Study: 150-Hour Rule Did Not Improve Quality of CPAs
A study from the University of Chicago's Booth School of Business
The paper found that the 150-hour rule increased the number of people taking the CPA exam the year before implementation by 21 percent, but then overall was associated with a 15 percent decrease in the number of test takers thereafter, even when controlling for year, university fixed effects, and university-specific time trends in the number of test takers.
It also found that there is "no significant difference in the average tenure at each position" with the exception, for some reason, of third jobs, at which those who were certified under the 150-hour rule tended to stay at for 0.84 years longer than those who were not. Beyond this, though, the paper said that " the results point to no difference in job commitment as measured by the average tenure at each position."
There was a similar absence of difference when it came to the rate of promotion. When controlling for age and the year in which people enter the labor market, the differences between the two cohorts "become statistically insignificant." The rate of promotion has almost no difference for level-two seniority positions and a "statistically insignificant 10 percent" difference (in favor of those who were certified under the 150-hour rule) for level-three seniority promotions.
One area where there were differences, though, was in how long people stay in public accounting. Without controlling for age, it would at first appear that those in the 150-hour cohort spend a greater percentage of their careers in public accounting, 52 percent versus 41, but Barrios noted the proportion is affected by how much less time these people have been in the accounting profession overall. When controlling for this factor, the study found that this cohort actually leaves public accounting sooner, a 25 percent increase in exit rate from public accounting compared to the 120-hour set. The paper noted that another of the justifications for the increase in credit hours was that it would grow commitment to public accounting; the paper said it would appear that it has produced the opposite effect.
A further area of difference was earnings: After controlling for both year and state fixed effect, the study found that the 150-hour rule is associated with a 9 percent increase in earnings. Since the paper already found that the overall quality of CPAs did not go up in the wake of the new requirements, Barrios viewed this premium more as rent extraction, as there has been a reduction in supply but no change in the average quality.
Overall, while the implementation of the 150-hour rule has created changes in the profession, Barrios does not believe they are what those behind the shift intended.
"I find that Rule individuals are more likely to be employed at a Big 4 public accounting firm, are more likely to specialize in taxation, and are more likely to have more graduate degrees," said Barrios in the paper's conclusion, referring to those subject to the 150-hour requirement. "Yet, I find no significant difference in their time until promotion as compared to their non-Rule counterparts. Further, I find that while individuals subject to the Rule spend a larger percentage of their career in public accounting, they exit public accounting at quicker rates than their non-Rule counterparts. Finally, I document an increase in the earnings of accountants associated with the Rule’s enactment that cannot be explained by an increase in education, thus providing evidence of rent-extraction from the Rule’s implementation."
Commenting on the study, Going Concern observed, "Most people know the 150-hour rule doesn’t guarantee CPAs who are smarter, sharper, and more future-proof than the dinosaurs before them."