REG Exam Format and Content

The regulation (REG) test covers 3 broad areas of the CPA exam. You’ll see test questions on business law, ethics and taxation. The test includes 72 multiple-choice questions and 6 simulation questions. The candidate has four hours to complete the test. Use these tips to understand the test topics and improve your test score.

 

Business law concepts

The legal concepts on the REG test are similar to the topics covered in a business law class. Many CPA candidates are required to take a business law class as part of their education requirement. Each state has slightly different requirements, but many candidates take a law class. If you’ve had one of these classes, it’s a big advantage.

The concept of agency is frequently tested on the exam. Agency refers to the relationship between a worker (agent) and the employer (principal). A CPA needs to understand the type of authority a principal grants to a worker. The level of authority impacts the employer’s potential liability.

Many business relationships are created by contract. You’ll answer questions on how a contract is formed. If one party doesn’t perform their responsibilities, the other party to the contract can demand that the contract be fulfilled.

As your study these questions, think about those business law topics from your undergraduate class.

 

Growing importance of ethics

Ethics has become a more frequently tested topic on the CPA exam. After the Enron collapse of the early 2000s, Congress passed new ethics requirements for CPAs.

CPAs must follow the AICPA’s Code of Professional Conduct. Many REG test questions relate to this code. CPAs must exercise good judgment and act in the best interest of the public. Investors, lenders, regulators and the general public all rely on financial statements. It’s important that CPAs produce accurate financial statements.

A CPA firm needs to be independent from their clients. Even the appearance of a conflict of interest can be a problem. Now, apply some common sense here. If the CPA has an additional relationship with the client, the CPA is not independent. If the CPA isn’t independent, he or she can’t be objective in their work.

Say, for example, that Jill the CPA owns a business that supplies raw material for the customer’s products. If the Jill the CPA is working on an audit or preparing the client’s tax return, she can’t be objective. After all, Jill’s work may impact the client’s ability to order raw materials from her outside company. Jill the CPA should not do accounting work for this client.

 

Taxation

OK- many CPA candidates cringe at the thought of studying for taxation questions. I get it. These questions can be tedious, particularly if you don’t do tax work on a regular basis. The tax questions require you to learn many facts and figures about tax rates, income amounts, etc.

I’ve found that stepping back from taxation and getting a broad view can help you with these questions. CPA candidates tend to bury themselves in detail. They can’t see how the overall tax return fits together.

Most of the tax questions relate to the individual tax return (Form 1040). Download a copy of the IRS Form 1040 and print it. As you go through the tax questions, see where the tax issue is posted on the 1040 form. Interest and dividend income, for example, is posted toward the top of page 1. If you can visualize where the information goes, it may help you remember all the details.

Studying for the REG test can be challenging. Use these tips to prepare yourself to pass this test.

 
 
 
 

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