The Accountant Shortage Isn’t Bad Enough For NASBA to Entertain Dropping the 150 Hour Requirement

When we talk about why no one wants to be an accountant anymore, a handful of things come up in every thread. Let’s quickly get them down in case an alien who just landed on Earth this morning Googles “accountant shortage,” arrives on this article, and wishes to learn more about the causes.

1. Salaries — starting salaries in particular — that do not compete with other white collar and professional services fields;
2. Poor work-life balance that has only gotten worse as staff shortages worsen, “busy season” is less of a season and more of a relentless purgatory for many;
3. The 150-hour/5th year requirement for CPA licensure. CPA candidate numbers have been on the decline for years, even before anyone was talking about critical talent shortages, the 150-hour rule is considered by many to be an unnecessary barrier to entry in which case it is certainly doing its job by keeping out both the riff-raff and the quality talent. Academic research suggests that restrictive licensing laws reduced the supply of new CPAs without drastically improving quality in the labor market.

A distant fourth factor is “the cool factor” missing from accounting, at least from an outsider perspective. And an even more distant fifth factor: the profession demands talent in possession a large number of non-accounting skills — like data analytics — that can be applied elsewhere for more money, so that’s exactly what young people are doing. Alright, our extraterrestrial friend is caught up.

For the purposes of this article, we are going to focus on #3: the 150 hour rule. Journal of Accountancy has published bits of a recent interview with longtime NASBA President and CEO Ken Bishop, who told them in no uncertain terms that lowering the 150-hour requirement is not on the table.

“Should any state or jurisdiction lower the licensure requirement to 120 hours, their CPAs would no longer be automatically substantially equivalent and would no longer enjoy the mobility and reciprocal practice privileges they currently are afforded,” NASBA President and CEO Ken Bishop said in an interview with the JofA. “Lowering the bar to 120 hours is only one of the alternatives we have heard that has been discussed and considered. Others, including lowering the cut score for passing the CPA Exam, have the potential and risk of creating the perception of dumbing down the profession. No one is talking about, for example, lowering the bar to become an attorney, and they’re also suffering from lack of entry.”

Bishop said the NASBA board vote was prompted by “a few state society staff members but not the profession in general” considering action that would create different pathways to CPA licensure. Bishop understands the sentiment behind the consideration but stressed that any changes on the state level that don’t align with the UAA would be counterproductive for the profession.

“If I was a society CEO and I had some members who were having trouble hiring CPAs knocking on my door, I would be trying to react. We’re not saying don’t react; we’re saying let’s do it in a uniform way,” Bishop said. “What really gets our attention is something that has an opportunity to disturb or completely adulterate the substantial equivalency, mobility, reciprocal licensure — things that we’re working to protect and maintain.

“That doesn’t mean that things won’t change in the future. We’re open to change, but it can’t be state-specific or state-unilateral change, or we’re in real trouble. We are reaching out to persuade states to not take any unilateral action that could damage both the public and the profession.”

In other words, he is telling state societies to try literally anything else except petitioning to lower the 150-hour rule. Some states have amended their CPA regulations to allow candidates to sit at 120 units (150 still required for licensure), like Illinois. Texas has a similar rule change working its way through state legislature as we speak. But nixing 150 altogether? Not on his watch.

It is important to note here that the 150-hour rule is a relatively new concept introduced in the last several decades (I’m using “several” liberally here). Let’s check out “150 Hours: A Look Back” published April 1, 1999 in Journal of Accountancy:

The ship has sailed on the question of whether the 150-hour requirement is a good or a bad idea. Like it or not, the stipulation is the law of the land in 45 states, and the remaining holdouts will probably join eventually. The adoption of this change to qualify to take the CPA exam has raised other questions: How will it affect the supply of accounting graduates, especially during the years immediately before and after implementation? Should firms continue to hire accounting graduates with four-year degrees and help them meet the additional education requirement, or should firms hire five-year graduates who have already met it? What can firms do 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-hour education requirement on August 1, 1983, so it provides an excellent 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 law, candidates were required to apply for the CPA examination before August 1, 1983, to qualify to take the examination under pre-150-hour rules. Accounting students who otherwise would have graduated in 1984 accelerated completion of their program requirements to apply for and take the CPA examination 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 office, 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 have anybody to hire in 1984.’ And that’s exactly what happened.”

Three major factors contributed to this shortage:

• First, the acceleration already cited.
• Second, many four-year accounting students who graduated in 1984 enrolled in graduate programs to earn the 30 additional hours required before starting their careers in 1985 or later.
• Finally, in 1984 some four-year accounting graduates relocated from Florida to states that did not have the additional education requirement.

Hold up. uWu what’s this?

Firms will have to pay more to get more. On the basis of its survey of 1,009 Florida CPA examination candidates, MGT said that public accounting firms paid new hires with five-year degrees about $2,000 (8.3%) more per year than those with four-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 two years “were 16.5% higher for five-year graduates than for four-year graduates.”

To obtain the firms’ perspectives on the impact of the 150-hour law, MGT surveyed Florida public accounting firms. A total of 156 firms, mostly local firms with one office, responded. MGT’s 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 time for entry level staff. This would tend to minimize increased charges to clients.”

LOL. And here we are 24 years later, having learned nothing.

If we can’t tinker with the 150-hour rule then all that leaves is increasing salaries and…well…we know how firms feel about that.