June 8, 2021
By Raef Lawson, Ph.D., CMA, CSCA, CPA, CFA, Vice President of Research and Professor-in-Residence, IMA (Institute of Management Accountants) and Roopa Venkatesh, Ph.D., CMA, Chair, Committee on Academic Relations, IMA
In light of proposed changes from AICPA and NASBA to the curricula for accounting majors that pursue a CPA track (the CPA Evolution model), IMA would like to provide feedback regarding the proposed CPA Evolution curriculum model.
IMA has concerns regarding the potentially deleterious effect dropping managerial/cost accounting from the required curriculum for CPAs proposed in the CPA Evolution model (and the Uniform Accountancy Act Model Rules of November 2020) will have on the ability of the accounting profession to protect the public and serve the public interest. We challenge the implicit premise that a core knowledge of managerial accounting is not essential to the work of the CPA. We find the lack of managerial accounting content troubling for multiple reasons, such as:
- How can any professional accountant truly understand the financial numbers and help to develop strategy if they do not understand the organization’s costs and the impact of decisions on cost and profits?
- How can CPAs effectively audit an organization if their focus on understanding transactions does not include a clear view of internal processes upon which costs, pricing, and profitability are based? Will CPAs who do not understand different costing methods, behavioral and causal cost characteristics, and the effect of costs on profits and decision making be able to truly audit financial statements?
- Given that nonfinancial information is becoming more central even to financial reporting (e.g., ESG), management accounting is now even more important than ever.
The challenges that CPAs will have answering important cost-based questions will only increase as technology transforms business models and the CPA profession. The ability of the CPA to serve as a trusted business advisor must include an effective grasp of cost systems, behavior, and causality, which can only be most directly gained in management accounting courses.
The lack of focus on the importance of cost and management accounting that appears to characterize the process and debut of the CPA Evolution Model Curriculum is already resulting in positions by key leaders that we believe do not comport with business reality. For example, an article in the May 4, 2021 issue of the Journal of Accountancy (JofA) states,
“Another example is cost accounting. In the CPA Evolution Model Curriculum, some topics related to this subject are a part of the Business Analysis and Reporting Discipline. However, we expect that some accounting programs, such as those with many graduates who go on to work in the manufacturing industry or are based in a state that mandates cost accounting coursework for CPA licensure, will conclude that all topics relevant to cost accounting should remain a part of their Core.” (“CPA Evolution Model Curriculum FAQs”, Journal of Accountancy, May 4, 2021, https://www.journalofaccountancy.com/news/2021/may/cpa-evolution-model-curriculum.html)
This statement reflects a lack of understanding about the role of managerial accounting in nonmanufacturing industries (and presumably other practice environments, such as governmental and non-profit). It implies, incorrectly, that nonmanufacturing industries do not use managerial accounting. Good management accounting insights create value within organizations in any industry, which is reported on the financial statements, and are especially important in all the “new economy” (service) sectors.
Given NASBA’s leadership and support of the Model Curriculum, we are deeply concerned how that may impact state mandates on course curricula over time. Major movements in state university and college accounting curricula will then impact private institutions. We note, as stated in the JofA article, “The CPA Evolution Model Curriculum is specifically designed with CPAs in mind... It should be viewed as a road map for faculty seeking to prepare future CPAs, not as a one-size-fits-all approach to accounting education.” Yet, in this time of uncertainty and lower enrollments, many academic accounting departments are facing faculty retirements, hiring freezes, and budget cuts. The lack of managerial accounting topics required for the CPA exam can dangerously serve as an excuse to further eliminate the managerial accounting offerings in introductory managerial, intermediate cost, and advanced managerial/cost courses.
Most schools do not “teach” to the CPA exam, but nevertheless design curricula around meeting the CPA exam requirements. When faced with choices, universities may remove or limit managerial/cost accounting offerings as a cost reduction, putting the training of future accountants at stake. We know of several large universities that have already eliminated advanced managerial and made cost accounting an elective offered only once a year.
Finally, and most importantly for the sake of our future colleagues, we observe that most students entering the field of public accountancy subsequently leave it for positions elsewhere, serving in management accounting and corporate finance roles. The Model Curriculum does a disservice to CPA candidates by failing to cover skills they will need both at the start of their careers as auditors and later in their careers as business advisors and finance leaders. A report (“Focusing Accounting Curricula on Students’ Long-Run Careers: Recommendations for an Integrated Competency-Based Framework for Accounting Education,” Issues in Accounting Education, 29(2), May 2014, 295-317) by the joint IMA- American Accounting Association Management Accounting Section (IMA-MAS) Curriculum Task Force presented a competency-based educational Framework based on the following recommendations:
- First, accounting education should be oriented toward long-term career demands.
- Second, the focus of accounting education should include organizational settings beyond the current focus on public accounting/auditing.
- Third, educational objectives should reflect how accountants add organizational value.
- Fourth, these objectives should be developed as integrated competencies.
Curriculum revisions should be considered in a holistic manner to integrate learning and skills instead of merely adding or deleting courses. While the goal of the CPA exam is to establish expected competencies for public accounting work, failing to include management accounting as a critical competency will contribute to professionals who are not adequately prepared for today’s public practice environment and who are unable to serve effectively in future roles as managers in public and private organizations. Overall, the needs of public interest will not be met.
Finally, we note from a pedagogical perspective, and as observed by the IMA-MAS Task Force, the competencies required by accountants are best developed in an integrated manner, thereby enabling students to reach higher cognitive levels in those areas. Including management accounting, with its emphasis on data and decision analysis, in an integrated accounting curriculum will enhance capabilities across all accounting competencies that should be desired in CPA candidates.
We call on the AICPA and NASBA to make a clear and public commitment to the importance of management accounting curricula and competencies. IMA would be very open to joining the AICPA in this effort.We sent a letter regarding this issue which is available to view here.