The Accounting Podcast

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Blake Oliver: [00:00:10] Hey, everyone. Welcome back to the show. I'm Blake Oliver, and I'm talking today with doctor Josh McGowan, director of the William H. Carr School of Accountancy at Troy University. How are you doing, Josh?

Dr. Josh McGowan, CPA: [00:00:21] I'm awesome. I appreciate you having me on, Blake. Thank you.

Blake Oliver: [00:00:25] Doctor McGowan. Is the CPA exam broken?

Dr. Josh McGowan, CPA: [00:00:29] It is a great question. I put up a post that gained some traction, um, and have had a lot of feedback on. I think, you know, maybe I was a little bit too dramatic, but there's definitely some major concerns with it. Um, the pass rates are extremely low. It is probably the biggest thing that is affecting students nationwide. And then there's also been a I mean.

Blake Oliver: [00:00:51] I gotta highlight those. Uh, yeah. Our 3,637% audit. 43. 44%. Uh, regulation. Uh 60%. Like, how does this compare to the previous exam?

Dr. Josh McGowan, CPA: [00:01:08] Yeah, it's, um, it's pretty shocking. Uh, far as I went back 15 years, and that was the lowest court. And this is, um, the statute just ran out where Q4 pass rates. But they're pretty similar throughout all of 2024. Um, and at 36% was the lowest quarterly pass rate for FA in the past 15 years at least. That one definitely jumped out, because one thing we heard over and over again with the exam was and just going by the blueprints, what's on each section is a lot of the, I would call tougher material from FA moved into something one of the disciplines called bar. Um, so we honestly I expect it fa pass rates to be higher than the average, and now we're getting the lowest we've had in 15 years. And then just kind of going down the list. Audit is also extremely low. Um, and to me, that's, you know, not not a good sign. I don't know if it's you could say go with student quality. You could go with the changes in the exam. But FA and audit are really the backbone of what CPAs do. Um, you know, you don't have to be a CPA to do taxes and things, but financial and auditing is really the core of what a CPA is.

Blake Oliver: [00:02:18] And we should probably define some of these acronyms for folks who are not as familiar with the CPA exam. Uh FA meaning financial accounting and reporting. Audit. Obviously auditing and attestation and then uh reg uh, taxation and regulation. And then what is a what does bar stand for. I forgot.

Dr. Josh McGowan, CPA: [00:02:37] I mean I would I drew a blank. Um, it's.

Blake Oliver: [00:02:40] Business analysis and reporting. There we go. We call it we call it the acronym. So long we forget what it actually means.

Dr. Josh McGowan, CPA: [00:02:47] Yes, but a lot of people explain bar is kind of the next level of financial accounting. It's like level two almost.

Blake Oliver: [00:02:53] Okay. So so far in Foreign audit like those are the core of like being an accountant, right? Making financial statements and then auditing those financial statements. And the pass rates have always been lower for those sections. But like this is extremely low, right? I mean, they used to be in the 40s, 50s. Is that right?

Dr. Josh McGowan, CPA: [00:03:13] Yeah. Yeah, yeah. You're right.

Blake Oliver: [00:03:15] Now we're like far as like in the 30s and audit is like low 40s. So you thought that far would see higher pass rates when material moved to bar from far to bar. But that hasn't happened. So like why hasn't why has. Why has it gotten like why have the pass rates gotten lower.

Dr. Josh McGowan, CPA: [00:03:37] Yeah. It's interesting. You know, a lot of the comments were um, people blame student work or not student, but test taker work ethic and things of that nature. Um, and you know, I don't agree with that. I think it to me, it's too big of a coincidence that as soon as it. So if for. If you haven't kept up with the CPA exam any of the listeners. Um, January 1st, 2020 for a new model rolled out and it was entitled the CPA evolution. Uh, previously there was four sections um, Financial Audit Regulation and Beck um, which was business concepts. And now there's three core uh FA audit and regulation. And then a test taker gets to pick one of three other disciplines. And so it's to me, it's too big of a coincidence that the pass rates changed so dramatically as soon as the new the new CPA exam rolled out. And I mean, you know, there's not much difference in student quality, I think, from our test taker quality from one year ago to three years ago to.

