CPA Exam (Core) Exam-Day Cheat Sheet
High-yield reference matrices, critical rules, classification charts, and formula cheat sheets for the Uniform CPA Examination (FAR, AUD, REG).
📌 Quick Summary / Core Test Principles:CPA Core Rules: FAR: ASC 606 5 Steps: 1. Identify contract, 2. Identify performance obligations, 3. Determine transaction price, 4. Allocate price, 5. Recognize revenue when/as obligations satisfied. ASC 842: Lessee records ROU Asset and Lease Liability for all leases > 12 months. AUD: Audit Risk = Inherent Risk * Control Risk * Detection Risk (RMM = IR * CR). Confirmations: Positive requires response; negative assumes agreement if no response received. REG: Sec 351: 80% control group required for tax-free corporate formation. Sec 179 expensing: Subject to annual threshold and taxable income limits. Basis: Liquidating partnership distribution reduces outside basis to zero; loss recognized only if only cash/unrealized receivables/inventory received.
FAR Accounting
FASB ASC 606 5-Step Revenue Recognition Operational Framework
| Step Number | Step Name | Core GAAP Requirement | Common CPA Exam Trap |
|---|---|---|---|
| Step 1 | Identify the Contract | Enforceable rights/obligations, commercial substance, collection probable | Oral or implied contracts are valid if legally enforceable |
| Step 2 | Identify Performance Obligations | Distinct goods or services capable of being distinct within context of contract | Bundled installation + software may be 1 or 2 obligations |
| Step 3 | Determine Transaction Price | Amount entity expects to receive, factoring in variable consideration constraint | Variable bonus constrained unless reversal is improbable |
| Step 4 | Allocate Transaction Price | Allocate based on relative standalone selling prices (SSP) | Never allocate based on cost plus margin if standalone price exists |
| Step 5 | Recognize Revenue | Recognize when/as entity satisfies performance obligation (over time or point in time) | Revenue recognized over time only if customer controls asset as created |
💡 Pro Tip:Variable consideration must be constrained: include in transaction price ONLY if probable that a significant revenue reversal will NOT occur.
FAR Leases
FASB ASC 842 Lessee Lease Classification Criteria Matrix
| Classification Criterion | Finance Lease (Meets ANY 1) | Operating Lease (Meets NONE) | Balance Sheet Presentation |
|---|---|---|---|
| 1. Transfer of Ownership | Title transfers to lessee by end of lease term | Title remains with lessor | Finance: Amortization Expense + Interest Expense |
| 2. Purchase Option | Lessee is reasonably certain to exercise purchase option | No purchase option or not reasonably certain | Operating: Single straight-line Lease Expense |
| 3. Lease Term | Term is for major part (>= 75%) of asset economic life | Term is < 75% of economic life | Both record Right-of-Use (ROU) Asset + Lease Liability |
| 4. Present Value | PV of lease payments >= substantially all (>= 90%) fair value | PV of payments < 90% of fair value | Short-term lease (<= 12 months) can elect off-balance sheet |
| 5. Specialized Asset | Asset is specialized with no alternative use to lessor | Asset has alternative use to lessor | Amortization of ROU asset is straight-line for operating |
💡 Pro Tip:All leases longer than 12 months appear on the balance sheet as Right-of-Use (ROU) Assets and Lease Liabilities under ASC 842.
AUD Reporting
AICPA AU-C Audit Report Opinions & Paragraph Structuring Matrix
| Audit Opinion | GAAP Departure (Misstatement) | Scope Limitation (Evidence Inability) | Key Report Wording |
|---|---|---|---|
| Unmodified (Clean) | None (or immaterial misstatements) | Sufficient appropriate evidence obtained | 'Present fairly, in all material respects' |
| Qualified ('Except For') | Material, but NOT pervasive departure | Material, but NOT pervasive scope restriction | 'In our opinion, except for the effects of the matter...' |
| Adverse | Material AND pervasive departure from GAAP | N/A (GAAP departure only) | 'Do not present fairly' |
| Disclaimer | N/A (Scope limitation only) | Material AND pervasive scope restriction / lack of independence | 'We do not express an opinion on these financial statements' |
| Emphasis-of-Matter | Required for going concern or accounting principle change | Does NOT modify the unmodified audit opinion | Placed immediately after the Opinion paragraph |
💡 Pro Tip:Pervasive is the watershed test: a material GAAP departure that affects multiple accounts or represents a substantial proportion of statements turns a Qualified opinion into Adverse.
