Brave New World for the CPA's Exam

Tomorrow's CPAs will face a far different test than you did.

  • THE UNIFORM CPA EXAMINATION has been undergoing rapid changes and recently became nondisclosed. Nondisclosure helps ensure a fairer, more consistent CPA exam and paves the way for a computer-based exam.
  • MORE PROFESSIONAL EXAMS are becoming computer-based. Such a switch for the CPA exam would relieve state boards of accountancy of some administrative work and may lead to testing on demand.
  • THE AICPA BOARD OF EXAMINERS (BOE) has implemented new passing methodologies to coincide with the nondisclosed exam.
  • THE BOE PLANS TO REVISE content specification outlines more frequently than in the past and continues to work with NASBA and the state boards.
  • INTERNATIONAL TESTING for reciprocity has been expanded from an original U.S./Canadian test to an international test.

Quinton Booker , CPA, DBA, is professor and chairman of the department of accounting at Jackson State University, Jackson, Mississippi.
Vincent C. Brenner , CPA, PhD, is KPMG Peat Marwick Professor of Accounting at Louisiana State University at Baton Rouge. Booker and Brenner are members of the American Institute of CPAs board of examiners.
James D. Blum , CPA, PhD, is the AICPA director of examinations. Mr. Blum is an employee of the American Institute of CPAs and his views, as expressed in this article, do not necessarily reflect the views of the AICPA. Official positions are determined through certain specific committee procedures, due process and deliberation.

During 1996, 122,000 candidates sat for the Uniform CPA Examination, but it was markedly different from the exam CPAs have been taking for 80 years. Because the exam is the gateway all CPAs must pass through, modifications in its content and administration affect the entire profession. Since 1990, the exam has undergone major changes: Candidates can now use calculators in some sections, certain essay questions are graded on writing skills, the time allotted to take the exam has decreased, new objective answer formats have been added and the exam has become nondisclosed. This article offers a behind-the-scenes look for prospective employers of CPAs as well as educators on what's been happening to the CPA exam. Additional details can be found at

The state boards of accountancy administer the Uniform CPA Examination, which is given twice each year, over two days. The board of examiners (BOE), an 11-member senior committee of the American Institute of CPAs, maintains overall responsibility for exam preparation and issuance of grades to the state boards. Each of the exam's four sections—Business Law and Professional Responsibilities; Accounting and Reporting; Auditing; and Financial Accounting and Reporting—has a subcommittee that is responsible for its content.

Sample Recent Uniform CPA Examination Question:

A purpose of a management representation letter is to reduce

  1. Audit risk to an aggregate level of misstatement that could be considered material.
  2. An auditor's responsibility to detect material misstatements only to the extent that the letter is relied on.
  3. The possibility of a misunderstanding concerning management's responsibility for the financial statements.
  4. The scope of an auditor's procedures concerning related party transactions and subsequent events.

Answer: C.

The AICPA is the exam's vendor and each state board is a customer. The entire exam process depends on cooperation and communications between the BOE, the state boards and the National Association of State Boards of Accountancy (NASBA).

The Nondisclosed CPA Exam
The AICPA made the exam nondisclosed with the May 1996 test. The BOE and NASBA had agreed that such an exam would be more reliable for a variety of reasons. Key among them was that a nondisclosed exam is the first step in building the large database needed for a computer-based exam, which can be offered on an on-demand basis rather than just twice a year.

"Nondisclosed" means the exam is unavailable, even after it has been given, to anyone—except to the bona fide candidates who sit for it. To this end

  • Candidates are not allowed to keep their exam booklets.

  • The AICPA stopped publishing the complete text with unofficial answers following the administration of each CPA exam.

  • Exam booklets are bar-coded to help account for each booklet before, during and after each exam.

  • Exam booklets are destroyed shortly after the exam.

