The future of accounting education has been a topic of concern for the profession’s leaders for years in the light of demographic shifts, competition for talent, and declining enrollments. The authors, following up a previous article on the subject, take another look at trends in enrollment, hiring, and sitting for the CPA exam. The authors fear that without major changes—more flexibility in education and licensing, higher salaries, and greater work/life balance—these trends will continue in a negative direction and imperil the future of the profession.
Two years ago, the authors collaborated on “The Future of Accounting Education: In-Demand Skills, Workplace Readiness, the 150-Hour Requirement, MAcc Programs, and the CPA Exam” (Mark C. Dawkins, Michael Dugan, Steven Mezzio, and Jerry E. Trapnell, The CPA Journal, September 2020, https://bit.ly/3Qz873H). The article discussed how changing educational requirements for CPA exam eligibility have led to doubts about the future of accounting education. Specifically, the article questioned whether the original intent of the 150-hour requirement remained valid given declining enrollments in Master of Accountancy (MAcc) programs. It also discussed how the skills required of entry-level accountants are changing rapidly and are expected to continue to evolve as the use of technology in accounting increases.
This update extends the prior article by examining recent trends in: 1) overall undergraduate enrollments at public colleges and universities, 2) accounting major enrollments, 3) accounting hiring, and 4) the CPA exam. The implications of these trends for undergraduate accounting programs and the accounting profession as a whole are assessed.
Trends in Undergraduate Enrollments at Public Colleges and Universities
The most recent numbers available from a May 26, 2022, report from the National Student Clearinghouse Research Center [National Student Clearinghouse Research Center, Current Term Enrollment Estimates, Fall 2021 (Table 3), January 13, 2022, https://bit.ly/3qonYb1] indicate that undergraduate enrollment declined 4.7% from spring 2021–spring 2022, which follows a 4.9% decline from spring 2020–spring 2021. Thus, the enrollment of undergraduate students has now fallen 9.4% in two years, or nearly 1.4 million students since the COVID-19 pandemic started (i.e., spring 2020–spring 2022), and 2.6 million students over the past decade.
This spring 2020–spring 2022 undergraduate enrollment decline of 9.4% is the largest in 50 years; the worst two-year period previously was a 3.3% decline during 2011–2013 when colleges and universities had just experienced all-time enrollment highs during the Great Recession (C. Burt, “Down 3.2% this Fall, College Enrollment Numbers may Reach 50-Year Low,” Universitybusiness.com, October 26, 2021, https://bit.ly/3qmWum5, 2021).
According to projections by the Western Interstate Commission for Higher Education (WICHE), the number of high school graduates across the country will peak with the Class of 2025 at 3.93 million students. If these 2025 projections are realized, it will represent growth of 4% above the 3.77 million high school graduates in the Class of 2019 (R. Seltzer, “More High School Graduates Through 2025, but Pool Still Shrinks Afterward: Birth Dearth Approaches,” Inside Higher Ed, Dec. 15, 2020, https://bit.ly/3qM7fyu).
But within five years, the factors pushing toward larger graduating class sizes are not expected to be sufficient to counteract the effects of declining birth rates. After 2025, the WICHE projections show graduating classes declining over the next 12 years, primarily because of lower birth rates from families having fewer children during the Great Recession (Seltzer 2020).
According to a recent report and CDC data (J. Marcus, “Colleges Face Reckoning as Plummeting Birthrate Worsens Enrollment Declines,” The Hechinger Report, May 22, 2021, https://bit.ly/3Bu0reY), the number of births in 2020 declined by 4% or 142,000, to the lowest point since 1979. And the provisional number of births for the United States in 2021 was 3,659,289, up 1% from 2020 and the first increase in the number of births since 2014. Thus, even fewer students are likely to be entering colleges and universities 18 years from now.
In 2037, the U.S. high school graduating class is projected to be about the same size as it was in 2014, a total of 3.52 million students. Florida and Texas are the only two states expected to have larger high school graduating classes in 2037 as compared to 2019 (Seltzer 2020).
High school graduating classes are also expected to diversify significantly in the coming years, with growing proportions of Hispanic, multiracial, and Asian/Pacific Islander students. In fact, the first public high school graduating class that is no longer white non-Hispanic majority is projected to come by the Class of 2022 (Seltzer 2020). Exhibit 1 shows the projected demographic changes in high school graduating classes.
To summarize the university enrollment trends data, high school graduating class size will peak in 2025 and return to approximately 2014 levels by 2037. In addition, high school graduating classes are expected to diversify significantly in the coming years due to growing proportions of Hispanic, multiracial, and Asian/Pacific Islander students.
