The new CPA examination. (includes related article)by Person, Samuel
The May CPA examination will be different this year, and there are more changes to come. Here is an explanation of the changes with comparisons to the old examination.
The focus of the CPA examination is "on the knowledge and skills that new CPAs in public accounting need to have early in their careers to protect the public." After much study and input from firms, changes have recently been made in the AICPA Uniform CPA Examination. Alterations to the exam include shortening the length and shifting the relative importance of topics. The changes begin with the May 1994 examination and will be fully implemented with the May 1996 exam.
Changes to the Exam
Effective with the May 1994 sitting, changes will take place in the format, length, and content of the examination. For the first time, writing skills will be assessed, and candidates will be allowed to use calculators. However, the major changes are the shortening in length from two and one-half days (19.5 hours) to two days (15.5 hours) and a shift in the relative importance placed on some topics.
Examination candidates will be provided hand-held calculators at the exam site. The calculators are limited to simple calculations and will be used only for the two sections of the examination dealing with accounting and reporting. According to the AICPA, "the purpose of providing calculators is to save the time candidates spend on performing and rechecking manual calculations; it is not intended to allow for more difficult and complex calculations and problems."
Writing skills will be assessed on selected essay responses in the Business Law & Professional Responsibilities, Auditing, and Financial Accounting & Reporting sections. Five percent of the total available points for each of these sections will be allocated to writing skills. Writing skills to be evaluated are coherent organization, conciseness, clarity, use of standard English, responsiveness to the requirements of the question, and appropriateness for the reader.
New Examination Structure
Table 2 provides the names of the sections, the time period, and the format of each section of the Uniform CPA Examination effective May 1994. The following changes take place:
* Auditing is lengthened from 3.5 to 4.5 hours.
* Business law is shortened from 3.5 to 3.0 hours.
* With the changes in auditing and business law and changes in the total examination time, auditing topics represent approximately 29% of the new total examination time as compared to about 18% of the old.
* The time allotted to accounting topics (the old Practice and Theory sections) has been reduced from 12.5 hours to eight hours (the two new Accounting and Reporting sections). The reduction in accounting topics as a percentage of total examination time declines from about 64% of the old exam to about 52% of the new exam.
* Financial accounting coverage from the old Practice and Theory sections of the old CPA examination are combined into the new Financial Accounting & Reporting--Business Enterprises (FARE) section.
* Cost-managerial and governmental nonprofit coverage from both the Practice and Theory sections of the old examination are combined into the new Accounting and Reporting--Taxation, Managerial, and Governmental and Not-for-Profit Organizations (ARE) section.
* Coverage of income tax from the second part of the old Practice section has been expanded dramatically and is now the major component of this new ARE section.
* Current changes and those planned for 1996 reduce overlapping coverage of topics. Some specific topics have been deleted, and new specific topics have been added.
Transition From Old to New Exam
Table 1 provides the names and time allotments for the old and new examination sections according to how credit is to be granted for parts passed. For example, an individual who has earned credit for the old Accounting Practice section will not take the new ARE section. The transition rules make it possible for candidates to vary in total examination time passed from 13.5 hours to 21.5 hours depending on what parts they passed prior to the May 1994 examination. For example, individuals who had passed the old nine-hour Accounting Practice section earn credit for the new 3.5 hour ARE section while individuals who had passed the old 3.5 hour Theory section earn credit for the new 4.5 hour FARE section.
Other oddities exist in the transition from the old to the new CPA examination. Individuals who had passed Business Law but had not passed Auditing will not be tested on certain "Professional Responsibilities" topics, which were moved from the audit section to the new law (LPR) section. Of course, candidates who had passed Auditing but had not passed Business Law will receive a double dose of the topics. The subject matter of the new ARE section represents only 40% of the coverage in the old Accounting Practice section.
