CPA Exam Research Articles

Implementing a Required Ethics Class for Students in Accounting: The Texas Experience

This paper describes a triangulated case study of the experiences and attitudes of educators in Texas regarding recent implementation of a three-semester-hour course in ethics as a prerequisite education requirement for CPA examination candidates. We present the results of (1) examining syllabi of courses on the Texas State Board of Public Accountancy (TSBPA)'s approved list as of January 2006; (2) two follow-up surveys of course instructors; and (3) unstructured interviews of selected members and staff of the TSBPA. The purpose of this descriptive study is to gather information concerning the content and pedagogy in college and university ethics courses for CPA exam candidates in Texas. In addition, we report impressions of course instructors and TSBPA staff as to their course and implementation experiences. The results of this study may be useful to educators elsewhere who are attempting to design and implement future courses in ethics for accounting students. In addition, our findings might prove insightful to policy makers and regulators as well as to practitioners who both hire the graduates and serve on state boards and other policy-making groups.

An Investigation of The Relationship Between AACSB Business School Accreditation and CPA Exam Success Rates

The Association to Advance Collegiate Schools of Business-International (AACSB) is widely to world’s foremost accrediting agency of business schools. AACSB promotional literature asserts AACSB accreditation is associated with higher qualify business education and higher quality business school graduates. The assertion of higher quality is somewhat controversial and to date has not been well supported by empirical evidence. The research presented below investigates whether recent business school graduates taking the uniform certified public accountants exam score higher when from AACSB accredited institutions rather than when from non- AACSB accredited institutions. Results indicate that graduates of AACSB accredited business schools do in fact score significantly higher on all parts of the uniform certified public accountants exam than do their counterparts form unaccredited institutions.

CPA Exam Blues

CPA exam pass rates are a widely accepted indicator of an accounting program’s ability to prepare its graduates for success on the exam and are often used to communicate the quality of the program to prospective students. While passing the exam can be very expensive, time consuming, and difficult, it is a critical priority for most accounting students. This study examines (1) whether completion of a graduate degree is associated with performance on the CPA exam, and (2) the institutional variables that are also associated with CPA exam performance. These variables include the schools’ accreditations, selectivity in admissions, faculty credentials, research ranking, and whether the school is public or private. The results indicated that completion of a graduate degree was associated with higher CPA exam pass rates. In addition, accreditation type, admissions selectivity, and proportion of accounting faculty holding a CPA license were also significantly associated with CPA exam pass rates. However, the proportion of accounting faculty with a terminal degree, research ranking, and public versus private were not significant.

A History of U.S. Higher Education in Accounting, Part II: Reforming Accounting within the Academy

In the 1970s, efforts to reform accounting education revolved around the movement toward schools of accountancy (or independent departments). These efforts were largely unsuccessful. However, in the 1980s, the movement to expand accounting education beyond a four-year undergraduate degree resulted in American Institute of Certified Public Accountants (AICPA) members passing a rule mandating 150 hours of education for AICPA membership. The reaction to this rule was varied. Many state boards of accountancy and state legislatures adopted rules requiring 150 hours; however, the requirements for taking the CPA exam and licensure varied across states. After the rule's passage academicians responded by creating the Accounting Education Change Commission, whose purpose was to improve accounting education regardless of the number of credit hours students earned. Also, the AICPA shifted its attention to the possibility of expanding certification to practitioners who were not accountants. Both of these efforts were forestalled, and public attention shifted to the highly publicized accounting scandals of the 1990s. Efforts to reform accounting education since then have been led primarily by the National Association of State Boards of Accountancy (NASBA).

Detecting Differential Speededness in Multistage Testing

A potential undesirable effect of multistage testing is differential speededness, which happens if some of the test takers run out of time because they receive subtests with items that are more time intensive than others. This article shows how a probabilistic response‐time model can be used for estimating differences in time intensities and speed between subtests and test takers and detecting differential speededness. An empirical data set for a multistage test in the computerized CPA Exam was used to demonstrate the procedures. Although the more difficult subtests appeared to have items that were more time intensive than the easier subtests, an analysis of the residual response times did not reveal any significant differential speededness because the time limit appeared to be appropriate. In a separate analysis, within each of the subtests, we found minor but consistent patterns of residual times that are believed to be due to a warm‐up effect, that is, use of more time on the initial items than they actually need.

