The Pipeline Problem
By Juliette Gaudemer
March 2, 2023
What if the solution to getting more people to become accountants wasn't making the CPA exam easier or requiring fewer college credits or better marketing the credential?
What if it was actually two entirely new credentials?
That's the suggestion of Bill Dresnack, an associate professor at the Rochester Institute of Technology, who proposes offering accounting students the opportunity to earn two state-regulated certifications — the Associate in Public Accounting after two years of college, and the Paraprofessional in Public Accounting after four years. Students who earned the certifications would be able to skip parts of the CPA exam, and gain recognition for their skills with much fewer than 150 credit hours.
"The idea is to just give aspiring CPAs a different pathway or shorter benchmark so that they could see that they're progressing," said Dresnack. "The 150-credit requirement scares people off, so I think the idea is to get parts of the exam waived if you've completed these certifications. I think those would be really attractive to many people who might not choose to become CPAs but want to increase their expertise."
His innovative idea is just one of many for solving the "pipeline problem" — the mismatch between the flow of people entering the accounting profession and the much-larger demand for talent at all levels — but solving it requires understanding the big secret of the pipeline problem: It's actually two problems.
The first is the low number of students choosing accounting as a major. According to the most recent American Institute of CPAs' Trends Report, enrollment rates for accounting degrees had seen steady growth between 2001 and 2015, going from 34,719 to 56,715 people completing a bachelor's degree. However, the numbers started falling in 2015, and the academic year 2019-20 concluded with a 7% drop in undergraduate degrees and an 11% drop for master's degrees.
The other problem is that even if students major in accounting, that doesn't guarantee that they'll go on to become CPAs. According to National Association of State Boards of Accountancy records, the number of people taking the CPA exam plummeted by almost half between 1990 and 2021, falling from 143,000 candidates to under 73,000. The situation has gotten even worse with the pandemic, with the number of CPA exam sections processed through the National Candidate Database decreasing by more than 25% between 2018 and 2022.
"The shortage of accountants is a real crisis beyond the profession itself, because we affect everyone," said Daniel Geltrude, who owns his own CPA firm in New Jersey and has been active in pipeline issues. "We're the ones who prepare and file tax returns. We're the ones who do the financial statements and if we don't have enough people to do it, deadlines are missed, and the whole system will crumble."
To address both pipeline problems simultaneously, leaders in all parts of the profession, from academia to public accounting firms to CPA membership organizations, have proposed a wide range of solutions to attract and retain accountants. Some believe that a simple change of perspective and an empathetic approach will be enough to promote interest in the field. Others believe that strong reforms and bold changes are the only way to build the pipeline of tomorrow.
Early exposure for talent attraction
There are multiple theories behind what drives students away from accounting. Many point to the field's persistent reputation, which is often associated with dull numbers and repetitive tasks, while others believe there is a simple lack of exposure among young people. But what most advocates agree on is that reaching out to high school students is critical to influencing their future choice of major.
Todd Shapiro, who retired in February after a decade as CEO of the Illinois CPA Society, took an interest into the shrinking pipeline very early on. He believes the best strategy is to emphasize the value of the profession and the variety of jobs available. For example, the ICPAS launched its Strategy Academy in 2021 to help professionals provide insight to their clients by developing strategic thinking and critical skills. The four-day program covers fields such as audit or tax and teaches CPAs to drive value in their clients' businesses.
Tracey Niemotko, an accounting professor at Marist College, also believes that high school students should understand the relevance of accounting by the time they enter college. For example, she noted that accounting professionals were designated "society safeguards" during the 2008 financial crisis, and wishes that people better understood how the discipline serves its clients and their communities. A 2017 study found that only 16.4% of students are required to take a personal finance course to graduate high school, which Niemotko says is a missed opportunity for them to gain exposure in accounting.
