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The 150 hour requirement for accounting students.


In an effort to restructure the accounting profession, the members of the American Institute of Certified Public Accountants (AICPA) voted in favor of several changes in requirements for membership. Among those changes was what has become known as the 150-hour requirement. Now part of the AICPA's membership requirements state that

Those applying for membership who first become

eligible to take the examination required by section

2.2.2 after the year 2000 who shall have obtained 150

semester hours of education at an accredited college

or university including a bachelor's degree or its

equivalent. [AICPA, 1988(a), Section BL 220]

A common fallacy among non-accountants is that the AICPA establishes the standards for becoming a CPA. Instead each jurisdiction (the State of South Dakota is one jurisdiction) has its own requirements for obtaining a license to practice accounting. Generally there are three requirements that must be met to obtain a license to practice: (1) pass a uniform examination that is given in all jurisdictions, (2) obtain a minimum education and (3) receive public accounting experience. Whether or not 150 hours will be legally required to practice accounting in South Dakota will depend upon whether or not the state changes the laws concerning the minimum education requirement. Currently eight states have laws that require or will require additional education hours (Florida, Utah, Tennessee, Hawaii, Alabama, Montana, Texas and West Virginia).

Although it has no statutory power, the AICPA is the leading public accounting organization in the United States. The additional educational requirements are also supported by the National Association of State Boards of Accountancy (the state boards certify accountants and enforce the laws in each state), the American Accounting Association, and the Federation of Schools of Accountancy. The political power of these organizations is evidenced by the recent approval of the eight states to incorporate some version of the additional education requirement. But political power of an organization does not necessarily mean that the policies advocated by said organization are good. This article will examine (1) the stated reasoning behind the requirement and (2) the costs associated with enacting a 150 hour requirement.



The AICPA states:

The financial arena is becoming more complex with

each passing day. Men and women at all levels of

business, commerce, industry and government must

deal with these complexities. They are turning to

certified public accountants for assistance in handling

these new challenges and in making critical business

decisions. But prospective CPAs need more education

to master the growing scope of knowledge needed to

practice tomorrow's accounting. [AICPA, 1988(b)]

Although I am not familiar with the requirements for an accounting major at other South Dakota colleges and universities, I believe that they have the same constraints that we face at The University of South Dakota. Therefore, although I will address our constraints specifically they can be generalized to include all liberal arts institutions in South Dakota that offer accounting majors. At the University of South Dakota, accounting majors basically have few electives once they enter the School of Business. The seven to nine elective hours that they do have are usually used for internships in accounting. When the accounting faculty determines that a new course or subject material would be appropriate, the question becomes what course or material can be eliminated. There are, however, three constraints on the elimination of courses or subject material: university requirements, accreditation requirements, necessary knowledge for proficiency in accounting. With the new requirement, the accounting student will be able to increase the amount of course work in accounting and business without sacrificing important courses in the arts, humanities and sciences (the University must still honor the liberal arts mandate that it has).


One of the first questions asked is "what is the cost to implement the requirement?". There are costs to society, costs to the profession, costs to the colleges and universities, and costs to the students.

The accounting profession has committed itself to serving the public interest. However, the additional educational requirements of students may drive up the price of accounting services which in turn may cause some marginal businesses to seek less expensive alternative sources to perform the services usually performed by accountants. This in itself would not be harmful if the source of assistance in business decisions is as qualified as the accountant. However, the use of less qualified individuals may lead to suboptimal business decisions which may in turn lead to the demise of these marginal businesses. The added cost may price the accounting services beyond the reach of those who could benefit the most from the expertise of the profession.

The costs to the profession is the higher starting salaries that must be paid to 150 hour graduates. These salaries may or may not be passed on to the client. Without an increase in service, businesses would be reluctant to pay higher professional fees. It is expected that the accounting firms will absorb at least some of the additional payroll costs.