Blake Oliver: [00:04:40] Right. Why would that have changed? That doesn't make sense. Right. Accounting programs have I mean, there was actually criticism of accounting programs for not changing enough for the new exam. Yeah.

Dr. Josh McGowan, CPA: [00:04:50] Yeah, yeah.

Blake Oliver: [00:04:51] It's the exam that changed the most. So. Yeah. What is it? Is it that they've just made, like the new exam made FA and audit more difficult?

Dr. Josh McGowan, CPA: [00:05:00] That's a great question. From feedback you know students aren't allowed to discuss individual or test questions or anything of that nature. Um, I've heard I've heard some feedback that the exam prep companies do not seem to be doing a very good job of providing information that also shows up on the exam, especially, you know, the multiple choice questions everybody seems to be comfortable with. But the simulations have caused some issues, it sounds like. And so that might be part of it that, you know, it just takes a little while. Um, I still don't fully understand why we change the CPA exam. Um, you know, I understand the reasoning to keep up with technology and and things of that nature. I don't know if I completely agree with getting people to select one discipline, right?

Blake Oliver: [00:05:46] So you're talking about that fourth part of the exam, right? Instead of it instead of all of us being required to take business analysis and what do we call it again? Business analysis and reporting. There's options to take information systems and controls, which is focused on technology, and then tax compliance and planning, which is I guess an additional section that is tax compliance planning for individuals and entities and includes personal financial planning. And the pass rates for those are wildly different, right. For bar the the old, you know, bar section, which we keep but is changed a little bit. It's like super low low 30s 34%. So that makes sense. If they took more difficult material from far and put that in bar, that bar would be harder. But this tech TCP the tax compliance and planning one the pass rate is 72%.

Dr. Josh McGowan, CPA: [00:06:41] In Q1 it was 82%. Um, which is.

Blake Oliver: [00:06:45] That's incredibly high. Is that because they made it really easy. Is that because people are really motivated to take that one?

Dr. Josh McGowan, CPA: [00:06:52] I that's a great question. I think one part of it could be there's a lot of test takers out there that do taxes and maybe, you know, you could say, okay, well, we're doing better because they've done this in practice and so forth. But to me, I mean, when you're talking about high 70s, mid 70s to 33%, the big issue is now everybody that takes it is going to start taking TCP. Um, just simply because of the pass rates to me. If I was sitting for a CPA exam right now, there's no way I would choose bar at a 33% pass rate, and I don't. I hope that wasn't the spirit of what this was supposed to be. Um, especially because, you know, nobody ever knows which one you took. It's not public knowledge. It's not on your certificate. Um, it's just they don't.

Blake Oliver: [00:07:40] Put the section. They don't put that third, fourth section on your certificate or they don't. Interesting.

Dr. Josh McGowan, CPA: [00:07:45] And an employer is not. It's personal information that only. Of course you can share it, of course, but you know, it's only you know that. Um, so yeah, I don't really even understand the.

Blake Oliver: [00:07:55] What's the point of that then? I thought originally it was going to be disclosed or.

Dr. Josh McGowan, CPA: [00:08:01] That's a great question. I don't fully have an answer to. I have a guess. I guess I kind of have is maybe one day we do get to. Maybe it's leading us down the path to where we have like a audit financial CPA. Yeah. Um, and you know, they have to take bar or we have a tax CPA that has to take TCP or something of that nature. But as of right now, it's it's kind of a mystery to me.

