the present state of the business law education of accounting students: the business law...

The Present State of the Business LawEducation of Accounting Students:The Business Law Professor’sPerspectiveMehmet C. Kocakulah,n A. David Austill,nn and Brett Longnnn

I. INTRODUCTION

There is a reason why law relevant to business is part of the curricula

of most colleges of business and also part of the content tested on the

Certified Public Accountant Uniform Examination (CPA Exam). Knowl-

edge of the law is important to those who conduct business and especially

to those professionals who conduct business in the form of a public ac-

counting practice. Accountants are similar to other business professionals

in that they must be able to identify important legal issues as they arise so as

to reduce their exposure to legal liability. While human resource depart-

ments and legal counsel may attempt to keep businesses current with their

legal compliance responsibilities, individual business professionals need to

have an awareness of legal issues.1 They need to be familiar with legal

concepts like defamation, invasion of privacy, misrepresentation, fraud,

negligence, criminal intent, administrative sanctions, and breach of con-

r 2009, Copyright the AuthorsJournal compilation r Academy of Legal Studies in Business 2009

137

Journal of Legal Studies EducationVolume 26, Issue 1, 137–183, Winter/Spring 2009

nProfessor of Accounting, Department of Accounting and Business Law, University ofSouthern Indiana.

nnProfessor of Legal Studies & Accounting, McAfee School of Business, Union University.

nnnAssociate Professor of Business Law, Department of Accounting and Business Law,University of Southern Indiana.

1Claire A. King, Liability Exposures and Ethical Responsibilities for CPAs in Industry, 2001 OHIO

CPA J. 15, 20 (Oct.) (the director of risk management for the AICPA Professional and PersonalLiability Insurance Program discussing ways for CPAs to minimize legal liability when servingas officers and directors); Norman P. Arnoff & Sue C. Jacobs, Accountant’s Malpractice: A CurrentReview Part I, N.Y. L.J., Dec. 27, 2005, at 3 (two practicing attorneys discussing loss preventionin accounting malpractice cases).

tract to manage risk.2 In addition, accountants need specific legal knowl-

edge to provide their services to the public. Accountants practicing in

public accounting identify and distinguish various types of assets, liabilities,

debt, equity, and income in diverse and sometimes very complex transac-

tions. These accounting concepts require at least a basic understanding of

the law of property, negotiable instruments, contracts, securities, secured

transactions, sales, and business entities.3 Whether certified public accoun-

tant (CPA) candidates possess the necessary legal knowledge to begin their

careers as public accountants is dependent upon an educational process

that includes the candidates, business law professors, accounting profes-

sors, state boards of accountancy, professional organizations, and educa-

tional accreditation bodies. Each of these groups contributes to the

educational process that ultimately produces a new CPA. Business law fac-

ulty design and present legal courses to accounting students while ac-

counting faculty influence the design and implementation of accounting

and business curricula. State boards of accountancy administer and

enforce the regulations that must be met for the certification and licens-

ing of CPAs while the American Institute of Certified Public Accountants

(AICPA) determines CPA Exam content. Accreditation bodies like the

Association to Advance Collegiate Schools of Business International

(AACSB) set standards that influence curricular decisions made by busi-

ness faculty members. Mistakes in judgment by these groups and/or failure

to communicate may result in an unnecessary number of CPA candidates

being inadequately prepared for the CPA Exam and, more importantly,

their subsequent careers.4

This article first describes various factors, including the positions

taken by the fifty-four state boards of accountancy, the NASBA, the AICPA,

and the AACSB concerning the business law education of accounting

graduates that have impacted business law curricula, and it reviews the

literature as to the most appropriate business law education for accoun-

2Robert A. Prentice, The Case for Education Legally-Aware Accountants, 38 AM. BUS. L.J. 597,597–600 (2001).

3Id.

4While CPA Exam pass rates have recently been improving, the majority of sections still re-main below 50 percent. NATIONAL ASSOCIATION OF STATE BOARDS OF ACCOUNTANCY (NASBA),NASBA CANDIDATE PERFORMANCE ON THE UNIFORM CPA EXAMINATION 6 (2006). See Anthony R.Pustorino, Some Thoughts on the Uniform CPA Examination, CPA J., Aug. 1996, at 36 (discussingwhy there are low CPA Exam pass rates).

138 Vol. 26 / The Journal of Legal Studies Education

tants. It then compares the findings of a 1993 survey and a 2005 survey of

business law professors concerning their perceptions of the legal training

of accounting students, examining how those perceptions have changed

over the twelve-year period.5 The surveys included questions concerning

the respondent’s perceptions of curricular content, importance of substan-

tive law topics, integration of business law into accounting programs, and

the quality of legal training accounting students receive. Finally, the article

compares the perceptions and actions of business law professors with those

of the major accounting organizations, finding that the major accounting

organizations treat business law as a field of general business knowledge

with decreasing relative importance to accounting graduates. The article is

intended to provide CPA candidates, accounting faculty, the AICPA, and

the state boards of accountancy with an insight into the business law pro-

fessor’s perspective concerning the legal education of accountants. It re-

veals to business law professors inconsistencies between the business law

curriculum they believe they should be providing their accounting stu-

dents and the business law curriculum they are in fact delivering to those

students, finding that a large majority of business law professors feel a re-

sponsibility to prepare their accounting students for their careers in public

accounting but have adopted business curricula more consistent with the

goals and objectives of the AACSB. The article recommends that business

law professors join together with accounting professors in teaching and in

scholarship to make the relevance of business law more transparent to both

accounting graduates and practicing accountants.

II. STATE ACCOUNTANCY ACTS

There are fifty-five jurisdictions that have passed laws that provide for the

certification and licensing of CPAs.6 These jurisdictions include all fifty

U.S. states, the District of Columbia, the U.S. territories of Guam, Puerto

Rico, and the Virgin Islands, and the Commonwealth of the Northern

5This article is based on a study funded by a grant from the Lilly Foundation. This article ispart of a broader study of the business law education of accounting students that will alsoinclude the measurement of the perceptions of accounting chairs and executive directors ofstate boards of accountancy.

6See NASBA, http://www.nasba.org/nasbaweb/NASBAWeb.nsf/WPECUSM (last visited Dec.29, 2008).

2009 / Business Law Education of Accounting Students 139

Mariana Islands.7 In most of these jurisdictions, the laws are referred to as

accountancy acts, and they set the legal requirements for the certification

and licensing of CPAs in that state or territory.8 These accountancy acts

typically include sections that create boards of accountancy and give them

the authority and responsibility to administer and enforce the acts. Under

the provisions of these accountancy acts and their corresponding regula-

tions, individuals are generally allowed to practice public accounting if they

meet certain requirements. They must possess good moral character,

satisfy minimum educational requirements, pass the CPA Exam and

demonstrate that they have met the state-prescribed work experience re-

quirement.9 Examples of these requirements are found in the Uniform

Accountancy Act (UAA)10 and the Uniform Accountancy Act Model

Rules (UAA Rules).11 The NASBA and the AICPA drafted the UAA as a

uniform law for the states and territories to adopt. The UAA provides

that the certificate of CPA will be granted to those persons of good moral

character who have obtained a baccalaureate degree with 150 semester

hours and a concentration in accounting or its equivalent.12 In addition,

the UAA requires that CPA candidates demonstrate that they have

completed at least one year of work experience.13 The UAA provides

that the state boards of accountancy may adopt rules that specify the

educational and experience qualifications required for the issuance of

7Id.

8State license requirements can be found at state board of accountancy Web sites. There areseveral online compilations of state board of accountancy Web sites. See The Web Site of theNew York Society of CPAs, http://www.nysscpa.org/useful_links/state_boards.htm (last visitedDec. 29, 2008); Welcome to the Accountancy Board of Ohio, http://acc.ohio.gov/stateweb.htm(last visited Dec. 29, 2008).

9See N.Y. EDUC. LAW § 7404 (2007), available at http://www.op.nysed.gov/article149.htm; CAL.BUS. & PROF. CODE §5 090 (2007), available at http://www.leginfo.ca.gov/cgi-bin/displaycode?section=bpc&group=05001-06000&file=5080-5095.

10UNIFORM ACCOUNTANCY ACT § 5 (4th ed. 2005), available at http://www.aicpa.org/download/states/UAA_2005_Fourth_Edition.doc.

11UNIFORM ACCOUNTANCY ACT MODEL RULES 5–2 (2008), available at http://www.nasba.org/862571B900737CED/7BBB4727858B4EE48625743B006448BD/$file/UAA%20Model%20Rules%20Revised%20April%202008.pdf.

12The 150-hour requirement takes effect five years from enactment of the Uniform Accoun-tancy Act. UNIFORM ACCOUNTANCY ACT supra note 10.

13Id.


CPA certificates.14 Under UAA Rule 5-2, candidates are required to have

completed twenty-four semester hours of upper-level accounting courses

that must include the subjects of financial accounting, auditing, taxation, and

management accounting.15 In addition, they are required to have completed

twenty-four semesters of nonaccounting business courses.16 In 2005, the

NASBA proposed an increase in educational requirements under UAA Rule

5-2. That proposed amendment increased the number of accounting and

business hours, and added specific course requirements in both accounting

and business hours.17 Among the specific course requirements of this pro-

posal was a three-semester-hour business law requirement.18 This amend-

ment to the UAA Rules was rejected by the NASBA,19 and the current UAA

Rules do not require a course in business law.20 Whether a requirement of

three semester hours of business law will eventually become part of the UAA

Rules is not currently predictable, but it appears unlikely that the NASBA will

adopt a six-hour business law requirement any time soon. For any change to

the UAA Rules to be effective in a state or territory, it would have to be

adopted by that specific board of accountancy. To understand the business

law education requirements to become a CPA, one must look to the specific

laws and regulations of each jurisdiction.

III. STATE EDUCATION REQUIREMENTS

Sixteen out of the fifty-five jurisdictions that provide for CPA certification

currently require a candidate to have completed an undergraduate or

14Id. § 4(h)(3).

15UNIFORM ACCOUNTANCY ACT MODEL RULES supra note 11.

16Id.

17 Glen Van Wyhe, A History of U.S. Higher Education in Accounting, Part II: Reforming Accountingwithin the Academy, 22 ISSUES ACCT. EDUC. 481, 496 (2007).

18NASBA, NASBA EXPOSURE DRAFT OF UNIFORM ACCOUNTANCY RULE 5–2(c) (2005), available athttp://www.nasba.org/nasbaweb/NASBAWeb.nsf/PS/264D55C613B9747D862571B900755C7F/$file/UAA%20Education%20Rules%20Exposure%20Draft.pdf (discussing a new education re-quirement that, would require three hours of business law).

