Factors Affecting CPA Examination Success

Factors Affecting CPA Examination Success 53 Factors Affecting CPA Examination Success Pierre L. Titard and Keitii A. Russell Pierre L. Titard is Professor of Accounting at West Virginia University and Keith A. Russell is Chairperson, Department of Accounting & Finance at Southeast Missouri State University. INTRODUCTION Accounting academicians, practitioners, and students are usually interested in knowing pass rates and factors affecting pass rates on the CPA examination. During the last several years, results of studies conducted on candidates' performance have been published for specific states.i However, nothing has been reported in journals on a national scale since the studies published 17 years ago.2 The purpose of this paper is to examine relatively recent success rates for both firsttime candidates and repeat candidates on a national basis, and to consider some factors that might explain reasons for success. This study uses data provided by the National Association of State Boards of Accountancy (NASBA) for the four examinations conducted during 1985 and 1986.3 The data are based on performance by approximately 253,000 candidates over the two years, 89,000 of whom were first-time candidates and 164,000 of whom were repeat candidates.'* To obtain data, state boards provided each candidate with a questionnaire. Completed questionnaires were forwarded to NASBA. Completion of demographic information was voluntary, and not every candidate responded to every question. However, for the two years 1985 and 1986, NASBA received usable questionnaires fi"om approximately 91 percent of the candidates. Note that data provided by candidates were not verified, but are assumed to be true. EXAMINATION PASS RATES Although many states require a candidate to pass at least two parts in order to be conditioned, considering the pass rate of "one or more parts" is useful in comparing success on a relative basis among factors being measured. The pass rate on "one or more parts" will typically be higher than that of any one specific part because a number of candidates may pass only one part, but the parts passed may differ among candidates. This point is borne out in Table 1, which shows pass rates for the two years 1985-1986. TABLE 1 EXAMINATION PASS RATES BY SUBJECT MATTER One or More Parts All Parts Taken 30.7% 33.1% 34.1% 34.0% 50.3% 21.3% 33.7% 33.6% 31.3% 54.4% ^J. Herman Brasseaux, "Louisiana CPA Candidates' Performance Reviewed," Lagniappe (April 4, 1986), p. 4; and W. Marcus Dunn and Thomas W. Hall, "An Empirical Analysis of the Relationships Between CPA Examination Attributes and Candidate Performance," The Accounting Review (October 1984), pp. 674-689. ^See, for example. Park E. Leathers, "Relationship of Test Scores to CPA Examination Performance," Journal of Accountancy (September 1972), pp. 101-102; Frank K. Reilly and Howard F. Stettler, "Factors Influencing Success on the CPA Examination," Joumal of Accounting Research (Autumn 1972), pp. 308-321; Howard P. Sanders, "Factors Influencing Success on the CPA Examination," Joumal of Accountancy (December 1972), pp. 85-88. wish to thank the National Association of State Boards of Accountancy for permission to use data from its 1985 and 1986 reports, CPA Candidate Performance on the Uniform CPA Examination. *CPA Candidate Performance on the Uniform CPA Examination (New York: National Association of State Boards of Accountancy, 1985, 1986).