Blake Oliver: [00:08:25] That makes a lot of sense in general. I have not been in favor of this idea of creating like a ton of different types of CPAs, but in this, I agree that there are people like me that never want to touch tax, but love financial accounting and also want to know auditing even though you know, you may not actually do it right. But those two things make sense. Putting the financials together, auditing the financial statements, financial statements like that's that's an area you never have to touch tax to do that. And then there's this whole world of CPAs who like just want to do tax. So maybe you just have, you know, two exams, right? One that's focused on tax and one that's focused on, you know, financial statements.

Dr. Josh McGowan, CPA: [00:09:08] And I know you've talked I've seen quite a bit of your content about, you know, auditing prices and things of that nature that that could drive a little more value to those CPAs that have that designation.

Blake Oliver: [00:09:19] Yeah. And, you know, it's some states already have the the CPAs that don't do audit. Right. I was licensed in California. I never had to get audit hours. So if you already have that set up, why not just let people specialize in tax? They can be a tax CPA. I mean, we could even just call it that. Really simple, right? I'm a tax CPA and.

Dr. Josh McGowan, CPA: [00:09:41] That might solve some of the kind of pipeline problem as well, because I think a lot of people end up not becoming a CPA because of FA on the CPA exam or audit. Um, Reg is usually around 60% pass rate.

Blake Oliver: [00:09:54] Well, this is just speculation looking at these numbers. But I wonder if the reason that taxation and regulation and uh, TCP tax compliance and planning have such high pass rates is because people are really motivated to learn that material because a lot of students just want to go into tax.

Dr. Josh McGowan, CPA: [00:10:16] Yeah. That's very that is very true. Um, and maybe they their first year of work or second year of work, all they've done is tax. And so, so that information clicks. Um.

Blake Oliver: [00:10:26] It is that whole pipeline. Right. And like that that's like there's two pipelines really. Right. We've got the one that pushes students into audit at large firms. And then we've got the one that pushes students, grads into tax practices at Regional and smaller firms.

Dr. Josh McGowan, CPA: [00:10:42] Yes. Yeah, yeah. I think you're spot on with that. Absolutely. Yeah. It's interesting I the big thing to me is with the current model, I think what we're discussing is really an interesting option. Um, and has a lot of benefits. Of course there are probably some disadvantages, but right now where, you know, nobody knows which discipline you take. Um, and the difference in pass rates, you just have people who've, you know, a majority of test takers are are pretty young that have never done really a lot of tax or audit. And they're just saying, hey, I'm gonna take TCP because it's easy. Um, and I'm never going to take bar because it's, you know, I got a 3 in 10 chance of passing it.

Blake Oliver: [00:11:21] So that's what we're missing from this data though, is like, is it actually easy or is it just that people are self-selecting into topics that they're actually interested in and therefore are passing because they paid attention in class and they worked hard and they want to know this material as opposed to I just have to do it because I've got to get my license, I really wonder, like, how could we figure that out if I was at nasba? I would want to do like a survey before every CPA exam that asks students like, what are your career aspirations? What do you intend to do after you pass the exam? Like that wouldn't be hard to do. Just take a few minutes, right? Don't time them on it. Right. It's before the exam starts.

Dr. Josh McGowan, CPA: [00:12:00] And you know they already do collect some information because, for example, we get reports of our average how many hours the average test taker has, like higher ed hours. I think we're right around 130, 133 hours is typically when somebody's sitting for the exam.

Blake Oliver: [00:12:15] So at your school at Troy, where do your students tend to go? Do they go into audit? Do they go into tax? Is it a blend?

Dr. Josh McGowan, CPA: [00:12:24] We are. We're pretty close to 50 over 50. Uh, most of our students are going to go into regional firms or smaller regional local firms, but we also place a lot of people into industry and governmental agencies local, state, local, um, and pretty much all of our firms. Let them experience at least tax and audit, like during an internship or during their first year. And then I think typically they make their own decision which way they want to go.

Blake Oliver: [00:12:52] I would love to see the exam. I mean, we're almost there. With the way the exam has been broken up, they just need to take it one step further in order to really make it make it more meaningful is and maybe this these pass rates will get them to do that tax exam focusing on tax regulation, compliance and exam focusing on financial statements, audit, all that stuff. Um, well, maybe we'll get there someday, I don't know.

