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August 16, 2009

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Get It Wrong and Then Get It Right

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58 Weeks of Operation/No Marketing/4,715,938 Page Views (and that’s an awful lot of added points)

Lesson 43

From: Joe

(1) – A very quick personal request. I know that a lot of you who get these weekly email lessons are still in college or have graduated from college recently.
You folks likely know some of your college accounting professors. As I have mentioned a few times in these lessons, I (along with C. J. Skender of UNC) are
coming out with a new Introduction to Financial Accounting textbook this fall. I am biased but I am extremely pleased by how it has come together.

However, it is a very crowded and competitive market so we are trying to let people know about the book. I recently did an Internet podcast to explain how the
textbook works (it is a free textbook – the company makes its money by selling supplements to the students). Below is the URL for the podcast (about 10
minutes). If you know a college accounting prof, ask them to listen. They don’t have to adopt the book but, as we always say here at CPA Review for FREE, the
more information that you have about available products, the better shopper you will be. Just tell them: “a new textbook is coming out this fall by a known
accounting textbook author; the book is free to the students and this podcast will explain why it is a better educational product than all of those other books
on the market.”

www.flatworldknowledge.com/Joe-Hoyle-Podcast

Thanks!!!

(2) – As you can imagine, I get lots of email here at www.CPAreviewforFREE.com. One of the things I hear over and over is how upset candidates get when they
miss some of the questions on our website. We have over 2,000 free (FREE) questions and answers available. Candidates will work a group of questions and
periodically they will get really upset by their mistakes. It is a natural feeling to be troubled by errors but I would strongly advise that you not get too
worried by missed questions. Concern can cause mental paralysis and that is never good. I actually think that mistakes can be beneficial part of your
preparation.

This week a friend of mine sent me the following quote. I found it so interesting that I forwarded it to my own students here at the University of Richmond
(the first day of classes begins on August 24).

Here’s what she sent:

"For the things we have to learn before we can do them, we learn by doing them." Aristotle, (written in 350 B.C.).

What the heck does that mean?

Okay, I don’t read Aristotle much but here is what I think he is saying to you. In most things in life, getting it wrong is a necessary part of eventually
gaining the insight and understanding so that you can get it right. Until you’ve worked hard and gotten it wrong, you really cannot understand or appreciate
things well enough to ever truly get them right.

Work -> wrong -> reconsider -> work -> right -> understand

I’ve taught in college now for 38 years and that’s a pretty good formula for real learning.

I believe, when preparing for the CPA Exam, you learn by doing. You learn to answer questions by answering questions. I think that was what Aristotle was
saying.
---I honestly do not think you learn to drive a car by reading a book. I think you learn to drive a car by driving a car.
---I honestly do not think you learn to play winning poker by reading a book. I think you learn to play winning poker by playing poker.
---I honestly do not think you learn to be a great chef by reading a book. I think you learn to be a great chef by going into the kitchen and cooking.

And, I strongly believe that you learn to answer questions by answering questions.

I honestly don’t think you pass the CPA Exam by reading a book or sitting in a class. That is helpful in getting an education but I do not think it is a very
effective way to pass the CPA Exam. I think you learn to answer questions by reading question after question and reading answer after answer. You learn from
doing and you especially learn from the mistakes you make. We learn by doing things again and again until we get them right.

Okay, if you want to pay lots of money, go sit in on a class and take notes

Or, get a book and start reading.

But I’ll bet you that, at the end of the day, when someone says “tell me how you learned enough to pass the CPA Exam,” you are NEVER going to say “I took a lot
of notes as some person stood in front of the room talking.” You are NEVER going to say “I went through pages and pages of material with a highlighter and
underlined a lot of that material.” That doesn’t even sound feasible.

I believe that you will inevitably say about passing “I just worked question after question after question and I read answer after answer after answer. It was
methodical and it worked.” You learn to pass the CPA Exam by working questions and reading those answers and then going back and doing those questions again
until you gain understanding.


(2) – Always love getting emails from our readers. Here are a couple that came in this week.

From TM: “It is unbelievable how much I needed your e-mail today. I take REG tomorrow and have been totally consumed with studying for the last 5 weeks. Tax
and law are not my favorites so this has been a LONG 5 weeks. I have used your questions (I purchased the PDF files) and feel like I have learned so much. Two
of my co-workers are also using your questions and answers. Each of us had purchased a Review program (XX and YY) but feel like we have learned more from your
questions than from the reviews we paid for. Thanks for the encouraging words - I was discouraged last night and feeling like I would fail. You put my hard
work into perspective and I know I will conquer this exam tomorrow. Then I will use your questions to study for FAR - did not pass it the first time using
XX.”

