Tài liệu Wiley CPA Examination Review ppt

VOLUME 1
Outlines and Study Guides
Examination
Review
Wiley
CPA
31st Editi on
2004

2005
John Wiley & Sons, Inc.
O. Ray Whittington, CPA, PhD
Patrick R. Delaney, CPA, PhD
The following items copyright © by the American Institute of Certified Public Accountants, Inc. are reprinted (or adapted) with
permission.
1. Material from Uniform CPA Examination Questions and Unofficial Answers, copyright © 1982 through 2002 by
American Institute of Certified Public Accountants, Inc., is reprinted (or adapted) with permission.
2. Information for CPA Candidates and Content Specification Outlines for the Uniform Certified Public Accountant Ex-
amination, Board of Examiners.
3. Material from AU 319 (SAS 55, SAS 78, and SAS 94) and an AICPA Audit Guide, both titled Consideration of Inter-
nal Control in a Financial Statement Audit.
4. Material from AICPA Auditing Procedures Studies; Consideration of the Internal Control Structure in a Computer
Environment: A Case Study; Auditing with Computers; Auditing in Common Computer Environments; Audit Implica-
tions of EDI.
5. Example audit reports from Statements on Auditing Standards and Statements on Standards for Accounting and Re-
view Services.
6. Definitions, examples, etc. from The Code of Professional Conduct.
7. AICPA Audit and Accounting Guide: Health Care Organizations, 1996, page 142.
Reproduction and adaptation of pronouncements, copyright © Financial Accounting Standards Board, Norwalk, Connecticut
06856-5116, with permission.

Material adapted, with permission, from Writing for Accountants, Aletha Hendrickson, South-Western Publishing Co., 1993.
Reproduction of “Combined Statement of Revenues, Expenditures, and Changes in Fund Balances—All Governmental Fund
Types and Expendable Trust Funds,” copyright © Governmental Accounting Standards Board, Norwalk, Connecticut 06856-
5116, with permission.
Statement of changes in Fund Balances for an educational institution from Financial Accounting and Reporting in Higher Edu-
cation with permission of the National Association of College and University Business Officers.
Several examples in Chapter 9, Federal Taxation, are taken from Internal Revenue Service Publication 17.
Copyright © 2004, by John Wiley & Sons, Inc. All rights reserved.
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Published simultaneously in Canada
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CONTENTS
Vol. 1
page no.
1. BEGINNING YOUR CPA REVIEW PROGRAM 1
2. EXAMINATION GRADING AND GRADER ORIENTATION 17
3. THE SOLUTIONS APPROACH 19
4. TAKING THE EXAMINATION 32
5. AUDITING AND ATTESTATION
36
Module*
Abbreviations Numbers
Engagement Planning ENPL 1 53
Internal Control IC 2 66
Evidence EVID 3 98
Reporting REPT 4 128
Audit Sampling AUDS 5 164
Auditing with Technology ATEC 6 182
Outlines of Professional Standards 189

6. FINANCIAL ACCOUNTING AND REPORTING 294
Basic Theory and Financial Reporting TREP 7 300
A. Basic Concepts 300
B. Error Correction 316
C. Accounting Changes 319
D. Financial Statements 322
Inventory INVY 8 334
Fixed Assets FA 9 345
Monetary Current Assets and Current Liabilities CACL 10 362

Present Value PV 11 378
A. Fundamentals 378
B. Bonds 387
C. Debt Restructure 392
D. Pensions 397
E. Leases 411
Deferred Taxes DETX 12 430
Stockholders’ Equity STK 13 446
Investments IVES 14 464
Statement of Cash Flows SCF 15 476
Business Combinations and Consolidations BCC 16 486
Derivative Instruments and Hedging Activities DIHA 17 506
Miscellaneous MISC 18 520
A. Personal Financial Statements 520
B. Interim Reporting 521
C. Segment Reporting 523
D. Partnership Accounting 527
E. Foreign Currency Translation 535
Governmental GOV 19 542
Not-for-Profit NFP 20 580
Outlines of Accounting Pronouncements 594
7. REGULATION 670
____________________________
* As explained in Chapter 1, this volume is organized into 45 modules (manageable study units). Volume 2 is organized in a parallel
fashion.
8. PROFESSIONAL RESPONSIBILITIES AND BUSINESS LAW 675
Professional Responsibilities RESP 21 678
Federal Securities Acts FEDE 22 712
Contracts CONT 23 730
Sales SALE 24 752

Commercial Paper CPAP 25 764
Secured Transactions SECU 26 781
Bankruptcy BANK 27 789
Debtor-Creditor Relationships DBCR 28 799
Agency AGEN 29 809
Regulation of Employment and Environment EMEN 30 816
Property PROP 31 830
Insurance INSU 32 847

9. FEDERAL TAXATION 851
Individual ITAX 33 858
Transactions in Property TPRO 34 911
Partnership PTAX 35 926
Corporate CTAX 36 938
Gift and Estate GETX 37 961
10. BUSINESS ENVIRONMENT AND CONCEPTS 970
Business Structure BSTR 38 976
Information Technology IFTC 39 1001
Economics and Strategy ECON 40 1029
Financial Management FINM 41 1056
Risk Management and Capital Budgeting RMBC 42 1081
Performance Measures PERM 43 1105
Cost Measurement COST 44 1121
Planning, Control, and Analysis PLAN 45 1137
INDEX 1157
PREFACE
Passing the CPA exam upon your first attempt is possible! The Wiley CPA Examination Review preparation ma-
terials provide you with the necessary materials (visit our website at www.wiley.com/cpa for more information). It’s up
to you to add the hard work and commitment. Together we can beat the first-time pass rate of less than 20%. All Wiley
CPA products are continuously updated to provide you with the most comprehensive and complete knowledge base.

Choose your products from the Wiley preparation materials and you can proceed confidently. You can select support
materials that are exam-based and user-friendly. You can select products that will help you pass!
The objective of this work is to provide, in an easily readable format, study outlines of all areas tested on the Uniform
Certified Public Accounting (CPA) Examination. The clear, concise phraseology supplemented by brief examples and
illustrations is designed to help candidates quickly understand and retain the material. To make the task of preparing for
the examination more manageable, we have structured both review volumes into 45 modules (manageable study units).
Also, the multiple-choice questions in Volume 2 have been grouped into topical categories within each module. These
categories correspond to the sequencing of material as it appears within each of the corresponding modules in this
volume. The content of this volume and Volume 2 is based upon current AIPCA Content Specification Outlines for the
Uniform Certified Public Accountant Examination. Actual American Institute of Certified Public Accountants (AICPA)
unofficial questions and answers are presented to test your knowledge. With the introduction of the new computerized
exam, many author-constructed questions have been added to Volume 2.
Remaining current is one of the keys to examination success. Here is a list of what’s new in this edition of
Wiley CPA Examination Review, 31st Edition, 2003-2004.
• The new AICPA Content Specification Outlines for the Computerized CPA Examination
• Discussion of the new simulation style questions
• Coverage of new auditing and attestation standards, especially:
• Statement on Auditing Standards 99, Consideration of Fraud in a Financial Statement Audit
• Statement on Auditing Standards 100, Interim Financial Information
• Statement on Auditing Standards 101, Auditing Fair Value Measurements and Disclosures
• Coverage of new financial accounting standards, especially
• Statement of Financial Accounting Standard 149, Amendment of Statement 133 on Derivative Instruments
and Hedging Activities
• Statement of Financial Accounting Standard 150, Accounting for Certain Financial Instruments with
Characteristics of both Liabilities and Equity
We are indebted to the American Institute of Certified Public Accountants, the Financial Accounting Standards
Board, and the Governmental Accounting Standards Board for permission to reproduce and adapt their publications.
The CPA exam is one of the toughest exams you will ever take. It will not be easy. But if you follow our guidelines
and focus on your goal, you will be thrilled with what you can accomplish.
Ray Whittington

April 2004
Don’t forget to visit our website at www.wiley.com/cpa
for supplements and updates.

