0:10

Hey everyone, welcome back to the

0:12

show. I'm Blake Oliver, and I'm

0:14

talking today with Dr. Josh McGowan,

0:17

Director of the William H. Carr

0:19

School of Accountancy at Troy University.

0:21

How you doing, Josh? I'm awesome.

0:23

I appreciate you having me on, Blake.

0:25

Thank you. Dr. McGowan, is the CPA

0:28

exam broken? That is a

0:30

great question. I put up a

0:32

post that gained some traction and

0:34

have a lot of feedback on.

0:36

I think, you know, maybe I

0:38

was a little bit too dramatic,

0:41

but there's definitely some major concerns

0:43

with it. The pass rates

0:45

are extremely low. It is

0:47

probably the biggest thing that

0:50

is affecting students nationwide. And

0:52

then there's also been a lag

0:54

time. I mean, those pass rates. I got

0:56

to highlight those. Are 36, 37% audit.

0:58

43, 44% regulation, 60%? Like,

1:01

how does this compare to

1:03

the previous exam? Yeah,

1:05

it's, it's pretty shocking. Far as,

1:07

I went back 15 years

1:09

and that was the lowest court,

1:11

and this is, the statute just

1:14

ran out were Q4 pass rates,

1:16

but they're pretty similar throughout all

1:18

of 2024. And that 36% was

1:20

the lowest quarterly pass rate for

1:23

far in the past. 15 years

1:25

at least. That one definitely jumped

1:27

out because one thing we heard

1:29

over and over again with the

1:32

exam was and just going by

1:34

the blueprints what's on each section

1:36

is a lot of the I

1:38

would call tougher material from far moved

1:41

into something one of the disciplines called

1:43

bar. So we honestly I expect it

1:45

far past rates to be higher than

1:48

the average and now we're getting the

1:50

lowest we've had in 15 years and

1:52

then just kind of going down to

1:55

list audit is also extremely low. And

1:57

to me, you got, you know,

1:59

not... a good sign. I don't

2:01

know if it's, you could say you go

2:03

with student quality, you could go with the

2:05

changes in the exam, but FAR and audit

2:08

are really the backbone of what CPAs do.

2:10

You know, you don't have to be a

2:12

CPA to do taxes and things, but financial

2:14

and auditing is really the core of what

2:16

CPA is. And we should probably define some

2:18

of these acronyms for folks who are

2:21

not as familiar with the CPA

2:23

exam. FAR, meaning financial, accounting, accounting,

2:25

and reporting. audit, obviously auditing

2:28

and attestation, and then reggae, taxation

2:30

and regulation. And then what is

2:32

a, what does bar stand for?

2:35

I forgot. Me too. I drew

2:37

a blank. It's business analysis and

2:39

reporting. There we go. We call

2:41

it we call it the acronym

2:43

so long. We forget what it

2:45

actually means. Yes, but yeah, a

2:47

lot of people explain bar is

2:49

kind of the next level of

2:51

financial accounting. It's like level two

2:53

almost. Okay. So far an audit. like

2:56

those are the core of like being

2:58

an accountant right making

3:00

financial statements and then

3:03

auditing those financial statements

3:05

and the past rates have

3:07

always been lower for those

3:09

sections but like this is

3:11

extremely low right I mean

3:13

they used to be in the

3:15

40s 50s is that right yeah yeah

3:17

yeah that's how we're like far is

3:20

like in the 30s and audit is

3:22

like low 40s so you thought

3:24

that far would see higher pass

3:26

rates when material moved to bar

3:28

from far to bar. But that

3:30

hasn't happened. So like why

3:32

hasn't why has why has it gotten

3:34

like why have the pass rates got

3:37

lower? Yeah, it's interesting. You know,

3:39

a lot of the comments for

3:41

people blame. student work or

3:43

not student but test taker work ethic

3:45

and things of that nature and I

3:47

you know I don't agree with that

3:49

I think it to me it's too

3:52

big of a coincidence that as soon

3:54

as it so if for if you

3:56

haven't kept up the CP exam any

3:58

of the listeners January 1st 2020

4:00

for a new model rolled

4:02

out and it was entitled

4:04

to CPA Evolution. Previously there

4:07

were four sections, financial audit

4:09

regulation and BEC, which is

4:11

business concepts. And now there's

4:13

three core far audit and

4:15

regulation and then a test

4:17

taker gets to pick one

4:20

of three other disciplines. And

4:22

so it It's to me

4:24

it's too big of a

4:26

coincidence that the pass rates

4:28

change so dramatically as soon as

4:30

a new the new CPA exam rolled

4:33

out. And I mean, you know, there's

4:35

not much difference in student quality. I

4:37

think from or test taker quality from

4:39

one year ago to three years ago

4:41

to right. Why would that have changed?

