The associations among accounting program attributes, 150-hour status, and CPA exam pass rates

J. of Acc. Ed. 24 (2006) 202 215 Journal of Accounting Education www.elsevier.com/locate/jaccedu Main article The associations among accounting program attributes, 150-hour status, and CPA exam pass rates Jeff Boone a, Joseph Legoria b, Deborah L. Seifert c, William W. Stammerjohan d, * a Department of Accounting, University of Texas San Antonio, San Antonio, TX 78249-0632, USA b Department of Accounting, Louisiana State University, 3101 CEBA Building, Baton Rouge, LA 70803-6304, USA c School of Accountancy, Wichita State University, 1845 Fairmont Wichita, KS 67260-0087, USA d School of Professional Accountancy, Louisiana Tech University, P.O. Box 10318, Ruston, LA 71272, USA Abstract This study contributes to the extant literature by providing a better understanding of the associations among attributes of schools providing accounting education, 150-hour status, and CPA exam pass rates. We model program-level pass rates as a function of the state s 150-hour status and several program-specific attributes, including: the level of AACSB accreditation, student selectivity, the percentage of candidates with advanced degrees, and faculty research productivity. We examine the average pass rates of 520 accounting programs that provided 43,711 first-time candidates for CPA exams given in 1998 and 1999. Similar to most prior studies we find that candidates from more selective schools, candidates with advanced degrees, and candidates who attended schools located in jurisdictions with the 150-hour requirement fully in place have higher average pass rates. However, we also find a significant decline in average pass rates during the 150-hour transition period, and in contrast to the strong positive effects of accreditation reported by [Grant, C. T., Ciccotello, C. S., & Dickie, M. (2001). Barriers to professional entry: how effective is the 150-hour rule? Journal of Accounting and Public Policy, 21, 71 93], we find only weak evidence of an association between program-level pass rates and college-level or separate AACSB accounting program accreditation. Ó 2006 Elsevier Ltd. All rights reserved. Keywords: CPA exam pass rates; 150-hour requirement; AACSB accreditation * Corresponding author. Tel.: +1 318 257 3828. E-mail addresses: jeff.boone@utsa.edu (J. Boone), jlegoria@lsu.edu (J. Legoria), dseifertmail@yahoo.com (D.L. Seifert), wstammer@cab.latech.edu (W.W. Stammerjohan). 0748-5751/$ - see front matter Ó 2006 Elsevier Ltd. All rights reserved. doi:10.1016/j.jaccedu.2006.08.002

J. Boone et al. / J. of Acc. Ed. 24 (2006) 202 215 203 1. Introduction This study addresses a key issue facing the accounting profession: pass rates on the Uniform CPA examination (hereafter, the CPA exam). This study contributes to the extant literature by providing a better understanding of the associations among attributes of schools providing accounting education, 150-hour status, and CPA exam pass rates. While there have been several substantive changes to accounting education, the majority of accounting graduates still do not pass the CPA exam in a timely manner. 1 Many states have adopted the 150-hour requirement. Many accounting programs have tried to adapt their curricula to the findings of studies describing what entry-level accountants should know (e.g., Albrecht & Sack, 2000; Norris, Russell, Goodwin, & Jessee, 2001; Russell, Siegel, & Kulesza, 1999). The AACSB International The Association to Advance Collegiate Schools of Business (hereafter, AACSB) has made continuing adjustments to the requirements for accreditation for both colleges of business and accounting programs (AACSB, 2005, 2006) and the new computer-based CPA exam has eliminated the requirement that first-time CPA exam candidates sit for all parts over a two-day period. Given the increased demand for new accountants (Watterson, 2004), the decreasing number of successful CPA exam candidates (Allen & Woodland, 2005), and the smaller than expected number of candidates sitting during the first three cycles (April/May, July/August, and October/November 2004) of the computer-based exam (Johnson, 2005), it is vital that we better understand the environmental and program-specific factors influencing CPA exam pass rates. To examine these factors, we model program-level pass rates as a function of the attributes of the institutions where candidates received their accounting education and of the 150-hour status of the jurisdictions where these institutions were located. The program-specific attributes include: the level of AACSB accreditation, student selectivity, the percentage of candidates with advanced degrees, and faculty research productivity. We examine the average pass rates of 520 accounting programs that provided 43,711 first-time candidates for the CPA exams given in 1998 and 1999. Similar to prior studies (e.g., Grant, Ciccotello, & Dickie, 2001), we find that candidates from more selective schools and candidates with advanced degrees have higher average pass rates. Similar to most prior studies (Colbert & Murray, 1998; Cumming & Rankin, 1999; Raghunandan, Read, & Brown, 2003; Read, Raghunandan, & Brown, 2001), we find that candidates who attended institutions located in jurisdictions with the 150-hour requirement fully in place have higher pass rates. However, we also find that average pass rates significantly decline during the 150-hour transition period. We find some evidence that pass rates are positively related to faculty research productivity. In contrast to the strong positive effects of accreditation reported by Grant et al. (2001), we find only weak evidence of an association between program-level pass rates and either college-level or separate AACSB accounting accreditation. 1 On average, only 17.5% of first-time candidates passed all parts, and only 28.8% of first-time candidates passed any parts of the CPA exams administered from 1998 to 2003 (NASBA, 2000, 2001, 2002, 2003, 2004). The average percentage of all (first-time and repeat) candidates passing the parts of the CPA exam that they sat for was 30.8% over the same time period. While tabulated first-time candidate results on the computer-based CPA exam do not exist at this time, results for all candidates over the first test cycles of the computer-based exam (April October 2004) show an average pass rate of only 44.6% for the sections taken (AICPA, 2005, p. 4).

