How the CPA Exam is poised to change

Hosted by Courtney Vien

New technologies with the power to reshape accounting, such as data analytics, are emerging all the time. In this podcast, Rich Gallagher, CPA, senior director of content for the AICPA Examinations team, tells us how the CPA Exam is able to keep up with such changes. As he explains, the Examinations team solicits feedback from firms and other stakeholders in a process known as a practice analysis. This year’s practice analysis reveals that employers expect more data analytics knowledge of newly licensed CPAs, and that future iterations of the CPA Exam might have a narrower focus.

In this episode, you’ll learn:

  • What a practice analysis is and how it works.
  • The trends uncovered by this year’s practice analysis.
  • How the CPA Exam might change as a result.
  • Why there’s concern that the CPA Exam is too broad.
  • The next steps in the process of revising the exam.
  • When we can expect to see any changes take place.

Play the episode below or read the edited transcript:

To comment on this podcast or to suggest an idea for another podcast, contact Courtney Vien, a JofA senior editor, at

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Courtney Vien: Hello, and welcome to the Journal of Accountancy podcast. I'm Courtney Vien, a senior editor with the Journal of Accountancy. As I’m sure you know, emerging technologies like data analytics are rapidly changing the way accounting is done. To make sure the CPA Exam is ready to reflect those changes, this year, the AICPA conducted what’s known as a practice analysis. The examinations team met with firms to see what they now need newly licensed CPAs to be able to know and do. Here to tell us about it is Rich Gallagher, senior director of content for the AICPA examinations team. But first, please listen to this message from our sponsor.

Hello, Rich.

Rich Gallagher: Good morning, Courtney. How are you?

Vien: I'm doing great, thank you. So tell me, it feels like we just made some big changes to the CPA Exam. Is there a reason why we're changing it again so soon?

Gallagher: You are correct in thinking that, Courtney. We completed our last practice analysis in 2016, and the changes from that practice analysis rolled out on April 1, 2017, when they were reflected in the exam.

Just in that short period of time, there's been so much rollout and news about how technology is impacting work in just about every kind of industry and business. What we're trying to figure out is, what is the impact of those technology changes on newly licensed CPA practice?

Vien: How often do we usually do practice analysis?

Gallagher: Normally, we would do one every seven years. You can see that we've moved into this much more quickly than we normally would have. We started thinking about this probably maybe last fall. So maybe about a year ago we started thinking about it and we talked internally amongst the staff at the exams team and brought it up to our board of examiners, which is the oversight group that looks at the work we do to ensure we're maintaining the exam the way it should be. They agreed and we kicked off the practice analysis in earnest probably in March of this year.

Vien: Can you walk me through what a practice analysis is?

Gallagher: Sure. A practice analysis, I would say, is a systematic review. It's a research study to understand what's changed in newly licensed practice. The CPA Exam, if you will, is the gateway to getting a CPA license. It's one of several pillars.

The practice analysis focuses on what's important: What is the work of newly licensed CPAs? We focus particularly in terms of protecting the public interest because that's why licenses are issued. That is what we do. We've done some preliminary work ourselves in looking at literature. Then we also retained a consulting firm, a company by the name of The American Institute for Research, which is based in Washington, D.C. They are assisting us in conducting the overall project.

Vien: Tell me a little bit more about what you do in terms of this research.

Gallagher: We kicked this off, as I said, back in March. The first thing we did was meet with firms. Our meetings with the firms, we met with — certainly we started with the Big Four firms, but then we probably met an additional 15 firms. Many of them in the major firm group would be the largest 100 firms in the country, but then we also met with a number of smaller firms as well to try and get a broad input of how they view how technology has impacted how the newly licensed practice.

That's very much the focus we've had here. Our last practice analysis was a much broader-based practice analysis. It really gave us a great foundation for what we're doing right now.

Having that very good foundation, we said, "Let's just step back and see across all four sections of the exam, what's the impact of technology and how is that changing what newly licensed CPAs do in protecting the public interest?"