From SF: “I hope you are doing well. I really enjoy the inspirational e-mails you send out every week. I've become a fan of the cpa review for free site. To
tell you the truth, I was skeptical at first. How can a person not spend any money, just practice these free questions on the website and expect to pass the
cpa? Then, I tried out the questions. They really help you review well. I think the biggest mistake any cpa candidate can make is to put too much emphasis on
studying the material and not practicing any questions. I will be sitting for the CPA exam for the very first time on the 27th of August attempting to pass the
FAR section.”


(3) – As always, please understand that you can easily unsubscribe from these email lessons by scrolling to the bottom of any lesson and then clicking on the
“unsubscribe” button. Your time is valuable. We are glad to share these lessons with you for free but we certainly understand that you will eventually be
ready to unsubscribe.

And, please feel free to forward this email along to anyone that you know who is (a) an accounting student in college who needs help practicing for class tests
or (b) any accountant who is preparing for the CPA Exam or thinking about preparing for the CPA Exam.

And, if you ever want to get some encouragement by video, go to www.youtube.com and search for Joe Hoyle CPAreviewforFREE. I have three short videos that
provide a few tips on doing well. We’ve had about 15,000 views on these videos—hopefully, that equals 15,000 more points on the CPA Exam.


(4)- I mentioned last week that within 18 months or so, the written communication questions on the CPA Exam will probably all shift into BEC. But it is still
August 2009 and not late 2010. Therefore, if you are taking Auditing & Attestation or FAR or Regulation, you will have to answer a written communication
question and your grade on that assignment will make up 10 percent of your overall grade on that section of the exam. That really can be the difference in
passing and failing. Here are a few tips that I passed out last January. I thought it might be helpful to repeat some of this for all of you who are getting
ready to take the exam here at the end of the July-August window.

There is a lot of misunderstanding on the CPA Exam about the written communications questions. Currently, in each part of the exam except BEC, you get two
written communication questions (one in each simulation). You will be given a grade on your ability to write well with proper use of the English language.
That grade will make up 10 percent of your overall grade.

To give you some guidance, here is what the AICPA (at www.cpa-exam.org) says specifically about this part of the exam: “In all simulations, candidates are
presented with a situation and instructed to write a letter or memorandum on a specific topic. Written communication responses are scored on the basis of
three criteria: (1) organization (structure, ordering of ideas, linking of ideas one to another); (2) development (presentation of supporting evidence); and
(3) expression (use of standard business English).”

If you want more official information, you can check out the following site:

www.cpa-exam.org/cpa/written_communic.html

I believe that it is important for you to understand how your written communication answer will be graded. First, a grader looks over the answer to make sure
that it is “on topic.” In other words, if the question is about leases, then the answer has to be on leases and not deferred taxes or pensions. If the answer
is not on the proper topic, you get a zero for written communications and no further grading is done regardless of well written the answer is.

However, if the answer is on topic, it is turned over to a different expert who then grades it on the three criteria mentioned above.

It is important to understand this grading process because the content itself is not graded. That is not the purpose of this question (that’s the purpose of
the other 90 percent of these exams). So, if you get a written communications question and you are not too sure about the exact answer, that may not make any
difference at all. For these questions, you should worry about the writing and not the absolute precision of your answers. Absolute accuracy is not the goal.


Keep in mind also, that the computer on which you are taking the exam has “spell check” so you should not worry about misspelling words. You can check for
that.

Let me give you some of my own hints on how to answer the written communication questions in order to maximize your points.

---Restate the question. That will help focus you in on what is wanted. Plus, in business writing, it is not unusual to make sure everyone knows the issue at
hand.
---Keep your sentences as short as possible. Unless you are good at writing, once you go beyond about six or seven words, the more likely it is that you will
get into trouble. “The lease should be capitalized” is a great sentence. Avoid long and difficult sentences. Run-on sentences always make you look bad.
Keep It Simple, Stupid is especially good advice.
---Make sure each sentence logically follows the previous sentence. “The cat is in the kitchen. The cat is eating breakfast.” makes sense. “The cat is in
the kitchen. The Martian jumped out of his space ship.” does not connect well. When the sentences stop connecting well, you need to start a new paragraph.
---Avoid using words unless you are very sure of their meaning. Do not try to get fancy. You are not trying to be William Shakespeare or William Faulkner.
Don’t use a word like “exonerate” unless you are certain of its meaning and that it is used correctly in the sentence you have constructed.
---Remember that this is business writing. It should sound and look professional and formal. Slang is not appropriate. Stay away from cute – the graders do
not have a sense of humor. I also think that contractions and abbreviations should be avoided. They look sloppy. You want your writing to look professional.
“Do not” is better than “don’t” and “accounts receivable” is better than “a.r.”.
---Make sure that each sentence is complete. It should have a subject and a verb. “The cat over there in the kitchen.” has no verb. “The cat is in the
kitchen” has a subject and a verb.
---Capitalize the first letter of the first word in each sentence.
---Two to four sentences is a good length for most paragraphs.
---Unless you have strong skills as a writer, avoid semi-colons, colons, and dashes. Most people can say all they need to say with periods and a few commas.
---If you make any type of assertion, you need to justify it. “Equipment must be depreciated” is an assertion. “Equipment must be depreciated because it has
a finite life” is an assertion with an explanation.

