Ask Jeff: REG “At Risk” Rules and Professional Responsibilities
Each week I pick a question or two from the “Ask Jeff” mailbag. The author(s) of the questions will receive their choice of Wiley CPA Software or a NINJA ASSASSIN/ASSAULT study combo for a section of the CPA Exam.
The rest of the questions will be answered in the weekly CPA Reviewed Podcast.
Q: In my studying, I encountered question about “at risk” Passive income and “at risk” Passive income and losses limitation. I guess I am being thrown back by the phrase “at risk.” Can you enlighten me? - Troy
A: The IRS doesn’t want taxpayers investing in businesses that they aren’t actively involved in or plopping money down into a rental house and then taking a loss that offsets ordinary income. To combat this, they only allow passive losses to the extent of passive income (i.e. income you earned that you weren’t ‘actively’ involved in making…you just kind of left it alone and it was cranking out the cash).
Additionally, they impose further restrictions that limit deductibility (by the way, my spell checker doesn’t like the word ‘deductibility’…WHAT? if it’s not a real word, I am now declaring it as such) based on how much of your investment is “at risk”.
“At risk” means:
- Money you contributed
- Adjusted basis on property you contributed
- Money you borrowed for the investment and are personally liable and have pledged collateral for the loan
Q: I am concerned about how much Professional and Legal Responsibilities will be on Regulation for the CPA Exam. My review course went over some of it, but it seems like there could be more weight to it. - Christopher
A: “Ethics, Professional, and Legal Responsibilities” constitute 15-19% of Regulation. It mostly pertains to topics that can get a CPA fined, sued, or thrown in the clink.
If you toss in Business Law (I tend to think of REG as Tax and Law/Ethics), you’re looking at up to 40% of REG…definitely take Ethics/Law seriously or you will pay for it on exam day.
Ask Jeff: Scoring 70%+ on Wiley CPA Test Bank?
Each week I pick one question from the “Ask Jeff” mailbag. The author of the question will receive their choice of Wiley CPA Software or a NINJA ASSASSIN/ASSAULT study combo for a section of the CPA Exam.
The rest of the questions will be answered in the weekly CPA Reviewed Podcast.
Q: I have heard you say that averaging 70-75% on the Wiley Test Bank questions means that you are prepared to sit for the exam. Is this average the same for all sections of the CPA Exam?
I ask because I struggled to get up to that 70% average for the FAR material (and passed with a 78). I am easily averaging in the 75-80% range for AUD, and I sit for it in a couple weeks.
Based on this, do you think I can pass AUD? Or do people normally average higher on AUD Wiley Questions, and I need to get my average even higher before exam day? - Blake
A: The 70% MCQ threshold is arbitrary and everyone is different. With that said, I firmly believe that if you do a random set of 20 CPA Exam multiple choice questions over a topic and you score in the 70-80% range using the Wiley software, you should move on to another topic.
Of course, this is predicated on the assumption that your exam is merely days away. If you score 70-80% on a topic in Week 1 of your study plan (which I advise against doing MCQs until you have watched all of your lectures in keeping with the N.I.N.J.A. Study Framework (you can get a detailed look at that here … it’s a free download, btw), then you will need to do more questions on that topic as you head into you final week of study prep because you will have forgotten those questions in all likelihood and need to refresh.
The 70% threshold is not a hard and fast rule, but I recommend this when you’re one week out from your exam:
- Pick your weakest topic – let’s say it’s Internal Control for AUD.
- Read/Study the Internal Control section in the NINJA ASSASSIN Study Guide (it’s concise and only 11 pages long).
- Work 20 MCQs over Internal Control using the Wiley software. See how you score.
- If you scored less than 70% – do another set of 20 and keep doing them until you’re rocking 70%+.
- Move on to your next-weakest topic. Audit Sampling? Repeat steps 1-4.
I advise this plan of attack regardless of the exam section.
My experience – as well as the experience of many others – is that the Wiley MCQs tend to be harder than what you see on exam day … which is a good thing.