204 J. Boone et al. / J. of Acc. Ed. 24 (2006) 202 215 The remainder of this paper is organized as follows. The next section includes the review of pertinent literature and model development. The following section includes a description of our sample and the presentation of our results. The final section includes concluding remarks, a discussion of limitations, and suggestions for further research. 2. Relevant literature and theory development 2.1. The AICPA and the importance of the CPA exam A stated purpose of the AICPA and the individual state boards of accountancy is to promote quality within public accounting and to protect the public interest. The AICPA has consistently stated that the public interest requires strict control over those individuals allowed to hold themselves out as certified public accountants. States licensing requirements for CPA s presumably exist to ensure that the public receives competent accounting and auditing services (Colbert & Murray, 1998, p. 93). Passing the CPA exam is the only requirement for CPA licensure that is common across all 54 jurisdictions (AICPA, 2000). Similar to several prior studies (e.g., Colbert & Murray, 1998; Grant et al., 2001), we measure pass rates among first-time candidates We measure the percentage of first-time candidates from each institution that pass at least one part of the CPA exam (SOME) and the percentage of first-time candidates from each institution that pass all parts of the exam (ALL). 2 2.2. The AACSB s role in shaping accounting education The AACSB defines its role in business and accounting education as being...devoted to the promotion and improvement of higher education in business administration and accounting (AACSB, 2006, p. iii). The AACSB more specifically defines its role in accounting education by stating in the preamble to the separate accounting accreditation requirements, Accounting accreditation seeks to improve accounting education in order to prepare students to serve the needs of society that are met by the discipline and profession of accounting (AACSB, 2005, p. 3). Marts, Baker, and Garris (1988) find better CPA exam performance among graduates of AACSB accredited programs. Grant et al. (2001) find that the average pass rate (firsttime candidates passing at least two parts) is 7.65% higher among graduates of AACSB accredited schools after controlling for ability, review courses, credit hours, and graduate degree. We carry the investigation of AACSB accreditation one step further by examining the incremental effects of college-level (ACR) and separate accounting accreditation (ACC). We do not predict the direction of the association between ACR, ACC, and CPA exam pass rates. 2 Our results based on first-time candidates passing all parts taken on the paper-based CPA exam (ALL) may provide a more rigorous measure of the relationship between school attributes and CPA exam preparation than any measure provided by the computer-based CPA exam because of the fact that the computer-based exam may be taken one section at a time. While the requirement that a candidate must pass all parts before entry into the profession may provide the same level of protection for the public, the relaxation of the requirement that firsttime candidates must sit for all parts over a two-day window may prevent the computer-based CPA exam from producing a metric equal in rigor to ALL.

