Currently, in order to be licensed, CPA candidates must earn a bachelor’s degree (usually 120 hours), earn 30 hours beyond the bachelor’s degree (which may entail completing a master’s degree), and complete one year of professional experience. On September 12, 2024, the AICPA and NASBA released an exposure draft, “CPA Competency-Based Experience Pathway,” for public comment. A Journal of Accountancy announcement regarding the exposure draft stated the following:
The CPA Competency-Based Experience Pathway would provide an additional option for CPA candidates to demonstrate professional and technical skills after earning a bachelor’s degree and meeting their state’s requirements for accounting and business courses—increasing flexibility for the next generation of accountants while maintaining the profession’s rigorous public protection mandate (https://tinyurl.com/ywps695v).
The AICPA and NASBA are not proposing to eliminate the master’s degree and +30-hour pathways to CPA licensure. Rather, they are proposing to add a new competency-based experience option so CPA candidates will have three rather than two options to licensure (this new proposed option is highlighted in Exhibit 1).
EXHIBIT 1
CPA Competency-Based Experience Pathway
A recent Wall Street Journal (WSJ) article (Mark Maurer, “New CPA Paths Emerge as States Try to Stem Accountant Shortage,” October 2, 2024, https://tinyurl.com/3yak8zeh) describes the rationale for the proposal as follows: “States are considering allowing prospective accountants to bypass a fifth year of school, one of the barriers to entry contributing to the shortage of workers in the field. … CPA candidates can use an additional year of work experience instead of schoolwork to show professional and technical skills. That is on top of a bachelor’s degree, a passing grade on the qualifying exam and one year of work.”
In essence, the AICPA and NASBA are proposing a return to the CPA licensure educational process that largely existed before Florida became the first state to mandate the 150-hour requirement in 1983—a requirement eventually adopted by all 55 U.S. boards of accountancy. The WSJ article notes the “associations’ (AICPA and NASBA) suggested alternative to the 150-hour requirement could make the path to a state accounting license less expensive.” In addition, the article cites a potential $25,000 savings for a sophomore at Loyola University Chicago without the requirement for a fifth year of school to seek a master’s degree or 30 credit hours beyond the bachelor’s degree. The student said “It’s been on my mind since I entered college as a freshman. I want my CPA license. How will I afford this?”
Why did the AICPA and NASBA act now? The AICPA and NASBA are widely perceived to have acted in response to actions by several state boards of accountancy and state CPA societies (e.g., Alaska, Arkansas, California, Florida, Maryland, Minnesota, Oregon, Pennsylvania, South Carolina, Texas, and Virginia) to explore additional pathways to CPA licen-sure with a bachelor’s degree or 120 semester credit hours. For example, the California Board of Accountancy is considering a proposal that would allow work experience to replace the requirement for 30 credit hours beyond the bachelor’s degree with no need for testing on competencies (Maurer, 2024). Minnesota has similar legislation that stalled in prior years (https://tinyurl.com/2kuk3vsm), and they hope to reintroduce a bill in January 2025 when a new legislative session starts. Rather than have more states propose additional differing pathways, the AICPA and NASBA proposed the CPA Competency-Based Experience Pathway to licensure in order to (hopefully) preserve uniformity, reciprocity, and mobility for future CPA licensees.
After the exposure draft’s release, the Big-4 accounting firms quickly indicated their support for alternative pathways to CPA licensure, with KPMG’s U.S. Chair and CEO Paul Knopp emailing the following statement to CFO Dive on October 9, 2024: “We have a brewing crisis that will impact accounting firms and corporations. We need to absolutely address it in the very near term. The cost of becoming a CPA has become too high, including both the cost of the extra education and the opportunity cost of spending an extra year in school” (Maura Webber Sadovi, “KPMG Backs 120-Credit Hour Alternative CPA Licensure Option,” CFO Dive, https://tinyurl.com/45btx4hr). Deloitte released the following statement to CFO Dive on October 14, 2024: “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” (Maura Webber Sadovi, “Deloitte Joins Backers of 120-Credit Hours CPA Licensure Option,” https://tinyurl.com/2cwmzkjv). Ernst & Young told CFO Dive: “We continue to be encouraged by efforts to address the additional 30 hours of education by other pathways and support taking a profession-based approach that does not disrupt or dismantle the system of mobility for practice,” and PricewaterhouseCoopers said it “is supportive of alternative pathways into accounting that preserve mobility and help increase the number of aspiring professionals [who] attain their CPA” and that PwC is “supportive of 120-hour credit alternatives” (Maura Webber Sadovi, “EY, PwC Voice Cautious Support for 120-Credit Hour CPA Licensure,” October 18, 2024, https://tinyurl.com/2p8y454y).
