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All About the Regulation Section of the CPA Exam

Editor’s note: this is the second in our 5-part series this week on the CPA exam. You can find Monday’s Auditing and Attestation breakdown here and stay tuned for the other two parts as well as an ethics wrap-up later in the week. As always, if you have a CPA exam question for us, get in touch.

So, let’s talk Regulation!

Good news: Like Audit, REG tends to have a slightly higher national pass rate than other sections (specifically BEC and FAR) and though business structures can drag, the tax stuff is fairly cut-and-dry. You won’t have to remember tax numbers as most of this information is provided so don’t obsess too much over specific numbers for the year, just stick to the concepts!

Bad news: Business structures can drag and the tax stuff is cut-and-dry. This means Regulation can be one of the most difficult sections to motivate yourself to study unless you are really, really into taxes.

Regulation is a 3 hour exam and is the only section to consist of three testlets of 24 multiple choice questions each (as opposed to other sections which contain 30 MCQ in each testlet). Because it is a shorter exam compared to other sections, that means that you have about 1.25 minutes to complete each question (30 minutes per testlet, leaving you 45 minutes for each simulation).

The AICPA BoE has set the following target weights for skills testing:

Communication (0% – 14%)
Research (9% – 19%)
Analysis (13% – 23%)
Judgment (8% – 18%)
Understanding (45% – 55%)

Based on the Content Specification Outlines, Regulation covers the following areas:

Ethics and professional responsibility (15% – 20%) Professional conduct, independence, confidentiality, due care… you know, all the good stuff that makes you a CPA. Keep in mind this area will no longer be covered in REG after 2011.

Business law
(20% – 25%) Formations and terminations of businesses, authority of agents and principals, debtor-creditor relationships, government regulation (federal securities acts – heavy tested!!), negotiable instruments, insurance.

Federal tax procedures and accounting issues (8% – 12%) Just as it sounds, this area covers federal tax procedures as well as cash, accrual, percentage of completion, contract and installment sales.

Federal taxation of property transactions
(8% – 12%) Assets, depreciation and amortization, exchanges, and capital gains.

Federal taxation – individuals
(12% – 18%) Gross income, pass-through entities, exemptions, AMT, retirement, estate and gift taxes.

Federal taxation – entities (22% – 22%) S-Corps, partnerships, LLCs, LLPs, and trusts.

Studying for REG should take between 80 and 100 hours depending on how familiar you are with the concepts before you begin studying and your professional experience with the material. Obviously if you work in tax you’ve got a leg up and can spend a little less time reviewing taxation.

Good luck and join us tomorrow as we review BEC!