2.3. The role of ability (student selectivity) on CPA exam pass rates The existing research on CPA exam pass rates has generally found the ability of candidates to be positively correlated with pass rates (e.g., Colbert & Murray, 1998; Grant et al., 2001). There are several ways to measure the ability level of individual candidates or groups of candidates, including college entrance exam scores and grades. While Grant et al. (2001) used candidate specific SAT/ACT scores, Colbert and Murray (1998) used statewide average GMAT scores. Institution-level college entrance exam scores were used in this study. We include the median ACT score of entering freshmen (ACT) to capture this construct and expect to find a positive relationship with CPA exam pass rates. 3 2.4. The 150-hour requirement J. Boone et al. / J. of Acc. Ed. 24 (2006) 202 215 205 While the AICPA does not speak directly to how the 150-hour requirement is expected to affect CPA exam pass rates, implementation of this requirement could arguably improve pass rates for all candidates in two ways. Whether or not a candidate receives a graduate degree in the process, many 150-hour candidates take additional accounting courses in reaching 150 h. The 150-hour requirement may also screen many marginal candidates. We include two variables to measure the association of the 150-hour requirement with CPA exam pass rates. First, we include an indicator variable that identifies jurisdictions with the 150-hour requirement in force during our entire test period (150HOURS). Secondly, we include another indicator variable to capture the effect of programs located in jurisdictions that were transitioning to the 150-hour requirement (TRANS) during our test period, 1998 1999. Many states did not require repeat candidates who first sat for the CPA exam prior to 150-hour requirement implementation to meet the 150-hour requirement for subsequent sittings (AICPA, 1999; Cumming & Rankin, 1998). In their analysis of all candidates (first-time and repeat candidates) over 53 jurisdictions, Allen and Woodland (2005) report that the total number of candidates is 13% higher than expected (t = 3.30, p = 0.0010) and that the pass rate is 3.31% lower than expected (t = 6.57, p < 0.0001) in the year before 150-hour requirements take effect. NASBA s summary of first-time candidate participation over 11 jurisdictions showed a similar pattern where first-time candidates comprised 24% of the total number of candidates in the last two exam periods before 150-hour implementation and 3.5% of the total candidates in the first two exam periods following implementation (NASBA, 2002, p. 5). We expect a positive relationship between 150HOURS and CPA exam pass rates based on the arguments made above and on the results reported in earlier studies (e.g., Colbert & Murray, 1998; Cumming & Rankin, 1999; Read et al., 2001). Given a stable number of qualified candidates, we expect the relationship between TRANS and pass rates to be negative because the increase in candidates just before 150-hour implementation documented by Allen and Woodland (2005) and NASBA (2002) most likely represents additional marginal candidates. 3 US News and World Report: America s Best Colleges (1997) reports ACT or SAT scores for each school. They report either a median or the 25th and 75th percentiles. We convert SAT scores to ACT scores using the conversions provided by Dorans, Lyu, Pommerich, and Houston (1997). We use either the reported median score or the mid-point for those with only the 25th and 75th percentile scores.

206 J. Boone et al. / J. of Acc. Ed. 24 (2006) 202 215 Table 1 Sample selection criteria Schools in the NASBA databases whose graduates took the CPA exam during May 1998 November 1999 795 Schools not in US News and World Report: America s Best Colleges (1997) (233) Schools not included in Hasselback and Reinstein (1995) (18) Schools in US News and World Report: America s Best Colleges (1997) without ACT or SAT scores (24) Schools in final sample 520 2.5. Advanced degrees Candidates with advanced degrees can also be expected to have higher CPA exam pass rates resulting from additional accounting courses and from the additional screening process that accompanies admission to most graduate programs. Donelan and Phillipich (2001) find that 35% of 559 recent CPA exam candidates with 150 h of education also held a Masters in Accounting. Also as expected, Grant et al. (2001) report significant positive correlations between candidates with graduate degrees and both SAT scores and accounting credit hours. We include the percentage of candidates from each institution with advanced degrees (ADVANCED) in our model. We expect the relationship between ADVANCED and CPA exam pass rates to be positive based upon the arguments made above and the findings of earlier studies (Grant et al., 2001; Titard & Russell, 1989). 2.6. Faculty research productivity A common perception is that college faculty devote less time to teaching as they become more focused on research. However, existing empirical evidence does not fully support this perception. For example, Bell, Frecka, and Solomon (1993) find a positive correlation between instructors research productivity and the scores these instructors receive on their student evaluations. Our interest is in the association between each program s research productivity and the average CPA exam pass rate of the program s students. We use the number of equivalent sole-authored articles per faculty member (HR95) reported by Hasselback and Reinstein (1995) to measure the research productivity of the institution s faculty. 4 We do not predict the direction of the association between HR95 and pass rates. 3. Data and empirical results 3.1. Data Graduates from 520 schools who sat for the CPA exam for the first time in either 1998 or 1999 make up our final sample. 5 These 520 schools provided 43,711 candidates for the four exams in our study period. The number of schools with candidates sitting for the 4 See Hasselback and Reinstein (1995) for a full description of this variable. This measure is calculated by taking the total number of articles published in forty selected accounting journals between 1967 and 1991, weighting each article for journal quality, and deflating by co-authorship and faculty size. 5 We restrict our analysis to first-time candidates because we believe that the influence of the accounting program is probably least contaminated by the influences of experience and review programs at this point. This restriction also provides consistency with most prior research (e.g., Colbert & Murray, 1998; Grant et al., 2001).

