The Definitive CPA Guide: CPA Exam, CPA Jobs, and CPA Skills
If you think you have what it takes to be more than just an accountant and you want to put your knowledge of business economy as well as your communication and other skills to the test, then you might consider becoming a CPA.
What’s a CPA you ask?
Well, you’ve come to the right place because today we are going to talk about all the things you need to know if you want to become a CPA and also we are going to answer most of the questions you might have concerning the whole process of being a certified personal accountant.
WHAT EXACTLY IS A CPA?
Before we begin our guide on what are the requirements to become a CPA, it isn’t a bad idea to explain the job description of a CPA first.
So what is the job description of a CPA?
Well, most people think it has something to do with taxes, working from 9 to 5 and having a small box office.
But this common perceptions isn’t even remotely true because a CPA can have a wide variety of career paths and options and that is why many people want to become a CPA.
However, even though you have many options when you pass your CPA exam, the two main career paths that people choose are:
- Public accounting – Includes working for all kinds of clients.
- Industry accounting – Includes working for companies, organizations, and governments.
And we will talk about those career paths later, but now it’s important to know that being a CPA isn’t a boring office job because you are constantly meeting new people and the job itself is very dynamic.
Like with any other profession that requires any kind of proficient knowledge, to become a CPA, you first need to pass a special CPA exam.
Essentially, there are four main CPA exam sections and each part of the exam is a 4-hour test covering a broad range of topics and concepts.
To pass the exam you have to score at least 75 points and finish all four sections within an 18-month testing window. As you can see, it is a very serious exam and it can take months to prepare for all four parts.
The good thing is that you can select any section in any order you want and you can even take any number of exams in the same testing window so it is very flexible and it is up to you how you will organize your time.
A quick tip: Although it is possible to pass all four sections all at once, we recommend you to choose no more than two because these exams are known to be stressful and you don’t want to push yourself over your breaking point before you even started your career.
All of the test sections consist of Multiple-Choice Questions or MCQ, Task-Based Simulations and Written Communication and their presence varies from section to section and also the exams are annually updated so there isn’t any consistency in terms of what kind of questions you will get in each section.
Grading the tests are based on the allocation of percentages of each part of the test and also skill allocation which is the same for every test.
By combining those percentages, you will get an overall score between 0 and 100 points and as we said, you need 75 points or to complete ¾ of the test to pass.
1. AUD (Attestation and Auditing)
The AUD section of the exams focuses on the ability to examine financial statements, compliance, and processes as well as testing the candidate’s knowledge and understanding of auditing procedures, gathering evidence, and internal controls.
There are four topics or areas on which the AUD test evaluates the candidate:
- Professional responsibilities, standards, and fundamental principles – includes knowing how to go over accepted conduct, requirements for documentation, understanding how engagements function and how to properly communicate with other parties. It allocates to about 15-20% of the test.
- Assessing risk and developing planned processes – includes knowing how to analyze different environments, preparing for engagements, analyzing the entity in question and knowing how to identify if a misstatement brings risk or value. It allocates to about 20-30% of the test.
- Preforming procedures and obtaining evidence – involves an understanding of independence, evidence, and sampling techniques and it is arguably the most important topic considering that it allocates to about 30-40% of the test.
- Forming conclusions and reporting – involves asking questions about engagements linked to auditing and attestation and reviewing service engagements. It allocates about to 15-25% of the test.
The Skill Allocation of these test parts includes:
- Evaluation – 5-15%
- Analysis – 15-25%
- Application – 30- 40%
- Remembering and Understanding – 30-40%
2. FAR (Financial Accounting and Reporting)
The FAR section involves knowing certain topics such as financial accounting and reporting as well as FASB framework and financial statement.
It is considered to be the most challenging part of the whole exam because it puts your knowledge and skill to the test.
Similar to the AUD part of the exam, the FAR section consists of four topics:
- Conceptual Framework and Financial Reporting – involves topics such as aspects of standard setting, financial reporting processes, and financial statements. It allocates to about 25-35% of the test.
- Financial Statement Accounts – includes topics such as evaluation of balance sheet, income statement, cash flow, retained goods statements and transactions which affect these accounts. It allocates to about 30-40% of the test.
- Transactions – involves topics such as computation and recognition of certain operations, items on a statement like contingencies and leases. It allocates to about 20-30% of the test.
- State and Local Governmental Accounting – involves topics such as generalized and non-specific overviews of fund accounting and governmental accounting. It allocates to about 5-15% of the test.
The Skill Allocation includes:
- Evaluation – N/A
- Analysis – 25-35%
- Application – 50-60%
- Remembering and Understanding – 10-20%
3. REG (Regulations)
The REG section of the exam examines the candidate’s understating of topics such as federal taxations, law and legal matters in business and also ethical and legal standards of a professional.
This part of the test is what differentiates you from regular accountants who have no experience in working with taxations.
