The 150 Credit-hour Requirement and CPA Examination Pass Rates—A Four Year Study

Abstract

Debate concerning the minimum educational requirements of certified public accountant (CPA) candidates in the USA has been taking place for decades. This paper compares the sectional pass rates of CPA candidates from jurisdictions requiring 150 credit hours of college study with the pass rates of candidates from jurisdictions not requiring 150 credit hours for the years 2004 to 2007. The paper finds that jurisdictions with a 150 credit-hour requirement have materially higher pass rates in areas of Auditing and Regulation, but not in the areas of Financial Accounting and Reporting or Business Environment and Concepts. The paper also finds that, on average, increasing a CPA candidate's formal education requirement results in improved candidate performance, but that some jurisdictions without the 150 credit-hour requirement consistently have sectional pass rates above the national average. Terms which may be unfamiliar to readers outside the USA are defined in the footnotes.

Keywords:

• CPA examination
• pass rates
• 150-h requirement

Notes

Credit hour—a unit of measure used to determine one's progress toward the completion of a college degree. Traditionally, a student working toward a bachelor's degree will complete 15 credits hours per semester, two semesters per year, with a total of 120 credit hours needed to complete a bachelor's degree. Generally, a master's degree requires 30 credit hours beyond a bachelor's degree.

The authors want to remind the reader that both the 150 credit-hour requirement and the 120 credit-hour requirement represent the minimum number of credit hours of college education that a candidate needs to have completed in order to sit for the Uniform CPA Examination within a given jurisdiction. Within each jurisdiction, there are candidates who, at the time they sit for the CPA Examination, have completed more than the minimum credit hours needed. However, since data on the current education levels of individual candidates (i.e. the total credit hours actually completed by individual candidates), as it relates to sectional pass rates, does not exist, the authors look at the aggregate sectional pass rates within each jurisdiction.

150-h jurisdictions are Alabama, Arkansas, District of Columbia, Florida, Illinois, Indiana, Kansas, Louisiana, Maryland, Mississippi, Missouri, Nebraska, Nevada, North Dakota, Ohio, Oklahoma, Oregon, Puerto Rico, South Dakota, Tennessee, Texas, Utah, Washington, West Virginia and Wisconsin. Non-150-h jurisdictions are Alaska, Arizona, California, Colorado, Delaware, Georgia, Guam, Hawaii, Idaho, Iowa, Michigan, Minnesota, Montana, New Hampshire, New Jersey, New York, North Carolina, Pennsylvania, Rhode Island, Vermont, Virgin Islands and Wyoming. Jurisdictions with changing educational requirements in the sample period are Connecticut, Kentucky, Maine, Massachusetts, New Mexico, South Carolina, and Virginia.

For example, using the ‘one group pretest and post-test design’, Cumming and Rankin (1999) found that Florida experienced a large increase in CPA Examination pass rates in 1984, the year after the enactment of 150-h rule, as compared with 1982, the year before the enactment. They concluded that the 150-h requirement significantly increases candidates' performance. However, if states not implementing the 150-h rule also experienced similar increases in candidates' passage rate during this period, such a claim would not be valid. From this aspect, a difference in difference method using a control group to rule out common trends is more appropriate.

We are not able to conduct a regression analysis and draw statistical inference, because we do not have performance data on each of the individual candidates within these states. The difference in difference table, however, still reveals information about how changing regulation affects candidates' performance.