Background
On September 11, 2024, NASBA and the AICPA issued an exposure draft asking for input about what they described as a competency-based alternative to having to complete an extra 30 credits of education beyond the bachelor’s degree before becoming a licensed CPA. Their proposal would keep the 150-hour pathway intact for those who choose that route to CPA licensure. The alternative path would require a CPA candidate to demonstrate proficiency in the following seven core professional competencies:
- ▪ Ethical behavior
- ▪ Critical thinking and professional skepticism
- ▪ Communication
- ▪ Collaboration, teamwork, and leadership
- ▪ Self-management and continuous learning
- ▪ Business acumen
- ▪ Technology mindset.
In addition, a CPA candidate would have to demonstrate proficiency in one of the following three technical areas: Audit, Tax, or Business & Financial Reporting. The comment period on the joint NASBA and AICPA proposal is open until December 6, 2024. The authors urge interested professionals and stakeholders to participate in the ongoing professional discussion.
The completion of the above is required to be done through work experience over a year (2,000 hours), on top of the year of general experience that all CPA candidates currently must complete to become licensed (“AICPA and NASBA Seek Input on Proposed Additional Pathway to CPA Licen-sure,” https://tinyurl.com/y8uxkmbn).
The authors are in favor of replacing the 150-credit hour educational requirement for CPA licensure with an alternative path. While we are pleased that NASBA and the AICPA have issued this proposal and are seeking public input on it, we question how it is being framed, and the reasons for that framing. Instead of replacing the 150-hour requirement, they are proposing what they describe as an alternative path that is equivalent to it. They suggest that the existing 30 credits result in candidates having met the competencies identified in their proposed alternative path as a result of completing additional coursework. But the authors’ concern is that there is no evidence that additional course-work increased these competencies for CPA candidates.
Critical Context
Calls for either eliminating, modifying, replacing the 150-hour credit requirement to become a CPA, or providing an alternate path to CPA licensure have been growing louder and louder over the past two years. There have been five articles published (including by the present authors) in The CPA Journal alone over the past year and another in The Trusted Professional:
- ▪ C.L. Comunale, J.H. Irving, and J.E. Trainor, “The Accounting Pipeline: Insights from Professionals and Students,” September/October 2023, https://nysscpa.org/2309-ccjijt.
- ▪ S. Mintz, W. Miller, and T. Shawver, “Rethinking the 150-Hour Requirement for CPA Licensure,” September/October 2023, https://nysscpa.org/2309-smwmts.
- ▪ J. Castonguay, “The AICPA and NASBA’s Inadequate Response to Reaching 150 Hours: Seeking Win-Win Solutions for all Stakeholders, not a Zero-sum Game,” September/October 2023, https://nysscpa.org/2309-jc.
- ▪ J.E. Trapnell, S. Mezzio, M. Dugan, and M.C. Dawkins, “Accounting Education Disrupted: Transforming to Face a Challenging Future,” September/October 2023, https://nysscpa.org/2309-jtsmmdmd.
- ▪ J.A. Burke and R.S. Polimeni, “The Accounting Profession in Crisis: A Partial Solution to the Shortage of Accountants,” September/October 2023, https://nysscpa.org/2309-jbrp.
- ▪ S.J. Steinhardt, “Study: 150 Hour Rule Presents Barrier to Minority CPA Candidates,” February 12, 2024, https://nysscpa.org/20240212-sjs.
More than 300,000 U.S. accountants and auditors have left their jobs in the past several years, a 17% decline, according to the Bureau of Labor Statistics. Recruiters say experienced accountants are often moving into new roles in finance and technology, and the exodus is expected to worsen as baby boomers leave the workforce, with 75% of CPAs retiring or close to retiring in the next 15 years, according to the AICPA (A. Mutoh, “Why Graduates Aren’t Hot on Accounting Careers: Low Starting Pay, Onerous Testing,” https://tinyurl.com/3puv77c8).
