Uniform CPA Examination: The Only Constant Is Change

By Jacqueline Burke and Eugene T. Maccarrone

In Brief

Keeping Pace

The AICPA Board of Examiners has proposed significant changes to the content of the uniform CPA examination: revising the role of business law; testing general business knowledge, technology, globalization, and higher cognitive skills; and computerizing the exam itself.

Deliberations on the experience requirement for CPA licensure prompted the AICPA to appoint a task force to evaluate the content of the exam and recommend necessary changes. High on the AICPA's agenda is a systematic approach that would keep the exam and its delivery format current, reflecting the evolving changes in what is needed and expected of the CPA.

During the last decade, the uniform CPA examination underwent considerable changes. For example, the exam is no longer disclosed to the public, candidates can use calculators, and the majority of questions are in objective format. Recent changes to the experience requirement in the Uniform Accountancy Act must also be considered, and the AICPA Board of Examiners now proposes significant revisions to the exam's content as well. Overall, the AICPA recognizes the importance of addressing the changing needs of society and, specifically, the needs of constituencies such as financial statement users and accounting firm employers.


In 1993, the AICPA's Content Validity Task Force recommended to the board that a large-scale practice analysis be conducted no later than 1998. The objectives were to identify new skills that CPAs need--as well as skills that had become obsolete or unimportant--and to revise the CPA exam to reflect the identified changes. In 1996, the board responded to the task force's recommendations and decided not only to assess the knowledge and skills needed by CPAs but also to identify emerging areas of practice. However, the board decided that the task force's recommendation of a large-scale practice analysis was not the only, or necessarily the best, way to achieve these goals. According to the board, conducting a national survey would delay by years the needed revisions.

The board appointed a new task force, the examination Content Oversight Task Force (COTF), to quickly evaluate and change the content of the exam. The COTF was charged with identifying the following issues:

* Changes in the kinds of engagements that new CPAs participate in and boards of accountancy regulate,
* Changes in the knowledge and skills required of new CPAs to practice public accounting, and
* Ways in which the uniform CPA examination should be changed to better protect the public.

In January 1997, the task force issued Updating the Uniform CPA Examination Content Specifications, a paper and invitation to comment. The invitation solicited viewpoints about issues such as--

* areas that should or should not be tested,
* types of engagements that are likely to emerge over the next five years, and
* new tasks and skills that CPAs are likely to need over the next five years.

The comment paper was sent to various licensing agencies, such as state boards of accountancy, AICPA committees, the director of the American Accounting Association, and a few individuals.

Looking for Input

The comment paper consisted of eight questions, six of which were open-ended, including the following:

* What knowledge and skills are missing from the current uniform CPA examination content specifications that should be included because they are needed by newly licensed CPAs in the practice of public accountancy?
* What knowledge and skills should be removed from the current uniform CPA examination content specifications because they have diminished in importance for newly licensed CPAs in the practice of public accountancy?

Comments Received

According to its status report, the board received comments from 74 groups and individuals, representing various constituencies. The Exhibit summarizes the respondents.

Highlights of the responses include the following:

* Most respondents believed that the exam should continue to test the knowledge and skills needed for services traditionally performed by CPAs, such as audits, reviews, compilations, and taxation.
* Several respondents mentioned that the following content areas are missing from the current exam and should be included in the future: information technology, other assurance services, and general business knowledge.
* Some respondents stated that the exam should test "higher cognitive skills," such as communication skills, analytical skills, critical thinking skills, and understanding the "big picture."
* Some respondents believed that the amount of business law tested on the exam should be greatly reduced and the time reallocated to the other sections of the exam.
* Most respondents stated that the exam should test only the skills and knowledge required of new CPAs, rather than the skills and knowledge also required of experienced CPAs.
* The majority of respondents believed that the following engagements will become more prevalent during the next five years: attestation and other assurance services, consulting, and information systems.

What Lies Ahead?

Having analyzed the comments, COTF has begun implementing many of the respondents' suggestions. Because most of the respondents are constituents of the exam and constantly monitor the practice of accountancy, they are aware of the changes in the knowledge and skills that a newly licensed CPA needs to practice competently.

"Since the boards of accountancy are the primary users of the exam, their comments are seriously evaluated and researched," said James Blum, then AICPA director of examinations.

COTF has organized five working groups to deal with the following areas where the need for change has been identified:

* How can the content specifications be updated in a more timely manner?
* How should information technology issues be covered?
* How should general business knowledge (such as economics and finance) be covered?
* How should "higher cognitive skills" be tested?
* How should a broad range of assurance service engagements be covered?

In addition to using the responses to the invitation to comment, the task force plans to conduct focus groups, telephone interviews, and mail surveys to solicit additional comments from constituencies of the exam. According to Arleen Thomas, AICPA vice president of professional standards and services, the task force's top two priorities, as a result of the survey, are the testing of information technology and general business knowledge. The task force has already conducted a small-scale practice analysis on information technology, the results of which further validate the importance of testing information technology on the exam. Another small-scale practice analysis is assessing the importance of including general business knowledge in the content of the exam. Both practice analyses have involved questioning CPA practitioners in focus groups and surveys.

