FAR: Deferred Tax Question (IFRS related)

Here is a multiple choice question about deferred tax that pertains to the International Financial Reporting Standard (IFRS). Questions like this may show up in the Financial Accounting and Reporting (FAR) section of the Uniform CPA examination.

Galway Corp. prepares its financial statements in accordance with IFRS. Which of the following is true regarding reporting Galway’s deferred income taxes in its year 4 financial statements?

A)     Deferred taxes of one jurisdiction are offset against another jurisdiction in the netting process.

B)      Deferred tax assets are always netted with deferred tax liabilities to arrive at one amount presented on the balance sheet.

C)      Deferred tax assets and liabilities may only be classified as noncurrent.

D)     Deferred tax assets and liabilities are classified as current and noncurrent based on their expiration dates.

Choice C is correct because IFRS does not permit deferred tax assets or liabilities to be classified as current. Therefore, deferred tax assets and liabilities are reported in the noncurrent section of the statement of financial position. Choice A is incorrect because IFRS does not allow companies to mix deferred taxes for different jurisdictions. For example, a multinational corporation that operates both in the U.S. and England could not combine its deferred tax from the U.S. with deferred tax from its operation in England. Choice B is incorrect because that is not always the case. If a company have deferred tax assets or deferred tax liabilities from two different jurisdictions for example it could not net the deferred tax liabilities and assets. D is incorrect because IFRS does not allow current deferred tax at all.

FAR: Example of Treatment of a Change in Estimation (Depreciation)

Here is a simple multiple choice question from the Wiley TestBank that pertains to the treatment of accounting changes and error correction. 

Cory Company acquired some machinery on January 2, year 2. Cory was using straight-line depreciation with an estimated life of 15 years with no salvage value for this machinery. On January 2, year 6, Cory estimated that the remaining life of this machinery was 6 years with no salvage value. How should this change be accounted for by Cory?

A)     Revising future depreciation per year to equal the book value of January 2, year 6, divided by 6.

B)      Making a prior period adjustment and changing to an accelerated depreciation method that will compensate for under-depreciation in prior years.

C)      Estimating the effect of the change on each year’s net earnings, but maintaining the method of depreciation as originally determined.

D)     Revising future depreciation per year to equal the original cost divided by 6.

Revising future depreciation per year to equal the book value of January 2, year 6, divided by 6 is correct. Cory Company’s change of depreciation is considered a change in estimate. A change in estimate is treated prospectively by revising the remaining years’ depreciation expense. Book value of the asset at the time of change should be divided by 6, the estimated remaining life.

The key thing to remember here is that whenever an issuer changes depreciation methods because their estimation was off, they have to account for the change in the current year and future years. Estimations are just that, estimations. So, there were no mathematical errors really. The book value, not the historical or original cost, would be used to recalculate the new depreciation expenses for each remaining year. 

6 Ways to Study on the Go!

We all know that the Uniform CPA Examination is very demanding. There are so much material and skills that the candidate must demonstrate a level of proficiency in. Even when you study for one section of the exam at a time the amount of information you need to retain is extensive. To make matters worst, most of us candidates are extremely busy with life and we don't want to give up all of our leisure activities for six months straight. My solution to this dilemma is to use all the white spaces in our schedule in addition to our regular study sessions to study for the exam. We can take advantage of travel time in the car, while we wait in long lines, or in waiting rooms. Here, I have outlined six ways candidates can study on the go.

1. Use Flashcards
Flash cards are the number one tool for studying on the go. You can put them in your pockets and take them out when you are waiting in line, etc. If you have a smart phone you can use digital flashcards. Another71.com has ninja flashcards. I haven't used them because I have made my own. If you don't have the time to make flashcards you should get them from http://www.Another71.com or http://www.FlashcardExchange.com.

