Inside the CPA Exams – What Should You Expect?

The CPA Exams are arguably one of the most challenging professional licensing exams out there.  Less than 15% of candidates pass all four modules on the first attempt.  Want to join the elite group who pass on their first try?  Preparation is the key.  Your first preparatory step is to understand the test, its methodology and goals, and what you can expect.

Exam Basics – A Test with Four Sections

This 14 hour exam is broken into four sections.  You can take each section individually at different times, and most candidates do just that.  

Breaking the exam into sections allows you to focus on and prepare for one section at a time.  In addition, taking more than one portion of the exam on the same day can lower your chances of passing due to stress and fatigue.  Let’s review each section and its content.

  • Auditing and Attestation (AUD) – This section tests your knowledge of internal controls, obtaining and documenting information, evaluating information, engagement acceptance and planning, and preparing communications.    Your understanding of professional responsibilities and procedures and evidence will be tested as well.
  • Business Environment and Concepts (BEC) – Ever wonder why you took all those business courses along with your accounting curriculum?  This section will test what you learned about business structures, economic concepts, financial management, information technology, and corporate governance. 
  • Financial Accounting and Reporting (FAR) – As the title would suggest, this section asks you to demonstrate your knowledge of concepts and standards for financial statements, specific types of transactions and events, and reporting for governmental agencies.  You are also asked to show competence in reporting for non-governmental and not-for-profit organizations.
  • Regulation (REG) – This section not only covers business law, Federal Tax procedures and accounting issues, it also covers the ethical and legal responsibilities of accountants.  You should be prepared to show your knowledge of Federal Taxation as it applies to property transactions, individuals, and corporate entities.

Exam Structure – What Style Of Questions Will You Face?

The exam is administered only by computer in secure testing centers.  This computer based testing structure allows you to be evaluated not only on concepts but also on your ability to perform complex tasks and make decisions during task based simulations.  It’s a relatively advanced system, designed to fairly evaluate your skills, knowledge, and ability.  Here is the quantity and type of questions you can expect as well as the time you are allowed for completion.

  • Auditing and Attestation – 3 groups of 30 multiple choice questions (90 questions total) and 7 short task-based simulations including one research question.  You are allowed 4 hours.
  • Business Environment and Concepts – 3 groups of 24 multiple choice questions (72 questions total) and 3 written communication tasks based on current topics.  You are allowed 3 hours.
  • Financial Accounting and Reporting – 3 groups of 30 multiple choice questions (90 questions total) and 7 task-based simulations including one research question.  You are allowed 4 hours.
  • Regulation – 3 groups of 24 multiple choice questions (72 questions total) and 6 task-based simulations including one research question.  You are allowed 3 hours.

The multiple choice questions are weighted as 60% of the total score for each of the sections except Business and Environment Concepts.  The simulations make up the remaining 40% for these sections.  

Business and Environment Concepts is weighted differently due to the written communication portion of the exam.  Multiple choice questions here are 85% of the total score, with the written portion making up the remaining 15%.

Pass Rates – Have Realistic Expectations

You've proven your intelligence and ability during your educational journey.  Now that you are approaching the CPA Exams, it’s normal to have a good measure of confidence.  After all, you are a college graduate on the verge of an exciting career you've worked hard to prepare for.

Certainly you will be part of the small group that passes the entire exam on the first try, right?  

While it’s quite possible you will be in that group if you've prepared with a strong academic career, most people find they must take at least one section of the exam more than once.  Don’t be discouraged if you are one of them.

The American Institute of Certified Public Accountants publishes pass rates after each test window, and they don’t vary much from period to period.  Here are the pass rates for the first test window of 2012, broken out by section.

  • Auditing and Attestation – 44.90% of candidates passed
  • Business Environment and Concepts – 48.63% of candidates passed
  • Financial Accounting and Reporting – 43.84% of candidates passed
  • Regulation – 45.00% of candidates passed

Taking the CPA Exams - Pay Attention and Watch Your Calendar Closely

You probably already realize you must register to take the CPA Exams.  You may not know, however, that the testing year is divided into four windows that are each three months long.  You may take as many of the test sections in a window as you like, but you may only take each section once.  So, if you don’t pass a section you must wait three months to retake it.  

Seems like no big deal, right?  Well, there’s a small catch that causes trouble for some candidates.

The credit you receive for passing a section lasts 18 months.  Let’s suppose you pass three sections and are planning to take the exam for the fourth.  If you wait until the last testing window of your 18 month allowance and you don’t pass you unfortunately need to retake any sections which have expired.

It can get confusing, especially when trying to balance a busy career and the demands of studying for the exam.  
To avoid this testing timing issue, make sure you are very organized.  Plan ahead and make your first attempt for each section early in your 18 month allowance.  This gives you the most flexibility should you need to retake a section or two.

Taking the CPA Exams in California?

Back in 2014 Currently in California there are two pathways to obtaining a CPA license.  Both involve the CPA Exams, of course, but the education and work experience requirements are different.  

California has allowed professionals who only wish to practice in California to meet a lower educational standard (a 120 hour Bachelor Degree, not the 150 hours required by other states) and instead increase their practical work experience from one year to two.  Beginning January 1, 2014, that option was no longer valid.  California is bringing its standards up the same level as the majority of the rest of the country.

This is a great development for the profession, but will affect you if you are planning to follow the “California only” path for licensing.  You need to complete all the requirements for this path before it disappears.  This means you must pass the CPA Exam, complete your ethics course, and complete 24 months of qualified work experience under the supervision of a licensed CPA prior to January 1, 2014. 

If you don’t get it all done in time you will be required to meet the increased educational requirement. Ouch. You can get more information here.

Want To Increase Your Personal Pass Rate?  Consider a Review Course

Exam difficulty and the relatively low pass rates have created a market for CPA Exam review courses.  These courses can be expensive, but many candidates find them worth the investment.  The courses vary in methodology and structure. 

  • If you prefer interaction, you can choose a course with online or limited telephone coaching
  • If you use an iPad, you can select a course with an iPad app
  • Are you more comfortable with an old school style of review? Most courses offer text or guidebooks, notes, and lectures on DVD

Since the courses are so different, it’s important to read reviews from other candidates before making your decision. Pay attention, as well, to the recommendations made by top accounting firms. 

Many courses have endorsements from professional organizations and accounting firms posted on their websites to help you make your selection. 

Be cautious before purchase to make sure you understand the renewal policies.  Most courses publish updates each year, but some make you pay big bucks to purchase the update.  If you take longer than a year to pass the exam, as many candidates do, you could end up paying more than you planned on.

CPA Requirements and Degrees

Before you even get to taking the exams you may be wondering what you have to get there. Time to check out our articles on the overall how to become a CPA and the university/college degrees you'll need to have under your belt. Vital information indeed.

Summing Up The CPA Exams

So there you have it. Four exams, low pass rates, computer-based, multiple choice questions and written sections, 18-months to get them all done to avoid serious re-testing pain, expensive yet worthwhile CPA review courses. Phew! Maybe you need a degree to understand the CPA requirements!

The CPA Exams were always challenging. And it’s getting tougher each year. But that also means that if you’re a dedicated candidate, who has the desire to get through it, the reward will be a top accountancy career and higher earnings. That’s a reasonable deal.