2019 CPA Exam Changes

TOP 2 CHANGES TO THE 2019 CPA EXAM

Learn about the top 2 changes to the 2019 CPA Exam and how our patent pending SmartPath Predictive Technology will help you pass faster than ever before.

We understand the importance of providing students with everything they need to successfully prepare for and take the CPA Exam. Our expert team of CPAs worked hard to ensure our 2019 course materials addressed the July 2019 CPA Exam changes that were eligible for testing on July 1, 2019. Our course was updated by June 11, 2019 to accommodate the July 1st revisions.

The updates in our course software not only prepared students for the changes, but also gave them the confidence and resources they needed on Exam day. See revisions below for each 2019 CPA Exam section.

AUDITING AND ATTESTATION (AUD)

Blueprints: The 2019 AUD Blueprints do not include any additional or eliminated content areas. However, there have been revisions to add more detail on professional skepticism and Audit Data Analytics (ADAs). Note that these updates do not change the nature or scope of content eligible for testing.

Added references to professional skepticism in the section introduction:
- Professional skepticism reflects an iterative process that includes a questioning mind and a critical assessment of audit evidence. It is essential to the practice of public accounting and the work of newly licensed CPAs.
Added a Topic in Area I, Group B titled “Professional skepticism and professional judgment” with the following remembering and understanding task statements:
- Understand the concepts of professional skepticism and professional judgment.
- Understand personal bias and other impediments to acting with professional skepticism, such as threats, incentives and judgment-making shortcuts.
Added an analysis representative task statement in Area III, Group A – Performing Further Procedures and Obtaining Evidence – Understanding sufficient appropriate evidence, as follows:
- Investigate evidence that either contradicts or corroborates management explanations, expectations and other hypotheses throughout an audit or non-audit engagement.
Revised the analysis representative task statement in Area III, Group C, Topic 3 – Performing Further Procedures and Obtaining Evidence – Performing specific procedures to obtain evidence – Inquiry of management and others, as follows:
- Analyze responses obtained during structured or informal interviews with management and others, including those in non-financial roles, and ask relevant and effective follow-up questions to understand their perspectives and motivations in an audit or non-audit engagement.
Added an analysis representative task statement in Area III, Group C, Topic 6 – Performing Further Procedures and Obtaining Evidence – Performing specific procedures to obtain evidence – All other procedures, as follows:
- Modify planned procedures based upon new information, such as inconsistent explanations, new evidence and environmental cues, to achieve audit objectives in an audit of an issuer or a nonissuer.
Revised the 3rd bullet under the Area II description:
- Assessing Risks and Planning Further Procedures — Identifying and assessing risks of misstatement due to error or fraud and developing appropriate engagement procedures, including understanding and calculating materiality and considering specific engagement risks, as well as incorporating concepts such as audit data analytics, group audits, using the work of the internal audit function and the work of specialists.
Revised the 1st sentence in the description of Area III:
- Area III of the AUD section blueprint covers performing engagement procedures and concluding on the sufficiency and appropriateness of evidence obtained, including performing specific types of procedures (e.g., analytical procedures, analytical procedures using audit data analytics, observation and inspection, recalculation and reperformance); testing the operating effectiveness of internal controls; performing tests of compliance and agreed-upon procedures; understanding and responding to specific matters that require special consideration (e.g., accounting estimates, including fair value estimates); evaluating and responding to misstatements due to error or fraud and to internal control deficiencies; obtaining management representations; and performing procedures to identify and respond to subsequent events and subsequently discovered facts.
Revised the application representative task statements in Area II, C, 4:
- Identify and document an entity’s key IT general and application controls, their impact on the audit of an entity’s financial statements, including an audit of an entity’s internal controls, and consider the effect of these controls and manual controls on the completeness and reliability of an entity’s data.
- Perform and document tests of an entity’s key IT general and application controls, their impact on the audit of an entity’s financial statements, including an audit of an entity’s internal controls, and consider the effect of these controls and manual controls on the completeness and reliability of an entity’s data.
Added an analysis representative task statement in Area II, E, 3:
- Assess risks of material misstatement using audit data analytic outputs (e.g., reports and visualizations) to determine relationships among variables and interpret results to provide a basis for developing planned audit procedures.
Added an analysis representative task statement in Area III, C, 1:
- Perform analytical procedures using outputs from audit data analytic techniques to determine relationships among variables and interpret results in an audit or non-audit engagement.
Added two analysis representative task statements in Area III, C, 6:
- Determine the attributes, structure and sources of data needed to complete audit data analytic procedures.
- Use audit data analytic outputs to determine relationships among variables and interpret results to meet objectives of planned procedures in an audit or non-audit engagement.

