CPA Review: Regulation
The Regulation section of the CPA Exam tests the knowledge and understanding of the following topics:
1. Ethics and professional responsibility 2. Business law 3. Federal tax procedures and accounting issues 4. Federal taxation of property transactions 5. Federal taxation-individuals 6. Federal taxation-entities
The outline below describes the above topics, lists the major components tested for each topic, shows the degree to which each topic is tested, and provides the sources from which the test questions are derived:
I. Ethics, Professional, and Legal Responsibilities (15% -- 19%).
Ethics, Professional and Legal Responsibilities tests the knowledge and understanding of the legal and professional responsibilities of a CPA’s business transactions. Professional ethics issues relate to tax practice issues and are based on the AICPA Code of Professional conduct, Treasury Department Circular 230, and laws for tax practitioners.
A. Licensing and Disciplinary Systems. 1. Role of state boards of accountancy 2. Requirements of regulatory agencies.
B. Legal Duties and Responsibilities. 1. Common law duties and liability to clients and third parties. 2. Federal statutory liability 3. Privileged communications, confidentiality, and privacy acts.
II. Business Law (17% -- 21%)
The Business Law section of the Exam tests the knowledge and understanding of the legal implications relating to accounting, auditing, and financial reporting.
A. Agency 1. Formation and termination 2. Authority of agents and principals. 3. Duties and liabilities of agents and principals.
B. Contracts 1. Formation 2. Performance 3. Third Party Assignments 4. Discharge, breach, and remedies
C. Uniform Commercial Code 1. Sales Contracts 2. Negotiable Instruments 3. Secured Transactions 4. Documents of title and title transfer
D. Debtor-Creditor Relationships 1. Rights, duties, and liabilities of debtors, creditors, and guarantors. 2. Bankruptcy and insolvency.
E. Government Regulation of Business 1. Federal securities regulations 2. Other federal laws and regulations (antitrust, copyright, patents, money-laundering, labor, employment, and ERISA).
F. Business Structure (Selection of a Business Entity) 1. Advantages, disadvantages, implications, and constraints 2. Formation, operation, and termination 3. Financial structure, capitalization, profit and loss allocation, and distributions
III. Federal Tax Process, Procedures, Accounting, and Planning (11% -- 15%)
A. Federal Tax Legislative Process
B. Federal Tax Procedures 1. Due dates and related extensions of time. 2. Internal Revenue Service (IRS) audit and appeals process 3. Judicial process 4. Required disclosure of tax return position 5. Substantiation requirements 6. Penalties 7. Statute of Limitations
C. Accounting periods
D. Accounting Methods 1. Recognition of revenues and expenses under cash, accrual, or other permitted methods. 2. Inventory valuation methods, including uniform capitalization rules 3. Accounting for long-term contracts 4. Installment Sales
E. Tax Return Elections, Including Federal Status Elections, Alternative Treatment Elections, or Other Types of Elections Applicable to an Individual or Entity’s Tax Return.
F. Tax Planning 1. Alternative treatments 2. Projection of tax consequences 3. Implications of different business entities 4. Impact of proposed tax audit adjustments 5. Impact of estimated tax payment rules on planning 6. Role of taxes in decision-making
G. Impact of Multijurisdictional Tax Issues on Federal Taxation (Including Consideration of Local, State, and Multinational tax Issues).
H. Tax Research and Communication 1. Authoritative hierarchy 2. Communications with or on behalf of clients
IV. Federal Taxation of Property Transactions (12% -- 16%) A. Types of Assets B. Basis and Holding Periods of Assets C. Cost Recovery (Depreciation, Depletion, and Amortization) D. Taxable and Nontaxable Sales and Exchanges E. Amount and Character of Gains and Losses, and Netting Process F. Related Party Transactions G. Estate and Gift Taxation 1. Transfers subject to the gift tax 2. Annual exclusion and gift tax deductions 3. Determination of taxable estate 4. Marital deductions 5. Unified credit
V. Federal Taxation of Individuals (13% -- 19%)
A. Gross Income 1. Inclusions and exclusions 2. Characterization of income
B. Reporting of Items from Pass-Through Entities
C. Adjustments and deductions to Arrive at Taxable Income
D. Passive Activity Losses
E. Loss Limitations
F. Taxation of Retirement Plan Benefits
G. Filing Status and Exemptions
H. Tax Computations and Credits
I. Alternative Minimum Tax
VI. Federal Taxation of Entities (18% -- 24%)
A. Similarities and Distinctions in Tax Treatment Among Business Entities
1. Formation 2. Operation 3. Distributions 4. Liquidation
B. Differences Between Tax and Financial Accounting
1. Reconciliation of book income to taxable income. 2. Disclosures under Schedule M-3
C. C Corporations
1. Determination of taxable income/loss 2. Tax computations and credits, including alternative minimum tax 3. Net operating loss 4. Entity/owner transactions, including contributions and distributions 5. Earnings and profits 6. Consolidated returns
D. S Corporations
1. Eligibility and election 2. Determination of ordinary income/loss and separately stated items 3. Basis of shareholder’s interest 4. Entity/owner transactions, including contributions and distributions 5. Built-in gains tax
1. Determination of ordinary income/loss and separately stated items 2. Basis of partner’s member’s interest and basis of assets contributed to the partnership. 3. Partnership and partner elections 4. Transactions between a partner and the partnership 5. Treatment of partnership liabilities 6. Distribution of partnership liabilities 7. Ownership changes and liquidation and termination of partnership.
F. Trusts and Estates
1. Types of trusts 2. Income and deductions 3. Determination of beneficiary’s share of taxable income
G. Tax Exempt Organizations
1. Types of organizations 2. Obtaining and maintaining tax-exempt status 3. Unrelated business income