The 150-Hour Requirement: A Tale of Two States

Abstract:     
The 150-hour education requirement has been adopted by 48 jurisdictions as of January 1, 2001. For the jurisdictions that have passed the Requirement, the effective date could run as late as 2009. During the transition period, it is interesting to know how the implementation of the Requirement in some jurisdictions will affect the audit markets therein and the markets in the non-implementing ones. Using the model in Lee et al. (1999) and assuming there exist only two states: one with the Requirement implemented and one without, we predict that the audit clients will be worse off in the state with the Requirement. In addition, if CPAs' act of moving across states incurs relocation cost, even clients residing in the state without the Requirement could be worse off. We also examine the effects of the Requirement on the audit quality and on the mobility of the pre- and post-requirement CPAs across jurisdictions.

Keywords: 150-hour rule; Audit quality; Audit market equilibrium; Accounting education

JEL Classification: M49, K22

working papers series