Explaining the Decline in CPA Candidates

Is the 150-Hour Requirement a Factor?

By Nicholas W. Schroeder and Diana R. Franz

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Recent events, changes in business conditions, and new career alternatives have contributed to the decade-long decline in the number of aspiring CPAs. One event in particular, an increase in the education required of new CPA exam candidates in most states (usually referred to as a 150-hour requirement), is frequently cited as the primary cause of the declining number of college accounting majors and new CPA exam candidates.

While the number of first-time CPA exam candidates has dropped in nearly every state over the last few years, the authors’ research indicates that the decrease was most dramatic in the first year a state implemented a 150-hour requirement. In the year of implementation, the number of first-time CPA exam candidates dropped approximately 75%. Over time, the number of first-time candidates in 150-hour-requirement states rebounds fairly quickly. While the number of first-time candidates does not recover to the level experienced before the 150-hour requirement, it does recover to a level comparable to the trend for first-time candidates from colleges in states not affected by a 150-hour requirement.

Changing CPA Exam Candidate Requirements

In 1988, the membership of the AICPA voted to amend the organization’s bylaws to require that all new members after the year 2000 have completed 150 semester hours of education. With strong backing from the AICPA, many states began considering modifications of the education required to sit for the CPA exam. The AICPA and NASBA (National Association of State Boards of Accountancy) drafted model language for prospective 150-hour legislation and, in coordination with state CPA societies, urged state legislatures to modify their accountancy laws to comply. Currently, 41 states have implemented revised accountancy laws that incorporate at least a portion of the AICPA/NASBA model 150-hour language. An additional five states have passed revised accountancy laws that are scheduled for implementation by 2009. Only four states have not passed—or have passed and subsequently rescinded—150-hour legislation.

In most states, the revised accountancy laws reflect much of the model language suggested by the AICPA/NASBA initiative. The AICPA anticipated that differences in state education philosophies would lead to diversity in the academic content of the required 150 semester hours. This has turned out to be true. The AICPA also expected that the minimum requirement to sit for the CPA exam in all states would include 150 hours of education, with at least a baccalaureate degree and a concentration in accounting. This has not turned out to be true.

150-Hour Legislation: Current Status

The map in Exhibit 1 categorizes each of the fifty states by type of 150-hour legislation. Thirty-five states are (or soon will be) “150-to-sit” states. These states have passed legislation requiring that candidates complete 150 semester hours of education before sitting for the CPA exam. Another nine states have passed “120/150" legislation, allowing candidates to sit for the CPA exam after completing their baccalaureate degree with a concentration in accounting (approximately 120 semester hours) but requiring completion of 150 semester hours before obtaining certification or licensure. The remaining six states allow candidates both to sit for the exam and to obtain certification and licensure without completing 150 semester hours of education. California and Pennsylvania allow the candidate a choice between alternative routes to qualify for CPA licensure, only one of which requires completing 150 hours of education. In both California and Pennsylvania, the experience requirement for licensure is reduced by one year for candidates who elect the 150-hour route. Delaware, New Hampshire, and Vermont have not passed 150-hour legislation. Colorado passed
and then subsequently rescinded 150-hour legislation.

Decline in First-Time CPA Exam Candidates

States that implemented 150-hour legislation in the early or mid-1990s now have had several years of experience with the effects of the increased education requirement. Each of these states experienced a significant change in the number of first-time CPA exam candidates in the years surrounding the implementation of their 150-hour requirements. The experience of these states provides useful information about both the short- and long-term effects of 150-hour legislation.

The analysis of the change in candidates was based only on trends in first-time CPA exam candidates. Most 150-to-sit states allow repeat candidates that sat for the CPA exam before the increased educational requirement to sit and repeat the exam. All first-time candidates will have satisfied the 150-hour requirement.

The trend in the total number of first-time CPA exam candidates in all 50 states is shown in Graph 1 for 1988 to 2002. From 1988 to 1997, the annual number of first-time candidates fluctuated between 42,000 and 49,000. Since 1993, there has been an overall downward trend in the number of first-time candidates, which is about one-third lower. Exceptions to this trend occurred in 1997 and 1999. Both of these exceptions were the final year before 150-hour legislation was implemented in states that have significant numbers of first-time candidates. The last year before implementing an increased education requirement typically draws significant numbers of additional candidates that meet the old but not the new education requirement. The third exception occurred in 2002, when 39 states reported an increase in first-time candidates. This may be indicative of an increased level of interest in the CPA profession.

