by Melissa Klein

Following a year of negotiations, the finishing touches are being put on the contract for the computerization of the CPA exam, according to parties involved in the agreement.

While a contract had not been signed at press time, "We’re down to dotting the I’s and crossing the T’s," said David Costello, chief executive of the National Association of

State Boards of Accountancy. "I expect that we will be signing the contract some time this month [May]."

The remaining issues involve the disclosures of all agreements surrounding the exam that the American Institute of CPAs has with affiliated entities and Prometric - the vendor chosen to deliver the computerized exam. Prometric is a division of Thomson Corp., which owns the publisher of Accounting Today.

"We’ve been through an extended disclosure process," said Costello, adding, "We’re pleased that the documents have been made available to us. There are still a couple of things to do."

"We’re one document away from being done," revealed Arleen Thomas, AICPA vice president of professional standards and services. "NASBA asked to see a series of documents so they can understand the AICPA’s relationships and workings around the exam. We’ve been producing those documents. It’s been an iterative process to share those [documents].

"This is really new territory for all of us - Prometric, NASBA and the AICPA," Thomas said. "It’s taken a year to develop those relationships, to understand them and write them down in contractual form."

Under the contract now being discussed, the AICPA would maintain its same role as the developer and scorer of the exam, and the AICPA’s Board of Examiners would continue as the body to advise the institute on exam matters. Prometric would computerize the exam questions and deliver them through their network of computer terminals.

Under the agreement, NASBA’s role in the exam would expand. In addition to its current duties, which include determining, along with the state boards of accountancy, the eligibility of CPA candidates to sit for the exam and then authorizing their sitting for the exam, NASBA will also operate a national database of exam candidates.

"The NASBA database is brand new for this process," said Costello. "Every candidate has to be cleared through the database to be sure they’re not doubling up and that there are not multiple sittings by one individual."

Another thing that might change is the contract’s launch date. While the computer-based test is expected to launch in November 2003, Costello said he doesn’t think they’re on track for that to happen.

"We think it will be May of 2004," he said. "That’s a point of discussion right now. Our boards are more comfortable with May 2004. Some people may not agree with that. Even so, I don’t think our boards will be ready until May."

"November 2003 is the anticipated launch date," Thomas noted. "We do monitor that very closely. We evaluate it on a quarterly basis. We very much respect their [state boards’] issues. We’re going to look strongly at them when do our next re-evaluation."

The contract has a term of seven years from launch, with a three-year extension, based on (Prometric’s) meeting performance standards. Both NASBA and the AICPA receive payment only on a cost-recovery basis. While he declined to say how much Prometric would make in the deal, Costello said NASBA would audit Prometric’s fees each year to ensure that they fall into "an acceptable range."

"We have what’s called a business review under Ôagreed upon procedures’ that’s conducted by Pricewaterhouse-Coopers," Costello explained. "We’re given a report of the procedures performed and we have enough information to determine the acceptability the of margins."

The new test also brings a number of changes for candidates. While the current paper-and-pencil exam is given twice a year, once the exam is computerized, candidates will be able to take the test up to four times a year.

"There will be four testing windows per year. Candidates will be able to take the exam two out of three months within the quarter," explained Thomas.

The 14-hour exam will be broken down into four sections: Auditing and Attestation; Financial Accounting and Reporting; Regulation; and Business Environment and Concepts.

The granting of credit (also known as conditioning) has also changed. Under the paper-based exam, candidates must sit for all four parts of the exam at once. "To receive credit for passing, they had to pass two sections and have bona fide grade on the others, which meant getting a minimum of 40 on the other two sections in most states," Thomas explained. "Under the CBT, they’re able to take one section at a time, and when they pass the first section, they have 18 months to pass the other three before they lose credit for the one they passed."

About 80 percent of the test will be multiple choice questions, while the remaining 20 percent will be simulations, explained in the May/June 2002 issue of The CPA Exam Alert, the AICPA newsletter on the exam, as "relational case studies that will test candidates’ accounting knowledge and skills using real life work-related situations."

"The whole need for the move to CBT is to allow us to test the skills and competencies of the candidates," Thomas said. "The CBT is dynamic in its ability to do case studies, use videos. Those types of live testing are so much more dynamic. Under the paper-based exam, you’re really limited to the testing of knowledge. We believe that to protect the public interest, we need to be testing not only knowledge, but also skills."

"One of the very major differences will be the ability to test the use of research," via the simulations, Thomas continued. "It’s a very powerful tool. It will help us in making sure we’re passing those individuals that are demonstrating the appropriate competencies."

As far as scoring the simulations, Thomas said, "At this point we haven’t finalized the answer. A portion will be computer scored, we haven’t determined whether there will be some human scoring also."

"You set the objectives that you are trying to test via the simulation," she explained. "You can use human scoring, or technology is almost to the place where you can use computer scoring. Part of the simulation can be doing a calculation and using a spreadsheet. You can score a spreadsheet."

According to Costello, the cost of the current paper-and-pencil exam averages $250 to $275. Under the new rate schedule that takes effect during the first year of the CBT, the costs before any state board fees are applied are expected to be $458, according to a white paper released by the Computerization Implementation Committee. While state fees haven’t been set yet, the final cost is expected to average about $533.

"While in absolute dollars, the cost is higher, in relative dollars, it should end up being less costly than the exam today," said Costello. "By the time we get to November 2003, that $275 may very well be up around $400."

Another factor, Costello said, is that since the exam can be offered in more locations though the Prometric sites, candidates may not have to travel as far or stay overnight to take the computerized exam, which would lower their cost.

Costello added, "We can’t prove it yet, but if candidates do better on the CBT as we expect them to, they will not have to sit as many times. Instead of sitting an average of 3.6 times, maybe they’ll sit 2.7 times. We’ve been told by psychometricians that with the computerized test, the average (number of sittings) will probably drop," which would also lower the cost.

Under the proposed contract, state boards have the option to use Prometric tests or to use their own test sites. "That addressed concerns that if the boards totally relied on Prometric that they wouldn’t have centers in areas where they wanted to have a center," Costello said. "North Carolina had thought about setting up [their] own testing center. Other states are looking at working through university test centers or setting up test centers from scratch."

The contract also allows for unannounced visits to Prometrics’ test sites by state board officials, provided that the states provide Prometric a list of authorized people within a year of a visit, Costello said.

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