How to Approach 2017 Higher Order Skills

How to Approach 2017 Higher Order Skills

The Shift from Memorization to Critical Thinking on the 2017 CPA Exam

The CPA Exam is changing to test candidates at a higher level, including updates to both structure and content. But what do these higher order skills require of the CPA candidate? This week only, watch as Roger Philipp, CPA, CGMA, explains what is meant by higher order skills and how to approach these question types on the CPA Exam. Tune in to learn:

  • Why higher order skills are being tested in 2017
  • How these skill levels will be tested based on question type, exam section, topic, and task
  • The cognitive abilities needed to successfully demonstrate your knowledge of the material
  • The difference between current skill levels and higher order skill levels, with examples

Roger Philipp, CPA, CGMA presents:

Hello and welcome. I'm Roger Philipp of Roger CPA Review and today we're gonna talk about how to approach higher order skills on the new April 1st, 2017 CPA Exam.

Now basically it's a shift from what we call memorization to more critical thinking. And the exam is changing in order to test candidates at what we call a higher level skill set. Which includes both a structure change and also content updates in the exam as well, but mainly this higher level skill.

So today we're gonna focus on what we mean by higher order skills and how to approach these types of questions. Now you may ask, "Why are higher order skills being tested?"

Well, the ever changing business world and all of the advancements in technology has affected what is required as far as the knowledge, the skills, the professional responsibilities of a newly licensed CPA.

So a newly licensed CPA may be at the end of their second year. So new CPAs are required to perform much more advanced tasks and also deal with more complex projects much earlier in their careers.

For example, I remember way back in the day when I started working at Deloitte in downtown Los Angeles and back then CPA stood for "cut, paste, and attach," right? Because we were preparing work papers from scratch. We weren't working with computers necessarily, but there was a lot of hands on work.

Well in today's day and age, all of that is been replaced by computers. So what that means is that we're working earlier on in our careers at a much higher level skill set. Because of that, the examiner said, "You know, we do Remembering and Understanding and Application, let's add some," based on Bloom's Taxonomy of Educational Objectives, "let's add another level or two "of Analysis and Application."

So the CPA Exam provides reasonable assurance, right, not absolute, but reasonable assurance, that individuals who pass the exam possess the minimum level of technical knowledge and also the skills that are necessary for initial licensure.

But also to remain current with the real world demands of accounting, that's why they're making the changes in order to evolve the exam.

So with the exam, talks about firms' expectations of newly licensed CPAs in order to demonstrate the higher order skill set, to maintain the public's trust in CPAs' judgment and their understanding of the standards.

Because it's important that the public feels that we're objective and biased-neutral and relies on our judgment as well, and the demand for the exam to authentically test at the higher order skills that are needed immediately today in the actual workforce.

As I mentioned earlier, this is based on what we call Bloom's Taxonomy of Educational Objectives which basically talks about the hierarchy of the skills. So you'll see here the current exam focuses on Remembering and Understanding as well as Application.

So Remembering and Understanding, let me remember things. What qualifies as this type of lease or that type of lease? And let's apply it and calculate certain amounts.

The 2017 April 1st exam says, "Let's add a few new skill level difficulty," which are the skill levels. "Let's add Analysis and let's also add Evaluation." And in a few minutes I'm gonna define what those mean as far as Remembering and Understanding, Application, Analysis, and Evaluation as well.

Now, you may ask yourself, "Hey, will the exam be more difficult?" Well the assumption is that this increased higher order skill alone, yes, will probably increase the difficulty of the exam.

And you'll notice too, on the chart, that the higher you go up the chart, the more difficult the questions are expected to be. Which means, and that's what I'll talk about in a moment, why there are more what we call TBS or task-based simulations.

You'll see here the skill level by question type. The multiple choice questions currently and in 2017, again that's April 1st, Remembering and Understanding and Application, that stays pretty much the same.

Your task-based simulations had been only really Application. What they're adding is still Application but also Analysis and in Audit only, Evaluation.

