CPA Exam For Dummies
Overview
Pass the CPA exam with clear study material, online practice, and up-to-date content
CPA Exam For Dummies gives you a solid overview of everything you need to know to pass the Uniform CPA Examination—updated to reflect the 2024 exam updates. Only about half of aspiring CPAs pass the test their first time around. You can be in that one-and-done group, thanks to the concrete study plans in this book. You'll also get access to online resources, including study questions for each section of the exam and digital flashcards so you can really know your stuff on test day. Passing your exam is not just about the nuts and bolts. If you want to score your highest, you'll also need to understand how the test is organized and what to expect on text day. This Dummies study guide has you covered, with an overview of the updated exam and strategies for doing your very best.
- Review all content covered on the updated Uniform CPA Examination
- Answer practice questions and study with digital flashcards to solidify your knowledge
- Follow detailed study plans that will help you keep your test prep on track
- Maximize your score, pass the test, and launch your career as a CPA
Anyone on the CPA track needs a copy of CPA Exam For Dummies. It's great as a supplement to review and prep courses, or all on its own.
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About The Author
Kenneth W. Boyd, CPA, has more than 30 years of experience in accounting and education. Ken worked as a CPA in KPMG’s Audit department and in his own tax and consulting practice. He currently teaches accounting and finance online through his own firm, St. Louis Test Preparation. Ken is the author of Cost Accounting For Dummies.
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CHEAT SHEET
The certified public accountant (CPA) credential is a valuable tool for you to obtain. The designation will help you pursue a career in accounting and in other areas of business. To become a CPA, you must study for and pass the CPA exam. To increase your chances of success, you need to make sure you’ve prepared properly, including completing the necessary paperwork and requirements for your state, and study thoroughly for each of the four tests that make up the exam.
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Following are ten areas on the CPA exam that can be challenging. Because these topics are difficult, CPA candidates often make mistakes on these types of exam questions. These concepts are nearly always tested, so make sure you understand them. If you’re able to nail down these concepts, you’ll avoid some pitfalls on the CPA exam.
Here are some important formulas that often appear on the CPA exam. Understanding these formulas will help you boost your test score. These formulas are used on nearly every CPA exam, so it's an easy way to get some correct answers under your belt. Also, knowing these formulas helps you understand other accounting concepts that are frequently tested.
CPA Exam
A certain percentage of each test on the CPA exam consists of multiple-choice questions. When developing a strategy for answering multiple-choice questions effectively, you start with an overview of how the questions are structured and then move on to an approach to answer each question.
The structure of a multiple-choice question
Multiple-choice questions are written according to a specific structure.
CPA Exam
CPAs work on other engagements that aren’t audits. Generally, these projects are referred to as accounting and review engagements. This section of the auditing and attestation (AUD) test of the CPA exam requires you to change your thinking.
When you conduct an audit, you provide an audit opinion (or audit report).
One frequently tested topic on the CPA exam is accrual basis accounting. Companies that need to comply with GAAP (generally accepted accounting principles) have to use this method. GAAP represents the preferred rules of the road for the accounting industry.
Accrual basis accounting requires companies to recognize revenue when it's earned.
An audit requires a CPA to collect audit evidence. The evidence must be sufficient for the CPA to provide an audit opinion. An audit opinion states whether the financial statements are free of material misstatement.
Analytical procedures are used to gather audit evidence. This topic can be challenging for students taking the CPA exam.
The CPA exam consists of four individual tests. Whenever you apply to take a test, you must submit an application to your State Board. The application may include supporting documents and may require you to pay fees. Remember that each State Board has different requirements.
Generally, exam candidates pay two types of fees.
CPA Exam
All CPAs work closely with technology. The CPA exam's business environment and concepts (BEC) test covers the concepts an accountant uses to assess IT needs and decide on spending. Technology may be one of the largest costs your company incurs.
As technology becomes more complex, companies process and store an increasing amount of data.
Internal controls are put in place to help a company achieve several goals. These controls allow a business to operate efficiently and to create accurate financial reports. Controls also ensure that a company will comply with applicable laws and regulations.
An auditor makes a judgment on internal controls. The judgment on internal controls helps the auditor decide the nature, timing, and extent of substantive testing.
CPA Exam
Many asset accounts are frequently tested for on the financial accounting and reporting (FAR) test of the CPA exam. The balance sheet formula is Assets – Liabilities = Equity.
Prepaid assets
The term prepaid assets refers to an account created when a company pays in advance for a product or service. This topic is very common on the FAR test.
CPA Exam
Audit sampling is one of two areas of audit procedures that are heavily tested on the auditing and attestation (AUD) test. Audit sampling involves applying an audit procedure to less than 100 percent of the items that make up an account balance or class of transactions. An audit procedure evaluates some characteristic of the account balance or transaction.
CPA Exam
The auditing and attestation (AUD) section of the CPA exam heavily tests your ability to audit inventories. Inventory is often one of the largest asset balances on the balance sheet, along with accounts receivable. By definition, the inventory balance changes frequently during a month or year. The inventory balance increases when the firm purchases inventory or manufactures more goods, and when inventory items are sold, inventory decreases.
CPA Exam
The auditing and attestation (AUD) test on the CPA exam requires students to learn and use a great deal of technical language. Audit opinions (also called audit reports) document whether or not a set of financial statements are free of material misstatement. An audit opinion is signed by the CPA and provided to the client under audit.
CPA Exam
The business environment and concepts (BEC) test on the CPA exam covers many topics that students learn in an undergraduate business curriculum. The BEC test covers economics and business decision tools. You’ll also see questions on using technology and on IT security issues. As you take the BEC test, approach the questions from a business manager’s point of view.
CPA Exam
The Regulation (REG) test on the CPA exam asks about the different types of corporate structures someone can select when forming a business. Each structure has different rules about owner liability and its own method of taxation.
Partnership structures
A partnership is defined as two or more people who enter into a business by creating a partnership agreement.
The certified public accountant (CPA) credential is a valuable tool for you to obtain. The designation will help you pursue a career in accounting and in other areas of business. To become a CPA, you must study for and pass the CPA exam. To increase your chances of success, you need to make sure you’ve prepared properly, including completing the necessary paperwork and requirements for your state, and study thoroughly for each of the four tests that make up the exam.
You have 4 hours to complete the AUD test on the CPA exam, which consists of 90 multiple-choice questions and 7 simulation questions. Keep in mind that 15 of the multiple choice and 1 of the simulation questions are pretest items, which don’t count toward your grade. You’re not told which questions are pretest items.
CPA Exam
The business environment and concepts (BEC) test has a different structure from the other three tests. For the 3-hour BEC test, you find 72 multiple-choice questions (with 12 pretest items). The remainder of the test consists of three written communication questions, including one pretest item.
Eighty to 90 percent of this test requires knowledge and understanding of BEC concepts.
CPA Exam
The financial accounting and reporting (FAR) test on the CPA exam has the same format as the auditing test. You have 4 hours to answer 90 multiple-choice questions and 7 simulation questions. Fifteen of the multiple-choice questions and one of the simulation questions are pretest items, which don’t count toward your grade.
The format of the regulation (REG) test on the CPA exam is the same format as the FAR and AUD tests. Regulation, however, is only a 3-hour exam. The test contains 72 multiple-choice questions (with 12 pretest items) and 6 simulations (with 1 pretest item).
Test-preparation companies recommend that you spend 110 to 140 hours studying for the REG test.
The auditing and attestation test (AUD test) requires you to understand the entire process of auditing a company. An audit requires the CPA to provide an opinion. That opinion states whether or not the financial statements are materially correct. This work requires you to assess all of the accounts in both the balance sheet and the income statement.
CPA Exam
The BEC test includes many topics that concern business management as well as economic concepts and the use of technology. This test covers the tools needed to succeed as a business manager. You’ll find that these concepts are similar to what you learn in a general study of business.
Understanding business concepts: The topics on the BEC test are similar to what students learn in general business school classes.
CPA Exam
The financial accounting and reporting (FAR) test requires the most number-crunching. This test covers what you’ll spend most of your time on when you start your accounting career. The test requires you to use many types of formulas, and to understand the process of accounting. It covers types of accounts, accounting transactions, and accounting principles:
Using formulas: This test covers many of the day-to-day tasks you’ll encounter as a CPA, such as posting accounting transactions.
You can think of the regulation (REG) test as having two parts. One part covers business law issues, including rules on selecting a business structure. The second part of the test goes over taxation. This test is technically the most difficult. It requires you to know and apply many rules, facts and figures. You may find that the REG questions require more focus than other types of questions.
Two credentials are similar to the certified public accountant (CPA) designation: chartered financial analyst (CFA) and certified valuation analyst (CVA). As you move forward in your career, you may consider getting one of these other credentials, along with your CPA designation. Many people who work in these two fields have experience as CPAs.
CPA Exam
For the BEC text portion of the CPA exam, you should be able to perform economic analysis. To properly operate a business, managers need to understand some key economic measures. Managers, for example, consider the company’s industry and competitors. This analysis helps them assess their own financial strengths and weaknesses and make changes to improve profit.
The financial accounting and reporting (FAR) test of the CPA exam tests your knowledge of equity. Normally, when companies pay dividends to shareholders, they do so in cash. However, businesses can use other assets as property dividends. Whether cash is paid or some other asset is distributed, the transaction reduces the equity section of the balance sheet.
CPA Exam
The regulation (REG) test covers many topics that you might see in an undergraduate business law class, including ethics. CPAs have to adhere to the AICPA’s Code of Professional Conduct. The code includes both principles and rules a CPA must follow. Here’s an overview of those principles:
Responsibilities, public interest, and acting with integrity: A CPA needs to exercise professional and moral judgment.
CPA Exam
The financial accounting and reporting (FAR) test of the CPA exam covers the nuts and bolts of working as an accountant. One focus of this test is the typical transactions that an accountant posts each month and year. The FAR test also goes over accounting principles.
Sun Co. is a wholly owned subsidiary of Star Co.
To pass the CPA exam, you need a reported score of 75 or higher on each of the four tests that make up the exam. Your reported score isn’t simply a percentage of answers that are correct; 60 out of 75 questions, for example, doesn’t give you a score of 80 (percent).
Instead, the reported score takes into account the difficulty of the questions.
When you pass the CPA exam, celebrate! It’s a huge accomplishment. Add that credential to your resume and any other type of social media that might be appropriate. If you’re working, let your employer know. If you’re interviewing, include your new designation in any cover letters, in job applications, and in your interview discussions.
CPA Exam
You are tested about the income statement on the FAR test of the CPA exam. You need an understanding of earnings per share, an important measure of profitability, extraordinary items, and comprehensive income.
Earnings per share
One important indicator of profitability is earnings per share (EPS). EPS is defined as net income available for common shareholders divided by average common stock shares outstanding.
CPA Exam
When taking the auditing and attestation (AUD) test on the CPA exam, you must demonstrate knowledge of the audit planning process. When planning an audit, an auditor needs to consider whether certain preconditions are present. These preconditions make it possible for the CPA firm to efficiently perform an audit and help the auditor obtain sufficient audit evidence to support an audit opinion:
The client uses an acceptable framework for financial reporting.
For the auditing and attestation (AUD) test on the CPA exam, you need to know the difference between the auditor’s responsibilities and those of the client. A CPA needs to be clear about what the client is asking him to do. That may require an audit or some other attestation service.
An auditor also considers the assertions a company makes about its financials and how those assertions can be tested using audit procedures.
The financial accounting and reporting (FAR) test of the CPA exam tests your knowledge of several types of liabilities including accrued liabilities, long-term debt, deferred taxes, and pension liabilities.
Accruing liabilities
The accrual basis of accounting recognizes revenue when it’s earned and recognizes expenses when they’re incurred.
Become familiar with the procedures for conducting an audit prior to taking the auditing and attesting (AUD) test on the CPA exam. Auditors use substantive testing, also called substantive test of details, which is the process of gathering evidence to determine the extent of misstatement in the client’s accounting records.
CPA Exam
The auditing and attestation (AUD) test of the CPA exam covers several areas related to your professional responsibilities as a CPA. One important regulatory area that is heavily tested is the concept of independence. The test often provides scenarios and asks whether the CPA described in the scenario is independent of the client.
CPA Exam
The regulation (REG) test on the CPA exam focuses on two areas of business: business law and taxation. Consider using flashcards to learn and memorize terms for the REG section. You need to digest many definitions, facts, and figures before you take this test, and flashcards can be a big help.
Which of the following statements concerning agency law is not true?
CPA Exam
The CPA exam's financial accounting and reporting (FAR) section tests you on the reporting requirements that are set by regulators in the accounting industry. Most of these regulators ask for and consider information from the general public regarding regulatory matters, and companies and individuals are often asked to provide comments about proposed regulations.
Your Notice to Schedule (NTS) allows you to choose when and where you’ll take your test. You use your NTS to contact Prometric, a firm that runs computer-based testing centers for many professional exams, including the CPA exam.
You can call the firm’s Candidate Services Call Center at 800-580-9648 to schedule an appointment.
CPA Exam
The Regulation (REG) test of the CPA exam covers securities regulation, specifically the requirements of the Securities and Exchange Commission (SEC). Generally, the SEC regulates companies that sell securities (stocks and bonds) to the public. This is an important area for CPAs, because many businesses sell stock and bonds to investors.
For the financial accounting and reporting (FAR) test on the CPA exam, you need to understand segments. A segment of a business operates with some level of autonomy. Accountants use the term operating segment to describe a department or division of a business. To be considered an operating segment, an area of the company must meet each of these three criteria:
The entity generates revenue and expenses from its business activity.
The CPA exam requires hundreds of hours of preparation and study. To pass the exam, it’s important to have a plan of attack. That plan includes registering with your state board, as well as deciding on a study plan for each of the four tests. Here are some points to consider:
State boards of accountancy: Each state has a state board of accountancy.
