In Brief

Many initiatives have tried to solve the perennial problem of attracting more students to become CPAs. The author believes more innovative approaches are required, such as the creation of “step” certifications that one could complete on the path to full CPA licensure. The proposal is for creation of two new “pre-CPA” accounting licenses candidates could earn during their college studies. These new licenses would enable candidates to earn formal credentials and work as professionals in CPA firms and elsewhere while completing the requisite 150 college credit hours for full CPA licensure.

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Articles abound bemoaning the shortage of candidates pursuing CPA licensure and offering solutions to the problem. Most of the solutions are aimed at trying to market public accounting in more positive ways, such as trying to make it more appealing to high school and college students. Countless organizations and individuals, including this author, have been doing that for decades—with limited success. Although these activities have some value, it is clear that more is needed to solve the problem and build a stronger pipeline.

The profession is in the midst of what has been branded as the “CPA Evolution,” which includes some changes to the current licensure model. What is changing? Not the 150-hour model, not the one-year experience requirement, not most of the CPA exam requirements. And not most of what it will take in time, cost, and effort for candidates to become licensed.

This article suggests a complementary approach to recruitment and licensure: the creation of “step” certifications that one could complete on the way to full CPA licensure. Although these are not likely to completely solve the shortage of CPAs, step certifications could ameliorate the problem. More importantly, these could provide the workforce needed to serve CPA firm clients, while reducing the up-front investment of time and money for both firms and candidates.

The High Bar to Entering the Profession and the Need for More Public Accounting Staff

Public accounting firms, particularly the largest national and regional firms, have been using a similar staff recruiting model for decades. They hire from recognized colleges and universities, often those with high CPA exam passing rates and those from which the firm partners came; they try to hire interns from the same colleges and universities and retain for permanent positions those who prove most adept at accounting with the greatest perceived potential. With the development of the 150-hour requirement nationally, nearly all entry-level hires must have completed five years of post-secondary coursework or be in the fifth year when hired.

That fifth year of college, often used for a master’s degree, is considered perhaps the number one reason for the current shortage of students entering the accounting profession. It is expensive, especially when added to the prior four years of college. More and more students are trying to pass the CPA exam before completing the fifth year, even before they have begun or secured their first full-time professional position; this has developed, in part, because many accounting firm practitioners have begun to expect it because of students who have done it. Many students have come to believe they must pass it in advance to get, or retain, a position in a CPA firm. Although this has long been the case in law firms, accounting firms have only recently begin expecting or encouraging new hires to pass the exam before beginning in practice.

The challenge of passing the CPA exam provides plenty to turn off prospective hires; the passing rate for most parts is approximately 50%. Although this is a far higher passing rate than when the exam was pencil and paper, it could still be discouraging to some candidates. Many might question spending or borrowing thousands of dollars to try to pass an exam with what they perceive as a low passing rate, in the hope of entering a profession they might not like. It is also a profession that has a reputation of requiring far more work hours than most (whether or not that is true), with a pyramid structure that can be discouraging to anyone who dreams of making it to partner.

Why any student decides to pursue this profession, besides the profession’s reputation of high earnings, might be the real mystery here. A better approach is needed.

Multiple Certifications in the Legal Profession

The fundamental recommendation of this article is to develop state-regulated licensure for two classes of what will be referred to here as “pre-CPAs,” similar to what exists in the law profession with paralegals, but different in that these pre-CPAs would be achieving credentials that might count toward becoming a state-licensed CPA.

For comparative and background purposes, paralegals perform a great deal of work to support lawyers. Paralegals perform legal research, complete forms required by courts, engage with clients, and can even draft legal arguments and pleadings. Although they produce a great deal of work that is indispensable to law practice, their credentials are not in any formal way a step toward becoming licensed attorneys. But doing what they do in law firms and other law practice positions provides benefits that are worth considering for improving the accounting profession:

  • The work helps paralegals develop an understanding of law practice and client engagement, so they understand the opportunities and work that awaits them if they subsequently decide to attend law school and become licensed attorneys.
  • The work also allows attorneys to delegate many tasks to trained, knowledgeable professionals whose work may be billed to clients, thereby freeing attorneys up for other work obligations as well as practice development.

