Updating the CPA Exam
Sean Abrams was thrilled to learn in June that he had passed the CPA exam. "It's the hardest thing I've ever done in my life," says the senior staff accountant at Crowe Horwath in Columbus.
Abrams probably didn't think about it while he was taking the four-part Uniform Certified Public Accountant Examination, but he was a pioneer of sorts-one of the first candidates to take at least one section of the test with a new format and content that debuted in January.
"We're building a professional, specialized exam that will last five to seven years," says Craig Mills, vice president of examinations for American Institute of Certified Public Accountants (AICPA), which designs and scores the exam.
Also on a five- to seven-year cycle, the AICPA conducts a practice analysis to assess what entry-level accountants need to know and how that's changed since the previous analysis. The most recent review, in 2007, included a survey, plus input from subject matter experts, supervisors of entry-level accountants, educators, standard-setting bodies, regulatory agencies and AICPA committees.
The result: a CPA exam overhaul known as the Computer-Based Testing - evolution (CBT-e). The test features new question formats and new questions on International Financial Reporting Standards (IFRS). Time allocations and scoring weights have been modified, and upgraded technology has been implemented.
The accounting industry characterizes the revisions as the most significant since 2004, when test takers shed their No. 2 pencils for computers. Here's a look at how CPA exam experts and accountants assess the changes, and what they mean for firms and clients.
Simulations & Research
CBT-e impacts each of the CPA exam's four sections: auditing and attestation procedures and standards, business environment and concepts, financial accounting and reporting, and regulation.
Each section includes several "testlets" of 25 to 30 multiple choice questions. The previous format incorporated case studies, known as simulations, in the auditing and attestation, financial accounting and reporting, and regulation sections. Now, instead of two lengthy simulations in each section, exam takers tackle six or seven shorter, task-based simulations.
"The new simulations didn't seem to change what they're testing for, but now you have more questions to show your knowledge," Abrams says.
A writing component was eliminated from those three sections. "We found we were testing the same skill when we had it in multiple sections," Mills says. "By consolidating writing communication into the business environment section, we could make changes to those other sections."
Multiple-choice questions account for 85 percent of the total business environment and concepts score, written communication tasks 15 percent. In auditing and attestation, financial accounting and reporting, and regulation, multiple-choice questions comprise 60 percent and task-based simulations 40 percent of the total score.
"On the old test, the case studies in those three sections accounted for 20 percent of the score. Now it's 40 percent. We put a bigger emphasis on knowledge skills rather than on recall," Mills says.
The exam also tests research skills, requiring candidates to utilize the authoritative FASB Codification--the gospel according to the Financial Accounting Standards Board--to complete the task-based simulations.
"The computer-based exam is much more real-life than the paper one. Now they can do research and put together technical resources," says Andrea Meinardi, a CPA, senior manager with Crowe Horwath and a member of the Ohio Society of CPAs (OSCPA) Board of Directors.
One of the most talked-about changes to the CPA exam is the inclusion of questions on the International Financial Reporting Standards, developed by the International Accounting Standards Board (IASB). They're becoming the global standard for the preparation of international company financial statements.
"The testing of IFRS is a response to a change in the accounting industry and the needs of their clients," Mills says.
Endorsement of the test's new international focus is far from universal. "When we indicated to accounting professionals during the practice review that IFRS would be on the exam, the comments were split 50-50," Mills says. "It's clear, though, that [international] business sector is growing, and entry-level accountants are working with IFRS in some respect, regardless of what the SEC does in the United States."
The U.S. Securities and Exchange Commission, responsible for regulating publicly traded companies, requires financial statements to conform to Generally Accepted Accounting Principles, better known as GAAP. The SEC is exploring how to incorporate IFRS into U.S. financial reporting.
"I haven't seen any change yet in how our first- and second-year accountants do their job, but IFRS is coming," Meinardi says. "Companies with foreign subsidiaries have to convert from IFRS to GAAP. If the parent company is overseas, GAAP data must be converted to IFRS."
Some contend that testing IFRS knowledge is the biggest change to the exam. But attorney and CPA Steve Martin, president of MDS CPA Review, says that's an overstatement. "IFRS is a different vernacular, but you're still sorting the general ledger into debits and credits," he says.
In Martin's opinion, the broadened scope of the business environment and concepts section is a more significant change. "It covers topics that have never been on the exam before, such as strategic planning, enterprise risk management, operations management and process management," Martin says. "And corporate governance appears to cover more than Sarbanes-Oxley," the 2002 federal legislation that strengthened governance standards for U.S. public accounting firms, public company boards and executives.
Most accounting firms make passing the CPA exam a priority for their new hires. "For accountants we hire right out of college, it's one of their goals to achieve their CPA within two years of their hire," says John Waybright, a CPA and director at Brady Ware. "Obviously there will be things on the test they aren't as familiar with as others or they haven't dealt with a lot, but the test and preparing for it rounds them out to be better accountants."
"We strongly emphasize it early, because your work-life balance changes as your career advances," says Craig Marshall, a CPA and managing partner of the Columbus office of Ernst & Young. "Getting their CPA prepares them to take on more responsibility within the firm and in working with clients. We encourage it, we monitor it and we recognize them once they've earned it."
Ernst & Young reimburses employees for certain costs associated with the exam. "We put our money where our mouth is. We want them to get their certification early and with the highest possible rating," Marshall says.