The 150-Hour Requirement and the Number of CPA Exam Candidates, Pass Rates, and the Number Passing

This study examines the association of the 150-hour education requirement with the number of CPA exam candidates, pass rates, and the number passing. Proponents of the 150-hour requirement argue that additional education produces higher quality students who are better prepared for the CPA exam and accounting careers. Opponents argue it imposes opportunity costs on students and costly barriers to entry into public accounting. On average we find a large drop (36 percent) in the number of candidates in each state taking each exam, a small increase in pass rates for first-time candidates only (3 percent), and a large drop (31.5 percent) in the number passing the CPA exam after the 150-hour requirement. Our results may be useful to accounting educators evaluating the success of their 150-hour programs, state boards considering revisions of their 150-hour requirements, and public accounting firms setting strategies to achieve audit quality.

Supply-side effects of the 150-hour educational requirement for CPA licensure

This study examines issues associated with professional licensure in the context of the recently implemented 150-hour educational requirement for CPA licensure. We base our hypotheses on prior professional licensure research in economics and accounting. The results show that the implementation of the requirement has been associated with a substantial decline in the number of candidates taking the CPA exam, a significant increase in the pass-rate on the exam and an overall decline in the number of successful candidates. We also find that a substantial number of candidates advanced the timing of their candidature to circumvent the requirement and that candidates migrate from states that implement the requirement to non-implementing states.

Inconsistencies in U.S. GAAP: Accounting for Executory Contracts

This instructional case provides four different scenarios that illustrate the inconsistent treatment of various executory contracts under current generally accepted accounting principles (GAAP). The purpose of the case is threefold. First, it provides students an opportunity to use the Financial Accounting Research System (FARS) to resolve several accounting issues related to long-term executory contracts. Familiarity with FARS is essential, both for “real-world” use when students enter the accounting profession and for success on the computerized CPA exam, which includes case research. Second, as the Financial Accounting Standards Board (FASB) attempts to move toward principles-based standards (as opposed to rules-based standards), the case provides students an opportunity to observe that GAAP seems to be rules-based and theoretically inconsistent in the case of executory contracts. Third, the case can be used as a premise for discussing the standard-setting process and exploring differences between the economic substance of a transaction and its legal form.

The Normative Impact of CPA Firms, Professional Organizations, and State Boards on Accounting Ethics Education

Accounting educators are in the midst of creating new opportunities for students to enhance their abilities to recognize ethical dilemmas, establish criteria by which to make ethical decisions, and establish support mechanisms and strategies to facilitate their ethical decision-making. CPA firms, professional organizations and state boards of accountancy are co-operating to increase requirements for ethics education for candidates taking the CPA exam. The current situation is confusing and sub-optimal regarding the use of precious learning time in college programs. A new dialogue between the three stakeholders, creative learning approaches, and additional resources can lead to a more consistent and optimal learning paradigm regarding the ethics education of accountants. Research evaluating the effectiveness of various approaches is needed to effectively apply limited resources in an area critical to the reputation capital of the accounting profession.

Post-graduate educational requirements and entry into the CPA profession

Forty-one states require educational requirements for CPA licensure to include 30 credit hours beyond the baccalaureate degree. This study, using state-level panel data of CPA examination pass rates, examines two hypothesized effects of this requirement: one, it improves the quality of new CPAs, and two, it restricts entry into the profession reducing the supply of potential CPAs. Empirical findings reveal that raising minimum educational requirements increases the success rate of first-time CPA exam takers, leading to improved entrant quality. However, increased success rates are associated with significant declines in the number of exam takers and, hence, reduced supply.

