The 150-Hour Requirement’s Effect on the CPA Exam
Candidate Performance in Florida, New York, and Texas

By Charles G. Carpenter and Clayton A. Hock

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JUNE 2008 - In 1989, the AICPA membership voted to recommend that states require candidates to complete 150 hours credit hours to sit for the CPA exam. Florida was the first state to adopt the 150-hour requirement, in 1983, before the AICPA’s recommendation. Today, according to the AICPA, 47 out of 54 jurisdictions have adopted the requirement and another state, New York, is slated to do so in 2009. The adoption of the 150-hour requirement appears largely complete, with the significant exception of California.

The analysis below of the effects of the 150-hour requirement focuses on three states: Florida (which has required 150 hours the longest), Texas (which implemented the rule in 1998, about the same time as many other states), and New York (where the requirement takes effect in 2009). As indicated in Exhibit 1, the general effect of the change appears to be a decrease in those sitting for the exam, coupled with a marked increase in the pass rate. Indeed, one argument for the 150-hour requirement is that the complexity of the exam justifies an increase in the educational requirement.

Exhibit 1 shows the number of candidates who sat for the exam between 1990 and 2003 in Florida, New York, and Texas, with the percentage of those who passed all of the exam on the first try, as well as those who passed either all or some parts of the exam in one sitting. Due to the length and complexity of the exam, it is asserted that the combination of those passing all or some of the exam is a good measure of candidate performance. The data are taken from annual reports by the National Association of State Boards of Accountancy (NASBA). As of this writing, 2005 is the most current data available.

Effect on the Number of Candidates

Several national trends are attributable to the implementation of the 150-hour requirement. In the year or so prior to the requirement taking effect in a state, there is a sharp spike in those sitting for the CPA exam, as candidates ensure their right to retake the exam, if necessary, under pre–150-hour educational provisions. In the year that the 150-hour requirement becomes effective in a state, the number of candidates sitting for the exam declines markedly. In one study of the period from 1985 to 2002, there was a 60.5% decline in candidates sitting for the CPA exam for the first time among those states implementing 150 hours (Charles G. Carpenter and E. Frank Stephenson, “The 150-Hour Rule as a Barrier to Entering Public Accountancy,” Journal of Labor Research, volume 27, issue 1, 2006).

Exhibit 2 shows the number of first-time candidates sitting for the CPA exam during two periods—1991–1996 and 2000– 2003—for Florida, New York, and Texas. The years surrounding the implementation of the 150-hour requirement in Texas are excluded, due to the abnormal effects noted above. The years 2004 and 2005 are excluded in this analysis because, at this time, NASBA started reporting in a single number those sitting for the first time, as well as those sitting on a repeat basis, while in previous years the two groups were separated.

The decline in candidates sitting for the exam in Texas approximates the national study cited above (58.5% for Texas versus 60.5% in the national study). A decline in those sitting for the CPA exam may be due to the imposition of the 150-hour requirement. Yet in Florida, where the 150-hour requirement was in place throughout both of the periods, no overall change was reported in the number of candidates sitting on a first-time basis. And how to explain the significant decline (35.5%) in New York, where the 150-hour requirement was not in effect for either period?

Effect on Candidate Performance

Exhibit 3 shows first-time CPA candidate performance for Texas, New York, and Florida for the same periods as Exhibit 2. In the 1990s, New York and Texas, both pre–150-hour states, had similar average pass all or some rates of 44.8% and 42.3%, respectively. For New York, which still did not have the 150-hour requirement from 2000 to 2003, candidate performance was unchanged. However, in Texas, which moved to 150 hours in 1998, candidate performance increased markedly, from an average pass all or some rate of 42.3% in the 1990s to 61.2% in 2000–2003. The average pass all or some performance rate of Texas candidates in 2000–2003 mirrored that of Florida, which had 150 hours during both periods—61.2% for Texas versus 61.8% for Florida. Florida’s performance in these two time periods varied slightly—67.6% average pass all or some rate for 1991–1996 versus 61.8% for 2000–2003.

The year 2004 marked the first in which the CPA exam was administered by computer, allowing candidates to take one part of the exam at a time. If the candidate successfully passed that part, the remaining sections would have to be passed within 18 months. This means candidates can study for one section, take it, and if needed, retake that part before moving on. Many believe this opportunity for sequential study and examination has marginally increased candidate success.

As noted above, NASBA no longer reports first-time-only candidate performance; therefore, the authors were unable to draw an appropriate comparison of the years 2004 and 2005 with the prior periods. The pass rates of these two years are reported in Exhibit 4. The authors believe the dramatic increase in the number passing some or all parts of the exam in 2005 is largely due to the current test structure, in which candidates can study intensively for one part of the exam, take it, and move sequentially through the remaining sections. Additionally, some capable candidates may have waited until the computerized version had been given, to better understand its nature before sitting.

Attracting Quality Candidates

The decline in the number of new candidates sitting for the CPA exam is obvious, from both the above data and numerous other studies and anecdotal reports over the past several years. Accounting competes on campuses with other disciplines for student interest. With these concerns in mind, the AICPA began a massive advertising campaign several years ago directed at high school students, seeking to influence their perceptions of accounting. Interestingly, the accounting scandals of the past several years have attracted students to accounting, as enrollment has grown since Enron and others exploded into the public consciousness.

The demand for quality candidates is clear. The data for candidates from Texas and Florida, after implementing the 150-hour requirement, show that more than 60% of CPA candidates pass all or some parts of the CPA exam. This suggests that candidates who are capable and properly prepared with 150 hours of education should reasonably expect to pass the CPA exam. The profession needs to continue its recruiting efforts by showcasing the attraction of an accounting career to future professionals.

Charles G. Carpenter, PhD, is a professor of accounting in the school of business at Francis Marion University, Florence, S.C.
Clayton A. Hock, PhD, is a professor of accountancy in the Farmer School of Business at Miami University, Oxford, Ohio.




















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