The CPA Examination in Evolution: Answering the Call for Change

By: Mark Myring, PhD and Robert Bloom, PhD

 

The recent CPA Evolution Project represents the accounting profession’s attempt to transform the CPA licensure model to fit the skills and competencies that new CPAs will require today and in the future. It marks the most significant change to the Uniform CPA Examination in many years. This article describes the changes to the structure and content of the exam, assesses the likely impact of the changes, and discusses how universities will need to adapt their curricula to new exam.

 

The accounting profession is in transition. The skills necessary to excel in today are very different than they were even five years ago. Expertise in risk assessment, accounting analytics, and IT governance are becoming increasingly important competencies for advancement in the profession. Many public accounting firms have begun to fill this talent void among accounting recruits by hiring non-accounting staff. The AICPA’s 2019 Accounting Graduate Supply and Demand Report, which includes a survey of public accounting firms’ hiring practices, documented this trend. Specifically, the report indicated that the hiring of recent accounting graduates by public accounting firms has declined by 30% over the last two years. In contrast, the number of new graduates hired from non-accounting degree programs, as a percentage of all newly hired graduates, increased 11% to 31% (https://bit.ly/3E5OE4s).

 

The shift in hiring practices reflects the changing skills that drive success in the profession today. Despite this change, the Uniform CPA Examination and its content have remained essentially constant in coverage over the past 20 years. In realization of this change, the CPA Evolution project was launched in 2018. The purpose of this project has been to transform the CPA licensure model to recognize the rapidly changing skills and competencies that accounting requires today and will require in the future (https://www.evolutionofcpa.org/). This project is a joint effort of NASBA and the AICPA. Both organizations have worked together with a broad group of stakeholders, including CPA societies, state boards of accountancy, academics, firms of varying sizes, and CPAs. Input was received on revisions to the examination specifically from more than 20 discussion groups and from more than 3,000 stakeholders (https://www.evolutionofca.org/). After analyzing this input, significant changes in the structure and content of the CPA examination were proposed. The evolution of the examination reflects recent changes in skills and technologies, along with new, more complex financial reporting standards that have not been adequately captured on the examination previously.

 

The following is an overview of the revised CPA exam. First, the structure and content areas of the new test are described. The authors critically assess the changes to the exam. The article concludes with a discussion on ways colleges and universities may modify their curriculum to enhance the development of the skills and abilities their students need to succeed on the CPA exam and in their professional careers.

 

Structure of the Evolved CPA Examination

Traditionally, the Uniform CPA Examination has comprised four parts. The new exam now will include three core sections that each candidate will take. These three core sections are supplemented by three separate discipline sections. Each candidate must select one of the three discipline sections. A candidate passing the three core and one of the discipline sections will be eligible to become a CPA, subject to the experience requirements of the residing state or territory. A candidate will not be permitted to complete more than one of the three discipline sections; furthermore, there will be no official designation indicating which discipline section the candidate passed.

 

The rationale for this mixed core/discipline structure is that it more accurately reflects the current environment in which accountants function as well as the skills critical to their success. The core sections are indicative of the significant increase in complex standards in recent years. As noted in a joint AICPA-NASBA publication, CPA Evolution: New CPA Licensure Model (https://bit.ly/3jgYZCw), the number of pages in the Internal Revenue Code is three times as many as it was in 1980. The number of financial accounting standards has quadrupled, and the number of auditing standards has quintupled. The discipline sections allow a CPA candidate to expand knowledge in the area that most directly aligns with a career path. The candidate would typically complete each core test, generally before pursuing any one discipline area.

 

Exhibit 1 summarizes the content of each of the three core areas: Accounting and Data Analytics, Audit and Accounting Information Systems, and Tax. The table is derived from the CPA Evolution Model Curriculum (https://bit.ly/3A8SAQo).

 

Exhibit 1: CPA Evolution Core

 

As shown in Exhibit 1, the Accounting and Data Analytics section includes the following modules: financial statements and their accounts, financial statement transactions and analysis, financial statements for not-for-profit entities, and state and local governments, along with critical thinking, financial data analytics, and digital acumen. In this section, the emphasis is on awareness of data mining, logical thinking, data visualization, and data ethics. Advanced application in these topical areas is further tested in the Business Analysis and Reporting discipline section of the exam.

 

The Audit and Information Systems core consists of many of the topics covered on the Auditing and Attestation section of the current CPA exam—such as audit environment, engagements, planning, risk assessment, materiality considerations, audit procedures, and audit conclusion. The Tax core encompasses the following topics: responsibility of practice, tax methods, federal taxation, C and S corporations, partnerships, tax-exempt organizations, and limited liability companies, along with technical and digital acumen.