In the authors’ view, there are two common threads that weave through all of this commentary. First, the AICPA and NASBA have shown unwavering support for the 150-credit hour requirement in spite of the fact that there is no overwhelming proof it is needed. (The authors see this unwavering support as misplaced.) Second, the vast majority of CPA firms have remained publicly silent on the matter, but behind closed doors individuals openly express their dissatisfaction with the requirement. Blake Oliver reports that an informal poll of managing partners attending the 2023 BDO Alliance found that only 20% supported the 150-hour requirement, while the other 80% supported changing or eliminating it (“Rethinking the CPA 150-hour Requirement: There Must Be a Change,” Intuit, Firm of the Future, Jun. 16, 2023, https://tinyurl.com/y3earctk).
NASBA and the AICPA’s Basis for Supporting the 150-Hour Requirement
If one were to read the six articles referenced above, one would find that there is no convincing research showing valid reasons behind the 150-hour requirement—simply speculation and opinion. Conversely, these same articles present convincing research showing that the profession is being harmed by the requirement (the significant and growing shortage of people entering the profession), that academic programs are being harmed by the requirement (most accounting programs have shrunk in size as students are going elsewhere to avoid the extra time and expense required to accumulate 150 hours), and that marginalized groups are being disproportionately harmed. These are known and accepted facts.
According to a 2023 paper published in The Journal of Accounting Research, “The 150-hour requirement for obtaining a CPA license has led to a 26 percent decline in entry of minority CPAs and a 14 percent decline in entry for nonminority CPAs” (A. Sutherland, M. Uckert, and F. Vetter, “Occupational Licensing and Minority Participation in Professional Labor Markets,” 2023, https://doi.org/10.1111/1475-679X.12518). This is troublesome and raises the ethical question of whether the requirements discriminate against minorities.
As Mintz, Miller, and Shawver point out in their September/October 2023 CPA Journal article there has been a steady decline in the number of students with bachelor’s and master’s degrees in accounting due to the 150-hour requirement. Indeed, there has been about an 8% decrease in the total number of accounting degrees completed during the past five years (S. Mintz, W. Miller, and T. Shawver, 2023).
Researchers at Utah State University collected data from 2006 to 2016 examining the effect of the 150-hour requirement on the number of first-time candidates sitting for the CPA exam as well as on candidate performance. The findings indicate that a reduction in the number of credit hours required to sit for the CPA exam increased the number of candidates, while an increase in the number of prerequisite hours reduced the number of candidates. The authors found no relationship between changes in the CPA exam requirements and pass rates or scores. The data suggest that requiring 150 hours instead of 120 creates a potential barrier to entry for licensed CPAs with no accompanying increase in candidate quality (B. Meehan and E.F. Stephenson, “Reducing a Barrier to Entry: The 120-150 CPA Licensing Rule,” Journal of Labor Research, December 14, 2020, https://link.springer.com/article/10.1007/s12122-020-09313-4).
The authors believe the time is right for the AICPA and NASBA to admit the 150-hour requirement has failed to meet its intended goal of producing more qualified CPAs. Yet, with all this evidence, both the AICPA and NASBA continue to support the 150-hour requirement. In fact, if anything, they have doubled down on it. First with the creation of the CPA Evolution Initiative and the related claim that it will help attract more students into the profession. Then in response to increased calls for changes to the 150-hour requirement, NASBA President and CEO, Ken Bishop warned individual state board NASBA members by stating, “Should any state or jurisdiction lower the licen-sure requirement to 120 hours, their CPAs would no longer be automatically substantially equivalent [to the 150-hour states] and would no longer enjoy the mobility and reciprocal practice privileges they are currently afforded” (B. Strickland, “NASBA Upholds 150-Hour Education Requirement for CPA Licensure,” Journal of Accountancy, February 2023, https://tinyurl.com/3srpe6v9). Most recently, AICPA and NASBA ignored solid proposals originating in Minnesota and California that would create alternative pathways that keep the 150-credit hour requirement intact.
Where Do We Go From Here?
While both the AICPA and NASBA continue to support the 150-hour requirement, some individual state boards appear to be considering dropping it. The Minnesota Society of CPAs (MNCPA) proposed an alternate path to CPA licensure that, as of March 2024, was under consideration by the finance committee of the Minnesota Senate (https://tinyurl.com/2kuk3vsm). The 2024 legislative session ended without resolution. The MNCPA plans to reintroduce this legislation in 2025. Their proposal simply adds an additional year of experience in lieu of completing the 30 hours beyond the bachelor’s degree.
