviate from state to state. The result might be to create additional barriers to entry. NASBA needs to address this issue.

Clients are better served if state boards of accountancy give learning experience a larger role in licensing. To that end, students should be given the option of completing the 150-credit hour requirement with one year of experience to be licensed or complete the 120-credit hour requirement with two years of experience. The first option should be more appealing to students who have the financial means to pay for the extra credits or whose colleges and universities develop arrangements with CPA firms to support the extra education. Students who choose to complete the extra hours should be allowed to take the CPA exam after completing 120-hours or earning a bachelor's degree. The second option should be more appealing to students who complete paid internships with experience that counts towards licensing and those who have a greater financial need and seek to earn a salary after graduating with a bachelor’s degree.

It would be nice if the accounting firms develop joint programs with universities as previously discussed. They need to do all that is possible to better support accounting graduates who will be their lifeblood and help chart the future for the accounting profession.

Posted by Steven Mintz, Ph.D., aka Ethics Sage, on February 22, 2024. You can sign up for his newsletter and learn more about his activities at: https://www.stevenmintzethics.com/.

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