The accounting profession is facing a severe crisis due to a shortage of accountants. Significantly fewer students have selected accounting as a major. As a direct result of enrollment declines in accounting programs, candidates sitting for the CPA exam have also decreased from 48,004 first-time candidates in 2016 to 32,188 in 2021, a drop of 33% (as reported in the AICPA 2021 “Trends Report,” available from https://www.nysscpa.org/2021-trends or Trends@aicpa-cima.com). The AICPA/CIMA 2022 Annual Report (https://tinyurl.com/2p8jzfsp) reveals a 7% decrease from 2021 to 2022 for the total number of candidates taking the CPA exam. Also, 2022 saw the lowest number of exam takers since 2006 (“CPA Exam Takers in 2022: Fewest in 17 Years,” S.J. Steinhardt, May 30, 2023, https://www.nysscpa.org/23530sjs). Likewise, 30% fewer candidates passed their final section of the CPA exam in 2021 compared to 2016. Further compounding the problem, the AICPA has stated that roughly 75% of its members are at retirement age (https://tinyurl.com/3kr8ye4m).
The AICPA 2021 “Trends Report” states: “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.” These are national statistics; anecdotally, it is known that many universities, especially private ones, have experienced significantly larger decreases. For example, in September 2020, Gabbin, Irving, and Shifflett reported that James Madison University experienced a 34% decrease in accounting majors over four years, from 2015 to 2019 (“Accounting Education at a Crossroads. Does a Drop in Enrollment Foretell a Decline in the Marketplace?” The CPA Journal, 2020, https//nysscpa.org/200930alg). The pending enrollment cliff anticipated to start in 2025 will only further exacerbate the situation, as a decrease in birth rates results in a significant reduction in traditional college-age students (see “The College Problem in America is About More than Cost,” Forbes, March 15, 2023).
Various reasons have been provided to explain the shortage in accounting majors. At the 2023 PricewaterhouseCoopers Annual Accounting and Tax Symposium, for example, members discussed an assortment of factors contributing to the declining accounting pipeline, such as the following:
- ▪ The 150-hour requirement is seen as a barrier to entry.
- ▪ Accounting is perceived as boring.
- ▪ Compensation is lower than for other majors such as finance and technology.
- ▪ A lack of diversity seems apparent.
- ▪ The accounting major is perceived as too specialized.
- ▪ The cost of education is too high.
- ▪ Enrollments in higher education are declining.
Some of the above reasons have been constant problems. The accounting profession has historically had an image problem. For example, author J.F. (Accountancy, March 1972, vol. 83, no. 943, p. 67) refers to a Monty Python comedy sketch in “And Now for Something Completely Different,” which refers to accounting as boring (see https://www.youtube.com/watch?v=-8I5TtNfjBI). In “Why You Never Saw Charles Bronson Cast as Hero Accountant—Accounting is Called Too Dull for the Screen; Profession is Plagued by Poor Image” (Wall Street Journal, October 1984), Berton discusses how accountants are plagued with an unflattering image of being dull and unexciting. As stated in “Quality and Quantity of Accounting Students and the Stereotypical Accountant: Is There a Relationship?” (Journal of Accounting Education, 1992), Cory describes how accountants are negatively stereotyped in books, movies, plays, and television shows. The negative image of accounting persists today, even though the accountant’s role has significantly changed for the better. Gone are the days when accountants spent their day manually adding up columns in smoke-filled back offices. Today’s accountants are at the forefront of many business decisions, using cutting-edge technology to help guide an organization. The authors leave it up to the National Association of State Boards of Accountancy (NASBA) and the AICPA to engage consultants to help promote a realistic image of today’s accountants.
Also mentioned on the above list is that starting salaries for other fields, such as finance and technology, are often at least 20% higher than starting salaries of accountants, and these areas don’t typically have such arduous entry requirements [“Candidate Numbers for US Accountancy Exams Drop to Lowest in 17 Years,” Foley, May 2023, Financial Times (https://tinyurl.com/f2jh8cx2)]. The authors expect that as the number of entry-level accountants declines and the demand remains strong, the economics of supply and demand should eventually drive up the starting salaries of accountants.
The 150-Hour Requirement
The primary focus of this article is how to address the 150-hour requirement as a factor in the declining interest in accounting. Some argue that the problem of attracting majors has always existed, deflecting blame away from the 150-hour requirement (see, for example, comments by Rick Reisig in NASBA’s “The More Things Change, the More They Stay the Same: Addressing the CPA Pipeline Crisis,” https://tinyurl.com/5ytur5dj, 2023). The last U.S. jurisdiction to adopt the 150-hour requirement, Colorado, did so in 2015 (https://www.nysscpa.org/181031-cg). Although it takes time to observe trends and determine whether a change is or isn’t effective, at this point in time, the 150-hour rule does not seem to have helped the profession.