Sample Recent Uniform CPA Examination Question:

On January 2, 1996, Marx Co. as lessee signed a five-year noncancelable equipment lease with annual payments of $200,000 beginning December 31, 1996. Marx treated this transaction as a capital lease. The five lease payments have a present value of $758,000 at January 2, 1996, based on interest of 10%. What amount should Marx report as interest expense for the year ended December 31, 1996?

  1. $0
  2. $48,400
  3. $55,800
  4. $75,800

Answer: D.

Additionally, most state boards now ensure candidates are bona fide by checking their credentials before allowing them to take the exam. Candidates, state board members, proctors and agents responsible for exam administration must sign a statement saying they will not disclose the contents of the exam.

A nondisclosed exam has four major benefits:

  1. Pretest and reuse. Questions can be pretested: The BOE adds them to actual exams but does not count them in a candidate's score. Candidates do not know which are the real questions and which are being pretested. With a disclosed exam, it is not feasible to pretest questions, and reusing questions is limited because the questions and answers are made public.

  2. Consistent level. To be fair to candidates, the BOE wants to ensure each exam is at the same level of difficulty. Since pretesting questions was not feasible in the disclosed exam, it was impossible to know whether the difficulty level did remain constant. However, statistical methods available for a nondisclosed exam ensure the same levels year after year.

    Sample Recent Uniform CPA Examination Question:

    The filing of an involuntary bankruptcy petition under the Federal Bankruptcy Code

    1. Terminates liens on exempt property.
    2. Terminates all security interests in property in the bankruptcy estate.
    3. Stops the debtor from incurring new debts.
    4. Stops the enforcement of judgment liens against property in the bankruptcy estate.

    Answer: D.

  3. Enhanced reliability. When preparing for the exam, many candidates study published exam questions and solutions. Some believe this practice can boost test scores without improving a candidate's mastery of the subject. This is referred to as "test score pollution," which the BOE says can be minimized if candidates do not have access to questions that may reappear on future exams.

  4. Computer-based testing. Computer-based testing is rapidly becoming common for administering large-scale exams. For example, since 1994, the national exam for registered nurses has been administered by computer. On any given day at over 200 computer locations across the nation, a candidate might be in the process of taking the on-demand nurse exam. (For the CPA exam to be computerized, the BOE will need to assemble a large database of nondisclosed questions.)

Exam preparation aids. Published exam questions and answers have helped candidates become familiar with the types of questions asked. Therefore, the AICPA offers the following:

  • Uniform CPA Examination Selected Questions and Unofficial Answers Indexed to Content Specification Outlines , which contains examples of all the question formats of the exam. These formats are indexed to "content specification outlines" (CSOs)—or, more simply stated, the subjects candidates need to study for the exam. Questions include past CPA exam questions that have been retired from the database. This publication also provides, for each exam, the number of multiple-choice, other objective answer format and essay/problem type questions by CSO classification.

  • Information for Uniform CPA Examination Candidates , which contains a wealth of useful information on the exam and CSOs.

Also, the AICPA provides state boards with diagnostic reports on each candidate's performance based on CSO areas, and the boards send them to candidates along with their exam grades. These reports show failing candidates how they performed on various content areas in each exam section.

An International Uniform CPA Exam

Each state board of accountancy has to decide whether Canadian chartered accountants (CAs) can be granted the CPA designation. One criterion the boards have used is a four-and-a-half-hour test developed by the AICPA board of examiners to measure equivalency called the Canadian Chartered Accountant Uniform Certified Public Accountant Qualification Examination (CAQEX). A joint AICPA/NASBA international qualifications appraisal board (IQAB) analyzed the education, examination and experience requirements for obtaining the Canadian CA designation. It determined that the U.S. CPA and the Canadian CA requirements were equivalent and that CAs who want to obtain the U.S. CPA designation needed to be tested only on the differences between the two countries' accounting practices.