4:43

That doesn't make sense. Right. I mean, there

4:45

was actually criticism of

4:47

accounting programs for not changing enough

4:49

for the new exam. Yeah. Yeah. It's

4:51

the exam that changed the most. So

4:54

yeah, what is it is it that

4:56

they've just made like the new exam

4:58

made far and not it more difficult?

5:00

That's a great question from

5:02

feedback, you know, students aren't

5:04

allowed to discuss individual test

5:06

questions or anything about nature.

5:08

I've heard, I've heard some

5:10

feedback at the exam prep

5:12

companies do not seem to

5:14

be doing a very good

5:16

job of providing information that also

5:18

shows up on the exam, especially, you

5:21

know, The multiple choice questions, everybody seems

5:23

to be comfortable with, but the simulations

5:25

have caused some issues it sounds like.

5:27

And so that might be part of

5:29

it, that, you know, it just takes

5:31

a little while. I still don't fully

5:33

understand why we changed the CPA

5:35

exam. You know, I understand the reasoning

5:38

to keep up with technology and things

5:40

of that nature. I don't know if

5:42

I completely agree with getting people to

5:44

select one discipline. Right. So you're talking

5:46

about that fourth part of the exam,

5:48

right? Instead of it. Instead of all

5:50

of us being required to take business analysis

5:52

and what do we call it again business

5:55

analysis and reporting, there's options

5:57

to take information systems and

5:59

controls. which is focus on technology,

6:01

and then tax compliance and

6:04

planning, which is, I guess,

6:06

an additional section that is

6:09

tax compliance planning for individuals

6:11

and entities, and includes personal

6:14

financial planning. And the past

6:16

rates for those are wildly different,

6:18

right? For bar, the old, you know,

6:20

bar section, which we keep, but it's

6:23

changed a little bit. It's like super

6:25

low, low 30s, 34 percent.

6:27

So that makes sense if

6:29

they took more difficult material

6:31

from far and put that in

6:33

bar, that bar would be harder.

6:36

But this TCP, the tax

6:38

compliance and planning one, the

6:40

pass rate is 72%. And Q1, it

6:42

was 82% which is incredibly

6:45

high. Is that because they made

6:47

it really easy? Is that because

6:49

people are really motivated to take

6:51

that one? That's a great question.

6:53

I think one part of it

6:55

could be there's a lot of

6:57

test takers out there that do taxes

6:59

and maybe, you know, you could say, okay,

7:02

well, we're doing better because they've done this

7:04

in practice and so forth. But to me,

7:06

I mean, when you're talking about high 70s,

7:08

mid 70s, to 33%, the big issue is

7:10

now everybody that takes it is

7:13

going to start taking TCP, just simply

7:15

because of a pass rates. If I

7:17

was sitting for a CPA exam for

7:19

a CPA exam right now, there's no

7:21

way I would choose bar. at a

7:23

33% pass rate. And I don't, I

7:25

hope that wasn't the spirit of what

7:27

this was supposed to be. Especially

7:29

because, you know, nobody ever

7:32

knows which one you took.

7:34

It's not public knowledge. It's

7:36

not on your certificate.

7:38

It's not on your certificate. It's

7:40

not on your certificate or they

7:42

don't, interesting. And an employer is

7:45

not, it's personal information that only,

7:47

of course you can share it,

7:49

of course, but you know, only

7:51

you know that. So yeah, I

7:53

don't really even understand the. What's

7:55

the point of that then? I thought originally

7:58

it was going to be disclosed. That's

8:00

a great question. I don't fully have

8:02

an answer to. I have a get,

8:04

I guess I kind of have is

8:06

maybe one day we do get to,

8:09

maybe it's leading us down the path

8:11

to where we have like a audit financial

8:13

CPA, and you know they have to

8:16

take bar, or we have a tax

8:18

CPA, it has to take TCP or

8:20

something about nature, but as of right

8:22

now, it's kind of a mystery. To

8:24

me, that makes a lot of sense.

8:26

In general, I have not been in

8:28

favor of this idea of creating like

8:30

a ton of different types of CPAs, but

8:32

in this, I agree that there are people

8:34

like me that never want to touch tax

8:36

but love financial accounting and also

8:38

want to know auditing even though, you

8:41

know, you may not actually do it,

8:43

right? But those two things make sense.