150-Hour Requirement Categories

Graph 2 provides more detail on the decline in number of first-time CPA exam candidates illustrated in Graph 1. In Frame 2A, the trend in first-time candidate numbers is shown for each of the four types of states in Exhibit 1. This frame shows that nearly all of the decline and the 2002 recovery in first-time candidates found in Graph 1 occurred in Category 1 states. Frame 2B presents the same trends on a percentage-of-change basis where 100% is the average number of first-time candidates from 1988 to 1990. Frame 2B indicates that first-time candidates in 150-to-sit and 120/150-hour states both declined by 50% between 1993 and 2001.

Frames 2A and 2B also show that the total number of first-time candidates sitting in states that have not passed 150-hour legislation was relatively stable until 1997, when it increased dramatically. In 1996, states in this category reported 1,074 first-time CPA exam candidates. In 2002, these states reported 4,345 first-time candidates, 405% of their 1996 total. This dramatic increase could be caused by nonresident candidates who are attracted by the relatively lower education standards and lack of a residency requirement for CPA exam candidates in these states. As part of his commentary in NASBA’s 2002 Candidate Performance on the Uniform CPA Examination, Park Leathers noted that states without residency requirements “appear to have benefited from nonresident candidates.” The annual number of first-time candidates reporting degrees earned at colleges and universities in these same states between 1996 and 2002 dropped by nearly 300 candidates, a 40% decrease (Candidate Performance on the Uniform CPA Examination, Report 12-A and Report 12-B), meaning that these states must be hosting a steadily increasing number of nonresident first-time CPA exam candidates.

The Predictability of Changes

Eleven states implemented a 150-to-sit requirement between 1993 and 1998 (Tennessee, Alabama, Mississippi, Kansas, Louisiana, Montana, Arkansas, Georgia, Nebraska, South Carolina, and South Dakota, in order of adoption). In Graph 3, these 11 states were grouped by year in which they implemented a 150-to-sit requirement. A “pre-150-hour” baseline number of first-time candidates was computed for each group by averaging the number of first-time candidates in the third, fourth, and fifth years before the 150-to-sit legislation took effect. Beginning with the second year prior to implementation, the actual number of first-time candidates for each implementation group was expressed as a percentage of that group’s base period.

Graph 3 shows that each state that implemented a 150-to-sit requirement has experienced a remarkably similar pattern of year-by-year change in number of first-time CPA exam candidates. The number of first-time candidates peaks in the year immediately prior to implementation of the more demanding education requirement. In the year that the 150-to-sit requirement takes effect, first-time candidate numbers typically drop to approximately 25% of the baseline. Over the next few years, the number of first-time candidates recovers at a relatively uniform rate to approximately 50% to 60% of the baseline period. This long-term trend suggests that the 150-hour requirement is not primarily responsible for the ongoing decline in first-time CPA exam candidates and that other factors may be hindering growth in CPA exam candidates.

Long-Term Impact

Many believe that issues other than the 150-hour requirement have contributed significantly to the decline in both the number of college accounting majors and the number of CPA exam candidates. A July 2000 study by the Taylor Research and Consulting Group found that students, especially those at the age where career and academic major decisions are most often made, do not consider a 150-hour requirement to be a barrier to entering the accounting profession. In fact, graduate education was already in the plans of 76% of the high school students and 80% of the college students who participated in the study. Boone and Coe’s August 2002 statistical analysis of the declining number of college accounting majors concluded that, at most, 38% of the national decline in accounting majors during the 1990s might be attributable to the 150-hour requirement.

To test this view, the authors compared actual first-time candidate trends in states with the 150-hour requirement to first-time candidate trends in states where 150-hour legislation has not been passed, or has passed but will not be implemented until after 2005, seven states in total.