The 150-hour rule as a barrier to entering public accountancy

In many states, CPA licensure now requires 150 credit hours of college coursework thereby adding an extra semester or year of schooling beyond typical undergraduate degree requirements. Thus, the “150-hour rule” should increase the cost of becoming a CPA and, consequently, reduce the supply of new CPAs. We test this hypothesis using panel data on the number of first-time candidates for the CPA exam in each state over the years 1985 to 2002. We find that the imposition of the 150-hour education requirement reduces the number of candidates sitting for the CPA exam by 60 percent and that the “grandfathering” provisions of the 150-hour rule produce a substantial transitory increase in the number of candidates sitting for the exam in the year prior to the rule’s effective date. Examination of candidates’ pass rates on the exam also finds behavior consistent with the hypothesis that the 150-hour rule is a barrier to entry.

Perspectives on the Proposal for a Generally Accepted Accounting Curriculum: A Wake-Up Call for Academics

INTRODUCTION In the last century, the training and education of certified public accountants has been the subject of many debates and political struggles (Van Wyhe 1994). The American Institute of Certified Public Accountants (AICPA) prevailed in one very long-standing debate when a majority of its members voted in 1989 to require 150 hours of education for membership after the year 2000. While that vote did not actually affect whether an applicant hoping to take the Uniform CPA Examination is considered educationally qualified to do so, the vote set in motion legislative activity that has resulted in most states now requiring 150 hours of education either to take the CPA exam or to be licensed as a CPA. In a recent proposal related to the 150-hour rule, the National Association of State Boards of Accountancy (NASBA) attempted to change the curriculum requirements for CPA examination candidates. In this commentary I provide my interpretation of the influences that led NASBA to make its recent curriculum proposal (hereafter, the Proposal) and also led a majority of academics and practitioners to subsequently reject it. I then consider some lessons that academics might learn from NASBA’s ill-fated venture and raise questions that we must ask (and answer) if we are to constructively influence the future. I also address what the future holds for collegiate accounting programs. Will we have a generally accepted accounting curriculum set by external regulators with minimal input from educators? Such a possibility requires educators to re-examine seriously the mission of university accounting education and its interface with the needs of society and the accounting profession (which are not necessarily one and the same).

The associations among accounting program attributes, 150-hour status, and CPA exam pass rates

Abstract This study contributes to the extant literature by providing a better understanding of the associations among attributes of schools providing accounting education, 150-hour status, and CPA exam pass rates. We model program-level pass rates as a function of the state’s 150-hour status and several program-specific attributes, including: the level of AACSB accreditation, student selectivity, the percentage of candidates with advanced degrees, and faculty research productivity. We examine the average pass rates of 520 accounting programs that provided 43,711 first-time candidates for CPA exams given in 1998 and 1999. Similar to most prior studies we find that candidates from more selective schools, candidates with advanced degrees, and candidates who attended schools located in jurisdictions with the 150-hour requirement fully in place have higher average pass rates. However, we also find a significant decline in average pass rates during the 150-hour transition period, and in contrast to the strong positive effects of accreditation reported by [Grant, C. T., Ciccotello, C. S., & Dickie, M. (2001). Barriers to professional entry: how effective is the 150-hour rule? Journal of Accounting and Public Policy , 21 , 71–93], we find only weak evidence of an association between program-level pass rates and college-level or separate AACSB accounting program accreditation.

The dubious utility of the value-added concept in higher education: the case of accounting

Using data on CPA exam pass rates and various institutional variables, this research examines the potential usefulness of the value-added concept in accounting higher education. For a sample of 548 US colleges and universities, predicted pass rates were computed from regression equations relating observed pass rates to institutional variables. The value-added (or “adjusted”) pass rate is the difference between the observed (“unadjusted”) pass rate and the predicted pass rate. Because of the low explanatory power of the pass rate regression equations, a strong positive correlation exists between the adjusted pass rate and the unadjusted pass rate. Thus, a ranking of institutions by adjusted pass rate would be very similar to a ranking by unadjusted pass rate. In addition, for conventional levels of statistical confidence, judgments about relative CPA exam pass rate performance based on value-added statistics can only be made for a small number of institutions.

Do College Accounting Curriculums Teach To The CPA Exam? Should They?

