CPA Exam Essentials
What Is the CPA Exam?
The designation of 'certified public accountant (CPA)' is awarded by the American Institute of Certified Public Accountants (AICPA).
The purpose of the CPA designation is to retain professional standards within the accountancy sector.
To achieve CPA accreditation, you must meet requirements set out by your chosen jurisdiction.
These will include:
- Education – Having the relevant educational background
- Exam – Passing the CPA exam
- Experience – Gaining a certain number of hours of relevant work experience
For more on the CPA exam requirements, see our dedicated article.
The CPA exam is computer-based. Passing the test will enable you to pursue a broad range of career opportunities within finance and accountancy.
The CPA designation is recognized worldwide, so becoming a CPA could help you to secure employment almost anywhere in the world.
If you are considering a career in accounting or finance, you should bear in mind that the CPA exam is a highly challenging part of the qualification process.
But is the CPA exam really that hard?
According to the AICPA, around half of all candidates taking their CPA exam each quarter will fail.
With this CPA exam pass rate in mind, sitting the CPA exam may seem a daunting undertaking. However, it is important to note that you can retake the exam as many times as you need to pass if you do this within an 18-month window.
US citizens can apply to sit the CPA exam at an authorized test center in their chosen jurisdiction.
Can I Work as an Accountant Without a CPA License?
Yes. You do not need to have a CPA license to be employed as an accountant.
However, there will be limitations to the type of work you will be able to undertake. Accountants without a CPA license can provide bookkeeping and tax preparation services.
Accountants with their CPA license can represent a tax client before the Internal Revenue Service (IRS). They also have the authority to sign off audits.
These are higher-level responsibilities, which command a higher salary.
What Are the Prerequisites for the CPA Exam?
The first step is the completion of your undergraduate education. The specific requirements vary between states, but you will need to have either a bachelor’s degree or 120 college credit hours from an accredited institution.
In most cases, your qualification major will need to be in finance or accounting, but some states are willing to accept CPA exam candidates with undergraduate degrees in other subjects.
In some states, you may be able to sit the CPA exam prior to graduation. A few states require candidates to have 150 semester hours or a master’s degree.
Once all the above prerequisites have been met, you will be eligible to register for and sit the CPA exam.
To check your eligibility, visit the NASBA website.
Choose the jurisdiction within which you would like to become licensed as a CPA, checking through the specific requirements.
International candidates can use NASBA’s International Evaluation Services to find out whether they are eligible to sit the exam.
Once you have completed the application form, you will need to submit it with the appropriate documentation.
Your application will pass through verification to check you are eligible to take the exam.
If you are eligible, you will be issued with a Notice to Schedule (NTS). This will be valid for up to six months. You will need it to schedule your exam.
When scheduling your CPA exam, remember to factor in sufficient time to study and prepare. The exam is not easy, so you should dedicate a significant amount of time to this.
You can schedule your exam date with Prometric, using your NTS information.
You can take the exam at any Prometric test center offering the CPA exam. However, there are some exceptions for international candidates, and international locations will require payment of additional fees.
For more on your CPA exam application, see our dedicated article.
How Is the Exam Structured?
The CPA exam is made up of:
Three written communications tasks. You will need to demonstrate effective communication skills.
276 multiple-choice questions. These vary in length from one sentence to a whole paragraph. You will be presented with four potential answers for each question.
28 task-based simulations. You will need to provide a written response to these practical questions.
The exam is split into four sections:
- FAR – Financial Accounting and Reporting
- AUD – Auditing and Attestation
- REG – Regulation
- BEC – Business Environment and Concepts
You will have four hours to complete each section of the exam. They can be taken on different days, and you can decide your preferred order.
FAR – Financial Accounting and Reporting
This section includes 66 multiple-choice questions and eight task-based simulations.
The questions are based on real-life work scenarios. They are designed to assess how you would approach different situations.
You will be expected to demonstrate your knowledge and understanding of financial reporting frameworks.
Most people taking the CPA cite this as the most difficult section of the exam.
To pass, you will need to show a solid understanding of the required standards for financial statements.
For example, you will need to know what information should be included and how this should be presented.
You will review source documents to prepare mock financial statements, such as balance sheets, profit and loss statements, and cash flows.
The examiners will be assessing your understanding of accounting standards and how these are presented.
You will also need to show that you understand the role and the importance of professional groups like the Financial Accounting Standards Board (FASB), US Securities and Exchange Commission (SEC) and the Governmental Accounting Standards Board (GASB).
AUD – Auditing and Attestation
This section is made up of 72 multiple-choice questions and eight task-based simulations.
The questions are centered on planning and reviewing engagements, internal controls, documentation and preparation of communications.
You will need to demonstrate a solid understanding of international accounting standards, for example, the difference between International Standards on Auditing (ISAs) and US auditing standards.
