CPA Exam topics undergoing change for digital age
Changes in the work performed by newly licensed CPAs have the AICPA embarking on a focused practice analysis to determine what material should be tested on the CPA Exam — and what material no longer needs to be assessed.
Advances in technology, data analytics, and process automation have led to changes in the skills required of newly licensed CPAs, according to research performed by the AICPA Examinations team.
The AICPA practice analysis responding to these changes began in March and will continue with the publication in December of:
An exposure draft recommending planned CPA Exam updates and content to be added, changed, or deleted; and
An invitation to comment that will seek feedback on potential future changes to the CPA Exam that require more research or more extensive structure changes.
Comments will be collected through April 30, 2020.
The practice analysis is separate from the CPA Evolution project (see the sidebar, "CPA Evolution Project Reevaluates Licensure Model," below) that's being undertaken by the AICPA and the National Association of State Boards of Accountancy to explore possible changes to CPA licensure requirements that also would incorporate skills and competencies in technology and data analytics.
The timing of the practice analysis represents an acceleration in the time frame that has been used in the past to make comprehensive updates to the exam. Traditionally, the Examinations team has undertaken a practice analysis every seven years. The most recent practice analysis was completed in 2016 and led to significant changes implemented in 2017 that resulted in a greater emphasis on analysis, critical-thinking, and problem-solving skills on the exam.
The rapid pace of change in the business environment has led to a need for a quicker reconsideration of the exam.
"What a newly licensed CPA does is just changing so much," said Mike Decker, the AICPA's vice president—Examinations. "There's so much disruption in the profession, and we're seeing that in a lot of businesses that to say you're going to update a licensing exam through a practice analysis every seven years just really isn't appropriate anymore."
The exam has changed even since the 2017 rollout, which decreased the number of multiple-choice questions, added more task-based simulations, and raised the total exam hours from 14 to 16. Mechanisms are in place to make changes quarterly to accommodate updates in standards, regulations, and other areas.
Since 2017, there has been more focus on how the exam assesses professional skepticism and judgment, and questions have already been added to test audit data analytics. But employers of newly licensed CPAs have told the Examinations team that a more comprehensive look needs to be taken at technology, data analytics, and automation.
ADDING AND SUBTRACTING
To make room for the new material, the Examinations team believes that some topics are currently less important and could potentially be removed from the CPA Exam Blueprints, which describe the material that will be tested on the exam. The Examinations team is facing the same challenges that have confronted accounting educators for years, as employers want new skills to be taught. Material needs to be removed from the new curriculum to make room for important emerging topics. But the removal of topics often leads to objections from somebody within the profession.
Rich Gallagher, CPA, senior director of content for the Examinations team, said the basics of accounting and auditing will not be removed from the Blueprints to make room for the new material. He said it's still important for CPAs to understand, for example, the flow of transactions from beginning to end: from a sales order to shipping and sales invoicing, and collection of cash, including how those transactions go through information systems and the cloud rather than manual systems.
"People need to understand the basics," Gallagher said. "On the audit side, for example, the concept of risk assessment, internal controls, and professional skepticism, all those things continue to be critically important. Software as a service and cloud computing now add in a new layer with that. Where do the information systems fit in with the manual business process?"
Topics that may be under consideration for removal from the exam Blueprints include:
IFRS. The idea of international standards adoption in the United States for SEC-registered companies has lost momentum. As a result, this may be a topic whose relevance is waning for newly licensed CPAs despite the increased globalization of business.
Estates and trusts. The law known as the Tax Cuts and Jobs Act, P.L. 115-97, increased the amount an individual could shield from the estate tax from $5.49 million in 2017 to $11.4 million in 2019. As a result, many newly licensed CPAs may not need to understand strategies for planning around the estate tax.
Derivative financial instruments. This is a complex area that's relevant for more experienced CPAs, but not necessarily those who are newly licensed.
Other areas may be subject to debate. Gallagher said he thought that few newly licensed CPAs worked on stock compensation — but one firm told him that half its business is with startups whose compensation packages include significant stock options and that newly licensed CPAs are involved in auditing those equity awards. Employee benefit plan audits may require the work of more experienced CPAs, but past quality issues may make it undesirable to remove this topic from the Blueprints.
