Changes in CPE (#156)

In this podcast episode, we discuss changes to the continuing professional education rules, and how they will impact the CPE industry. Key points are noted below.

CPE Requirements for CPAs

If you’re a certified public accountant, then you need to earn at least 40 hours of CPE per year. If you’re not a CPA and don’t plan to become one, then you can tune out this episode right now. But if you are a CPA or want to become one, this discussion contains some information that you likely did not know about.

But first, some actual advertising. We’re now offering on-line CPE courses. So if you go to accountingtools.com/cpe, there’s dozens of CPE courses listed, which you can take on-line, and at your own pace. And that includes taking an on-line test and receiving a completion certificate by e-mail. So if you need CPE, go to accountingtools.com. There’s also a link to the CPE at the top of every page on the site.

The Governing Body

Now, getting back to the topic. The governing body that sets the standards for CPE is NASBA, which stands for the National Association of State Boards of Accountancy. NASBA has changed some of the rules regarding CPE recently, and this is going to cause a ripple effect through both the CPE industry and the publishing industry.

What I’m going to talk about isn’t something that you’ll see anywhere else, because I may be in the best position to see the impact of what NASBA has done. I deal with the CPE distributors, and the course developers, and NASBA, and one of the big publishing houses, so I have a pretty broad view.

The first change is that NASBA no longer allows a book to be the basis for a course. In the past, a CPE distributor bought accounting books in bulk from the major accounting publishers, and hired local CPAs to develop course materials for the books, like course objectives, and question and answer segments at the end of each chapter, and of course the final exam.

Ramifications of NASBA Rule Changes

But because NASBA wants a course to look like a course, and not like a book that’s been adapted into a course, you can’t take that type of course any more. This has way more ramifications than you might think. First, some of the distributors are still issuing courses in book form, which is now illegal.

If you buy a course and they send you a book with some extra course materials attached, you need to buy your CPE somewhere else.

Second, the CPE distributors who were offering books as courses just had their business models destroyed, so they’re scrambling to find new content that’s structured as an actual course. If they don’t succeed, they’ll probably go out of business, so expect some consolidation in the industry.

And third, the CPE distributors are no longer buying books from the publishing houses. Since I see book royalty statements from both the publishing side of the industry and the CPE distribution side, I estimate that roughly a third all accounting book sales for books that are also sold as courses have now disappeared.

This means that the publishing houses now have a drop in sales that they never expected. And because sales have dropped so low, they’re now activating a clause in their contracts with authors, where they switch to print on demand, rather than printing in large batches of books. This has a major implication for the authors of accounting books, because the royalty for print on demand books is only 5%, versus 15% for books printed in batches. So the accounting book authors are having their royalties cut by two thirds, in those cases where book sales are low. I’m now seeing the 5% rate take effect in as little as two years after the publication date. And that drives authors out of the book writing business.

This means that you’ll still see authors writing one or two accounting books, but then they’ll stop writing, once they understand how low their royalties will be. And overall, this means there’ll be fewer accounting books being published.

Also, because book sales go down, there’ll be very few second editions of any books coming out. At this point, I would expect only very established books with a long history to still go into multiple editions.

Changes to the CPE Standards

Now, let’s go back to those NASBA changes. They’ve also ratcheted up the standards for what has to go into a CPE course. This involves some very specific use of course objectives that have to be reflected in the final examination, and a table of contents, and an index, and a glossary. These aren’t massive changes, but they require more work by someone who’s developing a course.

So if a course developer had been planning to make money by publishing a book and issuing a course, now the book publishing avenue doesn’t look very profitable, and it takes more time to create the course. The end result is probably going to be fewer people wanting to create courses, because the profit just isn’t there.

On the other hand, there won’t be any real impact on existing courses, since it’s not that difficult to retrofit a course to the new standards. So you’ll still see the old courses, just not as many new courses.

And here’s another NASBA change. When a course was developed, a CPE distributor used to put it into what they called pilot mode and made it available for free to their customers for a short period of time. The customers were supposed to take the course and render an opinion on how many CPE hours should be assigned to the course. Once the distributor had this information, it stopped the pilot phase and started selling the course based on the number of hours recommended by the testers.

This meant that some CPAs were getting their CPE for free. NASBA has now created a word count formula that CPE distributors can apply to a course, and they can determine the number of CPE hours from this formula. That means they don’t need the pilot mode anymore, so there’s no longer a need to offer free courses. I’ve noticed that a few of the CPE distributors still offer course pilots on their websites, but you should expect this to go away fairly soon.

And in case you’re wondering how many people were taking pilot courses for free, it was a decent number. Usually about 20 people pounce on these courses when they’re in pilot mode, and that’s at each of the distributors.

Competitive Pressures

And another issue that I alluded to earlier is that the number of CPE distributors will probably decline. At first glance, it appears fairly easy to get into the CPE market, but there’re several barriers to entry. First, NASBA is amazing slow at certifying anyone to offer courses. Also, if a distributor wants to offer courses, the annual NASBA fee is pretty high, and you also have to maintain an infrastructure for taking on-line courses. And, if you’re issuing course catalogues, there’s the cost to buy CPA mailing lists, and printing and mailing the catalogues.

So it isn’t that easy for a new course distributor to turn a profit. This means I’d expect some churn at the low end of the market, as people try to get established as distributors, and then fail.

And also, there’s some pretty serious price discounting by some of the CPE distributors, to the extent that the better course writers refuse to do business with them. And that means course writers are starting to refuse to distribute their courses with anyone but the established companies. And that means a new player can’t even attract any content to offer to CPAs.

So, in short, expect fewer CPE courses in the future, and fewer accounting books, and not so many CPE distributors. It’s not a pretty picture, but that appears to be the direction in which we’re headed. And the reason for these changes was essentially an interest in tightening the standards so that higher-quality courses would be issued. The result may not be quite what was intended.