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Starting a Career in Public Accounting
Before or After Completing the 150-Hour Requirement
by
Larry Rankin, CPA, PhD, and John Cumming, CPA, PhD
By the year 2001, almost two-thirds of the states (shown
in the exhibit) will require accounting students to complete either 150
semester hours of higher education or 30 additional semester hours beyond
a bachelor's degree to sit for the CPA exam. Accounting students in these
states will soon face the issue of whether to graduate with a four-year
degree, and then complete the additional education requirement while working
full-time in public accounting; or to graduate with a five-year degree
before starting a full-time position with a firm.
This article discusses the impact of the 150-hour requirement on students
in Florida, the only state having significant experience with the law,
beginning in 1983. It also sets forth several predictions and recommendations,
learned from this experience, to assist students in deciding whether to
start a career in public accounting before or after completing the 150-hour
requirement.
The Florida Experience
Many practitioners and educators from Florida have described
their experiences with the 150-hour law. More recently, MGT of America,
Inc. conducted a comprehensive study for the American Institute of CPAs,
called "Impact of the 150-hour Education Requirement in Florida,"
discussing the impact of the additional education requirement on four-
and five-year accounting graduates in Florida. This study was based on
MGT of America's report, as well as selected firsthand observations of
practitioners and educators from Florida.
Four-Year Graduates
Initially, after implementation of the 150-hour law in Florida,
many four-year accounting graduates accepted full-time positions with
public accounting firms, and made arrangements with these firms for assistance
in completing the additional education requirement by taking courses at
night, on weekends, or during the summer. These hiring arrangements were
developed to benefit both the four-year accounting graduates and the firms.
They provided students with full-time employment and assistance in earning
the 30 additional hours, without the tuition, fees, and opportunity costs
associated with a fifth year of education. For the firms, these arrangements
satisfied their demand for entry-level personnel.
Douglas A. Snowball, professor and director of the school of accounting
at the University of Florida, described the conditions that encouraged
such arrangements. "Because of financial factors, uncertainty about
the permanence of the 150-hour requirement, and attractive offers in the
wake of the post-1983 staffing shortage, many four-year graduates accepted
accounting positions and entered part-time programs available in larger
cities. Assistance in meeting the remaining educational requirement on
a part-time basis is offered by many firms, such as by paying tuition
fees or providing release time."
Unfortunately, these hiring arrangements often failed, as a large percentage
of these hires never completed the 30 additional hours and eventually
left public accounting.
Practitioners and educators from Florida often cited this failed consequence
of hiring arrangements with four-year accounting graduates. In 1989, William
D. Pruitt, Jr., partner in Arthur Andersen's Miami office, for example,
cautioned that firms are "solving a short-term availability problem...because
a lot of them [four-year graduates] will never become CPAs." Henry
(Hank) R. Anderson, professor and former director of the school of accounting
at the University of Central Florida, also pointed out: "One of the
key lessons that should be learned from Florida's experience with the
150-hour requirement is that both local CPA offices and students have
a difficult time accepting the new educational constraints. Because CPA
firms are experiencing a shortage of entry-level personnel when students
are being confronted with additional courses and more costs, literally
hundreds of `arrangements' develop between firms and students. The sad
part about this is that the benefit is only short-term, and a large percentage
of these students never return to school to complete their remaining courses
and never take the CPA exam." Similarly, Snowball explained: "It
is difficult to do justice simultaneously to academic coursework and a
challenging professional position, especially when others are entering
the firm with their educational requirements completed."
Five-Year Graduates
Through the late 1980s, many Florida firms encouraged accounting
students to accept full-time positions in public accounting before completing
the additional education requirement. However, "as staffing shortages
diminish in Florida," Snowball noticed in 1990, "our students
increasingly tend to complete their CPA requirements before accepting
permanent positions and are encouraged to do so by recruiters." Consequently,
by the end of the 1980s, many public accounting firms, especially the
larger firms, met staffing needs by recruiting mostly five-year graduates.
Florida's experience provides a firsthand perspective on the impact of
a five-year degree on technical competence and work performance, as well
as recovery of fifth-year costs through higher starting salaries.
Increased Technical Competence
The CPA exam is a measure of technical competence. As such, it is noteworthy
that Florida's pass rate for first-time candidates of the CPA exam increased
dramatically starting with implementation of the 150-hour requirement,
and is significantly higher than the corresponding national pass rates.
The average pass rate of Florida's first-time candidates, for example,
increased from 15% before the 150-hour law to over 30% after the law's
implementation. By comparison, the national CPA-exam pass rates for first-time
candidates overall and for those first-time candidates holding master's
or other advanced degrees are about 16% and 27%, respectively.
Albert Lopez, partner in charge of human resources and recruiting for
BDO Seidman's Miami office, reported in 1994 an even higher first-time
CPA-exam pass rate of 80% for its new hires. "This allows the firm
to be able to give them more (responsibility) sooner," Lopez noted.