19Van Wyhe, supra note 17, at 496.



graduate business law course.21 Those jurisdictions include: Alabama,

Alaska, District of Columbia, Florida, Guam, Kansas, Louisiana, Massa-

chusetts, Nebraska, Nevada, New Jersey, New York, Rhode Island,

Utah, Vermont, and West Virginia.22 A large majority of jurisdictions (71

percent) place the decision of whether to take a college business law

course entirely within the judgment of the CPA candidate.23 Under the

UAA and most state regulations, business law is treated as general business

knowledge.24 For example, the rules and regulations of the Tennessee

State Board of Accountancy require CPA candidates to complete twenty-

four semester hours (or thirty-six quarter hours) in ‘‘general business

education in one (1) or more of the following: (i) Algebra, Calculus,

Statistics, Probability, (ii) Business Communication, (iii) Business Law,

(iv) Economics, (v) Ethics, (vi) Finance, (vii) Management, (viii) Technol-

ogy/Information Systems, (ix) Marketing.’’25 Under this regulation,

21ALA. ADMIN. CODE r. 30-X-4.02 (2007); ALASKA ADMIN. CODE tit. 12, § 04.185 (2007); D.C.MUN. REGS. 17 § 2053 (2007); FLA. ADMIN. CODE ANN. r. 61H1-27.002 (2007); 25 GUAM ADMIN.R. & REGS. § 2104(b) (2007); KAN. ADMIN. REGS. § 74-2-7 (2007); LA. ADMIN. CODE tit. 46, § 503(2007); 252 MASS. CODE REGS. 2.07 (2004); 288 NEB. ADMIN. CODE § 9-003.02B (1998); NEV.ADMIN. CODE § 628.055 (2007); N.J. ADMIN. CODE § 13:29-1A.3 (2005); N.Y. COMP. CODES R.REGS. tit. 8, § 52.03 (2007); 02-020 R. I. CODE R. § 003 (Weil 2007); UTAH ADMIN. CODE r. 156-26a-302a (2007); 04-030-010 VT. CODE R. § 5.3 (2007); W. VA. CODE R. § 1-1-4 (2007).

22See supra note 21.

23ARIZ. REV. STAT. § 32–723 (2003); 019-00-03 ARK. CODE R. § 002 (2003); CAL. CODE REGS. tit.16, § 9 (2005); 3 COLO. CODE REGS. § 705–2 (2007); CONN. AGENCIES REGS. § 20-280-22 (2007);24-100 DEL. CODE REGS. § 4.1.4.2 (2003); GA. COMP. R. & REGS. 20-3-.02 (2004); HAW. CODE R. §16-71-17 (2001); IDAHO ADMIN. CODE r. 01.01.01.300 (2004); ILL. ADMIN. CODE tit. 23, § 1400.90(2005); 872 INDIANA ADMIN. CODE r. 1-1-6.1 (2007); IOWA ADMIN. CODE r. 193A-3.3 (2001); 201KY ADMIN. REGS. 1:190 (2006); MD. CODE REGS. 09.24.05.03 (2007); 02-280 ME CODE R. § 003(Weil 2004); 2003 N. Mar. I. Pub. L. 13-52; MICH. ADMIN. CODE r. 338.5114 (2008); MINN. R.1105.1500 (2005); 73-33-1 MISS. CODE R. § 2.2.1 (2007); MO. CODE REGS. ANN. tit. 20 § 2010-2.041 (2006); MONT. ADMIN. R. 24.201.501 (2005); N.H. CODE ADMIN. R. ANN. ACCT. 302.02(2007); N.M. CODE R. § 16.60.2.9 (Weil 2008); 21 N.C. ADMIN. CODE 08A.0309 (2007); N.D.ADMIN. CODE 3-01-02-01 (2003); OHIO ADMIN. CODE 4701-3-03 (2008); OKLA. ADMIN. CODE §10:15-18-4 (2008); OR. ADMIN. R. 801-010-0050 (2007); 63 PA. STAT. § 9.4 (1996); S.C. CODE

ANN. § 40-2-35 (2007); S.D. ADMIN. R. 20:75:02:04 (2004); TENN. COMP. R. & REGS. 0020-2-.02(2006); 22 TEX. ADMIN. CODE § 511.28 (2008); 18 VA ADMIN. CODE § 5-21-30 (2003); V.I. CODE

ANN. tit. 27 § 5-232 (1983); WASH. ADMIN. CODE § 4-25-710 (2004); WIS. ADMIN. CODE ACCT

§7.035 (2004); 33-3-109 WYO. CODE R. § 2.2 (Weil 2007); PUERTO RICO CPA EXAM REQ-

UIREMENTS, http://www.beckercpa.com/puerto_rico/index.cfm (last visited Aug. 12, 2008).


25TENN. COMP. R. & REGS. 0020-2-.02 (2007).


like many other states’ regulations, college business law courses are

recognized as potentially beneficial but no more so than a course in

management, information technology, or any of the other prescribed

courses. Similarly, the Indiana Board of Accountancy’s regulations require

the candidate to complete ‘‘at least twenty-four (24) semester hours in

business administration and economics courses. . . . The business admin-

istration courses may include up to six (6) hours of business and tax

law courses.’’26 Indiana’s law is representative of those states that put an

upper limit on the amount of business law that will count toward the

state’s education requirement.27 Both Indiana’s and Tennessee’s laws

are typical in that they do not define what constitutes a business law

course, and they use language broad enough to make legal environment

of business courses and business law courses interchangeable. They can

be contrasted with states like Alabama and Louisiana, where CPA candi-

dates are required by law to take three semester hours of commercial

law before they sit for the CPA Exam.28 Those states not only require

that a business law course be taken, but they identify commercial law as

the appropriate type of course. Alternatively, states like Florida and West

Virginia require that six hours of business law be taken by those desiring

to become CPAs.29

The actual number and type of law courses taken by CPA candidates

depends on the educational requirements of the CPA candidates’ jurisdic-

tions and their academic program requirements. In the majority of states,

CPA candidates are only required to take business law courses if their

academic major requires it. CPA candidates are not required to major in

accounting; they must merely have completed sufficient accounting and

business hours to satisfy their accountancy act. These states leave the CPA

candidates’ educations up to the judgment of the candidates. They provide

no guidance to CPA candidates as to legal concepts necessary, if any, for the

practice of public accounting.30 They rely exclusively on testing to insure

26872 IND. ADMIN. CODE 1-1-6.1 (2007).

27Some states limit the number of hours that can be taken in any business knowledge area. See22 TEX. ADMIN. CODE § 511.58 (2007).

28ALA. ADMIN. CODE r. 30-X-4-.02 (2007); LA. ADMIN. CODE tit. 46, § 503 (2007).

29FLA. ADMIN. CODE ANN. r. 61H1-27.002 (2007); W. VA. CODE R. § 1-1-4 (2007).

30But see NASBA, supra note 18.


that CPA candidates have the business law knowledge they need to protect

the public interests, and they have chosen the CPA Exam for that pur-

pose.31 Under this approach, the business law content of the CPA Exam

becomes, for some, the de facto standard of business law knowledge and

skills needed by entry-level public accountants.

IV. CPA EXAM STRUCTURE

Business law has been a significant part of the CPA Exam for a very long

time. The first CPA Exam offered in New York in the year 1898 consisted

of four three-hour sessions.32 Those four sessions included theory of ac-

counts, practical accounting, auditing, and commercial law.33 The impor-

tance of business law knowledge to the practice of public accounting was

recognized early and, consequently, 25 percent of the content for the first

exam was allocated to law. Over the years, there have been many changes

involving the CPA Exam,34 but until recently business law remained an

important section of the CPA Exam. The last two restructurings of the CPA

Exam by the AICPA, however, have revealed a dramatic shift by the AICPA

in the importance it places on business law content. In 1994, the AICPA

Board of Examiners reduced the overall length of the CPA Exam from

19.5 hours to 15.5 hours. The business law section was renamed the Law

and Professional Responsibilities (LPR) section, and its length was reduced

from 3.5 hours to 3 hours.35 With almost 15 percent of this new section

31See, for example, TENN. CODE ANN. § 62-1-108(d)(1) (2007), which states:

A written examination for certified public accountant shall be conducted by the board [ofaccountancy] at least twice annually, and shall be adequate to demonstrate the applicant’scompetence and knowledge as a certified public accountant of accounting practice, au-diting, accounting theory, business law and such other subjects as established from timeto time by the board . . .. Each applicant must obtain a passing grade of not less thanseventy-five (75%) on each subject examined.

32Dale L. Flesher et al., Joseph Hardcastle: The First Person to Pass the CPA Exam, CPA J., Apr.1996, at 16.

33Id.

34See The Accountancy Board of Ohio, Accountancy Board History 1959 to Present, available athttp://acc.ohio.gov/abh1959.htm (last visited Dec. 29, 2008) for a chronological listing of CPAExam issues over the years.

35Neal R. VanZante, The New CPA Examination, CPA J., Apr. 1994, at 42.


allocated to professional responsibility content36 the business law portion

of the exam dropped to slightly more than 2.55 hours. Business law topics

went from being 17.9 percent of the total CPA Exam before the restruc-

turing to approximately 16.5 percent after the 1994 restructuring. Ten

years later, the AICPA Board of Examiners again reduced the overall

length of the CPA Exam. In 2004, exam length was reduced a more mod-

est 1.5 hours, from 15.5 hours to 14 hours.37 During the 2004 restructur-

ing, the LPR section was replaced, and the business law topics were divided

between two new sections, a 3-hour Regulation (REG) section and a 2.5-

hour Business Environment and Concepts (BEC) section.38 Business law

topics were allocated 20 percent to 25 percent of the REG section and 17

percent to 23 percent of the BEC section.39 Thus, under the current com-

puter-based CPA Exam, the business law portion has been reduced to its

lowest percent in the history of the CPA Exam, approximately 8.4 percent to

11 percent of the total 14 hour long exam.40 The AICPA did not signifi-

cantly reduce the number of topics to be learned; it simply made the learn-

ing of those topics less important. Another consequence of the 2004

restructuring, is that it is now more difficult to verify that CPA candidates

know sufficient business law concepts. CPA candidates who are strong in the

36Christine Neylon O’Brien & John G. Neylon, The Role of Business Law in the 150 Hour Ed-ucational Requirement for CPA Certification, 18 J. LEGAL STUD. EDUC. 1, 4 (2000) (discussing theCPA content specifications in 1994).

37AICPA, BOARD OF EXAMINERS, STRUCTURE, LENGTH, AND EXAMINATION CONTENT SPECIFICATIONS

FOR THE UNIFORM CPA EXAMINATION 4 (2002), available at http://www.cpa-exam.org/global/download/BOE%20Structure%20Length%20CSO%20Document.pdf.

38Id. at 17–22.

39Id.

40Id. (The current AICPA content specifications allocate 15 percent to 20 percent of the three-hour REG section to the area of Ethics and Professional and Legal Responsibilities. This areahas six groups of which two are law related: ‘‘Legal Responsibilities and Liabilities’’ and‘‘Privileged Communications and Confidentiality.’’ While it is impossible to determine theamount of time allocated to these two groups, for purposes of this calculation we assumedone third of the total time range allowed (.15 hours to .20 hours) as a reasonable estimate. TheBusiness Law area is allocated 20 percent to 25 percent of the three-hour REG section whilethe Business Structures area is allocated 17 percent to 23 percent of the 2.5-hour BEC section.The Business Law section would range from .6 hours to .75 hours and the Business Structureswould range from .43 hours to .58 hours. The total time for all nontax law-related contentwould be approximately 1.18 hours to 1.53 hours out of 14 hours. On a percentage basis thiswould be 8.4 percent to 11 percent of the CPA Exam.)


other topics tested in the REG and BEC sections may be able to pass those

sections without necessarily having a strong background in business law.

The decision to change the structure and content of the 2004 CPA

Exam was not made arbitrarily and developed over a period of years.