J. Boone et al. / J. of Acc. Ed. 24 (2006) 202 215 207 Table 2 Number of first-time candidates Exam All schools Non-NASBA schools NASBA schools Non-Sample schools Sample schools May 1998 15,858 5393 10,465 2058 8407 November 1998 22,715 7396 15,319 3338 11,981 May 1999 18,001 5770 12,231 2812 9419 November 1999 29,182 10,417 18,765 4861 13,904 Totals 85,756 28,976 56,780 13,069 43,711 Notes: All schools: The total number of first-time candidates sitting for each CPA exam. Non-NASBA Schools: The number of first-time candidates who were not listed in one of the National Association of State Boards of Accountancy (NASBA) databases. Candidates are not listed in NASBA databases if (1) they indicated a school with less than five first-time candidates sitting for that CPA exam, or (2) they indicated a school outside the United States, or (3) they did not indicate a school where they received their accounting education. NASBA schools: The number of first-time candidates who indicated that they had received their accounting education at one of the schools listed in the National Association of State Boards of Accountancy (NASBA) databases. Non-Sample schools: The number of first-time candidates who were included in the NASBA databases, but did not indicate one of the 520 schools included in our sample. Sample schools: The number of first-time candidates who indicated that they had received their accounting education at one of our sample schools. CPA exam during our test period, the number of schools failing to meet each of our criteria, and the number of schools in our final sample are reported in Table 1. Table 2 provides a comparison of the number of candidates from our sample schools and the number of candidates from all schools for each exam during our sample period. 6 Table 3 provides operational definitions and the data sources for our variables. 7 6 While the candidates who attended schools included in our sample comprise only 51.0% of the total number of candidates (43,711/85,756), the candidates who attended our sample schools comprise 77.0% of the candidates included in the National Association of State Boards of Accountancy (NASBA) databases (NASBA, 1999, 2000). NASBA excluded 6036 candidates who indicated schools with less than five first-time candidates, 7220 candidates who indicated a school located outside the US, and 15,720 candidates who did not indicate a school that provided their accounting education. We exclude schools that provided 13,069 candidates included in the NASBA databases because these schools lacked one or more of our other variables. 7 While our pass rates (SOME and ALL) are from the paper-based CPA exam, there are several specific factors that indicate that our results should remain relevant into the computer-based CPA exam era: (1) the AICPA literature maps the content of each section of paper-based exam into the various sections of the computerized exam (AICPA, 2003); (2) recent literature documents continued heavy reliance on multiple choice questions (e.g., Churyk & Mantzke, 2005); (3) there are significant similarities in suggested test prep and reliance on old paper-based exam questions in prep materials targeted at computerized exam candidates (e.g., Gleim, 1997, 2004); and (4) as documented later in this paper, we find a significant correlation between the pass rates on the paper-based exam and pass rates on the computerized exam over the schools from one 150-hour state.