According to the WSJ article, the AICPA and NASBA aim to finalize the additional pathway and framework by February 2025 in order to provide guidance to state boards and legislators on required law changes needed during the spring legislative sessions. Assuming the state legislatures vote to pass new CPA laws, the state boards of accountancy would implement the new CPA laws by granting licenses under the new Competency-Based Experience Pathway and regulating the newly minted CPAs.
This article has several objectives: 1) examine the competency-based experience pathway requirements, 2) explore the potential impacts of the competency-based experience pathway on the accounting pipeline, 3) report a snapshot of students’ views regarding the competency-based experience pathway, 4) report a snapshot of professionals’ views regarding the competency-based experience pathway, and 5) explore the potential impacts of the competency-based experience pathway option on under-graduate and Master’s of Accounting/Accountancy (MAcc) programs.
CPA Competency-Based Experience Pathway Requirements
The proposed competency framework includes seven professional and three technical competencies. CPA candidates pursuing the experience pathway would be required to exhibit all seven of the following professional competencies and at least one of the three following technical competencies.
The seven required proposed professional competencies are—
- ▪ ethical behavior;
- ▪ critical thinking and professional skepticism;
- ▪ communication;
- ▪ collaboration, teamwork, and leadership;
- ▪ self-management and continuous learning;
- ▪ business acumen; and
- ▪ technology mindset.
The three proposed technical competencies (one required) are—
- ▪ audit and assurance,
- ▪ tax, and
- ▪ business and financial reporting.
Under the CPA competency-based experience pathway to licensure, candidates are required to apply the skills and knowledge learned in their bachelor’s degree program (i.e., professional competencies) and develop the technical competencies through their practice experience. To become certified, a candidate must have the competencies verified by at least one evaluator in their organization.
Below are definitions of the seven professional competencies and three technical competencies, taken from Appendix A of the “CPA Competency-Based Experience Pathway” exposure draft (https://tinyurl.com/yax9bzwz):
Seven Professional Competencies:
- ▪ Ethical behavior—CPAs must act ethically and behave with integrity at all times, consistently modeling and promoting ethical practices as an individual or as part of an organization.
- ▪ Critical thinking and professional skepticism—CPAs must think critically when performing all tasks. They must research, investigate, and analyze issues, problems, and questions. They must also apply professional judgment to the evaluation of data and any information from a variety of sources and perspectives.
- ▪ Communication—CPAs must effectively convey information and ideas to individuals and groups in a variety of situations in a focused way using verbal, nonverbal, written, and graphic techniques and skills.
- ▪ Collaboration, teamwork, and leadership—CPAs must work effectively between and among teams, peers, supervisors, clients, and other stakeholders to meet organizational goals.
- ▪ Self-management and continuous learning—CPAs must plan and manage personal development and appreciate how strengths and weaknesses may affect work, learning, and meeting goals. These skills relate to upskilling for new engagements, industries, technologies, and requirements and ensure a willingness to identify where learning and expertise are needed.
- ▪ Business acumen—CPAs must understand how a business fits within the broader context of an industry and the geopolitical environment so they can optimize opportunities, minimize risks, and execute planned objectives.
- ▪ Technology mindset—CPAs must use data and technology ethically as an enabler to optimize decision making and to promote business efficiencies and controls.
Three Technical Competencies:
Audit and assurance—CPAs participate in assurance engagements, including audit, attestation, and accounting and review services or work internal to an organization such as internal audit. These services are performed across many clients and industries and under multiple regulatory environments. By the end of their experience, a Candidate must have sufficient experience in audit- and assurance-related tasks based on the nature and scope of the specific engagements on which they work.
Tax—CPAs participate in tax engagements, including tax preparation and planning. These services are performed across many clients, both individuals and entities, industries, and under multiple systems, including federal, state, and local laws and regulations. By the end of their experience, a Candidate is expected to perform tax-related tasks based on the nature and scope of the specific engagements on which they work.