Topic rearrangement and revision of time allotments, especially for tax subjects, create the possibility of major differences in the preparation required of CPA candidates caught in the transition. Candidates who passed the old Accounting Practice section will not need to study in the tax, governmental, and not-for-profit areas. Candidates who had not passed the old Accounting Practice section will be required to be much more prepared for these subjects than would have been required to pass the old examination. Changes such as these strongly suggest a "transitional" examination, similar to the one required by the recent change in the CMA examination from five parts to four, may have been appropriate. However, Dr. James D. Blum, Director of Examinations of the AICPA, suggests the prohibitive cost and numerous logistical problems associated with such a transitional examination made one impractical.
Additional Revisions Scheduled for 1996
Effective with the May 1996 exam, the CPA Examination will become a "closed" exam, meaning that actual exam topics (and unofficial solutions) will no longer be available. Modifications of the subject matter are also planned for the 1996 exam according to a recent AICPA exposure draft. Minor reorganization of the content area of the FARE sections will eliminate some overlap of coverage, and some groups will be condensed within the LP section. In the AUDIT and ARE sections, some content areas will be weighted differently.
Shifts in the Relative Importance of Exam Sections
As noted earlier, major shifts in the relative importance (% of total examination time) of subject matter occur in the new CPA Examination. Graph 1 provides a comparison of the time allotments and percent of examination for the three major subject areas. The relative importance of accounting topics declines from approximately 64% to approximately 52%. Table 3 suggests the relative importance of Auditing topics increases from approximately 18% to approximately 29%. However, the increase in emphasis on Auditing is actually slightly greater because the "General Standards and Code of Professional Conduct" and most of the "Other Responsibilities" parts of "Professional Responsibilities" in the old Auditing section are now included in the new LP section. While "Professional Responsibilities" represented 15% of the old Auditing section, it is not clear what percentage of the time coverage has shifted. In fact, the specific percentage will probably vary slightly between exams. However, there is no doubt the increase in emphasis in auditing subjects is at least slightly greater than indicated by Graph 1. With this shift in mind, the emphasis on coverage of business law subjects probably has not actually increased, but may have even declined slightly.
Shifts in the Relative Importance of Subjects Within Sections
Graph 2 provides a comparison of the old and new Auditing section of the CPA Examination. As noted, part of the subject matter that appeared under the heading of "Professional Responsibilities" shifted to the LP section. The remainder of "Professional Responsibilities" appears as part of the new heading, "Planning the Engagement," in the new Audit section. The comparison, including planned 1996 changes, indicate that relatively more emphasis will be placed on "Evidence and Procedures" and less on "Internal Control." As previously noted, however, the total examination time devoted to Auditing increased, so the decreases indicated for "Internal Control" and "Reporting" are only in relative terms.
The old Business law and new LP sections are compared in Graph 3. There does not appear to be any major shifts in the relative importance of business law subject matter. However, the examination decreases from 3.5 hours to 3.0 hours and part of the "Professional Responsibilities" subjects shifted from the old Auditing section, so exam time devoted to business law has declined slightly.
By far, the largest shifts of material occur in the accounting subject matter. Essentially, the subject matter of the old Practice and Theory sections (which contained much overlap) are to be combined, then reorganized into two sections. The total exam time allotment is cut from 12.5 hours to 8.0 hours, and the relative emphasis of some material, especially "Federal Taxation" was drastically revised.
Table 3 compares the old Practice Section to the new ARE section, and Table 4 compares the old Theory section to the new FARE section. These comparisons were chosen, instead of an overall comparison of the coverage of accounting topics, because of the transition rules previously noted.
As shown in Table 3, the new ARE section (3.5 hour) consists of subjects that represent only 40% of the old Practice section (9.0 hours) and consists of only three major subject areas. Total examination time for two of these three subject areas will be substantially unchanged, but their relative importance will increase substantially. Federal Taxation, for example, will only increase in examination time from 1.8 hours (20% of 9.0 hours) to 2.1 hours (60% of 3.5 hours) by 1996. However, instead of being valued at 20% of one examination section, it will be valued at 60% of a new examination section. Theoretically, a candidate could pass the old CPA examination with little knowledge of Federal taxation subjects, but now must possess substantial knowledge. Examination time allotted to "Not-for-Profit and Governmental Accounting" will decline slightly, from 1.25 (75 minutes) hours to 1.05 hours (66 minutes). But, the relative importance of the subject triples, representing 30% of one examination section instead of 10% of two exam sections. "Managerial Accounting" subjects retain the same relative importance (10%) effective in 1996. However, examination time is reduced substantially, from 1.25 hours (75 minutes) to .35 hours (21 minutes).