Trends in Undergraduate Accounting Major Enrollments
In the Illinois CPA Society’s 2021 “A CPA Pipeline Report—Decoding the Decline,” ICPAS President/CEO Todd Shapiro states: “We are witnessing a nationwide decline in not just new CPAs, but also accounting program enrollments.”
The 2019 AICPA Trends report (Trends in the Supply of Accounting Graduates and the Demand for Public Accounting Recruits, 2019) provides accounting enrollment statistical projections and respondent expectations based upon university responses for the 2017/18 academic year and from responses for the 2018 calendar year (the 2021 AICPA Trends report does not include these data). Projected bachelor’s, master’s, and PhD accounting enrollments were down 4%, 6%, and 23% in 2018 compared with 2016, respectively, and the number of new CPA exam candidates hit a 10-year low.
The declining trends in accounting program enrollments should be of interest and concern to the PCAOB, SEC, FASB, GASB, and other leading authorities.
Even though overall accounting student enrollment decreased in 2018 as compared to 2016, racial/ethnic diversity increased in the 2017/18 academic year, with universities reporting increases in Hispanic or Latino accounting enrollees of 3 and 8 percentage points at the bachelor’s and master’s levels, respectively (AICPA 2019). Thus, recruiting more diverse students will be increasingly important going forward, particularly during the next 15 years. As discussed below, however, recruiting students is not the only issue.
In a September 2019 article, Alex Gabbin stated: “At the ground level, something has gone wrong with student perceptions about the value of an accounting education. Enrollment in James Madison University’s (JMU) School of Accounting over the past four years, for example, has dropped 34% in the intermediate accounting courses … This is a stunning decrease for JMU’s accounting program” (“Warning Signs about the Future Supply of Accounting Graduates,” The CPA Journal, September 2019, pp. 10–11, 2019, http://bit.ly/2pT8Vud).
Gabbin believes JMU’s experience over the past several years “is not an anomaly to be dismissed; instead, it is an early warning that something significant has changed, perhaps long-term.” Anecdotally, the authors are aware of significant accounting enrollment declines at R1 and other private and public universities, with accounting majors at some private universities down between 35% and 50% since 2016. Our September 2020 CPA Journal article discussed declining MAcc enrollments and the implications for accounting graduate programs.
In his article, Gabbin asks the following four relevant questions (our responses follow):
- Is the profession properly acknowledging differences in the generation of students now entering college? We believe the profession is increasingly aware of differences in new college students relative to past students (e.g., use of technology, affinity for social media).
- Are other professions becoming more attractive to top-tier students? We believe the answer is yes, particularly with respect to data analytics, supply chain, logistics, finance, and MIS/computer science. Each represents a four-year degree leading to a job paying $15,000–$30,000 more than a job requiring a five-year accounting degree. This implies that accounting salaries need to significantly increase for accounting degrees to compete with these high-demand business degrees.
- Are there structural barriers to earning a CPA license that have become onerous? We believe the answer is yes. An Accounting Today survey of practitioners (D. Hood, “Is It Too Hard to Become a CPA? Practitioners Speak Out,” Accounting Today, September 9, 2021, https://bit.ly/3DeNkzE) yielded the following suggestions:
- Drop the 150-hour requirement
- Extend the 18-month testing window (perhaps to four years)
- Increase salaries
- Reduce work hours
- Allow CPA exam candidates to qualify for the exam by “reading” or apprenticing under another CPA.
- Is the compensation package offered in public accounting sufficiently attractive to compensate for the increased demands being placed on new hires? We believe the answer is no, and as noted in the second question above, salaries need to significantly increase for accounting degrees to compete with data analytics, supply chain, logistics, finance, and MIS/computer science degrees.
The declining trends in accounting program enrollments should be of interest and concern to the PCAOB, SEC, FASB, GASB, and other leading authorities. These organizations, particularly the regulatory ones, have a vested interest in the work of CPAs, and the declining enrollment trends present a serious threat to the profession’s role of providing assurance to the public and markets. It is critically important that the public continues to have confidence in financial reporting, internal controls reporting, and the data supporting business transactions.
Trends in Undergraduate Accounting Hiring
The 2021 and 2019 AICPA Trends reports (“Trends in the Supply of Accounting Graduates and the Demand for Public Accounting Recruits,” 2021; AICPA 2019) provide statistical projections and respondent expectations based upon government Integrated Postsecondary Education Data Systems (IPEDS) data and university responses for the 2019/20 and 2017/18 academic years, respectively, and from firm responses for the 2020 and 2018 calendar years. According to the 2021 AICPA Trends report, “Accounting graduates trended downward in the 2019/2020 academic year, with decreases of 2.8% and 8.4% at the bachelor’s and master’s levels, respectively.” According to the 2019 AICPA Trends report, “projected accounting graduates trended downward in the 2017/18 academic year, with decreases of 4% at both the bachelor’s and master’s levels and overall.”