After the AICPA revises the exam in response to these areas, the task force plans to address other important issues, including whether to reevaluate the role of business law on the exam, testing on globalization issues, computerizing the exam, and the role of the exam vis-à-vis credentialing or licensing.

According to the AICPA, "COTF is in the process of conducting a mini-practice analysis, much like it completed last year on information technology, on what general business knowledge (e.g., economics and finance) should be assessed on the exam. In fact, it is possible that general business knowledge could replace some of the current business law areas that are less relevant to newly licensed CPAs."

Additionally, the task force plans a national survey of CPAs in public accountancy. Thomas said the AICPA expects this full-scale national practice analysis to be completed by May. The results, according to Blum, will be used as the "stepping stone for the computerization of the CPA exam."

The Bigger Picture

While the accounting profession struggles with these important issues, one historical guidepost seems to sustain it, as articulated by Thomas: "The exam must determine which candidates are minimally competent to practice public accounting."

In this light, the task force's work takes on special meaning in the contemporary and anticipated licensing environments. These aspects, organized in terms of the five working groups, are as follows:

Timely Update of Content Specifications. A logical starting point is a general look at what the AICPA Board of Examiners requires in its exam content specifications. The current specifications outline general areas to be covered on the exams but do not generally address the particular areas to be tested or the fundamental aspects of such testing.

For example, the content specifications in the area of business law and professional responsibilities indicate that 20% of that exam is to cover the Uniform Commercial Code (UCC). But the specifications do not state what portion of that 20% will cover UCC Article 2, regarding sales of goods. Nor do the current content specifications emphasize the idea that a CPA must first determine the legal substance of a sales contract before determining how such a transaction is to be accounted for or audited.

Given the stated goal of the CPA exam to be a fundamentals licensing exam, the content specifications could better articulate both general and particular areas of knowledge to be tested and indicate how to achieve an appropriate focus on the basics. With that kind of approach, updating the specifications could be more timely and efficient. Using "minimal entry-level competence" (i.e., the basics) as a guidepost, changes in content specifications based, for example, on the issuance of a new professional pronouncement could be determined as follows:

Is the change itself a fundamental change? If so, analyze the change, determine how and on which part of the exam to test it, and then modify the content specifications to accommodate the change. If not, determine the underlying standard to which the change relates, determine how the underlying standard is modified, and then modify the content specifications to accommodate the change.

This approach focuses on the fundamentals, therefore maintaining the legitimacy of the exam as the profession grows and changes.

Coverage of Information Technology. It has been argued that technology issues should be totally eliminated from the CPA exam because of their ever-changing nature. However, the overwhelming extent of the technology encountered by entry-level accountants, along with the substance of professional pronouncements (e.g., SAS No. 55's requirement that financial statement auditors understand the clients' control environments), argue otherwise.

Entry-level accountants need a keen awareness of their technological environment and the professional standards for that environment. They must also maintain their competence as technology evolves and related standards are modified. Thus, technology questions on the CPA exam are both important and relevant.

As to how the exam should test technology and how the content specifications should address this area, the task force would be wise to stress fundamental competencies. Certainly, the content specifications should include, and the exam should test, the fundamentals, such as SAS No. 55. However, transient technology, such as how particular operating systems and programs work, should probably not be included; the particulars have a very short shelf life and, in any event, distract from the more relevant areas of the exam.

Coverage of General Business Knowledge. Clearly, a grasp of business, industry, and entity operational knowledge is critical for all accounting professionals, including those at the entry level. In fact, the Accounting Education Change Commission (AECC) recommended that by this year, accounting education should cover general business so that accountants understand the environment in which they practice. (The AECC, a task force composed of representatives from the Big Five accounting firms, was appointed by the American Accounting Association in 1989 to identify changes that should be made in accounting education.)

Including general business material in college courses is a logical way to give candidates the foundation they need. No one would argue that CPAs can benefit from the background; however, determining how to test such breadth of knowledge and describe the examiners' expectations accurately will be a difficult task.

More than in any other area, and despite its high priority, it is in general business competence that the task force would be wise to defer to measures other than the CPA exam. Other available measures include the general business background required in college in order to sit for the CPA exam, the professional experience requirements for licensing, and continuing professional education requirements. A fresh look at these areas would ascertain whether state licensing rules are adequate.

Additionally, procedures should be implemented to periodically review the requirements to keep pace with the profession's changing needs. This approach would take full advantage of the existing competency-promoting mechanisms and free the CPA exam of the burden of trying to test a broad range of business knowledge.

Testing Higher Cognitive Skills. The question of the proper level of cognitive difficulty of the CPA exam is a complex one. Anyone who has sat for the exam remembers how difficult it was, and the average CPA practitioner would be hard-pressed to imagine the test being more challenging. However, the ability to read, interpret, analyze, hypothesize, compute, understand and apply concepts, and draw reasoned inferences in areas relevant to the profession should be ascertained through performance, and the exam should be structured accordingly.

