CPA Exam revisions focus on tech, critical thinking

10 min read

Technology’s impact on the business world is both broad and deep, and that’s changing the way CPAs do their jobs. That’s why there will be an update to the content tested on the CPA Exam. 

In its most recent Practice Analysis, the AICPA has issued an Exposure Draft in which it proposes revisions to the CPA Exam to take into account the impact of technology, analytics and process automation on newly licensed CPAs (nlCPAs). The AICPA also proposes certain topics that they believe are no longer relevant to the profession. Pending the feedback they receive on the Exposure Draft, the AICPA expects the updated exam to launch in July 2021.

A Digital Mindset

According to the AICPA, “The CPA of the future needs to have a data and digital mindset in order to understand complex business processes and controls and to work with digital tools and technologies. It is important that nlCPAs at a minimum have an understanding of data—and where and how it may be accessed—to be able to converse with clients about data and its potential use.”

Exam takers will find most of the changes related to technology in the Auditing and Attestation (AUD) and Business Environment and Concepts (BEC) sections. The goal is for nlCPAs to demonstrate the following:

  • An understanding of business processes from inception to completion, including automation, risks and internal controls
  • A digital and data-driven mindset
  • Facility with data analytics

In the AUD portion, for example, there’s an increased emphasis on Systems and Organizational Controls (SOC 1) reports, which assist businesses that use service organizations and their auditors in evaluating the effect of service organization controls on the user entities’ financial statements. A SOC 1 report could be used, for example, to attest that an organization’s payroll processing or cloud computing provider has effective internal controls in place. The revised exam reflects the AICPA’s findings that nlCPAs need to understand the types of SOC 1 reports, how to interpret them, their implications to a client’s system of internal controls, and their effect on planned audit procedures.

There’s also an increased focus on understanding business processes, information systems, data flow, and internal controls. In the AUD section, for example:

  • The group titled “Communication with component auditors and parties other than management and those charged with governance” will be revised to focus on engagement-level quality control.
  • The group titled “Understanding an entity and its environment” will be expanded to consider technology’s impact on an entity. It will also be expanded to include an understanding of significant business processes, IT system infrastructure and data flows.
  • The group titled “Understanding an entity’s internal control” will more broadly consider an organization’s control environment, significant business processes, and IT systems.

The BEC section will add a new group—“Business Processes and Transaction-Level Risks and Controls,” which will focus on describing business processes and flows of transactions, including:

  • Enabling technology
  • Identifying opportunities to improve efficiency
  • Identifying and designing transaction-level controls 
  • Use of SOC 1 reports
  • Identifying risks and control gaps
  • Using data and business intelligence in the context of an entity’s significant business processes

Streamlining the Core Competencies

While the impact of technology is a major focus, the new exam will also remove or revise certain sections that the AICPA believes have become too broad, particularly in the Financial Accounting and Reporting (FAR) and Regulation (REG) sections of the exam.

In the group covering Compensation and Benefits, for example, the AICPA plans to remove most of the retirement benefits topic, noting that with the significant decline in organizations offering defined benefit plans, the topic is beyond the scope of nlCPA practice.

Similarly, topics covering the alternative minimum tax, trusts and estates, and tax-exempt organizations will either be removed or limited in the Regulation (REG) section because the AICPA’s research indicates these topics have become less important to nlCPAs.

These proposed changes will likely make the AUD section more challenging but better representative of the current audit environment. The impact on the other three sections appears to be less disruptive. Also note that these changes are will not change the aggregate CPA Exam time (4 hours per exam or 16 total hours).

The AICPA has requested feedback on specific changes outlined in the Exposure Draft.  Responses should be sent to the AICPA by April 30, 2020. The AICPA has also released an Invitation to Comment (ITC) covering two items the AICPA recommends to be removed from the CPA Exam: BEC written communication questions, and FAR testing of state and local government accounting.  Feedback on these items should also be submitted by April 30.

The bottom line is that changes are coming to the CPA Exam. The good news is that you have time to prepare between now and July 2021.

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