Some Thoughts on the Uniform CPA Examination

By Anthony R. Pustorino

The uniform CPA examination is entry into the profession. The first exam was given 100 years ago this December. In some ways it hasn't changed that much over the years; but with technological advances and the recent rapid pace of change in the profession, a new look is very much needed.

"Only about 30% of those who take the CPA examination pass it!" Accounting students have mixed emotions over that statistic. On one hand, they like the impression it conveys to the public that the entry-level examination into their future profession is so difficult that it has a passing rate of only 30%. On the other hand, they hope they won't wind up in the group of 70% who don't pass it. Those candidates who pass the examination rightfully look upon their achievement with pride but quickly come to the perverse conviction that future CPA examinations (those they won't have to take) should be made more difficult. Let's look a little more closely at the present examination, try to account for its low passing rate, understand how it is prepared, and how it is likely to change in the future.

Why the Low Passing Rate?

The minimum passing score for the examination is based on one of the following two standards:

* An absolute standard of 75%. A candidate must demonstrate a mastery of 75% of the knowledge and skills needed to enter public accounting practice.

* A relative standard. A candidate must display as much knowledge as is possessed by at least 30% of the candidates. If this relative threshold is not met initially, grade adjustment points are added to candidates' scores to reach the 30% passing rate.

It is important to note that the reverse never occurs, i.e., the use of negative grade adjustment points to drop the passing rate down to the 30% level. Every attempt is made to have at least 30% of the candidates pass the examination.

What is it about this examination that it takes grade adjustment points to get even 30% of the candidates to pass it? I believe there are some overlooked reasons.

There are no uniform standards of eligibility to take the examination throughout the country. Education standards to sit for the examination range from a high school diploma in one state to 150 hours of college credit in others. Some states require 24 credits of college accounting and others very few. Experience requirements range from none to three years. Coupled with the fact there is no penalty for failure, many unprepared, not serious, candidates take the examination with the hope a miracle will occur and they will pass. If they don't, they know they can take it again. So the results of candidates with minimal education and experience credentials, or a complete lack of preparation, inordinately distort passing rates. I submit, then, that the reflexive, obvious response as to why the CPA examination has a lower passing percentage than almost all other professional licensing examinations‹i.e., it is harder‹is fallacious.

While it is true that, in 15 hours over a two-day period, candidates are tested on a lot of information that was learned in college, the examination, as presently structured, has a decided emphasis on breadth of knowledge rather than on depth. Candidates must know a little about a lot of things, all at once. The examination is replete with questions that require candidates only to demonstrate specific knowledge of authoritative pronouncements on various topics-questions that require little more than the cognitive level of "understanding" or memory. A good coach course is an effective means of preparing a candidate for the examination at the cognitive level at which it is presently set.

How Is It Prepared?

In recent years, the content of the examination has come under scrutiny. The examination is prepared from the results of a periodic practice analysis, i.e., a survey of practitioners with from one to five years experience who indicate the tasks they perform in their practices and the knowledge and skills they need to perform those tasks. There are inherent difficulties, however, in producing any examination that reflects the knowledge, skills, and activities required in the diverse practices of large, national, and small, local firms--geographically dispersed, with radically different client mixes, specialties, and technical expertise.

A practice analysis should lead to an examination that is practice related. Does "practice related" translate into an examination that tests "all" the activities CPAs perform, or should it be limited to just those areas for which the public needs to be protected, i.e., the attest function? Today's practice of public accounting runs the gamut from write-ups, taxes, audits, and financial planning to very sophisticated management services and consulting, with lots of other services in between. So the "activities" being licensed require continuing study and need to be identified and agreed upon. The CPA examination could be different, then, depending upon the definition of "licensable activities." For instance, should it test for the knowledge and skills necessary for‹

* the attest function only (auditing)?

* audit and tax?

* audit, tax, and management services?

* audit, tax, management services, and financial planning?

* other services?

Licensable activities are not only difficult to identify and categorize, but are on shifting sands that vary from firm to firm and, ultimately, are probably in the eye of the beholder. Currently, the practices of many CPA firms include a growing amount of work that may not even need public protection. It could be argued the examination should test only that knowledge and those skills needed for public protection and any activity not specifically
restricted to CPAs has no legitimate claim to public protection by the examination.

The examination, if it is to be truly "practice related," should test the more generic issues that practitioners face. We can envision an examination containing questions that present a business scenario and entail responses along the following lines:

* What is the problem to be solved?

* What are the pertinent sources of authority that relate to the problem?

* How are these sources accessed?

* How is the hierarchy of the authorities weighted?

* Based on the above, what conclusions are reached?

* How are the conclusions to be communicated to the client and others?

The knowledge, skills, and activities to be tested on the examination, if "practice related" are truly the criteria for inclusion. The testing should involve more of the above issues and fewer of the memory type questions such as, "Is neutrality an ingredient of reliability or relevance?"

Future Changes

There is much discussion today of converting the examination to a computer based examination. If and when that occurs, we can expect the examination's computer memory banks will store the body of GAAP (FASBs, APBs, etc.), SASs, the IRC and regulations, time value of money tables, and any other data used in practice‹all accessible by the candidate through the computer. Such an examination will place a premium on candidates' higher level cognitive skills, such as‹

* "application," i.e, the ability to use learned material in novel situations by relying on the principles that underlie the material, and

* "evaluation," i.e., the ability to extract relevant information from a context, draw conclusions, make appropriate professional decisions, and communicate judgments to a variety of audiences.

This discussion of the content of the examination, the knowledge, and skills needed to practice as an entry-level CPA, the definition of licensable activities, and concern over the protection of the public lead to the fundamental questions of whether the examination should lead or follow education, or lead or follow practice. With regard to education, we are seeing a vicious cycle. On one hand, we have 1,500-page accounting books being published that are compendiums of subject matter. The authors and publishers, fearful others may include material in competing texts that might be missing in theirs, exhaust the subject. Or, worse, the CPA examination might contain subject matter not treated in their texts. On the other hand, the examination draws its questions from material found in college textbooks. There is a relationship here that needs to be examined and probably broken. Accounting educators should sever the chord that ties what is taught or not taught in the classroom to what appears or does not appear in the CPA examination. And the CPA examination should not mirror accounting textbooks.

Our future accounting graduates will enter a dynamic profession--one that is constantly in flux and buffeted on all sides by unrealistic expectations, governmental regulators, demands for more timely and relevant services, and debilitating litigation. It faces competition from nonprofessionals who offer some of the same services to the public as do CPAs. The attest function is no longer the main source of revenue for many CPA firms. The profession is changing so rapidly and expanding its thrust into so many new and different areas that a practice analysis done even a few years ago becomes a suspect source of questions for its entry-level licensing examination. It is an imperfect system that has worked well in the past but, in the explosive age in which we practice today, needs to be jet-propelled.

The impact of candidates graduating from 150-hour programs throughout the country will be undoubtedly reflected in the setting of the future passing scores for the examination. Those candidates with bachelor degrees only will be disadvantaged.

Change is coming to the examination as it will ultimately reflect changes in practice. Memory, rote, a coach course---will be blunted tools to bring to the new examination. Higher level cognitive skills will be required; critical thinking and analytical and communication skills will need to be demonstrated. We invented a new age, and we will ultimately see a new examination reflective of that age. *

Anthony R. Pustorino, CPA, is the chairman of the CPA Examination Review Board and a professor at the Lubin School of Business, Pace University.

AUGUST 1996 / THE CPA JOURNAL