The Sharblog

CPA Exam Evolving and Going Global

In case you missed it, there are some significant changes in the works for the CPA exam that will go into effect next year. Part of the change relates to the content, skills and research aspects of the exam. The other major change will be offering the CPA exam in some international locations on a pilot basis in 2011.

It might be good to overview the organizations involved in the CPA exam as I find that when I talk to members, not all of them are aware of the players and their roles. There are three groups –AICPA,  the National Association of State Boards of Accountancy (NASBA) and Prometric.

First, AICPA is the organization responsible for developing and scoring the exam. Next, NASBA provides oversight to the exam development process and also is responsible for the National Candidate Database. NASBA helps assure that the licensing boards in the U.S. can rely on the exam, and it also helps the state boards in the administration and issuance of grades to candidates. Finally, there is Prometric. Prometric is a wholly owned subsidiary of ETS (Educational Testing Service – the SAT folks) that is responsible for the delivery of the exam at authorized test centers across the U.S.

So those are the players.  What are the changes that will soon be occurring?

Well, there will be new content and skill specification outlines used, a new question format and a greater use of “simulations” versus multiple choice questions. There will also be an increase in the testing of writing skills by adding essays to the Business Environment and Concepts (BEC) section of the exam.  The move to the computerized exam nearly six years ago has now provided over a million test administration’s worth of data that are being used to improve the exam and make it more relevant to testing the knowledge and skills that CPAs need in today’s world.

In addition, starting next year the exam will begin to test candidates on IFRS. Initially, the IFRS questions will be small in number and they will appear in the various sections of the exam. Over time, they could grow if the shift to IFRS evolves. Research shows that increasingly new CPAs need to be familiar with IFRS because of preparing financial reports for foreign owned companies in the U.S., auditing companies that report in IFRS, and working for U.S. companies that need to convert IFRS financials into U.S. GAAP.

Finally, the exam will be offered on a test basis in a few international sites next year. Currently, about 10 percent of the total exam takers are foreigners who travel to a U.S. exam location to take the test. Guam (a U.S. jurisdiction and an exam location) currently tests more candidates than any other U.S. location. Offering the exam internationally will make it easier and less expensive for these candidates. It will also help the CPA profession respond to the global marketplace for accounting credentials. But that is a subject for another blog!

 

Going Global

This past week, the Securities and Exchange Commission (SEC) approved a new timeline for the possible adoption of International Financial Reporting Standards (IFRS) for use by United States public companies. The new timeline envisions 2015 as the earliest possible date for adoption and calls for a thorough study of IFRS before a vote by the SEC next year. If you will remember, the SEC under the Bush administration adopted a roadmap calling for the adoption of IFRS in 2014. While the recent statement issued by the SEC did not make a final, absolute commitment of adopting IFRS, it certainly implied support of adoption if questions about cost/benefits are properly answered, as well as concerns about the independence of the International Accounting Standards Board (IASB) as the standard setter.

So, it appears that IFRS is back on track for future adoption. AICPA and other accounting and auditing groups were happy with the Commission’s decision, but also said that it is critical for the SEC to set a date certain for IFRS adoption. Some CFOs were more critical of the decision, as it will further delay their system changes within their companies or force them to maintain multiple systems, which will be expensive.

While a move to IFRS will initially affect only public companies, it is probably just a matter of time until this standard becomes fairly widespread and the accepted norm. All CPAs will need to stay tuned on this subject, not just those who audit public companies. Educators and students will also be affected, as the CPA Exam is moving to begin testing on IFRS in 2011. Our education system will need to adapt to IFRS.

Moving to IFRS is just part of the overall trend toward a global economy that began several years ago, driven primarily by significant changes in technology, capitalism and world trade. Having a set of accounting standards that is uniform and used across the globe certainly fits with the world we are now living in. If you need more details about those global changes, I strongly encourage you to read Thomas Friedman’s books – The World is Flat and Hot, Flat and Crowded. He lays it all out in an easy-to-read, although sometimes scary, format. The recent banking/financial crisis also demonstrates how our economic and financial systems are intertwined around the globe.

I am sure not everyone will be supportive or happy about this development. Some folks have real and legitimate concerns about the quality of IFRS and how they compare to GAAP. There are also issues on the funding and independence of IASB; those items are on the SEC’s list, so I don’t think they will move to adoption unless they are satisfied those concerns are overcome. But when all is said and done, it appears to this writer that a move to IFRS is inevitable. Eventually, the arguments against it will fall under the weight of the logic behind it. As Thomas Friedman said: “The historical debate is over. The answer is free market capitalism.” It’s just a matter of time, and the debate over IFRS will also be settled, and I think the answer is - we are going global.