According to the AICPA, it made its 2004 content specifications to the CPA

Exam based primarily on practice analyses, recommendations of the Con-

tent Oversight Task Force (COTF), and comments received from stake-

holders upon publication of their proposed changes.41 Over the years, the

AICPA had received some feedback from constituents that the amount of

business law content on the CPA Exam should be reduced. For example,

during the AICPA’s 1991 practice analysis, 2,000 newly licensed CPAs were

surveyed and they ranked business law, economics, marketing, and finan-

cial markets as relatively unimportant to their competence as CPAs.42 Sim-

ilarly, in 1996, the AICPA’s Board of Examiners appointed, what was then a

new task force, the COTF, and charged it with evaluating the content of the

CPA Exam.43 It distributed a comment paper on CPA Exam content spec-

ifications to various CPA Exam stakeholders in January 1997 and received

72 responses.44 Several practices that are currently implemented and

relied upon by the AICPA were generated or validated by the responses

to that comment paper. For example, most respondents felt that the CPA

Exam should continue to test the knowledge and skills needed for services

traditionally performed by CPAs, such as audits, reviews, compilations, and

taxation.45 Several respondents believed that the CPA Exam should test

the content areas of information technology, other assurance services, and

general business knowledge.46 Most respondents felt that the CPA Exam

should test only the skills and knowledge required of new CPAs and not

those required of experienced CPAs.47 Some respondents thought that the

amount of time allocated to testing business law on the CPA Exam should

41AICPA BOARD OF EXAMINERS, supra note 37, at 1–2.

42David B. Pearson & Bruce H. Biskin, AICPA Study of Public Practice, 172 J. ACCT. 38 (1991).

43Jacqueline Burke & Eugene T Maccarrone, The 21st Century Exam: Uniform CPA Examination:The only Constant Is Change, CPA J., Mar. 2000, at 40.

44Id. at 41–42.

45Id.

46Id.

47Id.


be reduced and reallocated to the other content areas of the CPA Exam.48

The COTF took those comments seriously and formed work groups to

explore implementation of the suggestions. For example, the COTF ap-

pointed a General Business Knowledge Work Group to examine how

general business knowledge content could be added to the CPA Exam.49

Over this same period, support was building within the AICPA and the

NASBA to adopt a computerized format for the CPA Exam.50 By the time

the AICPA was ready to conduct its 2000 practice analysis, the COTF had

already developed some structural changes it was ready to make to the

CPA Exam. In the 2000 practice analysis, the AICPA Practice Analysis

Oversight Group surveyed 5,000 entry-level CPAs concerning the tasks,

knowledge and skills necessary to practice as entry-level CPAs.51 It deter-

mined that the appropriate population to survey was CPAs who had held

their licenses to practice for no more than five years.52 It would be a mistake

to conclude that the 2004 structural changes to the CPA Exam were based

primarily on data from the 2000 practice analysis. The data collected from

this survey did not initiate the major changes to the CPA Exam, although the

findings may have been interpreted as consistent with earlier research of the

COTF. The 2000 practice analysis was just a single part of a larger process

that formed the opinions of the COTF. Ultimately, the content of the CPA

Exam is determined by the AICPA Board of Examiners and is based upon

the recommendations of the COTF. The AICPA’s technical report on the

2000 practice analysis survey data makes clear that the content specifications

are based on the ‘‘expert opinion’’ of the COTF and its other committees,

and not mechanically tied to the findings of any specific survey.53 The AICPA

views the process as a continuous one designed to keep the CPA Exam con-

48Id.

49AICPA, UNIFORM CPA EXAMINATION CONTENT SPECIFICATIONS UPDATE STUDY: GENERAL BUSINESS

KNOWLEDGE REQUIRED BY CPAS IN PUBLIC ACCOUNTING 7 (2000), available at http://www.cpa-exam.org/download/gbkfinal.doc.

50Louise Dratler Haberman, NASBA Annual Meeting: Association Calls for Computerized UniformCPA Exam, 179 J. ACCT. 18 (1995).

51AICPA, PRACTICE ANALYSIS OF CERTIFIED PUBLIC ACCOUNTANTS TECHNICAL REPORT 27 (2001),available at http://www.cpa-exam.org/global/download/parep.pdf.

52Id.

53Id. at 80.


tent current and practice based.54 The latest practice analysis was authorized

by the AICPA Board of Examiners at its meetings in June of 2006 and is

currently under way. 55 In this latest practice analysis, the AICPA is again

proposing a decrease in the percentage of business law content on the CPA

Exam. It proposes to decrease business law topics to 17 percent to 21 percent

of the REG section, while moving business structure content from the BEC

section to the business law area of the REG section.56

V. CPA CONTENT

Although the AICPA uses practice analyses as part of its periodic review of

the general structure of the CPA Exam, it also uses it for determining

specific exam content. Over the years, some business law topics are added

and others are removed from the CPA Exam.57 In the current CPA Exam,

content specifications are broken down into areas, groups and topics.58 For

example, the REG section is currently divided into six areas: ethics and

professional and legal responsibility, business law, federal tax procedures

and accounting issues, federal taxation of property transactions, federal

taxation of individuals, and federal taxation of entities.59 The area of ethics

and professional and legal responsibility is divided into six groups of which

two are law related.60 The area of business law is divided into six groups:

agency, contracts, debtor-creditor relationships, government regulation of

business, uniform commercial code, and real property (including insur-

ance).61 Each group is then divided into a number of specific legal topics.

54Pustorino, supra note 4, at 37.

55See Uniform CPA Examination Practice Analysis (Dec. 2, 2007), http://www.aicpa.org/Magazines+and+Newsletters/Newsletters/The+Practicing+CPA/September+2006/uniform.html.

56AICPA, EXPOSURE DRAFT PROPOSED CONTENT AND SKILL SPECIFICATIONS FOR THE UNIFORM

CPA EXAMINATION, 3 (2008) available at http://www.cpa-exam.org/download/ExposureDraft_proposed_CSO_SSO.pdf.

57See Editor’s Corner, 34 AM. BUS. L.J. (Summer 1997) (discussing the deletion of public lawtopics from the CPA Exam).

58AICPA BOARD OF EXAMINERS, supra note 37, at 7.

59Id. at 17–19.

60Id. at 17.

61Id.


Similarly, the BEC section is divided into five areas: business structure,

economic concepts, financial management, information technology (IT)

implications, and planning and measurement.62 The area of business

structure is divided into four groups. 63 The first group includes the ad-

vantages, implications, and constraints of legal structures used in business.

The second group covers the formation, operation, and termination of

businesses. The third group includes the financial structure, capitalization,

profit and loss allocation, and distributions from business structures. The

fourth group covers the rights, duties, legal obligations, and authority of

owners and management. 64 Some of these groups are then divided into

specific legal topics. Under the current content specifications, business

structure has taken on added importance on the CPA Exam. The business

law area on the REG section may be allocated between .6 and .75 hours on

any given CPA Exam, while the business structure area on the BEC section

may be allocated between .43 hours and .58 hours. If the area of business

structure was allocated its maximum time allowed and the business law

area was allocated its minimum they would almost be equal. That is a sig-

nificant increase for business structure topics when compared with the

1994 content specifications, and it is a significant decrease for other busi-

ness law topics.65 If the AICPA’s 2008 proposed content specifications are

adopted, and business structure topics are tested in the business law area of

the REG section, all other business law topics will receive even less cover-

age on future CPA Exams.

VI. ACCOUNTING LIABILITY AND ACCOUNTINGSCANDALS

Lawsuits against accountants have seemed at crisis proportions for some

time now. In the first half of the 1990s, the litigation crisis revolved pri-

62Id. at 21–22.

63AICPA, BUSINESS ENVIRONMENT AND CONCEPTS ADDITIONAL DETAIL CORRESPONDING TO CONTENT

SPECIFICATION OUTLINE 6 (2002), available at http://www.cpa-exam.org/download/BEC-Paper-final.pdf.

64Id.

65See Neal R. VanZante, The New CPA Examination, CPA J., Apr. 1994, at 42, 43 discussing ofthe 1994 CPA content specifications).


marily around the collapse of the savings and loan industry and the 1991–

1992 recession.66 The public accounting industry responded to this wave

of lawsuits by enhancing their peer and quality review efforts, seeking

federal and state tort reform, reviewing the language of professional stan-

dards, and adopting alternative dispute resolution techniques.67 Of course,

not all malpractice claims during that period arose out of audit engage-

ments. While audit claims are generally the most costly to settle, tax claims

can occur more frequently.68 During the period from 1987 to 1993, the

AICPA Professional Liability Insurance Plan received 3,295 new malprac-

tice claims, of which 48 percent were from tax engagements with only 17

percent from audit engagements.69 These claims arose from negligence in

tax planning as well as negligence in tax compliance. They involved failure

to document communications and engagements with clients, missed filing

and election deadlines, negligent investment and pension advice, and var-

ious other forms of malpractice.70 Legal troubles continued for the public

accounting profession within just a few years. By the late 1990s, the public

accounting profession entered into a period of high-profile accounting

scandals. The Baptist Foundation, Enron, MCI, Adelphia Communica-

tions, and other accounting scandals cost investors billions of dollars and

led to the creation of new criminal penalties and additional regulation of

the accounting profession at both the federal and state level.71 Corporate

officers involved in these scandals received lengthy jail sentences while

those bankers, auditors, and directors involved have been held liable for

billions of dollars.72 These corporate scandals have not generally been

viewed as a failure by those involved to understand the legal environment

or their legal responsibilities but have been viewed as intentional ethical

66Dan L. Goldwasser, Is the Storm Ending?, CPA J., Oct. 1995, at 16, 21.

67Id.

68William F. Yancey, Managing a Tax Ppractice to Avoid Malpractice Claims, CPA J., Feb. 1996, at12.

69Id.

70Id. at 13.

71Karen Gantt et al., Sarbanes-Oxley, Accounting Scandals, and State Accountancy Boards, CPA J.,Sept. 2007, at 18.

72Nikki Swartz, Corporate Criminals Strike Out in 2005, INFO. MGMT. J., Mar.–Apr. 2006, at 10,10–11.


breaches or violations.73 Correspondingly, they have generated an interest

in research concerning the need for additional ethics training or ethics

education for accountants and business students.74 Similarly, the account-

ing scandals are probably an important reason that thirty-four state boards

of accountancy have passed legislation requiring continuing education in

ethics for their licensed CPAs.75 The scandals have also motivated the

NASBA to propose amending the UAA to require ethics education for all

CPA candidates.76 Nothing similar happened concerning business law

training or business law education. The accounting scandals and the in-

creased regulation of accountants, brought about by the Sarbanes-Oxley

Act and similar state statutes, did not result in the AICPA or the NASBA

calling for a dramatic improvement or increase in the legal education of

accountants. Only a few published articles connected the accounting scan-

dals to the legal education of accountants.77 These articles, however, seem

to make a valid connection between the accounting scandals and the legal

environment, which has gone largely unnoticed. As one author stated:

A business may eventually fail due to unethical behavior, but no one goes toprison for unethical, but legal, actions. Knowledge, respect, and fear of the law,as well as of business ethics, are critical to every businessperson. The failure torecognize the importance of law and ethics in business decision making canend in catastrophe.78

This seems to aptly describe what happened to the public accounting

practice of Arthur Anderson LLP in regard to the Enron scandal. It is

doubtful that Arthur Anderson LLP’s professional accounting practice

73This is probably due to the fact that the accounting scandals involved experienced individ-uals with presumed access to advice from legal counsel.

