Global Demand for the CPA Exam

ByRandy Howard, Kotaro Anjo, and Irvin N. GleimIn Brief

In Brief

Foreign Accountants Covet the CPA

Currently, the CPA exam is administered only in the United States or one of its territories (Guam, the U.S. Virgin Islands, Puerto Rico). Although some state boards of accountancy (which administer the exam) discourage international candidates (non-U.S. residents or citizens) from taking the CPA exam, many professional accountants in other countries wish to pass the CPA exam to prove their knowledge of U.S. accounting standards.

The authors argue that it is in the national public interest to encourage professional accountants throughout the world to take and pass the CPA exam. It will improve accounting practice, promote U.S. leadership in international commerce, facilitate international trade and finance, and help underdeveloped nations create efficient, market-based economies.

Population growth and advances in transportation and communications have made the world smaller, and the global economy daily becomes more of a reality. One aspect of globalization significant to the accounting profession is the movement toward global communication. English has become the second language of choice, particularly in business, begun by the colonial and commercial sweep of the British Empire and extended by the cultural and economic effects of U.S. industry, especially entertainment and the Internet.

What will be the financial language of the global economy? Accounting has long been recognized as the language of business, and the world is working toward global accounting standards. In accord with well-established principles of information economics, the widespread adoption of such standards will promote free trade and efficient international operations by removing the barriers created by competing accounting systems.

The role of the U.S. Uniform CPA Examination in this context is crucial. By opening the CPA exam to candidates from abroad, the U.S. accounting profession will be able to adapt to, guide, and benefit from the trends of globalization and convergence.

The developed countries have slowly begun to accept that convergence of their national standards with International Accounting Standards (IAS) is a necessary step for the orderly globalizations of capital markets. Accounting standards setters in the U.S. and other nations have begun to work more closely with the new International Accounting Standards Board (IASB) to accelerate the convergence of global accounting standards. For example, SFAS 128 substantially harmonized earnings per share calculations with IAS 33; both standards were issued in February 1997. Another example is the ongoing development of XBRL, a computer-based method of producing and sharing financial information through the standardization of data elements. One of the XBRL data dictionaries currently being developed by a consortium of U.S. accounting, information technology, and financial services entities is designed for use by all companies that adhere to IASB standards.

The incremental progress toward convergence of U.S. and international accounting standards should continue as companies increasingly enter business combinations and raise capital in foreign markets. Foreign companies that want to raise capital in the U.S. markets have strong incentives to improve the transparency of their financial reporting in order to comply with SEC standards and forge relationships with U.S. companies.

For the foregoing reasons, market forces are pushing strongly to make the U.S. CPA designation the global standard. For the past few years, each May and November, the CPA exam has attracted an estimated 3,000 to 5,000 international candidates. Currently, most non-U.S. candidates come from countries in Asia (e.g., Japan and Korea) and the Middle East (e.g., Saudi Arabia and Jordan). These candidates must travel to one of the 54 U.S. jurisdictions (the 50 states, District of Columbia, Puerto Rico, Guam, and the U.S. Virgin Islands) to sit for the U.S. CPA exam. Chartered Accountant candidates from Canada and Australia can, however, take the International Uniform CPA Qualification Exam (IQEX) in their home countries. The IQEX is a computer-based, 4.5-hour exam that focuses on the differences between accounting and auditing standards in the U.S. and Canada and Australia and sets the precedent for offering a CPA exam outside the United States.

Why Do International Candidates Take the U.S. CPA Exam?

Consider a simple example. Assume that a Japanese business school graduate applies for an accounting position with a U.S. firm’s Japan office. The management of the firm may want assurance that the applicant understands both U.S. and Japanese accounting standards. Furthermore, management may want to know whether the accounting graduate has a working knowledge of English. An effective way to prove this competence is for the candidate to pass the U.S. CPA exam.

Many Japanese companies doing business with U.S. companies also want accounting graduates with knowledge of U.S. accounting standards. In addition, companies from other nations doing business in Japan seek Japanese accounting graduates that understand U.S. accounting standards. Despite their interest in the CPA exam, accounting graduates in Japan and other foreign countries rarely wish to practice in the U.S. In fact, they are generally not concerned with receiving a permit or license. What is most important to them is the ability to provide employers with verifiable evidence that they have the accounting and English skills necessary to pass the U.S. CPA exam.

Another reason that the CPA exam is growing in international importance is that some countries do not have a strong national licensing exam. Hence, passing the CPA exam provides a credential for which there is no comparable domestic substitute and which enhances a candidate’s attractiveness to both domestic and international firms.

Benefits to the U.S. Accounting Profession

Having accountants from around the world become experts in U.S. accounting standards would provide distinct benefits to the United States. U.S. companies operating in foreign countries would be able to hire residents that understand U.S. accounting standards. Still greater benefits would accrue to U.S. companies operating abroad when local standards approximate U.S. standards. U.S. companies in foreign markets would then enjoy the same globalization advantages as foreign companies in the U.S. market.

In addition, as the number of foreign CPAs increases, the likelihood that international standards-setting bodies will adopt U.S. GAAP as their reporting standards also increases. On the other hand, if the CPA exam is not available to foreign-educated accountants, they will become certified in other systems of accounting, and the progress toward the adoption of a global financial language similar to U.S. GAAP may be impeded.