2. Use Study Buddies
Using the buddy system will not only keep you honest about actually study but you can use each other as support. Try giving your buddy a copy of the notes you are studying and later on when you out on the beach or park can him or her to chat about the notes. Have them quiz you while you are waiting for the bus or  tanning. You get the picture.

3. Use Audio Files and Podcasts 
You have a long flight or car ride? That is the perfect time to listen to some Podcasts or audio files from your CPA Exam Review course. Make sure to select audios that have energetic presenters to put you to sleep. If possible take notes of the key points of what speaker talks about.

4. Use Mobile Apps
You can download apps for almost anything now, why not download Wiley's test bank app for your iPhone or Android phone. Using the app will give you that extra practice while you are away for you study area. I have already taken advantage of my Galaxy S4 by downloading the Wiley's test bank on it and doing multiple choice questions during downtime at work.

5. Have an Audience
Get on some forums to ask questions and answer some questions. You may think you know a topic well enough until you have to explain it to some else. There are many different forums online that focuses on the topics of the Uniform CPA Examination. Create a student affiliated AICPA accounting on https://www.ThisWayToCPA.com, Another71.com, or any other CPA exam review course site.

6. Study in Different Locations
It is actually good for you to study away from home. Take the time to study whenever you visit different places, especially if the scenery is spectacular. It would be too boring if you just study in your room. Get out and have some fun too.

Good luck!

Effective Ways to Retain Study Materials

According to Adult Learning Theory, lectures are the least successful way to retain learning material. Reading, listening, and observing are not so effective neither. The most effective way to retain material from a training program is through teaching the material yourself. Practice by doing comes next followed by discussions and then demonstrations. To apply this to your accounting education and training, try teaching or tutoring others to help you retain the material more effectively. You can form a study group which each member of the group takes turns presenting a topic.

Below are the percentages of memory retention of each mode of learning (from michellemotivateme.com):


Lectures 5%
You only retain about five percent of lecture material.

Reading 10%
You only retain about ten percent of what you read.

Audio/Visual 20%
You only retain about twenty percent of what you see and hear.

Demonstration  30%
If you demonstrate something you will most likely retain about thirty percent of the material.

Discussion 50%
Discussions will allow you to retain about fifty percent of the material you discussed.

Practice by Doing 75%
This is where test banks come in handy. You retain about seventy five percent of the things that you practice doing. For example, taking the multiple choice questions that is formatted like the Uniform CPA Examination.

Teach Others 90%
The number one way to retain study material is by teaching others.

Ways to Avoid Exam Preparation Burn Out

Hi future CPAs,

It is easy for CPA candidates to become burnt out after intense studying and reviewing of CPA Examination material. I have to constantly remind myself to take it step by step. I make sure that I get some leisure active in my life and look at other subjects besides accounting, auditing, business law, taxation, etc. Its a good thing I have my family members around me that drags me away from my studies, they sort of remind me to chill out and enjoy life too.

Today I got up early and did the usual Wiley Testbank multiple choice questions and simulation questions. Afterwards, I spent the day enjoying my time with the kids. We swam a few laps in the pool, read some books, and did some shopping. Then we ate a nice dinner at Olive Garden. Some days you have to take it easy to avoid being burned out from the stress of  over studying. After spending a lot of time reading about the same subject, it feels relaxing to discuss new interests with others.

I view the CPA Exam as a marathon. Just as beginner marathon runners have to train up to the point where they can run 26 miles none stop, so too CPA candidates have to train themselves to be able to sit in for sections of the exam lasting for hours. Most beginning runners must train for at least six months. As part of their train regiment, they would include a great diet, good sleep habits, consistent gradual training. I don't think the mind is any different from training the body. Adequate rest and nutrition are very important for both a person's body and mind.

Make sure to enjoy your summer by including frequent breaks and leisure activities during your exam preparation. This would most likely make your study session more robust.

