US accounting profession rethinks entry rules amid staffing crisis

Staff shortages at US accounting firms are stoking a rebel movement to relax education requirements for joining the profession, in the teeth of opposition from national leaders.

The escalating dispute could come to a head in the next few months, as accountancy representatives in South Carolina join Minnesota in pushing state legislators to embrace alternatives to the “150-hour” rule. This mandates the equivalent of a fifth year of higher education on top of the standard four-year, 120-hour undergraduate course.

The American Institute of Certified Public Accountants says state legislation could have dire consequences, unravelling a system that allows accountants to practise nationwide.

But pressure to amend the rule is mounting, with even the accounting industry’s Big Four firms starting to question the status quo. The AICPA has agreed to put educational requirements on the agenda of a task force examining ways to tackle the talent shortage, which will report next year.

Bob Cedergren, chair of the Minnesota Society of CPAs, said the situation is already acute at smaller accounting firms.

“The Deloittes and PwCs of the world have the masses, they have offices everywhere and the ability to draw on overseas talent,” he said. “We needed to take some action.”

Cedergren’s organisation has put forward legislation that will allow accountants to get licensed in the state with only 120 hours of higher education if they have extra work experience or take professional courses, as well as pass the CPA exam that everyone also has to sit. The legislation was not taken up in the most recent session of the state legislature, but will carry over to the session starting in the new year.

South Carolina’s CPA society is crafting a bill for the next session of its state legislature that will specify possible alternatives to the 150-hour requirement and make it clear CPAs from other states can practise in South Carolina without 150 hours of higher education.

The draft legislation has been circulated to the society’s members and could be submitted to legislators next month, David Knoble, chair of the South Carolina Association of CPAs, told the Financial Times.

The movement to change the rules has grown as a wave of baby boomers hitting retirement has coincided with a decline in students taking accounting courses at university. The number of students going on to sit for the CPA exam hit a 17-year low in 2022.

Consequences are already being felt in specialisms such as government accounting. S&P Global, the rating agency, dropped coverage of 64 municipal bond issuers earlier this year because they failed to file audited financial statements on time.

And in Minnesota, the state auditor is considering proposing the elimination of annual audit requirements for some smaller local government agencies to stem a tide of late filings.

“This is now a severe shortage, and it is causing a tsunami of problems,” said Julie Blaha, Minnesota state auditor, who said a fifth year of education could be replaced with on-the-job training to stem the decline in numbers. “It’s a shallow pool, and we have to do something about the leak.”

From small-town governments to associations managing firefighter pensions, municipal authorities across Minnesota are having a hard time finding external auditors, Blaha said.

One such agency was the North Fork Crow River Watershed District, a government body responsible for a stretch of river and 14 lakes north-west of Minneapolis, whose auditor left it in the lurch.

“They told us we were small peanuts, compared to everything else they were doing,” said Colton Henjum, the district’s administrator.

The news sent him hunting for a replacement firm to do an audit legally required by December 31. Failure could have meant the district was cut off from grant money, imperilling projects for improving water quality.

Henjum said he had contacted more than 30 other firms in an eight-month search that ended only in August. “Every single one said they didn’t have the manpower or are not taking on new clients.”

The requirement for 150 hours of higher education before a candidate could sit for the CPA exam supplanted a previous 120-hour standard in the 1990s. The profession’s leaders had spent years trying to elevate its status to make it more akin to law or medicine.

Sue Coffey, chief executive for public accounting at the AICPA, said having the equivalent of five years of higher education remains a good idea, and removing the requirement is no silver bullet for dealing with a talent shortage. It took about two decades of work to align all 50 US states around the current standards and get agreement to recognise each other’s licences, and trying to repeat the feat looks daunting.

“What exists is a very delicate system of agreement and trust,” she said. “This has been my challenge with Minnesota. It just takes one to upset the applecart and that could upend mobility across the country.”

The AICPA has so far focused its efforts on developing ways for students to get the final year’s worth of educational credits more quickly and at lower cost.

Recent research from the Center for Audit Quality, an industry group whose leadership is dominated by the biggest firms, showed a fifth year of higher education was a particular disincentive to students from diverse backgrounds.

“The 150-hour rule has prevented many talented folks from joining the profession,” said one Big Four audit executive. “The cost of an extra year of school is prohibitive and isn’t necessary to succeed in public accounting, or business in general.”

At another Big Four firm, one executive pointed out that many states do not require that courses taken in the fifth year of education have anything to do with accounting. A senior partner involved in recruiting there asked: “Is there an alternative, such as learning on the job, which is as good as or better than learning in the classroom?”