However, Wilber Van Skoik of Harper, Van Skoik & Co., Clearwater, Florida states that starting salaries at his firm jumped about 20 percent, but he still believes the requirement saves money. "The people coming out of these programs are staying in public accounting, so out turnover rate has dropped significantly. I don't have to spend money training three people to get one." [Cowherd, 1989]

The costs to the colleges and universities of South Dakota may include the development of new capacity to accommodate the additional students remaining in school for an additional year. Although the University of South Dakota has a graduate degree in accounting in place that could be adapted for the additional hours needed, the question is whether additional costs would be incurred. Would additional sections of classes be required? Would additional faculty have to be hired? Would additional classroom space be needed? Although I don't foresee this as a major problem at the University as the structure is in place, it may be at other institutions in the state. Could they expand their offerings at no cost, moderate cost, or would it necessitate a large inflow of resources? Would the state be willing to fund the expanded program? Would we have further duplication of programs? These questions are not yet answered and studies must be performed to estimate the costs to the institutions of higher learning in the state.

It should be noted that not all accounting students would be affected. Those students that go into public accounting represent about forty percent of the accounting graduates here at the University. The four year program would still be maintained and be adequate for those looking to the private sector for employment. This means that those schools only offering four year degrees could continue to offer those degrees and their graduates would still have career opportunities. Those that wished to go to public accounting could complete the additional hours either by taking other undergradate courses or by completing a graduate program at another institution. The AICPA regulations, after examining the types of institutions that offer accounting degrees, allow for many options in completing the additional requirements so that most of the colleges and universities could adapt their programs if they so desired without having to change the character of their institution. A masters degree in accounting is not a requirement.

There are two important costs to the students who would decide to go for a 150 hour option: opportunity costs and additional education costs. The students would be foregoing a year of income by staying in school. For example, instead of earning $20,000 working as an accountant for industry they would be spending $10,000 in additional education costs. The total costs to the students (simplified analysis) would be $30,000. Could they make this up over their remaining career? If the starting salary is significantly higher and the raises are the same as previously, the costs would most likely be recovered. However, would the students have the resources to continue another year? If the resources are not available, the option to continue is taken away. Can the students, the schools, or the state come up with the resources necessary for the students?

A benefit to the student in addition to the anticipated increased starting salary is the chances of passing the CPA examination. Although the additional education is not currently needed to pass the examination, a study of the Florida results (Florida was the first state to enact the requirement and the only state from which data has been available) indicate that Florida students who went the extra year exceeded the national average for first time pass rates for the three years studied (1985, 1986, 1987). [Accounting Today, p. 14]


The momentum at the current time is for a change to the 150 hour requirement. Currently the eight states that have implemented the requirements contribute eighteen percent of the candidates who sit for the CPA examination. Legislatures in other states can be expected to act on proposed changes in their accounting laws. Although each state establishes its own licensing requirements, the actions of other states cannot be ignored.

Previously, South Dakota requirements for a CPA met or exceeded other states. This allowed for reciprocity; that is, if I have met the requirements for licensing in South Dakota, I can obtain a license to practice in Nebraska. These reciprocity agreements come to an end when the requirements of states are significantly different. For example, students who qualify for a license in South Dakota do not currently qualify for a license in Florida. To prepare our students for a career in accounting the options have to be given for them to take the hours necessary for qualification as an accountant in any of the states. If we do not offer this option, many of the better students will seek their education elsewhere.

In my opinion, the problem is not making a decision on whether to implement the 150 hour requirement. Either implicitly or through legislation the requirement must be implemented if South Dakota is to maintain a viable accounting education program. The problem instead is how to implement the program at the lowest cost. The state, schools and the profession must work together on the solving of this problem.


Tenn. Study Boosts 150-Hour Rule", Accounting Today, Sept. 25, 1989, p. 14.

American Institute Of Certified Public Accountants, AICPA By-Laws, New York, 1988 (a).

American Institute of Certified Public Accountants, A 150-Hour Education Requirement, New York, 1988 (b).

Anderson, Henry R. "The 150-Hour Requirement: Florida's Experience", The CPA Journal, July 1988, pp. 56-62.

Cowherd, Stephen M. "150-Hour Rule: Debate is Academic", Accounting Today, March 27, 1989, p. 3.

"150-Hour Rule: its Repercussions", Accounting Today, March 6, 1989, pp. 1+.

Federation of Schools of Accountancy. "Position Paper: 150-Hour Educational Requirement", unpublished position paper, 1987.
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Article Details
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Author:Beckman, Ronald J.
Publication:South Dakota Business Review
Date:Dec 1, 1989
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