 

One of the most noteworthy additions to the CPA exam is the emphasis on digital acumen. As noted in the table above, digital acumen is included in all three core sections. Module 9 of the Accounting Data Analytics section requires knowledge of digital tools and technologies as well as the ability to respond to changes in this area. In addition, Module 15 of the Audit and Accounting Information Systems core focuses on identifying technological trends, applications, and their uses in audit and assurance services. In the Tax core, digital acumen covers the ability to recognize prevailing technological trends and applications as well as their impact on tax compliance and planning. Also important to observe is that the Accounting and Data Analytics core includes new topics such as critical reasoning and financial data analytics (Modules 7 and 8, respectively).

 

Compared to the current version of the CPA exam, several topics have been eliminated from the core section. Specifically, most topics in the Business Environment and Concepts (BEC) were removed, including economics and operations management. Also removed is business law (formerly included in the Regulation section). Other topics previously included in the BEC section, such as cost accounting, information technology, financial management and risk management, have been integrated into the disciplines sections. Regarding the eliminated topics, the assumption is that students will receive sufficient instruction related to these items through their university’s business core.

 

The three new discipline-specific sections are titled: Business Analysis and Reporting (BAR), Information Systems and Controls (ISC), and Tax Compliance and Planning (TCP). Exhibit 2 provides a summary of the content of the CPA Evolution Model Curriculum (https://bit.ly/3A8SAQo). Following the completion of the three core areas, candidates will be required to successfully complete an examination in one of these discipline areas. The purpose of incorporating these areas of specialization is described below.

 

Exhibit 2: CPA Evolution Disciplines

 

Business Analysis and Reporting, the first alternative discipline, is designed to align with career paths emphasizing financial statement analysis, technical accounting, financial management, and management advisory services. This discipline contains modules providing more depth than the core on financial accounting and reporting for-profit and not-for-profit entities, including modules on financial statements, derivatives, hedge accounting, foreign currency translation, leases, employee benefit plans, software, cost accounting, and governmental accounting. Also included is accounting research, sustainability reporting, financial statement analysis, and advanced data analytics models and techniques for decision making.

 

The second discipline is Information Systems and Controls, encompassing the following modules that expand on the concepts and techniques in the core: IT governance, risk assessment, internal controls, System and Organization Controls (SOC) engagements, use of management data along with information security and protecting information systems. A candidate pursuing the IT section would have career interests in areas such as data governance, IT risk assessment, the IT component of financial audits of business processes, and cybersecurity issues.

 

The third discipline, Tax Compliance and Planning, is suitable for candidates opting for careers in tax compliance and planning at an entity or individual level. This section includes modules on individual and corporate tax compliance and planning, acquisition and disposition of assets, tax accounting methods, and federal taxation of C and S corporations and partnerships. It also includes content on personal financial advisory services.

 

Assessment of the CPA Examination Evolution

The new, evolved Uniform CPA Exam represents a major step forward for the profession. It better aligns education with the skills and knowledge necessary for success in practice. Furthermore, the three disciplines reflect current and emerging career paths for accounting graduates, allowing the candidate to focus on building knowledge in the area of practice. As such, the authors believe that employers will be able to rely more heavily on graduates with degrees in accounting rather than having to seek non-accounting graduates to fulfill skill gaps in accounting education.

 

Although there certainly are advantages to the ability to select an area of specialization, there are also drawbacks. For example, would specialization lead to inflexibility with respect to career changes? Although the CPA certificate itself does not, and would not in the future, differentiate among the disciplines completed, it is certainly information that employers could request in the interview process. Furthermore, students could perceive the examination as a higher hurdle to clear before entering the profession. Accounting organizations must provide clear and consistent messaging that this is not the case.

 

The disciplines sections of the exam call for greater variation in the knowledge students will need to succeed. To accommodate this variability, it is likely that more elective coursework will be required in accounting programs.

 

 

Implications for Colleges and Universities

The changes to the Uniform CPA Examination will have implications for colleges and universities. The authors believe that significant modifications to curricula will be necessary in many accounting programs. A first step in this process is understanding the content and how it maps to existing curricula. To facilitate this process, the AICPA and the NASBA released the CPA Evolution Model Curriculum (CPAEMC; https://bit.ly/3A8SAQ). The CPAEMC includes a comprehensive outline of topics covered on the exam. Accounting programs can adapt this model to map the topics from the CPAEMC to the content in their current curricula. If gaps in coverage exist, curricula can be adjusted to ensure that students have adequate exposure. This process is already underway at both of the authors’ universities and many others.