For example, important areas of the exam, such as audit reporting requirements, are currently tested in a way that often requires nothing more than memorization. In practice, real audit reporting issues are resolved not through memorization, but by research of the issues in appropriate professional standards materials. Thus, however valid testing higher cognitive skills may be, COTF must tread carefully and keep sight of the fundamental objective of the exam. Other licensing requirements already in place, such as college entrance exams and completion of appropriate college degree programs, can also adequately measure cognitive ability.

Coverage of Assurance Services. The appropriate level and content of coverage of the emerging area of assurance services is an excellent example of the challenges faced by the task force. Traditionally, the distinguishing service of CPAs has been the financial statement audit, with its attendant requirements of high competency in accounting, auditing, taxation, and business law, and its hallmark requirement of professional independence. More than any other CPA firm service, auditing defines the CPA as a unique and trusted professional, and its place on the exam has been appropriately prominent.

Assurance services, like review services and attestation engagements, are emerging as an important area that relies substantially on the attributes, skills, and approaches that characterize the traditional auditor and audit of financial statements. Similar to consulting services and tax services (particularly tax advisory services), however, assurance services are less well-defined than financial statement audit services. As such, the area poses a dilemma for COTF. Should the examiners try to predict the future and promote this area on the exam, or should this new aspect of practice be less prominent?

In addressing this question, the task force has tools to help it strike a proper balance for the present and monitor the need for future changes. First, the aforementioned "fundamentals guidepost" provides a way to focus less on possible assurance (and attestation) engagements and more on the attributes, skills, and approaches common to all services.

Second, history supports addressing changing requirements through both evolutionary and revolutionary measures. The example of the changing tax law is instructive: Over the years, many important tax law changes have occurred and been covered in the exam. Examples include the institution and repeal of investment tax credits; the allowance, disallowance, and reallowance of the deductibility of traditional IRA contributions for a working spouse whose spouse is in a pension plan; and the comings and goings of capital gains rates. In each case, the exam identified the change, assessed its importance, and tested candidates' knowledge accordingly. The same process can be applied to the emerging area of assurance services.

Finally, the board must periodically monitor the exam content to ensure that any coverage of assurance services keeps pace with its evolving importance and nature.

A Means to an End

The CPA exam and the attendant licensing requirements are not an end in themselves, but a means of ensuring that only competent professionals are given the privilege of serving the public as CPAs. Actual service and professional experience in the profession, particularly in the areas that make the CPA unique--audits, attests, reviews, and financial statements--should continue to be required. Testing alone, with no relevant experience requirement, proves only that a candidate is smart; it does not demonstrate due care in applying knowledge, objectivity, professional judgment, professional skepticism, attention to independence concerns, or integrity.

Section 5(i) of the Uniform Accountancy Act (UAA) requires only one year of experience for the CPA certificate. Although this amount of time may be adequate, especially given the new 150-hour requirement for licensure, the act allows the experience to be in "all fields of employment" including "any type of service or advice involving the use of accounting, attest, management advisory, financial advisory, tax, or consulting skills." Furthermore, "[t]his experience would be acceptable if it was gained through employment in government, industry, academia, or public practice."

Thus, the UAA goes far in diluting what has defined the CPA license and does so in a way that blurs the lines between non-CPA professionals in a variety of other services and contexts. In many instances, the public, which should ultimately be protected by this law, will instead be ill-served by it. Some may say that the 150-hour requirement offsets the reduced experience requirement. But education generally does not provide candidates with important hands-on, practical skills.

The UAA's proposed experience rule further exacerbates the question of proper exam content. The exam and practical experience requirements have traditionally complemented one another in proving entry-level competence for granting the CPA license. The new experience rule does not produce the complementary benefit and, as such, begs the question: Exactly what makes today's CPA unique? And just what, therefore, should the exam test?

Not everyone agrees with this assessment. For example, Bernie Milano, national partner in charge of university relations for KPMG, says "many states presently have no experience requirement at all and still produce competent CPAs. Furthermore, requiring attest-type experience is confining for many CPA candidates who otherwise have no interest in pursuing a career in auditing, for instance, but would rather specialize in tax practice or another area of practice."

Keeping Change in Perspective

The AICPA Board of Examiners is considering revisions that may be necessary to meet the changing needs of the accounting profession and, more importantly, users of accounting information. The profession has gone through many changes--expanding scope of practice, rising costs, firm restructurings, technological advancements, and increased specialization. These developments have changed the skills a CPA needs. A content revision, done properly, could narrow the gap between what the CPA exam tests and what an individual needs to know to succeed as a CPA and protect the public interest. *

Jacqueline Burke, CPA, is an accounting instructor at Hofstra University and a doctoral candidate in the business education/accounting program at New York University. Eugene T. Maccarrone, JD, CPA, is an associate professor of accounting and business law at Hofstra University. He has an active estate law practice and consults with CPAs and attorneys on accounting, legal, and ethical issues.

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