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August 9, 2010
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Lesson 77
From: Joe
(a) - Our subscription service for FAR is now up and running. We will have the other three parts ready as soon as we can. I actually received two emails (about 24 hours apart) from one of our first customers to use our subscription service:
From ES: "I'm so very grateful for you and the rest of your team for making studying so much easier. I'm actually enjoying reading through the FAR slides, and I'm comprehending the information much better than I did by using XXX review. Your review material increases my confidence level tremendously! . . . I really can't send enough praise and thanks your way. As I'm making my way through all of the FAR slides, I have decided, without a doubt, that the $15 I paid for a one-month subscription is by far the best investment I've ever made. You truly have a knack for making this material seem so simple and straightforward. The free multiple choice questions were good enough, but this FAR review is simply phenomenal. Best wishes in preparing the slides for the other 3 sections -- you've got something really great here. I'm so grateful to have had college professors who knew about your site and passed the info. along because your review material has been a total blessing!"
Okay, what is the deal?
--For $15 per month or $30 for 3 months, you get online access that allow you to review 620+ slides covering all of the important information in FAR. This is not a quick cram-this is a legitimate program that marries our free questions with our 620 content slides.
--You also get a study guide to direct you logically through the entire program. You are not left to wander around; we tell you what to do to work your way through our program so you can get those 75 points you need.
--Most programs cost thousands. We cost 50 cents per day. That's it. Think about it. You are risking $15.00. We believe, as ES said above, it will be the best investment you ever made.
--To gain access, here is what you need to do. Go to www.CPAreviewforFREE.com. Click on "Store" at the top right of the home page, click on "here" under the "Essential Content," log into your account (or register if you have not registered previously), and Click on "Paid Content." Then, purchase one month of online access for $15 or 3 months for $30.
--One suggestion if you subscribe - read the study program first. You certainly can proceed in any manner that you wish but I would like for you to see how I envisioned this program before you get started.
(1) - I know that a lot of you will be taking one or more parts of the CPA Exam during the remainder of the July-August window. So, when I woke up this morning, I started thinking about what I want you to think about as you walk into the test site. What should be on your mind as you enter the building and you show your IDs and you get ready to start up that exam? I came up with the following six recommendations. I believe if you can keep each of these six in mind, you've made a great stride toward passing that exam.
a. Stay loose. Getting overly tense and nervous is really a bad idea. No one does well when they tie themselves into emotional knots. I tell candidates to wiggle their fingers (so they are not clenching their fists) and wiggle their lower jaws (so they are not clenching their teeth). I find that such actions actually do help you stay loose. Play soothing (but maybe a little upbeat) music as you drive to the facility. Remember the exam is not five minutes long-getting yourself worked into a fever pitch might not be a bad idea for a 5-minute wrestling match. This is something entirely different - it is a mental test that will last 2 ½ to 4 ½ hours. To get the most out of yourself, stay loose, calm, and relaxed.
b. During the exam, you have to watch your time very carefully. In each part (except BEC), you have three multiple-choice testlets and two simulations. In BEC, you have three multiple-choice testlets. You need to be very aware as to how much time you plan to spend in each part. Yes, you will have to push yourself constantly but you can get through each exam in the time allotted. You do not want to finish early but you absolutely cannot afford to leave questions blank. Know how much time you want to spend in each area, keep an eye on the time, and keep pushing.
c. I would bet that almost as many points are lost on the CPA Exam through carelessness as are lost through lack of knowledge. People misread words or pick up the wrong numbers. I wrote a friend yesterday and said that I needed 150 booklets in 30 days. He then wrote his secretary (and copied me) telling the secretary that I needed 30 booklets in 150 days. On the CPA Exam, you absolutely cannot do something like that. For the questions that you really do know, you need to get 90 percent or more of them correct. Yeah, we are all human and make mistakes but you have to cut those careless errors down to a minimum. Don't throw away a passing score by being careless.
d. People tend to slow down pretty quickly over time. They get tired but it is also just human nature. On the exam, you need to be going as strong the last hour of the exam as you were the first hour. Monitor yourself. Don't let yourself start dragging. Tiredness is often no more than mental laziness (you are taking an exam - you are not digging ditches). The person who can still be answering questions at a crisp pace at the end of the exam has a great chance to get the points needed to pass.
e. I have said this before but it bears repeating. If you do not know an answer, eliminate as many possible answers as you can and make a guess. Never Never Never leave anything blank. Your grade is entirely based on the number of right answers you get.
f. Don't be rattled if you see questions that you do not know. If you have spent enough time studying (60-100 hours per part), anything you find that you have never seen before is something that other candidates have not seen before either. You are not striving for perfection. You just want to pass. There are always going to be some weird questions tossed in. That's just part of the game. Eliminate as many answers as you can, take a guess, move on.
g. (Okay, I lied about being six - I really have seven recommendations.) And, I have said this before also. The written communication answers only have to be "on topic." After that they are not graded on content, only on the use of the English language. Don't be so concerned about getting the answer absolutely "right." Worry about writing well. Short words, short sentences, and short paragraphs. For about a million years, "Elements of Style" by Strunk and White has been the first word and the last word as to the proper use of the English language. Go to a library, find a copy, sit down and read it.