I know a lot of people really dread the written communications questions. Personally, I think this is one place where—if you simply take it easy and do not
“overwrite”—you can do well. Just do not worry so much if you do not know the answer with absolute perfection.


(5) – And, now for some practice. Miss them all. Then read the answers carefully. Then go back and see if you can understand them all. In preparation, it
is not getting them right that is important but rather gaining understanding.


FAR – I am working on the 10th edition of my Advanced Accounting at the present time. Here is one question that I just wrote for it.

In December of Year One, the City of Abrams issued two bonds in connection with its General Fund. One was for $2 million to be repaid in 10 years. The other
was $1 million as a tax anticipation note to be repaid in 60 days. Which of the following is most likely to be true about the financial statements to be
reported at the end of Year One?

A – In the government-wide financial statements, liabilities of $3 million are reported while in the fund-based financial statements, no liabilities are
reported.
B – In the government-wide financial statements, liabilities of $2 million are reported while in the fund-based financial statements, liabilities of $1 million
are reported.
C – In the government-wide financial statements, liabilities of $3 million are reported while in the fund-based financial statements, liabilities of $1 million
are reported.
D – In the government-wide financial statements, liabilities of $2 million are reported while in the fund-based financial statements, no liabilities are
reported.

Answer is C

The government-wide financial statements measure all economic reasons and, therefore, all liabilities are reported. Fund-based financial statements (for the
governmental funds) only measure current financial resources and claims to those financial resources. The $2 million bond is not yet a claim against current
financial resources because it does not come due for 10 years. It is not reported. However, any receivable that will be collected and any debt that must be
paid in a short period of time (usually within the current year or within 60 days after the end of the year) is reported. Except for property taxes (which
always use 60 days), the exact number of days must be chosen by the reporting unit—although 60 days is very common.


Auditing & Attestation

The City of Abrams produces a comprehensive annual financial report (CAFR) that includes an independent audit report written by the CPA firm of Shephard and
Sawyer. The second paragraph of this audit report states: “We conducted our audit in accordance with auditing standards generally accepted in the United
States of America and the standards applicable to financial audits contained in Government Auditing Standards.” Who issues those Government Auditing
Standards?

A – GASB
B – Comptroller General of the United States
C – PCAOB
D – Auditing Standards Board of the AICPA

Answer is B

The Comptroller General of the United States issues Government Auditing Standards in a volume that is sometimes referred to as the “yellow book.”


Regulation

James Jones owns an apartment house with four units. He lives in one of the four units and rents the other three. Property taxes on this apartment house
amount to $1,000 for the current year. Jones is having financial difficulties and is unable to pay this assessment. His sister, Janice, pays the entire
$1,000 on the apartment house. How much of this payment can she take as a tax deduction when computing her itemized deductions for federal income tax
purposes?

A – Zero
B - $250
C - $500
D - $1,000

Answer is A

Property taxes are deductible as itemized deductions. However, they can only be deducted by the person on whom the tax is assessed. The property did not
below to Janice so she gets no deduction. The tax was not assessed on her property.


BEC

A headline in a newspaper recently proclaimed that “LIBOR reflects the price of funds in the international market.” What is LIBOR?

A – Lowest Incremental Borrowing Ordered Rate
B – London Interbank Offered Rate
C – Lichtenstein Interest Based Offering Rate
D – Late Invested Bank Overnight Rate

Answer is B

According to Wikipedia, “the London Interbank Offered Rate (or LIBOR) is a daily reference rate based on the interest rates at which banks borrow unsecured
funds from other banks in the London wholesale money market (or interbank market). It is roughly comparable to the U.S. Federal funds rate.


Have a great week.
Work hard
But find some joy in that work.
Being miserable does not add points
So, set a goal: Add a point a day
And feel good about what you have accomplished.
Swear off whining for a week.
And see if everyone around you is not a little bit more likely to smile at you.

Joe Hoyle
Co-Founder

CPA Review for FREE
www.CPAreviewforFREE.com