REG Entity Taxation
Entity Tax Formation & Basis Rules: C-Corp vs S-Corp vs Partnership
| Tax Feature | C-Corporation (IRC Sec 351) | S-Corporation (IRC Sec 351 / 1366) | Partnership (IRC Sec 721) |
|---|---|---|---|
| Tax-Free Formation Test | 80% control group immediately after transfer (solely stock) | 80% control group immediately after transfer | No 80% control requirement (any partner contribution tax-free) |
| Boot Received | Gain recognized up to cash/property boot received | Gain recognized up to boot received | Gain recognized only if cash exceeds outside basis |
| Entity Level Tax | Yes: Flat 21% federal corporate income tax (Form 1120) | No: Pass-through entity (Form 1120-S, Schedule K-1) | No: Pass-through entity (Form 1065, Schedule K-1) |
| Debt in Owner Basis | Shareholder gets ZERO basis for corporate debt | Direct shareholder loans increase basis; 3rd-party bank debt = $0 | Both recourse & nonrecourse partnership debt increase outside basis |
| Distribution Taxability | Taxable dividends to extent of Current & Accumulated E&P | Tax-free to extent of AAA and stock basis, then capital gain | Tax-free return of basis; cash distributions in excess of basis = gain |
💡 Pro Tip:Partnership outside basis includes partnership bank debt (Sec 752); S-Corporation shareholder basis does NOT include bank debt, only direct loans from the shareholder.
REG Property Tax
IRC Section 1031 Like-Kind Exchange & Depreciation Recapture
| Transaction Element | Section 1031 Real Estate Rule | Section 1245 Personal Property | Section 1250 / Unrecaptured 1250 |
|---|---|---|---|
| Eligible Property | Real property held for productive business or investment use | Depreciable personal property (machinery, vehicles) | Depreciable real property (commercial buildings, rentals) |
| Gain Recognition Trigger | Boot received (cash, net mortgage relief, non-like-kind property) | Ordinary income recapture up to total depreciation taken | Unrecaptured Sec 1250 gain taxed at maximum 25% capital rate |
| Substituted Basis Formula | Old Basis + Gain Recognized - Boot Received = New Basis | Basis reduced by allowed or allowable depreciation | Basis reduced by straight-line depreciation |
| Identification Timeline | Replacement property must be identified within 45 days | N/A (Taxable disposition) | N/A |
| Closing Timeline | Replacement property must close within 180 days (or return due date) | N/A | N/A |
💡 Pro Tip:TCJA restricted Section 1031 strictly to REAL property; personal property (equipment, machinery) no longer qualifies for like-kind tax deferral.
REG Ethics & Circular 230
Treasury Circular 230 Standards & Section 6694 Tax Preparer Penalties
| Legal Standard | Probability Benchmark | Disclosure Required? | Applicable IRC / Circular 230 Rule |
|---|---|---|---|
| Frivolous | < 5% probability of success | Cannot be cured by disclosure (strictly prohibited) | IRC Sec 6694(b) Willful or reckless conduct ($5,000 fine) |
| Reasonable Basis | >= 20% probability of success | YES: Mandatory disclosure on Form 8275 or 8275-R | Protects against negligence and substantial understatement penalties |
| Substantial Authority | >= 40% probability of success | NO disclosure required for non-tax-shelter items | Minimum standard for undisclosed return positions |
| More Likely Than Not | > 50% probability of success | Mandatory standard for tax shelters & reportable transactions | Required to avoid penalty on listed transactions |
| Contingent Fees | Prohibited under Circular 230 Sec 10.27 | Except for IRS examination or amended return refund claim | Contingent fees based on return refund percentage are illegal |
💡 Pro Tip:A tax return preparer cannot endorse or negotiate a client's refund check under any circumstances; doing so carries an immediate $500+ penalty per check (IRC 6695(f)).