The 150-Hour Rule as a Barrier to Entering Public Accountancy

In many states, CPA licensure now requires 150 credit hours of college course-work thereby adding an extra semester or year of schooling beyond typical undergraduate degree requirements. Thus, the "150-hour rule" should increase the cost of becoming a CPA and, consequently, reduce the supply of new CPAs. We test this hypothesis using panel data on the number of first-time candidates for the CPA exam in each state over the years 1985 to 2002. We find that the imposition of the 150-hour education requirement reduces the number of candidates sitting for the CPA exam by 60 percent and that the "grandfathering" provisions of the 150-hour rule produce a substantial transitory increase in the number of candidates sitting for the exam in the year prior to the rule's effective date. Examination of candidates' pass rates on the exam also finds behavior consistent with the hypothesis that the 150-hour rule is a barrier to entry.