ABOUT THE AUTHORS
Ray Whittington, PhD, CPA, CMA, CIA, is the Ledger & Quill Director of the School of Accountancy at DePaul
University. Prior to joining the faculty at DePaul, Professor Whittington was the Director of Accountancy at San Diego
State University. From 1989 through 1991, he was the Director of Auditing Research for the American Institute of Certi-
fied Public Accountants (AICPA), and he previously was on the audit staff of KPMG. He was a member of the Auditing
Standards Board of the AICPA and has previously served as a member of the Accounting and Review Services Commit-
tee and the Board of Regents of the Institute of Internal Auditors. Professor Whittington has published numerous text-
books, articles, monographs, and continuing education courses.
Patrick R. Delaney was the Arthur Andersen LLP Alumni Professor of Accountancy and Department Chair at
Northern Illinois University. He received his PhD in Accountancy from the University of Illinois. He had public ac-
counting experience with Arthur Andersen LLP and was coauthor of GAAP: Interpretation and Application, also pub-
lished by John Wiley & Sons, Inc. He served as Vice President and a member of the Illinois CPA Society’s Board of
Directors, and was Chairman of its Accounting Principles Committee; was a past president of the Rockford Chapter, In-
stitute of Management Accountants; and had served on numerous other professional committees; and has made many
presentations to professional groups. He was a member of the American Accounting Association, American Institute of
Certified Public Accountants, and Institute of Management Accountants. Professor Delaney was published in The Ac-
counting Review and was a recipient of the Illinois CPA Society’s Outstanding Educator Award, NIU’s Excellence-in-
Teaching Award, and Lewis University’s Distinguished Alumnus Award. He was involved in NIU’s CPA Review
Course as director and instructor.
ABOUT THE CONTRIBUTORS
Richard E. Baker, PhD, CPA, is a Presidential Teaching Professor and the Ernst and Young LLP Professor of Ac-
countancy at Northern Illinois University and teaches in the NIU CPA Review Course. He is the coauthor of Advanced
Financial Accounting, McGraw-Hill, Inc. Professor Baker prepared the Business Combinations and Consolidations
Module and provided input on the new section on Derivative Instruments and Hedging Activities. He has received sev-
eral teaching awards at NIU.
John C. Borke, MAS, CPA, is an Associate Professor of Accounting at the University of Wisconsin-Platteville. He

has been a recipient of the U.W. Platteville Excellence-in-Teaching Award, and has worked as a staff auditor with KPMG
Peat Marwick LLP. Professor Borke prepared several sections in Financial Accounting including the section in Chapter 8
on the Conceptual Framework.
John H. Engstrom, DBA, CPA, is the KPMG Peat Marwick LLP Professor of Accountancy at Northern Illinois
University. He is the coauthor of Essentials of Accounting for Governmental and Not-for-Profit Organizations, Richard
D. Irwin, Inc. He revised Chapter 10, Governmental and Not-for-Profit Organizations.
Anita L. Feller, PhD, CPA, is a Lecturer in Accountancy at the University of Illinois at Urbana-Champaign. She is
the recipient of the Commerce Council Excellence in Teaching Award. Formerly a staff accountant in the tax department
at KPMG Peat Marwick, she teaches courses in financial accounting and applied professional research. Professor Feller
also teaches financial and managerial topics in the University of Illinois CPA Review Course.
Edward C. Foth, PhD, CPA, is the KPMG Faculty Fellow and Administrator of the Master of Science in Taxation
Program at DePaul University. He is a member of the American Accounting Association, the American Institute of Certi-
fied Public Accountants, the Illinois CPA Society, and the American Taxation Association. He has been a recipient of the
Ledger & Quill Faculty Excellence Award, and is the author of CCH Incorporated’s Federal Tax Study Manual, Federal
Taxation Refresher Course, and is coauthor of their S Corporations Guide. He prepared Chapter 11.
Mark L. Frigo, PhD, CPA, CMA, is Director of The Center for Strategy, Execution and Valuation in Kellstadt
Graduate School of Business and Eichenbaum Foundation Distinguished Professor of Strategy and Leadership in the
School of Accountancy at DePaul University. Professor Frigo authored the Performance Measures module for the
Business Environment and Concepts section of this manual.
Debra R. Hopkins, MAS, CPA, is the Director of CPA Review courses at Northern Illinois University. She has au-
dit experience with Ernst and Young LLP and Grant Thornton LLP, and has presented many CPE seminars for public
accounting firms. She provided input in Auditing and prepared the chart in Professional Responsibilities. She is a recipi-
ent of the Illinois CPA Society’s Outstanding Educator Award.
Duane R. Lambert, JD, MBA, CPA, is Professor of Business Administration at California State University, Hay-
ward, where he teaches courses in Business Law and Accounting. He also has been a Visiting Lecturer and a Visiting
Professor at the University of California, Berkeley. Professor Lambert has “Big Six” experience and teaches in CPA re-
view courses. He rewrote and revised modules to reflect current treatment in Chapter 6, Business Law and Professional
Responsibilities.
John McDougald, MAS, CPA, is an Instructor in the College of Business at Northern Illinois University. He has
extensive industry experience, having spent twenty-eight years in management positions with Ameritech. Mr. McDou-

gald prepared the Derivative Instruments and Hedging Activities section of Module 32.
Patricia L. McQueen, MBA, CPA, is an instructor in the School of Accountancy at DePaul University. She has a
background in auditing and financial accounting. She has audit experience with KPMG. She contributed to the auditing
modules.
Kurt Pany, PhD, CPA, is a Professor of Accounting at Arizona State University. Prior to entering academe, he
worked as a staff auditor for Deloitte and Touche LLP. He is a former member of the AICPA’s Auditing Standards
Board and has taught in the Arizona State University CPA Review Course.
W. Max Rexroad, PhD, CPA, is Professor of Accounting at Illinois State University. He has received the Distin-
guished Teaching Award from the College of Business at ISU as well as other teaching awards. He has taught numerous
CPE courses for the Illinois CPA Society and other state societies. He prepared a revision of the Pensions section in
Module 26.
John R. Simon, PhD, CPA, is a Presidential Teaching Professor and the Coopers and Lybrand LLP Professor of Ac-
countancy at Northern Illinois University. He has taught in NIU’s CPA Review Course for the past twenty-five years and
was the director of the course for ten years. He is a recipient of NIU’s Excellence-in-Teaching Award. Professor Simon
prepared the Earnings Per Share section of the Stockholders’ Equity Module, and the Foreign Currency Translation Mod-
ule.
Susan Smith, MA, CAS (English), CPA. Ms. Smith has taught rhetoric and technical writing at Northern Illinois
University. Ms. Smith prepared material on “Improving Your Writing” in Chapter 3.
BEGINNING YOUR CPA REVIEW
PROGRAM
General Comments on the Examination 1
Purpose of the Examination 1
Examination Content 2
Nondisclosure and Computerization of
Examination 2
Types of Questions 3
State Boards of Accountancy 3
Exam Scheduling 4
Attributes of Examination Success 5
Knowledge of Material 5