"I think our profession needs to do a better job promoting ourselves, especially in high schools, to discuss all the great benefits of being in this profession, all the interesting work you can do, and how you can make a very good living while helping people in meaningful ways," said Bruce Zicari, CEO of Top 100 Firm The Bonadio Group. "A major in accounting doesn't only open the door to do accounting and tax work, but so many other purposeful and fascinating areas, and that's the message we need to get out there."
At a high school level, the New York State Society of CPAs organizes an annual event called The World of Accounting, where participants learn how to conduct a successful interview, are given a tour of accounting firm offices, and learn about career opportunities in the public, private and government sectors.
Dresnack, who served as a vice president at the society, says that many former students who attended the event now serve as presenters to attract more talent, which he sees as the most rewarding part of the process.
"We have a really strong alumni base and I think young people in the profession are the best ambassadors for the profession," he said. "When we have recent students come back after an internship and talk about what they learned, what they did and the people they met, that is the best thing we can do."
Students can also connect with accounting professionals through co-op programs such as the one hosted by the Saunders College of Business at the Rochester Institute of Technology. Through this initiative, students can gain one year of paid work experience at an accounting firm without needing to pay tuition. Dresnack says that this kind of initiative is more compelling and effective than internships, which are generally shorter, with one third of RIT students getting hired by their employers after completing the program.
Another way to grow the pipeline and spark interest for accounting among young populations is to promote access and diversity, which have grown in importance these past few years. It was in this mindset that Dresnack founded the Rochester chapter of Career Opportunities in the Accounting Profession, an annual event sponsored by the New York State Society of CPAs. The three-to-five-day college exploration program is a free opportunity for high school students, especially those from underrepresented backgrounds, to gain exposure to the accounting profession.
"Diversity, equity and inclusion are extremely important for people to feel welcomed, and I think nothing brings value to an organization more than a diverse workplace," said Zicari. "At Bonadio Group, we have started recruiting and looking for talent in diverse college campuses, big cities and areas, and I think we're making progress. But there's always more work to be done."
The Texas Society of CPAs recognized that language barriers and cultural differences can be an obstacle to diversifying the pipeline. In a state where one-third of high school students are Hispanic, TXCPA chairman Mohan Kuruvilla, Ph.D., CPA, says it was critical to translate some of the society's resources into Spanish. Considering the family-centric culture of Hispanic households and the great number of first-generation college students in the area, TXCPA CEO Jodi Ann Ray, CAE, believed that students should be able to include their parents in the conversation about their future.
With this mindset, the TXCPA created the Pipeline Taskforce, with the goal to expand the accounting pipeline and advance the next generation of CPAs. Its 18 members were appointed by Kuruvilla, who made sure they came from various regions in Texas and multiple backgrounds. To achieve their goals, Ray explains that the association relies on expanding outreach and visibility, expanding TXCPA's resources, reducing the financial burden of becoming a CPA, strengthening partnerships, and pursuing regulatory changes.
"I don't think there's any initiative that can take on the pipeline problem by itself," said Ray. "For example, being able to sit for the exam a little bit earlier is not going to solve the pipeline issue alone, but changing the exam structure and doing a more significant revamp on the content is a first step."
Texas is one of only three states in the country that doesn't allow candidates to sit for the CPA exam with 120 credit hours, and the TXCPA introduced a bill to the Texas Legislature to change that. According to Ray, having a solid relationship with lawmakers and state agencies is crucial to implement change in the profession.
For example, the organization regularly meets with the Texas State Board of Public Accountancy to follow problematic trends in the industry and obtain data on the CPA pipeline to design better resources for aspiring accountants. As birth rates keep declining in Texas and fewer people enter the college system, Ray says that outreach programs and scholarships are more important than ever to understand which roadblocks make things difficult for potential test-takers.
"What we're trying to do, with the AICPA taking a lead on it, is to make sure that we understand the work of all our partners, and how we can create a synergy on which to capitalize," said Kuruvilla. "There actually are a lot of actors involved and they all have a role to play."
