Just as you would study the content of the CPA Exam, it is also important to know the format, time allotment, testing windows, and topic breakdown for each of the four exams. Familiarize yourself with the ins and outs of the CPA Exam to make sure you are fully prepared for Exam Day.
Roger Philipp, CPA presents:
WHAT DOES THE CPA EXAM LOOK LIKE?
The four parts to the CPA exam consist of auditing, financial accounting and reporting, regulation, and BEC called business environment and concepts.
The first part is the audit exam and the audit exam includes all these different parts of planning the audit, internal control, substantive testing, obtaining sufficient, appropriate audit evidence, audit reports, also looking at things like SSARS, statements on standards for accounting and review services, reviews, compilations, other special areas like governmental, and then finally IT, information technology.
So in auditing, those are some of the things they're looking at. When I worked at Deloitte, this is a lot of the stuff that is on the exam. So, for example, one of the things that's heavily tested is audit reports so at the very end of the audit, your job, should you decide to accept it, is to give an opinion on the client's financial statements.
So what does the audit report say? In our financial - in our opinion, the financial statements referred to above presents fairly in all material respects, the financial position of-- the results of its operations and conformity with United States principles, right? Generally accepted accounting principles generally accepted in the United States.
Now that is the audit report. I had a lot of time when I was single, right, memorizing the audited opinion, but that's the audited opinion. That's a really important part of the audit exam.
Financial accounting and reporting includes a whole bunch of areas. It includes your intermediate part one, intermediate part two, advanced accounting, governmental accounting, nonprofit organizations, all of that squeezed into a four-hour exam.
So auditing is a four-hour exam. Financial accounting, called FAR, is also a four-hour exam. So that includes inventory, lower of cost or market, accounts receivable, percentage or credit sales, aging of AR, net realizable value.
It includes pensions, leases, bonds, deferred taxes, contingent liabilities, consolidations, foreign currency translations, transactions, deals with things like derivatives, also nonprofit, governmental accounting as well, are about 8% to 12% each.
Regulation is tax and law so tax, law, and actually professional responsibilities. So it's about, let's say, 60% tax, 20% business law, roughly 20% professional responsibilities and ethics.
With the tax portion, that's gonna be your 1040, your Schedule A, Schedule B, Schedule C, Schedule D, Schedule E. Even Schedule F has shown up recently.
What is Schedule F you ask? Farm income! Guess what? I worked at Deloitte for many, many years in downtown LA. How many farms do you think I audited? Nada, right? However, it still shows up on the exam.
You have corporate tax 1120, 1120S corps, 1065 partnerships, 6252 installment sales, 1031 like kind exchanges and so on.
A lot of information on property. Is it an ordinary asset, a 1231 asset? Is it a capital asset? How is it accounted for? Ordinary income, capital gains, losses, and so forth so that is the tax portion.
Then you've got your business law which is common law contracts, sales of goods contracts, negotiable instruments, bankruptcy, suretyship, agency, so all of that is about 20% and then you have professional responsibility and ethics where we go into a lot of detail about dealing with the ethical standards, the code of conduct and so forth.
So that is your three-hour regulation exam and then finally BEC, business environment and concepts, this is a three-hour exam.
This is a part that didn't even exist many moons ago when I sat for the exam why back when we had a rock and chisel and so on, but it includes economics, both micro and macroeconomics, so micro economics, supply, demand, decision makers, and then we're looking at macroeconomics, the overall economy, GNP, GDP, gross domestic product, business cycles and so forth.
Inflation, also we're looking at employment, unemployment, structural, cyclical, frictional and so forth. All of that is part of economics on the BEC exam.
We also have financial management, IT, information technology, decision making, corporate governance. Corporate governance is an area that they added because of the Enron, Arthur Anderson situation. They want us as CPAs to have a better understanding of what should be going on, Dodd-Frank Act, the Jobs Act, so all of that is part of that.