Recently, the AICPA, the National Association of State Boards of Accountancy and the Institute of Chartered Accountants in Australia entered into a reciprocal agreement similar to the one the United States has with the Canadians. In January 1997, the BOE decided to replace CAQEX with the International Uniform CPA Qualification Examination (IQEX), which is a test of differences between U.S. practices and those of any other candidates' national accounting organization that has signed a reciprocal agreement with the AICPA and NASBA. Recently, the new computer-based IQEX test was administered at 30 computer sites to over 250 Canadian and Australian CAs seeking the U.S. CPA designation. The candidates were able to schedule their examination any day within a 20-day period.

Content Specifications
The new CPA exam tests a broad range of knowledge and skills, as well as the application of knowledge, that is, analytical and evaluations skills. Objective questions, essays and problems appear in all sections of the exam except Accounting and Reporting, where only objective questions are used. The essay and problem questions require evaluation, judgment, presentation and decision-making abilities. Essays are also used to assess candidates' writing skills.

Traditionally, the BOE updates the CSOs about every five to eight years; the most recent update was in 1994, based on a 1991 practice analysis. However, because of the rapid changes in the accounting profession, the board plans more frequent updates. The BOE has appointed a standing, 10-member content-oversight task force consisting of practitioners from firms of all sizes and one member each from industry and academia to continually monitor exam content. Its status as a standing group will help ensure that future exams reflect the knowledge and skills needed in current practice. The task force will work with state boards to determine content changes needed immediately.

The task force needs to determine what the state boards regulate in order to determine what should be tested. Many firms are involved in consulting services and are in competition with nonaccounting firms, which raises questions: Should these expanded services be excluded from the licensing regulations, particularly when many of the personnel performing such services are not CPAs? What should be regulated—CPA firms or individual CPAs? Further, should candidates be tested on technology and management skills? Should the exam test only the knowledge and skills that are expected to be used by a newly licensed CPA or should it include those of an experienced CPA?

Question Writers Workshops

During 1996 and 1997, the AICPA board of examiners held question writer workshops (QWWs) for each section of the exam to train interested practitioners and academics to write exam questions. The BOE will need a much larger pool of question writers than ever before to develop a large enough databank of questions for future on-demand exams. In 1998, in addition to holding the traditional QWWs focusing on questions for the content of an exam section, the BOE plans to hold QWWs that center around questions that test higher level skills, such as critical thinking, and skills needed to practice in today's complex business environment, such as technology.

When available, the dates for the 1998 QWWs will be posted on AICPA Online at . Interested members can call Francesa DiPietro at 201-938-3435.

From Pen To Mouse: The Computerized Test
In 1995, the BOE issued Invitation to Comment: Conversion of the Uniform CPA Examination to a Computer-Based Exam . The document informed state boards of the BOE's initiative to move to a computer-based exam and of the types of computerized tests and various computer-based test models; it also solicited input from the boards and other interested parties.

Computerized tests. The Invitation to Comment set forth the following types of computer-based test models:

  • Computer linear test (CLT). At a given time, each candidate answers a predetermined set of questions on a computer. This is similar to the current paper-and-pencil exam.

  • Computer adaptive test (CAT). The computer selects the next question from a bank of questions based on the candidate's responses to the previous question. Correct answers lead to more difficult questions; wrong answers lead to easier ones. The computer continues until the candidate's performance is determined to be above or below a preestablished passing standard, until a set maximum number of questions is reached or until time lapses.

    Standard Setting

    When the Uniform CPA Examination was disclosed, the AICPA board of examiners' policy was to adjust grades upward when fewer than the historical passing percentage of candidates (30%) obtained 75% or more of the available points. Grading adjustments were not made, though, when the passing rate equaled or was above the 30% passing rate. Furthermore, grading adjustment points were not subtracted to decrease the passing rate when it was above 30%.