Once you go to the CPA Exam, your only goal is to get the knowledge out of your head and onto that computer screen so you can show them that you deserve to pass. I think these recommendations will help.
(2) - If you would like to unsubscribe from these email lessons, just scroll to the bottom of this (or any) lesson and click on "unsubscribe." It is no big deal; it is easy. We love having all 14,000 of you folks but don't hesitate to unsubscribe at any time you wish.
(3) - I attended a meeting last Tuesday with the CPA Examiners in San Francisco as they talked about the upcoming changes in the CPA Exam starting in 2011. I took notes and what follows are my notes from that meeting. One piece of advice: pass the exam in 2010 and you won't have to worry about 2011. Second piece of advice: yeah, the exam is going to change some but I really don't think it will have a huge impact on you or your testing experience. Some change, sure. Much change-not really.
From my notes:
The following is somewhat random as it is a summation of the rambling conversation that takes place in virtually any meeting. Speaking for the AICPA were Michael Decker (Director of Operations and Development) and Elaine Rodeck (Director of Exam Strategy). Unless specifically stated, the following refers to the CPA Exam after major changes are started in January 2011.
--One of the reasons they are going (in all parts except BEC) to 6-7 smaller simulations (known as task-based simulations) rather than the current two very large simulations is so that they can release the scores to candidates faster. They hope that by the end of 2011, everyone will be getting their scores within four weeks of taking each part of the exam.
--Growth in the number of people taking the exam continues to go up at about 3 percent per year.
--Many candidates want to take the exam late in each window. Because of capacity issues, they urge candidates to schedule their exams as early as possible. If they have no available seats, then they have no available seats. They especially worry about the end of November-schedule early.
--They constantly survey candidates on their exam experience at the testing site and the satisfaction rate is 98.4 percent which is considered extremely high. The number of candidates who have a bad testing experience has gone down rather dramatically since the exam was first computerized.
--As most people probably know, starting in January 2011, the written communications questions will be removed from FAR, Auditing, and Regulation. Instead, three written communications questions will be asked in BEC. Of those, two will be graded and the other will be for pre-testing purposes (to see if the question is properly written). However, for obvious reasons, the candidate will not be told which two will be graded.
--Starting in 2011, the Auditing exam will be 30 minutes shorter (down to 4 hours) and BEC will be 30 minutes longer (up to three hours).
--On Auditing, FAR, and Regulation, one of the 6-7 task-based simulations will be a research question. The research functionality that the candidate will use will be improved (they feel) in 2011.
--Someone asked: "Candidates can pay to have a regrade of their exam scores. In recent years, how many regrades have led to grade improvements?" And, the response was: "I think the answer is zero." (Before you send them your regrade money, please read that response again carefully. Their feeling is always going to be the same: they have already graded the close exams so many many times before they send the scores out to you that there is no possible way they could have missed a point.)
--They reiterated (for about the 900th time) that in the written communication questions, they do not grade on content but on use of the English language. However, they do have a CPA read the answers to make sure they are related to the point of the question. In other words, if the question is on capital leases, then the answer has to be on capital leases. After that, it is all about the candidate's use of the English language and not about getting the content correct.
--If you are taking the exam in 2011, be sure to go to www.cpa-exam.org and look at the content specifications outlines (CSOs). There will be some differences-especially in Auditing and BEC.
--As they always do, they urged (practically begged) candidates to go to www.cpa-exam.org and do the sample exams and tutorials before coming to the test site. They still have the samples up for 2010 but, in the fall, they will have them up for the 2011 exam.
--In one of the most interesting points, Ms. Rodeck made a great point something like: "The secret to passing the CPA Exam is to get off Facebook and IM and truly study." I could not agree more. I am amazed by how much time people spend on forums talking about the CPA Exam. I guess it is more fun than studying.
--Starting in 2011, the exam will have coverage of international standards which could possibly be tested in FAR, Auditing, and/or BEC but not in Regulation. The word was that the international standards would be introduced gradually. Personally, I think it will be awhile (maybe quite awhile) before international standards are a major part of the CPA Exam. It is good, though, to know about the international standards. However, I would not become obsessed by them.