The 150-hour rule
Even if all high school students were enlightened about the benefits of a career in accounting and enrollment rates for accounting degrees exploded, it still wouldn't mean there would be more people taking the CPA exam.
Some argue that the test is too difficult, with its 50% average passing rate, or that the profession can't compete with the appeal of technology or finance. But the most popular explanation lies with the 150-credit-hour rule, which requires would-be CPAs to get an additional 30 credits after completing a bachelor's degree. Many argue that the rule is discriminatory and that students from underrepresented backgrounds can't afford the cost of the exam or a master's degree.
It was in response to the frustration surrounding the 150-hour rule that Dresnack developed his double certification model. The first certification, the APA, would test students on entry-level skills such as bookkeeping or tax return preparation, while the
PPA would focus on more complex matters. According to Dresnack, students could take advantage of that two-year benchmark to seek professional experience and gain exposure on what the profession truly entails. While these certifications wouldn't include auditing, both would cover the same undergraduate knowledge as the Financial Accounting and Reporting section of the new CPA exam.
A member of the New York State Board of Public Accountancy, Dresnack recognizes that his proposal isn't without its difficulties. Introducing these certifications would mean drafting exams and developing processes to implement them, while getting the AICPA and NASBA on the same page. It would also involve getting state regulators to create rules around the certifications, which would then need to be adopted by each state's legislation at a significant cost in time and resources.
Nonetheless, he thinks it would be worth the effort: "We should focus on ways to get new candidates more experience sooner and I think [the 150-hours rule] is wrong and unfair."
Meanwhile, Nietmoko doesn't believe there should be any changes to the 150-hour rule. She likes to compare accountants with other professionals who study for an extended period of time: doctors. Niemotko says that no one would think about reducing the number of years for medical school because students' expertise is a matter of life and death. But in a certain way, she argues that accountants are also responsible for the financial health of a household, and that there's "always more to learn, not less."
Niemotko believes the additional year of study provides students with the skills they need to prevail in the workplace. In the past, New York candidates needed two years of experience to achieve licensure, and Niemotko believes that coming back to this model and making it more stringent would help guarantee accountants' expertise.
"Right now, if you have an accounting educator who teaches accounting under the leadership of a CPA department's chair, that person would qualify for the educational experience required by the exam," said Niemotko. "Working in accounting is vastly different from academia, and I think they've broadened the experience parameters so widely that it's no longer helpful. When someone says they're a CPA, it should have a certain connotation of competence and expertise, which they've accomplished through work experience."
Still others are acknowledging the reality that the 150-hour rule is unlikely to go away, and instead are focusing on ways to make it easier to fulfill. New Jersey's Geltrude wanted to find a solution that wouldn't force students to navigate state regulations and would lessen the financial burden of college. As a result, he envisioned a "work-for-credit" program that would allow students to obtain the extra 30 academic credits through a year-long paid internship.
A member of the New Jersey State Board of Accountancy for 13 years, he brought together two fellow board members from St. Peters University and Big Four firm PwC and suggested a collaboration to launch a pilot program. In August, six students were admitted to the initiative to become the first work-for-credit graduating class in the country by the end of the spring semester. According to Geltrude, the program kills several birds with one stone, as it allows students to gain their 150 hours and one-year work experience requirements for the exam while also earning money.
"In order for us to really serve the public, there should be a path to level the playing field so that everyone can afford these 30 additional credits, which are nonspecified credits," said Geltrude. "We already have a crisis of not finding enough people to work, so why make the exam financially harder? I'm not saying that people that go into the field shouldn't have to learn what's necessary to function, but I don't see how these 30 credits make anyone a better accountant, or prepare someone for their work life."