Content: The AUD section of the Exam will see some slight adjustments in content for 2019, including:

BUSINESS ENVIRONMENT AND CONCEPTS (BEC)

Blueprints: There have been revisions to the July 2019 BEC Blueprints to add clarification and reorganize the material. However, the revisions do not significantly change the content eligible for testing. More specifically, these changes:

Clarify the Section introduction by:
- Replacing the description of Area I with the following:
  - Area I of the BEC section blueprint covers several topics related to Corporate Governance, including the following:
    - Knowledge and use of internal control frameworks
    - Knowledge and use of enterprise risk management frameworks
    - Identifying key corporate governance provisions of regulatory frameworks and laws such as the Sarbanes-Oxley Act of 2002
- Replacing the description of Area IV with the following:
  - Area IV of the BEC section blueprint covers several topics related to Information Technology (IT), including the following:
    - Understanding the role of IT and systems, including the use of data in supporting business decisions.
    - Identifying IT-related risks associated with an entity’s information systems and processes, such as processing integrity, protection of information and system availability, including those risks introduced by the relationships with third-parties.
    - Identifying application and IT general control activities, whether manual, IT dependent or automated, that are responsive to IT-related risks, such as access and authorization controls, system implementation testing and incident response plans.
  - Adding a reference:
    - COSO-issued application material, thought papers and guides related to the above frameworks
Reorganize Area IV, Information Technology, to clarify the nature and scope of content. The following representative tasks have been revised as follows:
- Area IV, A, 1 – Understanding of information technology (IT) – Organization and governance: Identify the role of information systems (e.g., enterprise and application systems) in key business processes (e.g., sales, cash collections, purchasing, disbursements, human resources, payroll, production, treasury, fixed assets, general ledger and reporting).
- Area IV, A, 3 – Understanding of information technology (IT) – Data:
  - Understand key characteristics of a relational database (e.g., data dictionary, data types, tables, records, fields, relationships, keys, views, queries and reports).
  - Recognize the role of big data in supporting business decisions.
- Area IV, A, 3 – Understanding of information technology (IT) – Data: Use business intelligence (including data analytics and statistics) to support business decisions.
- Area IV, B, 1 – Risks associated with IT – Risk assessment: Identify IT-related risks and describe mitigation strategies given risk severity, probability and costs.
- Area IV, B, 2 – Risks associated with IT – System development and maintenance: Determine the fundamental issues and risks associated with selecting, developing and implementing new information systems or maintaining existing information systems.
- Area IV, Group B, Topic 3 – Risks associated with IT – Processing integrity: Determine the risks associated with ensuring the completeness, accuracy and continued processing integrity in input, storage, processing and output processes.
- Area IV, Group B, Topic 3 – Risks associated with IT – Processing integrity: Determine the risks associated with ensuring the completeness, accuracy and continued processing integrity in input, storage, processing and output processes.
- Area IV, B, 4 – Risks associated with IT – Security, availability, confidentiality and privacy:
  - Identify the risks (e.g., cybersecurity and internal) associated with protecting sensitive and critical information (e.g., proprietary and personal information) within information systems (including processing, storing and transmitting information internally and with external parties).
  - Perform threat identification to identify risks related to information confidentiality.
- Area IV, B, 4 – Risks associated with IT – Security, availability, confidentiality and privacy: Perform threat identification to identify risks related to system availability.
- Area IV, C, 1 – Controls that respond to risks associated with IT – Application controls: Determine the role and appropriateness of input, storage, processing, and output application controls (e.g., authorizations, approvals, tolerance levels, input edits and configurations) to support completeness, accuracy and continued processing integrity.
- Area IV, C, 2 – Controls that respond to risks associated with IT – General IT controls:
  - Understand the controls and testing strategies used in selecting, developing and implementing new information systems.
  - Identify effective IT control activities, including manual, IT dependent and automated controls, as well as preventive, detective and corrective controls.
- Area IV, C, 3 – Controls that respond to risks associated with IT – Logical and physical controls: Identify logical and physical access controls (e.g., roles and rights and segregation of duties).
- Area IV, C, 3 – Controls that respond to risks associated with IT – Logical and physical controls:
  - Identify the controls associated with protecting sensitive and critical information (e.g., proprietary and personal) within information systems.
  - Determine responses to information system confidentiality risks (e.g., incident response plan).
- Area IV, C, 4 – Controls that respond to risks associated with IT – Continuity and recovery plans: Determine responses to system availability risks (e.g., data backup and recovery procedures and alternate processing facilities).

Content: There are no new content updates to BEC for 2019.

FINANCIAL ACCOUNTING AND REPORTING (FAR)

Blueprints: The FAR Blueprints have one change in response to ASU 2016-14: Presentation of Financial Statements of Not-for-Profit Entities (eligible for testing on January 1, 2019).

Added a Topic titled “Notes to the financial statements” to Area I, C – Conceptual Framework, Standard-Setting and Financial Reporting – General-purpose financial statements: nongovernmental, not-for-profit entities with the following application task statement:
- Adjust the notes to the financial statements to correct identified errors and omissions.