If you can handle the Wiley MCQs, you should be in an excellent position to do well on exam day.
-Jeff
State CPA License Requirements
An Open Letter to all of my Friends and Family while I take the CPA Exam
Dear friends and loved ones,
By now, you have probably noticed that there is something different about me. I’m conspicuously absent from family get-togethers, tailgating, happy hour, and sadly enough – even some of my kids’ school or sports events. If I haven’t seen you for awhile and we start talking, my mind probably drifts off into somewhere else, only to zone back in 20 seconds later as I nod and I try to fake like I know what you just said.
Forgive me, it’s not intentional – it’s really not. If I had my choice, the two of us could sit down for coffee and chat for hours on end and you would have my complete undivided attention.
You see, I am trying to accomplish something for my career and my future that is extremely draining on just about every level – emotionally, financially, physically, and even spiritually at times, I suppose. This thing is a monster. It’s the CPA Exam.
When I went to college and earned my accounting degree, I could have stopped there and spent the rest of my life as a staff accountant. I didn’t want that. I wanted more for myself and my family. So, I decided not to settle for “average” and I went for it. I took the plunge and tackled one of the absolute hardest professional exams out there. Did I mention that it has about a 25% first time pass rate? Ask your doctor or lawyer if their medical boards or bar exam flunk around 75% of the people who step up and take it the first time. Yes, it’s that hard.
Consequently, I’m going for this certification all the while trying my very best to balance working, being a husband/wife, boyfriend/girlfriend, friend, brother/sister etc. and there’s a good chance that I’m coming up short. This wears on me, trust me. I want this thing to be over yesterday. I hate the disappointing looks from my boss or co-workers when I fail. I can’t stomach telling all of you that the last 2.5 months of evening and weekend studying was all a waste because I failed and have to start over. It really makes me sick thinking about it, honestly.
This letter is to let you know that I am trying my very best to get through this, so please stick with me.
To my husband/wife: Of all people in my life, you are probably getting the short end of the stick. By the end of the day, after navigating grouchy bosses, crazy co-workers, and frustrated babysitters, it’s all that I can do to help get the kids ready for school the next day, fed, bathed, and in bed and still have some semblance of sanity left. As the clock hits 9pm, I suddenly realize that I have 2 hours of studying to do tonight if I want to keep on track and pass Financial Accounting and Reporting. I would say that I can skip it – but that’s what I said last night. As I head back to the study area, leaving you on the couch to make conversation with the remote control, I feel absolutely terrible and part of me wants to throw the books in the trash and come back out and join you.
I need your support above all people. I absolutely cannot do this without your emotional encouragement. I’m a goner if I don’t have it. Please forgive me for making it seem like you are just above “paying the electric bill” on my list of priorities, because you really aren’t. In reality – I need to be more intentional. How about a Friday date night once a week where we get out of the house and no studying? We need that.
To my boyfriend/girlfriend: Wow – this is probably not what you signed up for. 
That fun, out-going person that you knew has been replaced by a busy, over-scheduled grump that has a date with an accounting book six nights a week, it probably seems. Stick with me! If I was marriage material before the exam, I still am! I’m still that same person – I’m just incredibly stressed. Get me out of the house once a week – I need a life! Drag me away from those books. I need a break. When I do need to study, please hang with me and support me. Maybe you can take up something yourself and study right along with me? Let’s do this together.
To my friends: I know that I’ve been M.I.A. from going out, shopping, football games, The Office watch parties and overall, I’ve been a bad friend. Take this note as permission to call me up to do something sometime soon, and I’ll say “yes”. I’ll even leave my laptop at home.
To my family: I’ll be honest, I kind of like being able to skip out on family reunions. OK, that was a joke. Sort of. I miss seeing you – I just don’t miss those awkward conversations with Uncle Ted who I see once every three years. You know Uncle Ted and how he can be. I know that in the past when I called you to tell you that I had passed a section of the exam, you assumed that I was finished with everything. Unfortunately, that’s not the case. There are actually four sections to get through. I just didn’t want you to think that I was making up excuses to not see you by studying for something I had already passed When this thing is all over and I’m a newly minted CPA, we’re all going out to dinner. (Just don’t invite Uncle Ted, please).
