Class notes: Accounting education in 2010

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By Philip H. Umansky, CPA, Ph.D., and Gabriele Lingenfelter, CPA, MBA

Accounting students who headed back to school this fall and recent graduates who are searching for and beginning new jobs face several important issues: changes to the CPA Exam in 2011, the continuing internationalization of the accounting curriculum and practice, codification of Generally Accepted Accounting Principles (GAAP), and the general health of the accounting profession.

A CPA Exam evolution

The shift from the paper-and-pencil CPA Exam to the computerized Exam occurred in 2004, but the first major change since then will begin January 2011. The American Society of CPAs (AICPA) calls the change an evolution and refers to it as CBT-e (Computer Based Test evolution).

The evolution is based upon the change in accounting practice in which research skills and real practice application skills can be better tested through simulations and through easier access to technical standards vis-à-vis the Financial Accounting Standards Board (FASB) Codification of U.S. Generally Accepted Accounting Principles (GAAP). In a second major change, International Financial Reporting Standards (IFRS) will be covered in the Exam. A third change should interest those concerned about ethics.

And in one final development for 2011, pilot testing of the CPA Exam in other countries will begin for international students, though they must currently register through a U.S. state board of accountancy.

Simulations and writing

Simulations are currently 20 percent each of the Financial Accounting and Reporting (FAR), Auditing (AUD) and Regulation (REG) sections, with written communication of the simulation task an additional 10 percent. Simulations will be increased to 40 percent for each of these three sections with no written communication tasks.

While the current Exam has only two simulations per each of these sections, the new Exam will have seven task-based simulations each for FAR and AUD and six for REG. For all of these sections, the simulations will involve a new research format, with FAR based upon FASB Codification.

All writing components of the current Exam that are currently in FAR, AUD, and REG and associated with the simulations are being moved to the Business Environment and Concepts (BEC) section, with writing now 15 percent of this section. To make room for the increased emphasis on simulations in FAR, AUD, and REG, and to make room for the writing in BEC, the multiple-choice questions will be a lesser percentage of each section.

To accommodate these shifts, times allotted to complete each section will change. AUD will go from four hours and 30 minutes to four hours, and BEC will go from two hours and 30 minutes to three hours. FAR and REG will stay at the current length of four hours and three hours, respectively, with the total time for all sections combined remaining at 14 hours.


As mentioned above, IFRS will be introduced for the first time in the 2011 Exam. As IFRS become more integrated into the field of accounting, the CPA Exam will place more emphasis on testing IFRS, according to Joe Maslott, CPA, AICPA simulations technical manager. For the 2011 Exam, IFRS in particular, or globalization in general, will be part of all Exam sections except for REG as specified in the new content specification outlines.

For example, questions that test knowledge of the differences between U.S. Generally Accepted Auditing Standards and International Standards of Auditing or the role of the International Auditing and Assurance Standards Board could be in the AUD section. Similarly, a greater understanding of the affect of globalization on the business environment could be part of the BEC section. FAR could include questions that test the difference between financial statements under U.S. GAAP and IFRS.

According to Maslott, 5  to 10 percent of the content of these sections could include material related to international standards, with expanding coverage each year as convergence occurs. CPAs need to be "bilingual" for several years in the future, according to Maslott.


In the past, questions about professional and legal responsibilities, including ethics, made up 15 to 20 percent of the REG portion. While REG will continue to test legal liability, only responsibilities and ethical rules covering taxation will be tested.

With the new Exam, professional responsibilities, including ethics and independence, will comprise 16 to 20 percent of the AUD section. The new AUD section AUD reminds the future CPA (and accounting educators) of the profession's responsibilities to the general public and the need to incorporate ethics and professional responsibilities in the accounting curriculum.

To correctly answer the questions in this section, the CPA candidate must be knowledgeable with the ethics and independence rules of the:

  • AICPA Code of Professional Conduct
  • Department of Labor
  • Government Accountability Office
  • Public Company Accounting Oversight Board
  • Sarbanes-Oxley Act of 2002
  • Securities and Exchange Commission

It will be interesting to see how the new Exam affects national pass rates in each section, which continued to hover around mid 40 percent to low 50 percent in 2009.

Hitting the IFRS Books

IFRS is clearly a continuing issue in the education of accountants. In February 2010, the SEC published its Work Plan for the Consideration of Incorporating International Financial Reporting Standards into the Financial Reporting System for U.S. Issuers. The report devoted an entire section to human capital readiness and specifically addressed education and training at colleges and universities. The report also cited feedback from commenters who had addressed concerns to the SEC about this issue.