As far as the written communication, those are only in BEC and basically it's testing your writing ability. You know is it clear, concise, complete? Is it use of proper language, relevant, organized, grammar correct? And so forth. That's still consistently tested the way it was in the past, which is in BEC only.

But in order to test a combination of the content, knowledge, and higher order skills, there was a need to add more task-based simulations and a new type of problem, a TBS called a DRS, a document review simulation.

That's where you actually have a little tab you click on that says "exhibits" or "resources" and it gives you support documents like trial balance or a letter from a CFO. Support documents that you need to look at in order to really analyze and evaluate in order to draw your conclusion.

So what you'll notice on the future exam is more task-based simulations. So for Audit, FAR, and REG, there were six or seven TBS, now it's going to nine. For BEC there hadn't been any TBS on that. Zero. Now it's going to five TBS in the BEC Exam.

They're also increasing the length of time for each part, for each problem. So for example instead of maybe 10 to 15 minutes for a TBS, it might be 15 to up to 30 minutes, again because they're testing higher level skills. That's also why they increased the exam length in REG and BEC from three hours to four hours as well.

So again, those are just some of the things that you'll see as far as the changes especially as it relates to those higher level skills.

Now as far as the skill level by section, you'll notice here it says Audit was about 50% Remembering and Understanding and about 50% Application.

It's changing to 30 to 40% Remembering and Understanding, 30 to 40% Application, and then about 15 to 25 of Analysis, which is new, and only Evaluation is in Audit, five to 15% Evaluation or concluding whether or not your assistant did something correctly, that's five to 15%.

For BEC it was also 50/50 Remembering and Understanding and Application. Changing to 15 to 25 Remembering and Understanding, 50 to 60 Application, and Analysis 20 to 30%. That's probably where those five BEC are being added as well and that is in the BEC Exam.

For FAR again it was 50/50 Remembering and Understanding, Application. Changing 10 to 20 Remembering and Understanding, 50 to 60 Application, and about 25 to 35% Analysis, which is, again, new. That's where you're bringing in more TBS.

REG was 50/50, now 25 to 35 Remembering and Understanding, 35 to 45 Application, and 25 to 35 for your Analysis.

Now we have these things called blueprints and the blueprints replace what we used to call CSOs or content specification outlines. So the blueprints replace that. And what are the blueprints?

Basically they're outlines of the content topics. So what is the topics that Audit, FAR, REG, BEC, but within that the content topics and the tasks that are laid out by different skill levels.

So it says, "Okay what is the skill level that the candidate needs to demonstrate in answering this problem?" And again the whole purpose is for this problem to really be representative of the work of a newly licensed CPA.

So for example, you'll see here the topic is Understand Sufficient Appropriate Audit Evidence, that's the topic in Auditing. The task is, "conclude," so "conclude" means basically you're testing evaluation, "conclude on the sufficiency and appropriateness of evidence obtained during the audit engagement for an issuer or non-issuer, public or non-public.”

So what it says is conclude whether or not you obtain sufficient, appropriate audit evidence because as you'll find out in Auditing, you're gonna learn this, that we need to obtain sufficient, appropriate audit evidence in order to corroborate the assertions so we can give an opinion on these financial statements.

Now what skill level is that testing? And you'll see is it Remembering and Understanding? Is it Application, Analysis, or in this case, the check mark in the box is what? Evaluation.

So what we're doing here is we're evaluating whether or not we've obtained sufficient, appropriate audit evidence. That is really the skill level we're testing based on the task in this content topic that they're asking about.

Now why do higher order cognitive skills, or, I'm sorry, what do they assess? These higher level skills, what do they really assess as far as looking at this CPA candidate?

Well the professional content knowledge is still fundamental to what it is, protecting the public interest, but newly licensed CPAs also need to possess this higher order cognitive skills. And when we talk about cognitive that's thinking, reasoning, remembering and so forth.