Vien: Can you tell me a little bit more about what happens during these meetings?

Gallagher: We had an opportunity to meet with the firms. Typically, we met with people in the audit methodology groups as well as people from the firms' training groups as well. We think in terms of methodology those people are probably best focused on what's happening in the actual practice on performing audits.

Meeting with the firms, we're focused with them on what changes do they see. That's the methodology people. We're also focused on the training people because the training people have the direct contact with the young staff and they're kind of a go-between, if you will, between the methodology, between the national office and the newly licensed. What do the newly licensed need to know? So that’s why that’s a very important link as we’re meeting with the firms, that we’re meeting with both those groups.

From that, we have gotten a fair amount of information. Certainly, I would say, data analytics is here. Its implementation has varied among the firms, but we've learned a lot about different aspects of data analytics.

Another thing that has come out of the work in our meetings with the firms that has then driven some of our research further down as we got into focus groups is the use and reliance on SOC reports — Service Organization Control reports — has significantly increased over the last couple of years. I retired from Ernst and Young back in 2014. Just since that time, there's been a significant increase in reliance on SOC reports. This is something new, and we're stepping back and understanding, "OK, how does that impact what we need to assess on the exam?"

Vien: What did you do with the information you got from the firms?

Gallagher: In terms of what we heard from the firms, the increased reliance on SOC reports has been driven by their clients who are relying more on software as a service or they’re storing their data in the cloud at this point in time, so that has driven that change.

Now what have we done with the information that we receive from the firms? We worked with AIR.

AIR is the American Institute for Research. It's our consulting firm that we're working with.

We put together eight focus groups to deal specifically the impact of technology on newly licensed CPA practice. The questions that those focus groups dealt with were driven by the information we obtained from the firms. That gave us further insight into how this is more broadly impacting the profession.

The focus groups, we probably had more than 100 people participate in those focus groups. We had one focus group of individuals from the Big Four firms. Then we had multiple focus groups of large firm practice. We had one focus group of people who work in business and industry and then we had another that was primarily comprised of regulators.

All of the people who participated in the focus groups, though, there was a requirement that they directly supervised newly licensed CPAs. They, again, have a very good vision of exactly what newly licensed CPAs are doing, so that was very helpful to us to take what we heard from the firms and understand, "OK. Now as we bring this out more broadly, how is this actually being operationalized in newly licensed practice?"

So we got some good insight there. That was very helpful. Again, I think what we've heard has been, yes, data analytics is very important. Another thing we heard is understanding business processes kind of from the front to the back. So whether you're starting with a sales order process, you start at the sales order and trace that all the way through until the cash is collected from the accounts receivable.

Looking at that what happens along the entire route of those transactions, being able to follow the data as well as understanding where systems and information systems support the data throughout that entire series of transactions. That was very helpful to us as part of this learning process, and so that's another one of the areas that we've seen coming forward where technology is having an impact.

Vien: Besides technology, are there other areas of the exam that the practice analysis looked at?

Gallagher: There is another aspect to the practice analysis. Up to now, we've talked about the technology. Another thing we're looking at on the exam is, has the exam gotten too broad?

Over the years, every time we've changed the exam, everybody wants to add this and add that and add some more. We've challenged ourselves and said, "All right. Has the exam gotten too broad?" The exam is absolutely fair, legally defensible, statistically valid, but is it fair, quite honestly, to the candidates, the huge body of knowledge that we expect them to know?

So we've taken back and another aspect of what we've done in working with AIR has been to conduct what we call ranking panels of the content on the exam, trying to understand what's most important and what's least important to the work of newly licensed CPAs.

Not that it's unimportant, but what's least important so that we can focus on what's most important, quite honestly, and also to make some room for the additional matters we'd like to work on in terms of adding the technology assessment.

