Reducing a Barrier to Entry: The 120/150 CPA Licensing Rule

In the United States, one of the most common state-level occupational licensing requirements is education. Education requirements for certified public accountants (CPAs) in many states have increased over the past few decades, but recently a few states have reduced their educational requirement to sit for the CPA exam. Using data from 2006 to 2016, we separately examine the effects of relaxing or strengthening educational requirements on the number of first-time candidates sitting for the CPA exam and on candidate performance. Our results indicate that a reduction in the number of credit hours required to sit for the CPA exam increases the number of candidates, while an increase in the number of prerequisite hours reduces the number of candidates (the latter effect is sensitive to the inclusion of control variables). We also find no relationship between changes in CPA exam requirements and pass rates or scores. Hence, requiring 150 h instead of 120 acts as a barrier to entry for potential CPAs with no accompanying increase in candidate quality.