Business and financial reporting, including financial, not-for-profit, and governmental—CPAs participate in recording transactions, as well as preparing and analyzing financial reports, fluctuation analyses, and projections. These tasks are performed across many entity types, including for-profits, not-for-profits, as well as federal, state, and local governments, reporting under generally accepted reporting standards as defined by FASB, IFRS, GASB, and FASAB. By the end of their experience, a Candidate is expected to perform tasks based on the nature, size, and scope of the specific entity or entities and industries in which they work.
CPA Evaluator Requirements
The exposure draft discusses the process for evaluating and certifying competencies and states that candidates and their employers will “work together to identify a CPA Evaluator or series of Evaluators.” Appendix B of the exposure draft is a “Draft CPA Competency-Based Experience Certification Form,” although forms approved by state boards could also be used to certify competencies. The CPA Evaluator must certify the following: 1) the candidate has exhibited the competencies, 2) the number of hours being certified, and 3) the time frame covered by the certification. The standard required of CPA Evaluators is “due care and professional judgment based on their experience with the Candidate or understanding of the Candidate’s experience” (https://tinyurl.com/yax9bzwz).
One weakness of the proposed process for evaluating and certifying competencies is that there is no requirement of direct work experience with a candidate, because a CPA Evaluator can certify a candidate based on their “understanding of a Candidate’s experience” (https://tinyurl.com/yax9bzwz). A second weakness is the limited experience required of the CPA Evaluator, given that they are only required to be “a licensed CPA in good standing with a minimum of 3 years of post-licensure experience” (https://tinyurl.com/yax9bzwz).
A concern for the CPA Evaluator may be the liability they assume by certifying a candidate’s competencies. Perhaps such potential liability will fall on the certifying firm rather than the individual evaluator, but some parties must assume and accept liability for evaluating and certifying competencies. Unlike the Uniform CPA Examination, where a passing score provides validation of a minimum level of accounting knowledge, a check-the-box certification of the seven professional competencies and three technical competencies may be perceived by investors and creditors as a relatively low bar for certification. It is worth noting, however, that some states already have CPA evaluators certify portions of the elements of the proposed competencies on the work experience form. As such, there is a precedent for this process. For example, the Boards of Public Accountancy in New Mexico and Texas ask the evaluator to respond regarding the candidate’s integrity or ethics on professional accounting issues and whether the candidate continued to learn and stay abreast of important accounting pronouncements, related to ethical behavior and self-management and continuous learning competencies (https://tinyurl.com/3undjenz; https://tinyurl.com/ks6z7utp).
Potential Impact on the Accounting Pipeline
One challenge accounting undergraduate programs have faced with respect to recruiting majors is the 150-hour requirement, which effectively makes majoring in accounting a 5-year program. If approved, the authors expect the competency-based experience pathway to increase the number of undergraduate accounting majors by returning accounting to a four-year degree requirement. This change levels the playing field with respect to time to degree for accounting as compared to other business majors such as economics, finance, international business, logistics, management, marketing, management information systems (MIS), real estate, risk management, and supply chain management. Therefore, a student’s weighing the decision to major in accounting will not need to factor in the extra time and cost required to attain the additional 30 hours beyond the bachelor’s degree currently needed for a CPA license.
Concurrently, we expect the competency-based experience pathway to significantly decrease or reduce the number of graduate accounting majors since the +30 hours pathway will be optional rather than required. Given the extra time and cost required to attain the additional 30 hours beyond the bachelor’s degree, most future undergraduate accounting graduates, in the authors’ opinion, will opt to immediately enter the workforce under the competency-based experience pathway. This new option will put the onus on MAcc programs hoping to remain viable to convince students of the value added by obtaining a MAcc degree from their accounting programs.
Students’ Views Regarding the Competency-Based Experience Pathway
The AICPA 2023 Trends report shows a nearly consistent decline in the number of CPA candidates for much of the past decade, from a high of 48,000 CPA candidates in 2016 to a low of 30,000 in 2022 (https://nysscpa.org/2023-trends). The competency-based experience pathway provides additional flexibility to current and future accountants desiring to become CPAs. To gather insights into future accountants’ perceptions of the proposal, the authors surveyed 106 undergraduate accounting students at a public university, including both junior and senior students.