So you'll see here, as far as the cognitive skills, the analytical ability, the CPAs problem solving ability, their critical thinking, communication skills, and professional skepticism. Also we're looking at an understanding of professional and ethical responsibility.

So we talk about professional and ethics, 'cause hey, important to be an ethical CPA. And also understanding the business environment and the processes that are being used. By "business environment" that's partially the BEC, or Business Environment and Concept Exam.

Now when we talk about the skill level, the key words, these are some of the key words that you need to look out for which will signify what level we're looking at. What is the skill difficulty level?

So you'll see, for example, starting with at the bottom, Remembering and Understanding. Some of those keywords might be "define", "recall", "explain".

So, for example, Remembering and Understanding says, "Is it an operating lease, or what we call a capital lease?" Well an operating lease is like a true rental like your apartment, debit expense, credit cash.

And a capital lease is where you capitalize the assets, substance over form, debit asset, credit obligation under capital lease. How do you know if it's a capital lease? TT, BPO, 75 or 90. Title transfers, bargain purchase‚ lease term 75% or more, present value minimum lease payments 90% and so on.

So if you meet one of those requirements, then definitionally it is a capital lease. That's Remembering and Understanding.

Application says, "Hey, how do we apply it? "Let's calculate, describe," you'll see there in the chart, "adjust." So that would be, for example, Application. Let's say, for example, with the lease, now we're gonna go through and calculate the amortization expense. Or maybe we're gonna prepare something like an amortization schedule.

As far as Analysis, that's the new level, one of the new levels, "compare", "reconcile", "derive". So this may say you're looking at positive and negative confirmations, you're comparing these things and you're coming up with some sort of analysis.

Maybe you're reconciling from one ledger to another, maybe you're doing a bank reconciliation, maybe the client has three investment opportunities and you need to analyze those to see which one is best fit for your client.

So, again, they're trying to give you more of the real world application. That's where we give you exhibits and support documents that you look at, some of the information you don't need.

Right, it's there to ruin your career, throw you off on the wrong tangent, but that's where you analyze it to see if you're drawing the right assumption or which analysis, which choice should the client make.

Evaluation, for Audit only, that's concluding, evaluating, verifying, for example. So you might be given a bunch of documents and you need to verify if the conclusion given by your assistant is correct. And you'll go through and say, "Yes I agree," or "I don't agree," based on the support document and exhibits that are given you in the problem.

Now, what we're gonna do is walk through a couple of practice questions to test these skills, but I really wanna focus in on the ones that we haven't seen yet: Analysis, and Evaluation as well. So we're gonna go through a couple TBS, DRS type problems so you can see that.

Before we do that, let's look at, for example, Remembering and Understanding. Now Remembering and Understanding basically says, "Are the following attributes of a strong password, except" so which of the following is not? So all of these are strong, except, which one's not?

So which one's not a strong password? Using a combination of letters and numbers? That's good. Using special characters, exclamation, question mark, at. Sure. Using your pet's name. I think that's kinda weak. We could figure out your favorite cat's name was Shmooly. Using a combination of upper and lowercase letters. That's good.

So they're saying which one is not. That one's kind of more Memorization or Remembering and Understanding.

Application, "Which of the four passwords presented is the strongest?" So which one's best? Now Application as I said could also be doing calculations. You're calculating dollar amounts, amortization tables, deferred taxes, leases, bonds, pensions, and all that fun stuff.

Which of the four is the strongest? One, two, three, four, five, six. That's what my five-year-old does. "Password" They did a study and found that the most popular password is the word "password." Hello.

"Welcome" "RcPaR@," hey that's my password, no. Is it good to use a combination of letters and numbers? Yes. Is it a combination of lowercase and uppercase? Yes. That's a better password. That's Application.

But what I really again wanna focus in on are the new Analysis and Evaluation. So at this point, let's look at a couple of TBS, task-based simulations, or DRS, just to show you the example of what those things look like.

So let's look at an example of an Analysis type of question. You'll see here they're asking about your client and he is selling some stock that he bought for $65,000 for 30 so he's gonna have a $30,000 loss carryforward.