That aspect has also been kind of going on so we've kind of had two parallel paths, one on the technology and the other to increase the focus on what's most important on the exam. Over the next month, we're going to have — we've gone through this with our various volunteer committees. We have a volunteer committee aligned with each section of the exam. They've gone through the preliminary results from those two different processes and we'll be meeting with our board of examiners, in fact, next week to share the preliminary results there. That will go to confirmation panels. They'll be conducted mid to late October and early November. From those confirmation panels, that will give us the materials that will go into the exposure draft.

Vien: What are your next steps?

Gallagher: As I mentioned earlier, the exposure draft will be out before the end of the year. We're looking to have a comment period through April 30 on that to help people get through tax season and still be able to comment on the changes we would like to make to the exam.

Then based on that, we'll step back and say, "OK, now given all of that — given the comment responses, how do we revise the blueprint to reflect all of those changes?" Those blueprint changes will probably be out sometime towards the latter part of 2020 or Jan. 1, 2021 at the latest, I'm sure.

Vien: Can you tell us what an exposure draft is?

Gallagher: Sure. The exposure draft is a document that will go out to the general public. Presumably, I think we would normally expect to get comments from firms and from the regulators: NASBA and the state boards of accountancy. Possibly PCAOB, Public Company Accounting Oversight Board or the Securities and Exchange Commission.

What it's going to do, it will lay out the changes that we propose to make to the exam. They will have an opportunity to weigh in and agree, "Yes, this makes sense” or “We're a little bit concerned about this. Have you considered this?" We'll take all of those comments, as I said, through April 30, consider them and then take all of that information, all of the research we've done as well as the comments and determine how to revise the exam accordingly.

Vien: You said there was some concern that the exam is too broad. Are you going to be considering dropping any topic areas?

Gallagher: There clearly, I think, will be some areas where we deemphasize. There may be some, I would say, relatively narrow topics that we do look to remove from the exam just because it may be that they are not as important as they once were or that there are other items that are more important to be assessed for newly licensed in their role to protect the public interest.

Vien: How might this change the exam? Or is it too early to tell?

Gallagher: The changes we're initially proposing right now — I think certainly we will see an increased assessment of data analytics and what are the expectations. We've already done a fair amount of research already in the area of data analytics and what is newly licensed practice in that area. I'm quite confident that we will see task-based simulations added to the exam related to data analytics, primarily in the audit section initially.

One of the things these new task-based simulations will require would be the use of Excel to come to a solution. To give an example, there may be a task-based simulation and there might be a couple of datasets included in an Excel workbook as an exhibit to that task-based simulation. Candidates would need to take those datasets and do some type of functions with those datasets, and whether it be sort or filter or potentially run a VLOOKUP to try and get to the particular solution and response to the questions.

We will have questions focused on the completeness of the data and the reliability of the data. It's very critical as part of an audit that the data one is using is complete and reliable. If that's not the case, you're not going to get good answers out of that. That will clearly be part of the task-based simulation, but then people may be looking for particular anomalies. It might be are there duplicate check numbers or are there check numbers that have been missed. It could be looking at trends of data. Is there some particular item within this dataset that is an anomaly that just stands out that requires further investigation? That's clearly something that's going to be coming. I could see that coming probably a little bit earlier than even the conclusion of the practice analysis, given the work that we've already done in that area.

Vien: When will any changes to the exam take place?

Gallagher: We might see a revised blueprint as early as April 1, 2020, and start assessing data analytics using Excel on the exam in Oct. 1, 2020. That's certainly dependent. We're going to have to make some software changes to the exam that that will be dependent on the successful implementation of those software changes.

As I was saying, we expect the comments by the end of April on the exposure draft resulting in a blueprint, let's say, on Jan. 1, 2021, reflecting the changes that we've seen there. If the blueprint comes out on Jan. 1, 2021, normally we allow six months to implement those changes. The changes would actually be operational on the exam beginning July 1, 2021.

Vien: That was Rich Gallagher, CPA, senior director of content for the AICPA Examinations team. For more information on the CPA Exam, go to This has been the Journal of Accountancy podcast. Thank you for listening.