The survey asked students to respond to the statement “I would be more likely to pursue the CPA if this competency-based plan is approved” using a five-point scale (1=strongly disagree to 5=strongly agree). A majority of the students (60%) indicated that they strongly agree or agree that they would be more likely to pursue the CPA if the competency pathway is approved, while 33% were neutral. The survey also asked students what path they would be most likely to pursue to become eligible for CPA licen-sure if all three options were available. Exhibit 2 details the responses.
EXHIBIT 2
CPA Path Options
Students closer to graduation indicated that they were more likely to choose the competency path (53%) as compared to junior undergraduate students (32%). Among students who indicated a preference for meeting the li-censure requirement through education, junior students reported a higher interest in obtaining a master’s degree (31%) as compared to senior students, who indicated a higher interest in meeting the requirements through an additional 30 hours (32%). In sum, students in general indicated support for the proposal and would be likely to use this option to pursue CPA licensure, but also showed some interest in pursuing education beyond the bachelor’s degree.
If the proposal is approved in its current form, the authors anticipate decreases in enrollment in graduate business programs, particularly those with an accounting focus. The survey asked students to indicate which type of degree they would be most likely to choose if they were to pursue a master’s degree. Responses indicated similar interest in the MAcc (48%) and MBA (42%). In free responses, students indicated career advancement, growth opportunities, and higher salaries as reasons to pursue a master’s degree.
Next, the survey asked students to rank the top three professional competencies they believe are the most important to the accounting profession and the top three professional competencies they believe are the most important for early-stage accountants to develop. Students ranked ethical behavior, critical thinking/professional skepticism, and self-management/continuous learning as the top three most important competencies to the accounting profession. They ranked critical thinking/professional skepticism, communication, and self-management/continuous learning as the most important competencies for early-stage accountants to develop.
Professional Views Regarding the Competency-Based Experience Pathway
The October 3, 2024, WSJ article, “CPA Shortage Spurs Look at License Rule,” mentioned above, included 155 reader comments before comments were cut off; these comments provide insights into the views of self-interested professionals motivated to express their views. Seventy-four of the comments fell into four main categories, summarized below:
- ▪ Low pay and long hours—27 (36%)
- ▪ Work experience more valuable than more credit hours—9 (12%)
- ▪ Supports 150 credit hours—13 (18%)
- ▪ Against 150 credit hours—25 (34%)
The authors excerpted three comments from each category which are reproduced below.
Low pay and long hours
- ▪ Comment 1—CPA/accounting is one of those fields with ridiculous entry-level requirements and inadequate low wages.
- ▪ Comment 2—Students have finally wised up and realized that the CPA credential isn’t worth working twice as hard as your peers for half the pay.
- ▪ Comment 3—Fixing the pay disparity would likely bring more students into accounting programs, which will increase the number of accountants.
Work experience more valuable than more credit hours
- ▪ Comment 1—I’m a CPA who passed the 150-hour requirement a couple of decades ago. What I’ve seen in my experience is that 150 hours is not that relevant, especially considering I took a lot of accounting classes that either have no relevance or became outdated in a short period of time. Work experience has been 95% more relevant to me.
- ▪ Comment 2—Four years is enough. The students learn more on the job than they do in an additional year in college. The 150-college credit requirement is significantly harming the accounting profession. On the job experience is far better than another year in college.
- ▪ Comment 3—The 5th year of school requirement is ridiculous. Work experience is much more important than a fifth year of college.
Supports 150 credit hours
- ▪ Comment 1—The profession already is a risky bet — now you want to lower the bar to entry to certify financial statements — I wonder what could go wrong.
- ▪ Comment 2—Please don’t lower the bar. Don’t cheapen the profession. Figure out another way to attract more kids to the field. Make them earn the dignity and much deserved respect.
- ▪ Comment 3—Lowering requirements will dilute the quality of CPAs. The 150 hours is meant to develop someone well rounded, with the ability to interpret figures, not just add and report without analysis.
Against 150 credit hours
- ▪ Comment 1—States need to immediately abandon the 150 hours requirement and loosen the credit hours that count [as] restrictions.
- ▪ Comment 2—I’m hoping the governing accounting bodies will end up cutting the credit hour requirements back down to 120.
- ▪ Comment 3—In total, the additional 30-credit hour requirement does not accomplish anything other than waste a lot of time and money.