Multi-level Certifications in Public Accounting

The author proposes that the accounting profession should develop and adopt similar credentials for “pre-CPA professionals” who may do a great deal of accounting firm work to support clients and generate revenues, but which will also help those practitioners learn about the profession before committing to a five-year field of accounting study and the CPA exam.

What follows are two proposals for pre-CPA certifications that may serve as a basis for the profession taking steps toward developing this model. For purposes of this discussion, they will be referred to as follows:

  • Associate in Public Accounting (APA): Eligibility begins after completion of the equivalent of two years of prescribed college course work. The prescribed work might be similar to the current Associate of Applied Science offered by many community colleges.
  • Paraprofessional in Public Accounting (PPA): Eligibility begins after completion of the equivalent of four years of prescribed college course work. The prescribed work might be similar to the current Bachelor of Science offered by many colleges and universities.

To earn these licenses, candidates would need to pass standardized exams. The exams could test some or all of the knowledge and skills described in Exhibits 1 and 2.

Exhibit 1

Subject Matter for the Examination for Associate in Public Accounting (APA)

 Knowledge of Financial Accounting; Skills ▪ Purpose and relationships among journals, ledgers, and trial balances; ▪ Purpose and common types of adjusting entries; ▪ Purpose of closing entries; ▪ Components of the income statement and balance sheet; ▪ Use of general ledger software, such as QuickBooks and Peachtree; ▪ Use of Excel; ▪ Entering and posting journal entries; ▪ Running a trial balance; ▪ Preparation of income statement and balance sheet Knowledge of Individual Income Taxation; Skills ▪ Common types of taxable income and exempt income; ▪ Common personal and business deductions; ▪ Preparation of Form 1040 and common schedules, for example, schedules A, B, C, D, SE (focus would be Federal income tax, consistent with current CPA exam); ▪ Use of representative tax software General Accounting-Based Business Knowledge; Skills ▪ Accounts receivable, allowances, and write-offs; ▪ Accounts payable, purchasing and purchase documents, bills of lading, receiving documents; ▪ Inventory storage and control; ▪ Cash management and internal control; ▪ Reconciling customer accounts; ▪ Reconciling vendor account balances; ▪ Reconciling books to physical inventories, understanding types of differences; ▪ Bank reconciliations

Exhibit 2

Subject Matter for the Paraprofessional in Public Accounting (PPA) Exam

 Knowledge of Financial Accounting; Skills ▪ Long-lived assets and depreciation and amortization methods; ▪ Components of the statement of stockholders' equity; ▪ Accounting for various types of dividends; ▪ Present value and related recognition of interest; ▪ Continued use of general ledger software, such as QuickBooks and Peachtree; ▪ More advanced use of Excel; ▪ Preparation of the statement of stockholders' equity; ▪ Preparation and use of amortization tables Knowledge of Corporate Income Taxation; Skills ▪ Asset basis; ▪ Depreciation recapture; ▪ Common corporate deductions beyond the APA exam, such as net operating losses and the dividends-received deduction; ▪ Preparation of Form 1120, schedules L and M-2; ▪ Preparation of tax depreciation schedules; ▪ Use of representative tax software Manufacturing and Managerial Topics; Skills ▪ Product costing, including direct costs, overhead, and treatment of freight; ▪ Supply chain issues, such as just-in-time inventory, hedging, and purchase contracts and commitments; ▪ Budgeting; ▪ Cost-volume profit (CVP) analysis and incremental analysis; ▪ Calculation of costs of customer orders and related gross profit analysis; ▪ Preparation of a master budget with all sub-budgets; ▪ Use of Excel in preparing CVP analysis for multiple scenarios

The Associate in Public Accounting (APA) exam and license would align with basic bookkeeping skills and knowledge shown in Exhibit 1, but also with basic individual income tax return preparation and a few common types of reconciliations. These types of work lend themselves to what college students might do in an internship. The work supports important areas of accounting practice, and the billing rates and compensation for employees with this license would be low enough to fit firm cost structures and reasonable client fees. Simultaneously, holders of this license would get a good understanding of accounting work. They could continue their upward path for more advanced licensure, or could apply these skills to any firm or accounting position. Exhibit 2 describes the possible knowledge and skills that could be tested on the Paraprofessional in Public Accounting (PPA) exam. Those holding the “paraprofessional” license would have demonstrated knowledge of much more complex accounting and business subject matter than those holding the “associate” license.

