CPA Exam Changes

What are the CPA Exam Blueprints?

The AICPA builds the CPA examination from the “specs” contained in a document called Blueprints. The CPA Exam Blueprints are updated and published once or twice a year.

There is a Blueprint for each exam section, which details the skills (e.g. analysis) and tasks (e.g. develop a detailed engagement plan) for each content topic (e.g. Planning an Engagement). The scoring weight is assigned to each content area.

 

What are the 2019 CPA Exam Changes?

Here are the summaries of specific revisions for each exam section released by the AICPA (Source: Summary of Revisions to the Uniform CPA Examination Blueprints Effective January 1, 2019). Surgent CPA Review materials will be updated for these CPA Exam changes and available later this year, and all content updates are automatic and free of charge.

Changes coming to Auditing and Attestation (AUD)

The revisions add more detail on professional skepticism and professional judgment. Professional skepticism and judgment concepts are included throughout and eligible for testing under the current AUD Blueprint. The revisions do not change the nature or scope of content eligible for testing in the AUD section.

Changes coming to Business Environment and Concepts (BEC)

There are no revisions to the BEC exam section.

Changes coming to Financial Accounting and Reporting (FAR)

The revisions are in response to standard-setting activity related to nongovernmental, not-for-profit financial reporting and become eligible for testing on January 1, 2019. Specifically, a new application task was added to adjust the notes to the financial statements to correct identified errors and omissions.

The 2019 FAR changes include:

ASU No. 2016-02 Leases

Topic Guidance Impact
Definition of a lease A contract that conveys a right to control an identified asset. Greater emphasis on the concept of control in determining whether a lease exists.
Lease classification Removal of bright lines for classification of leases as financing or operating by lessees. Greater use of judgment in determining lease classification.
Balance sheet presentation Recognition of a right to use asset and related lease liability for all leases for lessees Currently, only capital leases require balance sheet recognition for lessees.
Income statement presentation For lessees, the recognition, measurement, and presentation of expenses and cash flows should not change significantly.

Recognition of selling profit for lessor sales-type leases may change under the control model.

Right of use asset representing operating lease will now be subject to impairment testing for lessees.

 

 

Inception vs. commencement date Lease classification, recognition, and measurement are done at the lease commencement date, the date which the lessor makes the underlying asset available for use by the lessee. Under ASC 840, assumptions relevant to classification and measurement are determined at the lease inception. Recognition begins at the commencement date.
Lease reassessment Lessee is required to reassess lease term if a triggering event controlled by the lessee occurs or an option is exercised, or not exercised, as planned, this leads to re-measurement and potential reclassification. Current guidance requires no reassessment unless the lease is modified or an option is exercised.
Modification A lease modification is a change to the contractual terms of the lease that results in a change of scope or consideration. Current guidance on modifications is complex and confusing, resulting in difficulty in differentiating between a lease modification and termination.
Sale-leaseback transactions Sale-leaseback treatment is only obtained if transaction meets the sales guidance found in ASC 606 and the leaseback is not a finance lease. Current rules are very detailed, especially as related to real estate transactions and only applicable to lessees.
Build-to-suit Ownership by lessee in construction period based on control model. Replaces current complex, prescriptive model based on a risks and rewards model.
Initial indirect costs Defined as incremental, initial costs that would not be incurred if the lease had not been obtained. Certain incremental costs currently capitalized will now need to be expensed, including external legal fees.

GASB 84

This Statement establishes criteria for identifying fiduciary activities of all state and local governments.
Governments with activities meeting the criteria should present:

  • a statement of fiduciary net position, and
  • a statement of changes in fiduciary net position

An exception to that requirement is provided for a business-type activity that normally expects to hold custodial assets for three months or less.

Four fiduciary funds should be reported, if applicable:

  • pension (and other employee benefit) trust funds
  • investment trust funds
  • private-purpose trust funds
  • custodial funds.

Custodial funds replace Agency funds, and generally report fiduciary activities that are not held in a trust or equivalent arrangement that meets specific criteria.

A fiduciary component unit, when reported in the fiduciary fund financial statements of a primary government, should combine its information with its component units that are fiduciary component units and aggregate that combined information with the primary government’s fiduciary funds.

A liability should be recognized in a fiduciary fund when an event has occurred that compels the government to disburse fiduciary resources (i.e., a demand for the resources has been made or when no further action, approval, or condition is required to be taken or met by the beneficiary to release the assets.)

Changes coming to Regulation (REG)

The revisions are in response to legislative activity (known as the Tax Cuts and Jobs Act, or TCJA) and become eligible for testing on January 1, 2019.

