Do professional exams measure the quality of accountants? Event as iCalendar

(Accounting and Finance)

16 November 2018

11am - 12:30pm

Venue: The University of Auckland Business School, Level 3, Room 317, 12 Grafton Road, Auckland, 1010

Presenter: David Hay, Univeristy of Auckland

This paper examines the extent to which CPA examination results are a measure of the quality of accountants. This question is important because it concerns whether professional examinations serve a purpose of protecting the public, or whether they are simply a means to limit the supply of professional accountants. Professional bodies in accounting that are responsible for licensing the auditors argue that accounting examinations are necessary to maintain high standards of service to the public. However, the study of the regulation of occupations has a very long history in economics, which provides arguments to the contrary, for example that restrictions on entry to the profession are a means to reduce competition. Using analyses of a unique data set of exam results for the Finnish CPA exam and data about audits and partner incomes, we examine the association between exam results and career success. Our findings support the view that professional exams are a good measure of the quality of accountants. More specifically, our (1) duration analyses show that CPA exam candidates with superior exam results are more likely to become partners in Big 4 firms and to reach partner level more quickly. However, in contrast, exam results are not associated with the length of the careers of accountants. Our analyses on client portfolio and compensation show that CPA examination results are positively associated with (2) size of the portfolio, (3) size of clients, and (4) the auditor’s annual compensation. Our findings support the view that the CPA exam is an accurate measure of the quality of accountants and their career potential, and that professional exams do achieve the purpose of maintaining high standards. We also examine the effect of gender. For women accountants, our analyses show that they have shorter careers, and are less likely to become partners in Big 4 firms. In addition, our results suggest that even if CPA examination score has similar effect on the size of the client portfolio size and average client, compensation increases with the CPA exam scores only for male accountants

David Hay is the Professor of Auditing at the University of Auckland, New Zealand.

David has a substantial role in auditing research as the Editor-in-Chief of the International Journal of Auditing. From 2012 to 2017, he was involved in another leading auditing research journal as an Editor of Auditing: A Journal of Practice and Theory. As Editor-in-Chief, David is striving to include a wide range of high-quality research studies using any methodology and from a broad range of countries. He has also served as guest editor for the International Journal of Accounting and is an editorial board member of many other accounting and auditing research journals. David’s research interests include auditing issues internationally and in New Zealand, including auditor independence, corporate governance and privacy auditing.  His international research applying methods that take stock of the accumulated knowledge from existing research studies has been influential.

David won the 2017 “Notable Contribution to the Auditing Literature Award” presented by the Auditing Section of the American Accounting Association, with his co-authors. The award was for the paper, “Audit Fees: A Meta-Analysis of the Effect of Supply and Demand Attributes” published in Contemporary Accounting Research. It is very widely cited.  He is also co-author of the recent reference book on auditing and auditing research, The Routledge Companion to Auditing, and an author of about 50 articles in refereed journals, books and book chapters.

He was previously Head of the Department of Accounting and Finance at the University of Auckland. He has been an external reviewer of accounting degree programs at more than ten universities and similar institutions in New Zealand, Australia, Malaysia and Hong Kong. Before his academic career, David had extensive professional auditing experience in New Zealand and in the City of London.

David was President (New Zealand) of the Accounting and Finance Association of Australia and New Zealand from 2009 to 2011. He is a Fellow of the Chartered Accountants Australia New Zealand, a Fellow of CPA Australia, and a Fellow of the Accounting and Finance Association of Australia and New Zealand. He has played an active part in the admission requirements and examinations for Chartered Accountants in New Zealand, including writing course materials, facilitating courses, serving as Chief Examiner of the Final Qualifying Examination for Chartered Accountants, and being a committee member and education board member.

For more information contact:
John Lee
Ext: 85171