To become a CPA in the United States, candidates must complete 150 semester credit hours of education, which is 30 credits beyond the typical 120 credit hours earned in a four-year undergraduate degree. As a result, most CPAs end up spending five years in college instead of four. Although this requirement has been in place for several decades, its impact on aspiring CPAs is still being felt.
As the number of accounting majors, graduates and CPA candidates continues to decline each year, some are questioning the wisdom of the current requirement. A movement is underway to undo it. The Minnesota CPA Society is lobbying in favor of legislation that would create alternative pathways, allowing candidates to replace the fifth year of education with additional work experience, or work experience and CPE. However, the American Institute of CPAs and the National Association of State Boards of Accountancy oppose this measure vociferously.
In the ongoing debate over the 150-hour rule, it is crucial to weigh both the costs and benefits. This is prudent in any decision-making process, but particularly relevant to the accounting profession, where evaluating costs and benefits is a fundamental principle.
The cost-benefit principle of accounting dictates that the cost of providing information should not surpass the benefits that users derive from it. Therefore, as we debate whether to keep or drop the 150-hour rule, we must consider whether the cost of additional education outweighs the benefits that CPAs receive from it.
Let’s consider the cost. Many accounting students choose to obtain the additional 30 semester credit hours through a master of accounting degree, or “MAcc” for short. I estimate the cost of obtaining a MAcc to be slightly more than $100,000.
Here is the breakdown:
- Tuition & fees. The tuition and fees for a one-year masters of accountancy at Arizona State University, available only to residents, is $29,914. Let’s round that up to $30,000. While I couldn’t easily find data online on the average cost of a master’s degree in accounting, this seems to be typical of in-person options based on the first few pages of Google results.
- Room and board. According to EducationData.org, the average cost of room and board for a public four-year institution in the United States is approximately $11,557 per year. ASU suggests budgeting $12,507, but let’s round this to $12,000.
- Textbook and course materials. According to ASU, students should budget around $1,062 for books and supplies for graduate studies. For simplicity, we will round this to $1,000.
- Opportunity cost. This is the cost of lost wages from not working for one year. According to Salary.com, the median salary for an Accountant I with no experience is $59,503 nationally. Let’s round that to $60,000.
Therefore, the total cost for an individual to obtain the additional 30 semester credit hours through a masters in accounting is approximately $103,000: $30,000 for tuition, $12,000 for books and supplies, $1,000 for fees, and $60,000 for living expenses.
The cost of a MAcc for a single student is reported above. But how much money do all students spend each year? According to the AICPA’s 2021 Trends Report, 20,442 students completed a master’s of accounting program during the 2019-2020 school year.
Multiplying the $103,000 average cost by the 20,442 students results in a total cost of $2.1 billion per year. This figure does not account for CPA candidates who choose alternative paths to fulfill the 150-hour requirement.
$2.1 billion each year is a significant amount of money. But what do we get for it? A 2019 study indicated that the 150-hour rule actually decreases the number of entrants to the profession. Additionally, the study found “no difference between 150-hour rule CPAs and the rest” in terms of quality.
That’s right — there is no evidence to suggest that an additional year of education leads to more qualified CPAs or better-prepared CPAs for working in accounting firms. All available evidence indicates that it makes no difference. This is what makes the 150-hour rule particularly frustrating: It incurs a cost without providing any benefits.
If we are going to live by our principles, we should eliminate it.
