Does a Government/not-for-Profit Program Requirement Improve CPA Exam Pass Rates?

Clearly, stakeholders of all organizations are demanding ever-higher levels of accountability. Colleges and universities are urged to improve academic accountability by developing better outcome measures to assess their students’ learning. At the same time, the Financial Accounting Standards Board (FASB) and the Governmental Accounting Standards Board (GASB) continue to refine the financial reporting models of these same colleges and universities to enhance accountability on the business side. With the issuance of the new GASB reporting model in June 1999, state and local government financial accountability has been enhanced. Opportunities and responsibilities for practicing accountability, or accountancy, in the government and not-for-profit areas have never been greater. Accountability in these areas is practiced by accountants employed by the various governmental and not-for-profit entities as well as by the many outside, independent auditors who review their processes and reports. A great number of these personnel have been educated as certified public accountants. Many commentators have long believed that these practicing accountants require more familiarity with governmental/not-for-profit accounting than had been recognized in the CPA exam’s topical coverage. The Research Question The content and format of the May 1994, Uniform CPA exam was substantially changed from its previous version. The object of the research project reported here was to determine how this change in the CPA exam affected coverage of governmental/not-for-profit accounting topics and how the new exam relates to college and university curricula in these areas. A sample of schools who reported their CPA exam pass rates on the May exams of the years 1991 through 1996 was prepared. Exam results were available from the National Association of State Boards of Accountancy (NASBA).1 The pass rate of a school is the percentage of first-time test takers without advanced degrees who pass a particular exam part. This sample of 108 schools from 40 states included the pass rates on the sections covering accounting knowledge before and after exam restructuring. The pass rates of a school were compared to the results of an analysis of the schools’ accounting programs to determine whether that school required either a course in govemmental/not-for-profit accounting or a course in advanced accounting that included a module on governmental/not-for-prof it accounting. Are students from programs that include an instructional component on governmental/not-for-profit accounting more likely to pass the newly structured CPA examination than other students? We expected that students whose academic programs required some coverage of governmental/not-for-profit accounting would be better prepared for the new CPA exam. Specifically, we expected to find that a governmental/not-for-profit requirement in a school’s accounting program would have no impact on pass rates under the old exam format. In contrast, we expected that such a requirement would affect a school’s pass rates for accounting material under the new exam format. Changes to the CPA Exam in 1994 Recent changes to the exam started with new question formats in May 1992, and culminated in a shorter, restructured exam in May 1994? Recognition that many candidates may have only spotty preparation in the areas of governmental/not-for-profit accounting may possibly have had some influence on this ongoing redesign of the CPA exam. While the proportion of exam time devoted to accounting topics was reduced overall, relative emphasis on governmental/not-for-profit accounting was notably expanded.3 The exam restructuring process continues today with consideration of possible computerization of the exam. The AICPA Board of Examiners is also considering reporting only pass/fail results to candidates rather than scores.4 The format changes that appeared in the May 1994, Uniform CPA exam were substantial.