It may be worth questioning whether the CPA Exam should be testing written communication skills, as it does in the Business Environment and Concepts section. Writing is a skill that's not specific to CPAs and may seem out of place on a licensing exam. But employers of newly licensed CPAs do want to know that their people possess writing skills.
At any rate, as new topics receive greater emphasis on the exam, it has become clear that other topics will need to be de-emphasized or removed from the Blueprints. Making these decisions will be an important part of the practice analysis.
"How do we determine, 'This is what's really critical to newly licensed practice in protection of the public interest, and this other stuff is less important and doesn't necessarily need to be assessed as part of the exam'?" Gallagher said. "We are working with a consulting firm which has developed a methodology to rank the most important and least important topics on the exam. Subject-matter experts in each of the exam's sections will consider those rankings and ultimately make recommendations on what material should be removed from the exam."
The Examinations team is following its typical rigorous process for the current practice analysis. Meetings were held with about 20 firms of varying sizes to discuss the knowledge and skills essential for newly licensed CPAs and the impact of technology on their work. CPAs who supervise newly licensed CPAs in public accounting as well as in business and industry have been participating.
They learned that:
Critical-thinking and problem-solving skills, which were emphasized in the 2017 exam refresh, remain extremely important.
CPA candidates often need a more comprehensive understanding of business processes, information systems related to financial reporting, and how business works.
Data analytics and a digital mindset is a high-demand area.
Excel skills are essential.
Companies and firms are relying more on System and Organization Controls (SOC) reports, and understanding how to use these reports is increasingly important for newly licensed CPAs.
Many of the skills newly licensed CPAs are using reflect CPAs' ability to integrate emerging technologies into the business environment and use technology for greater business insights. "It raises the bar on the CPA in that they've got to manage the data, manage what's coming out of automation, and interpret what the systems are generating," Decker said. "So in some cases, there could be a demand for an increased number of CPAs, but a different CPA. But it's not an elimination of them. ... The students of today, if they're more data-focused and analytically focused, the CPA would be a great profession for them."
CPAs who supervise newly licensed CPAs in public accounting as well as business and industry have been participating in focus groups with the Examinations team to help determine the most important topics to be included in the Blueprints. This exercise includes "content ranking sessions," which also help the Examinations team understand which material does not necessarily need to be tested on the exam.
The Blueprints will remain unchanged for the remainder of 2019 as this information is gathered. The Examinations team's actions following the practice analysis will depend on the results of the analysis. The Blueprints will likely be updated toward the end of 2020 or the beginning of 2021 for matters covered in the ED, but the team may decide to conduct further research or even publish further information and request additional comments on areas where there is not clear consensus or that might require structural change to the exam.
Changes not directly related to the practice analysis, including some audit data analytics tasks that were researched over the past year, may appear in the Blueprints as early as April 1, 2020, and on the exam as early as Oct. 1, 2020.
In general, the Examinations team is moving away from changes to the exam process that require years of research and complicated launches. The focus for the future is on regular updates to the exam and avoiding large-scale structural changes that might create concern among CPA candidates.
"We are being nimble," Gallagher said. "But we also have to have stability in this exam for fairness to the candidates. That is the balance we're trying to maintain.
CPA Evolution project reevaluates licensure model
Changes are being considered separately from the CPA Exam practice analysis.
In the CPA Evolution project, the National Association of State Boards of Accountancy (NASBA) and the AICPA are considering whether the model for initial CPA licensure needs to change in response to a growing need for new skills as a result of advancements in technology.
Comments were due Aug. 9 on a request for input seeking feedback on five guiding principles that could serve as the foundation of a new licensure model. The principles assert the profession’s need for CPAs to have technological and analytical expertise while maintaining the importance of competencies necessary to perform professional services as a CPA and protecting the public.
Next steps were scheduled to be shared in October at the NASBA annual meeting and the AICPA fall Council. More information is available at evolutionofcpa.org.