74See Amy Haas, Now Is the Time for Ethics Education, CPA J., June 2005, at 66; Conor O’Leary& Gladies Pangemanan, The Effect of Groupwork on Ethical Decision-Making of Accountancy Stu-dents, J. BUS. ETHICS 215 (2007); Cindy Blanthorne et al., Accounting Educators’ Opinions aboutEthics in the Curriculum: An Extensive View, 22 ISSUES ACCT. EDUC. 355 (2007).

75Blanthorne, supra note 74, at 356.

76NASBA, supra note 18.

77See Sally Gunz & John McCutcheon, The AICPA in Crisis and How it Impacts the Business LawDispute, 20 J. LEGAL STUD. EDUC. 203, 207 (2002); John Tanner et al., A Survey of BusinessAlumni: Evidence of the Continuing Need for Law Courses in Business Curricula, 21 J. LEGAL STUD.EDUC. 203 (2004).

78Tanner, supra note 77.


would have been destroyed solely by an AICPA or state board of accoun-

tancy ethics investigation, but the criminal obstruction of justice allegations

brought about disaster for the firm. Yet the lesson learned from Arthur

Andersen LLP, as described in accounting literature, is predominantly one

of ethics, not law.

VII. ACCREDITATION STANDARDS

The accreditation standards of the AACSB have been another important

influence on the business law curricula.79 The AACSB’s current language,

as relevant to business law, calls for learning experiences in ‘‘Ethical and

legal responsibilities in organizations and society.’’80 The origins of this

language are nearly four decades old. In 1969, the AACSB eliminated

language from its standards that called for a business law course as a cur-

riculum requirement. It replaced it with language that required students

to be exposed to a common body of knowledge that included a back-

ground in the economic and legal environment of the business enter-

prise.81 This change in the language of the standard affected how

accredited business programs named and approached their required law

courses. In a survey conducted in 1982 of both AACSB accredited and

unaccredited institutions, three major approaches to providing legal con-

tent in the business curricula were identified.82 The first category, tradi-

tional, was defined as including contracts, sales agreements, and other

common law and commercial law topics. The second category, a public law

or regulatory approach, was defined as including administrative agencies

and their relationships and involvement with businesses. It included such

topics as consumer law, labor law, and antitrust legislation. The third cat-

egory, the liberal arts or introductory approach, was defined as focusing

upon the process and role of law in society. Its variety of topics included

79Tanner, supra note 77, at 204 (discussing of the history of business law curricula).

80AACSB, ELIGIBILITY PROCEDURES AND ACCREDITATION STANDARDS FOR BUSINESS ACCREDITATION

STANDARD 15 72 (2007), available at http://www.aacsb.edu/accreditation/process/documents/AACSB STANDARDS Revised_Jan07.pdf.

81Gary A. Moore & Stephen E. Gillen, Managerial Competence in Law and the Business Law Cur-riculum: The Corporate Counsel Perspective, 23 AM. BUS. L.J. 351, 352 (1985).

82Mark A. Buchanan, The Legal Environment Requirement: How is it Being Met?, 21 AM. BUS. L.J.237, 238–39 (1983).


jurisprudence and interdisciplinary aspects of the law. There were, of

course, programs where some aspects of these three approaches were

blended together. This research found that the majority of institutions, at

that time, both accredited and unaccredited, followed a traditional ap-

proach.83 The AACSB accredited programs were more likely to call their

required law course legal environment rather than business law, and they

were more likely to follow that regulatory or public law approach in the

course.84 Legal environment of business texts were developed to meet

AACSB standards and are now easily distinguished from business law texts

by their smaller size and fewer chapters.85 These differences are suffi-

ciently distinct that a course titled legal environment would be expected to

be taught with a legal environment of business text. In 1990, a survey

was conducted of a 117 deans of AACSB-accredited schools, and the

study found that there was an inconsistency between legal-environment-of-

business-type courses and the needs of accounting students.86 The study

found that business programs requiring two traditional courses in business

law had all but vanished.87 It also found that 25 percent of the respondent

institutions required a one-semester legal environment course for their

accounting majors, the same requirement as for all other undergraduate

business students.88 The author of the study recommended adoption of a

two-course requirement for accounting students with an introduction to all

relevant legal areas in the first course and the second course detailing

subjects critical to accountants and auditors. The author recommended an

integrated and transactional approach that would present the interrela-

tionships that exist in business law. 89

83Id. at 242.

84Id. at 246.

85The size and number of chapters in business law texts vary depending on the authors.Similarly, the size and number of chapters in legal environment of business texts also vary. Insome cases business law and legal environment of business texts have moved closer togetherbut generally legal environment of business texts have fewer chapters and fewer pages thanbusiness law texts.

86Eugene T. Maccarrone, Do College Law Curriculums Meet the Needs of Accounting Majors?, CPAJ. ONLINE (Apr. 1990), http://www.nysscpa.org/cpajournal/old/08415654.htm.

87Id.

88Id.

89Id.


Today’s AACSB accreditation process is mission-based with an em-

phasis on continuous improvement and direct assessment. In addition to

the AACSB accreditation standards for business, the AACSB has adopted

accreditation standards for accounting programs. There are two account-

ing accreditation standards that are relevant to this discussion. Standard 37

states that normally degree programs will include learning experiences in

the ‘‘ethical and regulatory environment for accountants.’’90 If there is a

substantive difference between the accounting standard’s ‘‘regulatory en-

vironment’’ language and the business standard’s ‘‘legal responsibility’’

language, it is not made clear in the annotations to the standards. Inter-

estingly, the regulatory environment language is consistent with the CPA

Exam’s inclusion of business law topics in the REG section. Standard 38 of

the accounting standards states that if a school’s mission is to prepare

graduates to enter an accounting profession, graduates should meet the

entry requirements for that profession.91 Academic units can document

compliance with the standard by referencing laws and regulations, com-

petency frameworks, and content lists provided by accounting professional

organizations. This standard may be the first step by the AACSB of con-

necting accounting curriculum requirements to state education require-

ments for CPAs.

VIII. THE 150-HOUR REQUIREMENT

A majority of states have passed the 150-hour requirement for CPAs, which

mandates that CPA candidates complete the equivalent of five years of

university education.92 The majority of the states, however, do not dictate

what the additional hours should cover in the way of content.93 For a pe-

riod of time, the AICPA and the NASBA published a 150-Hour Curriculum

90AACSB, ELIGIBILITY PROCEDURES AND STANDARDS FOR ACCOUNTING ACCREDITATION 35(2007), available at http://www.aacsb.edu/accreditation/process/documents/AACSB accountingSTANDARDS revised Apr07 annotated.pdf.

91Id. at 36.

92There are several online compilations of state CPA Exam requirements. See NASBA, http://www.nasba.org/nasbaweb/NASBAWeb.nsf/WPECUSM (last visited Aug. 12, 2008); State CPAExam RequirementsFBecker Review, http://www.beckercpa.com/state/index.cfm (last visitedDec. 29, 2008).

93See UNIFORM ACCOUNTANCY ACT, supra note 10.


Development Handbook.94 This handbook outlined a possible 150-hour cur-

riculum that included two law courses within the nonaccounting business

education hours. It listed a legal and social environment of business course

followed by a traditional business law course.95 References to this hand-

book are found as recent as the year 200096 and go back as far as the year

1990.97 Whether this sample curriculum was ever intended as more than

an illustration is questionable. The AICPA and the NASBA are oddly silent

about the best preparation for the CPA Exam. In the CPA Exam CandidateBulletin candidates are advised to read the AICPA content specification

outlines, review sample tests, and to take the online tutorial provided at

www.cpa.-exam.org.98 Today neither organization is giving specific curric-

ular advice to CPA candidates. The AICPA’s current assistance to educators

in developing accounting curricula is found in the form of the AICPA Core

Competency Framework.99 This framework identifies certain competen-

cies or skills needed by all accountants regardless of whether they work in

private industry, government, or public accounting.100 It includes a legal

competency that is included in the broad business perspectives section of

the framework. It states, ‘‘Individuals preparing to enter the accounting

profession need to be capable of describing the legal and regulatory en-

vironment and analyzing the impact of changes in relevant requirements,

constraints, and competitive practices.’’101 The AICPA Core Competency

Framework is only relevant to this discussion in that it illustrates that the

AICPA has chosen to identify the skills needed by all accountants but not

94O’Brien, supra note 36, at 2.

95Id.

96Id.

97Maccarrone, supra note 86.

98AICPA, NASBA & THOMSON PROMETRIC, THE UNIFORM CPA EXAMINATION CANDIDATE BULLE-

TIN INFORMATION FOR APPLICANTS 21 (2004), available at http://www.cpa-exam.org/cpa/bulle-tin.html.

99AICPA, Core Competency Framework & Educational Competency Assessment Web Site,http://ceae.aicpa.org/Resources/Education+and+Curriculum+Development/Core+Competency+Framework+and+Educational+Competency+Assessment+Web+Site/ (last visited Dec.29, 2008).

100Id.

101AICPA, Broad Business Perspective Competencies, http://www.aicpa.org/edu/bbfin.htm(last visited Dec. 29, 2008).


i:/BWUS/JLSE/63/www.cpa.-exam.org





















the knowledge base needed by entry-level CPAs. This reluctance of the

AICPA to give advice on accounting curricula needed by CPAs may be in

deference to its constituents who believe accounting curricula should

be decoupled from professional examinations. In 1991, the Accounting

Education Change Commission (AECC) issued a statement calling for the

decoupling of academic studies and preparation for professional account-

ing examinations.102 The AECC’s position was that accounting students

should complete their academic education prior to preparing for the CPA

Exam.103 Some accounting education reformers believe that the CPA

Exam has had a negative impact on accounting curricula over the years.104

They believe that passing the CPA Exam should not be the goal of an ac-

counting education.105 Some accounting practitioners and educators see

the purpose of the 150-hour requirement as one of broadening graduates’

business education and not a means of improving graduates’ CPA Exam

pass rates. In 2000, Albrecht and Sack in Accounting Education: Charting theCourse through a Perilous Future reported criticism of accounting programs

where the fifth year was used for additional accounting courses.106 They

suggested that this was the wrong approach and that the fifth year would

be better used to develop a broad business background.107 Their research,

however, identified business law as a broadening-type course, which was

ranked higher in importance by accounting practitioners than by account-

ing faculty. On a scale where four was very important, three was moder-

ately important and two was somewhat important, accounting faculty rated

business law as 2.84 and accounting practitioners ranked it as 2.95.108 This

research indicates that both groups found business law moderately im-

portant to the success of accountants.

102Accounting Education Change Commission, AECC Urges Decoupling of Academic Studies andProfessional Accounting Examination Preparation Issues Statement No. 2 (July 1991).

103Id.

104Irvin Nelson, What’s New about Accounting Education Change? An Historical Perspective on theChange Movement, 9 ACCT. HORIZONS 62, 63 (1995).

105Id. at 65.

106W. Steve Albrecht & Robert J. Sack, Accounting Education: Charting the Course through a Per-ilous Future, 16 ACCT. EDUC. SERIES 53 (2000).

107Id.

