A better analytic for measuring students’ potential to pass the CPA Exam
We’ve heard of CPA shortages for decades, and the AICPA’s 2019 PCPS CPA Firm Top Issues Survey says staff recruitment remains the primary issue for most public accounting firms. Competition for accountants is fierce. The U.S. Bureau of Labor Statistics recently reported that unemployment for accountants and auditors is under 2 percent. Adding to this shortage is what AICPA president and CEO Barry Melancon calls the “CPA gap.” Melancon notes that even with record numbers majoring in accounting, in recent years, the number of people sitting for the CPA Exam is static, creating the “CPA gap."
So why the gap? Firstly, an individual must pass all four sections of the CPA Exam. In addition to that, many schools offering degrees in accounting provide little to no guidance to students on how to successfully pass the exam. Most accounting graduates don’t sit for the exam or fail one or two parts and give up. However, beginning a career in public accounting without having first passed all four sections of the exam is devastating. New hires face arduous work weeks and then spend limited free time studying for the exam.
A recent graduate comments about passing the exam: “If you haven’t passed at least two of the exams before starting full-time, you’re probably going to have a bad time of it. It’s certainly still possible to pass them, but if you don’t have them all done by the time you get promoted to Senior, you probably won’t pass them while you’re in public.” One way to pass the exam successfully is to be a smart shopper from the start. With college today costing nearly as much as a starter home a generation ago, astute candidates need to find a school that can meet their goals.
NASBA publishes CPA pass rates for various sizes of schools. Though that’s useful, one needs to be cautious in interpretation of the NASBA pass rates measured (such as sections taken vs. sections passed). Thus, if only one student from a school sits and passes only one section in a calendar year, that school receives a 100 percent pass rate for that year. Unfortunately, the student still has 75 percent of the exam to complete! At that pace, the individual will not become a CPA. All four parts of the exam must be completed within 18 months, meaning a candidate must complete, on average, 2.67 parts per year. We examined the most recent (2018) data from the 248 collegiate accounting programs with 60 or more candidates that NASBA defines as “large” and found that candidates in this group pass, on average, 1.16 sections per year on the first attempt. Thus, the average candidate, from the nation’s largest accounting programs, completes just over one quarter of the exam on the first try in a year’s time, a first-time completion rate that is far below the average of 2.67 parts per year necessary to pass the entire exam successfully within 18 months and become a CPA.
CPA Success Index
In seeking a better metric, we created the CPA Success Index, which is an analytic that estimates students’ progress toward completing all four parts of the CPA Exam in 18 months. We base this on the number of sections candidates passed on the first attempt in the preceding 12 months, grossing that value up to 18 months using the school’s average first-time pass rate, and then dividing that value by the total number of sections, four. We find these 10 schools to have the highest success indices amongst larger collegiate accounting programs; University of Missouri-Columbia (95.3 percent), Texas A&M University (90 percent), University of Northern Iowa (89 percent), Wake Forest University (82.6 percent), James Madison University (81.8 percent), Southern Methodist University (80 percent), University of Texas (79.8 percent), Boston College (77.4 percent), University of Kansas (76.7 percent) and the University of Wisconsin (78.2 percent).
For the University of Missouri, an index of 95.3 percent represents 3.81 sections passed per candidate during the 18-month testing window. Missouri had 144 candidates attempt 474 sections for the first time in 2018. Those students passed 366 sections for a 77.2 percent raw pass rate. Thus, students from Missouri have a 77.2 percent chance of passing one section of the CPA Exam. Keep in mind, however, that only 144 candidates pass these 366 sections, which indicates that, on average, each candidate passed 2.54 sections. That means, on average, candidates from the University of Missouri passed 63.5 percent of the exam in one year. Again, taking it one step further, on average, Missouri students pass 63.5 percent x 18/12, or 95.3 percent, of the CPA Exam in the first 18-month testing window, resulting in their No. 1 ranking on our CPA Success Index.
Insights into the top universities for CPA Success
Most of the programs in our top 10 have high-quality incoming students as measured by high standardized test scores. On the other hand, our top three universities — the University of Missouri, Texas A&M University and the University of Northern Iowa — are public universities with acceptance rates well above the group average, tuition rates well below the group average, and they enroll students from families with the lowest household incomes in the top 10. Additionally, their students have relatively lower standardized test scores compared to the other programs in the top 10. So how do they have the highest CPA Success Rates considering these barriers? Let’s take a look at the mechanisms that distinguish their programs.
The most distinguishing feature of the accounting program at the University of Missouri is that it is a 150-hour program with a combined bachelor’s and master’s degree. The accounting program at Texas A&M University also finds most students pursuing their CPA certification through a five-year (bachelor and master) integrated professional program.
The distinguishing feature of the University of Northern Iowa is a for-credit CPA review program, taught by department faculty, integrated into a student’s final semester. Most CPA candidates from the University of Northern Iowa sit for all four parts of the CPA exam before graduation as part of that review program.
Our CPA Success Index is a better measure of students’ likeliness to complete the exam. Our findings show that schools that recruit high-quality students have high pass-rates, but additional mechanisms can elevate average students to the same heights as those who come into college with higher accolades. Two such mechanisms include integrated graduate coursework and CPA review.
Good students, more accounting coursework and CPA review courses result in greater candidate success on the CPA exam and help reduce the “CPA gap.” Students shopping for a college to give them the best chance to cross the finish line and become a CPA should look for a program that integrates bachelor’s and master’s degrees and/or offers formalized CPA review.