Commitment to Exam Preparation 5
Solutions Approach 6
Grading Insights 6
Examination Strategy 6
Examination Confidence 6
Common Candidate Mistakes 7
Purpose and Organization of This Review
Textbook 7
Other Textbooks 8
Ordering Other Materials 8
Working CPA Questions 8
Self-Study Program 9
Study Facilities and Available Time 10
Self-Evaluation 10
Using Notecards 11
Level of Proficiency Required 13
Multiple-Choice Feedback 13
Conditional Candidates 13
Planning for the Examination 13
Overall Strategy 13
Weekly Review of Preparation Program
Progress 14
Time Management of Your Preparation 16
To maximize the efficiency of your review program, begin by studying (not merely reading) this chapter
and the next three chapters of this volume. They have been carefully organized and written to provide you
with important information to assist you in successfully completing the CPA exam. Beyond providing a com-
prehensive outline to help you organize the material tested on the exam, Chapter 1 will assist you in organizing
a study program to prepare for the exam. Self-discipline is essential.
GENERAL COMMENTS ON THE EXAMINATION
Beginning in April of 2004, the Uniform CPA Examination is delivered in a computer-based format. The

final paper-based version of the CPA exam was given in November 2003. While there are still a lot of un-
knowns about the new format, there is also good news. You may take the exam one section at a time. As a
result, your studies can be focused on that one section, improving your chances for success. In addition, the
exam is no longer offered twice a year. During eight months of ever year, you may take the exam on your
schedule, six days a week and in the morning or in the afternoon.
Successful completion of the exam is an attainable goal. Keep this point foremost in your mind as you
study the first four chapters in this volume and develop your study plan.
Purpose of the Examination
1
The Uniform CPA Examination is designed to test the entry-level knowledge and skills necessary to pro-
tect the public interest. These knowledge and skills were identified through a Practice Analysis performed in
2000, which served as a basis for the development of the content specifications for the new exam. The skills
identified as necessary for the protection of the public interest include
• Analysis—the ability to organize, process, and interpret data to develop options for decision making.
• Judgment—the ability to evaluate options for decision-making and provide an appropriate conclusion.
• Communication—the ability to effectively elicit and/or express information through written or oral
means.
• Research—the ability to locate and extract relevant information from available resource materials.
• Understanding—the ability to recognize and comprehend the meaning and application of a particular
matter.

1
More information may be obtained from the AICPA’s Information for Uniform CPA Examination Candidates, which is usually
sent to CPA candidates by their State Board of Accountancy as they apply to sit for the CPA Examination. You can also find the
publication on the AICPA’s Web site at www.cpa-exam.org.
2 CH 1 BEGINNING YOUR CPA REVIEW PROGRAM
The CPA examination is one of many screening devices to assure the competence of those licensed to per-
form the attest function and to render professional accounting services. Other screening devices include edu-
cational requirements, ethics examinations, and work experience.
The examination appears to test the material covered in accounting programs of the better business

schools. It also appears to be based upon the body of knowledge essential for the practice of public accounting
and the audit of a medium-sized client. Since the examination is primarily a textbook or academic examina-
tion, you should plan on taking it as soon as possible after completing your accounting education.
Examination Content
Guidance concerning topical content of the CPA exam can be found in a document prepared by the Board
of Examiners of the AICPA entitled Uniform CPA Examination—Examination Content Specifications. The
Board’s objective in preparing this detailed listing of topics tested on the exam is to help “in assuring the con-
tinuing validity and reliability of the Uniform CPA Examination.” These outlines are an excellent source of
guidance concerning the areas and the emphasis to be given each area on future exams. We have included the
content outlines in this volume by placing the corresponding outline for each section of the exam in the chapter
containing related topical areas.
New accounting and auditing pronouncements, including those in the governmental and not-for-profit ar-
eas, are tested in the testing window starting six months after the pronouncement’s effective date. If early ap-
plication is permitted, a pronouncement is tested six months after the issuance date; candidates are responsible
for the old pronouncement until it is superseded. The exam covers the Internal Revenue Code and federal tax
regulations in effect six months before the beginning of the testing window. For the Business Law and Profes-
sional Responsibilities section, federal laws are tested six months following their effective date, and for uni-
form acts, one year after their adoption by a simple majority of jurisdictions. The AICPA posts content
changes regularly on its Internet site. The address is www.cpa-exam.org.
Nondisclosure and Computerization of Examination
Beginning May 1996, the Uniform CPA Examination became nondisclosed. Before beginning the exam,
candidates are required to sign a Statement of Confidentiality and Break Policy Statement, which provides
• I hereby certify that I will respect the confidentiality of the Uniform CPA Examination. I attest that I
will NOT:
• Divulge the nature or content of any Uniform CPA Examination question or answer under any circum-
stance.
• Engage in any unauthorized communication during testing
• Refer to unauthorized materials or use unauthorized equipment during testing
• Remove or attempt to remove any Uniform CPA Examination materials, notes, or any other items
from the examination room

• I understand that I am required to report to the AICPA any examination question disclosures or solicita-
tions for disclosure of which I am aware.
• I understand that breaks are only allowed between testlets. I understand that I will be asked to complete
any open testlet/simulation before leaving the testing room for a break.
• In addition, I understand that failure to comply with this attestation may result in invalidation of my
grades, disqualification from future examinations, expulsion from the testing facility and possible civil
or criminal penalties.
The CPA exam is offered continually during the testing windows shown below.
Testing Window
(Exam Available)
January through
February
April through May July through August
October through
November
AICPA
Review & Update
(Exam Unavailable)
March June September December
One or more exam sections may be taken during any exam window, and the sections may be taken in any
desired order. However, no candidate will be allowed to sit for the same section more than once during
any given testing window. In addition, a candidate must pass all four sections of the CPA exam within a
“rolling” eighteen-month period, which begins on the date he or she passes a section. In other words, you
must pass the other three sections of the exam within eighteen months of when you pass the first section. If
CH 1 BEGINNING YOUR CPA REVIEW PROGRAM 3
you do not pass all sections within the eighteen-month period, credit for any section(s) passed outside the
eighteen-month period will expire and the section(s) must be retaken.
The following table compares the sections of the prior pencil-and-paper exam with the new computer-
based exam. If you have earned conditional credit on the pencil-and-paper exam, the table also shows the sec-
tion of the computer-based exam for which you will be given credit.

Pencil-and-Paper Examination up to
November 2003 (15.5 hours in 2 days)
Computer-Based Examination commencing
April 5, 2004 (14 hours over flexible period of time)
Auditing (4.5 hours) Auditing & Attestation (4.5 hours)
Financial Accounting & Reporting (4.5 hours) Financial Accounting & Reporting (4 hours)
Accounting & Reporting (3.5 hours) Regulation (3 hours)
Business Law & Professional Responsibilities (3 hours) Business Environment & Concepts (2.5 hours)
Candidates should keep abreast of the latest developments regarding transition rules and requirements
from their state boards of accountancy. We will post more detailed information as it becomes available on the
CPA Examination Review Wiley Web site at www.wiley.com/cpa.
Types of Questions
The computer-based Uniform CPA Examination consists of two basic question formats.
1. Multiple-Choice—questions requiring the selection of one of four responses to a short scenario.
2. Simulations—case studies that are used to assess knowledge and skills in a context approximating that
found on the job through the use of realistic scenarios and tasks, and access to normally available and
familiar resources.
The multiple-choice questions are much like the ones that have constituted a majority of the CPA examination
for years. And the good news is that these types of questions constitute about 75%% of the total
examination. The simulations are new and information about this type of question is somewhat limited.
However, we have attempted in this manual to use the latest available information to design study materials
that will make you successful in answering simulation problems. You should refer to the AICPA Web site
(www.cpa-exam.org) for the latest information about the format and content of this new type of question.
The Business Environment and Concepts is 100% multiple-choice questions. For the other three sections
that have simulations the break down of percentages is as follows:
Multiple-choice 70%
Simulation requirements and other tan those involving communications 20%
Communications requirements of simulations 10
%
100