Accounting Horizons/September 1989 TABLE 2 COMPARISON OF CANDIDATES' PERFORMANCE WITHOUT AND WITH ADVANCED DEGREE One or More All Parts Taken Without With 29.4% 31.6% 32.6% 49.0% 20.4% 44.0% 48.5% 47.6% 49.4% 64.8% 34.0% Without 33.0% 29.9% 32.1% 53.7% With 40.5% 42.0% 37.4% 39.3% 61.1% It should be noted that "all parts taken" does not mean "all four parts." Although most states require first-time candidates to sit for all four parts, some states do not. Thus, the pass rate includes those first-time candidates that were allowed to take fewer than four parts. Nevertheless, since most first-time candidates take all four parts, "all parts taken" is a good relative measure when examining overall success. The success rate for "all parts taken" is not shown for repeat candidates because most repeat candidates take fewer than four parts and a comparison with firsttime candidates would not be meaningful. ANALYSIS OF FACTORS Since the success of an individual on the CPA exam can be infiuenced by many factors, it is not possible to take aggregated data and say that any one factor will guarantee success for any particular individual. Nevertheless, it is possible to identify significant differences and to analyze factors that provide at least partial explanations for these differences. In this respect, an advanced degree, the collegiate grade-point average (GPA), public accounting experience, and a formal course of supplementary study are factors that might be related to success on the CPA exam. Advanced Degree Of the 253,000 candidates in 1985 and 1986, approximately 25,000 (ten percent) held advanced degrees. Of these, approximately 57 percent held MBA degrees, 27 percent held master's degrees in accounting, and the remainder held doctoral, non-business master's, and law degrees. A comparison of pass rates between those without and those with advanced degrees is shown in Table 2. The data show without question that individuals with advanced degrees are more successful on the exam than those without such degrees. Naturally, other factors may also have an effect here. For example, graduate students generally have higher GPAs, which, as described below, have a positive effect on exam success. Nevertheless, the differences shown above are quite interesting. Grade-point Average Previous studies have shown GPA to be a significant factor in predicting CPA exam success. Reilly and Stettler focused on a candidate's overall academic record.5 Dunn and Hall used the accounting GPA.e Questionnaire data collected by NASBA do not include the accounting GPA but do show the overall GPA. For the 1985 and 1986 exams, 72,000 of 81,000 (89 percent) first-time candidates without advanced degrees and 7,800 of 8,300 (94 percent) first-time candidates with advanced degrees provided their GPA. Comparison of GPA with performance is shown in Table 3. To no one's surprise, candidates with a higher GPA have greater success on the CPA exam. The correlation coefficient for "all parts taken" for candidates without advanced degrees is.95.7 It is surprising to learn, however, that over 50 percent of candidates without an advanced degree who have an average in the ^Reilly and Stettler, op. cit., p. 308. *Dunn and Hall, op. cit., p. 681. ''See Appendix A for statistical methodology.

Factors Affecting CPA Examination Success 55 Without Advanced Degree: TABLE 3 PERFORMANCE BY OVERALL GPA 3.50 to 4.00 3.00 to 3.49 2.50 to 2.99 2.00 to 2.49 Passed All Parts Taken 36.5% 18.4% 9.6% 6.2% One or More 70.7% 49.5% 33.1% 24.5% Failed All Four 29.3% 50.5% 66.9% 75.5% With Advanced Degree: 3.50 to 4.00 3.00 to 3.49 2.50 to 2.99 2.00 to 2.49 Passed All Parts Taken 47.9% 25.2% 20.0% 24.6% One or More 77.1% 57.6% 52.6% 57.9% Failed AU Four 22.9% 42.4% 47.4% 42.1% lower-b range (3.00 to 3.49) failed to pass even one part of the exam at the first sitting. Perhaps this can be attributed to grade inflation. Though not as striking as the differences in Table 2, Table 3 shows higher pass rates for candidates with advanced degrees at all GPA levels. The apparent inconsistency at the 2.00 to 2.49 range for candidates with advanced degrees is caused by the fact that there were relatively few candidates with that GPA and some of them did better than would have been expected. NASBA does not provide GPA data for repeat candidates, but certainly the implications are clear. As Dunn and Hall commented, "... one would expect a priori that lesserquality candidates would tend to represent a relatively larger proportion of repeat candidates, "s The CPA exam is basically a textbook exam. Exceptionally good students can be expected either to pass all four parts, or condition in one or more parts (depending on the state). Most of these candidates are either not among the repeat candidates, or will be taking fewer parts as a repeat candidate than students with lower GPAs. Thus, repeat candidates will generally have lower GPAs, and be expected as a group to do less well on subsequent exams. Public Accounting Experience Many accounting educators and practitioners believe that public accounting experience is helpful for success in passing the CPA exam. This study examined that belief. NASBA's statistics for 1985 and 1986 show that 25.3 percent of first-time candidates had at least one year of public accounting experience, and 58.1 percent of repeat candidates had such experience. A comparison of the overall pass rates for the individual subjects from Table 1 with the pass rates of those candidates with at least one year of public accounting experience is shown in Table.4. Table 4 shows that both first-time and repeat candidates with public accounting experience had slightly higher pass rates for and and lower pass rates for and. Thus, experience did not help in and but may have helped in and. Consequently, this study used a binomial test of sample proportions to determine whether public accounting experience was a factor that contributed to the higher pass rates for and. ^Dunn and Hall, op. cit., p. 678.