Many would agree that the most significant reason for the decline in accounting majors is the 150-hour requirement.
The 150-hour requirement was intended to better prepare students for the profession and enhance the profession’s image. Advocates of the requirement expected that students would become better critical thinkers and thus better prepared for the evolving profession through a fifth year of education. In 1996, Rick Elam, then–vice president of education at the AICPA (Issues in Accounting Education, 1996, p. 5), described the enactment of the 150-hour requirement as “an important change because it demonstrates unequivocally that the AICPA has recognized that a licensure examination, no matter how high quality, cannot substitute for a college education, particularly education beyond the traditional baccalaureate degree.” But the extra 30 hours can generally consist of any credits, including basket weaving, ceramics, archery, and astronomy courses that can be taken at community colleges, four-year colleges, graduate programs, or certificate programs. Furthermore, many would argue that the additional 30 credit requirement has not helped students acquire stronger critical thinking skills and has not positively impacted the image of accounting. Barrios, in “Occupational Licensing and Accountant Quality: Evidence from the 150-Hour Rule,” (Journal of Accounting Research, vol. 60, no. 1, 2022), reported the results of a study that found no differences in the quality of accountants with 150 hours of education and those without the 30 additional hours. The study finds that the 150-hour requirement deters people from entering the profession and does not result in a difference in performance quality between those with 150 hours and those without. The study also finds that the writing skills are the same for those with and without the 150 hours.
Many would agree that the most significant reason for the decline in accounting majors is the 150-hour requirement. Aside from having to pay an additional year of tuition, many students traditionally wait until they graduate before they work full-time at an accounting firm. As a result, there is a substantial opportunity cost to the 150-hour requirement. There have been constant challenges to attracting talented individuals into the accounting profession; therefore, does it make sense to continue to require an additional 30 credits of education to earn the CPA license? The authors join the opinion that the 150-hour requirement is a significant factor leading to the shift in emphasis away from accounting.
Two (Partial) Solutions
The authors believe the best way to help mitigate the accounting crisis would be to eliminate the 150-hour requirement. As noted above, Barrios (2022) found no difference in performance quality between those with 150 hours and those without, supporting an opinion that many in the profession already have.
The authors believe the best way to help mitigate the accounting crisis would be to eliminate the 150-hour requirement.
If Option 1 is not acceptable to NASBA and the AICPA, the authors propose a compromise solution based on the upcoming new CPA exam. The new exam, effective in 2024, will have four separate sections that must be passed: three separate core sections (AUD: Auditing and Attestation, FAR: Financial Accounting and Reporting, REG: Tax and Regulation), which include an increased emphasis on technology, plus one of three discipline sections chosen by the candidate (BAR: Business Analysis and Reporting, ISC: Information Systems and Controls, TCP Tax Compliance and Planning).
Instead of the above requirements, the authors propose the following:
- ▪ All CPA candidates must pass the three basic core exam sections (AUD, FAR, and REG).
- ▪ Candidates who earn only a minimum 120-credit hour bachelor’s degree in accounting must also pass one of the three disciplines (BAR, ISC, and TCP) on the new exam.
- ▪ Candidates who earn a minimum 120-credit hour bachelor’s degree in accounting and also earn a minimum 30-credit hour master’s degree at an accredited institution that focuses on one of the three new discipline exam sections do not need to take the discipline exam.
Students who take 30 additional credits of random topics, instead of a master’s degree relating to one of the three disciplines, would still be required to take and pass a discipline exam.
Under Option 2, a student would have the choice of completing a master’s degree related to one of the discipline sections instead of 30 credits in any subject and at any level. Earning a master’s degree at an accredited institution, in an area relating to one of the three disciplines, is certainly equivalent, if not superior, to a four-hour exam on the subject. Students who choose to take the 120-hour requirement (due to financial reasons, work/family obligations) would still be able to become a CPA by passing all four parts of the exam. The authors believe more students would be attracted to accounting if they had this option.
The AICPA earned $23 million less than projected revenues in 2022 due to the decrease in CPA exam candidates (https://tinyurl.com/2fdb78bm). The AICPA and NASBA might not welcome proposed Option 2, because it might initially result in a further decrease in revenues, since only some candidates will need to pay for and pass all four sections of the CPA exam. But the goal of our proposal would be to eventually increase the number of students majoring in accounting, which would have a corresponding increase in total revenues for these organizations.
Time for Dramatic Changes
The accounting profession is facing a perfect storm, the result of a decrease in the perceived value of the college degree, lower compensation for accounting graduates compared to other majors, the looming enrollment cliff, and the additional burden of a 150-hour requirement to become a CPA. These factors, in the authors’ opinion, have led to a severe lack of a supply of accountants. The accounting profession must take quick action to address these issues. The proposed options presented above are targeted toward one contributor to this problem, the 150-hour requirement. The accounting profession is facing a serious crisis, and it is time to make dramatic changes.