They're giving you three different investment options. The first one talks about investing in land and having some sort of ordinary loss. The second one talks about a mutual fund having capital gains. Mmm? That you can offset against a capital loss carryforward plus take 3,000 a year.

The third one says buying an investment having dividend income. Which dividend income is taxed at the special capital gains rate, however it's not offsetting his capital loss carryforward.

So the key in this question is really to analyze the three situations and in class we'll teach you how to calculate the amounts to answer the questions. They're saying, "Okay, here's some more additional information. Here's three questions that we want you to answer "or each option one, option two, option three, and then what is the best option for this person?"

So it's a great way to see the actual application of the information, but when you're done then analyzing what is going to be the best option for your client, that's a good example of analyzing the information and coming up with, in this case, what they call, or consider to be the best investment option.

Here's another example of a task-based simulation. This relates to the audit area of internal control. You'll see here the review memo and this gives you information about the review 'cause you're looking at the work of your assistant.

Here are the resources available. We've got the company profile which talks about the different departments and how they operate. The billing cycle procedures. Here's a narrative and then here's the summary results of the billing cycle.

So, for example, the billing cycle procedures narrative says, "the work papers document the following steps in the billing and collections portions "of J&T's internal control."

Number one: "When an order is received by phone, email, or purchase order, customer service clerk enters the relevant information into the software system which generates a pre-numbered sales order." Remember we don't preprint it, pre-numbered, numerically controlled. "The sales order is forwarded to the warehouse."

Two: "If the amount of the order exceeds written credit limits, the credit manager must approve the order. In an emergency, if the credit manager is not available, the CFO will sign into the system and approve the order."

So as we look up at the summary results, what did we observe? We "observed that customer service clerk answered 10 calls and enters information into the system which then generated a sales order. No exceptions noted. Control functioning as designed."

Number two: "We observed three instances of credit manager approving an order that exceeded credit limits." Okay, that's fine.

"We observed two times when the customer service clerk used the credit manager's password to sign into the system and approve the order when neither the credit manager nor the CFO was available. Not an exception, as system required, and then receive proper approval. Control function as designed."

Hang on a second. We never saw anything that said the customer service clerk could override the system, a lack of internal controls, sign in and sign in using the credit manager's password.

So up here, back in the billing cycle narrative, it specifically said either the credit manager or CFO, not the customer service clerk. And here in the exhibits, or resources, you'll see here that that's a problem.

So when we go back to the problem here, and you'll see here this number two, we "observed three instances of credit manager approving an order that exceeded the credit limits. Observed two times when the customer service clerk used the credit manager's password to sign into the system and approve the order."

So then we look at these choices. It says here, original text, agree, system received the required approval. No. Delete the text? No. Disagree observation, no. Observation, no. "The credit manager should always approve orders that exceed written credit limits, or the CFO. The credit service clerk should never approved orders that exceed written approval credit limits."

That is true. Boom. We're gonna mark that, we're gonna accept it, and you'll see here that we have a check mark saying that yes, we've answered that question.

Now this is a good example where we're going through and we're analyzing and evaluating the work that someone else did. You can see here that they clearly exceeded their authority and they lacked internal controls.

Alright, so what we just looked at are a couple of other examples to really emphasize the skill difficulty levels that we're looking at.

So in order to summarize, again, Remembering and Understanding: that's like defining something. Application: to apply might be to calculate something. Analysis: you're analyzing, you're comparing.

And then for Auditing Evaluation is basically draw a conclusion. You need to conclude whether or not the assertion, the assumption is correct. So hopefully that now makes a little bit more sense about that higher order level of skill testing.

So, again, stay informed. Stay tuned for our upcoming blogs, webcasts, and newsletter for the 2017 Exam. Also visit our CPA Exam Changes page for any detailed information or any updates or changes at

Again, thank you very much for your time, and hopefully you learned something new. Alright? Study hard and we'll see you soon!