56 Accounting Horizons/September 1989 TABLE 4 PERFORMANCE BY PUBLIC ACCOUNTING EXPERIENCE Overall Experience 30.7% 31.2% 33.1% 31.1% 34.1% 31.9% 34.0% 34.7% Overall 33.7% 33.6% 31.3% Experience 34.5% 33.3% 31.0% 34.9% The first step was to compare pass rates for candidates without public accounting experience to those with such experience. This was done for both first-time and repeat candidates who took the exam as shown in Table 5. TABLE 5 COMPARISON OF AUDITING PASS RATES FOR CANDIDATES WITHOUT AND WITH PUBLIC ACCOUNTING EXPERIENCE Without 30.6% 32.7% The null hypothesis can be stated as: With 31.2% 34.5% Ho = Public accounting experience does not improve the pass rate on the section of the CPA exam. At the 95 percent confidence level, Zgnticai = -1.65. Therefore, if Z in the sample exceeds -1.65, the null hypothesis is not accepted. With such large sample sizes, the normal distribution can be used to test the hypothesis about the difference between populations with public accounting experience and those without. When this is done, the Z score is: Z - -1.686.9 The null hypothesis is rejected, and it can be stated with 95 percent confidence that one or more years of public accounting experience will help first-time candidates pass the section of the CPA exam. Using the same technique to test repeat candidates, the study found: Z = -7.669. This not only rejects the null hypothisis, but also allows for an increase of the confidence level because the Z score is so high. Zcriticai ^ t the 99 percent confidence level is 2.33. This study shows with more than 99 percent confidence that public accounting experience helps repeat candidates pass. A binomial test of sample proportions was also applied to the pass rates for. A comparison of pass rates for candidates without and with public accounting experience is shown in Table 6. TABLE 6 COMPARISON OF PRACTICE PASS RATES FOR CANDIDATES WITHOUT AND WITH PUBLIC ACCOUNTING EXPERIENCE Without 33.8% 30.0% With 34.7% 34.9% The null hypothesis is: Ho = Public accounting experience does not improve the pass rate on the section of the CPA exam. Using the above pass rates, Z scores were calculated with the following results: : Z = - 2.459 : Z =-21.123 Appendix B for statistical methodology.

