A decades-old rule requirement that accountants complete 150 college credit hours (five years) as part of the requirements to become licensed — up from 120 hours (four years) — preceded a much starker decline in the number of licensed Black and Hispanic certified public accountants than that seen in the overall CPA population, according to a recent study.
On average, during the 1986-2019 period reviewed when all states implemented the 150-hour rule, there was a 26% decline in new minority CPAs and a 13% to 14% decline in new non-minority CPAs, according to Andrew Sutherland, an associate professor of accounting at the MIT Sloan and one of the authors of “Occupational Licensing and Minority Participation in Professional Labor Markets.”
“Licensing in many professions involves costly general education requirements,’ the study states. “Even if such education requirements are developed and enforced in a race-neutral way, they can have disparate effects depending on individuals’ ability to afford college and forego income.”
Published in December, the study shines new light on the drivers behind the shrinking pipeline of candidates choosing to become CPAs, a talent crunch that CFOs often face when looking to staff their finance teams. It also comes as lawmakers in such states as Minnesota are considering legislation that would enable candidates to choose an alternative route to licensing that requires fewer credit hours.
In an emailed response to questions from CFO Dive, Sutherland declined to make any policy recommendations regarding the rule but said it is “telling” that the paper, along with previous research by others, failed to find any benefit from the more time-intensive requirements that accrued to those entities served by accountants.
While proponents of the 150-hour rule say it fosters improved professional quality, the study found no difference in the frequency of administrative violations or more serious offenses such as tax fraud in the periods before and after states enacted the new rules. Roughly 0.5% of CPAS face disciplinary actions reported by their states, the study states.
Then too, based on an investigation of eight million job postings, the study said there was no evidence employers preferred hiring candidates with the fifth year of study. Finally, after the 150-hour rule was enacted by states, the number of CPAs who are considered “high quality” based on the showing that they pass the exam on first sitting has declined, the study found.
“Overall, our analyses of exam passing patterns, discipline records and job postings find scant evidence of CPA quality benefits associated with the 150-hour rule,” the authors, including Matthias Uckert and Felix Vetter, wrote.
The findings come against a backdrop of statistics signaling a sharp decrease in interest in the accounting field. While the number of practicing accountants and auditors in the U.S. spiked in 2019, across the past decade since 2013 the total declined by about 10% to 1.62 million last year, with roughly 190,000 jobs disappearing from the work rolls according to the Bureau of Labor Statistics, CFO Dive previously reported.
Meanwhile, the total number of test takers who passed the CPA Exam fell to 18,847 in 2022 from 19,544 the year earlier, hitting the lowest level since 2007, according to the latest numbers available from the Association of International Certified Professional Accountants.