The 2021 AICPA Trends report said that new hires assigned to audit-related services increased 11.5 percentage points from 2018. Per the 2019 AICPA Trends report, in 2018 there was a 4-percentage point increase in new hires assigned to audit-related services, and a 4-percentage point decrease in new graduates assigned to taxation.
In 2020, CPAs firms’ hiring of new accounting graduates decreased 10%, which followed an 11% decrease from 2016 to 2018. Across the last two AICPA Trends reports, the percentage of all new graduate hires by CPA firms who were non-accounting hires increased 11.7% from 2018 to 2020, representing 42.7% of all hires by accounting firms in 2020. This follows an 11% increase in non-accounting hires from 2016 to 2018, representing 31% of all hires by CPA firms in 2018. In the authors’ opinion, this trend in CPA firms hiring more non-accounting graduates represents a very significant challenge to accounting programs.
Yvonne Hinson, the AICPA’s academic in residence when the 2019 AICPA Trends report was released, noted in the report that “the gap in skills required in the profession, especially as it relates to data analysis and technology needs, is being met with non-accounting graduates.” But what exactly is meant by this skills gap?
It is difficult to effect programmatic and curriculum changes at many institutions because of faculty inertia and the length of the approval process to make such changes.
A 2021 Journal of Accountancy article (C. Vien, “Wanted: More systems and analytics training for accounting students,” Journal of Accountancy, March 12, 2021, https://bit.ly/3QGrNTs) reported the following from an AICPA-National Association of State Boards of Accountancy (NASBA) gap analysis survey: Accounting departments should update their curricula to meet the demands of practice since there are “significant gaps between what practice is demanding and what students are learning in accounting programs.”
The AICPA-NASBA survey asked whether accounting departments taught the following topics:
- Data analytics (64% said yes)
- IT audit (63%)
- IT risks and controls (43%)
- IT governance (41%)
- Predictive analytics (40%)
- Cybersecurity (40%)
- Digital acumen (23%)
- Systems and Organization Control (SOC) engagements (23%).
Carl Mayes, the AICPA’s associate director for CPA quality and evolution, said that the AICPA-NASBA survey’s findings dovetail with what the CPA Evolution team has learned that employers need from accounting graduates. “The firms are demanding skills in data analytics and cybersecurity and IT audit and these other areas,” he said. “Many graduates coming out of accounting programs don’t have those skills, so they have to look elsewhere for that talent.” The takeaway for department heads according to Mayes is not that they need to have a separate course on each of the eight topics covered in the gap analysis, only that they should assess their curricula and see which topics they might need to cover more thoroughly (Vien 2021).
Furthermore, it is difficult to effect programmatic and curriculum changes at many institutions because of faculty inertia and the length of the approval process to make such changes. For example, in New York State, program and curriculum change proposals go through a highly detailed and time-consuming review process. New York is also considering some additional changes in its CPA licensing educational requirements that might provide even more of a deterrent for students to major in accounting.
In order to appeal to high school and college students, the perceptions of the CPA must change from the traditional accounting, auditing, and tax preparation functions to today’s role as strategic business advisors or a potential path to entrepreneurship.
CPA Exam Trends
The 2021 AICPA Trends report found that the number of CPA exam candidates decreased 17% between 2019 and 2020 and increased 6% between 2020 and 2021. In addition, the number of CPA exam candidates who passed their fourth section of the exam decreased 11% between 2019 and 2020 after a 2% decline between 2018 and 2019. Also, the number of successful candidates decreased 5.5% between 2020 and 2021.
According to the 2019 AICPA Trends report, 2018 saw the lowest number of candidates sitting for the Uniform CPA Examination in 10 years. The AICPA stated: “We believe that for CPAs to continue to serve the marketplace, they must incorporate new and different skill sets and that it is incumbent upon the profession to take steps to cultivate these rapidly changing skills in accounting graduates and newly licensed CPAs.”
In the ICPAS 2021 “A CPA Pipeline Report—Decoding the Decline” (https://bit.ly/3QDieVi), President & CEO Todd Shapiro states: “A stagnating CPA pipeline is a threat. It’s an issue that will only get worse and grow more troubling without action” (Shapiro 2021). He originally issued this warning in a 2016 Insight Special Feature, “Pipeline Disruption: The Search for Solutions to the Weakening Supply of CPAs” (“Pipeline Disruption: The Search for Solutions to the Weakening Supply of CPAs,” ICPAS, 2016, https://bit.ly/3L5olAN), and notes that “five years later, the issue has grown worse and more troubling.”