Note that neither of these exams addresses auditing. They could include auditing, as the tables above are intended to provide an explanation of how the overall concept of the “stacked” licensing exams and practice might work, rather than a narrow way in which it must be done. Auditing, however, generally demands a great deal more judgment than what has been described above. Judgment surrounding subjective determinations should be reserved for those with a higher level of study and experience than suggested for this approach. Accounting firms employing PPAs might begin assigning some audit work to them. Some PPAs will demonstrate the ability and desire to continue on to the CPA. Even APAs could contribute to audit work by preparing supporting schedules, as is currently done by corporate accounting staff.

Tying the APA and PPA Credentials into the CPA Exam

One aspect of becoming a CPA that discourages many students, perhaps the most significant one, is the exam itself. If the APA-PPA approach were adopted, the APA and PPA licenses could potentially be counted toward one or more sections of the CPA exam. One reasonable way of accomplishing this is described in detail below.

The proposed “CPA Evolution” exam model is structured so that both the APA-PPA model and the Financial Accounting and Reporting (FAR) section of the Evolution exam model would or could cover the same bachelor’s level accounting subject matter. The revised exam, which is expected to begin in 2024, is structured as shown in Exhibit 3. There will be three core sections: Financial Accounting and Reporting, Audit and Attestation, and Tax Compliance and Planning. All candidates will need to pass all three of the Core sections, and will select one of three discipline sections.

Exhibit 3

The Proposed CPA Evolution Exam Model

 Core Sections: Complete All Three; Discipline Sections: Complete Any One of Three Financial Accounting and Reporting (FAR); Business Analysis and Reporting (BAR) Audit and Attestation (AUD); Information Systems and Controls (ISC) Taxation and Regulation (REG); Tax Compliance and Planning (TCP)

The proposed CPA Evolution Model Curriculum (EMC) provides a list of topics to be addressed in each of the six exam sections. Included with the topics, the developers have provided suggested learning objectives and examples of the college courses in which the topics and objectives are typically located. The EMC indicates that all of the topics and objectives in the core FAR section are, or can be, embedded in common undergraduate courses. It is therefore likely that holders of the paraprofessional PPA license would have studied these topics in their bachelor’s degree programs. This facilitates giving those with the PPA designation credit for the core FAR section of the new exam.

Financial Accounting and Reporting Exam Section: Topics and Undergraduate Courses

Exhibit 4 provides a list of the courses the examiners indicate align with the stated topics on the FAR section of the exam. Note that the EMC suggests all of the topics may be covered in undergraduate courses.