%
State Boards of Accountancy
The right to practice public accounting as a CPA is governed by individual state statutes. While some
rules regarding the practice of public accounting vary from state to state, all State Boards of Accountancy use
the Uniform CPA Examination and AICPA advisory grading service as one of the requirements to practice
public accounting. Every candidate should contact the applicable State Board of Accountancy to determine
the requirements to sit for the exam (e.g., education, filing dates, references, and fees). For comparisons of
requirements for various state boards and those policies that are uniform across jurisdictions, you should refer
to the Web site of the National Association of State Boards of Accountancy (NASBA) at www.nasba.org.
A frequent problem candidates encounter is failure to apply in a timely manner. Apply to sit for the ex-
amination early. Also, you should use extreme care in filling out the application and mailing required
materials to your State Board of Accountancy. If possible, have a friend review your completed application
before mailing with check, photo, etc. Candidates may miss a particular CPA examination window simply be-
cause of minor technical details that were overlooked (checks not signed, photos not enclosed, question not
answered on application, etc.). Because of the very high volume of applications received in the more
populous states, the administrative staff does not have time to call or write to correct minor details and
will simply reject your application. This can be extremely disappointing, particularly after spending many
hours preparing to sit for a particular exam.
The various state boards, their Web sites, and telephone numbers are listed on the following page. Be sure
to inquire of your state board for specific and current requirements. It is possible for candidates to sit for the
examination in another state as an out-of-state candidate. Candidates desiring to do so should contact the State
Board of Accountancy in their home state.
4 CH 1 BEGINNING YOUR CPA REVIEW PROGRAM
S
TATE BOARD WEB ADDRESS TELEPHONE #
AK
www.dced.state.ak.us/occ/pcpa.htm (907) 465-3811
AL
www.asbpa.state.al.us (334) 242-5700
AR

www.state.ar.us/asbpa (501) 682-1520
AZ
www.accountancy.state.az.us (602) 364-0900
CA
www.dca.ca.gov/cba (916) 263-3680
CO
www.dora.state.co.us/accountants (303) 894-7800
CT
www.sots.state.ct.us/sboa/sboaindex.html (860) 509-6179
DC
dcra.dc.gov/information/build_pla/occupational/accountancy/index.shtm (202) 442-4461
DE
www.professionallicensing.state.de.us (302) 744-4500
FL
www.myflorida.com (850) 487-1395
GA
www.sos.state.ga.us/plb/accountancy/ (478) 207-1400
GU
www.guam.net/gov/gba (671) 477-1050
HI
www.state.hi.us/dcaa/pvl/areas_accountancy.html (808) 586-2696
IA
www.state.ia.us/iacc (515) 281-4126
ID
www.state.id.us/boa (208) 334-2490
IL
www.illinois-cpa-exam.com or www.dpr.state.il.us (217) 333-1565
IN
www.state.in.us/pla/bandc/accountancy/ (317) 232-5987
KS

www.ksboa.org (785) 296-2162
KY
cpa.state.ky.us (502) 595-3037
LA
www.cpaboard.state.la.us (504) 566-1244
MA
www.state.ma.us/reg/boards/pa (617) 727-1806
MD
www.dllr.state.md.us/license/occprof/account.html (410) 230-6322
ME
www.maineprofessionalreg.org (207) 624-8603
MI
www.michigan.gov/cis/0,1607,7-154-10557_12992_13878 ,00.html (517) 241-9249
MN
www.boa.state.mn.us (651) 296-7938
MO
www.ecodev.state.mo.us/pr/account/ (573) 751-0012
MS
www.msbpa.state.ms.us (601) 354-7320
MT
www.discoveringmontana.com/dli/pac (406) 841-2389
NC
www.state.nc.us/cpabd (919) 733-4222
ND
www.state.nd.us/ndsba (800) 532-5904
NE
www.nol.org/home/bpa (402) 471-3595
NH
www.state.nh.us/accountancy (603) 271-3286
NJ

www.state.nj.us/lps/ca/nonmed.htm (973) 504-6380
NM
www.rld.state.nm.us/b&c/accountancy/index.htm (505) 841-9108
NV
(775) 786-0231
NY
www.op.nysed.gov/cpa.htm (518) 474-3817
OH
www.state.oh.us/acc (614) 466-4135
OK
www.oab.state.ok.us (405) 521-2397
OR
www.boahost.com/index.lasso (503) 378-4181
PA
www.dos.state.pa.us/bpoa/accbd/mainpage.htm (717) 783-1404
PR
www.estado.gobierno.pr/contador.htm (787) 722-4816
RI
www.dbr.state.ri.us (401) 222-3185
SC
www.llr.state.sc.us/pol/accountancy/default.htm (803) 896-4770
SD
www.state.sd.us/dol/acountancy (605) 367-5770
TN
www.state.tn.us/commerce/boards/tnsba (615) 741-2550
TX
www.tsbpa.state.tx.us (512) 305-7800
UT
www.dopl.utah.gov (801) 530-6396
VA

www.boa.state.va.us (804) 367-8505
VI
www.dlca.gov.vi (340) 773-4305
VT
vtprofessionals.org (802) 828-2837
WA
www.cpaboard.wa.gov (360) 753-2585
WI
www.drl.state.wi.us (608) 266-5511
WV
www.state.wv.us/wvboa/ (304) 558-3557
WY
cpaboard.state.wy.us (307) 777-7551
NOTE: The publisher does not assume responsibility for errors in the above information. You should request information concerning requirements in
your state at least six months in advance of the exam dates.
Exam Scheduling
Once you have been cleared to take one or more parts of the exam by the applicable state board, you will
receive by mail a “Notice to Schedule” and may then schedule to sit for one or more sections of the exam.
When you receive the Notice to Schedule, verify that all information is correct and that the name appearing
matches exactly the name on the identifications that will be used during the check-in at the testing center. A
CH 1 BEGINNING YOUR CPA REVIEW PROGRAM 5
Test Center Locator and Scheduler tool is available on Prometric’s Web site at www.prometric.com. This tool
allows candidates to quickly determine the most convenient center and reserve a seat and time at the chosen
center. Scheduling may also be accomplished by telephone (800-580-9648) or in person at a test center. To
assure that you get your desired location and time period it is imperative that you schedule early. To get
your first choice of dates, you are advised to schedule at least 45 days in advance. You will not be
scheduled for an exam fewer than five days before testing. In addition, you must take the examination
sections within the time period for which a Notice to Schedule is valid and before it expires.
You will not receive a written confirmation of your test appointment. Be sure to write down the date,
time, location, and confirmation number for each of your appointments.

ATTRIBUTES OF EXAMINATION SUCCESS
Your primary objective in preparing for the CPA examination is to pass. Other objectives such as learning
new and reviewing old material should be considered secondary. The six attributes of examination success
discussed below are essential. You should study the attributes and work toward achieving/developing each of
them before taking the examination.
1. Knowledge of Material
Two points are relevant to “knowledge of material” as an attribute of examination success. First,
there is a distinct difference between being familiar with material and knowing the material. Frequently
candidates confuse familiarity with knowledge. Can you remember when you just could not answer an
examination question or did poorly on an examination, but maintained to yourself or your instructor that
you knew the material? You probably were only familiar with the material. On the CPA examination,
familiarity is insufficient; you must know the material. For example, you may be familiar with the con-
cepts in accounting for leases (SFAS 13), but can you compute the present value of an annuity due under a
lease agreement and record entries for the lessee and lessor? Once again, a very major concern must be to
know the material rather than just being familiar with it. Knowledgeable discussion of the material is re-
quired on the CPA examination. Second, the Uniform Certified Public Accountant Examination tests a
literally overwhelming amount of material at a rigorous level. The CPA examination includes material
from the following courses:
Accounting
Auditing (including Auditing with Technology and Audit Sampling)
Intermediate Financial
Advanced Financial
Cost/Managerial
Governmental and Not-for-Profit
Tax
Business Law
Accounting Information Systems
Finance
Economics
Furthermore, as noted earlier, the CPA exam will test new material, sometimes as early as six months

