Should They Get Read of the 150 Hours Cpa Requirements
| EXECUTIVE SUMMARY |
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| JOHN CUMMING, CPA, PhD, is professor of accountancy and chairman and, LARRY J. RANKIN, CPA, PhD, is acquaintance professor of accountancy, both at Miami University, Oxford, Ohio. Cumming's east-mail accost is cumminj@muohio.edu. Rankin'due south e-post accost is rankinlj@muohio.edu. |
The ship has sailed on the question of whether the 150-hr requirement is a good or a bad idea. Like information technology or non, the stipulation is the police force of the country in 45 states, and the remaining holdouts will probably join eventually. The adoption of this alter to qualify to take the CPA exam has raised other questions: How volition it touch the supply of accounting graduates, specially during the years immediately before and after implementation? Should firms go along to hire bookkeeping graduates with four-yr degrees and help them meet the additional education requirement, or should firms hire five-twelvemonth graduates who have already met information technology? What can firms practise to prepare for the changes implementing the rules will bring? Finally, what models are there to look to for answers? Florida was the first state to fully implement the 150-60 minutes education requirement on Baronial 1, 1983, then information technology provides an fantabulous opportunity to examine how public accounting firms and accounting students responded to the implementation. The details of Florida's experience may contain some lessons.
SURPLUS AND SHORTAGE
Under Florida police, candidates were required to utilize for the CPA test before August i, 1983, to qualify to take the exam under pre-150-hour rules. Accounting students who otherwise would take graduated in 1984 accelerated completion of their program requirements to apply for and take the CPA exam in 1983. This created a surplus of four-year accounting graduates in 1983 followed by a dearth in 1984. William D. Pruitt, Jr., 198990 Florida Institute of CPAs president and managing partner of Arthur Andersen's Miami role, recalled a particularly nasty insight: "I remember waking up in the middle of the night in 1983 and saying to myself, We're not going to take everyone to hire in 1984.' And that's exactly what happened."
3 major factors contributed to this shortage:
- First, the acceleration already cited.
- Second, many four-yr accounting students who graduated in 1984 enrolled in graduate programs to earn the thirty additional hours required before starting their careers in 1985 or after.
- Finally, in 1984 some iv-twelvemonth accounting graduates relocated from Florida to states that did not have the additional education requirement.
The dimensions of the 1983 surplus and the 1984 shortage in Florida are shown in exhibits ane and 2. Exhibit 1 , for example, shows a peak number (1,722) of four-year accounting degrees earned from nine Florida universities during the academic year 1982-83. This showroom also indicates a essentially college number (209) of accounting master's degrees earned during the academic year 1985-86, compared with the number earned prior to that year. In addition, exhibit two shows a dramatically higher number (iii,294) of Floridians taking the CPA examination for the start fourth dimension during 1983, compared with the consistently lower numbers from 1979 to 1982 and the trough of 54 start-time candidates during 1984. (In fact, the number of kickoff-fourth dimension CPA test candidates in Florida plummeted from 2,306 in Nov 1983 to only 12 in May 1984.)
| Showroom i: BAs and MAs from Ix Florida Universities * 1978– 79 through 1993– 94 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
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FIRMS MOBILIZED TO Notice A SOLUTION
Doubling upwardly. Some of Florida's public accounting firms addressed the 1983 surplus and the 1984 shortage past hiring a larger number of bookkeeping graduates in both 1982 and 1983. Professor Henry R. Anderson, former chairman of Florida Institute of CPAs' 150-hour committee and one-time manager of the school of accounting at the University of Primal Florida, said, "Several firms predictable the reaction of students to accelerate their programs and graduate before the effective appointment of the law, and firms doubled up on their hiring in 1982 and 1983."
Hiring arrangements. Many Florida firms hired four-year graduates for full-time positions and arranged to aid these entry-level personnel to consummate the additional educational activity requirement. Urban firms establish such arrangements particularly attractive considering new hires had convenient admission to evening graduate programs, for example. Firms could satisfy their demand for entry-level personnel and provide opportunity to hires to earn the xxx additional hours without the tuition, fees or overhead associated with a full-time fifth year of education.
Douglas A. Snowball, professor and former director of the school of accounting at the Academy of Florida, described the atmospheric condition that encouraged such arrangements: "Because of financial factors, doubt nearly the permanence of the 150-60 minutes requirement, and attractive offers in the wake of the post-1983 staffing shortage, many four-year graduates accepted accounting positions and entered part-time programs available in the larger cities.")
| Showroom 2: First-Time Candidates Pass Rates, Florida CPA Examinations 1979-94 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Anderson, also, pointed out that "ane of the primal lessons learned from Florida's feel with the 150-hour requirement is that both CPA offices and students have a hard time accepting the new educational requirements. Considering CPA firms experience a shortage of entry-level personnel when students are confronted with additional courses and more costs, literally hundreds of arrangements' develop betwixt firms and students. The deplorable part well-nigh this is that the benefit is only short-term, and a large percentage of these students never render to school to complete their remaining courses and never take the CPA exam."