The California Board of Accountancy voted at its November 2024 board meeting to eliminate the 150-hour requirement and decouple mobility from licensure requirements (i.e., substantial equivalency). The action of the board is for proposed legislation and does not enact the proposed changes. It is difficult to know when the state legislature will discuss the matter; however, it is notable that California is the first state to take this action. (California Board of Accountancy, Discussion and Possible Action …, November 21-22, 2024 meeting,” http://bit.ly/3CY1J5j).
South Carolina has proposed similar changes to their reciprocity rules for licensing CPAs from other jurisdictions, which would eliminate potential concerns over the portability of CPA licensure, at least in these states (South Carolina Association of CPAs, “Proposed Amendments to Title 40 Chapter 2 Accountants,” https://tinyurl.com/32aakywa).
The new proposal put forth by the AICPA and NASBA takes a different route. Their proposed alternative pathway to licensure adds a second year of work experience, where the specific competencies identified at the outset of this article must be assessed and reported on to the individual state boards to become licensed. This is a potential administrative nightmare for individual state boards, for employers, and for the CPA Evaluator who would complete the assessment of candidate competencies. While the AICPA and NASBA’s recognition that change is needed is a welcome development, there is no evidence to suggest that their proposal will result in higher quality CPAs. Furthermore, the proposed changes might result in CPA Evaluators just “checking the box” without implementing a real assessment system to track desired competencies.
We believe the time is right to eliminate the 30-hour post-bachelor’s requirement as a separate pathway to licensure.
How to Make a Difference
It is worth noting that Jen Leary, CEO of Clifton Larson Allen (the 9th largest CPA firm in the United States, https://insidepublicaccounting.com/ipa-top-500-firms/), has come out in support of Minnesota’s proposal, despite the negative reactions from the AICPA and NASBA. On October 9, 2024, KPMG came out publicly calling for the creation of alternative paths to CPA licensure (https://tinyurl.com/3y4y5786). In addition, on October 14, 2024, Deloitte joined backers of 120 credit hours in calling for an alternative pathway to become a CPA, which would replace 30 of the 150 credit hours with work experience, (Maura Webber Sadovi, “Deloitte Joins Backers of 120-Credit Hours CPA Licensure Option,” https://tinyurl.com/2cwmzkjv). On October 18, 2024, Ernst & Young (EY) and PricewaterhouseCoopers (PwC) voiced cautious support for 120 credit hours for CPA licensure. More voices need to be heard from, including those of professional associations, who represent CPAs and CPA firms of all sizes, and state boards of accountancy (Maura Webber Sadovi, “EY, PwC Voice Cautious Support for 120-Credit Hour CPA Licensure,” October 18, 2024, https://tinyurl.com/2p8y454y).
Comments by Deloitte and PwC illustrate the support for an alternative pathway that would end the 30-hour requirement beyond 120 hours. In a communication sent to CFO Dive, a Deloitte spokesperson identified that “Attracting more CPAs is good for our profession and serves the public interest, so as an alternative to the current fifth year education requirement for CPA licensing, Deloitte is supportive of experience-based pathways to licensure” (Sadovi, https://tinyurl.com/2cwmzkjv). PwC stated in its approval that “PwC has always focused on helping to create new avenues for entry and offering greater access to the profession for aspiring talent. Our firm is supportive of alternative pathways into accounting that preserve mobility and help increase the number of aspiring professionals [that] attain their CPA” (Sadovi, https://tinyurl.com/2p8y454y).
Go Back to What Works
The authors realize that it might be difficult for the AICPA and NASBA to admit that the 150-credit hour requirement has hindered the profession by creating a barrier to entry that resulted in the pipeline problem our profession is experiencing today. We believe that NASBA and the AICPA should publicly support the efforts of individual state boards of accountancy, like Minnesota, California, and South Carolina. Whether they demonstrate that support or not, we hope that these proposals move forward quickly, and that they motivate other state CPA societies and state boards of accountancy to follow suit.
Finally, the authors do not support the alternative path put forth by the AICPA and NASBA. We do not think it is tenable to reliably assess the proposed competencies as the proposal requires. Effectively replacing a barrier to entry with a hoop to jump through seems like a waste of time and resources. In the authors’ opinion, it’s time to go back to the days when passage of the CPA exam, in conjunction with a bachelor’s degree and a year of work experience, was the licensure requirement.