after issuance. In other words, you are not only responsible for material in the above courses, but also for
all new developments in each of these areas.
This text contains outlines of accounting topics from FASB pronouncements, financial accounting
courses, cost accounting courses, finance courses, etc. Return to the original material (e.g., FASB, your
accounting textbooks, etc.) only if the outlines do not reinforce topical areas you already know.
2. Commitment to Exam Preparation
Your preparation for the CPA exam should begin at least two months prior to the date you plan to
schedule your seating for an exam section. If you plan to take more than one section, you should start ear-
lier. Over the course of your preparation, you will experience many peaks and valleys. There will be days
when you feel completely prepared and there will also be days when you feel totally overwhelmed. This is
not unusual and, in fact, should be expected.
6 CH 1 BEGINNING YOUR CPA REVIEW PROGRAM
The CPA exam is a very difficult and challenging exam. How many times in your college career did
you study months for an exam? Probably not too many. Therefore, candidates need to remain focused on
the objective—succeeding on the CPA exam.
Develop a personal study plan so that you are reviewing material daily. Of course, you should sched-
ule an occasional study break to help you relax, but don’t schedule too many breaks. Candidates who
dedicate themselves to studying have a much greater chance of going through this process one time. On
the other hand, a lack of focus and piecemeal preparation will only extend the process over a number of
exam sittings.
3. Solutions Approach
The solutions approach is a systematic approach to solving the questions and simulations found on the
CPA examination. Many candidates know the material fairly well when they sit for the CPA exam, but
they do not know how to take the examination. Candidates generally neither work nor answer questions
efficiently in terms of time or grades. The solutions approach permits you to avoid drawing “blanks” on
CPA exam questions; using the solutions approach coupled with grading insights (see below) allows you
to pick up a sizable number of points on test material with which you are not familiar. Chapter 3 outlines
the solutions approach for multiple-choice questions and simulations.
4. Grading Insights
Your score on each section of the exam is determined by the sum of points assigned to individual

questions and simulation parts. Thus, you must attempt to maximize your points on each individual item.
The number of points assigned to a multiple-choice question varies depending upon its difficulty level,
easy, medium, or hard. In other words, you will receive more points for correctly answering a hard
question than correctly answering an easy question. Multiple-choice questions are organized in 25- to
30-question testlets, and each testlet includes questions from all of the content areas of the particular sec-
tion.
With respect to the multiple-choice testlets, the CPA exam uses a form of adaptive testing known as
multistage testing. Using this technique the average difficulty of subsequent testlet(s) is determined by
how the candidate has performed on the previous testlet(s). Therefore, if you get a testlet with a prepon-
derance of very difficult questions, do not become discouraged. It may mean that you performed very well
on the previous testlet(s). In addition, since the number of points assigned to hard or medium questions
will be greater than the number of points for easy questions, you have an opportunity to accumulate a large
number of total points on that testlet.
Simulations will include more extensive scenarios and a number of requirements. For example, the
requirements may involve calculations, form completion, research, or written communication. The points
assigned to the requirements will vary according to their difficulty. Most of the requirements will be
graded by the computer. Only those that involve written communication will be graded manually. The
simulations will make use of a number of commonly used tools such as spreadsheets and electronic re-
search databases. The functionality of the word processor and the spreadsheet will not be exactly like
Microsoft Word and Excel. You should complete the AICPA CPA Examination Tutorial and Sam-
ple Exams (www.cpa-exam.org) to become familiar with the functionality of the tools you will use on
the exam. You will need to become proficient in the use of these tools to maximize your score on the
simulations.
5. Examination Strategy
Prior to sitting for the examination, it is important to develop an examination strategy (i.e., an ap-
proach to working efficiently throughout the exam.). Your ability to cope successfully with the examina-
tion can be improved by
a. Recognizing the importance and usefulness of an examination strategy
b. Using Chapter 4, Taking the Examination, and previous examination experience to develop a “per-
sonal strategy” for the exam

c. Testing your “personal strategy” on example examinations under conditions similar to those at the test
centers (using similar tools and databases and with a time limit)
6. Examination Confidence
You need confidence to endure the physical and mental demands of 2 ½ to 4 ½ hours of test-taking
under tremendous pressure. Examination confidence results from proper preparation for the exam, which
includes mastering the first four attributes of examination success. Examination confidence is necessary to
CH 1 BEGINNING YOUR CPA REVIEW PROGRAM 7
enable you to overcome the initial frustration with problems for which you may not be specifically pre-
pared.
This study manual (in conjunction with Volume 2), when properly used, contributes to your examina-
tion confidence. The systematic outlines herein will provide you with a sense of organization such that as
you sit for the examination, you will feel reasonably prepared (it is impossible to be completely prepared).
Common Candidate Mistakes
The CPA Exam is a formidable hurdle in your accounting career. With a first-time pass rate of only about
30% on each section, the level of difficulty is obvious. The good news, though, is that about 75% of all candi-
dates (first-time and reexam) sitting for each examination eventually pass. The authors believe that the first-
time pass rate could be higher if candidates would be more careful. Eight common mistakes that many candi-
dates make are
1. Failure to understand the exam question requirements
2. Misunderstanding the supporting text of the problem
3. Lack of knowledge of material tested, especially recently issued pronouncements
4. Failure to develop proficiency with practice tools such as electronic research databases and spread-
sheets
5. Inability to apply the solutions approach
6. Lack of an exam strategy (e.g., allocation of time)
7. Sloppiness and computational errors
8. Failure to proofread and edit
These mistakes are not mutually exclusive. Candidates may commit one or more of the above items. Remind
yourself that when you decrease the number of common mistakes, you increase your chances of successfully
becoming a CPA. Take the time to read carefully the exam question requirements. Do not jump into a quick

start, only to later find out that you did not understand what information the examiners were asking for. Read
slowly and carefully. Take time to recall your knowledge. Respond to the question asked. Apply an exam
strategy such as allocating your time among all question formats. Do not spend too much time on the
multiple-choice testlets, leaving no time to spend on preparing your simulation responses. Upon completion of
any written communications requirements, proofread and edit your answer. Answer questions quickly but pre-
cisely, avoid common mistakes, and increase your score.
PURPOSE AND ORGANIZATION OF THIS REVIEW TEXTBOOK
Volume 1 and Volume 2 of CPA Examination Review are designed to help you prepare adequately for the
examination. There is no easy approach to prepare for the successful completion of the CPA Examination;
however, through the use of Volumes 1 and 2, your approach will be systematic and logical.
The objective of Volume 1 is to provide study materials supportive to CPA candidates. While no guaran-
tees are made concerning the success of those using this text, this book promotes efficient preparation by
1. Explaining how to maximize your score through analysis of examination grading and illustration of
the solutions approach.
2. Defining areas tested through the use of the content specification outlines. Note that predictions of
future exams are not made. You should prepare yourself for all possible topics rather than gambling
on the appearance of certain questions.
3. Organizing your study program by comprehensively outlining all of the subject matter tested on the
examination in 45 easy-to-use study modules. Each study module is a manageable task which facili-
tates your exam preparation. Turn to the table of contents and peruse it to get a feel for the organiza-
tion of this volume.
As you read the next few paragraphs that describe the contents of this book (Volume 1), flip through the
chapters to gain a general familiarity with the book’s organization and contents. Chapters 2, 3, and 4 will help
you maximize your score.
Chapter 2 Examination Grading
Chapter 3 The Solutions Approach
Chapter 4 Taking the Examination
Chapters 2, 3, and 4 contain material that should be kept in mind throughout your study program. Refer back
to them frequently. Reread them for a final time just before you sit for the exam.
8 CH 1 BEGINNING YOUR CPA REVIEW PROGRAM

