CPA Exam Changes

What are the CPA Exam Blueprints?

Every year, and sometimes twice per year, the AICPA updates and publishes the CPA Exam Blueprints, a document explaining what is tested on the CPA Exam, as well as the skills (e.g. analysis) and tasks (e.g. develop a detailed engagement plan) for each content topic (e.g. Planning an Engagement). The Blueprints also include scoring weights assigned to each content area. These Blueprints can be used as the base to your studies, and you can build off it with an exam review course.

Each CPA Exam section has its own section on the Blueprints detailing the minimum level of knowledge and skills you’ll need to pass the CPA exam.

Recently, the AICPA released a new set of Blueprints, which will take effect on July 1, 2019, and include changes to AUD, BEC, and REG.

The Blueprints released by the AICPA effective July 1, 2019 include changes to AUD, BEC and REG Blueprints. While these specific changes don’t affect the nature and scope of content available for testing, it does add and clarify skill expectations on each exam.
 

What are the 2020 CPA Exam Changes?

CPA Exam Changes Effective January 1, 2020:

The first quarter of 2020 will see new Financial Accounting and Reporting (FAR) pronouncements tested in the CPA Exam for the first time. While several items are changing, many of these changes are minor in nature and are not pervasive across the FAR section of the exam, with the exception of Goodwill Impairment (ASC 350).

Major Change coming to Financial Accounting and Reporting (FAR):

  • Goodwill Impairment (ASC 350)
    • Companies will only apply one step to the assessment of goodwill impairment instead of the previously required two-step impairment test.
    • If the implied fair value of the reporting unit is below the carrying value, the entity will now recognize a loss for the difference, with the loss being recognized not to exceed the total goodwill allocated to the reporting unit.
    • Prior to that test companies still must perform the qualitative test of impairment at least annually to determine if the quantitative analysis is even necessary.

Minor Changes and Newly Testable Materials in Financial Accounting and Reporting (FAR) will include:

  • Credit Losses, Disclosure of Fair Value Measurements (GASB 87)
  • Credit Losses (ASC 326), applying to public entities
  • Lease Modifications (ASC 842) is delayed for most nonpublic entities, with the exception being:
    • A public business entity
    • A not-for-profit entity that has issued, or is a conduit bond obligor for, securities that are traded, listed, or quoted on an exchange or an over-the-counter market
    • An employee benefit plan that files financial statements with the U.S. Securities and Exchange Commission

 

CPA Exam Changes Effective July 1, 2019:

Below are summaries of the revisions released by the AICPA effective on exams taken in July of 2019 or later. All Surgent CPA review materials will be updated automatically to reflect these exam changes once they are put into effect later this year.

 

Changes to Auditing and Attestation (AUD):

The AUD Blueprint on audit data analytics has been updated and expanded. Several sections have been added or updated, which are noted below:

  1. Section Introduction – Revised
  2. Area II, Group C, Topic 4 – Assessing Risk and Developing a Planned Response > Understanding an entity’s internal control > IT general and application controls . – Revised application representative task statement
  3. Area II, Group E, Topic 3 – Assessing Risk and Developing a Planned Response > Identifying and assessing the risk of material misstatement, whether due to error or fraud, and planning further procedures responsive to identified risks > Further procedures responsive to identified risk – Added an analysis representative task statements
  4. Area III, Group C, Topic 1 – Performing Further Procedures and Obtaining Evidence > Performing specific procedures to obtain evidence > Analytical procedure – Added an analysis representative task statement
  5. Area III, Group C, Topic 6 – Performing Further Procedures and Obtaining Evidence > Performing specific procedures to obtain evidence > All other procedure – Added two analysis representative task statements

 

The nature and scope of content eligible for testing in the AUD section has not changed, and the audit data analytics concepts addressed in the revisions are covered by the existing AUD Blueprint and are currently eligible for testing.

 

Changes to Business Environment and Concepts (BEC):

The AICPA notes the revisions to BEC are not intended to significantly change the content eligible for testing in the BEC section, but are intended to:

  1. Clarify the section introduction
  2. Reorganize Area IV, Information Technology, to clarify the nature and scope of the Area in relation to newly licensed practice. Representative task statements for remembering and understanding, and application have been added

 

Changes to Regulation (REG):

The nature and scope of content eligible for testing has not been changed; the revisions are meant to clarify the REG Blueprint. Several sections have been added or updated to different areas, which are noted below:

 

  1. Section Introduction – Added a section assumptions discussion
  2. Area III, Group A, Topic 4 – Federal Taxation of Property Transactions > Acquisition and disposition of assets > Related party transactions (included computed interests – Revised first analysis representative task statement
  3. Area III, Group C, Topic 3 – Federal Taxation of Property Transactions > Estate and gift taxation > Determination of taxable estate – Revised remembering and understanding analysis representative task statement

 

Changes to Financial Accounting and Reporting (FAR):

There were no revisions to the FAR exam section.

 

CPA Exam Changes Effective January 1st, 2019:

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.

View more information on the REG changes that were made to the CPA Exam in 2019.

 

What we recommend

Review Updated Skill Level Statements

The updates to the exam have mostly been updates to skill level statements. Candidates should review the updated skill level statements to ensure they’re ready to complete exam questions based on the skills required in these statements.

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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