8:45

Putting the financials, auditing the financial statements,

8:47

financial statements, like that's an area.

8:49

You never have to touch tax

8:51

to do that to do that.

8:53

And then there's this whole world

8:55

of CPAs who like just want to

8:58

do tax. So maybe just have,

9:00

you know, two exams, right? One

9:02

that's focused on tax and one

9:04

that's focused on, you know, financial

9:06

statements. And I know you talked,

9:09

I've seen quite a bit of

9:11

your content about, you know, auditing

9:13

prices and things of that nature,

9:15

that could drive a little more

9:17

value to those CPAs that have

9:19

that designation. Yeah. And you

9:21

know, some states already have the

9:23

CPA's that don't do audit, right?

9:25

I was licensed in California. I

9:28

never had to get audit hours.

9:30

So if you already have that

9:32

set up, why not just let

9:34

people specialize in tax? They can be

9:36

a tax CPA. I mean, we could even

9:38

just call it that really simple, right? I'm

9:41

a tax CPA. And that might solve some

9:43

of the kind of pipeline problem as

9:45

well, because I think a lot of people

9:47

end up not becoming the CPA because of

9:50

far on the CPA example of audit. Reg

9:52

is usually around 60% pass rate. Well, this

9:54

is just speculation looking at these

9:56

numbers, but I wonder if the

9:58

reason that taxation. and TCP, tax

10:01

compliance and planning, have

10:03

such high pass rates is

10:05

because people are really

10:08

motivated to learn that

10:10

material because a lot of students

10:12

just want to go into

10:15

tax. Yeah, that's very

10:17

true. And maybe their first

10:19

year of work or second

10:21

year of work, all they've

10:23

done is tax. And so

10:26

that information clicks. It is

10:28

that whole pipeline, right? And

10:30

like that's like, there's two

10:32

pipelines really, right? We've got

10:34

the one that pushes students,

10:37

grads, into tax practices

10:40

at regional and smaller

10:42

firms. Yes, yeah, yeah, I think you

10:44

spot on with that. Absolutely. Yeah, it's

10:46

interesting. The big thing to me is

10:49

with the current model, I think what

10:51

we're discussing is really an interesting

10:53

option and has a lot of

10:56

benefits. Of course, there's probably some

10:58

disadvantages, but right now where nobody

11:00

knows which discipline you take and

11:02

the difference in past rates, you

11:05

just have people who, you know, a

11:07

majority of test takers are pretty young that

11:09

have never done really a lot of tax

11:11

or audit and I'm just saying, hey I'm

11:13

going to take TCP because it's easy and

11:15

I'm never going to take bar because it's you

11:17

know I got a three and ten chance of

11:19

passing it. See that's what we're missing from

11:21

this data though is like is it

11:23

actually easy or is it just that

11:26

people are self selecting into topics that

11:28

they're actually interested in and therefore are

11:30

passing because they paid attention in class?

11:32

and they worked hard and they want to

11:34

know this material as opposed to I just

11:37

have to do it because I've got to

11:39

get my license. I really wonder, like, how

11:41

could we figure that out? If I was

11:43

at NASA, I would want to do like

11:45

a survey before every CPA exam that asked

11:47

students, like, what is your career aspirations?

11:50

What do you intend to do after you

11:52

pass the exam? Like, that wouldn't be hard

11:54

to do. Just take a few minutes, right?

11:56

Don't time them on it, right? It's

11:58

before the exam starts. And you know,

12:01

they already do click some

12:03

information because for example, we

12:05

get reports of our average, how

12:07

many hours the average test taker

12:09

has like higher ed hours. I

12:11

think we're right around 130, 133

12:13

hours is typically when somebody's sitting

12:15

through the exam. So at your school

12:17

at Troy, where do your students tend

12:19

to go? Do they go into audit? Do

12:22

they go into tax? Is it a blend?

12:24

We're pretty close to 50-50. Most

12:26

of our students are going to

12:28

go into regional firms or smaller

12:30

than regional local firms, but we

12:33

also place a lot of people

12:35

into industry and governmental agencies, local,

12:37

state, local, and pretty much all

12:39

of our firms let them experience at

12:42

least taxing and audit during an

12:44

internship or during their first year,

12:46

and then I think typically make

12:48

our own decision which way they

12:50

want to go. I would love to see the

12:53

exam. I mean, we're almost there with

12:55

the way the exam has been broken

12:57

up. They just need to take it

12:59

one step further in order to

13:01

really make it more meaningful. And

13:04

maybe these pass rates will get

13:06

them to do that. Tax exam, focusing

13:08

on tax regulation, compliance,

13:11

and exam focusing on

13:13

financial statements, audit, all that

13:16

stuff. Well, maybe we'll get there someday.

