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The Effect of State-Level Rules and CPA Competition

The authors analyze the pass rates and size of candidate pools of U.S. jurisdictions on the CPA exam and find evidence to suggest that state-level economic activity and CPA exam rules affect CPA candidate behavior and the flow of human capital. Specifically, lower credit-hour requirements help to attract candidates and higher state-level economic activity helps to attract relatively well-qualified candidates.

An alternate state in mind: the effect of CPA exam credit-hour requirements and economic competitiveness on state-level exam candidate pools and pass rates

Gaynor, Greg; Korb, Phil; Gerlowski, Dan; Zhang, Ting. An alternate state in mind: the effect of CPA exam credit-hour requirements and economic competitiveness on state-level exam candidate pools and pass rates. Accounting Education. December 2019, Vol. 28 Issue 6, p621-641.

State Boards of Accountancy and other regulators monitor state-wide sit and pass rates on the CPA exam in fulfilling their mission to protect the public. These metrics can prompt important policy decisions such as state CPA exam requirements as well as the accounting curricula and resource allocation at that state’s colleges and universities. Using the test center location of CPA candidates, the authors analyze the pass rates of U.S. jurisdictions regarding the performance of both in-state and out-of-state candidates. They document that states allowing a candidate to sit for the exam at fewer credit hours (120 verses 150 credit hours) tend to be greater importers of out-of-state CPA candidates. After controlling for a state’s credit hour requirements, they find evidence to suggest that states with high economic activity tend to attract out-of-state candidates that, on average, have better pass rates than do the candidates currently residing in those states.

The authors suggest that their results can assist State Boards, educators, and other stakeholders in making policy decisions regarding the CPA exam environment in their state. More broadly, the study contributes to the literature regarding how state-level rules affect regional competitiveness and the flow of human capital.