108Id. at 51–52.









































IX. PROFESSOR JUDGMENT AND LOGICALCONCEPTUAL FRAMEWORKS

Over twenty years ago, Charles R. McGuire in his article in the winter 1986

American Business Law Journal109 proposed that business law professors de-

velop logical conceptual frameworks for determining the content of their

law courses. He emphasized the importance of business law professors not

abdicating or delegating their responsibilities in curriculum development

to others.110 He rejected the idea that business law professors should de-

sign an undergraduate law curriculum based on surveys of business peo-

ple, business school faculty, student interests or business law curricula at

other institutions.111 He proposed that the content of legal environment of

business courses be selected in the context of the relationships of a business

firm.112 He identified eight entities with relationships to the firm: custom-

ers, creditors, competitors, employees, government, the public, investors,

and suppliers. He identified three basic choices in selecting legal topics

using this framework.113 All topics relating to the eight relationships could

be presented in a survey or summary fashion in one semester. Alterna-

tively, all legal topics relating to the eight relationships could be presented

in more depth over two or more semesters. Finally, instructors could cover

all the relationships but select some relevant topics and ignore others so

that some in-depth coverage of the material could occur in one semester.

According to McGuire, this approach would help students see the ‘‘big

picture,’’ and they would be able to see the law as ‘‘a harmonious and

vibrant whole, organized and structured for change and intricate in its

exceptions and incongruities.’’114 On a practical level, McGuire offered a

reasonable and logical approach to teaching a legal environment of busi-

ness course, one that is consistent with the design of many of today’s legal

environment of business textbooks. As an example, McGuire’s approach

109Charles R. McGuire, Logic and the Law Curriculum: A Proposed Conceptual Framework For ‘‘TheLegal Environment of Business,’’ 23 AM. BUS. L.J. 479 (1986).

110Id. at 480.

111Id.

112Id. at 493.

113Id. at 497.

114Id. at 507.


emphasized the responsibility of business law faculty to use their judgment

and creativity in the design of undergraduate business law courses.

X. RESEARCH QUESTIONS

The policies adopted and actions taken by the AICPA, the NASBA, and the

individual state boards of accountancy over the past fifteen years raise

many questions concerning the role of business law curricula in accounting

programs. The 1969 change in the AACSB standard language, the 150-

hour requirement, the accounting reform movement, accounting scandals,

and the current structure and content of the computer-based CPA Exam

all are important events or factors that may have influenced business law

faculty. These factors raise fundamental questions concerning the proper

role of the business law curriculum for accounting students. They raise

questions concerning curricular content, the importance of substantive law

topics, the degree of integration of business law into accounting programs,

and the quality of legal training accounting students receive.

It is the primary purpose of this article to report how business law

instructors or professors perceive these issues. In addition, the article com-

pares the perceptions of business law professors in 1993 to those of business

law professors in 2005. This is done to determine to what extent the per-

ceptions of business law faculty have changed over a period where AICPA

and NASBA policies have changed. Finally, the article compares the posi-

tions taken by accounting organizations in respect to business law education

with those beliefs and actions taken by business law faculty. A review of the

relevant literature showed no prior published work that has done this.

XI. THE 1993 RESEARCH SUBJECTS ANDMETHODOLOGY

In 1993, the authors surveyed business law professors to determine their

perceptions as to the status of the business law education of accounting

students.115 The findings are discussed in this article to contrast the per-

ceptions of business law professors in 1993 with those of business law

115Mehmet C. Kocakulah et al., The Business Law Education of Accounting Students: A Survey ofBusiness Law Educators 1 (1994) (unpublished manuscript obtainable from authors).


professors surveyed in October 2005. In the spring of 1993, the authors

distributed a survey to 434 chairpersons of business law departments or to

the chairpersons of those departments housing the business law curricu-

lum. In the latter case, instruction was given to the department chair to

forward the questionnaire to an appropriate senior business law professor.

The sample was obtained by using a stratified random sample of every

third college or university named in Prentice Hall’s 1992 Accounting FacultyDirectory, compiled by James R. Hasselback. Colleges and universities of

various size, geographic location, and level of accreditation were selected.

The authors included all large schools of accountancy in the sample be-

cause the authors wanted to obtain the greatest coverage of accounting

students with the limited sample size selected. Follow-up requests were

mailed approximately three weeks after the initial mailing of the ques-

tionnaires. A Likert scale was used to measure perceptions or opinions.

Results were obtained from ninety-eight business law professors out of a

survey population of 434, a 22 percent response rate.116

A. Respondents’ Programs

The respondents were asked for demographical data concerning the size

of their institutions and accounting programs.117 The respondents indi-

cated they were from medium-sized universities having an average num-

ber of students of 9,277. The average number of undergraduate

accounting students in the respondents’ accounting programs was 298.

The respondents were then asked several questions concerning the

type of business law courses offered at their institution.118 The responses

show 56 percent of those surveyed had accounting programs where ac-

counting students were required to complete a course in legal environment

of business, while 62 percent required either a business law or a business law

I course.119 Twenty-three percent of the respondents indicated that their

programs required a second business law course (business law II).

116Id. at 4.

117Id.

118Id. at 5–6.

119These percentages indicate that some programs, obviously, required both types of coursescreating percentages above 50 percent for both types of courses.


B. Curricular Content

When respondents were asked whether all accounting students should be

required to take a legal environment of business course, only 14.2 percent

answered they either agreed or strongly agreed with this premise.120 In

contrast 75.2 percent disagreed or strongly disagreed with the proposition

that all accounting students should be required to take a legal environment

of business course.121 Respondents were asked how many semester hours

of law-related instruction (excluding taxation) should be required for an

accounting student planning to enter the public accounting profession. In

total, 74 percent of respondents believed that six or more hours should be

required of accounting students pursuing a career in public accounting.

Twenty-six percent felt three semester hours should be required, 61 per-

cent felt six semester hours and 13 percent indicated nine or more hours

should be required.122 Respondents were then asked if there were only

one required law course for accounting students, whether it should be a

business law or a legal environment course. 123 Seventy percent of the re-

spondents felt it should be a business law course.

C. Substantive Law Topics

Business law educators were then asked to rank the importance of

the topics tested on the CPA Exam at that time. They used a rating scheme

where 1 was very important, 2 was moderately important, 3 was not

very important, and 4 should not be tested. The results are contained in

Table 1.

As shown by Table 1, all the topics on the CPA Exam were viewed as at

least moderately important to accounting students interested in a career in

public accounting. The highest rankings included a combination of ac-

countant’s liability, business structure, and Uniform Commercial Code

topics.124

120Id. at 7.

121Id.

122Id. at 4–5.

123Id. at 6.

124Id. at 8.


D. Integration of Business Law into Accounting Programs

Respondents were asked whether they were members of their institutions’

accounting departments to determine how closely the respondents were

associated with the goals of accounting faculty. Fifty-one percent of the

respondents were members of accounting departments; the remaining

respondents were members of other departments.125 The respondents

were then asked how often accounting faculty made suggestions concern-

ing content in their business law courses.126 Only 28.1 percent of respon-

dents indicated that accounting faculty always or regularly gave input.

Conversely, 71.9 percent indicated that accounting faculty only sometimes,

seldom, or never made suggestions concerning course content. When

respondents were asked whether it was their responsibility to prepare

accounting students for the CPA Exam, 68.4 percent felt that it was while

26.5 percent felt that it was not.127

Table 1: Rating of Substantive Law Topics

Topic Rank Average Rating

Accountant’s liability 1 1.27Contracts 2 1.27Corporations 3 1.43Sales 4 1.40Partnerships 5 1.53Commercial Paper 6 1.57Secured Transactions 7 1.66Securities Regulations 8 1.70Bankruptcy 9 1.75Agency 9 1.75Real Property 11 2.05Estates and Trusts 12 2.10Personal Property 13 2.22Employment 14 2.28Insurance 15 2.35Suretyship 16 2.40Antitrust 17 2.68

125Id.

126Id. at 10–11.

127Id. at 12.


E. Perception of Quality in Legal Education

When respondents were asked how well prepared their accounting stu-

dents were for the CPA Exam, 62 percent of the respondents indicated that

their students were well or very well prepared for the business law portion

of the CPA Exam. Overall, the respondents felt that the accounting stu-

dents that were going into other fields of accounting were even better

prepared. A total of 96.8 percent of respondents felt that those students

were receiving a good or excellent business law education.128

XII. THE 2005 RESEARCH SUBJECTS ANDMETHODOLOGY

In October 2005, a questionnaire entitled Survey on Business Law Educationwas distributed via e-mail to 205 business law professors at colleges and

universities of varying sizes, levels of accreditation, and location across the

United States. When it was possible to identify them, chairs of business law

departments or senior business law professors were solicited for the survey.

The universities were selected from Prentice-Hall’s 2005 Accounting FacultyDirectory, compiled by James R. Hasselback. Information on business law

faculty was obtained from Hasselback’s directory when business law and

accounting were housed in the same department and when business law was

housed outside the accounting department; the authors obtain information

on business law professors from alternate sources, such as the business

schools’ Web sites, phone conversations, or the AACSB Web site www.aacs-

b.edu). The sampling method used was stratified random sampling. All

large schools of accountancy were included in the sample because the au-

thors wanted to obtain the greatest possible coverage of accounting students

with the limited sample-size selected. Both accredited and nonaccredited

schools were selected for the study because the survey included questions

leading to a determination of what accounting students on the whole were

being taught and what their professors thought that they should be taught

with respect to business law topics. Follow-up requests were e-mailed to all

nonrespondents two and four weeks after the initial e-mail. A total of thirty-

five complete responses were received from the survey population of 205

business law professors for a response rate of 17 percent. For perceptions or

opinion questions, a Likert scale was used for measurement.

128Id. at 14.


A. Respondents’ Program

The respondents of the 2005 survey represented medium-sized universi-

ties with the institutions having an average of 6,524 students, including 213

accounting students. As shown in Table 2 the median number of university

students was 5,200 and undergraduate accounting students 200.

The first set of questions posed to respondents focused on the law-

related courses offered to accounting students in their business programs.

Respondents were asked to list the titles of each of their law-related

courses, whether those courses were required or elective, the mean num-

ber of credit hours for those courses, the mean number of accounting

students enrolled in those classes per year, and the mean number of un-

dergraduate students enrolled in those courses per year. The findings, as

shown in Table 3, reveal that the majority of the respondents’ programs

only required one law-related course and, in the majority of programs,

that required course was a legal environment of business course.

As shown in Table 3, legal environment of business was a required law

course at 62.9 percent of respondents’ institutions. The data shows that of

the twenty-two programs, where legal environment of business was re-

quired, in seven of the those programs a traditional second course such as

business law, business law I, commercial or business law CPA review was

also required. Thus, seven or 20 percent of the respondents required two

law courses, consisting of one course from each approach. The data also

revealed that five other programs required a course in business law or

business law I followed by a second required course in business law I or

business law II. These five programs represent a minority of respondents’

programs (14.3 percent) where two traditional courses were required.

Thus, only twelve or 34.3 percent of the respondents’ programs required

two law-related courses. The other twenty-three or 65.7 percent of the

respondents’ programs required one course or less. Fifteen required legal

environment of business, two required business law, five required business

law I, and one program did not require any law-related courses. As these

findings show, fifteen out of thirty-five programs or 42.9 percent of the

Table 2: Summary Statistics of the Surveyed Departments

Institution Demographics Mean Median

University size (students enrolled) 6,524 5,200Number of undergraduate accounting students 213 200


respondents relied on legal environment of business as the sole required

law course for their accounting students. Only seven or 20 percent of the

respondents relied on a single required traditional business law course.

