While reading a recent article, Paul B. was struck by an uncanny similarity between the push to change the profession's educational requirements that started more than 20 years ago and current efforts by the large auditing firms and the American Institute of CPAs to promote International Financial Reporting Standards "convergence." (In this context, "convergence" means, "Dump the Financial Accounting Standards Board and put the International Accounting Standards Board in charge.")

As near as we can tell, these two initiatives are pretty much alike, but not in a good way. This deja vu has us shaking our heads in disappointment because the first time around was, shall we say, less than positive.

The article ("The Ongoing Debate about the Impact of the 150-Hour Education Requirement on the Supply of Certified Public Accountants," by Lawrence Gramlin and Andy Rosman, Issues in Accounting Education, November 2009) provides a perspective on the effects of the 150-hour requirement. It's not exactly a newsworthy scoop that there has been a decline in new entrants to accounting in recent years. The study and several others done earlier examine whether this trend is linked to the change in the education requirements. This most recent study, which looked at the supply side of the equation (student enrollments), instead of demand (new jobs), found no statistical relationship contradicting the findings of several earlier ones. Mixed evidence like this generally spawns more research and eventually the scale tips to one side or the other.


In the meantime, it's human nature to side with a position that makes sense through one's own experience. Ours says that the change in educational requirements and the shrinking supply of new accountants are inextricably intertwined.

The 150-hour requirement was an up-close-and-personal issue for us. For one thing, we have a combined 60-plus years of helping students prepare to join the accounting profession. Today's students in Idaho are totally conscious that the additional year of study imposes significant added cost at the very time that tuition bills are rising far faster than inflation and when financial aid (besides loans) has fallen victim to budget-cutting.

For many, it's a real hardship to add another year of school and student loans, instead of harvesting a year's salary as a new graduate. Of course, their sacrifice would be only a temporary nuisance if their employers added enough compensation to make the additional education worthwhile. However, salary surveys consistently show almost no increment is paid for the extra education. For well-informed students, this lack of return for the upfront cost undoubtedly makes other pastures (majors) look a whole lot greener.


The second reason this issue is personal lies in our connection to the origins of the 150-hour requirement. In the 1970s, the University of Utah created (at notable cost and effort) a five-year program in accounting. There was every reason to expect it to do well, except for the unfortunate fact that less than 10 people signed up in each of the first two years. (Paul M. was a member of that project development team, and Paul B. was one of his doctoral students in the 1980s.)

Rather than confront the truth that there was no demand for the product (the big firms said that they wanted the graduates, but then paid them only about 5 percent more per year than they paid four-year graduates), the founder set out to lobby the state legislature to pass a law that would require all CPA Exam candidates in Utah to have completed 150 credit hours. After four years of hounding, the legislators said yes. The founder started to push this solution in search of a problem to other schools around the country that were also embarrassingly short of students for their own new five-year programs. It spread like wildfire and reached its zenith when he became chair of the AICPA's Education Committee and got the requirement voted in by members in 1988.

One key statistic used to persuade legislators and the AICPA was that five-year students passed the CPA Exam at a higher rate than four-year students. What no one seemed to realize was that the valid comparison would be between five-year grads and four-year grads with one year's experience. Another troubling but ignored statistic was that insignificant salary premium mentioned earlier. Yet another was that five-year graduates still went through the same initial training and worked alongside four-year graduates.

Paul M. published a paper in Issues in Accounting Education in 2003 that used the institute's own statistics to show that each new job made available for five-year graduates was offset by two-and-a-half fewer jobs in public accounting for four-year graduates. Even more stunning was the result that over 1992-2000, the number of Master's degrees increased by only 910, while the number of Bachelor's degrees plummeted by 16,205. (That's a ratio of nearly 18 lost undergraduate degrees for every added graduate degree.)

Still another problem is that schools offering five-year degrees created additional graduate offerings by paring back their undergraduate offerings. This arrangement meets the needs of students who want to become CPAs, but severely handicaps those who leave universities with four-year degrees seeking work in corporate, governmental or small-business settings.

Who is more valuable to an employer, someone who has spent five years in higher education or someone who attends a university for four years and then works a year in the real world? Well, duh ... .

All these reasons compelled us to oppose the move way back then and even down to this day, as some Colorado CPAs are trying yet again to create a 150-hour requirement in that state, even though it has been imposed twice before and rescinded both times.

There are other issues as well (such as making CPA certificates less accessible to minorities, disabled individuals and others who cannot readily afford another year of tuition), but we think we've illustrated why it's appropriate to have deep-seated reservations about increased education requirements.


OK, so what are the similarities that we observe with the push for IFRS convergence?

Right off the top, both are built on abstract but seemingly obvious advantages. In the case of 150 hours, the premise was that education is a good thing and more is certainly better than less. In the case of IFRS, the siren song is that uniform rules will surely lead to global comparability. Clearly, both ideas have superficial appeal, but there is a lot of devil in the details. That makes it critically important to probe beneath the surface so the abstract ideals don't sway anyone to move to a place that is ultimately unsatisfying, just as we find ourselves with the education requirements.

Here are short summaries of two points where the parallels are particularly striking.

* Where's the demand? Simply put, the push to IFRS convergence is not demand-driven. While CPA firms were polite enough to say, "Sure, 150 hours is a great idea," they didn't put their money where their mouths were. In addition, no one gave attention to complaints from smaller firms that they didn't want to hire students with Master's degrees. The politicking was just too powerful to let those practical points stop it.

The same is true for convergence. This time, the four largest auditing firms are saying they want it, and the institute has tagged along recently, but there is no valid sign that corporate accountants, public accountants with other practices, financial analysts, or the present Securities and Exchange Commission has any interest in dumping GAAP and adopting IFRS. The support seems to be coming entirely from the big firms, and they're in the business of supplying financial statements, instead of reading them or using them to communicate with shareholders.

* Would IFRS really be a worldwide standard? The allure of convergence is that all capital markets would be reporting under uniform global standards.

The facts don't support that myth, because virtually all countries that have adopted IFRS have not adopted them in total. We received a credible letter that reports that fewer than 5 percent of global economic output comes from countries that have embraced them lock, stock and barrel. Everybody else has "carved out" of IFRS the standards they don't like. Further, we note that a lot of national reporting standard bodies are still at work. So much for convergence creating a single worldwide platform of accounting standards.


For all these reasons (and others we have explained earlier), we are leery of convergence and those who support it. We worry that what seemingly sounds so good at first will surely leave everyone scratching their heads a few years after the change, wondering how they got into this predicament, and facing a huge cost because there is no "undo" button.

As a matter of fact, another memory provides us some hope that this headlong rush to converge can be turned aside. Specifically, we recall that the same AICPA management tried in those heady pre-Enron days to impose the idea that accountants needed to become "Cognitors," even to the point that non-accountants would be welcome in the institute and the profession.

That gaffe was thrown out when the membership voted overwhelmingly to reject it because it was all for show with no real value. We hope the same thing happens again. Frankly, we're confident it will.

Paul B. W. Miller is a professor at the University of Colorado at Colorado Springs and Paul R. Bahnson is a professor at Boise State University. The authors' views are not necessarily those of their institutions. Reach them at paulandpaul@qfr.biz.

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