208 J. Boone et al. / J. of Acc. Ed. 24 (2006) 202 215 Table 3 Operational definitions of variables and sources of data Variable Operational definition Source of data SOME ALL Percentage of first-time candidates from each school passing at least one part of the CPA exam (exams administered May 1998 November 1999) Percentage of first-time candidates from each school passing all parts taken of the CPA exam (exams administered May 1998 November 1999) 1999 and 2000 editions of Candidate Performance on the CPA exam published by the National Association of State Boards of Public Accountancy, NASBA (1999, 2000) 1999 and 2000 editions of Candidate Performance on the CPA exam published by the National Association of State Boards of Public Accountancy, NASBA (1999, 2000) Hasselback (2000) and AACSB (2001a, 2001b) Hasselback (2000) and AACSB (2001a, 2001b) ACR Zero/one variable indicating AACSB accreditation at the college-level ACC Zero/one variable indicating separate AACSB accreditation for accounting program ACT Median ACT score of entering freshmen a US News and World Report: America s Best Colleges (1997) 150HOURs Zero/one variable indicating school AICPA (2001) located in state with 150-hour requirement in effect during the entire period May 1998 November 1999 b TRANS ADVANCED HR95 Zero/one variable indicating school located in a state that was transitioning to the 150-hour requirement during May 1998 November 1999, i.e., the 150-hour requirement was in effect for only part of our sample period c Percentage of first-time candidates from each school with an advanced degree Research productivity of faculty, measured as quality-weighted number of sole-authored articles per faculty member AICPA (2001) 1999 and 2000 editions of Candidate Performance on the CPA exam published by the National Association of State Boards of Public Accountancy, NASBA (1999, 2000) Hasselback and Reinstein (1995) a US News and World Report: America s Best Colleges (1997) reports ACT or SAT scores. They report either a single score or the 25th and 75th percentiles. We convert SAT scores to ACT scores using the conversion rates provided by Dorans et al. (1997). We use the reported median score for those reporting a single value and the mid-point for those reporting percentiles. b Alabama, Arkansas, Florida, Georgia, Hawaii, Kansas, Louisiana, Mississippi, Montana, Nebraska, South Carolina, South Dakota, Tennessee, Texas, and Utah. c Maryland, Missouri, and Rhode Island. 3.2. Summary statistics and simple correlation analysis Table 4 provides descriptive statistics and simple correlations. The descriptive statistics reported in Panel A reveal large discrepancies in pass rates. While an average school had 27.2% of their first-time candidates pass at least one part of the CPA exam (SOME) and 14.5% of their first-time candidates pass all parts taken (ALL), pass rates for individual

J. Boone et al. / J. of Acc. Ed. 24 (2006) 202 215 209 Table 4 Descriptive statistics Mean Median Std. Dev. Min Max Schools Panel A: Measures of central tendency and dispersion SOME 0.272 0.270 0.111 0.000 0.800 520 ALL 0.145 0.128 0.107 0.000 0.750 520 ACR 0.590 1.000 0.492 0.000 1.000 520 ACC 0.263 0.000 0.443 0.000 1.000 520 ACT 22.910 23.000 2.610 16.000 31.000 520 150HOURS 0.223 0.000 0.417 0.000 1.000 520 TRANS 0.050 0.000 0.218 0.000 1.000 520 ADVANCED 0.108 0.000 0.228 0.000 1.000 520 HR95 1.019 0.350 1.538 0.000 9.590 520 Panel B: Pearson correlations SOME 1 ALL 0.255 1 ACR 0.161 0.288 1 ACC 0.155 0.268 0.498 1 ACT 0.280 0.347 0.193 0.172 1 150HOURS 0.182 0.176 0.174 0.162 0.098 1 TRANS 0.140 0.079 0.006 0.003 0.052 0.123 1 ADVANCED 0.253 0.341 0.220 0.299 0.178 0.462 0.060 1 HR95 0.191 0.415 0.440 0.437 0.437 0.058 0.026 0.287 1 SOME ALL ACR ACC ACT 150HOURS TRANS ADVANCED HR95 Correlation coefficients greater than 0.07, 0.09 and 0.11 in absolute value are statistically significant at the 0.10, 0.05, and 0.01 levels, respectively (df = 519). Correlations with p-values 6 0.05 are reported in bold. Notes: SOME: Percentage of first-time candidates from each school passing at least one part of the CPA exams administered May 1998 November 1999. ALL: Percentage of first-time candidates from each school passing all parts taken of the CPA exams administered May 1998 November 1999. ACR: Zero/one variable indicating AACSB accreditation at the college-level. ACC: Zero/one variable indicating separate AACSB accreditation for accounting program. ACT: Institution-wide median ACT score of entering freshmen. 150HOURS: Zero/one variable indicating school located in state with 150-hour requirement in effect during May 1998 November 1999. TRANS: Zero/one variable indicating school located in a state transitioning to the 150-hour requirement during May 1998 November 1999. ADVANCED: Percentage of first-time candidates from each school with an advanced degree. HR95: Research productivity of faculty, measured as quality-weighted number of sole-authored articles per faculty member as reported in Hasselback and Reinstein (1995). schools vary greatly. 8 While some schools have no first-time candidates passing any parts of the examination, other schools have as many as 75% of their first-time candidates passing all parts taken. 8 SOME does not necessarily indicate that the candidate received conditional credit because SOME is calculated as the difference between 100% and the percentage of candidates who did not pass any parts of the exam. ALL indicates that candidates passed all parts that they sat for on that examination. ALL does not automatically mean that first-time candidates passed all four parts because before implementation of the computerized exam some states, e.g., California, allowed first-time candidates to sit for less than all four parts.

