The National Association of State Boards of Accountancy (NASBA) protects the public interest by helping to ensure that only qualified individuals become licensed as U.S. Certified Public Accountants (CPAs).
In order to qualify, accountants need to pass the CPA exam, and NASBA notes that a key factor to ensuring success is to understand and meet the requirements that qualify candidates to sit in their chosen jurisdiction.
However, while the demand for CPAs is increasing, fewer new CPAs are entering the industry each year. In combination with the number of retirees each year, many experts believe that the industry will soon struggle to meet the demand for attestation services.
According to CPA and CGA Liz Kolar, the rate of candidates who completed the CPA Exam within 18 months dropped 24 percent from 2011 through 2014.
New statistic illustrating the CPA Exam abandonment rates shows a staggering 43 percent of the candidates who started the CPA exam never finished it. Kolar offers a few explanations, such as:
The exam is updated every six months for taxation and every quarter for new accounting and auditing standards. The additional content is piled into the already crammed CPA exam review courses, resulting in hundreds more hours of study time.
Kolar compares the 6,800 multiple choice questions of today’s exam to about 1,500 if you took the exam 30 years ago, and more than 1,900 pages of textbook compared to 780 pages of textbook 30 years ago.
Short time frame
The CPA exam candidates have to complete their preparation for each section within a two-month-and-ten-day testing window per calendar quarter.
But few candidates can manage to learn all the added content in such a short time frame, resulting in postponement to the next testing window. This, in turn, lengthens the total time for candidates to pass all four sections of the CPA Exam.
Data from the Uniform CPA Examination shows that candidates are 12 percent more likely to pass the exam if done within one year of graduation, and postponing any of the four sections makes it less likely to manage within one year.
Reasons include lost conditional credits for sections already passed, burning out before being able to complete all four sections, and access to CPA Exam review courses expiring before candidates can complete all sections of the exam. This, in turn, often leads to significant extension fees.
Talent Shortage at CPA Firms
This also drains the firms, since associates taking two or three years to pass the CPA Exam instead of 18 months or less, can mean a full year’s delay before being able to bill out the associates at higher rates.
The number of accounting graduates hired by CPA firms is actually increasing, but while two-thirds of the accounting majors in their senior year planned to become CPAs, only about 50 percent sit for the CPA exam.
Kolan believes the three major factors are the increased difficulty of the CPA Exam, the increased study time required, and work conflicts making it hard to put in enough hours of study to pass the exam.
However, the new standards of the CPA Exam starting April 1, 2017 includes more task-tasked based simulations. The length of the CPA Exam will increase from 14 to 16 hours, equally divided so the four sections take four hours each.
The exam will also increase in price. Professional educators encourage candidates that qualify, to sit for the CPA exam prior to the 2017 changes.
Bucking the CPA Exam Failure Trend
In order for candidates to pass the new exam, Kolar advices colleges to do more to help their accounting students navigate the application and preparation process. Students should be exposed to CPA exam content as early as the Intermediate Accounting level, as well as usingCPA Review videos as tools.
Firms usually encourage employees to take the CPA exam within the first year of employment. They may reimburse employees for prep courses and exam fees, or offer bonuses for passing quickly. Others have instead relaxed the requirements for promotion, since there is a shortage of qualified candidates.
But the main opportunity to improve abandonment rates lies with the CPA review course providers. Roughly 43 percent of candidates not finishing the CPA exam is far too high a number, especially given the increased demand for CPAs. After all, the increased level of difficulty is there because professional content knowledge is fundamental to protect the public interest.
The AICPA lists such crucial qualities of the newly licensed CPAs to be competent in, such as recognising issues, identifying errors, challenging assumptions and applying professional judgement and scepticism. Hopefully the joint efforts of colleges, employers, and CPA review course providers will decrease the number of candidates who abandon the CPA exam.