B. Curricular Content

The respondents were then asked questions concerning their perceptions

of business law curricula. They were asked how many semester hours of

law-related instruction (excluding taxation) should be required for an

accounting student planning to enter the public accounting profession. A

total of 71.4 percent of the respondents believed that accounting students,

pursuing careers in public accounting, should be required to take six or

more semester hours of law instruction. Their responses showed 5.7 per-

cent listed three hours, 20.0 percent listed three to six hours, 40 percent

listed six hours, 25.7 percent listed six to nine hours, and 5.7 percent listed

nine hours. Respondents were asked, if only one law course was required

for accounting students in their baccalaureate degree program, which

Table 3: All Law-Related Courses Offered

Course

Required ElectiveMeanCreditHours

MeanUndergradAccounting

Students

MeanUnder-

graduateStudentsFrequency Percent Frequency Percent

Legal Environment ofBusiness

22 62.9 5 5.7 3.11 89 445

Business Law 5 14.3 5 14.3 3.33 118 235Business Law I 11 31.4 2 5.7 3.00 67 167Business Law II 4 11.4 12 34.3 2.93 28 32Commercial Law 2 5.7 6 17.1 3.17 52 74Estate Administration/Estate Planning

0 0 3 8.6 3.00 15 23

Consumer Law 0 0 2 5.7Labor Law 0 0 8 22.9 3.00 3 44Real Estate Law 0 0 4 11.4 3.00 0 28E-Commerce Law/Cyber Law

0 0 7 20.0 3.00 7 45

Business Law CPAExam Review129

2 5.7 2 5.7 3.00

129In addition to those courses listed in Table 3, other courses offered by respondents’ pro-grams included entertainment law, international business, health care law, tax law and humanresource law.


course should it be. By a nearly three-to-one margin business law profes-

sors chose business law (71.4 percent) over a course in legal environment

of business (25.7 percent).

Professors were asked whether or not all business law topics covered

on the CPA Exam should be covered in a university’s required under-

graduate courses. There was no general consensus, as 48.6 percent

responded yes, 48.6 percent responded no, with 2.8 percent not answer-

ing the question. The respondents were also asked whether or not all top-

ics covered on the CPA Exam should be covered in the university’s

required courses plus elective courses. Roughly 66 percent of the respon-

dents responded positively while over one-fourth believed all CPA topics

did not have to be covered in their curriculum.

C. Substantive Law Topics

The second set of questions asked the business law professors what substantive

law topics covered on the current CPA Exam were very important to accoun-

tants in performing the accounting, tax and auditing functions. Table 4 ranks

the topics by the percentage of respondents finding the areas very important.

Table 4: Rating of Substantive Law Topics

Topic Rank Percent

Accountant’s liability 1 80.0Corporations 2 74.3Contracts 3 65.7LLCs and LLPs 4 62.9Privileged communication and confidentiality 4 62.9Sole proprietorships and partnerships 4 62.9Liability for payroll and social security taxes 7 51.4Debtor-creditor relationships 8 45.7Secured transactions 8 45.7Agency 10 42.9Negotiable instruments 10 42.9Union and employee relations 12 40.0Sales 13 34.3Bankruptcy 14 31.4Pension and retirement plans 14 31.4Securities regulation 14 31.4Documents of title and title transfer 17 28.6Insurance 18 22.9Real Property 18 22.9Antitrust 20 8.6


The top six categories are divided between the business law topics of

accountant’s liability and contracts, and business structure topics of cor-

porations, limited liability companies (LLCs), limited liability partnerships

(LLPs), sole proprietorships, and partnerships. Respondents were then

asked, to indicate those substantive law topics that should be added to the

CPA Exam. Again, respondents were asked to rank whether the topics

were very important or moderately important. Table 5 shows the rankings

of those topics that were ranked as very important.

The top five topics not currently covered by the CPA Exam but

thought very important by business law professors included topics that

may appear more relevant in light of the recent accounting scandals. It

includes the liability of other professionals, business ethics, business crime,

administrative law, and torts. More respondents found these additional

topics very important than the actual CPA Exam topics of insurance, real

property, and antitrust. Given the importance of the various substantive

law topics on the CPA Exam, where in the curriculum are the business

law professors covering those topics? The business law professors were

Table 5: Rating of Law Topics Not Currently on the New CPA Exam

Law Topic Rank Percent

Liability of professionals 1 68.6Business ethics and social responsibility 2 62.9Business crimes 3 37.1Administrative law 4 28.6Torts 4 28.6Wills and trusts 6 25.7Employment discrimination 7 22.9Alternative dispute resolution 8 20.0Intellectual property 8 20.0Alternate dispute resolution 8 20.0Personal property and bailments 11 17.1Constitutional authority to regulate business 12 14.3Consumer protection 12 14.3International and comparative law 12 14.3Internet law or cyber law 12 14.3Landlord-tenant relationships 12 14.3Privacy 12 14.3The court system 12 14.3Court procedures 19 11.4Environment law 19 11.4Franchise law 19 11.4Functions, classifications, and sources of the law 19 11.4


asked in which type of course were these topics being covered (required,

elective, or not covered) at their respective schools. Table 6 shows the ex-

tent to which each legal topic on the CPA Exam is covered in the respon-

dents’ programs.

These findings indicate that a majority of the respondents covered

contracts (91.4 percent), agency (68.6 percent), corporations (60 percent),

LLCs and LLPs (57 percent), and sole proprietorships (57 percent) in their

required courses. The highest ranked topic for importance, accounting

liability, was covered in only 51.4 percent of respondents’ required law-

related courses. This data shows that business law instructors are not

selecting the content of their required courses based solely on CPA Exam

content. It appears that accounting students are being given the opportu-

nity to cover most substantive law topics on the CPA Exam if those students

elect to take both the required and elective courses offered. CPA Exam

topics that were less likely to be covered in the legal curriculum included

Table 6: Required and Elective Substantive Law Topics Covered

Topic

Required ElectiveNotCovered

Don’tKnow

NoResponse

Percent Percent Percent Percent Percent

Accountant’s liability 51.4 22.9 14.3 8.6 2.9Privileged communication andconfidentiality

40.0 11.4 28.6 14.3 5.7

Agency 68.6 22.9 2.9 0.0 5.7Contracts 91.4 5.7 0.0 0.0 2.9Debtor-creditor relationships 40.0 48.6 8.6 0.0 2.9Bankruptcy 42.9 45.7 8.6 0.0 2.9Securities regulation 42.9 31.4 14.3 8.6 2.9Antitrust 28.6 28.6 37.1 2.9 2.9Pension and retirement plans 17.1 20.0 48.6 11.4 2.9Union and employee relations 28.6 22.9 40.0 5.7 2.9Liability for payroll and socialsecurity tax

34.3 17.1 31.4 14.3 2.9

Negotiable instruments 37.1 54.3 0.0 2.9 5.7Sales 57.1 37.1 0.0 2.9 2.9Secured transactions 37.1 48.6 5.7 2.9 5.7Docs. of title and title transfer 37.1 45.7 8.6 5.7 2.9Real property 37.1 48.6 11.4 0.0 2.9Insurance 22.9 42.9 20.0 8.6 5.7Sole proprietorships andpartnerships

57.1 37.1 0.0 0.0 5.7

LLCs and LLPs 57.1 31.4 2.9 2.9 5.7Corporations 60.0 34.3 0.0 0.0 5.7


privileged communication and confidentiality, liability for payroll and

social security taxes, pension and retirement plans, and union and em-

ployee relations. These four CPA Exam topics were the topics most often

listed as not covered in the business curriculum even though business law

professors ranked them as 4, 7, 12, and 14, respectively, for their impor-

tance to accountants. Furthermore, the percentages of respondents who

did not know if these topics were covered in their program’s required legal

courses were 14.3, 14.3, 11.4, and 5.7 percent, respectively.

D. Integration of Business Law in Accounting Programs

Respondents were asked whether they were members of their institutions’

accounting departments to determine how closely the respondents were

associated with the goals of accounting faculty. The responses to the survey,

as shown in Table 7, indicated that 60 percent of respondents were mem-

bers of departments other than the accounting department.

The respondents were asked several questions designed to reveal

how business law professors view their role in educating accounting stu-

dents. Table 8 presents the results for those questions that followed a com-

mon answer format.

When asked if it was the responsibility of business law faculty to pre-

pare accounting students for the business law topics on the CPA Exam or

other professional accounting certification, 91.4 percent of the respon-

dents indicated that they either strongly agreed or agreed it was their

responsibility. Respondents were then asked a question concerning how

content should be determined in business law courses. A majority of the

business law professors (68.5 percent) either strongly agreed or agreed

that business law and accounting faculty should make a joint determination

of the legal topics covered in business law courses. Respondents were also

asked the frequency of input by accounting faculty on course content

in business law courses. Over 50 percent of respondents believed that

accounting faculty members seldom or never make suggestions over

course content and coverage. Their responses indicated 20 percent always

made suggestions, 5.7 percent regularly made suggestions, and 17 percent

Table 7: Is Business Law Located Within the Accounting Department?

Response Frequency Percent

Yes 14 40.0No 21 60.0


sometimes made suggestions. Accountant’s liability was ranked as the most

important topic by the business law professors, but it is a very broad topic.

It has traditionally been taught by auditing professors for auditing and

accounting issues, tax professors for tax penalties and tax preparer’s neg-

ligence, and business law professors for negligence and securities regula-

tions. Respondents were asked, who should be the principal instructor of

accountant’s liabilityFan accounting professor or a business law profes-

sor? By almost a 4.5 to 1 margin, business law professors believe they

should teach accountant’s liability rather than nonlawyer accounting pro-

fessors. Unfortunately, 22.9 percent of the respondents had no opinion on

the issue. When asked, in what course accountant’s liability should be

taught, most respondents thought it should be taught in a law course.

Roughly 12 percent of the law professors believed that the proper course

to teach accountant’s liability was in an accounting course, 17.1 percent

stated it should be taught in auditing, over 40 percent stated it should be

taught in business law, while 22.9 percent stated that the course in which

the topic was taught was irrelevant.

When the AICPA restructured the CPA Exam to its new computer-

based format, business law was reduced in significance for CPA Exam can-

didates. This reduction in the content coverage of business law topics was

Table 8: Business Law Professors’ Perception of Curriculum

StronglyAgree Agree Disagree

StronglyDisagree

NoOpinion

NoResponse

It is the responsibility of the businesslaw faculty to prepare accountingstudents for the business law topicson the CPA examination (or otherprofessional accounting certification).

37.1 54.3 2.9 2.9 2.9 0.0

Business law and accounting facultyshould make a joint determination ofthe legal topics covered in businesslaw courses.

31.4 37.1 22.9 5.7 0.0 2.9

Accountant’s liability should betaught principally by business lawfaculty as opposed to nonlawyeraccounting faculty.

31.4 31.4 8.6 5.7 22.9 0.0

The AICPA was correct in reducingthe business law topics (Regulationand BEC) of the CPA examinationfrom 2.5 hours to approximately1.625 to 1.775 hours in total.

2.9 14.3 20.0 37.1 22.9 2.9


implemented during a period when the worlds of CPAs, investors, and

publicly traded companies had been rocked by scandals. Business law pro-

fessors were asked to give their opinions as to whether or not the AICPA

was correct in reducing the business law topics included in the REG and

BEC sections of the CPA Exam from 2.5 hours to approximately 1.625 to

1.775 hours in total.130 Not surprisingly respondents were three times

more likely to disagree with the AICPA’s reduction (57.1 percent) than

agree with the AICPA decision (17.2 percent).

Respondents were asked to evaluate their knowledge of the areas

of accounting practice. This question was asked to determine the extent

to which business law professors understood content and issues relevant

to the public accounting profession. The findings are presented in Table 9.

Business law professors felt they possessed a good or excellent knowl-

edge of negligence (71.4 percent) and taxation (60.0 percent). The data in-

dicates that business law professors felt less knowledgeable in auditing,

private accounting, and accounting for publicly traded companies. In those

three areas the respondents indicated that they had poor or very poor

knowledge by 48.6 percent, 38.5 percent, and 42.8 percent, respectively.

This lack of knowledge in three important areas of accounting practice in-

dicates that accounting and business law faculty should work more closely

together in developing the business law curricula for accounting students.


When asked to rate their accounting students’ level of preparedness in

accountant’s liability, as shown on Table 10, 62.9 percent indicated their

Table 9: Business Law Professors’ Knowledge of Accounting Practice Areas

Excellent Good Fair Poor Very Poor

Accountant’s negligence 45.7 25.7 20.0 2.9 5.7Auditing 2.9 11.4 37.1 28.6 20.0Private accounting 0.0 28.6 22.9 31.4 17.1Taxation 37.1 22.9 17.1 8.6 14.3S.E.C. accounting 2.9 22.9 28.6 25.7 17.1Accounting profession 5.7 40.0 25.7 14.3 14.3

130See supra note 40. This question actually overstated the time of nontax law topics on currentCPA Exam. The business law section was reduced even more than we thought when we de-veloped the survey.


students had an excellent or good level of preparedness, 17.1 percent

stated their students had a fair level of preparedness, and only 2.9 percent

indicated a poor or very poor level of preparedness.

The business law professors were also asked to rate how well

their accounting graduates were prepared for the business law portions

on the CPA Exam and how well prepared their students were for any law

questions that they might face in a nonpublic accounting career. As shown

on Table 11, almost 75 percent of the respondents believed their ac-

counting students going into public accounting were well or very well

prepared.

As indicated on Table 12, these business law professors also believed

their accounting students who were not interested in a career in public

accounting, had an excellent or good level of preparedness in business law

(82.9 percent) or a fair level of preparedness (14.3 percent). Thus, business

law faculty felt very confident in the success of their work.

XIII. COMPARING 2005 RESPONSES WITH 1993RESPONSES

A comparison of the findings of the two surveys shows differences in

the actual business law curricula offered to accounting students, but

there are many consistencies in the perceptions of business law professors

Table 10: Training Accounting Students Receive in Accountants’ Liability

Preparedness Level Percent Responding

Excellent/Good 62.9Fair 17.1Poor/Very Poor 2.9

Table 11: How Well Prepared Are Your Accounting Graduates for Business

Law Portions of the CPA Exam?


Very well/well 74.3Fair/poor 22.9No response 2.9


as to what accounting students need to prepare them for their careers in

public accounting.

A. Respondents’ Programs

As indicated on Table 13, the 2005 respondents were from institutions that

were smaller in both university student population and accounting pro-

gram size. On average, though, both populations represent what could be

described as medium-sized programs. The 2005 survey population had a

high percentage of respondents with either business or accounting AACSB

accreditation.

Studies in the 1980s and early 1990s found that AACSB accredited

schools were moving away from an accounting curriculum that required

accounting students to take two traditional business law courses. Those

studies identified a trend where AACSB accredited business programs

were becoming more likely to call their first law course legal environment

of business and to teach it using a regulatory approach. This study’s find-

ings, shown on Table 14, are consistent with the prior research showing

those types of changes in the business law curricula. The legal environment

of business course in 2005 was the most often required nontax law course

for accounting students. A larger majority of respondents required legal

environment of business courses in 2005 than in 1993. Similarly, in 2005, a

larger minority of respondents required a second course using a tradi-

tional business law approach. Some respondents required the traditional

business law course after a legal environment of business course and some

Table 13: Institutional Demographics Comparison

Survey Population 2005 1993

Average number of students 6,524 9277Average number of undergraduate accounting students 213 298

Table 12: For Accounting Students Not Interested in a Career in Public

Accounting, How Would You Rate Their Business Law Education?


Excellent/Good 82.9Fair 14.3Poor/Very Poor 0.0


after a first traditional business law course. These findings suggest that the

majority of the respondents’ programs are requiring a legal environment

of business course for all business students and then a business law elective

for accounting students.

B. Curriculum Content

Business law professors remained consistent in their belief that a business

law course is preferable to a legal environment course where only one

course is required. This may simply reflect the fact that the business law

topics included on the CPA Exam are more thoroughly covered in business

law texts. Business law professors may recognize that a legal environment

of business course is a broad course typically designed to meet the needs

of all business majors. In their view, a business law course is better suited

to accounting students’ academic needs. Business law professors also

remained consistent in their belief that accounting students going into

public accounting need six or more hours of nontax law courses. This

finding probably reflects the sheer number of business law topics listed in

the CPA content specifications in both 1993 and in 2005. While the AICPA

in 2004 decreased the percentage of the CPA Exam devoted to legal topics,

it did not significantly reduce the number of potential topics that may be

tested. It is very difficult to teach seventeen to twenty substantive law topics

in any depth and still engage students in skill building activities. Finally, as

shown on Table 15, the 1993 and 2005 surveys show a dramatic difference

in the way the two groups perceived whether all accounting students

should be required to take a legal environment of business course. In

contrast with the 1993 respondents, a majority of the 2005 respondents

were in agreement with accounting students taking a legal environment of

business course. It appears that a majority of the respondents in 2005 were

in agreement with the AACSB approach.

Table 14: Respondent Program Comparison

Respondents’ Programs 2005 1993

What percentage of respondents has a program where a course in legalenvironment of business is required?

62.9% 56%

What percentage of respondents has a program where a business law orbusiness law I course is required?

46% 62%

What percentage of respondents has a program where a second coursein business law is required?

34.29% 23%


C. Substantive Content

Business law professors’ perceptions of which CPA Exam topics are very

important topics have remained fairly consistent over the period between

the two studies. While the 1993 survey and the 2005 survey do not have

identical categories, some comparisons are possible, and these are shown

in Table 16. Accountant’s liability and contracts were ranked very highly in

both 1993 and 2005 as were business structure topics related to choice of

Table 15: Curriculum Content Comparison

Curriculum Content 2005 1993

What percentage of respondents agreed that if only one course wasrequired it should be a course in business law?

71.4% 70.1%

What percentage of respondents agreed that six or more hours of lawshould be required?

71.4% 74%

What percentage of respondents agreed that all accounting studentsshould be required to take a course in legal environment of business?

68.5% 14.2%

Table 16: Rating of Substantive Law Topics Comparison

Topics 1993Rank1993 Topics 2005

Rank2005

Accountant’s liability 1 Accountant’s liability 1Contracts 2 Corporations 2Corporations 3 Contracts 3Sales 4 LLCs and LLPs 4Partnerships 5 Privileged Communications and Confidentiality 4Commercial Paper 6 Sole Proprietorships and Partnerships 4Secured Transactions 7 Liability For Payroll and Social Security Taxes 7Securities Regulations 8 Debtor-Creditor Relationships 8Bankruptcy 9 Secured Transactions 8Agency 9 Agency 10Real Property 11 Negotiable Instruments 10Estates and Trusts 12 Union and Employee Relations 12Personal Property 13 Sales 13Employment 14 Bankruptcy 14Insurance 15 Pension and Retirement Plans 14Suretyship 16 Securities Regulation 14Antitrust 17 Documents of Title and Title Transfer 17

Insurance 18Real Property 18Antitrust 20


business entity. LLCs, LLPs, and sole proprietorships were included on the

2005 survey and joined corporations and partnerships as very important

topics on the CPA Exam. Uniform Commercial Code topics such as sales

and secured transactions were ranked lower in relative importance in

2005, but that may have reflected the way commercial paper topics were

listed in the 2005 survey. Bankruptcy and real property were ranked lower

in importance in 2005, but that may have also been related to the differ-

ences in the categories on the two surveys. The respondents’ perception

that business structure topics are very important parallels the current

treatment on the CPA Exam.

D. Integration of Business Law in Accounting Programs

In both 2005 and 1993, respondents reported that significant percentages

of them were from departments other than accounting. Despite this fact, a

majority of respondents in both surveys felt a responsibility to prepare

their accounting students for the CPA Exam, as shown on Table 17. In

2005, a majority of respondents indicated that business law faculty and

accounting faculty should make a joint determination of business law

course content. In actuality, however, course content decisions in both

2005 and 1993 were made primarily by business law faculty members with

accounting faculty giving advice on content infrequently. Accounting fac-

Table 17: Business Law Integration Comparison

Integration of Business Law in Accounting Programs 2005 1993

What percentage of respondents were not members of their institution’saccounting department?

60% 49%

What percentage of respondents agreed it is the responsibility of thebusiness law faculty to prepare accounting students for the businesslaw topics on the CPA examination (or other professional accountingcertification)?

91.4% 68.4%

What percentage of respondents agreed that business law and accountingfaculty should make a joint determination of the legal topics covered inbusiness law courses?

68.5 N/A

What percentage of respondents agreed that accounting faculty alwaysor regularly gave input on course content in business law or legalenvironment courses?

25.7% 28.1%

What percentage of respondents agreed that accounting liability should betaught by business law faculty?

62.8 19.4%

What percentage of respondents agreed that accounting liability should betaught be taught in a business law course rather than an accounting course?

40% 37.8%


ulty members are perceived as giving content suggestions only a little less

than they did in 1993. There was a dramatic increase in the number of

respondents who felt that accounting liability should be taught by business

law faculty rather than nonlawyer accounting faculty. The percentage of

2005 respondents that believed it should be taught in business law courses

was only slightly more than the percentage of respondents in 1993. It ap-

pears the majority of respondents felt they were the best qualified faculty

members to teach the accountant’s liability topic, but less than a majority

felt the topic had to be taught in a business law course. A significant per-

centage of respondents indicated that the class where it was covered was

irrelevant. Overall, the findings indicate that the respondents felt it was

their responsibility to help prepare accounting students for careers in

public accounting, and they were willing to coordinate and cooperate with

accounting faculty to achieve that objective.


As shown on Table 18, over the twelve-year period, the percentage of re-

spondents who responded that their accounting students were well or very

well prepared for the business law portion of the CPA Exam increased. The

percentage of respondents that felt their nonpublic accounting students

were well prepared or very well prepared decreased. In both 1993

and 2005, a greater percentage of business law faculty members felt that

their accounting students pursuing careers outside of public accounting

were better prepared than those pursuing careers in public accounting.

Nevertheless, the majority of business law professors felt they were doing a

good job preparing all accounting students for their careers.

One cannot be certain if the positive perception that business law

educators had about their success with accounting students is warranted. It

is true that business law has historically had a slightly higher CPA Exam

Table 18: Perception of Quality Comparison

Perception of Quality in Legal Education 2005 1993

What percentage of respondents agreed that accounting students,planning a career in public accounting, were well or very well preparedfor the business law portion of the CPA Exam?

74.3% 61.5%

What percentage of respondents agreed that accounting students, notplanning a career in public accounting were well or very well preparedfor the business law portion of the CPA Exam?