210 J. Boone et al. / J. of Acc. Ed. 24 (2006) 202 215 Table 5 Multiple regression results Dependent variable SOME ALL Independent variable Exp. Sign Coefficient SSPC (%) t-statistic p-value Coefficient SSPC (%) t-statistic p-value Intercept? 0.254 33.92 <0.0001 0.106 15.78 <0.0001 ACR? 0.011 0.15 0.92 0.3603 0.018 0.48 1.85 0.0653 ACC? 0.008 0.07 0.71 0.4741 0.008 0.06 0.67 0.5006 ACTC + 0.011 5.42 5.76 <0.0001 0.009 3.43 4.91 <0.0001 150HRS + 0.032 1.09 2.05 0.0204 0.019 0.42 1.73 0.0422 TRANS 0.067 1.70 4.64 <0.0001 0.031 0.40 1.67 0.0476 ADVANCED + 0.060 1.04 1.55 0.0601 0.082 2.10 3.94 0.0001 HR95? 0.001 0.00 0.10 0.9101 0.015 2.87 4.49 <0.0001 Schools (N) 520 520 R 2 0.158 0.273 Adjusted R 2 0.146 0.263 Model test F[7, 512] 13.67 27.47 p-value <0.0001 <0.0001 Collinearity tests Maximum VIF 1.62 1.62 Maximum condition index 4.38 4.38 The SOME t-statistics and p-values are based on the White (1980) corrected errors because the White (1980) test statistic is significant (p = 0.0127). The ALL t-statistics and p-values are based on OLS errors because the White (1980) test statistic is insignificant (p = 0.4289). The regression coefficients with p-values 6 0.05 are reported in bold. The p-values for coefficients with expected signs are one-tailed and p-values for the other coefficients are two-tailed. Notes: SSPC: Square semipartial correlation coefficients that each explain the unique contribution to the model R 2 provided by that variable (Cohen et al., 2003, pp. 72 74). SOME: Percentage of first-time candidates from each school passing at least one part of the CPA exams administered May 1998 November 1999. ALL: Percentage of first-time candidates from each school passing all parts taken of the CPA exams administered May 1998 November 1999. ACR: Zero/one variable indicating AACSB accreditation at the college-level. ACC: Zero/one variable indicating separate AACSB accreditation for accounting program. ACTC: Institution-wide median ACT score of entering freshmen less the sample median of 23. 150HRS: Zero/one variable indicating school located in state with 150-hour requirement in effect during May 1998 November 1999. TRANS: Zero/one variable indicating school located in a state transitioning to the 150-hour requirement during May 1998 November 1999. ADVANCED: Percentage of first-time candidates from each school with an advanced degree. HR95: Research productivity of faculty, measured as quality-weighted number of sole-authored articles per faculty member as reported in Hasselback and Reinstein (1995). Of our 520 sample schools, 307 (59.0%) were AACSB accredited at the college-level (ACR) and 137 (26.3%) also held separate accounting accreditation (ACC). The average (median) school in our sample had an institution-wide ACT score (ACT) for entering freshmen of 22.9 (23). One hundred and fourteen (22.3%) of our sample schools were

located in jurisdictions in which the 150-hour requirement was in effect during the entire two-year study period (150HOURS), and 26 (5.0%) of our sample schools were located in jurisdictions transitioning to the 150-hour requirement (TRANS). One hundred and eighty eight (36.2%) of our sample schools had candidates with advanced degrees. On average, 30% of first-time candidates from these schools held advanced degrees (ADVANCED). The faculty members at our sample schools published an average (median) of 1.019 (0.350) equivalent quality-weighted, sole-authored articles between 1967 and 1991 (HR95). The simple correlations reported in Table 4, Panel B, provide univariate associations between program attributes and CPA exam pass rates. The percentage of first-time candidates passing at least one part of the CPA exam (SOME) and the percentage of first-time candidates passing all parts of the CPA exam taken (ALL) are positively correlated with accreditation-levels (ACR, ACC), more selective schools (ACT), schools located in states with the 150-hour requirement in place (150HOURS), schools with higher percentages of candidates holding advanced degrees (ADVANCED), and schools with more research productive faculty (HR95). As expected, accreditation-level (ACR, ACC) is positively correlated with selectivity (ACT) and faculty research productivity (HR95). Also as expected, pass rates (SOME, ALL) are negatively correlated with transition (TRANS), although the negative correlation between ALL and TRANS is only marginally significant (p = 0.0735). 3.3. Regression analysis J. Boone et al. / J. of Acc. Ed. 24 (2006) 202 215 211 To provide a clearer indication of the incremental effect of individual program attributes, we estimate the following regression model where pass rate is defined as either SOME or ALL. Pass Rate ¼ b 0 þ b 1 ACR þ b 2 ACC þ b 3 ACTC þ b 4 150HOURS þ b 5 TRANS þ b 6 ADVANCED þ b 7 HR95 þ e The ACT variable discussed above is replaced in the regression model with a centered ACTC that represents the school median ACT score minus the sample median ACT score of 23. 