Chapter 5 (Auditing and Attestation) and Chapter 6 (Financial Accounting and Reporting) each contain
1. AICPA Content Specification Outlines
2. Outlines of material tested on that section of the examination
Chapters 7 through 9 outline the Regulation section of the CPA examination. Chapter 7 discusses the cov-
erage of that section of the examination. This chapter also contains the AICPA Content Specification Outlines
for all of the Regulation section. The content specification outlines of the topics tested in the Business Envi-
ronment and Concepts section of the exam are located in Chapter 10.
The first objective of Volume 2 is to provide CPA candidates with previous examination questions and
author-developed questions and simulations organized by topic (e.g., audit reports, secured transactions, con-
solidations, etc.). Volume 2 includes over 2,400 multiple-choice questions, many from previous exams
(largely May 1988 to November 1995). Multiple-choice questions are an effective means of studying the ma-
terial tested on the exam. It is also necessary, however, to work with problems and simulations to develop the
solutions approach (the ability to solve CPA simulations efficiently).
The second objective of Volume 2 is to provide CPA candidates with an explanation for the answers to the
multiple-choice questions and simulations
Other Textbooks
This text is a comprehensive compilation of study guides and outlines; it should not be necessary to sup-
plement them with textbooks and other materials for most topics. You probably already have accounting,
business law, economics, finance, accounting information systems, and tax testbooks. In such a case, you
must make the decision whether to replace them and trade familiarity (including notes therein, etc.), with the
cost and inconvenience of obtaining the newer texts containing a more updated presentation.
Before spending time and money acquiring new texts, begin your study program with this book to deter-
mine your need for a supplemental text.
Ordering Other Materials
If you want to order AICPA materials, locate an AICPA educator member to order your materials, since
educator members are entitled to a 30% discount and may place Web site or telephone orders.
AICPA (CPA2Biz)
Telephone: 888-777-7077 Address: Order Department
Web site: www.CPA2Biz.com CPA2Biz
P.O. Box 2209

Jersey City, NJ 07303-2209
The AICPA offers candidates an on-line package of professional literature to help them prepare for
the exam. The package costs $35 and includes the web electronic versions of
• AICPA professional standards
• FASB Current Text
• FASB Original Pronouncements
Candidates may subscribe at www.cpa2biz.com/examoffer. Only candidates who have applied to take the
exam by a state board of accountancy may take advantage of this offer.
A variety of supplemental CPA products are available from John Wiley & Sons, Inc. By using a variety of
learning techniques, such as software and audio CDs, the candidate is more likely to remain focused during the
study process and to retain information for a longer period of time. Visit our Web site at www.wiley.com/cpa
for other products, supplements, and updates.
Working CPA Problems
The AICPA Content Outlines, study outlines, etc., in Volume 1 will be used to acquire and assimilate the
knowledge tested on the examination. This, however, should be only one-half of your preparation program.
The other half should be spent practicing how to work problems using Volume 2, “Problems and Solutions.”
Most candidates probably spend over 90% of their time reviewing material tested on the CPA exam.
Much more time should be allocated to working questions and simulations under exam conditions. Working
potential examination questions serves two functions. First, it helps you develop a solutions approach as well
as solutions that will maximize your score. Second, it provides the best test of your knowledge of the material.
The multiple-choice questions and answer explanations can be used in many ways. First, they may be
used as a diagnostic evaluation of your knowledge. For example, before beginning to review commercial pa-
CH 1 BEGINNING YOUR CPA REVIEW PROGRAM 9
per you may wish to answer 10 to 15 multiple-choice questions to determine your ability to answer CPA ex-
amination questions on commercial paper. The apparent difficulty of the questions and the correctness of your
answers will allow you to determine the necessary breadth and depth of your review. Additionally, exposure
to examination questions prior to review and study of the material should provide motivation. You will de-
velop a feel for your level of proficiency and an understanding of the scope and difficulty of past examination
questions. Moreover, your review materials will explain concepts encountered in the diagnostic multiple-
choice questions.

Second, the multiple-choice questions can be used as a poststudy or postreview evaluation. You should
attempt to understand all concepts mentioned (even in incorrect answers) as you answer the questions. Refer
to the explanation of the answer for discussion of the alternatives even though you selected the correct re-
sponse. Thus, you should read the explanation of the answer unless you completely understand the question
and all of the alternative answers.
Third, you may wish to use the multiple-choice questions as a primary study vehicle. This is probably the
quickest but least thorough approach in preparing for the exam. Make a sincere effort to understand the ques-
tion and to select the correct response before referring to the unofficial answer and explanation. In many
cases, the explanations will appear inadequate because of your unfamiliarity with the topic. Always refer back
to an appropriate study source, such as the outlines and text in this volume, your textbooks, professional stan-
dards, etc.
The multiple-choice questions outnumber the simulations by greater than 50 to 1 in this book. This is
similar to the proposed content of the new computer-based examination. One problem with so many multiple-
choice questions is that you may overemphasize them. Candidates generally prefer to work multiple-choice
questions because they are
1. Shorter and less time-consuming
2. Solvable with less effort
3. Less frustrating than essay problems and simulations
Another problem with the large number of multiple-choice questions is that you may tend to become overly
familiar with the questions. The result may be that you begin reading the facts and assumptions of previously
studied questions into the questions on your examination. Guard against this potential problem by reading
each multiple-choice question with extra care.
Beginning with the April 2004 computer-based examination, the AICPA began testing with simulations.
Simulation style problems released by the AICPA or prepared by the authors, many adopted from prior CPA
exam questions and problems, are in Volume 2, “Problems and Solutions.”
Even though they are no longer included on the CPA exam, essay problems from previous exams are also
included in Volume 2. Essay problems require the ability to organize and compose a solution, as well as in-
depth knowledge of the subject matter. They are useful in developing the skills necessary to answer simula-
tions. The essay problems and answers may also be used for study purposes without preparation of answers.
Before turning to the answers, study the problem and outline the solution (either mentally or in the margin of

the book). Look at our answer outline preceding the unofficial answer for each problem and compare it to
your own. Next, read the answer, underlining keywords and phrases. The underlining should reinforce your
study of the answer’s content and also assist you in learning how to structure your solutions. Answer outlines
representing the major concepts found in the answer are provided for each essay problem. These will facilitate
your study of essay problems.
The questions and solutions in Volume 2 provide you with an opportunity to diagnose and correct any
exam-taking weaknesses prior to sitting for the examination. Continually analyze your incorrect solutions to
determine the cause of the error(s) during your preparation for the exam. Treat each incorrect solution as a
mistake that will not be repeated (especially on the examination). Also attempt to generalize your weaknesses
so that you may change, reinforce, or develop new approaches to exam preparation and exam taking.
SELF-STUDY PROGRAM
CPA candidates generally find it difficult to organize and to complete their own self-study programs. A
major problem is determining what and how to study. Another major problem is developing the self-
discipline to stick to a study program. Relatedly, it is often difficult for CPA candidates to determine how
much to study (i.e., determining when they are sufficiently prepared).
10 CH 1 BEGINNING YOUR CPA REVIEW PROGRAM
The following suggestions will assist you in developing a systematic, comprehensive, and successful
self-study program to help you complete the exam.
Remember that these are only suggestions. You should modify them to suit your personality, available
study time, and other constraints. Some of the suggestions may appear trivial, but CPA candidates generally
need all the assistance they can get to systemize their study programs.
Study Facilities and Available Time
Locate study facilities that will be conducive to concentrated study. Factors that you should consider in-
clude
1. Noise distraction
2. Interruptions
3. Lighting
4. Availability (e.g., a local library is not available at 5:00 A.M.)
5. Accessibility (e.g., your kitchen table vs. your local library)
6. Desk or table space

