An alternate state in mind: the effect of CPA exam credit-hour requirements and economic competitiveness on state-level exam candidate pools and pass rates

ABSTRACT

State Boards of Accountancy and other regulators monitor state-wide sit and pass rates on the CPA exam in fulfilling their mission to protect the public. These metrics can prompt important policy decisions such as state CPA exam requirements as well as the accounting curricula and resource allocation at that state’s colleges and universities. Using the test center location of CPA candidates, we analyze the pass rates of U.S. jurisdictions regarding the performance of both in-state and out-of-state candidates. We document that states allowing a candidate to sit for the exam at fewer credit hours (120 verses 150 credit hours) tend to be greater importers of out-of-state CPA candidates. After controlling for a state’s credit hour requirements, we find evidence to suggest that states with high economic activity tend to attract out-of-state candidates that, on average, have better pass rates than do the candidates currently residing in those states. We suggest that our results can assist State Boards, educators, and other stakeholders in making policy decisions regarding the CPA exam environment in their state. More broadly, our study contributes to the literature regarding how state-level rules affect regional competitiveness and the flow of human capital.

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

1 In our role as educators as well as through our collective affiliation with accounting regulators and accounting professional organizations, we believe that additional forms of publicly-available CPA exam performance data analysis benefit various stakeholders, including regulators.

2 We acknowledge, as a limitation of our study, that there exist innumerable, more subtle differences that we do not control for among states within the same 120-hour or 150-hour category. Examples include a) small differences in discipline-specific accounting-hour requirements b) a small number of small states with residency requirements that may or may not be rendered moot by lenient exemptions for large numbers of candidates c) reputational effects among states, etc. (e.g. candidates’ perceptions as to how quickly and efficiently their exam application will be processed by a given state’s Board of Accountancy). We are not aware of any such idiosyncratic factors that apply to all states within either the 120-hr or 150-hr categories; thus, for any specific perceived impediment for an individual state, candidates would have alternatives states within the same 120-hr or 150-hr. category to which to apply. Thus, these more subtle, idiosyncratic differences themselves would not prevent candidates from having the choice between applying to either a 120hr or 150hr state, which is the focus of our study.

3 Though many states allow candidates to take the CPA exam after 120 credit hours, we note that all jurisdictions in our sample (the 50 U.S. States and Washington, DC) require candidates to earn at least 150 credit hours for their CPA license.

4 We use the Prometric testing center location of each exam attempt to determine a candidate’s state of residence, and, subsequently, their in-state vs. out-of-state status from the point of view of the state for which the variables in our study are being measured. Though we acknowledge that, ideally, we would be able to use both testing location and home address, we suggest that testing location is a better way of gauging a candidate’s current residence than by simply using the address listed on the candidate’s original application. That address may be misleading for multiple reasons. First, a candidate who is enrolled as a student might have used the address of a parent or relative on the application because they were about to graduate and move away from their campus to an as-of-yet unknown location. In addition, candidates often relocate and make multiple exam attempts at their new location without having their address updated in NASBA’s records. Meanwhile, the vast majority of exam attempts would be made at a Prometric location relatively near a candidate’s true place of residence since anecdotal evidence suggests that candidates do not tend to attempt the lengthy, high-stakes CPA exam while away from home on a vacation or business trip. Thus, using the Prometric exam location of every attempt is a more accurate way of gauging the true residence of a candidate at the time of the exam.

5 Please note that we do not use yearly figures for number of test centers because we are unable to access archived Prometric website information from prior years and multiple attempts to access prior-year information directly from Prometric have proved unsuccessful. However, it is our belief that that the number of test centers over our 4-year sample period would have been stable enough so as to not significantly affect our results.

6 A few states changed their policy from 150 hrs. to 120 hrs. during our sample period (2013-16). In our analysis, we adjust for these policy changes by classifying state-year observations as 120-hr. or 150-hr. according to when the change took effect.

7 Through our interaction with various stakeholder groups involved in the exam/licensure process, it is the authors’ experience that this information is generally of interest to stakeholders who are, naturally, most curious about the metrics of their own state.