The 150-Hour Requirement and Its Effect on Student Enrollment

By Patricia B. Abels

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Background of the Requirement

The 150-hour requirement was originally implemented with the goal of developing versatile and intellectual CPAs. This notion is not new; Nelson, in a 1995 article in Accounting Horizons, wrote that the founders of accounting envisioned CPAs as professionals with a well-rounded knowledge base, consisting of writing skills, mathematical and algebraic accuracy, and knowledge of geography, science, and language.

Over time, educators moved away from a broad, liberal education and concentrated on instructing the technical aspects of accounting, based on the conclusion that additional technical accounting courses would strengthen students’ readiness for the CPA exam.

There was no longer time in a 120-hour degree program for the broad education espoused by accounting’s founding fathers. Concentration on the technical aspects of accounting came with a price: a narrower knowledge base for accountants. The 150-hour requirement attempts to expand accountancy to a more broadly based education model.

Additional education for CPAs has engendered considerable debate over the years.

In 1959, the AICPA created the Beamer Committee to investigate the overall quality of CPA education. The committee recommended additional education beyond a bachelor’s degree in accounting.

In 1969, the AICPA formed the Anderson Committee to explore the overall quality of accounting practice. The committee concluded that all accountants should have the same foundation of knowledge, and suggested that accountancy candidates attend college for five years in order to hold a CPA license. Candidates with a four-year degree could substitute one year of qualifying work-related experience.

In the 1970s, the growing complexity of businesses led to demands from Congress to restructure the accounting profession. The complexities fueling this pressure included the globalization of businesses, the development of technology, the growth of regulations, and the expansion of consulting services by CPA firms.

In 1987, Congressmen Dingell and Wyden pressured the AICPA to improve the quality of accounting services. The AICPA answered by organizing the Bedford Committee, which endorsed mandatory peer reviews, continuing professional education, and 150 hours of college education, including a bachelor’s degree, for membership in the AICPA. In January 1988, 83% of the AICPA’s general membership voted in favor of amending its bylaws for these endorsements. The amendment to the bylaws stipulated that all new members, beginning in the year 2000, must have 150 hours of college education, including a bachelor’s degree. The primary objective of this bylaw was to yield a well-rounded, well-educated CPA primed for a rewarding career in accounting.

A Higher Standard

Florida was the first state to adopt the 150-hour requirement, in 1983. In 1989, a survey of Florida CPA firms published in Accounting Horizons found that new employees with a five-year degree “were not necessarily entering the accounting profession with significantly better perceptual and analytical skills.” Florida CPAs did not rate five-year accounting students as possessing better communication skills or as better prepared to interact with the firm’s clients. New accountants still required the same amount of supervision. Florida CPAs did agree that the most important result of the education requirement was the improvement in the public’s perception of accountants.

The passing rates for Florida’s first-time candidates increased to 31.5% in 1984, after implementation of the 150-hour requirement (see Exhibit 1). Passing rates continued climbing to 36.6% in 1995, with an average of 31.8% through 2001. In 1979–1982, before implementation, the passing rate for Florida’s first-time candidates averaged 15.8%.

Exhibit 1 also shows that the number of first-time candidates decreased to 54 individuals in 1984, attributed by some to the many (3,294) that accelerated their accounting degrees to 1983 in order to take the CPA exam under the old law. The years after implementation, 1985–2001, however, still reveal a low volume of first-time candidates (an average of 647), when compared to 1979–1982 (an average of 1,657).

The decline in first-time candidates can also be attributed to other factors, such as fewer students majoring in accounting because of the perception of the high cost of an additional year of education.

Students must weigh the opportunity costs of another year of education against the benefits of an accounting degree. (The national 2001 average wages for selected fields is provided in Exhibit 2.) A prospective five-year candidate may decide that accounting is a poor major in which to invest time, money, and effort, when the long-term monetary rewards are better in other areas.

Nontraditional students (e.g., part-time students, single parents) may also find it difficult to compete within the newly constructed AICPA guidelines. Nontraditional students already take a longer period of time to earn their bachelor’s degree; this time is even further lengthened by the 150-hour requirement. Proportionately more nontraditional students are women. The increased opportunity costs of the 150-hour requirement may further discourage nontraditional students from choosing accounting.

A nationwide drop in the supply of CPAs would create an enormous problem for CPA firms, industries, and government agencies. Smaller employers could face a situation where they could not afford to hire professional accountants without significantly restructuring their prices or their workflow. The most likely responses would have features of both: higher prices to their clients, and more work performed by paraprofessionals.

Implications

Now that 150 hours of education is a requirement for AICPA membership and states have made it a prerequisite to sit for the CPA exam, there has been some backlash. Colorado was the first state to alter its position, claiming the requirement imposes an “overly restrictive entry barrier into the profession with no demonstratable … benefit.” Other states may follow Colorado’s example. New Jersey now permits students to sit for the exam with a bachelor’s degree, awarding the license after the 150-hour education and experience requirements have been met.

The evidence suggests that the 150-hour requirement has reduced student interest in the accounting profession. Several factors could come into play. First, a student’s investment in an additional year for an accountancy degree is an important signal to employers about her commitment to a specific career, which remains at risk until a CPA firm hires her and she passes the CPA exam and fulfills the experience requirement. Second, starting salaries, even from the most generous CPA employers, do not cover the out-of-pocket costs of an additional year of college education, let alone compensate the student for the additional investment. Third, many potential accounting students will continue to switch to other business majors where a four-year degree suffices, especially because their goal of CPA licensure does not necessarily become easier to attain with the additional education. The shift is most apparent in Florida, where the law has been in effect since 1984.