Unlike the two previous sections, this section consists of five parts:
- Federal Tax Procedures and Professional Ethics and Responsibilities – involves topics such as professional conduct, the independence which means the ability of the CPA to be objective, and liability. It allocates to about 10-20% of the test.
- Business Law – involves topics such as contracts, transactions, and debt relationships, commercial regulations and Uniform Commercial Code or UCC and other business structures. It allocates to about 10-20% of the test.
- Property Transaction Taxation – involves the candidate’s knowledge of differences between the taxation of a business and that of an individual and involves topics such as alternative minimum tax (ATM), gross income inclusion and property and assets. It allocates to about 12-22% of the test.
- Federal Individual Taxation – includes topics such as individual taxes related to deductions, exemptions, gains, losses, carry-forwards, carry-backs and other things linked to the 1040 form. It allocates to about 15-25% of the test.
- Entity Taxation – includes topics such as legal entities and their relationship to taxation, tax vehicles, corporations, partnerships, and sole proprietorships as well as information from the IRC state boards and other regulatory agencies. It allocates to about 28-38% of the test.
- Evaluation – N/A
- Analysis – 25-35%
- Application – 35-45%
- Remembering and Understanding – 25-35%
4. BEC (Business Environment and Concepts)
This part of the exams is the one which examines if the candidate is aware of his future professional duties as a CPA as well as an understanding of management, economic concepts, corporate governments and IT.
Same with the previous REG section, the BEC section has 5 parts:
- Corporate Governance – includes topics such as the control and management of entities and enterprises, what are the different management roles and what are their duties, the influence of stakeholders and general provisions of entities. It allocates to about 17-27% of the test.
- Economic Concepts and Analysis – includes topics like inflation, interest rates, deflation, and foreign exchange rates as well as how these things affect the overall business of the company. It allocates to about 17-27% of the test.
- Financial Modeling and Management – involves topics such as financing, model creation, loan and calculating the statements of value. It allocates to about 11-21% of the test.
- IT – involves the understanding of the role of IT in companies and its effect on recovery and maintaining consistency or continuity. It allocates to about 15-25% of the test.
- Operations Management – includes cost accounting and variance analysis. It allocates to about 15-25% of the test.
- Evaluation – N/A
- Analysis – 20-30%
- Application – 50-60%
- Remembering and Understanding – 15-25%
As we already mentioned, there are three types of ways you are tested on this exam and we are going to go into detail into two of them mainly because the third one, the Written Communication part, is only present in the BEC section which participates in 15% of this section.
Written Communication tests your ability to write and express yourself in the manner and expectations of the business community and having a degree in Business English will certainly help you to articulate your communication through written text.
It consists of writing a memo or a client letter in a word processor. To put it simply, you will be tested for your technical writing and communication skills, so it’s not that hard of a task.
Now let’s look at the other two tasks.
Every student loves MCQs because they think that they have more chance for passing the exam but this doesn’t have to be true as they can be tricky at times and usually there are trick-questions which can bait you easily if your knowledge of the topic is superficial.
MCQs in this CPA exam vary in difficulty and it depends on your answers, so for example, if you are doing great in the medium section of the MCQ task, you will be transferred into a more difficult section and so on.
Of course, the opposite thing happens if you perform poorly, you will be downgraded to an easier set of questions.
The more difficult questions you answer the higher percentage you get so you want to try and do your best to answer all of them correctly because one correct difficult question is equal to multiple easy or medium questions, so put your thinking hat on for this one.
All four sections consist out of 50% of MCQs.
The simulations consist of problems which you need to solve and they show how well you can apply your knowledge and demonstrate your understanding of various topics.
Even though they are differently formatted for each section, they usually consist of filling in the blank and one research question which requires you to research a topic using authoritative literature and citations.
Except for the BEC section (35%), the other three sections consist of 50% of Task-Based Simulations.
Let us talk about some useful tips you can follow to prepare you for this “scary” exam.
You’ve seen the exam format and you know that you can choose which section of the exam you want to take first so now you are probably wondering which section might be the easiest or the best to start with.
And because this depends from person to person, you first need to see which section seems the easiest for you and maybe start from there, because each section requires you to have different skills and knowledge which when put together make up a professional CPA.
Our advice is to start from the section you think is your weakest point because once you finish that the other three sections are smooth sailing.
Also, if you were wondering, in recent years the most difficult section seems to be the BEC because it involves a more personal approach from clients opposed to the other three which just require you to have excellent knowledge of the presented topics.
Another tip we can give you is to not rush the examination and take your time to prepare because you don’t want to put in too much effort then is required and you don’t want to waste so much time on it either.
If you find yourself struggling with exam preparations, consider hiring a tutor who will teach you all the things you need to know step by step and that way you will know that you are ready for the exam.
Once you find an institution which holds CPA exams, they will guide you through everything you need to know about the exam itself and they will provide you with all the material necessary.