Factors Affecting CPA Examination Success 57 TABLE 7 PERFORMANCE BY SUPPLEMENTARY STUDY One or More Overall Supp. Study 30.7% 33.1% 34.1% 34.0% 50.3% 36.6% 40.4% 40.8% 37.2% 57.2% Overall 33.7% 33.6% 31.3% 54.4% Supp. Study 37.5% 39.2% 37.2% 38.1% 60.5% The null hypothesis is rejected. Also, since the Z scores exceed 2.33, it can be said with greater than 99 percent confidence that public accounting experience does help candidates pass the section of the CPA exam. It should be noted that this conclusion on and conflicts with Dunn and Hall who found no significant relationship between either public accounting or industry work experience and examination success on any parts of the exam in their study of Texas candidates.10 Supplementary Study It is intuitively obvious that the amount and quality of one's study is a factor in CPA exam success. Certainly, there is no question that if one fails to pass any part of the CPA exam, it is necessary to study that subject matter before sitting for the exam again. The candidates' questionnaire includes a question related to supplementary study. Candidates are given choices of "college-sponsored, proprietary, firm-sponsored, home study, and CPA exam critique." Since it is virtually impossible to measure the quality of a candidate's individual selfstudy, this study focused on the number and pass rate of candidates who participated in formal supplementary study (i.e., collegesponsored, proprietary, and firm-sponsored) for both first-time and repeat candidates. Although it is also not possible to measure individual effort in formal programs, the assumption is that candidates who pay for such courses are likely to expend some additional effort in them. NASBA's data show that 48.3 percent of first-time and 42.2 percent of repeat candidates who sat for the 1985 and 1986 exams participated in formal supplementary study. The performance of these candidates as related to the overall pass rate from Table 1 is shown in Table 7. To determine whether supplementary study had a positive effect on the pass rate, the pass rate for candidates who did not participate in supplementary study was compared with the pass rate for those who did. A binomial test was conducted and a Z score calculated. In this test, the null hypothesis is: Ho = Participation in formal supplementary study does not improve the pass rate on any section of the CPA exam. The results are shown in Table 8. The data in Table 8 reject the null hypothesis. With Z scores so high, it can be said with greater than 99 percent confidence that formal supplementary study is a positive factor in passing the CPA exam. This conclusion is also in conflict Avith Dunn and Hall who found that self-study had a positive correlation with scores, but noted no significant effect of a CPA review course.^^ However, earlier studies by Sanders and by Reilly and Stettler did indicate that CPA review courses have a positive effect on CPA exam success.12 "Dunn and Hall, op. cit., p. 683. "Ibid. '^Sanders, op. cit., p. 87; Reilly and Stettler, op. cit., p. 38.

58 Accounting Horizons/September 1989 TABLE 8 COMPARISON OF PASS RATES FOR CANDIDATES WITHOUT AND WITH SUPPLEMENTARY STUDY Without With 25.2% 36.6% 26.3% 40.4% 27.8% 40.8% 28.7% 39.7% Z Score -37.083-45.114-41.245-34.838 Without With 30.9% 37.5% 29.6% 39.2% 26.9% 37.2% 28.8% 38.1% Z Score -27.817-40.449-44.157-39.435 SUMMARY Many factors are related to CPA examination success. This study examined four factors advanced degree, GPA, public accounting experience, and supplementary study. An advanced degree, GPA, and supplementary study were found to have a positive effect on success on all parts of the CPA exam. Public accounting experience was found to have a positive effect in passing and. Naturally, a candidate's GPA will not change after graduation. However, knowledge that supplementery study can improve the chances for success in all parts, and that public accounting experience is helpful in and is especially significant for candidates who were unsuccessful at the first sitting when they are preparing for subsequent sittings. APPENDIX A The statistical methodology to determine the correlation between candidates' grade-point averages and success on the CPA exam is shown below. X = midpoint of grade-point average (GPA) brackets y = percentage of candidates without an advanced degree who passed all parts taken r = correlation coefficient n=4 J. _ nsxv - xy 3.75 3.25 2.75 2.25.365.184.096.062 1.3688.5980.2640.1395 14.0625 10.5625 7.5625 5.0625 X 12.00.707 2.3703 37.2500 When the data are inserted into the equation, r =.9486..1332.0339.0093.0038.1802

Factors Affecting CPA Examination Success 59 APPENDIX B This appendix provides the statistical methodology to determine the Z score for testing the null hypotheses: Ho = Public accounting experience does not improve the pass rate on the section of the CPA exam. Z = (Pi - P2) - (Pi - P2) - Pi), P2(l - P2) Where: Pi =.306 P2 =.312 Pi = section pass rate of future candidates with no public accounting experience P2 = section pass rate of future candidates with at least one year of public accounting experience ni = Number of future candidates who will take the auditing section with no public accounting experience n2 = Number of future candidates who will take the auditing section with at least one year of public accounting experience The null hypothesis has identified the difference between pi and P2 as zero. The actual pi and P2 and ni and n2 are not known. However, because pi and p2 represent the pass rates for such large samples, the standard deviation of the sampling distribution can be estimated by using pi and P2 and the actual number of candidates with and without public accounting experience who took the section during 1985 and 1986. There were 22,640 candidates with such experience and 66,770 candidates without such experience during the two years. When these figures are used to solve the equation, the Z score is: Z = -1.686.