--They still plan to offer the CPA Exam internationally but it will not be during the first quarter of 2011. When the exam is offered outside of the US, it will be in English and not in the local language.
--The pass rate continues to fluctuate slightly over time. In the first quarter of 2010, the pass rates were: Auditing: 48.94 percent, BEC: 47.80 percent, FAR: 46.70 percent, Regulation: 50.60 percent.
--Starting in 2011, the way the score is weighted will change. Currently, BEC is 100 percent multiple-choice and the other three parts are 70 percent from the multiple-choice and 30 percent from simulations. In 2011, BEC will be 85 percent from multiple-choice and 15 percent from the written communications questions. The other three parts will be 60 percent from multiple-choice and 40 percent from the 6-7 task based simulations.
--In the research questions, they want a citation to show where you found the correct answer. However, there can be more than one correct citation.
(4) - Practice - it is never a bad idea to see if we can add one more point to your score right here as you read this email lesson.
FAR
On January 1, Year One, the Motzart Company issued a 10-year $1 million bond that paid 6 percent annual interest. It was issued for 86 percent of face value in order to yield an annual interest rate of 8 percent. The company used the straight-line method to amortize the discount and reported a net income for Year One of $100,000. Then, the independent auditors asserted that there was a material difference between the straight-line and effective rate methods so that the effective rate method had to be used. After making the necessary adjustment, what amount did the company report as its net income?
A. $98,600
B. $99,480
C. $100,520
D. $101,400
Answer is C.
The company paid cash interest of $6,000 per year ($100,000 times 6 percent) and recognized amortization of the $14,000 discount at the rate of $1,400 per year over the ten-year life of the bond. So, using the straight-line method, the company recognized interest expense for Year One of $7,400 (cash plus discount amortization). However, under the effective rate method, interest expense is 8 percent times $86,000 or $6,880 for Year One. Thus, the expense would have been $520 lower ($7,400 less $6,880) so that net income is $520 higher or $100,520.
Regulation
What is the purpose of the National Labor Relations Act (also known as the Wagner Act)?
A. It requires overtime payment when employees work more than a specified period of time.
B. It establishes 40 hours per week as the point in time at which overtime must be paid.
C. It requires the employee's responsibility to pay social security taxes.
D. It specifies the rights that employees have to join or form labor organizations.
Answer is D
This particular US law was passed in 1935 to establish the rights that workers had to become part of labor unions and other such organizations. Not surprisingly, it was passed during the Great Depression when many workers were paid very small amounts for the work they did.
Auditing
The Venthura Corporation is a privately-held company that is being auditing by the independent firm of Smith and Rapunzel CPAs. In assessing control risk, the auditors become aware of a significant deficiency in the company's internal control. What should the auditors do as a result?
A. Provide a qualified audit opinion.
B. Release a formal report to the stockholders and any other member of the public who are directly involved with the company.
C. Issue a written report describing the problem to the board of directors and the management of the company.
D. Switch the audit to a review because sufficient evidence for an opinion cannot be obtained.
Answer is C
A significant deficiency in internal control is a serious problem. However, it does not necessarily mean that an audit cannot be carried out by extensive testing and other measures. It also does not mean that material misstatements actually exist in the financial statements. So, a qualified opinion is not justified simply because of this problem. Therefore, the board of directors (representing the stockholders) and the management must be formally informed. The auditor should watch carefully the company's reaction to the problem because it will probably indicate how seriously they take internal control within the organization.
BEC
A company hopes to benefit over the next few years from the economies of scale. Which of the following is most likely to cause this hope?
A. The company hopes to have better trained workers because it has now been in operation for a critical period of time.
B. The company hopes that expansion will create a lower cost per unit for its products.
C. The company hopes to be able to change the type of operation so that its variable costs will decrease significantly although fixed costs will rise.
D. The company hopes to gradually increase its sales price while its cost remains unchanged due to better market recognition.
Answer is B
As a company expands (through growth or acquisition), it hopes that its average production costs will fall on a per unit basis. Many costs will not grow proportionally with the increase in units sold. If sales price and demand remain stable, profits should rise. Hopefully, this anticipated drop in average cost can be created by such things as buying in larger quantities and spreading advertising expenditures over more products.
Quick comment:
Several weeks ago, I mentioned that my new favorite quotation is "Your dream isn't big enough if it doesn't scare you." I love that quote and have repeated it to many people whom I know. I originally read it on someone's website. So, earlier today I decided to go to Google and figure out who really did say these words in the first place. When I typed in the phrase and hit search, one of the very first sources that popped up was www.CPAreviewforFREE.com. I just had to laugh - apparently, if you repeat something often enough, people will start to give you the credit.
Joe Hoyle
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