13:18

I don't know. Yeah, I said it seems

13:20

to be leaning that way if I

13:22

had to guess but I have no

13:24

clue any other thoughts about the new

13:26

exam Yeah, um well first I know

13:29

you have been a strong

13:31

proponent of getting rid of

13:33

a hundred fifty hour. So

13:35

congratulations. I don't think any

13:37

of us kind of would

13:39

have happened without the publicity

13:41

you've brought to it and really

13:43

just kind of you've been I

13:46

don't know fighting for it's the right word,

13:48

but really promoting it for a few

13:50

years now. And I do, of course,

13:52

have some concerns about past rates and

13:54

making sure people are prepared and not

13:56

getting taken advantage of by employers and

13:58

things of that nature. But, you know,

14:00

it's very obvious that our profession, especially

14:03

the practitioners, wanted to move in that

14:05

direction. And so, you know, I'm fully

14:07

on board and, you know, I've already

14:10

told our students here, you know, there's,

14:12

we haven't, there's no legislation in

14:14

Alabama yet, but I've already told

14:16

them it's probably coming, so, you

14:18

know, we need to have that

14:20

discussion and see what's best for

14:22

you. But yeah, I guess you asked

14:24

kind of a simple question, anything about

14:27

the example, that's, Not here at Troy,

14:29

but other places go into employers where

14:31

they're not going to have the time

14:33

and things to study and really take

14:35

the exam. And I'm scared some of

14:37

them are going to get used for

14:39

their labor and not really very clear.

14:41

Not finish the exam, not take it.

14:43

I mean, my recommendation to students who

14:45

ask me is like in the in

14:47

the places where they're moving from 150 to

14:49

120 so they don't have to go get the

14:51

masters. I get a question a lot of time

14:53

is, well, well, what do I do I just go

14:55

straight to just go straight to work? And

14:57

I say, no, I think you are better

14:59

off taking six months to a year and

15:02

just focusing on that exam and

15:04

work part-time while you do it, because

15:06

you can't study all day. But don't

15:08

kill yourself with a full-time job and

15:11

taking the exam at the same time.

15:13

That's my record. Yeah, yeah, absolutely. And

15:15

I think a lot of the firms,

15:17

a lot of the major firms that

15:19

recruit at Troy are very kind of,

15:21

I had, I spoke with a partner

15:23

the other day and he said, you

15:25

know, it's turning from, it's turning from

15:27

your responsibility to our responsibility. And we

15:29

have to take that seriously and, you

15:31

know, allow them study time and everything

15:33

they need to go resources, all that

15:36

great stuff. And so I'm hopeful and

15:38

like, I hope it, you know, you

15:40

know, pays huge, huge dividends for our

15:42

profession and I think you know we'll

15:44

see in a few years and like

15:46

I said I've said it a couple

15:48

times the current 150 hour how it

15:50

it's indefensible the random 30 you can

15:53

take and you know you could take it

15:55

in community college you could take

15:57

jogging class here at Troy that

15:59

was It was never a good idea

16:01

and I don't think anybody would depend

16:04

it. You can't depend it. It's undefendable.

16:07

Well, one of the defenses of 150

16:09

has been basically to ensure

16:11

the enrollment in accounting programs

16:13

in these master's programs that

16:15

are developed. I think one of

16:18

the concerns is if there's no

16:20

requirement for the extra year of

16:22

education, will students do these degrees?

16:24

But it sounds like you're not

16:27

really concerned about that. I

16:29

mean, it's, I do have some concerns.

16:31

I won't say I won't. It's definitely

16:34

gonna, there will be MAC

16:36

programs closed down across the

16:38

nation. I think, especially the

16:40

online MAC, strictly online, where

16:42

people are just doing it

16:44

really for credit hours. You

16:46

know, but it's like anything,

16:48

if you can't provide value,

16:50

if you're not providing the

16:52

actual value, I don't think we

16:54

should exist because some lawmakers decided. you

16:56

know, CPAs need 150 hours. You know,

16:58

we get if I can sit there

17:00

and say, hey, if you come to

17:03

Troy, here's our pass rates on

17:05

the CPA exam compared to the

17:07

average. You know, hopefully that's where

17:10

we build our value. Dr. McGowan,

17:12

it's been great chatting with you.

17:14

Let's do it again soon. Absolutely.

17:16

Thank you, Blake. I appreciate it.