The 2019 REG Changes include:

Changes to Individual Taxes

  • Imposes a new tax rate structure with seven tax brackets: 10%, 12%, 22%, 24%, 32%, 35%, and 37%. The top rate was reduced from 39.6% to 37% and applies to taxable income above $500,000 for single taxpayers and $600,000 for married couples filing jointly. Brackets are indexed for inflation to the chained CPI measure.
  • Increases the standard deduction to $24,000 for joint filers (and surviving spouses) and $12,000 for individual filers. Single filers with at least one qualifying child could claim a standard deduction of $18,000. Amounts are adjusted for annual inflation.
  • Eliminates the personal exemption.
  • Limits the mortgage interest deduction to the first $750,000 in principal value.
  • Simplifies the “kiddie tax” rules: the net unearned income of a child subject to the rules will be taxed at the capital gain and ordinary income rates that apply to trusts and estates.
  • Limits the state and local tax (SALT) deduction to a combined $10,000 for income, sales, and property taxes.
  • Expands the child credit to $2,000 per qualifying child and the maximum refundable amount of the credit to $1,400. The credit temporarily provides for a $500 nonrefundable credit for qualifying dependents other than qualifying children, such as an elderly parent. The phase-out for the combined child credit, the non-child dependent credit, and the credit for other taxpayers is increased to $400,000 (for joint filers) and to $200,000 (for single filers).
  • Effectively repeals the health care individual mandate penalty by lowering the penalty amount to $0, effective January 1, 2019.
  • Eliminates the deduction for miscellaneous itemized deductions which were formerly deductible to the extent they exceeded 2% of adjusted gross income (AGI).
  • Eliminates the itemized deduction for casualty and theft losses except for losses incurred in a federally declared disaster.
  • Eliminates the deduction for job-related moving expenses, except for certain military personnel. The exclusion for moving expense reimbursements has also been suspended.
  • For post-2018 divorce decrees and separation agreements, alimony will not be deductible by the paying spouse and will not be taxable to the receiving spouse.
  • Increased the estate and gift tax exemption has been increased to $11,180,000.
  • Increases the alternative minimum tax (AMT) exemption to $109,400 for joint filers, $54,700 for married taxpayers filing separately, and $70,300 for unmarried taxpayers. The exemption is phased out for taxpayers with alternative minimum taxable income over $1 million for joint filers, and over $500,000 for all others.
  • Creates Section 199A: Sole proprietors, S corporation shareholders, and partners in a partnership will be entitled to a deduction equal to 20% of their allocable share of business income (§199A), with certain limitations:
    • the deduction cannot generally exceed 50% of the taxpayer’s share of the W-2 wages paid by the business or, in the alternative, 25% of the taxpayer’s share of the W-2 wages paid by the business, plus 2.5% of the unadjusted basis (the original purchase price) of property used in the production of income, and
    • certain personal service businesses (accountants, doctors, lawyers, etc.) are not eligible for the deduction unless their taxable income is less than $157,500 (if single; $315,000) if married.

 

Changes to Business Entities:

  • Eliminates the corporate alternative minimum tax.
  • Lowers the corporate income tax rate permanently to 21%.
  • Allows full and immediate expensing of short-lived capital investments for five years. Increases the Section 179 expensing cap from $500,000 to $1 million.
  • Limits the deductibility of net interest expense to 30% of earnings before interest, taxes, depreciation, and amortization (EBITDA) for four years, and 30% of earnings before interest and taxes (EBIT) thereafter.
  • Eliminates net operating loss carrybacks and limits carryforwards to 80% of taxable income.
  • Eliminates the domestic production activities deduction (Section 199) and modifies other provisions, such as the orphan drug credit and the rehabilitation credit.
  • Enacts deemed repatriation of currently deferred foreign profits, at a rate of 15.5% for cash and cash-equivalent profits and 8% for reinvested foreign earnings.

For more information on the REG changes coming to the CPA Exam in 2019, click here.

How do the CPA Exam blueprints break down the Exam structure by section?

The table below shows the Exam’s design by section, section time, and question type:

Section Section Time Multiple-Choice Questions Task-Based Simulations Written Communication
AUD 4 Hours 72 8
BEC 4 Hours 62 4 3
FAR 4 Hours 66 8
REG 4 Hours 76 8

 

This is how the scoring weight of multiple-choice questions, task-based simulations, and written communication break down for each Exam section:

Section Multiple-Choice Questions Task-Based Simulations Written Communication
AUD 50% 50%
BEC 50% 35% 15%
FAR 50% 50%
REG 50% 50%

 

Here are the skill levels to be assessed on each section of the Exam:

Section Remembering and Understanding Application Analysis Evaluation
AUD 30-40% 30-40% 15-25% 5-15%
BEC 15-25% 50-60% 20-30%
FAR 10-20% 50-60% 25-35%
REG 25-35% 35-45% 25-35%

 

What we recommend

Sit for REG in 2018

There are some major CPA Exam changes coming to REG in 2019. If you’ve already begun studying, we recommend sitting for REG as soon as possible, so you don’t have to re-learn new material.

Practice Simulations

Sims are worth 35-50% of each Exam section’s score, meaning you can’t afford to not practice these ahead of time. Surgent’s CPA Review courses come with over 400 task-based simulations to help you prepare. Also, take advantage of our live and pre-recorded webinars, which cover topics like “How to Solve a Document Review Simulation in Auditing,” “How to Solve a Research Sim” and “How to Solve a BEC Task-Based Simulation.”

 

The complete, revised Blueprints can be found on the AICPA website.

 

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