Dr. Josh McGowan, CPA: [00:13:19] Yeah, I like I said, it seems to be leaning that way if I had to guess, but I have no clue.

Blake Oliver: [00:13:24] Any other thoughts about the new exam?

Dr. Josh McGowan, CPA: [00:13:28] Yeah. Um, well, first, I know you have been, um, a strong proponent of getting rid of 150 hour. Um. So congratulations. I don't think any of us kind of would have happened without the publicity you've brought to it. And really just kind of. You've been, um, not, I don't know, fighting for it's the right word, but really promoting it for a few years now. And, you know, I, I do, of course, have some concerns about pass rates and making sure people are prepared and not getting taken advantage of by employers and things of that nature. But, um, you know, it's very obvious that our profession, especially the practitioners, wanted to move in that direction. And so, you know, I'm fully on board. And, you know, I've already told our students here, you know, there's we haven't there's no legislation in Alabama yet, but I've already told them it's probably coming. So, you know, we need to have that discussion and see what's best for you. Um, but yeah, I guess you asked kind of a simple question. Anything about the exam? That's my biggest worry as we move forward is, you know, we have a lot of students go straight into not here at Troy, but other places go into employers where they're not going to have the time and things to study and really take the exam. And I'm scared some of them are going to get used for labor. Um, and not not really their career.

Blake Oliver: [00:14:41] Not finished the exam, not take it right. Yeah. I mean, my recommendation to students who ask me is like in the, in the places where they're moving from 150 to 120 so they don't have to go get the Masters. I get a question a lot of the time is, well, what do I do? Do I just go straight to work and I say, no, I think you are better off taking six months to a year and just focusing on that exam and work part time while you do it, because you can't study all day. But don't kill yourself with a full time job and taking the exam at the same time. That's my.

Dr. Josh McGowan, CPA: [00:15:13] Yeah. Yeah, absolutely. And I think, um, at least the firms, a lot of the major firms that recruit at Troy are um, they're kind of I had I spoke with a partner the other day and he's like he said, you know, it's turned from it's turning from your responsibility to our responsibility. And we have to take that seriously. Um, and, you know, allow them the study time and everything they need to resources, all that great stuff. And so I'm hopeful and like I hope it I hope it has, you know, pays huge, huge dividends for our profession. And I think, you know, we'll see in a few years. And like I said, I've said it a couple times the current one 50 hour. How it it's indefensible. Um, the random 30 you can take and you know, you can take it in community college, you could take jogging class here at Troy. That was, um, you know, it was never a good idea, and I don't think anybody would defend it. You can't defend it. It's it's undefendable.

Blake Oliver: [00:16:06] Well, um, one of the defenses of 150 has been basically to ensure the enrollment in accounting programs, in these master's programs that are developed, like, I think one of the concerns is if there's no requirement for the extra year of education, will students do these degrees? But it sounds like you're not really concerned about that.

Dr. Josh McGowan, CPA: [00:16:29] I, I mean, it's I do have some concerns. I won't say I won't. Um, it's definitely going to. There will be Mac programs closed down across the nation. I think especially the online Mac strictly online, where people are just doing it really for credit hours, you know, but it's it's like anything if you can't provide value, if you're not providing the actual value. Um, I don't think we should exist because some lawmakers decided, you know, CPAs need 150 hours. You know, we get if I can sit here and say, hey, if you come to Troy, here's our pass rates on the CPA exam compared to the average, um, you know, hopefully that's where we build our value.

Blake Oliver: [00:17:12] Doctor McGowan, it's been great chatting with you. Uh, let's do it again soon.

Dr. Josh McGowan, CPA: [00:17:16] Absolutely. Thank you. Blake, I appreciate it.

Speaker3: [00:17:21] Hey, hey.