So you’ve decided you want to become a certified public accountant (CPA). If you've taken all the undergraduate and graduate-level classes in accounting, business law, and general studies that your state requires, and have logged some work experienced (as required in all but a few states), you’re ready to take the Uniform CPA Examination. This is a substantial undertaking. Let’s review what’s involved.
- The CPA exam consists of four sections: Financial Accounting and Reporting (FAR), Auditing and Attestation (AUD), Regulation (REG), and Business Environment and Concepts (BEC).
- Candidates have up to four hours to complete each exam section; exam sections can be taken individually and candidates must pass all four sections within 18 months.
- The computer-based CPA exam has three written communication tasks, 276 multiple-choice questions, and 28 task-based simulations.
- Each section of the test is graded on a scale of zero to 99; the minimum passing score is 75.
CPA Exam Structure
The CPA exam has 276 multiple-choice questions, 28 task-based simulations, and three writing portions. These are divided into four main sections:
- Auditing and Attestation (AUD)
- Financial Accounting and Reporting (FAR)
- Regulation (REG)
- Business Environment and Concepts (BEC)
Candidates have four hours to complete each section, with a total exam time of 16 hours. Each section is taken individually, and candidates can choose the order in which they take them. Candidates must pass all four sections of the exam within 18 months. The beginning of the 18-month time frame varies by jurisdiction.
The American Institute of Certified Public Accountants (AICPA) develops and scores the test, grading each part on a scale of zero to 99. You must score at least 75 to pass each section. For the AUD, FAR, and REG sections, your total score is a weighted combination of scaled scores from multiple-choice questions and task-based simulations. Multiple-choice questions count for 50% of the total score and tasked-based simulations count for the other 50%.
Your total score for the BEC section is a weighted combination of scaled scores from multiple-choice questions, task-based simulations, and written communication tasks. Multiple-choice questions count for 50% of the total score, tasked-based simulations count for 35%, and written communication tasks count for 15%.
The exam sections employ multi-stage testlets for the multiple-choice questions. The first testlet is always of moderate difficulty. Depending on your performance, the next testlet will be of the same level or slightly more difficult.
Let's look at what each section covers.
Financial Accounting and Reporting
The FAR section tests knowledge and understanding of the financial reporting framework used by business enterprises, not-for-profit organizations, and government entities. It includes 66 multiple-choice questions as well as eight task-based simulations that use real-life work situations to test your skill.
This section deals with standards for financial statements, what needs to be included in statements, and how to account and report for government agencies, non-profits, and other types of organizations. Test takers are expected to prepare financial statements, including balance sheets, income statements, statements of retained earnings, equity, comprehensive income, and cash flows. They also must review source documents and enter data into subsidiary and general ledgers.
Test takers must show they understand the process by which accounting standards are set and the roles of various governmental and industry groups such as the U.S. Securities and Exchange Commission (SEC), the Financial Accounting Standards Board (FASB), the International Accounting Standards Board (IASB), and the Governmental Accounting Standards Board (GASB).
For most people, FAR is the toughest section of the overall CPA exam. You have up to four hours to take it.
Auditing and Attestation
The AUD section is a bit easier, especially if you’ve tackled FAR first. It has 72 multiple-choice questions and eight task-based simulations. It covers the planning and reviewing of engagements, internal controls, obtaining and documenting information, and communications preparation.
As with FAR, test-takers need to demonstrate knowledge of international accounting standards, in particular, the difference between International Standards on Auditing (ISAs) and U.S. auditing standards. They must identify situations that might be unethical or a violation of professional standards and determine the appropriate action to these situations. In addition, they must identify key risks in a financial information technology environment.
AUD also covers standards for preparing reports on audited financial statements, government auditing standards, compliance with laws, regulations, and internal control, along with other communication standards accountants must know. This section will also test your knowledge of the ethics and independence required by the AICPA, the Sarbanes-Oxley Act of 2002, the Government Accountability Office, and the Department of Labor.
The REG section covers ethics and professional responsibility, business law, tax procedures and accounting, and federal taxation for individuals, entities, and property transactions. This section has 76 multiple-choice questions and eight task-based simulations.
Test-takers must show that they understand the professional and legal responsibilities of certified public accountants, as well as the legal implications of business transactions as they relate to accounting, auditing, and financial reporting. This section deals with federal and widely adopted state laws. You must show you understand the rights, duties, and liabilities of debtors, creditors, and guarantors as well as the audit and appeals process employed by the Internal Revenue Service (IRS). This section also covers the alternative minimum tax and both estate and gift taxation.
Business Environment and Concepts
BEC is arguably the easiest section, and most candidates pass it on their first attempt. The BEC section has 62 multiple-choice questions, four task-based simulations, and three written communication tasks, wherein test takers must respond in a letter or memo format to a work scenario. This is used to assess candidates’ writing skills as well as their organization, clarity, and conciseness.
This section addresses business structures, economic concepts, financial management, and information technology. You must show you understand corporate governance, financial risk management, financial management processes, strategic planning, and operations management. This section also tests your understanding of the economic concepts of global business and how they impact an entity’s business strategy.
Expect to be tested on the rights, duties, and ethics of an entity’s board of directors, officers, and other employees. Questions will also cover information systems and technology risks, the Committee of Sponsoring Organizations of the Treadway Commission (COSO), as well as corporate responsibility and financial disclosures necessitated by the Sarbanes-Oxley Act of 2002.
The Bottom Line
Even without the required schooling and work experience, CPA test takers have their work cut out for them. But the reward is a respected professional designation that most often comes with a significantly higher rate of pay.