Another area in BEC some of us are excited about, remember cost managerial? It's back!
Now what does that mean, it's back? What it means is cost managerial, that would be like variance analysis, direct materials, direct labor, factory overhead, spending, efficiency, volume variance analysis and so forth, so those are the four parts.
That is how your 14-hour fun-filled adventure is set up. Once you pass a part, you keep that part for the next 18 months which is a rolling 18 months, which we'll talk about a little bit later.
As far as, again, the exam content, you'll see here in more detail a little bit more about the actual content specification outlines. That gets adjusted sometimes every year, periodically every few years, but it goes into a little bit more detail.
For example, in auditing, how is that 16% to 20% made up, the other 16% to 20%? For example, in regulation, when we talk about 60%, 64% tax, how is that 60% broken up within that area?
Now for auditing, for example, they brought in the Audit Clarity Project. What they try to do is they realized, you know what? It wasn't quite clear enough so now instead of the AU standards they use AUC, the auditing clarity standards, so that meant as of 2014 they got rid of the AUs and only started testing the AUC standards.
And basically what we did is we came out and we said, you know, in auditing, it's not really clear when something is recommended, you should do it, or when it is a required so that's what they talked about and that's what the clarity standards were set up to do, to kind of make it clear as far as preparing, in auditing, when something is required or when something is recommended.
Now as far as the four parts, you'll see here that we've got FAR, Audit and REG. Those are about 60% multiple choice and 40% what we call task-based simulations or TBS. With BEC, it's about 85% multiple choice and 15% written communication or essays.
So, for example, in FAR and Audit, you've got 60% multiple choice, you'll have about 90 questions in total, 30, 30, 30. You'll also have these task-based simulations which could be, for example, maybe with auditing, maybe an audit report where they want you to go through and talk about hey, what kind of opinion would you give, what would the report modification look like?
Maybe it's in financial accounting, they're asking you about change in accounting principle, change in estimate, change in reporting entity, correction of an error, what is it, how is it treated retroactive, retrospective, prospective and so forth.
Maybe in an area like tax it could be filling in or dragging and dropping a tax form. So there are a variety of ways that these task-based simulations could be tested.
You'll see here, for example, with Audit, FAR, and REG, you'll see you've got three testlets and then you've got these task-based simulations. So testlet one, testlet two, testlet three.
Testlet one, for example, for both audit and for FAR have 30 multiple choice. Now 30 multiple choice, you've got four hours for 30, 30, 30, and then seven problems, seven task-based problems.
To keep on target, and that's one of the things we have to work with you on, is good time management because you want to make sure you have adequate time to get through all the multiple choice and still have time to deal with the seven task-based simulations.
So we recommend generally about a minute and a half per question. That means for financial accounting and reporting, or FAR, you've got a minute and a half to jump from leases, pensions, bonds, deferred taxes, consolidations, governmental accounting, let's throw in a nonprofit, let's come back over to consolidations, let's-- and so forth.
So therefore the preparation is imperative so that your brain can quickly jump. On the multiple choice, you generally have four choices and you're bubbling it in and then you're going on to the next question.
So you've got 30, then 30, then 30. You'll see that group of 90 is worth about 60% of your score and then you've got those seven task-based simulations which make up about 40% of your score.
Now what that says is, with the task-based, there are seven in audit, seven in FAR, of the seven one is pretested, not graded. Also at least one of those will also be a research question which most students don't have too much trouble with, but we'll give you software so you can practice that so you're comfortable with the research.
The other parts are going to be things like fill in the blank, drag and drop. It could be preparing part of a statement of cash flows, maybe doing the direct method, maybe operating versus investing versus financing activities and so forth.
So you'll see here you've got 30 multiple choice, within the 30 you can go back and forth and forth and back, when you're ready, boom, you go to the next 30. When you're ready, boom, go to the next.