9 Table 5 presents the results of estimating the regression model employing ordinary least squares (OLS). The test statistics reported below the results indicate that the level of collinearity is within acceptable levels. The maximum VIF is 1.62, the maximum condition index is 4.38, and there are no pairs of variables with 50% of their respective variances associated with a high condition index. 10 We also conduct White s (1980) joint test for 9 ACTC = ACT 23. This transformation is made to ease interpretation and has no statistical impact on our results. 10 The variance inflation factor (VIF) provides an index of the amount that the variance of each regression coefficient is increased relative to a situation in which all predictor variables are uncorrelated (Cohen, Cohen, West, & Aiken, 2003, p. 423). The VIF approach yields a VIF value for each independent variable X i in the model, calculated as VIF ¼ 1, where R 2 1 R 2 i is the multiple correlation coefficient obtained from regressing X i on all i other explanatory variables in the regression model. A rule of thumb is that any VIF above 10 indicates serious collinearity (Cohen et al., 2003, p. 423). The condition index approach entails calculating the condition index for each eigenvalue in the data matrix. Please see Belsley, Kuh, and Welsch (1980, pp. 96 105). for a full discussion of the condition number collinearity diagnostic. Please also see their rules of thumb that indicate that our condition number of 4.38 falls below the 5 10 range that would indicate moderate collinearity and well below the 30 100 range that would indicate strong collinearity (Belsley et al., 1980, p. 105).

212 J. Boone et al. / J. of Acc. Ed. 24 (2006) 202 215 heteroscedasticity and model misspecification. Given that we reject White s null hypothesis for the SOME estimation (p = 0.0127), our reported significance levels for the SOME estimation are based on White s corrected standard errors. 11 The regression coefficients (presented in the coefficient columns) represent the incremental effects on average pass rates, and the squared semipartial correlation coefficients (presented in the SSPC columns) represent the unique contribution to the model R 2 resulting from inclusion of that variable in the model (Cohen et al., 2003, pp. 72 74). 12 The indicator variable coefficients (ACR, ACC, 150HOURS, and TRANS) all represent departures from average pass rates for baseline schools that are non-accredited and located in states that neither require nor are in the process of implementing the150-hour requirement. 13 Our regression results suggest that academic aptitude (captured by ACTC) coupled with graduate preparation (ADVANCED) contribute to successful performance on the CPA exam. Our results also suggest that after the initial decline in both SOME and ALL observed during the transition phase (TRANS), the average pass rates for first-time candidates from schools located in 150-hour states (150HOURS) are higher than the average pass rates for first-time candidates from schools located in states that have not implemented or are not in the process of transitioning to the 150-hour requirement. After considering the other explanatory variables in our model, in contrast to the strong correlation between college-level accreditation and pass rates reported by Grant et al. (2001), we find only weak evidence of an association between PPA exam pass rates and AACSB accreditation. The incremental effect of college-level accreditation is captured by the ACR coefficient, the incremental effect of adding separate accounting accreditation is captured by the ACC coefficient, and total effect of a school holding both college-level and separate accounting accreditation is the sum of the ACR and ACC coefficients. The only marginally significant incremental accreditation effect is college-level accreditation (ACR) for the ALL estimation (p = 0.0653). 14 While faculty research productivity 11 The White (1980) test evaluates the association between the model squared error terms and the level, square, and cross-product of the various explanatory variables in the model. Evidence of such association points either to model misspecification or heteroscedasticity. White (1980) also develops a covariance matrix that is robust to heteroscedasticity. Accepted practice calls for researchers to base statistical inferences on the White covariance matrix in lieu of the OLS covariance matrix when diagnostic tests point to heteroscedasticity (Greene, 1990, pp. 403 404). Please see White (1980) for a full discussion of this specification test and a full discussion of his corrected standard errors. 