Thus, despite good intentions, these arrangements often failed. Snowball explained the reason: "It is hard to do justice simultaneously to academic course work and a challenging professional position, especially when others are entering the house with their educational requirements completed." Scheduling issues also resulted from the combination of overtime, out-of-boondocks business assignments and evening or other office-fourth dimension course work.
Georgia on their minds. Nether one provision of Florida'due south licensing regulations, Florida may issue a reciprocal certificate (a license endorsement) to a CPA of some other state if the applicant meets the requirements in outcome in Florida. This provision enabled four-yr accounting graduates from Florida to plant residency and sit for the CPA test in neighboring Georgia or another non-150-hr state. Then they could return equally CPAs, accept full-time positions with firms in Florida, consummate Florida'south boosted education requirement and use for CPA license endorsement in Florida upon successful completion of the 30 additional hours.
The increase in license endorsements that began in 1982 in Florida, shown in showroom 3 , was due to "Florida bookkeeping students who sabbatum for the CPA exam in Georgia and returned to Florida to qualify and eventually work in the profession," according to MGT of America, a research visitor that did a study on behalf of the AICPA in 1996. An analysis of exhibit 3 shows that Florida averaged 463 license endorsements annually after 1983, compared with an average of 233 endorsements during the 5-year flow before 1983. This increase in endorsements also resulted in an increase in the annual number of total licenses issued by Florida since 1978. The figures in exhibit iii, for example, prove that Florida averaged 1,147 full licenses annually for the five years before 1983, compared with an boilerplate of 1,304 total licenses issued for the 11-year period post-obit implementation of the 150-hour law.
| Exhibit 3: Florida CPA Licenses Issued, 1978-1994 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Out-of-state hires. The additional education requirement created a disadvantage for Florida firms in recruiting from other states, and information technology intensified competition among Florida firms for accounting graduates from the state'southward universities. Starting salaries of entry-level personnel in Florida increased, and firms began recruiting from the "full range of graduates from in-state accounting programs, instead of seeking but the elite summit graduates," according to MGT. Although this problem will eventually become away as other states move to 150 hours, it volition remain an issue for the next few years as each state moves at its own step.
Larry Harris, managing director of human resources for Arthur Andersen'southward s Florida practise, described changes in out-of-state hiring practices, saying, "A decade ago our exercise hired approximately half its recruits from out-of-state schools, especially from the Midwest and the Northeast. Currently, the firm hires 75% to 80% of new recruits from in-state schools." He added that the 150-60 minutes law put Florida "at a disadvantage in getting referrals from out of state. As a consequence, recruiting for Florida graduates is intense, so much so that but in New York State does the starting salary of an average staff accountant at AA surpass [the starting bacon] in Florida."
Hire five-year graduates. Many of Florida'southward firms initially encouraged four-twelvemonth accounting graduates to accept total-fourth dimension positions in public accounting before completing the boosted instruction requirement over several years, so the number of five-year accounting graduates increased only slightly during the first few years after 1983. However, staffing shortages diminished by 1990. Snowball noticed this, proverb, "Our students increasingly tended to complete their CPA requirements before accepting permanent positions and were encouraged to exercise and so by recruiters." Showroom 1 shows a steady increase in the number of main's degrees earned at nine Florida universities, from 104 in academic year 1982-83 to about 400 by academic twelvemonth 1993-94.
By the stop of the 1980s, many Florida public bookkeeping firms, especially the larger firms, met staffing needs by recruiting mostly five-year graduates. In 1988 Anderson observed the miracle and said, this "is the first year that Florida colleges and universities are producing a sufficient number of qualified people to sit for the CPA exam to satisfy the demands of the Big Eight firms in the state; regional and local firm personnel demands [though] are notwithstanding not being met." Notwithstanding, in an October 1991 Journal commodity, Scott T. Rhine, 1988-89 Florida Plant of CPAs president and partner in Schmidt, Raines, Trieste, Dickenson, Adams & Co. of Boca Raton, and John K. Simmons, professor of accounting at the University of Florida, noted, "The pipeline has refilled."
PROS AND CONS
The experiences of firms in Florida tin ready y'all for the types of changes your land may feel, specifically for the impact of a five-twelvemonth degree on starting salaries, technical competence, work operation, staff retention and the expense of the fifth twelvemonth of didactics.
Firms volition have to pay more to get more. On the footing of its survey of 1,009 Florida CPA examination candidates, MGT said that public accounting firms paid new hires with five-yr degrees nigh $2,000 (8.3%) more per year than those with 4-year degrees. Other firms cited higher salary differentials for five- and four-year graduates. In 1990 Snowball said the average starting salaries in the preceding 2 years "were 16.5% college for five-yr graduates than for four-year graduates."