The above comments reveal a consensus opinion—albeit one that may be potentially biased—that it is time to rethink the 150-hour requirement for CPA licensure, and the authors believe that a majority of CPAs would support eliminating the 150-hour requirement for CPA licensure to address one factor in declining accounting enrollments (i.e., the time and cost to attain the 150-hours). The reader comments also reveal ongoing concerns regarding the impact of low starting salaries on declining accounting enrollments, a concern that accounting firms have finally started to address in the past 2-3 years. (See, for example, Jack Castonguay, “Accounting Firms Must Do More Than Make One-Time Salary Bumps,” Bloomberg Tax, July 9, 2024, https://tinyurl.com/preview/3zskcfhy; Maura Webber Sadovi, “EY’s $1B Pledge Targets 10% Raise in Starting CPA-Track Pay,” CFO Dive, June 17, 2024, https://tinyurl.com/preview/ynzyf3uz; Sue Coffey, “Employers Focusing on Starting Salaries and Workload to Ease Pipeline Pain,” Journal of Accountancy, Nov. 13, 2024, https://tinyurl.com/66syf9du.) Unfortunately, the authors believe it will take sustained raises for an extended period of time (i.e., at least ten years) for starting salaries in accounting to catch up to starting salaries in data analytics, finance, logistics, and supply chain management. Fortunately, as noted earlier, if the competency-based experience path-way is approved, accounting programs will no longer be at a deficit relative to other business majors with respect to total credit hours.
Potential Impact on Undergraduate and MAcc Programs
Another important consequence of having a large number of students who desire to pursue the competency-based experience option to obtain CPA licen-sure would be potentially decreased demand for MAcc programs and, by derivation, decreased demand for accounting faculty.
The potential impact of these demand-driven effects could, in the authors’ opinion, be substantial for accounting program directors, faculty, and students. Declines in MAcc enrollments could have significant implications for resource allocation. For example, a decline in MAcc course enrollments may result in fewer sections of MAcc courses each semester and additional undergraduate course preparations with higher teaching loads. This demand decline might also motivate the dean’s office to reallocate accounting faculty lines as they become vacant from retirements and departures to other, more popular areas in the business school such as data analytics, finance, logistics, and supply chain management.
A majority of CPAs would support eliminating the 150-hour requirement for CPA licensure to address one factor in declining accounting enrollments.
If accounting departments and faculty were to face declining MAcc program enrollments, they would then need to consider how to make their MAcc program curricula more appealing to prospective students. For example, some programs have moved to specialized tracks in high-profile areas that give students a competitive advantage in the job market, such as data analytics and forensic accounting. Nevertheless, students seeking long-term career advancement into managerial and executive positions may find the MBA or MS in data analytics/business analytics degree options more appealing than the MAcc, and more lucrative from an entry-level salary perspective.
For these reasons, the authors expect the competency-based experience pathway to significantly reduce the number of existing and sustainable MAcc programs, and we predict many MAcc program closures over the next ten years, if the competency-based experience path-way is approved by all 55 U.S. boards of accountancy. This trend would also likely result in decreasing demand for accounting faculty, or at a minimum, a reallocation of the workload of many faculty from graduate to undergraduate teaching responsibilities.
Preparing for Uncertainty
The CPA competency-based experience pathway that the AICPA and NAS-BA have proposed would potentially enable accounting students to attain CPA licensure with a four-year undergraduate degree and one year of work experience—thus effectively removing the additional thirty credit hour requirement and thereby reducing the cost of licensure. The authors believe that this proposed experience option will be one step toward partially solving the accounting pipeline shortage problem and increasing the number of undergraduate accounting majors, while also decreasing the number of graduate accounting majors. But the authors also believe that accounting firms must continue increasing entry-level salaries and improving work-life balance tradeoffs; revitalizing the CPA license as a satisfying and well-compensated career option should help address the pipeline problem.
The authors acknowledge the uncertainty of the present moment and the potential impacts of the proposed licen-sure changes on the future of the profession. For two of the three authors, we also acknowledge that the proposed competency-based experience pathway is consistent with a recommendation to eliminate the 150-hour requirement we made in three articles previously published in The CPA Journal. Thus, we fully support the proposed competency-based experience pathway—although the process for evaluating and certifying competencies may need some modifications or revisions.