The seven “no-150-hour-effect” states are depicted in Graph 4. The data is based on the number of graduates rather than number of first-time CPA exam candidates, since first-time candidate totals in these states may be distorted by increasing numbers of nonresident candidates. Because Delaware, New Hampshire, and Vermont individually have relatively few graduates per year, these states were combined into a single trend line. Each trend line follows a similar path, peaking around 1993 and steadily declining in nearly every subsequent year. By 2002, four of the five trend lines have dropped to between 42% and 56% of their 1991 total. The weighted average trend line in Graph 4 represents the best available estimate of how nationwide first-time CPA exam candidate numbers would have changed between 1991 and 2002 even in the absence of proposed, passed, or implemented 150-hour legislation.

A comparison of this weighted trend line for non-150-hour-effect states against trends in 150-to-sit states yields interesting results. Florida and Utah, two states with a 150-to-sit requirement in effect prior to 1990, exhibited a remarkably similar rate of decline in the number of first-time CPA exam candidates from 1991 through 2000 when compared to non-150-hour-effect states. The only difference between the two trends occurred in 2001 and 2002, when there are two successive years with increasing numbers of candidates in the 150-to-sit states while the number of first-time candidates continued to decline in no-150-hour-effect states.

Other states show a spike in first-time candidates just prior to adoption of a 150-to-sit requirement, followed by an immediate decline once this requirement takes effect. Although the adoption of a 150-to-sit requirement clearly affects the number of candidates in the years immediately surrounding the change in law, once the short-term effects have passed, actual first-time candidate numbers recover to what would have been expected based on the long-term, no-150-hour-effect trend.

Long-Term Concerns

The declining number of first-time CPA exam candidates is a concern to many. This decline is most pronounced in states that have recently adopted 150-to-sit legislation. Most states find that the number of first-time candidates plummets by approximately 75% in the year that a 150-to-sit requirement is implemented. However, within a few years after implementing a 150-to-sit requirement, the number of first-time candidates recovers to a level comparable to states without a 150-hour requirement. Because the number of first-time candidates recovers from 150-hour effects after a relatively short period of time, factors other than increased educational requirements must be the primary cause of the overall decline in candidates.

The increased educational requirements to sit for the CPA exam are not a concern to most students for a variety of reasons. One reason is that, according to the Taylor Research and Consulting Group’s Student and Academic Research Study (July 2000), 74% of high school students indicated that they already plan to earn a graduate degree. Another reason that increased educational requirements are not a deterrent is that most states allow considerable latitude in meeting them. Candidates can typically satisfy the 150-hour requirement by completing additional undergraduate classes, pursuing a specialized graduate degree such as a Master’s in Accounting or Taxation or a general business program such as the Master’s of Business Administration. In addition, many students transferring into business from another field of study or from a community college have enough transfer hours to fulfill the 150-hour criteria while they complete a bachelor’s degree in accounting.

If the required additional education is not the underlying cause of the decline, then what is? The Taylor Research and Consulting Group’s study identified three reasons that students do not pursue accounting as a career: ignorance about a career in accounting; faulty information about the profession; and negative perceptions of the role of accountants in society. Steve Albrecht and Robert Sack, in Accounting Education: Charting the Course through a Perilous Future (August 2000), also mention decreased salary levels and the availability of more-attractive career alternatives as other contributors to the declining interest in accounting careers.

The AICPA and many state CPA societies have initiated efforts to address these issues. Some of their efforts include sponsoring innovative student-oriented websites. Exhibit 2 lists some of the more creative sites.

Other efforts include increased scholarship funding and programs that reach out to high school and college students about the wide array of career opportunities available with a degree in accounting. For example, the Florida Institute of CPAs has instituted an “Accounting for Success: CPAs in Florida’s Schools” program, which is nearing its goal of having a CPA volunteer serve as designated coordinator for each of Florida’s 684 high schools. The New York State Society of CPAs sponsors COAP (Career Opportunities in the Accounting Profession), a five-day summer program for high school juniors. The program involves visits to accounting firms and corporate offices along with attending classes taught by CPAs and other business professionals. The Ohio Society of CPAs initiated a “Student Ambassador” program where accounting majors with good communication skills work 10 hours a week on their own college campuses to change student perceptions of the accounting profession. The continuing success of these initiatives will be critical to the future of the accounting profession.

Nicholas W. Schroeder, DBA, CPA (inactive), and Diana R. Franz, PhD, CPA, are both professors in the department of accounting at the college of business administration, University of Toledo, Ohio.





















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