 

An important gap faced by many universities is in data analytics and information systems. A recent AICPANASBA survey of 1,200 chairs of academic accounting departments nationwide investigated the extent to which information systems and data analytics topics are covered in current accounting curricula. Although most respondents asserted that data analytics is included in their information systems and intermediate accounting courses, there is considerable variability in coverage. There is also a wide range of coverage on applied statistics and accounting data. Additionally, there appears to be very limited coverage of digital analysis and cybersecurity in more than half the programs that responded to the survey. The same applies to IT company audits and governance procedures.

 

The authors believe that another significant challenge faced by accounting programs is accommodating the three disciplines sections. Most undergraduate accounting programs that we observed consist primarily of required coursework with limited choices of accounting electives. These programs were suitable for preparing students for the generalized examination. The disciplines sections of the exam call for greater variation in the knowledge students will need to succeed. To accommodate this variability, it is likely that more elective coursework will be required in accounting programs. This degree of specialization will be difficult to achieve, given the credit hour constraints at the undergraduate level.

 

It may be possible for undergraduate accounting programs to be structured to sufficiently cover content for a single discipline section of the exam. Curricular modifications would be necessary, however, for most accounting programs to accomplish even this goal. For example, a traditional program may be able to accommodate the knowledge required for students to be successful on the Business Analysis and Reporting discipline section, if the curriculum contained (or added) sufficient content on data analytics as well as more comprehensive coverage of governmental accounting than is typical at the undergraduate level. Thus, if an undergraduate accounting program is carefully structured, students may be successfully prepared to complete the core sections and a specific discipline section of the exam.

 

Nevertheless, in the authors’ judgment, given the breadth of content in the three core sections of the exam, coverage of the subject matter necessary to prepare students for the discipline sections will most commonly occur at the graduate level. As such, the changes to the CPA exam may lead to an increase of specialized tracks in masters of accounting or MBA with accounting concentrations programs. For example, colleges may seek to reformulate their graduate programs to focus on discipline section content, with three subsets of courses focusing on the three disciplines. Such a curricular structure would focus primarily on the core sections at the undergraduate level and then primarily the discipline sections at the graduate level. Students currently enrolled in masters of accounting programs may begin taking the core sections of the CPA exam, if permitted in the state they reside, as much of the content of the core sections would typically be covered in undergraduate accounting coursework. The discipline section of the exam would then be taken later in the master’s program, or upon its completion.

 

The authors believe that any update to the accounting curriculum in order to align with the new exam would benefit if it were a collaborative effort among universities, practicing accountants, and accounting firms. The importance of course selection to the successful completion of the CPA exam must continue to be emphasized in the recruiting process. From our experience, students have often avoided taking courses such as advanced information systems and controls and tax planning, because much of the material in those courses was not heavily covered on the current CPA exam—but this will no longer be the case for the evolved exam. Furthermore, the changes that have occurred in the accounting profession in recent years have been dramatic. For academia to adapt to these changes, practicing professionals must continue to collaborate with universities to provide content on emerging issues in accounting and opportunities to engage in faculty internship programs. Employers should be mindful of the impact of the revised examination on the importance of course selection at both the undergraduate and graduate levels as it relates to CPA certification.

 

Some institutions will face challenges in adjusting their curricula. Accounting enrollments have declined at many universities in recent years; according to the AICPA 2021 Trends Report, accounting degree completions for bachelor’s and master’s programs combined are at the lowest level since 2009/2010. The addition of electives may result in fewer students per class, thereby increasing the cost of accounting programs. Furthermore, some programs will encounter difficulty staffing additional accounting electives. In such cases, smaller universities may seek partnerships with larger institutions to ensure students have access to the content necessary to prepare for the exam.

 

The proposed model, in particular its emphasis on discipline areas, reflects the current reality in which CPAs must adapt to different fields of endeavor, whether in financial reporting, auditing, information systems, or income taxation.

 

A Step Forward

The authors are pleased to see the AICPA and NASBA take the lead in promoting curricula reform. The Evolution Project’s proposed model is a major step forward in expanding coursework to integrate new skills that professional accountants need to master. Such a broadening of the curricula should enable accounting students to be better prepared for their future work in accounting practice. The proposed model, in particular its emphasis on discipline areas, reflects the current reality in which CPAs must adapt to different fields of endeavor, whether in financial reporting, auditing, information systems, or income taxation. Accordingly, a one-size curriculum does not fit all in terms of course offerings and student preparation. At this juncture, the Evolution Model Curriculum appears to be facilitating a dialogue among colleges and universities on reshaping their curricula to enhance their relevance for accounting practices. Improving the scope and quality of accounting education should serve to further elevate the status of professional accounting.

 

Mark Myring, PhD, is a professor and director of school of accounting at Florida International University, Miami, Fla.

Robert Bloom, PhD, is a professor of accountancy and information sciences, Kramer School, Boler College of Business, at John Carroll University, University Heights, Ohio.