But you can never go back. It's like a bad relationship. Once you leave it, don't ever go back. So you do the first 30, then it says “hey, do you want to take a break?” You never want to take a break. Why not? Because time is of the essence.
You want to make sure you don't run out of time and what happens when you log in, there is, and something that they've added lately is there's three screens and some people were running out of time, they were timing out during the screens, so what they did is they added the countdown clock on the screens so you've got about 10 minutes to get through the first three screens.
You just “I agree, I agree, I agree,” boom, and that launches the exam. Then you have a countdown clock for, let's say, four hours where you're doing it. So you can kind of feel your heart racing, four hours, 3:59, 3:58, 3:57, you're saying, oh my gosh, I should have started studying sooner.
So you can kind of feel your heart racing, but again, if you keep to our schedule, which is about a minute and a half per question, about 45 minutes for the first group, first testlet, 45 for the next, 45 for the next, and then about 15 minutes for each of the task-based simulations, you should be fine.
So with audit and FAR, 30, 30, 30, seven problems. Because regulation is only three hours, whereas audit and FAR are four hours, therefore what you're gonna do is have 24 not 30.
So 24 questions, 24 questions, 24 questions, and you need to get those done at about 30 minutes each and then instead of seven you'll have six task-based simulations. Of the six, one is, again, not graded, pretested, and at least one will be on research.
You'll see here with BEC, business environment and concepts, you'll have 24, 24, 24, 'cause it's also a three-hour exam, but then you'll have three written communications.
Now you got 24, and those are questions in all the different areas, economics, financial management, IT, cost accounting, managerial, then the next 24, and so on.
One of the things I want to mention for all the exams. The first group of 24 or 30 are moderate level of difficulty. If you do well, they get more difficult. So that means you could have moderate, difficult, difficult, moderate, moderate, difficult, moderate, difficult, moderate, and so on.
So as you're taking the exam, if the questions are getting more difficult, that's good. Okay, if they're getting easier, you're probably still doing, you know, but the point is they're generally going to get more difficult.
It's not like the GMAT and GRE where every question is harder or easier. Here it's a group of 30, boom, group of 30, boom, group of 30. Or in the case of REG and BEC, 24, 24, 24.
Back to BEC, you'll notice instead of six or seven task-based problems, you have, what, three written communications, three essays. These are usually not too difficult for our students, we cover them in class, but with written communication, what they're looking for, is it clear, concise, complete, proper use of English, right?
They want to make sure it has a beginning, a middle, and an end. They're not looking that it's correct. They're looking that it's relevant. Is it on topic? Is it grammatically correct?
It's kinda like taking a Word document and you're typing and if you get the red squiggly, what's it mean? Mm, you can't spell. If you get the green squiggly, what's it mean? It means your grammar ain't so good. That's really what they're looking for.
So that's one of the things that, again, we'll go over in class. You'll notice of the three, two are graded, one is not graded, one is just considered pretested.
So here you'll see with the multiple choice, you've got again 90 in audit, 90 in FAR, 72 in REG, 72 in BEC.
So here's a typical question, at the top of the page it has a calculator, and the calculator, I'll show you a picture of that in a few minutes, then you've got your different choices and at the bottom of the page you can mark for review. That means you flag it.
These are the kinds of questions, and there's gonna be some questions you look at and you go, boom, I know that, it's C. You're gonna look at some questions and go “wow, I'm never gonna understand that the rest of my life on this earth” and you just mark something, move on.
If the question's kind of in the middle where you go, if I interpret it this way it's A, if I interpret it that way it's C, I think it's C, let me mark it, I'll come back to it later.
That means that while you're doing those 30 or 24, before you leave that testlet, you need to go back to the ones you flagged, you put your cursor, your mouse over it, you put the pointer over it and the question pops up at the bottom so you can see it again, oh, that's right, let me go back, I've had some time to think about it, let me calm down, now let me go ahead and answer that question.
So you'll see that as far as being able to flag some of the questions. Obviously you're not gonna have time to flag, flag, flag 'em all, all right, but again, it's the ones that are kind of right in that gray area where if I calm down a little and I had a little more time, I'd feel comfortable answering that question.
As far as the TBS, task-based simulations, as you'll see, it could be like a tax problem, here's a partnership where you have to drag and drop the amounts in.
Some of them could be, for example, like a financial question where you click on it, it opens a box, and it asks you to put in the description or the accounting treatment, how would you do it, as I said, retrospective, retroactive, prospective, you know, currently, and prospectively, and so on.
So you're filling that in. You could be typing in numbers, but usually they'll give you some choices because, again, they want to make it easier to grade so that they can timely release the scores so people can get those scores on a regular basis.
As far as the written communication, you'll have a similar question where it goes through, asks you some information, and then what you're gonna do is you're gonna start to type in that answer.
It does now have a spell check, phew, so that's good, but it doesn't have a grammar check so make sure that you're putting it in clear, clean English.
It'll say no bullet points, no charts, no graphs, no abbreviations, why not? Because it's machine graded. In other words, the machine doesn't know how to read a chart, or a graph, or a bullet point.
So what it says is, again, clear, concise, complete, use of standard English, make sure it's relevant, make sure it's on topic, so you're using the key words that relate to that topic that they've asked you about.
As you're going through it, it has, you'll see, graded by computer so if your score is close, 74, 75, 76, then they will again hand grade it to make sure that it's okay.
Again, no bullets, multiple paragraphs, an intro, a body, and then a closing, stay on topic.
There's two of these. Now there's three questions, but only two of them are graded. Of course, you never know which of the two are going to be graded, probably not the one that you really felt comfortable with.
As far as time strategy, and as I mentioned, time is of the essence, so what that means is part of what we have to do at Roger CPA Review is not only teach you the material, and I know we call it a review course, but believe me, there's a lot of stuff you may have never seen in school.
I've yet to meet an intermediate accounting instructor who finished the entire book, right? They're always like, "We're gonna finish the entire book this semester" and you're like "Ugh!" And then all the way through, they go, "Well, we don't have time for the last four chapters on foreign currency re-measurement and translation" and you're like, "Phew, thank goodness, I'll never need to know that."
Guess what? You need it for the CPA exam. That's where we have to come in and even though you've never seen it to review it, we'll teach it to you.
There's also stuff like maybe governmental accounting that you saw once but don't remember so we'll cover that as well. There are a lot of times-- I know when I was in school, governmental accounting was an elective and I elected not to take it so I had never seen it until I was preparing for the CPA exam.
Now as far as time strategy, and I alluded to that earlier, we'll sit down and say okay, for example, for the FAR exam, you've got 45 minutes for testlet one, 45 minutes for testlet two, and so forth and 30 questions, that's about a minute and a half per question so as you're going through the first time the material what I say is don't worry about the timing because this is where you're first being introduced to some of the material.
The second and third time through is when you really want to start to consider okay, how long is this taking me now that I'm understanding the material to make sure that it allows me enough time to get through it.
At the testing center called Prometrics, they'll provide you with, again, an onscreen calculator and that onscreen calculator you'll see here has addition, subtraction, multiplication, division, a little bonus, a square root key, woo, right?
It also has a running tape. What's nice about that is if you're adding up a bunch of questions, a bunch of numbers, you may not remember where you left off so one of the nice things, it has a tape, you can clear the tape and so forth.
They will provide you with headphones or earphones, you know, sound quieting phones.
Also, they'll give you kind of a white board and this white board, what that allows you to do is you can write all over it, turn it over, write all over it again. When it gets full, you raise your hand, you can get a new one and trade it in.
So that way that's your scratch paper. They used to give scratch paper, but they found too many people were folding it up, putting it in their pocket, and whoop, taking it out the door, so they switched from the scratch paper over to, you know, kind of a white board.