As shown in Table 4, the new FARE section consists of most of the old Theory section combined with counterpart subjects from the old Practice section. As noted, two topics have been combined with their Practice counterparts in the new ARE section. The new FARE exam is 4.5 hours while the old THEORY exam was only 3.5 hours.
Effect on Preparation
The new CPA examination definitely will affect the preparation of CPA candidates. The increased emphasis on Federal taxation, especially on those tax topics beyond a first course in tax, will require candidates to be much more prepared in taxation subjects, one tax course will not be enough. Similarly, the increased emphasis on not-for-profit and governmental accounting will require candidates spend more time with those subjects.
PREPARING FOR THE CPA EXAMINATION--1994 AND LATER
Professor's VanZante's article details changes to the CPA examination that take effect in May 1994. It is my view that preparing for the examination should not change. To be successful, one should focus on what he or she needs to know in terms of technical content and not on how that material will be tested.
In general, there are several preparation strategies available to candidates. These should be considered in light of an individual's technical knowledge, study habits, and formal educational background. The modes available range from self-study programs to formal CPA review courses. The main advantage that CPA review courses offer is the structure provided by professional focus of preparation, which obviously maximizes the candidate's time. A self-study program, inclusive of the use of manuals and/or computer software, is useful for the candidate who has the ability to research and organize, and who also displays an unusually high degree of competence and discipline. However, self-study programs can be unorganized and lead to lost time.
Specific Considerations for May 1994 and Later
Again, despite changes to the examination, it is my contention that such changes should not alter study patterns significantly. Additionally, the history of the examination has amply demonstrated that substantial credit has generally not been associated with emerging subject areas. It is my belief that this logic will also extend to the "new examination" which will first appear in May 1994.
Candidates should keep in mind that a) the majority of credit in all sections (i.e., 50-60%) will continue to be assigned to four-option objective questions, and that b) "other objective formats" questions have been tested since May 1992 and therefore are not new to the examination. Thus, the main changes to be encountered for the first time in May 1994 can be reduced to three specific areas.
1. Writing Skills. It should be noted that writing skills will be graded by the same person who grades the essay responses for technical content. The grading points will be part of the total grade and will not be deductions from the technical content grade.
At first blush, the thought that one's writing skills will be graded could intimidate some candidates; it should not. To be sure, well organized CPA review programs will familiarize candidates with the proper approach. Those preparing on their own should review unofficial answers to past essay questions.
2. The Use of Calculators. Candidates will be permitted to use calculators for the two accounting sections. In this regard, there is a need to use only the four primary functions; i.e., addition, subtraction, multiplication, and division.
Before the start of the two sections involved, candidates will be given the opportunity to test the calculators (which are to be provided).
No doubt there are those who believe that the use of calculators opens the door for more complex and difficult computations on the examination. This is not the intent, and the AICPA has clearly stated such in its comments concerning the examination. Rather, it is my belief that allowing the use of calculators is a reality in society today.
3. Changes in Examination Content. Professor VanZante explains changes in the content of various sections. To the extent that these have occurred (e.g., increased time devoted to Federal taxation, a shift of professional responsibilities from the Auditing section to the Business Law & Professional Responsibilities section, etc.), it behooves candidates to be familiar with what will be tested.
The candidate's prime concern should be for adequate preparation, focusing on the technical content of the examination which, in and of itself, is not secret and is largely a matter of public record.
Neal R. VanZante, is Professor and Chairman, Department of Accounting and CIS, Texas A&I University.
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