Additionally, Geltrude argues that lowering the tuition for such initiatives could even be financially beneficial for colleges and universities, as well as for the accounting pipeline. He explains it in simple terms of supply and demand: If customers are willing to pay $50,000 for a car, there is no reason for the manufacturer to lower the price. However, if customers back away from a service because the costs are too high, like for a master's degree or the CPA exam, it would be in the seller's interest to lower the price to attract new customers. Geltrude argues that since firms would be the ones covering most of the costs to educate the students, colleges could afford to lower their attendance fees.
"The six students that are in the program have five women and one man, and they're all nonwhite, coming from underrepresented groups in the world of accounting," said Geltrude. "So this program is not only good for diversifying the pipeline, but it also makes students very valuable to prospective hiring companies, since they have one year of work experience coming out of college. That's why this very simple idea is extraordinary."
Others are working on alternative paths to meeting the 150-hour requirement for CPA licensure. Becky Burke, Americas assurance talent leader at Big Four firm Ernst & Young, is particularly proud of the EY Career Path Accelerator, a first-of-its-kind program that provides a series of virtual courses administered by Hult International Business School and hands-on learning through the EY internship. Designed for undergraduate students who don't intend to pursue a master's degree, the initiative has attracted 300 students since it launched in 2021.
Is it the hours, or is it the value?
A research study conducted by the Illinois CPA Society seems to contradict the widespread contention that the 150-hour rule is the main barrier to growing the accounting pipeline. In a survey detailed in its "Decoding the Pipeline" report, the society found that the cost associated with obtaining the additional 30 credit hours only ranked sixth in the list of reasons why students didn't pursue CPA licensure. In fact, 62% of respondents indicated that it's the time commitment and workload accompanying the exam that discourage them, while 36% expressed a fear of failure.
Shapiro argues that the 150-hour rule doesn't need to be a barrier, as many people choose to have a double major in undergrad rather than enrolling in a graduate program. Furthermore, he disagrees with those who say that there is little difference between 120 and 150 credits when it comes to an accountant's expertise, and explains that companies themselves see the difference. Shapiro says employers definitely pay attention to candidates' degrees to decide who will be more beneficial to their business and who will exhibit the most knowledge.
In his opinion, professionals and advocates haven't been focusing on what matters, which is the perceived value of the discipline. According to the ICPAS, only 27% of respondents saw themselves having a long-term career in public accounting, because they didn't see any return on investment that would be worth taking the CPA exam.
"If our research shows that ROI is the main problem, why don't we then focus on making our profession more attractive?" said Shapiro. "Some say that people choose to go into corporate finance instead of accounting because of the 150 hours, but is that really the reason, though? Why don't we look at ourselves and find out what we're doing wrong ? It seems like everyone just wants easy answers to very complex problems."
According to Mike Decker, vice president of the CPA examination and pipeline at the AICPA, a new version of the CPA exam could make the profession more valuable and attract new talent. This is why NASBA and the AICPA launched the CPA Evolution Initiative, which will transform the current licensure model into a new core in 2024 with a focus on emerging technologies. Decker says that the CPA curriculum is changing to meet the demands of employers who are seeking new skills and competencies, which should make the CPA exam instantly more valuable.
After designing the exam, the professional organizations consulted firms and academics for feedback and most were satisfied with the new format. In fact, 83% of firms surveyed said that if university accounting programs were aligned with CPA Evolution, their hiring of new graduates from accounting programs would likely increase and they would be considered more valuable.
"Today's CPAs are also taking on more responsibilities earlier in their careers," said Decker. "Manual tasks once handled by the newly licensed CPA are becoming automated, leaving room for new CPAs to take part in the higher-valued work earlier than in the past — work such as consulting, data analysis or personal financial planning. The reality is far from the stereotype of the CPA sitting at a desk all day working alone."
Decreasing the amount of rote and manual tasks young accountants have to do while increasing the amount of meaningful and interesting work they're involved in may go as far as any other proposed solution in drawing more young people into the profession, but one thing seems clear: With the pipeline leaking in as many places as it does, it's going to require for more than one patch.