Exhibit 4

FAR Exam Subject Matter Aligned with Undergraduate Courses

 Modules; Summary of Topics; Courses Module 1: Financial Statements; Preparation and analysis of financial statements and footnotes using appropriate technology; ▪ Intermediate Accounting I and 2 (two-course sequence) Module 2: Select Financial Statement Accounts; Basic concepts, journal entries, reconciliations and roll-forwards of common balance sheet accounts using appropriate technology; ▪ Intermediate Accounting I and 2 (two-course sequence);; ▪ Intermediate Managerial Accounting/Data Analytics Module 3: Select Financial Statement Transactions and Events; Concepts, journal entries, and reporting of changes and error corrections, commitments and contingencies, leases, subsequent events, fair value, foreign currency transactions; ▪ Intermediate Accounting I and 2 (two-course sequence);; ▪ Auditing Principles; ▪ Data Analytics in Accounting Module 4: Financial Statement Analysis and Metrics; Capital structure and working capital, and budgeting/financial and nonfinancial measures of performance management, using appropriate technology; ▪ Data Analytics in Accounting; Intermediate Managerial; ▪ Accounting/Data Analytics Module 5: Financial Statements and Select Transactions for Not-For-Profit (NFP) Entities; Budgeting, performance management, NFP financial statements and notes, nonreciprocal transfers; ▪ Intermediate Accounting I and 2 (two-course sequence); ▪ Government/NFP (combined course or separate) Module 6: Financial Statements and Select Transactions for State and Local Governments; State and local government concepts.; ▪ Intermediate Accounting I and 2 (two-course sequence); ▪ Government/NFP (combined course or separate) Module 7: Critical Thinking; Identify financial data risks and opportunities using relevant qualitative and quantitative information to make appropriate financial decisions; ▪ Data Analytics in Accounting; Intermediate Managerial; ▪ Accounting/Data Analytics Module 8: Financial Data Analytics; Logical thinking; financial data; data mining; analysis of financial data; data visualization; communicating accounting data results; data ethics.; ▪ Data Analytics in Accounting; Intermediate Managerial; ▪ Accounting/Data Analytics Module 9: Digital Acumen; Knowledge of and ability to respond to changing digital tools and technologies.; ▪ Data Analytics in Accounting; Intermediate Managerial; ▪ Accounting/Data Analytics; ▪ Intermediate Accounting I and 2 (two-course sequence). Note: This is based on the most recently published version of the CPA Evolution Model Curriculum. As NASBA and the AICPA continue to develop the details, some aspects may change.

As summarized above, all of the topics of the FAR section of the exam can or should be addressed in undergraduate courses. The drafters of the proposed EMC also provide three examples of course structures colleges may choose to use or emphasize. Each of the three examples includes the courses listed in Exhibit 5 as part of the course of study of the core exam sections, with notes provided by this author. The author’s notes show that the courses which provide the underlying content of the FAR section of the exam already exist in many, if not all, B.S. accounting programs; therefore, these will not require major changes to most curricula.

Exhibit 5

Notes on Recommended Undergraduate Accounting Courses for the FAR Core Section of the Evolved Exam

 Recommended Undergraduate Courses for Core FAR Section; Current State and Notes on the Transition Intermediate Accounting I and 2 (two course sequence); This two-course sequence is typical in accounting programs, and most of the topics listed by module in Exhibit 4 are already part of course coverage. Related textbooks are already integrating aspects of data analytics into the subject matter. Intermediate Managerial Accounting/Data Analytics; Most college accounting curricula already require an intermediate managerial accounting course, often called “cost accounting” or “cost management.” Integration of data analytics topics may be done within the context of the content of many or most traditional managerial accounting courses noted in Exhibit 4, such as budgeting and performance management, and cost-volume-profit analysis, among others. Some related textbooks already incorporate data analytics. Government/Not-for-Profit Accounting; Many accounting programs offer one or more courses in this subject matter. Some require it and others treat it as an elective. Regardless, it has been part of the FAR section of the current exam for decades. Data Analytics in Accounting; As a stand-alone course, this is the only new course in the published undergraduate examples, and some colleges have already established a standalone course. The EMC suggests colleges may offer this as a stand-alone course or integrate the basic subject matter into other existing courses. Note that the EMC also recommends an Advanced Data Analytics course, but that is only listed as part of the subject matter for the BAR section of the exam. Auditing Principles; Auditing Principles has been a core undergraduate accounting program course for many years, and is long established as an essential element of undergraduate programs. The only FAR section module related to this course is “Module 3: Select Financial Statement Transactions and Events.” This course is primarily connected to the Audit and Attestation section of the new model.

APA and PPA Lead to FAR

As described above, based on the published plans for the CPA Evolution Model Curriculum, the underlying content of the entire FAR section of the proposed revised exam can be addressed through undergraduate course accounting work. The content of the proposed APA and PPA designations may therefore be aligned to lead to the FAR section of the exam. Although it is likely that some modifications may be needed to align college curricula with these proposed certifications, both the EMC and the certifications proposed here may be completed concurrently, thereby facilitating a possible waiver of the FAR section of the new model exam. This would also align logically with PPAs gaining experience that would qualify for the one-year experience requirement currently embedded in state licensing laws and regulations. Professionals would then be in a position to better market opportunities to college students because they could complete their work experience while, or shortly after, completing their bachelor’s degree, and have credit toward one section of the CPA exam!