Content: The most prominent change to the FAR Exam in 2019 is to the highly tested topic, Leases (ASU 2016-02, 2018-01, 2018-10, 2018-11, 2018-20 and IFRS 16). You’ve probably already heard about it since the standards have been out since 2016, but just in case you haven’t, you might like to know that “off-balance sheet financing” has been eliminated. Operating leases must now be recognized by the lessee on the balance sheet (except for short-term leases of 12 months or less). Previously, only capital leases (now called “finance leases”) were recognized on the balance sheet. It’s important to note that IFRS 16 is slightly different in that it essentially considers all leases to be finance leases unless they are worth $5,000 or less.

You might also note that several bright-line tests have been removed and more judgement is now required, making the standard slightly more difficult to apply. For example, there is no more “bargain purchase option” for purposes of determining whether a lease is a finance lease. A purchase option must now be “reasonably certain to be exercised”; i.e., it no longer really matters whether it is a bargain or not.

In addition to this major lease accounting makeover, there are a few other minor modifications that are testable in 2019:

REGULATION (REG)

Blueprints: The revisions made to the REG Blueprint in January of 2019 were to accommodate tax reform. The mid-year Blueprint changes merely provide clarification and do not change the nature and scope of content eligible for testing.

Revised existing analysis task statement in Area III, Group B – Federal Taxation of Property Transactions – Cost recovery (depreciation, depletion and amortization) to read as follows:
- Compare the tax benefits of the different expensing options for tax depreciation for federal income tax purposes.
Added an application representative task statement in Area IV, Group C – Federal Taxation of Individuals (including tax preparation and planning strategies) – Adjustments and deductions to arrive at adjusted gross income and taxable income, as follows:
- Calculate the qualifying business income (QBI) deduction for federal income tax purposes.
Removed reference to personal exemptions from Group F of Area IV, Federal Taxation of Individuals (including tax preparation and planning strategies) – Filing status and exemptions, deleted two task statements on personal exemptions, and added the following remembering and understanding task statement:
- Recall relationships meeting the definition of dependent for purposes of determining taxpayer filing status.
Removed references to alternative minimum tax for C Corporations and removed task statements focused solely on testing alternative minimum tax for C Corporations in Area V, Group C, Topic 1 – Federal Taxation of Entities (including tax preparation and planning strategies) – C Corporations – Computations of taxable income, revising existing task statements as follows:
- Calculate the credits allowable as a reduction of tax for a C corporation.
- Analyze the impact of net operating and/or capital losses during tax planning for a C corporation.
Added remembering and understanding representative task statements in Area V, Group C, Topic 5 – Federal Taxation of Entities (including tax preparation and planning strategies) – C Corporations – Multijurisdictional tax issues (including consideration of local, state and international tax issues), as follows:
- Identify situations where the base erosion and anti-abuse tax (BEAT) would apply.
- Identify factors that would qualify income as Foreign Derived Intangible Income (FDII).
- Define the components of Global Intangible Low-Taxed Income (GILTI).
Revised the 2nd application representative task statement in Area V, Group E, Topic 7 – Federal Taxation of Entities (including tax preparation and planning strategies) – Partnerships – Ownership changes, as follows:
- Calculate the revised basis of partnership assets due to a transfer of a partnership interest for federal income tax purposes.
Added to the Section introduction – The REG section of the Exam includes multiple-choice questions, task-based simulations and research prompts. Candidates should assume that the information provided in each question is material and should apply all stated assumptions. To the extent a question addresses a topic that could have different tax treatments based on timing (e.g., alimony arrangements or net operating losses), it will include a clear indication of the timing (e.g., use of real dates) so that the candidates can determine the appropriate portions of the Internal Revenue Code or Treasury Regulations to apply to the question. Absent such an indication of timing or other stated assumptions, candidates should assume that transactions or events referenced in the question occurred in the current year and should apply the most recent provisions of the tax law in accordance with the timing specified in the CPA Exam Policy on New Pronouncements.
Area III, A, 4 – Federal Taxation of Property Transactions – Acquisition and disposition of assets – Related party transactions (included imputed interests):
- Calculate the direct and indirect ownership percentages of corporation stock or partnership interests to determine whether there are related parties for federal income tax purposes.
Area III, C, 3 – Federal Taxation of Property Transactions – Estate and gift taxation – Determination of taxable estate:
- Recall assets includible in a decedent’s gross estate for federal estate tax purposes.
- Recall allowable estate tax deductions for federal estate tax purposes.

Content: Most of the 2019 REG Exam changes are due to tax reform. The Tax Cuts and Jobs Act of 2017 (TCJA) has impacted all tax sections, which can account for as much as 80% of the REG Exam. To get an idea of how extensive the changes are, we have provided a PARTIAL list of some of the most important changes: