Tài liệu Wiley CPA Examination Review ppt

• The new AICPA Content Specification Outlines for the Computerized CPA Examination • Discussion of the new simulation style questions • Coverage of new auditing and attestation standard

John Wiley & Sons, Inc.

O Ray Whittington, CPA, PhD

Patrick R Delaney, CPA, PhD

1 Material from Uniform CPA Examination Questions and Unofficial Answers, copyright © 1982 through 2002 by

American Institute of Certified Public Accountants, Inc., is reprinted (or adapted) with permission

2. Information for CPA Candidates and Content Specification Outlines for the Uniform Certified Public Accountant amination, Board of Examiners

Ex-3 Material from AU 319 (SAS 55, SAS 78, and SAS 94) and an AICPA Audit Guide, both titled Consideration of

Inter-nal Control in a Financial Statement Audit.

4 Material from AICPA Auditing Procedures Studies; Consideration of the Internal Control Structure in a Computer

Environment: A Case Study; Auditing with Computers; Auditing in Common Computer Environments; Audit tions of EDI.

Implica-5 Example audit reports from Statements on Auditing Standards and Statements on Standards for Accounting and

Re-view Services.

6 Definitions, examples, etc from The Code of Professional Conduct.

7 AICPA Audit and Accounting Guide: Health Care Organizations, 1996, page 142

Reproduction and adaptation of pronouncements, copyright © Financial Accounting Standards Board, Norwalk, Connecticut 06856-5116, with permission

Material adapted, with permission, from Writing for Accountants, Aletha Hendrickson, South-Western Publishing Co., 1993

Reproduction of “Combined Statement of Revenues, Expenditures, and Changes in Fund Balances—All Governmental Fund Types and Expendable Trust Funds,” copyright © Governmental Accounting Standards Board, Norwalk, Connecticut 06856-

5116, with permission

Statement of changes in Fund Balances for an educational institution from Financial Accounting and Reporting in Higher

Edu-cation with permission of the National Association of College and University Business Officers

Several examples in Chapter 9, Federal Taxation, are taken from Internal Revenue Service Publication 17

Copyright © 2004, by John Wiley & Sons, Inc All rights reserved

Published by John Wiley & Sons, Inc., Hoboken, New Jersey

Published simultaneously in Canada

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page no.

Professional Responsibilities RESP 21 678

Passing the CPA exam upon your first attempt is possible! The Wiley CPA Examination Review preparation

ma-terials provide you with the necessary mama-terials (visit our website at www.wiley.com/cpa for more information) It’s up

to you to add the hard work and commitment Together we can beat the first-time pass rate of less than 20% All Wiley CPA products are continuously updated to provide you with the most comprehensive and complete knowledge base Choose your products from the Wiley preparation materials and you can proceed confidently You can select support materials that are exam-based and user-friendly You can select products that will help you pass!

The objective of this work is to provide, in an easily readable format, study outlines of all areas tested on the Uniform Certified Public Accounting (CPA) Examination The clear, concise phraseology supplemented by brief examples and illustrations is designed to help candidates quickly understand and retain the material To make the task of preparing for the examination more manageable, we have structured both review volumes into 45 modules (manageable study units) Also, the multiple-choice questions in Volume 2 have been grouped into topical categories within each module These categories correspond to the sequencing of material as it appears within each of the corresponding modules in this volume The content of this volume and Volume 2 is based upon current AIPCA Content Specification Outlines for the Uniform Certified Public Accountant Examination Actual American Institute of Certified Public Accountants (AICPA) unofficial questions and answers are presented to test your knowledge With the introduction of the new computerized exam, many author-constructed questions have been added to Volume 2

Remaining current is one of the keys to examination success Here is a list of what’s new in this edition of

Wiley CPA Examination Review, 31st Edition, 2003-2004

• The new AICPA Content Specification Outlines for the Computerized CPA Examination

• Discussion of the new simulation style questions

• Coverage of new auditing and attestation standards, especially:

• Statement on Auditing Standards 99, Consideration of Fraud in a Financial Statement Audit

• Statement on Auditing Standards 100, Interim Financial Information

• Statement on Auditing Standards 101, Auditing Fair Value Measurements and Disclosures

• Coverage of new financial accounting standards, especially

• Statement of Financial Accounting Standard 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities

• Statement of Financial Accounting Standard 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity

We are indebted to the American Institute of Certified Public Accountants, the Financial Accounting Standards Board, and the Governmental Accounting Standards Board for permission to reproduce and adapt their publications

The CPA exam is one of the toughest exams you will ever take It will not be easy But if you follow our guidelines and focus on your goal, you will be thrilled with what you can accomplish

Ray Whittington April 2004

Don’t forget to visit our website at www.wiley.com/cpa

for supplements and updates.

Ray Whittington, PhD, CPA, CMA, CIA, is the Ledger & Quill Director of the School of Accountancy at DePaul

University Prior to joining the faculty at DePaul, Professor Whittington was the Director of Accountancy at San Diego State University From 1989 through 1991, he was the Director of Auditing Research for the American Institute of Certi-fied Public Accountants (AICPA), and he previously was on the audit staff of KPMG He was a member of the Auditing Standards Board of the AICPA and has previously served as a member of the Accounting and Review Services Commit-tee and the Board of Regents of the Institute of Internal Auditors Professor Whittington has published numerous text-books, articles, monographs, and continuing education courses

Patrick R Delaney was the Arthur Andersen LLP Alumni Professor of Accountancy and Department Chair at

Northern Illinois University He received his PhD in Accountancy from the University of Illinois He had public

ac-counting experience with Arthur Andersen LLP and was coauthor of GAAP: Interpretation and Application, also

pub-lished by John Wiley & Sons, Inc He served as Vice President and a member of the Illinois CPA Society’s Board of Directors, and was Chairman of its Accounting Principles Committee; was a past president of the Rockford Chapter, In-stitute of Management Accountants; and had served on numerous other professional committees; and has made many presentations to professional groups He was a member of the American Accounting Association, American Institute of

Certified Public Accountants, and Institute of Management Accountants Professor Delaney was published in The counting Review and was a recipient of the Illinois CPA Society’s Outstanding Educator Award, NIU’s Excellence-in-

Ac-Teaching Award, and Lewis University’s Distinguished Alumnus Award He was involved in NIU’s CPA Review Course as director and instructor

ABOUT THE CONTRIBUTORS Richard E Baker, PhD, CPA, is a Presidential Teaching Professor and the Ernst and Young LLP Professor of Ac-

countancy at Northern Illinois University and teaches in the NIU CPA Review Course He is the coauthor of Advanced Financial Accounting, McGraw-Hill, Inc Professor Baker prepared the Business Combinations and Consolidations

Module and provided input on the new section on Derivative Instruments and Hedging Activities He has received eral teaching awards at NIU

sev-John C Borke, MAS, CPA, is an Associate Professor of Accounting at the University of Wisconsin-Platteville He

has been a recipient of the U.W Platteville Excellence-in-Teaching Award, and has worked as a staff auditor with KPMG Peat Marwick LLP Professor Borke prepared several sections in Financial Accounting including the section in Chapter 8

on the Conceptual Framework

John H Engstrom, DBA, CPA, is the KPMG Peat Marwick LLP Professor of Accountancy at Northern Illinois

University He is the coauthor of Essentials of Accounting for Governmental and Not-for-Profit Organizations, Richard

D Irwin, Inc He revised Chapter 10, Governmental and Not-for-Profit Organizations

Anita L Feller, PhD, CPA, is a Lecturer in Accountancy at the University of Illinois at Urbana-Champaign She is

the recipient of the Commerce Council Excellence in Teaching Award Formerly a staff accountant in the tax department

at KPMG Peat Marwick, she teaches courses in financial accounting and applied professional research Professor Feller also teaches financial and managerial topics in the University of Illinois CPA Review Course

Edward C Foth, PhD, CPA, is the KPMG Faculty Fellow and Administrator of the Master of Science in Taxation

Program at DePaul University He is a member of the American Accounting Association, the American Institute of fied Public Accountants, the Illinois CPA Society, and the American Taxation Association He has been a recipient of the

Certi-Ledger & Quill Faculty Excellence Award, and is the author of CCH Incorporated’s Federal Tax Study Manual, Federal Taxation Refresher Course, and is coauthor of their S Corporations Guide He prepared Chapter 11

Mark L Frigo, PhD, CPA, CMA, is Director of The Center for Strategy, Execution and Valuation in Kellstadt

Graduate School of Business and Eichenbaum Foundation Distinguished Professor of Strategy and Leadership in the School of Accountancy at DePaul University Professor Frigo authored the Performance Measures module for the Business Environment and Concepts section of this manual

Debra R Hopkins, MAS, CPA, is the Director of CPA Review courses at Northern Illinois University She has

au-dit experience with Ernst and Young LLP and Grant Thornton LLP, and has presented many CPE seminars for public accounting firms She provided input in Auditing and prepared the chart in Professional Responsibilities She is a recipi-ent of the Illinois CPA Society’s Outstanding Educator Award

Professor at the University of California, Berkeley Professor Lambert has “Big Six” experience and teaches in CPA view courses He rewrote and revised modules to reflect current treatment in Chapter 6, Business Law and Professional Responsibilities.

re-John McDougald, MAS, CPA, is an Instructor in the College of Business at Northern Illinois University He has

extensive industry experience, having spent twenty-eight years in management positions with Ameritech Mr gald prepared the Derivative Instruments and Hedging Activities section of Module 32

McDou-Patricia L McQueen, MBA, CPA, is an instructor in the School of Accountancy at DePaul University She has a

background in auditing and financial accounting She has audit experience with KPMG She contributed to the auditing modules

Kurt Pany, PhD, CPA, is a Professor of Accounting at Arizona State University Prior to entering academe, he

worked as a staff auditor for Deloitte and Touche LLP He is a former member of the AICPA’s Auditing Standards Board and has taught in the Arizona State University CPA Review Course

W Max Rexroad, PhD, CPA, is Professor of Accounting at Illinois State University He has received the

Distin-guished Teaching Award from the College of Business at ISU as well as other teaching awards He has taught numerous CPE courses for the Illinois CPA Society and other state societies He prepared a revision of the Pensions section in Module 26

John R Simon, PhD, CPA, is a Presidential Teaching Professor and the Coopers and Lybrand LLP Professor of

Ac-countancy at Northern Illinois University He has taught in NIU’s CPA Review Course for the past twenty-five years and was the director of the course for ten years He is a recipient of NIU’s Excellence-in-Teaching Award Professor Simon prepared the Earnings Per Share section of the Stockholders’ Equity Module, and the Foreign Currency Translation Mod-ule

Susan Smith, MA, CAS (English), CPA Ms Smith has taught rhetoric and technical writing at Northern Illinois

University Ms Smith prepared material on “Improving Your Writing” in Chapter 3

General Comments on the Examination 1

Purpose and Organization of This Review Textbook 7

Time Management of Your Preparation 16

To maximize the efficiency of your review program, begin by studying (not merely reading) this chapter

and the next three chapters of this volume They have been carefully organized and written to provide you

with important information to assist you in successfully completing the CPA exam Beyond providing a

com-prehensive outline to help you organize the material tested on the exam, Chapter 1 will assist you in organizing

a study program to prepare for the exam Self-discipline is essential

GENERAL COMMENTS ON THE EXAMINATION

Beginning in April of 2004, the Uniform CPA Examination is delivered in a computer-based format The

final paper-based version of the CPA exam was given in November 2003 While there are still a lot of

un-knowns about the new format, there is also good news You may take the exam one section at a time As a

result, your studies can be focused on that one section, improving your chances for success In addition, the

exam is no longer offered twice a year During eight months of ever year, you may take the exam on your

schedule, six days a week and in the morning or in the afternoon

Successful completion of the exam is an attainable goal Keep this point foremost in your mind as you

study the first four chapters in this volume and develop your study plan

The Uniform CPA Examination is designed to test the entry-level knowledge and skills necessary to

pro-tect the public interest These knowledge and skills were identified through a Practice Analysis performed in

2000, which served as a basis for the development of the content specifications for the new exam The skills

identified as necessary for the protection of the public interest include

• Analysis—the ability to organize, process, and interpret data to develop options for decision making

• Judgment—the ability to evaluate options for decision-making and provide an appropriate conclusion

• Communication—the ability to effectively elicit and/or express information through written or oral

means

• Research—the ability to locate and extract relevant information from available resource materials

• Understanding—the ability to recognize and comprehend the meaning and application of a particular

matter

1

More information may be obtained from the AICPA’s Information for Uniform CPA Examination Candidates, which is usually

sent to CPA candidates by their State Board of Accountancy as they apply to sit for the CPA Examination You can also find the

publication on the AICPA’s Web site at www.cpa-exam.org

The CPA examination is one of many screening devices to assure the competence of those licensed to

per-form the attest function and to render professional accounting services Other screening devices include

edu-cational requirements, ethics examinations, and work experience

The examination appears to test the material covered in accounting programs of the better business

schools It also appears to be based upon the body of knowledge essential for the practice of public accounting and the audit of a medium-sized client Since the examination is primarily a textbook or academic examina-

tion, you should plan on taking it as soon as possible after completing your accounting education

Examination Content

Guidance concerning topical content of the CPA exam can be found in a document prepared by the Board

of Examiners of the AICPA entitled Uniform CPA Examination—Examination Content Specifications The

Board’s objective in preparing this detailed listing of topics tested on the exam is to help “in assuring the

con-tinuing validity and reliability of the Uniform CPA Examination.” These outlines are an excellent source of

guidance concerning the areas and the emphasis to be given each area on future exams We have included the

content outlines in this volume by placing the corresponding outline for each section of the exam in the chapter containing related topical areas

New accounting and auditing pronouncements, including those in the governmental and not-for-profit

ar-eas, are tested in the testing window starting six months after the pronouncement’s effective date If early

ap-plication is permitted, a pronouncement is tested six months after the issuance date; candidates are responsible

for the old pronouncement until it is superseded The exam covers the Internal Revenue Code and federal tax

regulations in effect six months before the beginning of the testing window For the Business Law and

Profes-sional Responsibilities section, federal laws are tested six months following their effective date, and for

uni-form acts, one year after their adoption by a simple majority of jurisdictions The AICPA posts content

changes regularly on its Internet site The address is www.cpa-exam.org

Nondisclosure and Computerization of Examination

Beginning May 1996, the Uniform CPA Examination became nondisclosed Before beginning the exam,

candidates are required to sign a Statement of Confidentiality and Break Policy Statement, which provides

• I hereby certify that I will respect the confidentiality of the Uniform CPA Examination I attest that I

will NOT:

• Divulge the nature or content of any Uniform CPA Examination question or answer under any

circum-stance

• Engage in any unauthorized communication during testing

• Refer to unauthorized materials or use unauthorized equipment during testing

• Remove or attempt to remove any Uniform CPA Examination materials, notes, or any other items

from the examination room

• I understand that I am required to report to the AICPA any examination question disclosures or

solicita-tions for disclosure of which I am aware

• I understand that breaks are only allowed between testlets I understand that I will be asked to complete

any open testlet/simulation before leaving the testing room for a break

• In addition, I understand that failure to comply with this attestation may result in invalidation of my

grades, disqualification from future examinations, expulsion from the testing facility and possible civil

One or more exam sections may be taken during any exam window, and the sections may be taken in any

desired order However, no candidate will be allowed to sit for the same section more than once during

any given testing window In addition, a candidate must pass all four sections of the CPA exam within a

“rolling” eighteen-month period, which begins on the date he or she passes a section In other words, you

must pass the other three sections of the exam within eighteen months of when you pass the first section If

you do not pass all sections within the eighteen-month period, credit for any section(s) passed outside the

eighteen-month period will expire and the section(s) must be retaken

The following table compares the sections of the prior pencil-and-paper exam with the new

computer-based exam If you have earned conditional credit on the pencil-and-paper exam, the table also shows the

sec-tion of the computer-based exam for which you will be given credit

Pencil-and-Paper Examination up to November 2003 (15.5 hours in 2 days)

Computer-Based Examination commencing April 5, 2004 (14 hours over flexible period of time)

Auditing (4.5 hours) Auditing & Attestation (4.5 hours)

Financial Accounting & Reporting (4.5 hours) Financial Accounting & Reporting (4 hours)

Accounting & Reporting (3.5 hours) Regulation (3 hours)

Business Law & Professional Responsibilities (3 hours) Business Environment & Concepts (2.5 hours)

Candidates should keep abreast of the latest developments regarding transition rules and requirements

from their state boards of accountancy We will post more detailed information as it becomes available on the

CPA Examination Review Wiley Web site at www.wiley.com/cpa

Types of Questions

The computer-based Uniform CPA Examination consists of two basic question formats

1 Multiple-Choice—questions requiring the selection of one of four responses to a short scenario

2 Simulations—case studies that are used to assess knowledge and skills in a context approximating that

found on the job through the use of realistic scenarios and tasks, and access to normally available and

familiar resources

The multiple-choice questions are much like the ones that have constituted a majority of the CPA examination

for years And the good news is that these types of questions constitute about 75%% of the total

examination The simulations are new and information about this type of question is somewhat limited.

However, we have attempted in this manual to use the latest available information to design study materials

that will make you successful in answering simulation problems You should refer to the AICPA Web site

(www.cpa-exam.org) for the latest information about the format and content of this new type of question

The Business Environment and Concepts is 100% multiple-choice questions For the other three sections

that have simulations the break down of percentages is as follows:

Multiple-choice 70% Simulation requirements and other tan those involving communications 20%

100%

State Boards of Accountancy

The right to practice public accounting as a CPA is governed by individual state statutes While some

rules regarding the practice of public accounting vary from state to state, all State Boards of Accountancy use

the Uniform CPA Examination and AICPA advisory grading service as one of the requirements to practice

public accounting Every candidate should contact the applicable State Board of Accountancy to determine

the requirements to sit for the exam (e.g., education, filing dates, references, and fees) For comparisons of

requirements for various state boards and those policies that are uniform across jurisdictions, you should refer

to the Web site of the National Association of State Boards of Accountancy (NASBA) at www.nasba.org

A frequent problem candidates encounter is failure to apply in a timely manner Apply to sit for the

ex-amination early Also, you should use extreme care in filling out the application and mailing required

materials to your State Board of Accountancy If possible, have a friend review your completed application

before mailing with check, photo, etc Candidates may miss a particular CPA examination window simply

be-cause of minor technical details that were overlooked (checks not signed, photos not enclosed, question not

answered on application, etc.) Because of the very high volume of applications received in the more

populous states, the administrative staff does not have time to call or write to correct minor details and

will simply reject your application This can be extremely disappointing, particularly after spending many

hours preparing to sit for a particular exam

The various state boards, their Web sites, and telephone numbers are listed on the following page Be sure

to inquire of your state board for specific and current requirements It is possible for candidates to sit for the

examination in another state as an out-of-state candidate Candidates desiring to do so should contact the State

Board of Accountancy in their home state

S TATE B OARD W EB A DDRESS T ELEPHONE #

NOTE: The publisher does not assume responsibility for errors in the above information You should request information concerning requirements in

your state at least six months in advance of the exam dates.

Exam Scheduling

Once you have been cleared to take one or more parts of the exam by the applicable state board, you will

receive by mail a “Notice to Schedule” and may then schedule to sit for one or more sections of the exam

When you receive the Notice to Schedule, verify that all information is correct and that the name appearing

matches exactly the name on the identifications that will be used during the check-in at the testing center A

Test Center Locator and Scheduler tool is available on Prometric’s Web site at www.prometric.com This tool allows candidates to quickly determine the most convenient center and reserve a seat and time at the chosen

center Scheduling may also be accomplished by telephone (800-580-9648) or in person at a test center To

assure that you get your desired location and time period it is imperative that you schedule early To get your first choice of dates, you are advised to schedule at least 45 days in advance You will not be scheduled for an exam fewer than five days before testing In addition, you must take the examination sections within the time period for which a Notice to Schedule is valid and before it expires

You will not receive a written confirmation of your test appointment Be sure to write down the date, time, location, and confirmation number for each of your appointments

ATTRIBUTES OF EXAMINATION SUCCESS

Your primary objective in preparing for the CPA examination is to pass Other objectives such as learning new and reviewing old material should be considered secondary The six attributes of examination success

discussed below are essential You should study the attributes and work toward achieving/developing each of them before taking the examination

1 Knowledge of Material

Two points are relevant to “knowledge of material” as an attribute of examination success First,

there is a distinct difference between being familiar with material and knowing the material Frequently candidates confuse familiarity with knowledge Can you remember when you just could not answer an examination question or did poorly on an examination, but maintained to yourself or your instructor that you knew the material? You probably were only familiar with the material On the CPA examination, familiarity is insufficient; you must know the material For example, you may be familiar with the con-cepts in accounting for leases (SFAS 13), but can you compute the present value of an annuity due under a lease agreement and record entries for the lessee and lessor? Once again, a very major concern must be to know the material rather than just being familiar with it Knowledgeable discussion of the material is re-

quired on the CPA examination Second, the Uniform Certified Public Accountant Examination tests a

literally overwhelming amount of material at a rigorous level The CPA examination includes material from the following courses:

Furthermore, as noted earlier, the CPA exam will test new material, sometimes as early as six months

after issuance In other words, you are not only responsible for material in the above courses, but also for all new developments in each of these areas

This text contains outlines of accounting topics from FASB pronouncements, financial accounting courses, cost accounting courses, finance courses, etc Return to the original material (e.g., FASB, your accounting textbooks, etc.) only if the outlines do not reinforce topical areas you already know

2 Commitment to Exam Preparation

Your preparation for the CPA exam should begin at least two months prior to the date you plan to schedule your seating for an exam section If you plan to take more than one section, you should start ear-lier Over the course of your preparation, you will experience many peaks and valleys There will be days when you feel completely prepared and there will also be days when you feel totally overwhelmed This is not unusual and, in fact, should be expected

The CPA exam is a very difficult and challenging exam How many times in your college career did you study months for an exam? Probably not too many Therefore, candidates need to remain focused on the objective—succeeding on the CPA exam

Develop a personal study plan so that you are reviewing material daily Of course, you should ule an occasional study break to help you relax, but don’t schedule too many breaks Candidates who dedicate themselves to studying have a much greater chance of going through this process one time On the other hand, a lack of focus and piecemeal preparation will only extend the process over a number of exam sittings

sched-3 Solutions Approach

The solutions approach is a systematic approach to solving the questions and simulations found on the CPA examination Many candidates know the material fairly well when they sit for the CPA exam, but they do not know how to take the examination Candidates generally neither work nor answer questions efficiently in terms of time or grades The solutions approach permits you to avoid drawing “blanks” on CPA exam questions; using the solutions approach coupled with grading insights (see below) allows you

to pick up a sizable number of points on test material with which you are not familiar Chapter 3 outlines the solutions approach for multiple-choice questions and simulations

4 Grading Insights

Your score on each section of the exam is determined by the sum of points assigned to individual questions and simulation parts Thus, you must attempt to maximize your points on each individual item.The number of points assigned to a multiple-choice question varies depending upon its difficulty level,

easy, medium, or hard In other words, you will receive more points for correctly answering a hard

question than correctly answering an easy question Multiple-choice questions are organized in 25- to

30-question testlets, and each testlet includes questions from all of the content areas of the particular tion

sec-With respect to the multiple-choice testlets, the CPA exam uses a form of adaptive testing known as multistage testing Using this technique the average difficulty of subsequent testlet(s) is determined by how the candidate has performed on the previous testlet(s) Therefore, if you get a testlet with a prepon-derance of very difficult questions, do not become discouraged It may mean that you performed very well

on the previous testlet(s) In addition, since the number of points assigned to hard or medium questions will be greater than the number of points for easy questions, you have an opportunity to accumulate a large number of total points on that testlet

Simulations will include more extensive scenarios and a number of requirements For example, the requirements may involve calculations, form completion, research, or written communication The points assigned to the requirements will vary according to their difficulty Most of the requirements will be graded by the computer Only those that involve written communication will be graded manually The simulations will make use of a number of commonly used tools such as spreadsheets and electronic re-

search databases The functionality of the word processor and the spreadsheet will not be exactly like

Microsoft Word and Excel You should complete the AICPA CPA Examination Tutorial and ple Exams (www.cpa-exam.org) to become familiar with the functionality of the tools you will use on the exam You will need to become proficient in the use of these tools to maximize your score on the

Sam-simulations

5 Examination Strategy

Prior to sitting for the examination, it is important to develop an examination strategy (i.e., an proach to working efficiently throughout the exam.) Your ability to cope successfully with the examina-tion can be improved by

ap-a Recognizing the importance and usefulness of an examination strategy

b Using Chapter 4, Taking the Examination, and previous examination experience to develop a sonal strategy” for the exam

“per-c Testing your “personal strategy” on example examinations under conditions similar to those at the test centers (using similar tools and databases and with a time limit)

6 Examination Confidence

You need confidence to endure the physical and mental demands of 2 ½ to 4 ½ hours of test-taking under tremendous pressure Examination confidence results from proper preparation for the exam, which includes mastering the first four attributes of examination success Examination confidence is necessary to

enable you to overcome the initial frustration with problems for which you may not be specifically pared.

pre-This study manual (in conjunction with Volume 2), when properly used, contributes to your tion confidence The systematic outlines herein will provide you with a sense of organization such that as you sit for the examination, you will feel reasonably prepared (it is impossible to be completely prepared)

examina-Common Candidate Mistakes

The CPA Exam is a formidable hurdle in your accounting career With a first-time pass rate of only about 30% on each section, the level of difficulty is obvious The good news, though, is that about 75% of all candi-dates (first-time and reexam) sitting for each examination eventually pass The authors believe that the first-time pass rate could be higher if candidates would be more careful Eight common mistakes that many candi-dates make are

1 Failure to understand the exam question requirements

2 Misunderstanding the supporting text of the problem

3 Lack of knowledge of material tested, especially recently issued pronouncements

4 Failure to develop proficiency with practice tools such as electronic research databases and sheets

spread-5 Inability to apply the solutions approach

6 Lack of an exam strategy (e.g., allocation of time)

7 Sloppiness and computational errors

8 Failure to proofread and edit

These mistakes are not mutually exclusive Candidates may commit one or more of the above items Remind yourself that when you decrease the number of common mistakes, you increase your chances of successfully becoming a CPA Take the time to read carefully the exam question requirements Do not jump into a quick start, only to later find out that you did not understand what information the examiners were asking for Read slowly and carefully Take time to recall your knowledge Respond to the question asked Apply an exam strategy such as allocating your time among all question formats Do not spend too much time on the

multiple-choice testlets, leaving no time to spend on preparing your simulation responses Upon completion of any written communications requirements, proofread and edit your answer Answer questions quickly but pre-cisely, avoid common mistakes, and increase your score

PURPOSE AND ORGANIZATION OF THIS REVIEW TEXTBOOK

Volume 1 and Volume 2 of CPA Examination Review are designed to help you prepare adequately for the

examination There is no easy approach to prepare for the successful completion of the CPA Examination; however, through the use of Volumes 1 and 2, your approach will be systematic and logical

The objective of Volume 1 is to provide study materials supportive to CPA candidates While no tees are made concerning the success of those using this text, this book promotes efficient preparation by

guaran-1 Explaining how to maximize your score through analysis of examination grading and illustration of

the solutions approach

2 Defining areas tested through the use of the content specification outlines Note that predictions of

future exams are not made You should prepare yourself for all possible topics rather than gambling

on the appearance of certain questions

3 Organizing your study program by comprehensively outlining all of the subject matter tested on the

examination in 45 easy-to-use study modules Each study module is a manageable task which tates your exam preparation Turn to the table of contents and peruse it to get a feel for the organiza-tion of this volume

facili-As you read the next few paragraphs that describe the contents of this book (Volume 1), flip through the chapters to gain a general familiarity with the book’s organization and contents Chapters 2, 3, and 4 will help you maximize your score

Chapter 2 Examination Grading

Chapter 3 The Solutions Approach

Chapter 4 Taking the Examination

Chapters 2, 3, and 4 contain material that should be kept in mind throughout your study program Refer back

to them frequently Reread them for a final time just before you sit for the exam

Chapter 5 (Auditing and Attestation) and Chapter 6 (Financial Accounting and Reporting) each contain

1 AICPA Content Specification Outlines

2 Outlines of material tested on that section of the examination

Chapters 7 through 9 outline the Regulation section of the CPA examination Chapter 7 discusses the erage of that section of the examination This chapter also contains the AICPA Content Specification Outlines for all of the Regulation section The content specification outlines of the topics tested in the Business Envi-ronment and Concepts section of the exam are located in Chapter 10

cov-The first objective of Volume 2 is to provide CPA candidates with previous examination questions and author-developed questions and simulations organized by topic (e.g., audit reports, secured transactions, con-solidations, etc.) Volume 2 includes over 2,400 multiple-choice questions, many from previous exams (largely May 1988 to November 1995) Multiple-choice questions are an effective means of studying the ma-terial tested on the exam It is also necessary, however, to work with problems and simulations to develop the solutions approach (the ability to solve CPA simulations efficiently)

The second objective of Volume 2 is to provide CPA candidates with an explanation for the answers to the multiple-choice questions and simulations

Other Textbooks

This text is a comprehensive compilation of study guides and outlines; it should not be necessary to plement them with textbooks and other materials for most topics You probably already have accounting, business law, economics, finance, accounting information systems, and tax testbooks In such a case, you must make the decision whether to replace them and trade familiarity (including notes therein, etc.), with the cost and inconvenience of obtaining the newer texts containing a more updated presentation

sup-Before spending time and money acquiring new texts, begin your study program with this book to mine your need for a supplemental text

deter-Ordering Other Materials

If you want to order AICPA materials, locate an AICPA educator member to order your materials, since educator members are entitled to a 30% discount and may place Web site or telephone orders

AICPA (CPA2Biz)

Telephone: 888-777-7077 Address: Order Department

P.O Box 2209 Jersey City, NJ 07303-2209

The AICPA offers candidates an on-line package of professional literature to help them prepare for the exam The package costs $35 and includes the web electronic versions of

• AICPA professional standards

• FASB Current Text

• FASB Original Pronouncements

Candidates may subscribe at www.cpa2biz.com/examoffer Only candidates who have applied to take the exam by a state board of accountancy may take advantage of this offer

A variety of supplemental CPA products are available from John Wiley & Sons, Inc By using a variety of learning techniques, such as software and audio CDs, the candidate is more likely to remain focused during the

study process and to retain information for a longer period of time Visit our Web site at www.wiley.com/cpa

for other products, supplements, and updates

Working CPA Problems

The AICPA Content Outlines, study outlines, etc., in Volume 1 will be used to acquire and assimilate the

knowledge tested on the examination This, however, should be only one-half of your preparation program.

The other half should be spent practicing how to work problems using Volume 2, “Problems and Solutions.”Most candidates probably spend over 90% of their time reviewing material tested on the CPA exam

Much more time should be allocated to working questions and simulations under exam conditions Working

potential examination questions serves two functions First, it helps you develop a solutions approach as well

as solutions that will maximize your score Second, it provides the best test of your knowledge of the material.The multiple-choice questions and answer explanations can be used in many ways First, they may be used as a diagnostic evaluation of your knowledge For example, before beginning to review commercial pa-

per you may wish to answer 10 to 15 multiple-choice questions to determine your ability to answer CPA amination questions on commercial paper The apparent difficulty of the questions and the correctness of your answers will allow you to determine the necessary breadth and depth of your review Additionally, exposure

ex-to examination questions prior ex-to review and study of the material should provide motivation You will velop a feel for your level of proficiency and an understanding of the scope and difficulty of past examination questions Moreover, your review materials will explain concepts encountered in the diagnostic multiple-choice questions

de-Second, the multiple-choice questions can be used as a poststudy or postreview evaluation You should attempt to understand all concepts mentioned (even in incorrect answers) as you answer the questions Refer

to the explanation of the answer for discussion of the alternatives even though you selected the correct sponse Thus, you should read the explanation of the answer unless you completely understand the question and all of the alternative answers

re-Third, you may wish to use the multiple-choice questions as a primary study vehicle This is probably the quickest but least thorough approach in preparing for the exam Make a sincere effort to understand the ques-tion and to select the correct response before referring to the unofficial answer and explanation In many cases, the explanations will appear inadequate because of your unfamiliarity with the topic Always refer back

to an appropriate study source, such as the outlines and text in this volume, your textbooks, professional dards, etc

stan-The multiple-choice questions outnumber the simulations by greater than 50 to 1 in this book This is similar to the proposed content of the new computer-based examination One problem with so many multiple-choice questions is that you may overemphasize them Candidates generally prefer to work multiple-choice questions because they are

1 Shorter and less time-consuming

2 Solvable with less effort

3 Less frustrating than essay problems and simulations

Another problem with the large number of multiple-choice questions is that you may tend to become overly familiar with the questions The result may be that you begin reading the facts and assumptions of previously studied questions into the questions on your examination Guard against this potential problem by reading

each multiple-choice question with extra care

Beginning with the April 2004 computer-based examination, the AICPA began testing with simulations.Simulation style problems released by the AICPA or prepared by the authors, many adopted from prior CPA exam questions and problems, are in Volume 2, “Problems and Solutions.”

Even though they are no longer included on the CPA exam, essay problems from previous exams are also included in Volume 2 Essay problems require the ability to organize and compose a solution, as well as in-depth knowledge of the subject matter They are useful in developing the skills necessary to answer simula-tions The essay problems and answers may also be used for study purposes without preparation of answers.Before turning to the answers, study the problem and outline the solution (either mentally or in the margin of the book) Look at our answer outline preceding the unofficial answer for each problem and compare it to your own Next, read the answer, underlining keywords and phrases The underlining should reinforce your study of the answer’s content and also assist you in learning how to structure your solutions Answer outlines representing the major concepts found in the answer are provided for each essay problem These will facilitate your study of essay problems

The questions and solutions in Volume 2 provide you with an opportunity to diagnose and correct any exam-taking weaknesses prior to sitting for the examination Continually analyze your incorrect solutions to determine the cause of the error(s) during your preparation for the exam Treat each incorrect solution as a mistake that will not be repeated (especially on the examination) Also attempt to generalize your weaknesses

so that you may change, reinforce, or develop new approaches to exam preparation and exam taking

SELF-STUDY PROGRAM

CPA candidates generally find it difficult to organize and to complete their own self-study programs A

major problem is determining what and how to study Another major problem is developing the

self-discipline to stick to a study program Relatedly, it is often difficult for CPA candidates to determine how much to study (i.e., determining when they are sufficiently prepared)

The following suggestions will assist you in developing a systematic, comprehensive, and successful

self-study program to help you complete the exam

Remember that these are only suggestions You should modify them to suit your personality, available study time, and other constraints Some of the suggestions may appear trivial, but CPA candidates generally need all the assistance they can get to systemize their study programs

Study Facilities and Available Time

Locate study facilities that will be conducive to concentrated study Factors that you should consider clude

in-1 Noise distraction

2 Interruptions

3 Lighting

4 Availability (e.g., a local library is not available at 5:00 A.M.)

5 Accessibility (e.g., your kitchen table vs your local library)

6 Desk or table space

7 Availability of research resources

You will probably find different study facilities optimal for different times (e.g., your kitchen table during early morning hours and local libraries during early evening hours)

Next review your personal and professional commitments from now until the exam to determine regularly available study time Formalize a schedule to which you can reasonably commit yourself At the end of this chapter, you will find a detailed approach to managing your time available for the exam preparation program

Self-Evaluation

The CPA Examination Review self-study program is partitioned into 45 topics or modules Since each

module is clearly defined and should be studied separately, you have the task of preparing for the CPA exam partitioned into 45 manageable tasks Partitioning the overall project into 45 modules makes preparation psy-chologically easier, since you sense yourself completing one small step at a time rather than seemingly never completing one or a few large steps

By completing the following “Preliminary Estimate of Your Knowledge of Subject” inventory, organized

by the 45 modules in this program, you will have a tabulation of your strong and weak areas at the beginning

of your study program This will help you budget your limited study time Note that you should begin ing the material in each module by answering up to 1/4 of the total multiple-choice questions in Volume 2 covering that module’s topics This “mini-exam” should constitute a diagnostic evaluation as to the amount of review and study you need

study-PRELIMINARY ESTIMATE OF YOUR PRESENT KNOWLEDGE OF SUBJECT

Fairly proficient

Generally familiar

Not familiar

AUDITING AND ATTESTATION

FINANCIAL ACCOUNTING AND

15 Statement of Cash Flows

16 Business Combinations and Consolidations

No Module Proficient

Fairly proficient

Generally familiar

Not familiar

17 Derivative Instruments and Hedging Activities

37 Taxes: Gift and Estate

BUSINESS ENVIRONMENT AND

Using Note Cards

Key definitions, formulas, lists, etc., can be summarized on note cards to illustrate important concepts

Candidates can organize the note cards into four sections: AUDITING AND ATTESTATION, FINANCIAL

ACCOUNTING AND REPORTING, REGULATION, AND BUSINESS ENVIRONMENT AND

CON-CEPTS During your study program, you can frequently review your note cards to refresh your memory on

certain topics and evaluate your progress The following examples illustrate one candidate’s note cards on

various exam topics

Financial Accounting and Reporting

Investments < 20% (SFAS 115)

Held-to-Maturity: Amortized Cost

Trading: Fair Market Value

Prepared by Greg Graber, CPA, former student, Northern Illinois University

Business Environment and Concepts

In Sales $ = Fixed Exp

Cont Mar %

Cash Management Technique For Description Lock box Recpt Receipts directly to

bank Concentration Recpt Branches use local

Zero-balance Disb Transferring funds accounts to cover checks Electronic funds Disb Transfer of funds transfer or Rec electronically

Prepared by Greg Graber, CPA, former student, Northern Illinois University

Auditing and Attestation

Tolerable Misstatement

Max $ Misstatement for a bal

Audit Risk: Risk of the existence of a

mone-tary misstatement greater than the

toler-able misstatement

Nonsampling Risk:

• Wrong audit procedure

• Audit error (cont’d)

Sampling Risk – May cause result diff than pop as a whole

• Substantive Tests 1) Incorrect accep B 2) Incorrect rejec Į

• Tests of Controls 1) Risk of assessing control risk too low (overreliance)

2) Risk of assessing control risk too high (underreliance)

Prepared by Rebecca A Hoger, CPA, former student, Northern Illinois University

Regulation

1) In writing (semipermeable moveable

form)

2) Signed by appropriate person

3) Unconditional promise to pay sum certain

in money

4) Words of negotiability

5) No second promise (collateral-ok)

6) Payable on demand or at definite date

1) Manifestation of mutual assent

a Offer

b Acceptance 2) Reality of consent 3) Consideration 4) Capacity of parties 5) Legality of object 6) Compliance with Statute of Frauds

Prepared by Cindy Johnson, CPA, former student, Northern Illinois University

Level of Proficiency Required

What level of proficiency must you develop with respect to each of the topics to pass the exam? You should work toward a minimum correct rate on the multiple-choice questions of 75 to 80%

Warning: Disproportional study time devoted to multiple-choice (relative to simulation

questions/problems) can be disastrous on the exam You should work a substantial number of problems and simulations under exam conditions, even though multiple-choice questions are easier to work and are used to gauge your proficiency The authors believe that practicing simulations and problems will also improve your proficiency on the multiple-choice questions

Multiple-Choice Feedback

One of the benefits of working through previous exam questions is that it helps you to identify your weak areas Once you have graded your answers, your strong areas and weak areas should be clearly evident Yet, the important point here is that you should not stop at a simple percentage evaluation The percentage only provides general feedback about your knowledge of the material contained within that particular module The

percentage does not give you any specific feedback regarding the concepts which were tested In order to get

this feedback, you should look at the questions missed on an individual basis because this will help you gain a

better understanding of why you missed the question

This feedback process has been facilitated by the fact that within each module where the multiple-choice answer key appears, two blank lines have been inserted next to the multiple-choice answers As you grade the multiple-choice questions, mark those questions which you have missed However, instead of just marking the

questions right and wrong, you should now focus on marking the questions in a manner which identifies why

you missed the question As an example, a candidate could mark the questions in the following manner: 9 for math mistakes, x for conceptual mistakes, and ? for areas which the candidate was unfamiliar with The can-didate should then correct these mistakes by reworking through the marked questions

The objective of this marking technique is to help you identify your weak areas and thus, the concepts which you should be focusing on While it is still important for you to get between 75% and 80% correct when working multiple-choice questions, it is more important for you to understand the concepts This under-standing applies to both the questions answered correctly and those answered incorrectly Remember, ques-tions on the CPA exam will be different from the questions in the book; however, the concepts will be the same Therefore, your preparation should focus on understanding concepts, not just getting the correct answer

Conditional Candidates

If you have received conditional status on the examination, you must concentrate on the remaining tion(s) Unfortunately, many candidates do not study after conditioning the exam, relying on luck to get them through the remaining section(s) Conditional candidates will find that material contained in Chapters 1-4 and the information contained in the appropriate modules will benefit them in preparing for the remaining sec-tion(s) of the examination

sec-PLANNING FOR THE EXAMINATION

Overall Strategy

An overriding concern should be an orderly, systematic approach toward both your preparation program and your examination strategy A major objective should be to avoid any surprises or anything else that would rattle you during the examination In other words, you want to be in complete control as much as possible.Control is of paramount importance from both positive and negative viewpoints The presence of control on your part will add to your confidence and your ability to prepare for and take the exam Moreover, the pres-ence of control will make your preparation program more enjoyable (or at least less distasteful) On the other hand, a lack of organization will result in inefficiency in preparing and taking the examination, with a highly predictable outcome Likewise, distractions during the examination (e.g., inadequate lodging, lack of sleep) are generally disastrous

In summary, establishing a systematic, orderly approach to taking the examination is of paramount portance Follow these six steps:

im-1 Develop an overall strategy at the beginning of your preparation program (see below)

2 Supplement your overall strategy with outlines of material tested on the Financial Accounting and porting exam (see Chapters 5 through 12)

Re-3 Supplement your overall strategy with an explicitly stated set of problem-solving procedures—the solutions approach

4 Supplement your overall strategy with an explicitly stated approach to each examination session (see Chapter 4)

5 Evaluate your preparation progress on a regular basis and prepare lists of things “to do” (see Weekly Review of Preparation Program Progress on following page)

6 Relax: You can pass the exam About 20,000 candidates successfully complete the exam each year.

You will be one of them if you complete an efficient preparation program and execute well (i.e., use your solutions approach and exam strategy) while writing the exam

The following outline is designed to provide you with a general framework of the tasks before you You should tailor the outline to your needs by adding specific items and comments

A Preparation Program (refer to Self-Study Program discussed previously)

1 Obtain and organize study materials

2 Locate facilities conducive for studying and block out study time

3 During your study program, if it becomes apparent that you will not be adequately prepared for all four sections of the upcoming exam, concentrate the majority of your study on your one or two

strongest sections For the selections selected, devote much of your time to correcting weaknesses and the remainder for reviewing your strengths

4 Develop your solutions approach (including solving simulations and problems as well as choice questions)

multiple-5 Prepare an examination strategy

6 Study the material tested recently and prepare answers to actual exam questions on these topics under examination conditions

7 Periodically evaluate your progress

B Physical Arrangements

1 Apply to and obtain acceptance from your state board

2 Reserve lodging for examination nights

C Taking the Examination (covered in detail in Chapter 4)

1 Become familiar with exam facilities and procedures

2 Implement examination strategies and the solutions approach

Weekly Review of Preparation Program Progress

The following pages contain a hypothetical weekly review of program progress for the Financial counting and Reporting section You should prepare a similar progress chart This procedure, which takes only about 5 minutes per week, will help you proceed through a more efficient, complete preparation program Make notes of materials and topics

Ac-1 That you have studied

2 That you have completed

3 That need additional study

12 1) Read Basic Theory and Financial Reporting Module

2) Made notecards

3) Worked the MC Questions and Simulation Problems, on a sample basis

4) Need to work Problems and Simulation Problems using the solutions approach

11 1) Read Fixed Assets and Stockholders' Equity Modules

2) Made notecards

3) Read the SFAS and APB outlines that correspond to these topics

4) Briefly looked over the MC for both modules

10 1) Read Monetary Current Assets and Current Liabilities Module

2) Made notecards

3) Read the corresponding SFAS/APB outlines

4) Worked the MC Questions and Problems and Simulation Problems for Fixed Assets, Stockholders' Equity, and Monetary CA/CL

9 1) Read the Inventory and Statement of Cash Flows Modules

2) Made notecards

3) Skimmed the SFAS and APB outlines, taking notes of important areas

4) Worked the MC Questions and Simulation Problems

8 1) Read the Present Value Module

2) Made notecards

3) Studied the SFASs and APBs on leases and pensions

4) Completed the MC Questions and Simulation Problems

5) Need to work Problems for leases and pensions

7 1) Read Deferred Taxes Module

2) Made notecards

3) Read the corresponding SFAS and APB outlines

4) Worked the MC Questions and Simulation Problems

5) Worked some Essays/Problems for all modules studied thus far

6

1) Read the Derivative Instruments and Hedging Activities and Miscellaneous Modules 2) Made notecards

3) Read the corresponding SFAS and APB outlines

4) Worked the MC Questions and Problems for these modules

5) Confident with these mods; only need a quick review

5 1) Read Investments Module

2) Made notecards

3) Read the corresponding SFAS and APB outlines

4) Worked the MC Questions and Simulation Problems

4 1) Read the Business Combinations and Consolidations Module

2) Reviewed consolidations in an advanced accounting textbook

3) Made notecards

4) Worked the MC Questions and Simulation Problems

3 1) Worked some Essays/Problems for all modules studied in weeks 6-4

2) Took Financial Accounting and Reporting Sample Exam

3) Worked lease, pension, and purchase and pooling problems Am now confident in those areas.

2 1) Reviewed all prior topics, picking out a few MC for each topic and working them out 2) Did a statement of cash flows

3) Completed all Simulations in Appendix A

1 1) Reviewed notecards and SFAS and APB outlines

2) Worked MC from Deferred Taxes and Stockholders' Equity Modules

0

1) Tried to relax and review topics

Time Management of Your Preparation

As you begin your CPA exam preparation, you obviously realize that there is a large amount of material to cover over the course of the next two to three months Therefore, it is very important for you to organize your calendar, and maybe even your daily routine, so that you can allocate sufficient time to studying An organ-ized approach to your preparation is much more effective than a last week cram session An organized ap-proach also builds up the confidence necessary to succeed on the CPA exam

An approach which we have already suggested is to develop weekly “to do” lists This technique will help you to establish intermediate objectives and goals as you progress through your study plan You can then fo-cus your efforts on small tasks and not feel overwhelmed by the entire process And as you accomplish these tasks you will see yourself moving one step closer to realizing the overall goal, succeeding on the CPA exam Note, however, that the underlying assumption of this approach is that you have found the time during the week to study and thus accomplish the different tasks Although this is an obvious step, it is still a very im-portant step Your exam preparation should be of a continuous nature and not one that jumps around the cal-endar Therefore, you should strive to find available study time within your daily schedule, which can be util-ized on a consistent basis For example, everyone has certain hours of the day which are already committed for activities such as jobs, classes, and, of course, sleep There is also going to be the time you spend relaxing because CPA candidates should try to maintain some balance in their lives Sometimes too much studying can

be counterproductive But there will be some time available to you for studying and working through the questions Block off this available time and use it only for exam prep Use the time to accomplish your weekly tasks and to keep yourself committed to the process After awhile your preparation will develop into a habit and the preparation will not seem as overwhelming as it once did

NOW IS THE TIME

TO MAKE YOUR COMMITMENT

Setting the Passing Standard of the Uniform

All State Boards of Accountancy use the AICPA advisory grading service As your grade is to be

deter-mined by this process, it is very important that you understand the AICPA grading process and its

implica-tions for your preparation program and for the solution techniques you will use during the examination.

The AICPA has a full-time staff of CPA examination personnel under the supervision of the AICPA Board of Examiners, which has responsibility for the CPA examination

This chapter contains a description of the AICPA grading process including a determination of the passing standard

Setting the Passing Standard of the Uniform CPA Examination

As a part of the development of any licensing process, the passing score on the licensing examination must

be established This passing score must be set to distinguish candidates who are qualified to practice from those who are not After conducting a number of studies of methods to determine passing scores, the Board of Examiners decided to use candidate-centered methods to set passing scores for the computer-based Uniform CPA Examination In candidate-centered methods, the focus is on looking at actual candidate answers and making judgments about which sets of answers represent the answers of qualified entry-level CPAs To make these determinations, the AICPA convened panels of CPAs during 2003 to examine candidate responses and set the passing scores for multiple-choice questions and simulations The data from these panels provide the

basis for the development of question and problem points (relative weightings) As with the previous

pencil-and-paper exam, a passing score on the computer-based examination is 75%

Grading the Examination

Most of the responses on the computer-based CPA examination are objective in nature Obviously, this includes the responses to the multiple-choice questions However, it also includes most of the responses to the requirements of simulations Requirements of simulations include responses involving check boxes, entries into spreadsheets, form completion, graphical responses, drag and drop, and written communications All of these responses, with the exception of written communications, are computer graded Therefore, no consid-eration is given to any comments or explanations outside of the structured responses

Graders are used to score the responses involving written communication, (e.g., a written memorandum).These responses are graded for quality of the written communication While the responses are not graded for technical accuracy, they must be on point That is, they must be responsive to the requirement Similar to the

process involved in grading the prior pencil-and-paper examination, a second review will be performed for all

candidates that earn initial grades that are just below the 75-point cut-off

Multiple-Choice Grading

All sections of the exam contain three multiple-choice testlets of from 24 to 30 questions each

Approxi-mately 20% of these questions will be pretest questions that will not be considered in the candidates score Also, the possible score on a question and on a testlet will vary based on the difficulty of the questions.

The makeup of the second testlet provided to a candidate will be determined based upon the candidate’s formance on the first testlet, and the makeup of the third testlet will be determined by the candidate’s perform-ance on the first two testlets Therefore, you should not be discouraged if you a get a difficult set of questions;

per-it may merely mean that you performed very well on the previous testlet(s) Also, you will receive more raw points for hard and medium questions than for easy questions

Your answers to the multiple-choice questions are graded by the computer Your grade is based on the total number of correct answers weighted by their difficulty, and with no penalty for incorrect answers As mentioned earlier, approximately 20% of the multiple-choice questions are pretest items that are not included

in the candidate’s grade

Simulation Grading

As indicated previously, a majority of the responses to the simulations will be computer graded They will typically involve checking a box, selecting a response from a list, or dragging and dropping an answer The responses involving written communications will be graded for writing skills These responses are scored based on the following criteria:

1 Coherent organization

2 Conciseness

3 Clarity

4 Use of standard English

5 Responsiveness to the requirements of the question

6 Appropriateness for the reader

As with the multiple-choice questions, a small percentage of the simulation requirements will be pretest items that will not be included in the candidate’s grade

Chapter 3 will provide detailed suggestions on ways that you may use the information about grading to maximize your score

NOW IS THE TIME

TO MAKE YOUR COMMITMENT

Multiple-Choice Screen Layout 19

Multiple-Choice Question Solutions Approach

Multiple-Choice Question Solutions Approach

Simulations Solutions Approach Algorithm 27 Research Requirements of Simulations 27 Communication Requirements of Simulations 28

Methods for Improving Your Writing Skills 29 Time Requirements for the Solutions Approach 31

The solutions approach is a systematic problem-solving methodology The purpose is to assure efficient,

complete solutions to CPA exam questions, some of which are complex and confusing relative to most

under-graduate accounting questions This is especially true with regard to the new Simulation type problems

Un-fortunately, there appears to be a widespread lack of emphasis on problem-solving techniques in accounting

courses Most accounting books and courses merely provide solutions to specific types of problems

Memori-zation of these solutions for examinations and preparation of homework problems from examples is

“cook-booking.” “Cookbooking” is perhaps a necessary step in the learning process, but it is certainly not sufficient

training for the complexities of the business world Professional accountants need to be adaptive to a rapidly

changing, complex environment For example, CPAs have been called on to interpret and issue reports on new

concepts such as price controls, energy allocations, and new taxes These CPAs rely on their problem-solving

expertise to understand these problems and to formulate solutions to them

The steps outlined below are only one of many possible series of solution steps Admittedly, the

proce-dures suggested are very structured; thus, you should adapt the suggestions to your needs You may find that

some steps are occasionally unnecessary, or that certain additional procedures increase your problem-solving

efficiency Whatever the case, substantial time should be allocated to developing an efficient solutions

ap-proach before taking the examination You should develop your solutions apap-proach by working previous CPA

questions and problems

Note that the steps below relate to any specific question or problem; overall examination strategies are

dis-cussed in Chapter 4

Multiple-Choice Screen Layout

The following is a computer screenshot that illustrates the manner in which multiple-choice questions will

be presented:

As indicated previously, multiple-choice questions will be presented in three individual testlets of 24 to 30 questions each Characteristics of the computerized testlets of multiple-choice questions include the follow-ing:

1 You may move freely within a particular testlet from one question to the next or back to previous questions until you click the “Done” button Once you have indicated that you have finished the testlet by clicking on the “Done” button, you can never return to that set of questions

2 A button on the screen will allow you to mark a question for review if you wish to come back to it later

3 A computer calculator is available as a tool

4 The time remaining for the entire exam section is shown on the screen

5 The number of the questions out of the total in the testlet is shown on the screen

6 The “Help” button will provide you with help in navigating and completing the testlet

The screenshot above was obtained from the AICPA’s tutorial at www.cpa-exam.org Candidates are urged to complete the tutorial and other example questions on the AICPA’s Web site to obtain additional ex-perience with the computer-based testing

Multiple-Choice Questions Solutions Approach Algorithm

1 Work individual questions in order

a If a question appears lengthy or difficult, skip it until you can determine that extra time is able Mark it for review to remind you to return to it later

avail-2 Read the stem of the question without looking at the answers

a The answers are sometimes misleading and may cause you to misread or misinterpret the question

3 Read each question carefully to determine the topical area

a Study the requirements first so you know which data are important

b Note keywords and important data

c Identify pertinent information

d Be especially careful to note when the requirement is an exception (e.g., “Which of the following

is not an effective disclaimer of the implied warranty of merchantability?”)

e If a set of data is the basis for two or more questions, read the requirements of each of the tions before beginning to work the first question (sometimes it is more efficient to work the ques-tions out of order)

ques-f Be alert to read questions as they are, not as you would like them to be You may encounter a miliar looking item; don’t jump to the conclusion that you know what the answer is without read-ing the question completely

fa-4 Anticipate the answer before looking at the alternative answers

a Recall the applicable principle (e.g., offer and acceptance, requisites of negotiability, etc.) and the respective applications thereof

b If a question deals with a complex area, it may be very useful to set up a timeline or diagram using abbreviations

5 Read the answers and select the best alternative.

6 Click on the correct answer (or your educated guess)

7 After completing all of the questions including the ones marked for review click on the “Done”

button to close out the testlet Remember once you have closed out the testlet you can never turn to it

re-Multiple-Choice Question Solutions Approach Example

A good example of the multiple-choice solutions approach follows:

Step 3:

Topical area? Contracts—Revocation and Attempted

Ac-ceptance

Step 4:

Principle? An offer may be revoked at any time prior to

acceptance and is effective when received by offeree

Step 5:

a Incorrect - Mason’s acceptance was ineffective

be-cause the offer had been revoked prior to

Mason’s acceptance

b Incorrect - Same as a

c Correct - Peters offer was effectively revoked when

Mason learned that the lawn mower had

been sold to Bronson

d Incorrect - Peters was not obligated to keep the offer

open because no consideration had been

paid by Mason Note that if consideration

had been given, an option contract would

have been formed and the offer would have

been irrevocable before June 20

13 On June 15, Peters orally offered to sell a used lawn

mower to Mason for $125 Peters specified that Mason had until June 20 to accept the offer On June 16, Peters re- ceived an offer to purchase the lawn mower for $150 from Bronson, Mason’s neighbor Peters accepted Bronson’s offer On June 17, Mason saw Bronson using the lawn mower and was told the mower had been sold to Bronson Mason immediately wrote to Peters to accept the June 15 offer

Which of the following statements is correct?

a Mason’s acceptance would be effective when ceived by Peters

re-b Mason’s acceptance would be effective when mailed.

c Peters’ offer had been revoked and Mason’s tance was ineffective

accep-d Peters was obligated to keep the June 15 offer open until June 20

Currently, all multiple-choice questions are scored based on the number correct, weighted by a difficulty rating (i.e., there is no penalty for guessing) The rationale is that a “good guess” indicates knowledge Thus, you should answer all multiple-choice questions

Simulations Screen Layout

The simulations have multiple parts separated by computer tabs Typically they begin with directions and

a situation and continue with various tabs requiring responses and a resource tab An example of simulation instructions is shown below

While the tabs without the pencils are informational in nature, the tabs with pencils require a response The following screenshots illustrate the types of responses that might be required

The following screenshots illustrate the types of responses that might be required:

To complete the simulations, candidates are provided with a number of tools, including

• Calculator

• The ability to split windows to show two tabs on the screen (e.g., you can examine the situation tab in one window and a particular requirement in a second window)

• Access to professional literature databases to answer research requirements

• Scratch spreadsheet (The spreadsheet has wizard functions disabled but the spreadsheet includes

instructions for the use of common spreadsheet operators and functions as illustrated below.)

In addition, the resource tab provides other resources that may be needed to complete the problem For ple, a resource tab might contain a present value table for use in answering a lease problem

exam-A window on the screen shows the time remaining for the entire section and the “Help” button provides instructions for navigating the simulation and completing the requirements

The screenshots above were obtained from the AICPA’s sample exams at www.cpa-exam.org You are urged to complete the tutorial and sample exams that are on the AICPA’s Web site to obtain additional experi-ence with the computer-based testing

Simulations Solutions Approach Algorithm

The following solutions approach is suggested for answering simulations:

1 Review the entire problem Tab through the problem in order to get a feel for the topical area and

re-lated concepts that are being tested Even though the format of the question may vary, the exam tinues to test your understanding of applicable principles or concepts Relax, take a deep breath, and determine your strategy for conquering the simulation

con-2 Identify the requirements of the problem This step will help you focus in more quickly on the

so-lution(s) without wasting time reading irrelevant material

3 Study the items to be answered As you do this and become familiar with the topical area being

tested, you should review the concepts of that area This will help you organize your thoughts so that you can relate logically the requirements of the simulation with the applicable concepts

4 Answer each tab requirement one at a time If the requirements don’t build on one another, don’t

be afraid to answer the tab requirements out of order Also, if the scenario is long or complex, you may wish to use the split screen function to enable you to view the simulation data while answering a requirement

5 Use the scratch paper (which will be provided) and the spreadsheet and calculator tools to assist

you in answering the simulation

Research Requirements of Simulations

Research tabs of simulations require candidates to search the professional literature and income tax code and regulations in electronic format and interpret the results The table below describes the research material that will be available for each section of the exam that includes simulations

Auditing and Attestation • Statements on Auditing Standards and Interpretations

• Statements on Attestation Standards and Interpretations

• Statements on Standards for Accounting and Review Services and Interpretations

Financial Accounting and Reporting • FASB Current Text and Original Pronouncements

Shown below is a screenshot of the research page for the Regulation section of the CPA examination

The research material may be searched using the table of contents or a keyword search Therefore, knowing important code sections, FASB pronouncement numbers, FASB current text section numbers, auditing

standards section numbers, etc may speed up your search

If possible, it is important to get experience using electronic version of the research databases to sharpen your skills If that is not available, you should use the printed copy of the professional standards and the IRS code and regulations to answer the simulation problems in the manual

Communication Requirements of Simulations

The communications requirements of simulations will involve some real-world writing assignment that a CPA might have to perform, such as a memorandum to a client explaining a tax or accounting issue, or a

memorandum to the working papers addressing an accounting issue The communications are not graded

for technical accuracy However, they must be on point to be graded at all Therefore, your should devote a

lot of time to considering the technical accuracy of your response As long as it is responsive to the ment it will be graded for writing quality

require-Candidates’ writing skills will be graded according to the following characteristics:

Jum-• Use short paragraphs composed of short sentences

• Indent paragraphs to set off lists, equations, key ideas, etc when appropriate

• Maintain coherence within paragraphs

- Use a topic sentence at the beginning of each paragraph

- Develop and support this topic throughout the rest of the paragraph

- Present old or given information before discussing new information

- Discuss ideas in chronological order

- Use parallel grammatical structure

- Be consistent in person, verb tense, and number

- Substitute pronouns or synonyms for previously used keywords

- Use transitions (e.g., therefore, finally)

• Maintain coherence between paragraphs

- Repeat keywords from previous paragraph

- Use transitions

As indicated above, candidates are strongly advised to keyword outline their responses before

writing their communications This technique helps the candidate to focus on the flow of ideas s/he wants to convey before starting the actual writing task

3 Conciseness

Candidates should express themselves in as few words as possible Complex, wordy sentences are hard to understand Conciseness can be improved using the following guidelines

• Write in short sentences

• Use a simple word instead of a long word if it serves the same purpose

• Avoid passive constructions (e.g., was evaluated)

• Use words instead of phrases

• Combine sentences, if possible

• Avoid empty fillers (e.g., it is apparent; there seems to be)

• Avoid multiple negatives (e.g., no reason for not using)

4 Clarity

Written responses should leave no doubt in the reader’s mind as to the meaning intended Clarity can be improved as follows:

• Do not use abbreviations

• Use correct terminology

• Use words with specific and precise meanings

• Write in short, well-constructed sentences

1

Adapted from Writing for Accountants by Aletha S Hendrickson (Cincinnati, OH: Southwestern Publishing Co., 1993) pp 128-209

• Make sure subjects and verbs agree in number

• Make sure pronouns and their antecedents agree in number (e.g., the partnership must decide

how it (not they) wants to split profits.)

• Avoid unclear reference to a pronoun’s antecedent (e.g., A should inform B that he must

perform on the contract by January 1—Who does “he” refer to?)

5 Use of standard English

Spelling, punctuation, and word usage should follow the norm used in most books, newspapers, and magazines Note the following common mistakes:

• Confusion of its/it’s

The firm issued its stock

It’s (it is) the stock of that firm.

• Confusion of there/their/they’re

There will be a dividend declaration

Their dividend was declared last week

They’re (they are) declaring a dividend.

6 Appropriateness for the reader

Candidates will be asked to prepare a communication for a certain reader (e.g., a memorandum for

a client) Writing that is appropriate for the reader will take into account the reader’s background, knowledge of the subject, interests, and concerns (When the intended reader is not specified, the can-didate should write for a knowledgeable CPA.)

Intended readers may include those who are unfamiliar with most terms and concepts, and who seek financial information because of self-interest (i.e., clients, stockholders) Try the following tech-niques for these readers:

• Avoid jargon, if possible (i.e., GAAS, etc.)

• Use parenthetical definitions

- limited partner (liable only to the extent of contributed capital)

- marketable equity securities (short-term investments in stock)

• Set off definitions as appositives

A note, a two-party negotiable instrument, may become uncollectible

• Incorporate a “you” attitude The requirement of a question may also specify that the response should be directed to profession-als who are knowledgeable of most terms and concepts Employ the following techniques with these readers:

• Use jargon

• Refer to authoritative sources (i.e., Code section 543 or FASB 13)

• Incorporate a “we” attitude Again, preparing a keyword outline will assist you in meeting many of these requirements You should also reread each written communication in its entirety Writing errors are common during the exam, so take your time to proofread and edit your answers Again, make use of the spell check func-tion of the word processing software if it is available

Methods for Improving Your Writing Skills

1 Organization

Logical organization is very important Again, this is where the keyword outline helps

2 Syntax, grammar, and style

By the time you sit for the CPA exam, you have at your disposal various grammatical constructs from which you may form sentences Believe it or not, you know quite a bit of English grammar; if

you did not, you would never have made it this far in your studies So in terms of your grammar, lax! You already know it

re-A frequent problem with writing occurs with the syntactic structure of sentences re-Although the Board of Examiners does not expect the rhetoric of Cicero, it does expect to read and understand your answer The way in which the graders will assess writing skills further indicates that they are looking more for writing skills at the micro level (sentence level) than at the macro level (organizational level)

a Basic syntactic structure (transitive and intransitive action verbs)

Most English sentences are based on this simple dynamic: that someone or something (the subject) does some action (the predicate) These sentences involve action verbs and are grouped

in the following categories:

(1) Subject-Verb

The TAXPAYER WAITED for 3 weeks to get a refund.

(2) Subject-Verb-Direct Object (The object receives the action of the verb.)

The TAXPAYER SIGNED the CONTRACT.

(3) Subject-Verb-Indirect Object-Direct Object (The direct object receives the action of the verb, but the indirect object is also affected by this action, though not in the same way as the direct object.)

The IRS GAVE US a DEFINITE DECISION well beyond our expectations.

b Syntactic structure (linking verbs)

Linking verbs are verbs which, rather than expressing action, say something about the ject’s state of being In sentences with linking verbs, the subject is linked to a work which de-scribes it or renames it

sub-(1) Subject-Linking Verb-Nominative (The nominative renames the subject.)

In the field of Accounting, the FASB IS the standard-setting BOARD.

(2) Subject-Linking Verb-Adjective (The adjective describes the subject.)

Evidence of SCIENTER IS always HELPFUL in proving fraud.

c Subordinate clauses

(1) Adverbial clauses (subordinating connector + sentence) These clauses modify the action of the main clause

When amounts are not substantiated, a nondeductible expense is incurred.

(2) Noun clauses (nominal connectors + sentence) These clauses function as nouns in the main sentence

When a tax return is not signed, we know that the return is not filed

(3) Adjective clauses [relative pronoun + verb + (object/nominative/adjective)] These clauses function as noun modifiers

The court with the highest authority is the one that sets the precedent.

d The above are patterns which form basic clauses (both dependent and independent) In addition, numerous phrases may function as modifiers of the basic sentence elements

(1) Prepositional (a preposition + an object)

of the FASB

on the data about a new type of depreciation

ii] Used as a noun (gerund)

Performing all of the duties required by a contract is necessary to avoid breach.

(b) Verb + ed + modifier (noun, adverb, prepositional phrase) i] Used as an adjective

The basis used when historical costs cannot be determined is estimated value

(c) Infinitive (to + verb + object) i] Used as a noun

The company needs to respond by filing an amended tax return

b Refrain from lumping prepositional and infinitive phrases together

The delegation of authority by a corporate director of day-to-day or routine matters to officers and agents of that corporation is a power and a duty of the director

Better: Delegating authority for routine matters to officers and agents is a power and a duty of corporation’s

directors.

c Make sure that your pronouns have a clear and obvious referent

When an accountant contracts with a client for the primary benefit of a third party, they are in privity of contract.

Better: When known to be a primary beneficiary of an accountant-client contract, a third party is in privity of

contract with the accountant

d Make sure that any adjectival verbal phrase clearly modifies a noun stated in the sentence

To avoid incurring a penalty, each return was prepared exactly as required

Better: To avoid incurring a penalty, we prepared each return exactly as required

Time Requirements for the Solutions Approach

Many candidates bypass the solutions approach, because they feel it is too time-consuming Actually, the solutions approach is a time-saver and, more importantly, it helps you prepare better solutions to all questions and simulations

Without committing yourself to using the solutions approach, try it step-by-step on several questions and simulations After you conscientiously go through the step-by-step routine a few times, you will begin to adopt and modify aspects of the technique which will benefit you Subsequent usage will become subcon-scious and painless The important point is that you must try the solutions approach several times to accrue any benefits

In summary, the solutions approach may appear foreign and somewhat cumbersome At the same time, if you have worked through the material in this chapter, you should have some appreciation for it Develop the solutions approach by writing down the steps in the solutions approach algorithm at the beginning of this chapter, and keep them before you as you work CPA exam questions and problems Remember that even

though the suggested procedures appear very structured and time-consuming, integration of these dures into your own style of problem solving will help improve your solutions approach The next chapter

proce-discusses strategies for the overall examination

NOW IS THE TIME

TO MAKE YOUR COMMITMENT