Some ways to avoid exam burn out:

• Study in different places (beach, pool area, park, library)
• Take frequent breaks and dedicate some days out of the week for rest days
• Have a support system (i.e., supporting family members, study groups)
• Socialize more often
• Do leisure activities that are fun to you
• Don't stress yourself by trying to take multiple sections all together--space them out.

Which Exam Strategy Fits You

Hi everyone,

If you had to take a very difficult multi-part exam to take, would you take the most complicated parts first or most simplest parts first? What if you had a time frame to complete the exams and if you don't pass all the parts on time you may lose credit for the first parts that you completed? When it comes to deciding which section of the Uniform CPA Examination to take first, candidates generally have three approaches: hardest to easiest, easiest to hardest, and randomly picking one.


Hardest to Easiest
The rationale that I have heard most for candidates picking the hardest to easiest sections you can save time and money because you reducing the possibility of losing credit for a previously passed section. The Uniform CPA Examination does not have to be taken all at once but candidates have 18 months to pass all sections of the exam. The time starts ticking with your first pass. Let's say I sat in for Auditing and Attestation and its the hardest section for me. Suppose I took 3 tries before I passed it, once I pass it on the third try my 18 months time frames starts. If pass all the other sections within the 18 months period, I would not lose any credit. Suppose I took all the easy sections first and passed them without a problem, then took AUD and failed a couple of times. I run the risk of losing credit some or all the sections I had previously taken if it took me over 18 months to pass my hardest section. I have hard of horror stories where candidates will lose credit for a section that their initially passed easily but failed the second time around because new material and updates have been added to the section.

Easiest to Hardiest
The common rationale that I have heard for going with a candidate's most easiest section first is the establishment of confidence early. Having the first pass will boost confidence and reduce test anxiety. If some candidates take their hard section first and failed once or two consecutive times, they may get highly discouraged from continuing the examination process. Additionally, by taking the easiest section first candidates may become familiar with the test and know what to expect on test day. By the time candidates get to their hardest section their test anxiety may be lower.

My Exam Strategy
It depends on each individual candidate. You have to know yourself and work on improving your weak areas. For example, my written communication skill is not so strong, therefore I will save Business Environment and Concepts for last and continue to work on my writing every chance I get. Personally, I will go with exam strategy of easiest to hardest. I'm giving myself enough time to review thoroughly for each section and I need to build up my confidence that I will pass each section the first time.

I'll like to hear from you. Leave a comment below to let me know which strategy you prefer and why.

Thanks.

What is the Main Focus of FAR

As I have mentioned a few blog posts back, the American Institute of Certified Public Accountant (AICPA) tells us what is going to be on each section of the Uniform CPA Examination. As a CPA candidate you should get familiar with the Content Specification Outline and Skills Specification Outline (CSO/SSO) for the four sections. The CSO/SSO is a pdf document put together by AICPA examination board. I'm going to take the time to highlight some of the main foci of the Financial Accounting Reporting (FAR) section.By the way the four sections of the Uniform CPA examination are Auditing and Attestation (AUD), Financial Accounting and Reporting (FAR), Regulations (REG), and Business Environment and Concepts (BEC).

The FAR section of the Uniform CPA Examination tests your knowledge and understanding of the financial reporting framework used by business enterprises, not-for-profit organizations, and governmental entities. You should know how the standard setting bodies, such as FASB, GASB, IASB, FASAB, SEC, etc., set standards for accounting and reporting financial information for each respective organization type (public companies, government entities, non-for-profits, etc.). The Accounting Standard Codification (ASC) system should be familiar to you. The ASC is now the sole authority for GAAP for public companies. An awareness of International Financial Reporting Standards (IFRS) will also be helpful--IFRS is set by the International Accounting Board (IASB)

ContentAndSkills CSOs-SSOs-Effective.Jan2013

The CSO/SSO document provides suggested reference sources for CPA candidates to use to further study the topics skill requirements covered in FAR and the other sections.  The areas of the FAR section are listed below:

Conceptual Framework, Standards, Standard Setting, and Presentation of Financial Statements (17% - 23%)

Financial Statement Accounts: Recognition, Measurement, Valuation, Calculation, Presentation, and Disclosures (27% - 33%)

Specific Transactions, Events and Disclosures: Recognition, Measurement, Valuation, Calculation, Presentation, and Disclosures (27% - 33%)

Governmental Accounting and Reporting (8% - 12%)

Not-for-Profit (Nongovernmental) Accounting and Reporting (8% - 12%)


Suggested References for Financial Accounting and Reporting: 

• Financial Accounting Standards Board (FASB) Accounting Standards Codification
• Governmental Accounting Standards Board (GASB) Codification of Governmental Accounting and Financial Reporting Standards
• Standards Issued by the U. S. Securities and Exchange Commission (SEC):
o Regulation S-X of the Code of Federal Regulations (17 CFR Part 210)
o Financial Reporting Releases (FRR)/Accounting Series Releases (ASR)
o Interpretive Releases (IR)
o SEC Staff Guidance in Staff Accounting Bulletins (SAB)
o SEC Staff Guidance in EITF Topic D and SEC Staff Observer Comments
o Regulation S-K of the Code of Federal Regulations
• International Accounting Standards Board (IASB) International Financial Reporting Standards (IFRS), International Accounting Standards (IAS), and Interpretations
• AICPA Auditing and Accounting Guides
• Codification of Statements on Auditing Standards
o AU-C Section 800, Special Considerations – Audits of Financial Statements Prepared in Accordance with Special Purpose Frameworks
• Current textbooks on accounting for business enterprises, not-for-profit organizations, and governmental entities
• FASB Concept Statements
• GASB Concept Statements
• The IASB Conceptual Framework for Financial Reporting

Top Websites to visit if you are interested in becoming an Accounting or CPA

If you are thinking of pursuing a career in accounting there are some website that are designed just for you. The American Institute of Certified Public Accountants (AICPA) have created the website: http://www.aicpa.org/Pages/Default.aspx for members of the CPA community. AICPA have also created an other website for non-professionals that are thinking of entering the field on accounting: https://www.thiswaytocpa.com/. These two websites will provide you with tons of information about the accounting professional and also information for scholarships. Every year AICPA and other institutions like NASBA give away money to business and accounting majors. So check them out if you are interesting in becoming a CPA accountant.

NASBA also have tons of information about the Uniform examination and your state accountancy board. NASBA even have information for international accounting students that are seeking CPA certification and license. Their website address is http://nasba.org/.

The process could be overwhelming but if it doesn't have to be you live in an information age. If you have questions you can contact your state board of accountancy and talk to them directly. NASBA's website will have the link for your state's accountancy board. You can also leave comments or questions below. And I will help you or guide you in the right direction.

To read more about the outlook of the accounting profession go to http://bls.gov/ooh/business-and-financial/accountants-and-auditors.htm

5 Ways to Stay Disciplined and Motivated for the CPA Exam Review

 Hi everyone,

          Welcome to my blog that highlights my journey to getting my CPA license. As I have mentioned in previous blog postings, I have completed two out of the four E's of the CPA licensing process. I have met the education requires and the experience requirements for the state accountancy board of California. Now, I just have to pass the CPA Uniform Examination and fulfill the ethics requirements. The most difficult hurdle to overcome is the CPA Uniform Examination. There are extensive material to retain at once, so the cramming that is usually done by college students will not work for any of the sections of this exam. The exam review process requires a long term study program. During the days of review, some weeks I find myself not really reviewing as I should  be. I get really distracted by all the things happening in my life. I'm a family guy and I have children. I also work full time and going to school at Argosy University business school. I want to focus this post on how I try to maintain good study habits when there are tons of competing factors for my time and attention.

