Failure of the New ‘Business Environment and Concepts’
By Richard G. Vangermeersch and Jim Mackey
The accounting profession and its leadership must formally acknowledge the need for additional management accounting training for CPAs in industrial and government practice. The Uniform CPA Examination (www.cpa-exam.org) tests candidates’ ability to protect the public interest, and the public generally assumes this competence extends to management accounting as well. Unfortunately, given the current, and new, content of the CPA exam, this does not appear to be the case.
The findings of the Institute of Management Accountants (IMA) indicate that the changes to the CPA exam do not address accounting controllership functions. Students and CPAs entering business controllership functions need additional training not required by the current or future CPA exam content specifications. The new content specifications for the CPA examination are based on the AICPA’s “Practice Analysis of Certified Public Accountants.” While 10% of entry-level CPAs interviewed in the practices survey were from industry, their inputs were ignored in updating the CPA examination.
The New Exam
The new CPA exam content is composed of four parts: Auditing & Attestation; Financial Accounting & Reporting; Regulation; and Business Environment & Concepts (BEC). The current and future content specifications for the CPA examination are contrasted in Exhibit 1. No significant increases in managerial content from this analysis are reflected in the structure of the exam. The changes seen in Exhibit 1 are significant and extensive, but they still do not meet the managerial accounting needs of American corporations.
The new CPA examination (specifically, the Business Environment & Concepts part) and the CMA (Certified Management Accountant) examination are compared in Exhibit 2. The most striking difference is the need for skills in auditing, taxation, and law not required by the CMA exam. Tax and auditing skills commonly represent less than 4% of the CMA exam.
Further differences between the BEC part of the CPA exam and the CMA exam are shown in Exhibit 3. Approximately 3.5% of the new CPA exam is devoted to business structure. The closest topic on the CMA exam is Part I–D (3.13%). All of the remaining topics are more fully represented on the CMA examination. Economic concepts are significantly more important to the IMA than the AICPA. Financial management seems to be the most important topic in the BEC Part, representing 4.3% of the entire CPA exam, but the CMA exam allocates approximately 12.5% of its content to such topics. The information technology portion of the CMA exam is not significantly greater than that of the CPA exam.
The Planning & Budgeting and Measurement topics on the CPA exam cover most of the traditional cost and managerial accounting curriculum and represent 4.32% of the new exam, versus 18% of the CMA exam. This result is not, however, consistent with the summary of the new content of the CPA exam in Exhibit 1, where measurement (managerial) is classified as 2.5% of the entire new exam. Regardless, there remains a dramatic difference in coverage of management topics between the two examinations. Topics related to business environment totaling 24.5% of the CMA exam do not appear on the CPA exam. The AICPA justifies the need for the BEC part of the examination as follows: The Auditing Standards Board has recognized that understanding the business and its environment is a key factor in applying the audit risk model. In addition, the public often looks to CPAs, including those recently licensed, as business advisers. (Proposed Structure and Content Specifications for the Uniform CPA Examination, 2001.)
Even though the new CPA exam has expanded its scope by adding the BEC part, one of its primary goals appears to be reducing audit risk, not enhancing expertise in managerial accounting. It is not clear if the portion of the examination devoted to traditional managerial accounting topics will be maintained.
Implications for the Profession
The new CPA exam continues to ignore the needs of managerial accounting skills for American industry. While the AICPA takes responsibility for granting certification to protect the public interest, professional competence in managerial accounting may not be adequately represented. According to the IMA (Institute of Management Accountants), CPAs entering industry need the equivalent of CMA knowledge. Students graduating from college not considering audit or tax careers should consider the CMA if they want a professional career. The new changes in the CPA exam guidelines fail to encourage development of the broad skills necessary for professional accountants. Practicing CPAs, especially those in industry, should send formal comment letters to the AICPA about the BEC part of the CPA exam.
It is essential that the CPA exam test the skills needed for controllership functions or admit the need for additional training for industrial and government practice for the following reasons:
Practicing CPAs are significantly involved in consulting and controllership. There is a direct need for CMA skills as new CPAs move from auditing firms to industry. The CPA examination must look beyond the needs of entry-level audit staff either by expanding its coverage or by directly acknowledging the additional training necessary for industrial and government accountants. Currently, the CMA is an excellent vehicle to attain these industrial skills and should be encouraged by the AICPA. The dominance of the CPA certification creates a danger that cost and managerial accounting will be severely compromised at many universities if it is not sufficiently acknowledged in the professional scope. This will only damage the public by failing to provide adequately trained accountants for industrial positions. While the CPA examination must require sufficient coverage to protect the public’s interests, it must also provide sufficient managerial accounting coverage to legitimize further study or certification in managerial accounting.
Robert H. Colson, PhD, CPA
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