Concerns about IFRS education

A major concern was whether the U.S. educational system is moving quickly enough to incorporate IFRS into curricula because colleges and universities currently teach U.S. GAAP as the primary basis of accounting.

Other concerns included a potentially increased education cost if a dual reporting system were used in the U.S. (i.e., one for public companies using IFRS and one for private companies), in addition to the fact that education would need to focus not just on the knowledge of IFRS, but also training in judgment and understanding the economic substance of transactions based upon less prescriptive standards.

While learning to use a more principals-based accounting system will be necessary, others commented that the education system would adapt quite quickly when a firm date is set for U.S. GAAP and IFRS convergence.

Teaching IFRS

The continuing incorporation of IFRS and globalization into the accounting curriculum has had help from the public accounting profession itself, particularly the "Big Four" firms. In the September/October 2009 issue of the Virginia CPA Society's Disclosures magazine, an article detailed the materials and resources that these firms have provided in the form of case studies, searchable databases of IFRS standards, grants, conferences presentations, Webcasts, etc., and this information is ever expanding and continuing.

But the real drivers of IFRS in the accounting curriculum, other than incorporation into the CPA Exam and the materials identified above, will be the textbooks that students use in their classes (particularly intermediate accounting) and their professors' knowledge of IFRS.

In previous years, intermediate accounting textbooks primarily presented U.S. GAAP with IFRS as a sidebar to compare differences. This year marks the first time that an intermediate accounting textbook is really an IFRS textbook. While Intermediate Accounting, 13th edition, by Kieso, Weygandt and Warfield, is primarily about U.S. GAAP with IFRS sidebars, there is an IFRS edition of the book that will tap a future market as convergence occurs. In addition, the more traditional versions of 2010 intermediate accounting textbooks have more fully integrated IFRS with expanded coverage.

In a similar vein, there are real opportunities for additional materials to be incorporated in auditing textbooks related to International Standards on Auditing, the role of the International Auditing and Assurance Standards Board, and the International Ethics Standards Board for Accountants, etc., all of which will be content in the AUD section of the 2011 CPA Exam.

In addition, users of accounting information need to know about IFRS, and there are real opportunities for this to be brought into introductory accounting courses for all business majors and even finance or investment classes in which there is analysis of financial information.

Professor knowledge is the other key component to getting IFRS into the curriculum. The American Accounting Association is taking a real lead in this effort as exemplified in its annual meeting held this past August. There were seven CPE sessions devoted to some aspect of IFRS, with several detailing very specific technical knowledge and several presented by representatives of the Big Four accounting firms. The trend now is moving beyond the basics of teaching IFRS and getting into the nuts and bolts of the standards.

Some students who have graduated within the past four years may need to do some work to get IFRS literate, but there are a plethora of commercial self-study courses, AICPA and state society seminars, and, beginning shortly, CPA review courses that can help get students up to speed on IFRS.

GAAP Codification

On July 1, 2009, FASB unveiled its GAAP codification as a one-stop source for non-governmental GAAP (except for SEC releases). Students and faculty at colleges and universities can access this information in the professional view at no cost if their accounting departments pay an annual institutional fee of $150 (access is through the American Accounting Association).

This is one of the most important recent developments in accounting education. Now accounting students can have the same research experience as actual preparers and auditors of financial information.

Intermediate accounting textbooks have fully integrated the GAAP codification into their contents, with many end-of-chapter problems requiring research and referral to the GAAP codification.

As mentioned, referral to GAAP codification will be a key part of the CPA Exam in 2011.

Accounting: A Worthwhile Choice

With all of these issues, a potential accounting student or graduate may well ask",Is it worth it?" The answer is a resounding yes if the student can meet the challenges. There are great opportunities waiting.

According to the National Association of Colleges and Employers (NACE), accounting services employers provided the largest number of offers to 2010 bachelor's degree graduates, followed by engineering firms and wholesale trade employers. This is in line with past years. According to NACE, the average offer to undergraduate accounting majors for 2010 was $48,575, up 0.4 percent from 2009.

Based upon information from Robert Half and Associates, entry-level public accounting positions in audit and assurance services with large firms (annual revenues of greater than $250 million) averaged $51,419 in salary in Central Virginia for 2010. This does not reflect overtime or bonuses. For Northern Virginia, the average is $70,363.

In terms of general trends in the employment of accountants, the U.S. Bureau of Labor Statistics' Occupational Outlook Handbook for 2010 to 2011 projects that employment of accountants and auditors will grow 22 percent from 2008 to 2018, with the movement towards IFRS a major reason for the increase.