To obtain the firms' perspectives on the impact of the 150-60 minutes police, MGT surveyed Florida public accounting firms. A total of 156 firms, mostly local firms with one role, responded. MGT'due south results suggested that costs "may be offset by a more productive entry-level accountant." MGT also reported that "initially the $2,000 additional salary plus associated overhead costs to a firm are usually distributed through a relatively high percentage of billable fourth dimension for entry level staff. This would tend to minimize increased charges to clients."
Doing meliorate. The CPA examination measures technical competence. It is noteworthy that Florida's CPA examination pass charge per unit for get-go-time candidates increased with implementation of the 150-hour requirement and remains significantly higher than the corresponding national pass rates. Exhibit 2, shows that the average laissez passer rate of Florida'south commencement-time candidates increased from 15% earlier 1983 to over xxx% after the police's implementation. By comparison, the national CPA examination pass rates for first-time candidates overall and for those first-time candidates holding advanced degrees are nearly 16% and 27%, respectively.
Albert Lopez, partner in charge of human resources and recruiting for BDO Seidman'due south Miami office, reported in 1994 an even college first-fourth dimension CPA test pass rate of lxxx% for its new hires. "This allows the firm to exist able to requite them more than responsibility sooner," Lopez said.
Arthur Andersen's Harris recently noted some other indicator of higher technical competence for Florida's five-year graduates. "We are seeing a higher quality of entry-level staff at AA's Florida practices. Among entry-level staff receiving instruction at AA's training center in St. Charles, Illinois, new hires from the Florida offices take the best overall scores on tests that measure out comprehension. Part of the reason for their loftier success charge per unit may be that 75% to eighty% of AA's new hires in the state accept a main'south degree in accounting."
MGT's survey showed that 40% to 48% of the respondents believed new hires with 5-twelvemonth degrees performed no differently from those with four-year degrees. These results also revealed that a smaller, pregnant number of practitioners thought that new staff with 5-year degrees compared with those with four-year degrees performed better correct abroad (21%), performed better in the long term (29%), and avant-garde more quickly inside the house (31%).
Mary Kay Vona, main in management consulting services and former director of human resources for PricewaterhouseCoopers in Florida, believes that 5-year accounting graduates from Florida schools are "very well-rounded professionals" and "seem more than savvy." In addition, she said, "The new hires are much more than computer literate and improve prepared to work every bit part of a team and make group presentations." On a practical level, though, Vona does not know for certain if the advances make grooming new hires whatsoever easier—in the end, the firm has had to devote the aforementioned amount of time and effort to training.
Memory. As stated earlier, many new hires dropped out of public accounting early on and never came dorsum. But what almost longer-term memory rates—did the change take any effect on these? The MGT survey showed that the 150-hr requirement did non significantly change staff retentiveness levels. However, ii Florida practitioners expressed conflicting views on this issue: BDO Seidman's Lopez said, Retention rates have improved at BDO since passage of the 150-hour law, because fewer staff accountants exit after a few years to return to school for additional education. In contrast, partner Charles Gund, Jr., reported no noticeable change in retention rates at his firm—Saltmarsh, Cleaveland & Gund in Pensacola—amongst new hires that graduated from Florida accounting programs.
Fifth-twelvemonth costs, internships and scholarships. To help students finance their fifth year of education and satisfy the firms' seasonal staffing needs, Florida universities developed innovative programs that allow students to work during the busy flavour and go to school at other times. The University of Primal Florida, for case, established an internship program as office of its 5th-year degree programs in accounting, taxation and business administration. Anderson said that during winter or summer, students take jobs as total-time employees in Orlando-expanse CPA firms and industries. Each student earns a monthly salary, and participating firms sponsor a special scholarship for each intern. The central advantages of such programs are:
- Public bookkeeping firms get additional staff during their busy season, and students receive money to aid finance their fifth year of education.
- Students consummate the 150-hour requirement to qualify for the CPA examination and are available to start full-time positions before their second busy flavor at a firm.
- Students get a "value-added" master's caste—they and their firms will observe this adds up to more over the years than just a mere accumulation of 30 boosted hours.
WHAT'Due south AHEAD?
Although 45 states have passed the 150-requirement so far, the new rule has not been widely implemented. It doesn't have effect in Illinois until 2001, New Jersey until 2000 and New York until 2009. California hasn't fifty-fifty passed it. Many firms have not yet felt the brusk-term furnishings, and no one knows what the long-term furnishings will be. But Florida'due south transition can offer insights. Go to www.aicpa.org/states/uaa/150chart.htm . Notice your state. Find your neighboring states. Start making personnel plans. Being prepared can assistance y'all weather the possible brusque-term staffing problems.
Source: https://www.journalofaccountancy.com/issues/1999/apr/cumming.html
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