Challenges for International Candidates

Eligible states. The first challenge for international CPA candidates is finding a state board of accountancy willing to permit non-U.S. candidates to sit for the CPA exam. Approximately half of the state boards have residency or citizenship requirements. Of the boards that do allow non-U.S. candidates, few will accommodate an individual without significant U.S. accounting education, generally available only through U.S. universities. The states with the largest number of international candidates, in order, are Delaware, California, Hawaii, Guam, Illinois, and Washington. Other states with significant numbers of international candidates are Alaska, Montana, New Hampshire, Maine, Virginia, and Vermont. A recent gold medal winner came from Germany to take the CPA exam in Washington.

Travel. International candidates incur significant transportation and lodging costs to travel to a CPA exam site in the United States. More importantly, international candidates do not enjoy ideal circumstances when taking the exam: They may have traveled for many hours, suffer from jet lag, and encounter logistical problems immediately beforehand.

Visas. International candidates from countries such as Japan have little trouble obtaining a travel visa to take the U.S. CPA exam. On the other hand, for candidates from some countries in Asia, South America, and the Middle East, obtaining a travel visa may be difficult or even impossible.

Misconceptions. The reluctance of state boards to extend their eligibility requirements may be based in part on the misconception that international candidates will compete with U.S. CPAs for jobs in the United States. Such fears are groundless because admission to the CPA exam does not confer a right to immigrate. Even so, the profession as a whole would gain from an influx of accountants from abroad who would bring their talent, energy, ambition, and new ideas to this country. The benefits would be similar to those enjoyed by the sciences, engineering, information technology, and other disciplines that have absorbed significant immigration of capable foreign nationals. Furthermore, the globalization of the economy, accounting standards, and the CPA exam will offer opportunities for growth in the worldwide market for services offered by CPAs. Free trade in goods and services ultimately benefits all nations. Restricting access to the U.S. CPA exam should be viewed as protectionism that is harmful to the U.S. national interest.

Challenges for State Boards

Some state boards of accountancy have adopted a progressive attitude toward the global demand for the CPA and have worked hard to help international candidates sit for the CPA exam. Other state boards, however, have modified their rules in ways that effectively reduce their number of international candidates.

Costs and inefficiencies. An understandable concern of the state boards is the added labor, costs, and complexities of handling the applications of international candidates. Routine exchanges of mail with such candidates require additional resources, and telephone communication is complicated by the differences in time zones. Although faxes and e-mail are less affected by geographical factors, communications with individuals for whom English is a second language is sometimes difficult. A candidate may feel comfortable communicating in English about technical or quantitative matters but still find communicating in English about non-accounting matters to be awkward.

This problem of communication could be largely overcome by having clear application procedures and instructions to guide international candidates through the process. Charging an additional fee to cover additional costs of handling international applications would willingly be borne by international applicants, especially if they could take the CPA exam in their home countries and save the substantial travel costs (e.g., Japanese candidates spend from $1,500 to 3,000).

Licensing CPAs. Another concern of some state boards is that of licensing CPAs residing outside a state’s geographical boundaries. In the U.S., a number of CPAs hold licenses to practice in more than one state. State boards are understandably concerned about how to effectively monitor the activities of CPAs residing outside of their state borders. Such concerns are magnified when the CPAs reside in other countries.

One method to mitigate these concerns is to allow international candidates to sit for the U.S. CPA exam and then, upon successful completion, be given a certificate stating that they have passed the CPA exam but are not licensed to practice. Such a certificate would satisfy the needs of the vast majority of international candidates. It also would be similar to the two-tier system adopted by some states, under which individuals possess either certification status or permit-to-practice status.

Exam security. State boards of accountancy have a natural fear of not being able to guarantee adequate exam security when administering the CPA exam. Since the CPA exam went to its current, nondisclosed format, exam security has been an issue of paramount importance.

The security issues related to the pen and pencil exam, administered in many different sites, will change substantially once the computerized CPA exam is introduced in 2003. Prometric, a division of Thomson Learning Company and a world leader in computer-based testing, has testing centers and provides the same service and security in over 250 international locations as in its U.S. testing centers.

National security and visa issues. The tragic events of September 11 have significantly reduced the volume of international air travel. In addition, persons wishing to obtain visas for short-term visits to the United States are likely to experience greater difficulties than in the past. Unless a new way of thinking is applied, the number of international candidates taking the U.S. CPA exam may drop dramatically.

Augmenting efforts to strengthen national security will be another benefit stemming from the international administration of the CPA exam. The reduced number of international visas requiring review by the Immigration and Naturalization Service will allow more time to review other visas.

Other Professional Examinations

It is common for U.S. professional certification examinations to be administered to international candidates in their home countries; for example, the professional engineering (PE) certification exam is offered in several countries. The list of U.S. professional accounting-related examinations administered in other countries is extensive and includes the following:

• CMA: Certified management accountant
• CIA: Certified internal auditor
• CFA: Certified financial advisor
• CFM: Certified in financial management
• CISA: Certified information systems analyst
• CBA: Certified bank auditor.

Two examples of the demand for exams administered outside the U.S. are the CFA and CMA. In 1995, both exams were offered to a handful of candidates in Egypt. By 2000, both exams had over 300 applicants.

Lagging behind other professional organizations that are already offering their exams in other countries only strengthens criticism of CPAs for not providing “information relevant to the changing business world.” Failing to offer the U.S. CPA exam to international candidates in their own countries works against the profession’s goal of leading the global harmonization of accounting standards. In addition, this failure forces thousands of international candidates to travel to the U.S. in order to take the CPA exam. Certainly people in foreign countries are aware that other U.S. professional organizations have responded to the global economy in a more timely fashion than U.S. CPAs.

Modest Steps Forward