7. Availability of research resources
You will probably find different study facilities optimal for different times (e.g., your kitchen table during
early morning hours and local libraries during early evening hours).
Next review your personal and professional commitments from now until the exam to determine regularly
available study time. Formalize a schedule to which you can reasonably commit yourself. At the end of this
chapter, you will find a detailed approach to managing your time available for the exam preparation program.
Self-Evaluation
The CPA Examination Review self-study program is partitioned into 45 topics or modules. Since each
module is clearly defined and should be studied separately, you have the task of preparing for the CPA exam
partitioned into 45 manageable tasks. Partitioning the overall project into 45 modules makes preparation psy-
chologically easier, since you sense yourself completing one small step at a time rather than seemingly never
completing one or a few large steps.
By completing the following “Preliminary Estimate of Your Knowledge of Subject” inventory, organized
by the 45 modules in this program, you will have a tabulation of your strong and weak areas at the beginning
of your study program. This will help you budget your limited study time. Note that you should begin study-
ing the material in each module by answering up to 1/4 of the total multiple-choice questions in Volume 2
covering that module’s topics. This “mini-exam” should constitute a diagnostic evaluation as to the amount of
review and study you need.
PRELIMINARY ESTIMATE OF YOUR PRESENT KNOWLEDGE OF SUBJECT
No. Module Proficient
Fairly
proficient
Generally
familiar
Not
familiar
AUDITING AND ATTESTATION
1 Engagement Planning
2 Internal Control
3 Evidence

4 Reporting
5 Audit Sampling
6 Auditing with Technology
FINANCIAL ACCOUNTING AND
REPORTING
7 Basic Theory and Financial Reporting
8 Inventory
9 Fixed Assets
10 Monetary Current Assets and Current Liabilities
11 Present Value
12 Deferred Taxes
13 Stockholder’s Equity
14 Investments
15 Statement of Cash Flows
16 Business Combinations and Consolidations
CH 1 BEGINNING YOUR CPA REVIEW PROGRAM 11
No. Module Proficient
Fairly
proficient
Generally
familiar
Not
familiar
17 Derivative Instruments and Hedging Activities
18 Miscellaneous
19 Governmental Accounting
20 Not-for-Profit Accounting
REGULATION
21 Professional Responsibilities
22 Federal Securities Acts

23 Contracts
24 Sales
25 Commercial Paper
26 Secured Transactions
27 Bankruptcy
28 Debtor-Creditor Relationships
29 Agency
30 Regulation of Employment and Environment
31 Property
32 Insurance
33 Taxes: Individual
34 Taxes: Transactions in Property
35 Taxes: Partnership
36 Taxes: Corporate
37 Taxes: Gift and Estate
BUSINESS ENVIRONMENT AND
CONCEPTS
38 Business Structure
39 Information Technology
40 Economics and Strategy
41 Financial Management
42 Risk Management and Capital Budgeting
43 Performance Measures
44 Cost Measurement
45 Planning, Control, and Analysis
Using Note Cards
Key definitions, formulas, lists, etc., can be summarized on note cards to illustrate important concepts.
Candidates can organize the note cards into four sections: AUDITING AND ATTESTATION, FINANCIAL
ACCOUNTING AND REPORTING, REGULATION, AND BUSINESS ENVIRONMENT AND CON-
CEPTS. During your study program, you can frequently review your note cards to refresh your memory on

certain topics and evaluate your progress. The following examples illustrate one candidate’s note cards on
various exam topics.
Financial Accounting and Reporting
Investments < 20% (SFAS 115)
Held-to-Maturity
: Amortized Cost
Trading
: Fair Market Value
NJs recognized in I/S
Available-for-sale
: FMV
NJs during a period recognized in other compre-
hensive income
Accounting Changes
Cum. Pro Restate
effect
forma FS
i
n
estimate
N N N
in
principle
Y Y N
in
reporting
entity
N N Y
Prepared by Greg Graber, CPA, former student, Northern Illinois University
12 CH 1 BEGINNING YOUR CPA REVIEW PROGRAM

Business Environment and Concepts
Cost-Volume-Profit
Sales –Var Exp – Fixed Exp = Profit
Breakeven Point
In units =
Fixed Exp
Cont Mar/Unit
In Sales $ =
Fixed Exp
Cont Mar %
Cash Management
Technique
For Description
Lock box Recpt. Receipts directly to
bank
Concentration Recpt. Branches use local
banking banks
Zero-balance Disb Transferring funds
accounts to cover checks
Electronic funds Disb. Transfer of funds
transfer or Rec. electronically
Prepared by Greg Graber, CPA, former student, Northern Illinois University
Auditing and Attestation
Tolerable Misstatement
Max $ Misstatement for a bal.
Audit Risk
: Risk of the existence of a mone-
tary misstatement greater than the toler-
able misstatement
Nonsampling Risk

:
• Wrong audit procedure
• Audit error (cont’d)
Sampling Risk
– May cause result diff. than
pop. as a whole.
• Substantive Tests
1) Incorrect accep. B
2) Incorrect rejec. Į
• Tests of Controls
1) Risk of assessing control risk too low
(overreliance)
2) Risk of assessing control risk too high
(underreliance)
Prepared by Rebecca A. Hoger, CPA, former student, Northern Illinois University
Regulation
Negotiable Instrument Elements of a binding agreement
1) In writing (semipermeable moveable
form)
2) Signed by appropriate person
3) Unconditional promise to pay sum certain
in money
4) Words of negotiability
5) No second promise (collateral-ok)
6) Payable on demand or at definite date
1) Manifestation of mutual assent
a. Offer
b. Acceptance
2) Reality of consent
3) Consideration

4) Capacity of parties
5) Legality of object
6) Compliance with Statute of Frauds
Prepared by Cindy Johnson, CPA, former student, Northern Illinois University
CH 1 BEGINNING YOUR CPA REVIEW PROGRAM 13
Level of Proficiency Required
What level of proficiency must you develop with respect to each of the topics to pass the exam? You
should work toward a minimum correct rate on the multiple-choice questions of 75 to 80%.
Warning: Disproportional study time devoted to multiple-choice (relative to simulation
questions/problems) can be disastrous on the exam. You should work a substantial number of problems and
simulations under exam conditions, even though multiple-choice questions are easier to work and are used to
gauge your proficiency. The authors believe that practicing simulations and problems will also improve your
proficiency on the multiple-choice questions.
Multiple-Choice Feedback
One of the benefits of working through previous exam questions is that it helps you to identify your weak
areas. Once you have graded your answers, your strong areas and weak areas should be clearly evident. Yet,
the important point here is that you should not stop at a simple percentage evaluation. The percentage only
provides general feedback about your knowledge of the material contained within that particular module. The
percentage does not give you any specific feedback regarding the concepts which were tested. In order to get
this feedback, you should look at the questions missed on an individual basis because this will help you gain a
better understanding of why you missed the question.
This feedback process has been facilitated by the fact that within each module where the multiple-choice
answer key appears, two blank lines have been inserted next to the multiple-choice answers. As you grade the
multiple-choice questions, mark those questions which you have missed. However, instead of just marking the
questions right and wrong, you should now focus on marking the questions in a manner which identifies why
you missed the question. As an example, a candidate could mark the questions in the following manner: 9 for
math mistakes, x for conceptual mistakes, and ? for areas which the candidate was unfamiliar with. The can-
didate should then correct these mistakes by reworking through the marked questions.
The objective of this marking technique is to help you identify your weak areas and thus, the concepts
which you should be focusing on. While it is still important for you to get between 75% and 80% correct