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To Tell or Not to Tell: An Auditing Case in Ethical Decision Making and Conflict Resolution

This case requires you to resolve a fictitious yet realistic ethical dilemma as you assume the role of audit manager in a large, national CPA firm. You will be presented with a scenario whereby you learn from the CFO of Bell Manufacturing, an audit client, that the CFO entered the United States and worked a number of years under false pretenses for the audit client while he was an illegal alien. Although the CFO recently obtained U.S. citizenship, subsequent audit work revealed that Bell Manufacturing failed to obtain the documents required under federal law to certify his eligibility for employment. Before addressing specific case requirements, you will be introduced to a primer on professionalism and ethical decision making in an audit environment. Case requirements first ask you to establish a baseline position by outlining your initial reaction regarding the impact of this information on your auditor responsibilities. You will then be asked to electronically search the authoritative literature covering illegal acts by a client, as well as standards on fraud and the Code of Professional Conduct. After researching the issue, you will be asked to write a memo to the audit partner detailing your recommendation for resolution of this issue. Completion of this case will contribute to development of your ethical, analytical, research, and communication skills, better preparing you for practice and the new CPA exam.

The 150‐hour rule: does it improve CPA exam performance?

The American Institute of Certified Public Accountants (AICPA) has established 150 semester hours as the minimum education requirement to qualify to take the CPA examination. This educational requirement is generally believed to impose additional potential costs on students, academic accounting departments, public accounting firms, and audit clients. Since a goal of the 150‐hour rule is to improve the overall quality of work performed by CPAs, it is worthwhile to examine whether an association exists between the number of semester hours of education and performance on the CPA exam. After controlling for SAT scores (verbal and quantitative), accounting credit hours, and enrollment in CPA coaching courses, this study found that first‐time candidates, on a national basis, having a minimum of 150‐semester hours of education performed better on the CPA exam. We interpret these results as indicating that there are benefits to students, CPA firms, and their audit clients from the higher education standard.

Barriers to professional entry: how effective is the 150-hour rule?

Policy debates about the 150-hour rule have taken place without information regarding the marginal impacts that education has on CPA exam success. We find that education is a relatively weak input. An increase from the traditional undergraduate requirement of 128 credit hours to 150 hours is equivalent to a four-percentile increment in a candidate's mathematics aptitude. Among inputs that might be more direct substitutes, we observe that the “extra” 22 hours is offset by two-thirds of a review course on one exam section. Our results explain why several states have recently adopted the 120/150 rule, which removes the 150-hour constraint from the exam. Since the CPA exam will be soon changing to address a broader range of competencies, the results of this study also provide a baseline for policy makers to assess the impact of educational requirements on future entry.

Meeting the 150-hour requirement: the impact of curriculum choice on satisfaction

This paper reports on a study that examined the impact of type of curriculum on CPA exam candidates' satisfaction with their college preparation in four areas: general skills, accounting skills, general business skills, and information technology skills. CPA candidate respondents were classified into one of four groups depending on the curriculum choice they made in order to meet the 150-hour requirement: (1) those who completed a master's level accountancy degree program, (2) those who completed an MBA with an accounting concentration, (3) those who completed other graduate degrees (e.g. a general business MBA), and (4) those who completed additional undergraduate credits. Respondents who completed a master's level accountancy degree program were consistently more satisfied than the other three groups with respect to general, accounting, and information technology skills. Respondents who met the 150-hour requirement by taking additional undergraduate credits were consistently less satisfied than the other three groups with respect to general, accounting, and information technology skills. For business skills, there was little evidence of any significant difference in satisfaction between the four groups. Implications for accounting education and the accounting profession are discussed.

Is the Internal Revenue Code Void for Vagueness? A Look at Some Economic, Legal and Ethical Issues

Anyone who has ever had to fill out a fairly complicated federal income tax return without having the benefit of having passed the CPA exam or without having completed a masters degree in taxation might easily ask himself the question - Is the Internal Revenue Code void for vagueness? The temptation may very well be to say yes, but the answer to that question is much more complicated than that. This paper looks at the void for vagueness doctrine, then examines some of the problems with the current Internal Revenue Code to see if the void for vagueness doctrine is - or should be - applicable.