12 The squared semipartial correlation represents the unique portion of the total variance in the dependent variable explained by including that independent variable in the model. This differs from the squared partial correlation that represents the portion of the total variance in the dependent variable explained by including that independent variable in the model that is unexplained by the other independent variables. The squared semipartial correlation will always be smaller than the squared partial correlation because while the numerators for both calculations are the same, the denominator for the squared partial correlation calculation will always be smaller so long as any of the other variables explain some of the total variance of the dependent variable (Cohen et al., 2003, pp. 72 75). 13 For example, using the coefficients from the SOME estimation, the percentage of first-time candidates expected to pass at least one part of the CPA exam from a college-level accredited school also holding separate accounting accreditation, with a median ACT score of 24, located in a 150-hour state, with one-half of their candidates holding advanced degrees, and a HR95 score of 0.350 would be 34.6% (the intercept + 0.011 * ACR + 0.008 * ACC + 0.011 * ACTC + 0.032 * 150HRS + 0.060 * ADVANCED 0.001 * HR95, or 0.254 + 0.011 + 0.008 + 0.011 * (24 23) + 0.032 + 0.060 * 0.500 0.001 * 0.350). 14 While separate accounting accreditation (ACC) does not produce a significant incremental effect beyond collegelevel accreditation (ACR), the percentage of first-time candidates from schools with separate accreditation passing all parts (ALL) is significantly higher than from schools that are unaccredited at any level (untabulated p = 0.0310).

(HR95) appears to have no effect on the percentage passing at least one part (SOME), the percentage of first-time candidates passing all parts taken (ALL) is positively correlated with faculty research productivity (p < 0.0001). 4. Conclusions, limitations, and suggestions for future research 4.1. Conclusions Our findings with regard to student selectivity, advanced degrees, and the effects of the 150-hour requirement are consistent with the majority of the prior literature (e.g., Colbert & Murray, 1998; Cumming & Rankin, 1999; Grant et al., 2001; Raghunandan et al., 2003; Read et al., 2001). We add to the understanding of 150-hour status, program attributes, and CPA exam pass rates in two specific aspects. First, our documentation of the decline in average CPA exam pass rates during the transition period indicates that research measuring the impact of the 150-hour requirement on pass rates with transition period pass rates included in the pre 150-hour sample may significantly overstate the 150-hour effect. Second, our results indicate that the majority of the positive correlation between AACSB accreditation and CPA exam pass rates is explained by a single component of accreditation, student selectivity. 4.2. Limitations J. Boone et al. / J. of Acc. Ed. 24 (2006) 202 215 213 Like most empirical work, our study is limited by the tradeoffs between the level of detail in our analysis and sample size. Our research benefits from data covering a large portion of first-time CPA exam candidates during our test period. Our student selectivity measure is limited because our information is at the institution-level and our measure of research productivity is subject to the limitations in Hasselback and Reinstein (1995). While our significance levels may appear modest in comparison to some recent studies (e.g., Colbert & Murray, 1998; Grant et al., 2001), the reliability of our average program pass rate models may be much higher than studies that treat each candidate as an independent observation when the control variables are not candidate specific. 15 Another possible limitation is that since our study utilizes the paper-based CPA exam, our results may appear to lack relevance in the current computer-based CPA exam era. While the computer-based exam replaces paper-based problems and essays with simulations, and reorders specific topics in the exam sections, there is strong evidence that the computer-based exam, like its paper-based predecessor, is still heavily based on multiple choice questions covering accounting facts (Churyk & Mantzke, 2005). 16 15 Colbert and Murray (1998) report LOGIT significance levels based on an N 64,881 with all their independent variables based on state averages. One state, Illinois, accounted for 6029, or 9.3%, of their observations. 16 A test based on a limited sample of 14 schools from a state where the 150-requirement has been in place since well before the beginning of our study provides additional evidence on the continued relevance of our results in the computer-based CPA exam era. This test showed a significant correlation between average pass rates over the sections taken on the computer-based exam and the percentage of first-time candidates passing all four parts on their first sitting (ALL) during our test period (r = 0.658, p = 0.0053).

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