In Ohio, it's not necessary to have an accounting degree to take the CPA exam. All that's needed are 150 semester college credits (225 quarter credits), of which 30 semester hours (45 quarter hours) must be accounting-related. Business courses other than accounting must total at least 24 semester hours (36 quarter hours).
Just as most law school grads take an intensive bar review course before the bar examination, more than 75 percent of successful CPA candidates prepare with a CPA review program, according to the National Association of State Boards of Accountancy (NASBA).
Martin says he and other review course providers meet with AICPA staffers twice a year. The AICPA provides general exam specifications, without revealing exactly what's on the test. "AICPA gives us sample questions that were used, but that have been removed from its question database," Martin says. "No one wants people to fail because they aren't aware of what types of questions will be asked."
For $1,895, Martin's MDS CPA Review course covers the exam's four sections in 25 classroom sessions or through an online video self-study system. "They decide whether to watch me in person or on the computer. The content is identical," Martin says.
Abrams is a successful graduate of MDS CPA Review. "At first I tried to do it alone. Then I started Steve's course and it helped me learn the materials and how to study for the exam," he says.
Abrams also found encouragement among his Crowe Horwath peers. "We developed a support system. We motivated each other to keep studying and not give up," Abrams says.
Encouragement and understanding from senior colleagues can be vital for young accountants. "I help them set their client schedule, so they have time to study and take the exam," says Meinardi. "We make it a priority to help them find adequate time so they can be successful and still get their work done."
Waybright says Brady Ware employees tell him working helps them prepare for the test. "Just being on the job exposes them to various principles and concepts, even if they don't work with them directly," he says.
That's the experience of Melissa Rager, staff accountant at Brady Ware, who has passed three of the four sections so far. "From my job, I think about how I did something for a client and that helps me study. Once I learn a concept or a principle from studying, it helps me at work with clients," she says.
In the end, no CPA review course or on-the-job training can substitute for putting in the necessary hours of study. "The quantity of material you have to know is overwhelming," Rager says. "It's every accounting class you ever had in college crammed into one test."
Taking the Test
Candidates apply to NASBA's CPA Examination Services division, which coordinates application processing, credentialing evaluation and exam score reporting for 32 states, including Ohio.
Once authorized, candidates self-schedule their exams. Prometric, a global provider of testing services, administers the exam on behalf of the AICPA at nearly 350 test centers across the country, including the Central Ohio center at 933 High St. in Worthington. Fees vary by section, but the combined tab is $784.50.
Candidates may take each section once a quarter. It's not necessary to take or pass all parts at the same time, but all four must be passed within 18 months.
Rager passed two sections before CBT-e and one after. "What I really like is the flexibility in how I can take it," she says. "I don't think a lot changed. For the most part, I thought what was tested was a fair representation of the study materials."
"On the whole, the actual test-taking experience is the same" for the old and new tests, agrees Mark Muth, Prometric's vice president of client services and sales.
"If there's a problem, we'll hear about it," says Patricia Hartman, NASBA's examination operations director. "We've received great feedback and very positive comments."
"We're not impacted by the content change, and it seems that it hasn't bothered the test takers, either," says Ronald Rotaru, executive director of the Accountancy Board of Ohio, which is responsible for licensing CPAs in the state.
That's not to say the new material covered by the CBT-e won't have a learning curve. "The typical question is answered correctly by 65 percent to 70 percent of people," Mills says. "The new content is more like 50 percent, but as they get more familiar with the new content, the performance increases. We're seeing that."
The AICPA surveys candidates at the end of every exam. "They've been complimentary about the new test," Mills says.
The CBT-e allows the AICPA to score the exams faster. "Now we can report scores in two to three weeks," Mills says. "Getting results from the old test could vary from two weeks to 12 weeks."
After a candidate has passed the CPA exam's four sections, the Accountancy Board of Ohio issues a CPA certificate. A CPA license follows, once the applicant documents appropriate experience. Accountancy Board records indicate there were 31,000 licensed CPAs in Ohio in 2010.
Ohio CPAs must renew their licenses every three years by completing 120 continuing professional education (CPE) credits. Newly licensed CPAs must report 40 credits over two years.
CPE credits may be earned in any field that contributes to the accountant's professional competence. However, CPAs who work with financial reporting or sign financial reports must earn 24 credits in accounting or auditing. Likewise, those who assist tax clients or sign tax returns must earn 24 CPE credits in taxation.
All Ohio CPAs must earn three credits in professional standards and responsibilities each renewal period.
A Critical Credential
Being able to put "CPA" after your name carries great weight in the accounting profession and with clients.
"Clients expect us to have a certain level of technical proficiency that accompanies the CPA designation," Waybright says. "The CPA definitely is the core certification. Our accountants do go on to earn other certifications, but they come after they've earned their CPA."
"To me, the CPA means everything," says Meinardi. "It's more than what we call ourselves. It's a measure of our knowledge. It's important that our accountants put forth that effort to pass the exam."
"When young accountants pass the exam, those three letters behind their name mean something," Marshall says. "They have the proper credential at the appropriate time of their career. Our firm values it, and so do clients. It shows we meet regulatory requirements and that the accountant is committed to quality."
Lisa Hooker is a freelance writer.
Reprinted from the September 2011 issue of Columbus C.E.O. Copyright © Columbus C.E.O.