    Effective with the 1997 exams, this policy was replaced with a criterion-referenced standard based on "Angoff studies." Those studies consisted of the ratings of more than 100 CPAs of 1996 exam questions to estimate the percentage of competent newly licensed CPAs who would answer a given question correctly. The estimates were used to determine the minimum passing score for the entire exam—the "cut score." The May 1997 cut score was statistically determined by adjusting the May 1996 cut score for differences in difficulty levels between exams and differences in ability level between the groups of candidates taking each exam. Beginning in 1998, the BOE plans to hold an Angoff study each year on one section of the exam to update the passing standard on a continual basis. The BOE's standard-setting subcommittee worked closely with the NASBA examinations committee in conducting the studies and explaining the new standard to state boards.

  • Computer mastery test (CMT). The computer administers a set of questions and determines whether the candidate has the level of mastery required. If a candidate's competency needs additional testing, the computer administers one or more additional sets of questions. This model differs from the CAT in that the level of difficulty of the next set of questions is not adjusted for the candidate's level of ability.

  • Computer simulation test (CST). This test presents the candidate with open-ended situations. The candidate may interact with the computer in completing this task.

In June 1997, the AICPA published the results of the Invitation to Comment in Status Report: Conversion of the Uniform CPA Examination to a Computer-Based Examination . Ninety-two percent of responding state boards supported a computerized test. Although no clear consensus emerged on a single best model, the CMT ranked as the most acceptable of the four.

Exam designs. The Invitation to Comment described five possible exam designs. State boards preferred a hierarchical model that assesses candidates' general knowledge in an objective CMT. This prerequisite exam would cover all the general knowledge content of the current four sections. When a candidate successfully passed all of this section of the exam, he or she would take two additional computerized essay/problem/simulation exams in Auditing and Financial Accounting and Reporting. These sections would assess the higher cognitive skills such as application and evaluation.

The Invitation to Comment had discussed the different question formats that could be used on a computerized exam. The state boards' preferences, in order, were multiple choice, other objective format, problems, essays and simulation. Simulation is more appropriate for testing higher level cognitive skills and can test scenarios that better reflect actual practice, but it is problematic because such simulation questions are expensive to develop and difficult to score reliably.

Sample Recent Uniform CPA Examination Question:

In 1996, Stone, a cash basis taxpayer, incorporated her CPA practice. No liabilities were transferred. The following assets were transferred to the corporation:

Cash (checking account) $    500
Computer equipment  
Adjusted basis 30,000
Fair market value 34,000
Cost 40,000

Immediately after the transfer, Stone owned 100% of the corporation's stock. The corporation's total tax basis for the transferred assets is

  1. $30,000
  2. $30,500
  3. $34,500
  4. $40,500

Answer: B.

Development cost. Developing a computerized exam will be expensive. Research is needed on reliability, security, incremental cost and benefit of nonobjective questions, single-section vs. multiple-section exams and size of question bank. Computerization will require a large question bank, which must grow with the frequency of exam offerings. If the BOE uses the same relatively small question bank it has maintained for an exam given only twice a year, the same questions will pop up again and again on a computerized test given on demand.

Benefits and impediments. Computerized exams deliver increased exam flexibility (such as offering the exam more than twice a year and perhaps on demand), increased measurement precision and simplification of the state boards' workload. The greatest drawbacks are the initial cost of computerization and of maintaining a sufficiently large question bank, the unavailability of computerized test sites and, in many states, the need to change statutes and regulations. The BOE and NASBA have appointed an AICPA/NASBA computerization implementation committee to study how to develop and implement a computer-based Uniform CPA Examination. The current target date to have the exam totally or partly computerized is 2001.

For the Profession, For the Public
Throughout all of its activities, the BOE's objective is to provide a relevant and reliable exam that state boards can use in accomplishing their ultimate objective of protecting the public. After all, the exam's influence is widespread: It affects accounting students' education—the store of knowledge and skills candidates will bring to their new profession—because students will study what is necessary to pass it.

The exam ultimately affects every CPA firm in the country: These new CPAs will be your subordinates and your colleagues. Eventually, some of them will be your partners and supervisors.


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