This approach could well lead to better-prepared candidates, and would likely increase candidates’ motivation, due to students being closer to licen-sure much sooner and with increased confidence. Ask any CPA who took exam sections after working in that area of practice for even one busy season; unless they waited a long time after college to take the exam, there is a high likelihood that their experience led to less worry and more confidence.

Returning for a moment to the para-legal comparison, college course work done toward becoming a paralegal is not applicable in any formal way to work done in law school. No law school course is waived for paralegals, no section of the bar exam is reduced, nothing is different. Those who go to law school after working as paralegals have no formal advantage or reduced workload toward becoming an attorney than those who do not. They are independent careers and credentials.

But this proposal ties experience, coursework, and even a portion of the CPA exam itself into the pre-CPA licenses. This offers benefits to candidates and firms, as described above and detailed below.

The Integrated Licensure-Exam Model

Exhibit 6 provides a summary of how major aspects of the various education, exams, and experience could tie together.

Exhibit 6

Integration of College and Licensure

 Certification; Typical Education; Exam Topics Generally; CPA Exam Connections; Experience Associate in Public Accounting (APA); Minimum 60 credit hours; Bookkeeping, basic financial reporting, individual income tax forms, reconciliations.; No direct connection.; Minimum one year in an accounting staff or bookkeeping position. Paraprofessional in Public Accounting (PPA); Minimum 120 credit hours; Financial reporting, data analysis, corporate and partnership tax forms; basic business operations.; Eligible to take FAR section of exam.; Minimum one-year experience in a “professional” accounting position (i.e., eligible to become a CPA upon completion of exam and qualifying 150 hours.). Certified Public Accountant (CPA); Minimum 150 credit hours; In addition to APA and PPA exams, auditing and more advanced financial reporting, tax, and data analysis.; Eligible to take all parts of exam (as currently designed or to be designed going forward).; Minimum one-year experience in a “professional” accounting position (i.e., fully eligible to become a CPA).

Pros and Cons

This author’s proposed approach would have several advantages over the status quo:

  • It gives CPA prospects an opportunity to begin working in CPA firms sooner. That leads to more experience, more connections, and a better sense of what they are getting into without having to make an uninformed commitment to a field of study with costly and time-consuming licensing requirements.
  • It gives prospects an earlier chance to earn money in their chosen field while they “learn the ropes.” This may also lead to less borrowing for college costs, which have become a significant financial burden for many candidates.
  • It provides firms with more committed, serious prospects to recruit, while also providing them with staff who are more interested in developing their skills and knowledge.
  • It helps firms ensure they can deliver for clients and for the public.

The main disadvantage to the author’s proposal is the start-up time and cost for regulators and firms. Change takes time and money. State regulators would need to develop the regulations that would govern the licenses. Exams would need to be created, and processes for implementing such exams would need to be developed. That infrastructure, however, already exists through the states, NASBA, and AICPA. It would take time and money, yes, but the principals and systems involved with the CPA exam and licensure could take this over and apply the vast history, knowledge, experience, and systems already in place. In addition, because these would be state licenses, candidates would pay fees to cover the costs.

It is also possible that this might reduce the total number of candidates pursuing the full CPA license, as some may stop at APA or PPA—though that already is the case because many current prospects choose not to go beyond an associate’s or bachelor’s degree, or choose to complete an accounting degree without pursuing CPA licensure. This approach should make the process a little less difficult and a great deal more attractive. I acknowledge that it could instead have the opposite effect of reducing the number of CPA candidates, as some may be satisfied as an APA or PPA. It is not possible to predict the long-term effects; there are, however, no obvious disadvantages for candidates to pursuing an APA or PPA on their way to CPA, and that combination of benefits with no disadvantages should be considered by leaders of the profession and firms in need of qualified staff.