In addition, Larry Harris, director of human resources for Arthur Andersen's
South Florida practice, recently noted another indicator of the higher
technical competence of Florida's five-year graduates: "We are seeing
a higher quality of entry-level staff at AA's Florida practices. Among
entry-level staff receiving instruction at AA's training center in St.
Charles, IL, new hires from the Florida offices have the best overall
scores on tests that measure comprehension of auditing concepts of any
AA offices in the world. Part of the reason for their high success rate
may be due to the fact that 75-80% of AA's new hires in the state have
a master's degree in accounting."
Better Work Performance
MGT of America recently surveyed a sample of Florida public accounting
firms on the impact of the state's 150-hour law. The survey results indicated
that 40-48% of the respondents believed there were no performance differences
between new hires with five-year degrees and those with four-year degrees.
These results, however, also revealed that a smaller, yet significant
number of practitioners believed that new hires with five-year degrees
compared to those with four-year degrees performed better immediately
(21%), performed better in the long term (29%), and advanced more quickly
within the firm (31%). In fact, rarely did any respondent in this survey
believe that new hires with four-year degrees performed better than those
with five-year degrees.
Fifth-Year Costs vs Higher Starting Salaries
For the students, costs for that fifth year of education included tuition,
fees, and lost income from not working full-time. Many students, however,
partially financed their fifth year of education through internship programs
and scholarships created by Florida universities for five-year students.
In addition, higher starting salaries paid by firms to Florida's five-year
graduates enabled students to recover the costs of their fifth year of
education in a few years. For example, on the basis of its recent survey
of Florida CPA-exam candidates, MGT of America indicated that public accounting
firms paid new hires with five-year degrees about $2,000 (8.3%) more per
year than those with four-year degrees. Others have cited higher-salary
differentials between five- and four-year graduates. In 1990, to cite
one of these sources, Snowball said the average starting salaries "were
16.5% higher for five-year graduates than for four-year graduates over
the last two years."
MGT of America's report also estimated the added career earnings of five-year
graduates compared to four-year graduates. These estimates indicated that,
if a four-year graduate takes two or three years after graduation to earn
the additional hours required for the CPA exam, the added career earnings
of a five-year graduate will exceed those of a four-year graduate by $350,000
to $450,000, due to a higher starting salary and earlier passing of the
CPA exam. As a result, MGT of America concluded: "The gain in lifetime
earnings for those five-year graduates who pass the CPA exam earlier [than
four-year graduates] more than offsets the costs of additional time in
school to obtain the extra credit hours and the lost income from not starting
their accounting careers during that time period."
Predictions and Recommendations
This section presents several predictions and recommendations, learned
from the Florida experience, to help students plan for implementation
of the 150-hour law in their states between now and the year 2001. It
focuses on the potential consequences to students of starting full-time
positions in public accounting with a four- or five-year degree.
Four-Year Degree
Because of the costs associated with a fifth year of education, many four-year
accounting graduates may initially accept full-time positions in public
accounting rather than continue through a fifth year to complete the additional
education requirement. Similarly, because of a variety of reasons, many
public accounting firms may actively recruit four-year accounting graduates
under Florida-type arrangements. The Florida experience, however, suggests
that students hired under such arrangements will need to work very hard
to successfully complete the additional education required to become a
CPA.
Five-Year Degree
As students and public accounting firms adjust to the 150-hour requirement,
students will increasingly continue through a fifth year of education
before starting full-time careers in public accounting. A number of factors
will contribute to this trend.
First, students will partially finance their fifth year of education through
internship and scholarship programs established by universities for five-year
graduates. The on-the-job experience gained from such internship programs
will also add to these students' education and perspectives on careers
in accounting, as well as help firms satisfy their staffing needs during
the busy season. Furthermore, upon graduation with a five-year degree,
these interns will accept full-time positions with their firms as "experienced"
entry-level personnel who are already qualified to sit for the CPA exam.
As such, internship programs will be actively supported by students, public
accounting firms, and universities. Accounting students should begin now
to plan on partial financing their fifth year of education through internships
and scholarships.
Second, students will increasingly realize that four-year graduates hired
under Florida-type arrangements frequently may not complete the additional
education requirement, and may even eventually leave public accounting
without ever sitting for the CPA exam.
Third, as more states operate under the 150-hour law, students graduating
with five-year degrees, compared to those with four-year degrees, will
have greater opportunities for out-of-state referrals for entry-level
positions with firms in those states. Once certified in a 150-hour state,
five-year graduates also will qualify to move to other 150-hour states
with reciprocity. Both of these factors will increase the professional
mobility of five-year graduates, compared to that of four-year graduates.
Finally, as a result of their experiences with both four- and five-year
graduates, firms will increasingly encourage accounting students to complete
their fifth year of education before starting a career in public accounting.
Students also will realize that five-year graduates pass the CPA exam
sooner, thereby allowing them to focus on their careers, assume more responsibilities
in their firms earlier, and add to their career earnings.References
Larry Rankin, associate professor of accountancy, and John Cumming, professor
of accountancy, are both from Miami University (Ohio).
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