CPA Exam
To be well-informed, a businessperson needs to review more than the balance sheet, income statement, and statement of cash flows. The financial accounting and reporting (FAR) test covers information on other financial statements and disclosures, such as the statement of comprehensive income and the statement of changes in equity.
Strategic planning is the critical process of gathering data to plan your company’s direction. Planning involves budgeting, which you’ll likely see on the CPA exam's business environment and concepts (BEC) test. Nearly all firms plan costs, levels of production and sales, as well as prices. At the end of a month or year, companies compare budgeted amounts to actual results.
You need to create a plan of study for the CPA exam that’s realistic. The plan needs to take into account your personal situation. Exam candidates who don’t take these factors into account tend to get frustrated. If they can’t implement their study plan, they feel like they’re failing. To avoid frustration, consider the following factors.
CPA Exam
Trust and estate taxation questions on the Regulation (REG) test of the CPA exam require you to know several complex formulas. You should understand concepts related to distributable net income, tax calculation for trusts, and taxation of estates.
Here are some important terms the REG test may cover:
Principal (corpus): Principal is the assets that make up the trust or estate.
Part of the CPA exam, the business environment and concepts (BEC) test’s content is similar to what you see in an undergraduate business school curriculum. The highest level of responsibility over a business is assigned to the board of directors. A business’s control environment — management’s view of the importance of controls — is also important.
CPA Exam
The CPA exam's business environment and concepts (BEC) test covers several areas that deal with business decisions. You must be able to consider the financial impact of extending credit to customers, go over the decision criteria for a special order, and see a series of formulas that help a manager decide on long-term capital spending and investment.
CPA Exam
The financial accounting and reporting (FAR) test covers the basic financial statements that most entities are required to create. The balance sheet and income statement are the first reports that a businessperson normally considers. To a non-CPA, these two financial statements are the most important.
The balance sheet information is generated as of a certain date.
The Uniform CPA Examination is developed and graded by the American Institute of CPAs, or AICPA, which is the world’s largest member association for the accounting profession. The AICPA exists to set accounting standards and to support and expand the accounting profession. You can find lots of great information at their website.
CPA Exam
The business law section of the Regulation (REG) test covers the agency-and-principal relationship. All companies have to work with the legal ramifications of hiring and managing employees. One set of rules that applies to the workplace is the concept of agency. Agency represents a legal relationship between an agent and a principal.
CPA Exam
Segregation of duties is the process of separating critical duties among multiple employees to reduce the risk of theft. On the business environment and concepts (BEC) test part of the CPA exam, this process is a vital internal control that you should understand.
Although other controls — like written approvals and reconciling bank accounts — are important, how you allocate work to employees is critical.
For the CPA exam, you need to have a thorough understanding of what an is. When a CPA performs an audit, he or she is providing an opinion. The opinion concerns whether the financial statements present information fairly, in all material respects, and in conformity with applicable reporting standards. An audit opinion comments on whether the financial statements are free of material misstatement.
The Uniform CPA Examination is developed and graded by the American Institute of CPAs, or AICPA. The purpose of the CPA exam is to fulfill one of several requirements for a license to practice public accounting — to become a certified public accountant.
Passing the exam helps qualify you to obtain a license to practice from your State Board of Accountancy.
CPA Exam
One challenge for you as a CPA exam candidate is that you must switch gears as you move through the tests. With multiple-choice questions, you need to have a plan to eliminate incorrect answer choices. Writing a memo or a set of directions, on the other hand, requires you to put your thoughts in a logical order.
The financial accounting and reporting (FAR) section of the CPA exam covers basic financial statements including the statement of cash flows. After preparing the balance sheet and income statement, an accountant typically moves on to statement of cash flows.
The statement of cash flows documents a firm’s sources and uses of cash for a particular period of time, such as a month or year.
A variance is defined as the difference between budgeted and actual amounts in an account balance. Keep in mind, however, that the CPA exam uses the terms budgeted and planned to mean the same thing. Business managers analyze variances to make decisions about company costs and sales. You can think of a variance as a red flag to a manager.
The regulation (REG) test on the CPA exam requires a student to learn dozens of tax rules. One way to clarify these tax rules is to use a bucket as a learning tool.
Consider individual taxation, which is computed on Form 1040. A taxpayer fills up the bucket with taxable income. Taxable income includes wages as well as dividends, interest, and earnings from self-employment.
The CPA exam consists of four separate tests, which mirror the types of tasks a CPA may have to perform. For example, some accountants perform audits and other third-party reviews of financial statements, and those tasks are tested in the auditing and attestation (AUD) test. The following sections provide an overview of each of the four tests.
CPA Exam
Essay questions, which assess your written communication skills, appear only in the business environment and concepts (BEC) test. The BEC test includes three essay questions, one of which is a pretest question that doesn’t count toward your grade. You don’t know which question is a pretest question, so do your best work on everything.
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