The future of accounting: Supply and demand

In terms of general trends of the employment of entry-level accountants with public accounting firms, each year the AICPA publishes Trends in the Supply of Accounting Graduates and Demand for Public Accounting Recruits. The most recent publication, 2009, reflects information through the 2008 academic year and captures some of the impact of the economic downturn that began around that time.

The highest number of new hires by public accounting firms of both new bachelor's or master's degree recipients was in 2007, with 36,112 hires -- the highest number since the first reporting period of 1971. Hiring declined in 2008 to 25,488 due to the economic downturn.

There have been two macro-trends related to hiring of new graduates by public accounting firms in the last 26 years. First, 2002 was the lowest level of new graduate hires by CPA firms (15,295) since 1982. Since then, the hiring of new graduates has increased steadily except for the current downturn noted above.

Second, in general the supply of accounting students has kept pace with demand. As measured by accounting graduates (bachelor's or master's degrees combined), 2008 was the highest year (66,459 degrees: 48,968 bachelor's and 17,491 master's) since the first reporting period of 1971. The lowest supply of accounting graduates since 1975 was in 2002 (44,695 graduates), which matched the low year in terms of new graduate hires by CPA firms.

The data show that the number of master's degrees awarded represents a higher proportion of total new degrees due to the 150-hour requirement. The number of bachelor's degrees in accounting in 2008 was actually less than those awarded per year from 1988 to 1996. In contrast, the number of master's degrees in accounting awarded in 2008 was more than double the number of master's degrees awarded in 2001.

As measured by enrollment, accounting is clearly a popular major. In 2007-2008, 212,834 students were in an accounting degree program, up from 152,885 in 2000-2001.

Boosting accounting Ph.D.s

In one area of accounting degree attainment, the Ph.D. degree, there are challenges, signs of success, and opportunities.

There is still a long-term imbalance between the number of Ph.D. degrees granted and the Ph.D. needs of colleges and universities, which will continue as long as existing Ph.D.s retire. This challenge was highlighted in an article in the September/October 2008 issue of Disclosures. The trend has moderated in the short term, on the demand side, due to the economic downturn of the last several years, as existing senior accounting Ph.D.s have delayed retirement to build up retirement savings to pre-2008 levels.

On a positive note, there has been a steady increase in Ph.D. enrollment in the last six years as reported in the AICPA's Supply and Demand report, with Ph.D. enrollment for 2007-2008 at 1,224 students, up from 800 in 2001.

Also, the profession is actively engaged in creating new accounting Ph.D.s in the audit and tax areas through the Accounting Doctoral Scholars Program, funded by CPA firms, 45 state societies, including the VSCPA, and the AICPA Foundation. Recruits for this program come from experienced professionals. The first class of 27 students enrolled in fall 2009 at different universities, with each recipient slated to receive $30,000 a year for four years. A new class of 30 students is starting this fall.

Still, to make up for the shortfall, many CPAs who do not have Ph.D.s are making it into the classroom as full-time or adjunct professional faculty members and are bringing excellent real-world experience to their students.

Clearly there are favorable trends in both supply and demand over the last 10 years related to accounting students and graduates at all levels, but many challenges remain, including the need for many new accounting Ph.D.s.

Accounting education 10 years from 2000

Ten years ago, there was no computerized CPA Exam, no International Accounting Standards Board (much less IFRS), no Sarbanes-Oxley Act, no Public Companies Accounting Oversight Board, and there were relatively few accounting students, graduates or new hires at CPA firms.

Accounting education is much different than 10 years ago, as issues affecting accounting practice are much different. What students experience in the classroom will affect their professional lives, but also the new developments in the profession will also find their way back into the classroom.

About the authors:
Phil Umansky, CPA, Ph.D., is associate professor of business at the Sydney Lewis School of Business at Virginia Union University and chairman of the Accounting and Finance Department. He is a CPA Ambassador, a regular contributor to the WTVR Virginia This Morning TV Show on money management topics, and a member of the VSCPA Editorial Task Force. Contact him at [email protected].

Gabriele Lingenfelter, CPA, teaches accounting and auditing for the Luter College of Business and Leadership at Christopher Newport University in Newport News, VA. She is actively involved on the American Institute of CPAs (AICPA) Audit & Attestation Subcommittee and the development of future CPA Exams. She is also a member of the VSCPA Editorial Task Force. Contact her at [email protected].

Reprinted with permission from the Virginia Society of CPAs.

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