Shapiro further states: “Compounding the CPA pipeline’s troubling outlook is the waning presence of CPAs at the most visible and influential level of corporate finance—the CFO. In “Why You Don’t Need to Be an Accountant to Be a CFO,” (https://on.wsj.com/3UpvGPV), the Wall Street Journal’s Mark Maurer emphasizes that “at the 1,000 largest U.S. public companies, the portion of CFOs who are certified public accountants fell to about 36% last year, according to data from organizational consulting firm Korn Ferry. That is the lowest figure in the six years Korn Ferry has been collecting the data, down from 46% in 2014.” Clearly, corporate America does not think of CPAs as “strategic.”
Shapiro summarizes: “We steadfastly believe the CPA credential and the CPA profession are in a race for relevance, and the time to act is now.”
To act, the ICPAS developed a survey targeted toward accounting students, graduates, and professionals younger than age 35 (CPAs and non-CPAs) to gain insight into: 1) what is driving the decline in individuals pursuing the CPA credential, and 2) why so many accounting students and young professionals either never take, or do not finish, the CPA exam.
Responses from individuals who do not plan to become CPAs were as follows:
- Not seeing value or relevance to their careers (32%),
- Not seeing the return on investment (28%),
- Their employers or prospective employers do not require or support it (28%), and
- Other credentials or specialties are more valuable to their careers (28%).
Responses from individuals in the process or planning to become CPAs, and individuals unsure about getting the CPA, were as follows:
- Time commitment needed to study for and pass the CPA exam—
- workload time commitment (63%)
- personal time commitment (41%)
- Fear of failure (51%, students)
- Difficulty of the CPA exam content (54%, students)
The following were misconceptions about barriers to the CPA exam that this survey found were not validated or were unsubstantiated:
- Costs associated with obtaining the additional credit hours to meet the educational or licensing requirements (ranked lower than anticipated on the survey)
- Costs preparing for and taking the CPA exam (ranked lower than anticipated on the survey)
- Credential saturation and the pursuit of trending credentials are driving the decline of new CPAs.
When questioned about the CPA brand or how they viewed a CPA, all survey respondents most associated the words “accounting, auditing, and tax preparation” with the CPA credential. The survey results concluded: “This indicates respondents have a narrow view of what CPAs do and a limited perception of the value CPAs bring to clients and companies as trusted and strategic business advisors.” A 2022 student survey conducted by the Center for Audit Quality (CAQ) confirmed this narrow view of CPAs and the need for perceptions of CPAs to change from accounting, auditing, and tax preparation to strategic business advisors or as a potential path to entrepreneurship in order to appeal to high school and college students (“Increasing Diversity in the Accounting Profession: Challenges and Opportunities,” January 22, 2022).
Recommendations for the Future
Given the pace of technological changes in the accounting profession, the need to maintain the relevance of an accounting degree has never been more critical. Fewer than half of all accounting graduates ever sit for the CPA exam—and even fewer eventually pass it. The authors believe this is a major problem. Accounting programs and CPA firms must actively recruit increasingly diverse high school students while also recruiting from a declining white student population. In addition, accounting programs must update and modernize their curricula to incorporate much-needed skills, the missing skills that are driving accounting firms to hire more than 40% non-accountants. One potential constraint on updating curricula is the need for accounting programs to ensure they have the necessary faculty to successfully teach a modernized curriculum. In addition, in order to appeal to high school and college students, the perceptions of the CPA must change from the traditional accounting, auditing, and tax preparation functions to today’s role as strategic business advisors or a potential path to entrepreneurship.
Given the pace of technological changes in the accounting profession, the need to maintain the relevance of an accounting degree has never been more critical.
The authors recommend that the AICPA, NASBA, state societies, standard setters (e.g., FASB, GASB), regulatory agencies (e.g., SEC, PCAOB), public accounting firms, and colleges and universities take immediate actions to make careers in accounting more appealing to high school and college students by considering the following major changes:
- Drop the 150-hour requirement for CPA eligibility.
- Extend the 18-month CPA testing window (perhaps to three to four years).
- Increase starting salaries to compete with other fields including data analytics, supply chain, logistics, finance, and MIS/computer science.
- Provide work/life balance by reducing work hours.
- Allow CPA exam candidates to qualify for the exam by “reading” or apprenticing under another CPA.
The authors fear that, without these major changes to the profession, accounting enrollments will continue to decline at both the undergraduate and graduate levels, thus jeopardizing the sustainability of many accounting programs. In turn, this outlook will adversely impact the quality and quantity of new entrants to the profession, which may lead to issues with the integrity of the auditing process and the financial reporting system itself.