Just relax and be patient. If you want to become a CPA then turn this study time into your passion and prepare yourself for this career path because how you perform on your exam will determine how you perform in a real office environment.
As we’ve said in the beginning, there are many career paths you can follow if you want to become a CPA but your best bets are two major branches of business and now we’re going to examine both of them and see which careers you can pursuit inside those two choices.
There are all sorts of jobs which you can find in public accounting and we’re going to name just a few honorable mentions that are the most popular.
- Auditing and Reviewing – This is where the AUD section of the exam comes in handy because this job involves auditing client financial statements and issuing an opinion. You are just a third-party who reviews and evaluates financial statements.
- Tax Preparation – This includes preparing all different types of client tax forms from property taxes to income taxes and constructing tactics for clients to structure affairs and minimize tax burdens.
- Consulting Services – Involves helping clients identify business problems and run operations more effectively and evaluating internal controls and identifying operational improvements.
- Forensic Accounting Services – Involves identifying embezzlement schemes by digging through the financial records and uncovering if money was stolen and report fraudulent. You are a financial fraud detective.
- Financial Planning – Involves advising clients on selling a business and transferring them to other parties and informing their clients of tax ramifications during the evaluation process and planning stages.
- Litigation Services – Even though CPAs aren’t law experts, they can be used by attorneys to dig up financial records for evidence concerning divorce proceedings, bankruptcies, business mergers, acquisitions or splits.
Opposed to public accounting which deals with clients and companies, industry accounting falls out of that scope and it offers many different positions. We will name just a few.
- Company Management – Because CPAs have a diverse skill set, they can be great managers who have a great understanding of finance, operations, and profit improvements.
- Company Executive – Apart from being great managers, CPAs can also be great CEOs, CFOs or COOs mainly because they know how the company functions and it isn’t uncommon for companies to hire them at these positions.
- Non-Profit Organizations – Every company needs leadership, even non-profit organizations because they also need someone to give advice and guide the organizations to properly use their funds.
- Government – If you want to be an FBI agent, but not really, you might have a chance because CPAs are constantly employed by the government to work in places like the IRS, FBI, the military, the Congress and any level of government.
- Education – Many professors who teach accounting, business or even economy are CPA certified and there’s no surprise that they some CPAs even opt to become professors. And, what’s great about it is that they will stimulate their students to become CPAs themselves.
Now that we’ve covered the CPA exams and the different jobs you can expect to be doing as a CPA, we need to talk about all the skills that are necessary to have to be a certified public accountant.
Please note that some of these skills aren’t that important and it won’t be a deal-breaker if you don’t have them, while others are crucial, and they are what set you apart from other accountants.
- Management and Leadership – These two skills are pretty much essential if you want to become a CPA mainly because they aren’t skills that every person has. Sure you are taught management if you’ve gone to a business school, but leadership skills are something that you are either born with or you have to work very hard on to achieve.
- Public Speaking – As we already mentioned, being a CPA isn’t a boring office job and it requires you to communicate to a lot of clients and parties, even give presentations and that being said you need to have the confidence and proper speaking skills to represent yourself in the best way possible.
- Tax knowledge – Yes, accounting is about taxes, but not for the most part. However, you are expected to be up-to-date with a client’s tax record, to predict future taxations, solve tax issues and so on. Just please don’t forget to do your taxes.
- Business expert – As a CPA, you are a professional businessman and you know everything about running a company, how to organize it, how to manage resources and funds, do proper documentation and other related things. It is really important to be focused on keeping track of everything done in the company because one small detail can change the whole system.
- Auditing skills – CPAs excel at auditing and internal auditors are wanted in both public and industry accounting. You need to give proper advice to your clients, to review their business plans, moves and help them evaluate their current and future state of the company.
- Communication – Apart from being a great public speaker, you need to have proper communication with other employees who are in different positions because all of you are in tune with the current state of the company and you are the wheels which keep the company’s engine turning.
There are plenty more skills which you can have that will certainly help you to become a professional CPA, but listing them all would take a whole other article so try and see which skills you possess that could potentially also be helpful.
We’ve tried to break down this complex topic as much as possible and we’ve given you everything you need to know before you start your preparations for being a CPA.
We’ve talked about the exam, its sections and format, what you can expect it to look like and some tips which will help you prepare better.
After that, we’ve briefly gone through some of the jobs you can expect you will be doing when you become a CPA.
And finally, we’ve listed some really important skills you should have to become a true professional in your work.
All in all, we’ve tried to make the position of a CPA seem fun and something different from just a boring accountant job and we hope that we’ve achieved that.
We hope that you’ve found this article helpful and if you have any questions please leave a comment down below.
Good luck on your exams, we know that you’ll pass!
Ever dreamt of being a president of the United States? If yes, how much do you think you would earn …
It is important for every company to hire the best available talent, but it is easier said than …