The 150 Hour Rule Is Loosening: What Small Firms Should Plan For

How 150 Semester Hours Became the Standard Requirement

The 150-hour education rule for Certified Public Accountant licensure took hold across the United States in the 1990s and early 2000s. State boards and the profession's main organizations promoted the extra year of post-secondary coursework as a way to raise standards and align accounting with other professions. For many years, the 120-hour bachelor's degree had been the minimum. The new rule added a fifth year, whether as graduate study, undergraduate electives, or a mix.

Advocates argued that modern accounting required deeper skills in auditing, technology, and ethics than a standard four-year degree provided. The 150-hour requirement was meant to better prepare candidates for the CPA exam and for professional life. By the late 2000s, nearly every state board had adopted the rule. Only a handful allowed licensure without the extra hours, usually with restrictions on practice rights.

But the change came with a tradeoff. The extra coursework added time and cost to the CPA path. Some students finished college but did not pursue the additional credits, shrinking the pool of new CPAs. The so-called "pipeline" problem for accounting began to get attention as firms struggled to recruit and retain new professionals.

Keep reading: Two Weeks Before March 15: Inside the Client Document Chase

The Additional Pathway States Began Enacting in 2025

In 2025, several state boards started to approve an alternative path to CPA licensure. Instead of requiring all candidates to complete 150 semester hours, the new route allows candidates with a bachelor's degree in accounting, two years of relevant work, and a passing score on the CPA exam to qualify. The practical experience is formally supervised, typically at a public accounting firm or with a licensed CPA.

This move comes after years of debate about the 150-hour rule's impact. Critics pointed out that the extra year of school hit nontraditional students, career changers, and those with limited financial resources the hardest. The additional pathway aims to make the profession more accessible while keeping the core requirements for education, exam, and work experience.

In most states that have adopted this change, candidates can still pursue the traditional 150-hour route. The new pathway is not a shortcut. Instead, it formalizes on-the-job learning as an option, with oversight requirements and documentation. How firms and boards assess and document "relevant experience" can vary, but most require direct supervision and detailed reporting.

Practice Mobility When Neighboring States Differ

Each state sets its own CPA rules, but most have tried to maintain mobility, letting CPAs licensed in one state practice in another, at least on a temporary or limited basis. The uniformity created by the 150-hour rule was a big part of this. Now, with some states offering a two-year experience route and others sticking with 150 hours, questions about mobility are coming up again.

Reciprocity and Substantial Equivalency

Most states use a concept called "substantial equivalency" to decide if an out-of-state CPA can practice. If a CPA's education, exam, and experience match or closely resemble the state's standards, they can get a license or a temporary permit without repeating the process. When the requirements differ, state boards review applications on a case-by-case basis.

With the new pathway, a CPA licensed under the two-year experience rule may not automatically qualify for mobility in a state that still requires 150 hours. This is likely to affect new licensees more than established ones. Small firms that serve clients across state lines or near borders will need to track which staff can sign reports or supervise engagements in each state.

Impacts on Small Firms

For small firms, the compliance burden could increase. Firms may need to document each staff member's path to licensure and be ready to prove "substantial equivalency" when needed. This adds a layer of paperwork, especially if states update their rules at different times or interpret requirements differently. Keeping client services uninterrupted will require careful planning.

Keep reading: The IRS Receipt Rules Behind Every Missing Document Request

What Changes for Firms That Hire Staff Accountants

The new pathway changes the hiring conversation for entry-level accounting roles. Firms in states with the experience-based option can consider candidates with a bachelor's degree and a plan to gain two years of qualifying work. This opens the door to a wider pool, including those who cannot take the extra coursework up front.

Firms will need to provide formal supervision and keep detailed records of the staff member's work. Supervisors may need to sign off on learning objectives, track competencies, and verify hours. The process resembles an apprenticeship in other trades. Some boards require documentation of specific skills, such as audit procedures or tax preparation, while others look for general accounting experience.

Firms may find they need to review their job descriptions, onboarding plans, and training programs. The new rules reward shops that can offer a structured learning environment. Small firms, with lean management, will need to balance supervision time with billable work.

Retention and Advancement

The two-year work experience model can help firms retain entry-level staff longer. Employees who see a clear path to licensure may be more likely to stay for supervision and mentoring. However, firms must be ready for turnover if licensees leave for larger firms or out-of-state opportunities. Planning for career progression and succession is just as important as hiring.

Why Bookkeeping Firms Feel the CPA Pipeline at All

Bookkeeping and small accounting firms do not always employ CPAs, but the profession's pipeline problems still affect them. Many bookkeeping shops compete for the same pool of early-career accountants. When fewer students pursue accounting degrees, the shortage spreads beyond audit and tax.

Some clients expect or request CPA oversight, especially for work connected to lending, due diligence, or regulatory filings. Bookkeeping firms with at least one CPA on staff can take on a wider range of work and may sign off on compiled financials. When the supply of new CPAs tightens, these shops may face higher wages or longer recruitment cycles.

The rules for CPA licensure influence college programs, career services, and professional image. If accounting seems less accessible or more expensive, the entire field can appear less attractive to students. Bookkeeping firms sometimes act as training grounds for future CPAs or as a bridge for career changers. When licensure rules shift, these firms feel both the opportunities and the disruptions.

See how ReceiptChase handles this for bookkeeping and accounting

Building a Career Track That Does Not Require a License

Not every staff accountant or bookkeeper wants or needs a CPA license. Many bookkeeping firms have built successful teams by focusing on skills, reliability, and customer service instead of licensure. The revised rules do not require every worker to pursue the CPA exam, but they do create options for those who are interested.

Role Clarity and Advancement

Firms that map out clear job descriptions, promotion paths, and continuing education can attract candidates who might not fit the traditional CPA mold. Some shops use credentials like the Certified Bookkeeper, Enrolled Agent, or QuickBooks ProAdvisor to mark milestones. Others focus on training in industry software or new tax laws.

A well-structured firm can provide growth for team members who want to specialize in payroll, accounts payable, or management reporting. Cross-training and regular feedback help retain staff. For firms with a mix of licensed and unlicensed staff, clarity about responsibility and supervision is essential.

Support for Pursuing Licensure

When firms do support the CPA track, they can offer flexibility for staff to complete coursework or study for exams. The new experience-based pathway may let firms recruit and support candidates who are mid-career or who need to work while earning their qualifications. Mentoring, peer study sessions, and tuition reimbursement are tools some firms use to keep the door open.

What to Watch in Your Own State Board Rulemaking

These licensure changes are early and evolving. Not every state has adopted the experience-based pathway, and details differ. Small firms need to follow their state board's rulemaking process, as changes can move from proposal to adoption quickly. Public comment periods and board meetings are the places where practical concerns get discussed.

Firms should review their staffing plans and prepare to update client engagement letters, job postings, and staff handbooks as rules change. If your shop serves clients in multiple states, track requirements in each jurisdiction. It may help to designate a team member to monitor regulatory updates and coordinate documentation.

The move to an experience-based pathway will increase the paperwork around supervision, learning objectives, and progress tracking. Automated checklist tools that organize client assignments, supervise document requests, and provide a status board can help firms stay in compliance as rules change and staff move through new licensure pathways.