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| Wiley CPA Examination Review, Problems and Solutions |
After my so-called warm-up US CPA examination last month, decided to start my first review session today for my next Financial Accounting Reporting (FAR) section. This time paying a little more attention on details with my FAR notes and doing all multiple choices (MC) questions and Task-Based Simulations (TBS) problems. Some of you might be wondering why I am writing a blog while doing my CPA exam review.
First of all, with the use of accounting related applications, the need of manual number crunching has been secondary for some accountants. Unfortunately, for all would-be accountants and to be able to pass the FAR examination section, a candidate has to be prepared to answer 60% to 70% number crunching type of questions both in MC and TBS in a very tight timed examination.
The reason why I passed my REG (November 2009) and Auditing (August 2008) is because they are mostly theory type of questions. Since I like to write, I use this blog to summarize what I studied every day, serves as my motivation and stay disciplined to study at least a module or a topic each day, and yes, do a lot of number crunching questions. You are welcome to read it if you are interested, do not blame me if you fall asleep! Anyway, the following are the summary of what I have studied for today’s CPA exam review session:
Newer materials
Wiley’s CPAExam Review Module 9, Basic Theory and Financial Reporting: A. Basic Concepts has added newer topics. These topics in regard to the FASB’s Accounting Standards Codification (ASC) as the sole source for US GAAP (effective July 1, 2009) and the CPA exam testing of the International Foreign Reporting Standards (IFRS) started last year of January 1, 2011. Also, the International Accounting Standards Board (2001) being responsible for IFRS and its IFRS Interpretations Committee (IFRIC) for issuing interpretations and standards.
In addition, the hierarchy of accounting qualities have a few changes. The previous fundamentals quantitative characteristics such as relevance and reliability have been changed into relevance and faithful representation. Relevance includes predictive value (pv) and confirmatory value (cv); and faithful representation includes completeness (c), neutral (n), and free from error (ffe). As for enhancing qualitative characteristics, include comparability (consistency), verifiability, timeliness and understandability.
US GAAP, IFRS and IASB Framework
There have been some major differences between US GAAP and IFRS. The following are just a summary:
(1) Presentation of Financial Statements (e.g. comparative information, comprehensive
income, extraordinary items
income, extraordinary items
(2) Revenue recognition on construction contracts (e.g. Percentage-of-completion method vs.
Completed-contract method)
Completed-contract method)
(3) Requirement on subsidiary consolidation of financial statements and for non-controlling
interest measurement (as to fair value)
interest measurement (as to fair value)
(4) Inventories on acceptance of LIFO, valuation at LCM or NRV, and impairment loss
recognition (as to reversal)
recognition (as to reversal)
(5) Current items, such as refinancing of short-term notes classification, and contingencies
measurement
measurement
(6) Accounting of investment properties, revaluation of fixed assets, and accounting of
impairment losses (as to reversal)
impairment losses (as to reversal)
(7) Treatment of financial investment as to separations of debt and equity; available-for-sale
treatment of impairment loss (as to reversal) and treatment of loans and receivable (as to
fair value)
treatment of impairment loss (as to reversal) and treatment of loans and receivable (as to
fair value)
(8) Likelihood of capitalizing of operating lease (if certain criteria are met)
(9) Valuation and recognition of deferred tax assets.
First-time adoption of IFRS is generally considered at the beginning of the earliest period, or the latest reporting period of company’s first IFRS financial statements. Financial statements items such as assets, liabilities and equity are restated using IFRS accounting principles.
As to IASB Framework, it provides underlying concepts and information just like FASB’s Statement of financial Accounting Concepts (SFAC), but with differences. FASB’s SFAC differs with the IASB Framework through the treatment of financial statements elements. FASB’s SFAC has ten elements ( assets, liabilities, equity, owners investments, owners distributions, comprehensive income, revenues, expenses, losses and gains, whereas IASB Framework has only five elements (assets, liabilities, equity, income and expenses. Since IASB Framework is not considered as accounting standards, it cannot override International Accounting Standards (IAS) and IFRS accounting treatment. An up to date list with detailed explanation can be found at IFRS website.
Multiple Choice (MC) and Task-Based Simulations (TBS)
Things encountered while doing multiple choice (MC) questions, and task-based simulations (TBS), Module 9-A:
Things encountered while doing multiple choice (MC) questions, and task-based simulations (TBS), Module 9-A:
a) As to Multiple Choice (MC) questions:
- Getting used to the new fundamentals quantitative characteristics questions
- Remembering expected present value (pv) calculation format using probabilities
- Calculation of cash basis vs. accrual method and vice versa with speed and not missing a
step while calculating for the answer
step while calculating for the answer
- Calculations of realized gross profit on installment sales, accounting of franchises, and cost
method could definitely need some help on my speed and calculation accuracy
method could definitely need some help on my speed and calculation accuracy
It is basically just finding the best formula with best time management (i.e. answer a MC question in 1.5 to 2 mins) and made sure to make flash cards for above calculation formulas.
b) As to Task-Based Simulations (TBS) problems:
- - The theory TBS was fine, except for the number crunching problems, especially the financial statement analysis, I have to spend a little more time, and even re-do them. I mostly used the “journal entry: debit/credit format" for answering. I find this format easier for financial statements worksheet adjustment of balance amounts. The textbook’s supporting calculation format and the explanations are helpful as well, I used it for cross-referencing my answers.
Until next post.
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Contact:
Earla Riopel, BSCom (USA), DipAcc (UBC)
Website: http://earlariopel.com/ Email: earla@earlariopel.com
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