when working multiple-choice questions, it is more important for you to understand the concepts. This under-
standing applies to both the questions answered correctly and those answered incorrectly. Remember, ques-
tions on the CPA exam will be different from the questions in the book; however, the concepts will be the
same. Therefore, your preparation should focus on understanding concepts, not just getting the correct answer.
Conditional Candidates
If you have received conditional status on the examination, you must concentrate on the remaining sec-
tion(s). Unfortunately, many candidates do not study after conditioning the exam, relying on luck to get them
through the remaining section(s). Conditional candidates will find that material contained in Chapters 1-4 and
the information contained in the appropriate modules will benefit them in preparing for the remaining sec-
tion(s) of the examination.
PLANNING FOR THE EXAMINATION
Overall Strategy
An overriding concern should be an orderly, systematic approach toward both your preparation program
and your examination strategy. A major objective should be to avoid any surprises or anything else that would
rattle you during the examination. In other words, you want to be in complete control as much as possible.
Control is of paramount importance from both positive and negative viewpoints. The presence of control on
your part will add to your confidence and your ability to prepare for and take the exam. Moreover, the pres-
ence of control will make your preparation program more enjoyable (or at least less distasteful). On the other
hand, a lack of organization will result in inefficiency in preparing and taking the examination, with a highly
predictable outcome. Likewise, distractions during the examination (e.g., inadequate lodging, lack of sleep)
are generally disastrous.
In summary, establishing a systematic, orderly approach to taking the examination is of paramount im-
portance. Follow these six steps:
1. Develop an overall strategy at the beginning of your preparation program (see below).
2. Supplement your overall strategy with outlines of material tested on the Financial Accounting and Re-
porting exam (see Chapters 5 through 12).
3. Supplement your overall strategy with an explicitly stated set of problem-solving procedures—the
solutions approach.
14 CH 1 BEGINNING YOUR CPA REVIEW PROGRAM
4. Supplement your overall strategy with an explicitly stated approach to each examination session (see

Chapter 4).
5. Evaluate your preparation progress on a regular basis and prepare lists of things “to do” (see Weekly
Review of Preparation Program Progress on following page).
6. Relax: You can pass the exam. About 20,000 candidates successfully complete the exam each year.
You will be one of them if you complete an efficient preparation program and execute well (i.e., use
your solutions approach and exam strategy) while writing the exam.
The following outline is designed to provide you with a general framework of the tasks before you. You
should tailor the outline to your needs by adding specific items and comments.
A. Preparation Program (refer to Self-Study Program discussed previously)
1. Obtain and organize study materials
2. Locate facilities conducive for studying and block out study time
3. During your study program, if it becomes apparent that you will not be adequately prepared for all
four sections of the upcoming exam, concentrate the majority of your study on your one or two
strongest sections. For the selections selected, devote much of your time to correcting weaknesses and
the remainder for reviewing your strengths.
4. Develop your solutions approach (including solving simulations and problems as well as multiple-
choice questions).
5. Prepare an examination strategy
6. Study the material tested recently and prepare answers to actual exam questions on these topics under
examination conditions
7. Periodically evaluate your progress
B. Physical Arrangements
1. Apply to and obtain acceptance from your state board
2. Reserve lodging for examination nights
C. Taking the Examination (covered in detail in Chapter 4)
1. Become familiar with exam facilities and procedures
2. Implement examination strategies and the solutions approach
Weekly Review of Preparation Program Progress
The following pages contain a hypothetical weekly review of program progress for the Financial Ac-
counting and Reporting section. You should prepare a similar progress chart. This procedure, which takes

only about 5 minutes per week, will help you proceed through a more efficient, complete preparation program.
Make notes of materials and topics
1. That you have studied
2. That you have completed
3. That need additional study
Weeks to go
Comments on progress, “to do” items, etc.
12
1) Read Basic Theory and Financial Reporting Module
2) Made notecards
3) Worked the MC Questions and Simulation Problems, on a sample basis
4) Need to work Problems and Simulation Problems using the solutions approach
11
1) Read Fixed Assets and Stockholders' Equity Modules
2) Made notecards
3) Read the SFAS and APB outlines that correspond to these topics
4) Briefly looked over the MC for both modules
CH 1 BEGINNING YOUR CPA REVIEW PROGRAM 15
10
1) Read Monetary Current Assets and Current Liabilities Module
2) Made notecards
3) Read the corresponding SFAS/APB outlines
4) Worked the MC Questions and Problems and Simulation Problems for Fixed Assets,
Stockholders' Equity, and Monetary CA/CL
9
1) Read the Inventory and Statement of Cash Flows Modules
2) Made notecards
3) Skimmed the SFAS and APB outlines, taking notes of important areas
4) Worked the MC Questions and Simulation Problems
8

1) Read the Present Value Module
2) Made notecards
3) Studied the SFASs and APBs on leases and pensions
4) Completed the MC Questions and Simulation Problems
5) Need to work Problems for leases and pensions
7
1) Read Deferred Taxes Module
2) Made notecards
3) Read the corresponding SFAS and APB outlines
4) Worked the MC Questions and Simulation Problems
5) Worked some Essays/Problems for all modules studied thus far
6
1) Read the Derivative Instruments and Hedging Activities and Miscellaneous Modules
2) Made notecards
3) Read the corresponding SFAS and APB outlines
4) Worked the MC Questions and Problems for these modules
5) Confident with these mods; only need a quick review
5
1) Read Investments Module
2) Made notecards
3) Read the corresponding SFAS and APB outlines
4) Worked the MC Questions and Simulation Problems
4
1) Read the Business Combinations and Consolidations Module
2) Reviewed consolidations in an advanced accounting textbook
3) Made notecards
4) Worked the MC Questions and Simulation Problems
16 CH 1 BEGINNING YOUR CPA REVIEW PROGRAM
3
1) Worked some Essays/Problems for all modules studied in weeks 6-4

2) Took Financial Accounting and Reporting Sample Exam
3) Worked lease, pension, and purchase and pooling problems. Am now confident in those
areas.
2
1) Reviewed all prior topics, picking out a few MC for each topic and working them out
2) Did a statement of cash flows
3) Completed all Simulations in Appendix A
1
1) Reviewed notecards and SFAS and APB outlines
2) Worked MC from Deferred Taxes and Stockholders' Equity Modules
0
1) Tried to relax and review topics
Time Management of Your Preparation
As you begin your CPA exam preparation, you obviously realize that there is a large amount of material to
cover over the course of the next two to three months. Therefore, it is very important for you to organize your
calendar, and maybe even your daily routine, so that you can allocate sufficient time to studying. An organ-
ized approach to your preparation is much more effective than a last week cram session. An organized ap-
proach also builds up the confidence necessary to succeed on the CPA exam.
An approach which we have already suggested is to develop weekly “to do” lists. This technique will help
you to establish intermediate objectives and goals as you progress through your study plan. You can then fo-
cus your efforts on small tasks and not feel overwhelmed by the entire process. And as you accomplish these
tasks you will see yourself moving one step closer to realizing the overall goal, succeeding on the CPA exam.
Note, however, that the underlying assumption of this approach is that you have found the time during the
week to study and thus accomplish the different tasks. Although this is an obvious step, it is still a very im-
portant step. Your exam preparation should be of a continuous nature and not one that jumps around the cal-
endar. Therefore, you should strive to find available study time within your daily schedule, which can be util-
ized on a consistent basis. For example, everyone has certain hours of the day which are already committed
for activities such as jobs, classes, and, of course, sleep. There is also going to be the time you spend relaxing
because CPA candidates should try to maintain some balance in their lives. Sometimes too much studying can
be counterproductive. But there will be some time available to you for studying and working through the

questions. Block off this available time and use it only for exam prep. Use the time to accomplish your
weekly tasks and to keep yourself committed to the process. After awhile your preparation will develop into a
habit and the preparation will not seem as overwhelming as it once did.
NOW IS THE TIME
TO MAKE YOUR COMMITMENT