You will be expected to highlight breaches of ethics or professional standards, explaining the correct course of action to resolve this.
You will also be able to identify the likely risks in the field of financial information technology.
1. In auditing, which organization developed the guidance used in the profession to benchmark internal controls of non-issuers?
a) The Committee of Sponsoring Organizations of the Treadway Commission
b) The Financial Reporting Council
c) The AICPA
d) The Public Company Accounting Oversight Board
The correct answer is: The Committee of Sponsoring Organizations of the Treadway Commission.
Known as COSO, it was developed in response to high-profile fraud cases.
2. What is the most common opportunity for employees to commit fraud or theft?
a) The employee believes fraud or theft is common practice within the organization
b) Overcomplicated transactions
c) Stock options that will expire shortly after financial statements are released
d) Being able to access easily traceable assets
The correct answer is: Overcomplicated transactions.
If organizational transactions are complicated, many people will struggle to understand the complexities. This gives fraudsters an easier opportunity to deceive other people, allowing them to commit theft or fraud.
REG – Regulation
The REG is made up of five testlets. Two are multiple-choice, while the other three are made up of task-based simulation questions.
There are 76 multiple-choice questions (these make up 50% of your exam score) and eight task-based simulation questions (these make up the other 50% of your score).
This section of the CPA exam is focused on three main areas:
- Federal taxation – this accounts for more than 50% of the exam
- Business law
To pass the REG section, you will need to show you have the required skills to carry out tax preparation work.
A full understanding of tax law will be vital, but you must also be able to apply this knowledge to real-life scenarios.
You will need to have knowledge of acts and regulations including the Internal Revenue Code of 1986 (as amended), Securities Exchange Act of 1934 and Treasury Regulations.
BEC – Business Environment and Concepts
This part of the exam is split into five testlets.
The first two are made up of a combined total of 62 multiple-choice questions, which account for 50% of your overall score.
There are two task-based simulation testlets (35% of your score) and one written communications task (15% of your score).
This section is based on the role of a CPA in a business context. You will need to understand a range of different business topics and how they impact the CPA role.
These may include information technology, economic concepts, operations management and corporate governance.
To become familiar with the type of questions you will need to answer, visit the AICPA website to view sample tests.
How Is the Exam Scored?
Each section of the exam is graded between 0 and 99. The minimum pass mark for each of the four sections is 75.
Aside from the written communications tasks, the entire CPA exam is marked using a computer grading system.
Although the process is automated, it is overseen by human scorers to ensure fairness to all candidates.
For example, they can regrade the written communication parts of the exam if a candidate’s score is just below the pass mark.
CPA exam candidates must pass all four sections within an 18-month timescale. In most cases, the 18-month window starts from the date when you pass the first section of the exam.
Your CPA exam result is not based on the number of correct answers. Instead, for each portion of an exam section, you will be awarded a scaled score.
Your result will be calculated using a weighted combination of your scores in each section.
Using a scaled score method makes it easier to compare CPA exam results. Questions vary in difficulty, so exam results can be standardized using statistical processes to calculate test scores.
This process ensures that the results of different sets of questions can be easily compared.
The calculation used to work out a candidate's scaled score for a particular section is based on whether the question has been correctly answered and the relative difficulty of the question when compared to other questions.
Each set of multiple-choice questions in the different exam sections adapts according to your performance in the previous set.
In each exam section, the multiple-choice questions are split into two parts. Your performance on the first set of multiple-choice questions will determine the difficulty of the second set in that exam section.
Performing well in the first set means you will be required to answer a more difficult set of questions in the second portion. If you do not perform well in the first set, the second set will be the same level of difficulty as the first.
Answering the more difficult multiple-choice questions will earn you more points.
Your performance in the multiple-choice testlets will not have any bearing on the difficulty of the task-based simulation portions of the test.
What Are the Benefits of Taking the Exam?
If you want to become a CPA, you will need to follow a structured process to gain the necessary qualifications and experience.
Taking the CPA exam may seem overwhelming at first, but there are plenty of reasons why you should push through:
- The CPA role is highly prestigious. Becoming certified will help you to earn the respect of clients and colleagues.
- As CPAs remain in high demand, joining the profession means you will have access to a wealth of job opportunities.
- You will also be able to enjoy a high level of job stability and security.
- One of the best things about becoming a CPA is that you will be able to work in a variety of business environments; for example, government, not-for-profit or public services.
- Whether you will be able to earn your desired salary will be at the discretion of your employer, but you can expect to earn up to 15% more if you pass the CPA exam and gain your license.
The CPA exam is an essential part of the requirements needed to become a certified public accountant. It is made up of several sections, some of which candidates find more challenging than others.
If you fail any of the sections, you can retake them, but if you don’t pass all four within 18 months of taking the first one, you will need to start from scratch.
With the right preparation and study, you will have a good chance of passing the first time.