This approach offers the following marketable elements that can also serve the profession and the public:

  • Those interested in public accounting as a potential career path may begin working in a CPA firm, doing full-time accounting work, after completion of the equivalent of two years of college. This will provide these new hires with exposure to the work and the firm, so they can learn early on whether the profession is a good fit. This will also provide a paycheck to help defray the high cost of college.
  • Firms would also benefit. These employees will have learned how to do such important accounting and tax work as internal control testing, basics of inventory management, account reconciliations, receivables and payables management, and cross-referencing among accounts and amounts. For firms, these students might be similar to interns. The pay rate would be lower than for new staff, as might the billing rate, but it would be a great “audition.” Firms would likely be able to recruit from a larger and stronger pool of new staff, while candidates would have the opportunity to experience public accounting as a career before committing to the last years of a costly degree program. These employees could do a lot of important client work, even those who decide they do not want to become fully licensed CPAs.

A Similar Model in Other Countries

It is worth noting that multiple certifications in accounting is not untested. Versions of this approach are used in other countries granting licensing, including Chartered Accountant programs in the U.K., Australia, Canada, and other nations. One example is provided below.

The U.K.’s leading accounting certification body, the Institute of Chartered Accountants of England and Wales (ICAEW), offers different certifications and different paths that may lead to becoming a Chartered Accountant (CA), the equivalent of the U.S. CPA. These paths include routes that do not require college and other routes that are tailored for undergraduate and graduate students. One such approach is for candidates to complete a “trailblazer apprenticeship.” The program is marketed as a possible first step toward becoming a CA, with the benefit of earning money while working through the program. The ICAEW also offers a certificate program aimed at developing careers in business and finance, and that path can also lead to the CA. (For additional information, see https://www.icaew.com/.)

The scope of this article does not allow for an extensive analysis of the many countries that have multiple options for accounting certifications, but the U.K. is not unique in this regard. NASBA and AICPA have already acknowledged the credentials of some other countries’ licensing processes through Mutual Recognition Agreements, which allow for limited cross-country practice. (For additional information, see https://nasba.org/international/mra/.)

U.S. Community Colleges Certifications: The Future Is Now

It is also worth noting that many U.S. community colleges already grant their own internally created accounting certifications to help them recruit and place students while building relationships with employers. Two examples are noted below:

  • Monroe Community College, in the Rochester, N.Y. area, offers an associate of applied science (AAS) degree as an accounting technician (https://bit.ly/3UuC20n). This program requires six accounting courses totaling 20 credit hours, approximately one-third of the total hours for the degree.
  • The Borough of Manhattan Community College also offers a non-degree certificate program requiring 30 credit hours (https://bit.ly/3C1ELqF).

In fact, there are many such accounting certifications offered by a diverse array of colleges and universities throughout New York and the United States. These programs have already built some of the infrastructure needed to implement the author’s proposal.

A related side note: Four-year college programs often offer a “minor” in accounting, typically comprising five to six accounting courses. Some students who take these minors are interested in doing some accounting work, but are either not yet sure of their career path or are not interested in becoming CPAs; these students might be interested in one or both of the new certifications described here. In addition, achieving a step certification might lead them to decide they are interested in pursuing accounting as a career.

Time to Innovate

The accounting profession, as well as the public it serves, needs to be more innovative to attract a sufficient pool of qualified CPA candidates. This article describes a potential solution to the challenges of building such a pool. Similar approaches have succeeded in other nations, and much of the infrastructure needed to establish such a system already exists in the United States.

Appropriate next steps would include a dialogue among leaders in the profession across sectors (CPA firms, industry, education, and government), state accountancy boards, NASBA, and the AICPA. This is a major change, but in these times of CPA Evolution, the profession has already acknowledged the need for significant change—the authors’ approach offers many benefits relative to others.

William H. Dresnack, CPA, JD, is an associate professor in the department of finance and accounting at the Saunders College of Business, Rochester Institute of Technology, Rochester, N.Y. He is a current member of the NYSSCPA Board of Directors.