First thing in the morning
         The one thing that I have found that works well for me is to do my reviews early in the morning. I try to go to bed early at night so I can wake up early before my children wake up. Being up early means I have a lot of alone time to review the topics that I planned to cover that day. Once my wife and children wake up the madness starts and the chance of squeezing study time in my busy schedule becomes very slim. I can't say no to any of my kids and wife when they ask me for something.

Follow a set routine
       Another factor that affects my study habits is having a routine. I will forget to study some times before I developed a routine. This is good advise for anyone studying for a standardize examination. Get in the habit of studying for a set amount of time consistently. Let your friends and family know about your routine so that they will support your efforts.

Live a healthy lifestyle
      This is something new I recently incorporated as part of my study plan. When I was in the United States Marine Corps., I noticed that I was more efficient with my college studies because of the active lifestyle and getting enough sleep at night. The discipline of sleeping 8 hours every night will add value to your ability to concentrate during your review and come exam day. Eating right will also help. Additionally, I have started training for the San Diego Rock'n'Roll Marathon for next year's race. And I have also quit smoking cigarettes.

Have a reward system
       I'm a big procrastinator, especially if no one is holding me accountable for completing a task. To motivate myself, I set short, intermediate, and long term goals. After completing any goal, I reward myself with a healthy treat like going to the pool for a swim or going to the beach with the family. I try to keep the rewards as close to proportion as the task I accomplished--i.e., for completing a long term goal I will reward myself with something "big".

Measure your progress
        I know I work harder when I measure my progress. Whenever I realize that reaching my goals are possible, I tend to work harder to achieve them. Assessments bring a positive attitude that  gives me the confidence and will to tackle each new topic aggressively.

The Main Emphasis of AUD

ContentAndSkills CSOs-SSOs-Effective.Jan2013

As part of preparing for Auditing and Attestation (AUD) section of the Uniform Examination, one should STUDY the latest Content and Skill Specification outline that the American Institute of Certified Public Accountant provides on their website. The AICPA Examination Board puts together an outline that tells CPA candidates what is going to be tested and how. For example, AUD's main emphasis is test candidate's knowledge and understand of professional auditing standards. Candidates are should be aware of international standard setting bodies and the audit standards that they have promulgated for the international community.

Another thing that candidates should keep in mind is that there are different standard setting bodies for different types of companies. For example, auditors that audit public companies that issue stock to the general public have to follow audit standards set by the Public Company Accounting Oversight Board (PCAOB). The board was the direct result of the security law introduced in 2002 as the Sarbanes-Oxley Act which calls for stricter auditing guidelines and accountability by both the auditors and officers of the corporation.

For non-issuers or non-public companies, the AICPA continues to provide auditing standards for auditors to follow. For example, when doing a compilation or review of financial statements engagement on non-public companies, the auditor needs to follow SSARS 19.

The neat thing about the Content and Skill Specification Outline is that it provides a list of references for candidate to use to further study important topics that may show up in the examination. The list below is an example of some of the auditing standards that candidates can research to build their knowledge and understanding of auditing and attestation.

AICPA Statements on Auditing Standards and Interpretations
• Public Company Accounting Oversight BoaThe latest CSO/SSO as of June 2013rd (PCAOB) Standards (SEC-Approved) and Related Rules, PCAOB Staff Questions and Answers, and PCAOB Staff Audit Practice Alerts
• U.S. Government Accountability Office Government Auditing Standards
• Single Audit Act, as amended
• Office of Management and Budget (OMB) Circular A-133
• AICPA Statements on Quality Control Standards
• AICPA Statements on Standards for Accounting and Review Services and Interpretations
• AICPA Statements on Standards for Attestation Engagements and Interpretations
• AICPA Audit and Accounting Guides
• AICPA Code of Professional Conduct
• IFAC Code of Ethics for Professional Accountants
• Sarbanes-Oxley Act of 2002
• Department of Labor Guidelines and Interpretive Bulletins re: Auditor Independence
• SEC Independence Rules