82.9% 96.8%


pass rate when compared to the other sections of the CPA Exam.131 This

may be one explanation why business law professors feel they are doing

well preparing accounting students. The NASBA has been collecting sta-

tistical data on CPA candidate performance on the CPA Exam for a number

of years. For the period 1994–2001, 31.7 percent of the first-time candi-

dates for the CPA Exam passed the LPR component of the exam, slightly

better than any of the other three exam components. For the year 2003,

the pass rate for first-time candidates was 38.5 percent on the LPR section,

which was approximately 5 percent better than for the other three com-

ponents.132 Because the CPA Exam format changed in 2004, it is more

difficult to measure performance on the business law topics because those

topics are included in two of the CPA Exam sections. For the year 2005,

NASBA reported 44.1 percent of first time candidates passed the REG

component and 53.5 percent passed the BEC component.133 These per-

centages include all candidates regardless of major or academic back-

ground. The NASBA records pass rates by various subgroups. It does not

appear from the NASBA data that nonaccounting majors are bringing

down the total pass rates of accounting graduates. 134 The 2005 national

pass rates totals by accounting programs were 40.7 percent for REG and

44.2 percent for the BEC section.135 These pass rate totals for accounting

programs were slightly less than those for all CPA candidates. When over

50 percent of CPA candidates fail the business law section of the CPA

Exam, it is difficult to explain why business law professors perceive their

accounting students are well prepared. While the CPA Exam may be

designed to be a challenging exam, a well-designed and executed business

law curricula should be sufficient to overcome that challenge for most

accounting graduates.

131See NASBA, 2004 CANDIDATE PERFORMANCE ON THE UNIFORM CPA EXAMINATION 6 (2005)(describing the CPA Exam and provides data on who takes the exam and the results during2003).

132Id. at 6–7.

133NASBA, CANDIDATE PERFORMANCE ON THE UNIFORM CPA EXAMINATION 6 (2006) (reportingdata on those candidates taking the CPA Exam during the year 2005).

134Id. at 152.

135Id. at 142.


XIV. CONCLUSION

A. Curricular Content

Business law professors believe that accounting graduates going into pub-

lic accounting need an academic education in business law to prepare them

for their careers. The findings of this study concerning curricular content

show that business law professors believe that six or more semester hours

of business law should be required of accounting students pursuing a

career in public accounting. This was the belief of a large majority of the

business law professors surveyed in 1993 and it was true of an equally large

majority of those surveyed in 2005. This perception can be contrasted with

the fact that the majority of states and territories do not require any

academic education in business law by CPA candidates. These jurisdictions

treat business law as an optional course in the general business knowledge

category under their state accountancy acts. It is especially revealing that

the UAA specifically requires education in income tax while it makes busi-

ness law education discretionary. This difference in treatment suggests that

the NASBA and the AICPA understand how tax law is used in accounting

practice but do not recognize how business law concepts are used by CPAs

in tax and audit functions.

B. Substantive Law Topics

Business law professors believe that there are several very important topics

currently missing from the content of the CPA Exam and they would add

those topics to the CPA Exam. The findings of this study concerning sub-

stantive law topics show that business law professors in 2005 identified

nineteen legal topics that are not currently on the CPA Exam but are per-

ceived as very important by at least some of the respondents. The highest

ranked of these topics included liability of other professionals, business

ethics, business crime, administrative law, and torts. The first two topics

were found to be very important by a majority of the respondents, 68.6

and 62.9 percent, respectively. The remaining three topics were found to

be very important by respondents at percentages as high as those of topics

currently on the CPA Exam, 37.1, 28.6 and 28.6 percent, respectively. The

identification of these five topics by the respondents in 2005 seems logical

in the aftermath of the accounting scandals. With the increased regulation

of the public accounting profession by federal and state administrative

agencies, it is only prudent that entry-level CPAs have some knowledge of


administrative law. Given the significant criminal penalties and civil liabil-

ities imposed on those business professionals involved in the accounting

scandals; ethics, professional liability, business crime, and torts all seem

relevant and important educational topics for CPAs from the perspective of

business law professors. Whether these topics will be identified as impor-

tant by the AICPA’s Board of Examiners and added to the CPA Exam

content specification is not at all clear. The AICPA’s COTF determines the

importance of CPA content primarily through surveys of relatively inex-

perienced CPAs during its practice analyses. Should those entry-level CPAs

not understand the legal concepts they need to use in practice, the im-

portance of those concepts will be underreported in the current practice

analysis. For many accountants, in both practice and academia, the lesson

learned from Baptist Foundation, Enron, MCI, Adelphia Communica-

tions, and other accounting scandals is primarily one of ethics. From their

viewpoint the individuals involved in those scandals needed an educational

process that would have prepared them to make the correct ethical deci-

sions. Even if one assumes that good moral character can be taught, this

viewpoint ignores the close relationship between law and ethics in our so-

ciety. It does not acknowledge the criminal and civil aspects of the scandals

and the role academic legal education could play in avoiding this type of

legal risk. This failure by CPAs to consider academic training in business

law as relevant to minimizing legal exposure is not new. It is reminiscent of

the litigation crisis for CPAs in the early 1990s that arose from the collapse

of the savings and loan industry. That surge in litigation did not cause

accountants to nationally mandate more academic legal education under

state law or increase the coverage of business law on the CPA Exam. On

the contrary, in 1994, the AICPA reduced the time allocated to business

law content on the CPA Exam. The accounting industry instead looked

to other solutions to its legal problems. It increased its peer and quality

review efforts, sought federal and state tort reform, reviewed the language

of existing accounting standards, and adopted alternative dispute resolu-

tion techniques. Similarly, in the aftermath of the accounting scandals,

accountants looked for other solutions. Additional ethics education was

proposed by NASBA at the undergraduate level, and states adopted

additional continuing education requirements in ethics for licensed CPAs.

A clear contrast can be drawn between the perceptions of business law

professors and the positions taken by the NASBA and AICPA. While busi-

ness law professors surveyed in 2005 would have added legal topics to the

CPA Exam, the AICPA in 2004 eliminated the LPR section of the CPA


Exam and drastically reduced the time allocated to business law content.

This difference suggests that the NASBA and the AICPA do not believe

that more or better academic education in business law will decrease the

risk of legal liability for practicing CPAs.

C. Intergration of Business Law

Business law professors feel it is their responsibility to prepare accounting

graduates going into public accounting for the CPA Exam, and they are

willing to work with accounting faculty members in selection of course

content to achieve that end. The findings of this study, concerning inte-

gration of business law, reveal that a majority of the 1993 respondents felt

it was their responsibility to prepare accounting students for the CPA

Exam, and an even larger majority of the respondents felt it was their

responsibility in the 2005 survey. These findings are not surprising given

the fact that the respondents are educators with an academic background

in law. As both educators and lawyers they would be expected to want to

prepare their students for their chosen careers through academic prepa-

ration. The law school experience is one of intense academic preparation.

After law students are admitted to law school, they are typically exposed to

ninety semester hours or more of legal curriculum. That curriculum is

designed to develop in the law graduates a set of skills and a body of

knowledge that will prepare them for their careers as practicing attorneys.

In most legal programs the students’ ability to pass a state bar exam is

expected as a natural consequence of their law curriculum, and passing the

bar exam is consistent with the goals of their legal education. While the

legal curriculum is designed to prepare them for the practice of law, it is

typically sufficient to prepare them for their state’s bar exam after a rea-

sonable amount of review by the law graduate. It is therefore predictable

that the majority of business law professors would see their role as one of

preparing those accounting students interested in becoming CPAs. It is

also not surprising that business law professors who have completed a

baccalaureate degree and an additional ninety semester hours of legal

courses would believe that CPAs as business professionals should have

adequate academic training in relevant law. From a business law profes-

sor’s perspective six or nine hours of business law courses are not excessive

given the broad and varied work activities of a typical CPA. What is some-

what more surprising is that a majority of business law professors indicated

a willingness to cooperate with accounting faculty in the content decisions


for their business law courses. One might expect that business law profes-

sors would see their business law curriculum as uniquely their responsi-

bility and entirely a matter of their judgment. The 2005 survey did not

show this to be the case. In fact the majority of business law professors

indicated they thought business law content should be a joint decision with

accounting faculty, and this was true even though the majority of respon-

dents were not members of the accounting departments of their institu-

tions. This clarity of purpose possessed by business law professors is oddly

absent from both the AICPA and the NASBA. The AICPA determines the

content for the CPA Exam but does not recommend an academic curric-

ulum to prepare CPA candidates for the CPA Exam. The NASBA requires

CPA candidates to pass the CPA Exam and complete 150 semester hours of

academic education in the provisions of the UAA and then does not require

CPA candidates to complete an undergraduate or graduate curriculum

that would prepare CPA candidates for the business law topics on the CPA

Exam. The decision is left to accounting and business law faculties to

decide whether accounting graduates should be required to take a business

law curriculum that is not recommended by the AICPA and that is not

required by the NASBA.

D. Respondents’ Business Law Curricula

The findings of this study, concerning the respondents’ programs, reveal

that legal environment of business courses have become the most fre-

quently required nontax law course in the respondents’ business curricula.

The 2005 survey findings revealed that a small minority of respondents’

programs required two traditional business law courses, and a slightly

larger minority of respondents’ programs required a legal environment

of business course followed by a traditional business law course. Over

40 percent of respondents reported that their accounting students are

only required to take one legal environment of business course. The 2005

survey findings indicated that in the majority of respondents’ programs,

all CPA business law topics are not covered in the respondents’

required business law courses. An accounting student would have to

take a combination of required and elective courses to be exposed to a

majority of the CPA law topics. This makes preparation for the CPA

Exam at the majority of respondents’ institutions largely optional. The

policies of the AICPA and the NASBA have treated the academic study

of business law as optional for CPA candidates and the respondents’


programs follow that general approach. Accounting graduates must

purposely take elective business law courses to be exposed to CPA busi-

ness law content.

E. The Need For Future Research

Because of the changes made to the CPA Exam in 2004, business law

and accounting professors have lost an important justification for their

required courses in business law. They can no longer say that account-

ing students need those courses to pass the business law section of the

CPA Exam. That section no longer exists, and CPA candidate performance

on business law topics is more difficult to determine. This could

cause additional changes to the business law curricula. Accounting

students have less motivation to take elective business law courses in their

undergraduate education because of the reduced weight that content

now has on the CPA Exam. If elective business law courses do not attract

sufficient accounting students, those courses may be closed at some

institutions. This may eventually result in less elective business law courses

being offered in many business school programs. Future research

could measure whether these changes in the business law curricula

actually occur.

Other relevant research topics include the future actions of the

AICPA, the NASBA, and the AACSB and how they impact the business

law curricula. The AICPA is currently conducting another practice

analysis. The NASBA is proposing amendments to the UAA Rules. The

AACSB accounting accreditation standards are being applied at many

institutions for the first time. These are all topics that may stimulate further

research.

Business law professors should engage in scholarship that makes the

relationship between law and accounting more transparent. If knowledge

of legal concepts is necessary for CPAs to perform tax and audit work, that

needs to be demonstrated by scholarship. If practicing CPAs can reduce

their legal risks through education, it needs to be demonstrated. Business

law professors should join with accounting faculty to create cases and other

pedagogy that illustrates the connections between business law concepts

and accounting practice. Those projects could be used in class to increase

accounting students’ awareness of the importance of business law concepts.

Business law and accounting professors should share their research find-

ings with the NASBA, as it considers amendment of its UAA Rules and with


the AICPA, as it completes its practice analyses. Business law professors

should give input to the AACSB as it applies and amends its accounting

standards. These organizations need to know what business law professors

believe about educating accountants and the basis for those perceptions. In

this way, business law professors may do their part in improving the ed-

ucational process that produces CPAs.