I miss you all – I need your support!
Sincerely,
Your Husband/Wife/Boyfriend/Girlfriend, Brother/Sister/Son/Daughter/Grandson/Granddaughter/Nephew/Niece, Friend – Future CPA
Jeff Elliott is a Licensed CPA and passed the CPA Exam in 2008 while working full time with and having three little ones at home. He also missed more than one family reunion in the process.
Have you lived, have you loved, have you mattered?
In April of this year, I said “goodbye” to the corporate world and decided to do another71.com full time. I left a $70,000 a year job to do it. Crazy, right?
I wasn’t passionate about my gig in cubicle-land. I AM passionate about helping people pass the CPA Exam. I answer e-mails all day long from people I’ve never met – complete strangers looking for someone to shed some light on their situation because they only light they’re seeing at the end of the tunnel right now happens to be an oncoming freight train.
I LOVE what I do.
It’s one thing to love what you do, but it’s another to love it AND make a living at it. As many of you know, I am married with FOUR kids ages 7 and under and I am happy to announce that Elliott #5 is coming Spring 2011!
So, I take this thing very seriously.
When I was looking to take myself as an entrepreneur to the next level – there was one person I needed to go see. I was introduced to him through a friend and my professional life will never be the same.
His name is Brendon Burchard and if you click the link in this post, you’ll meet him.
When Brendon was 19 years old he was in a near fatal car accident. During the accident, in which he was certain he was going to die, he asked himself three questions…
Did I live?
Did I love?
Did I matter?
After the accident he realized if he had had to answer those questions the answers would have been ‘no’. He viewed his survival as a second chance as ‘Life’s Golden Ticket’ which became the title of his best selling book. Brendon is on a mission to spread the message that if those are the three questions we are all going to have to answer when we die then the answer should be a resounding ‘Yes’.
I’m passionate about helping people PASS the CPA Exam. What are you passionate about? Let’s see if Brendon can help make your dreams a reality like he did mine.
Check it out – sign up for his f.r.e.e training (and when I say free – this stuff is F.R.E.E – no strings attached…rarely happens in this day and age).
http://www.haveyoulivedlovedmattered.com
You owe it to yourself.
To YOUR Success,
Jeff Elliott
p.s.
I am also giving away an Apple MacBook Air
Fill out the form on http://www.haveyoulivedlovedmattered.com and the sweepstakes details are on the next page.
Free: Updated CPA Exam Score Release Guide for October/November 2010 Testing Window
Everything you need, all in one place – including the full list of predicted CPA Exam scores & results release dates for Wave 1 and Wave 2 October-November 2010.
Have a Question about the CPA Exam?
AICPA Membership Voting Controversy
Free CPA Exam Survival Guide (36 pgs)
If you have any of these questions about the CPA Exam – this FREE book has the answers! Download it instantly – it comes straight to your inbox.
Study Strategy
1. What section should I take first?
2. How do you rank the exams from hardest to easiest?
3. I’m thinking about buying some used books from 2007. Any advice?
4. My 18 month window is coming to a close and I’m about to lose credit for one of my passed sections. What if I take my exam, but don’t get my score back for several weeks? Will I lose my credit?
5. I can’t pass BEC! What should I do?
6. Information Technology is heavily tested on BEC and I hate it! Any tips on how to study for IT?
7. What was the main difference between your back-to-back 74s on Regulation and your 92?
8. I can’t pass Auditing! You’re not an auditor – how did you pass it?
9. Did you memorize the different audit reports in order to pass Auditing?
10. What are the areas of FAR that you think makes candidates stumble on exam day?
11. Do you have any nuggets of wisdom aside from the usual mainstream advice?
12. I’ve heard that they are changing the CPA Exam starting in 2010. Should I wait to buy my review materials?
13. What is the best way to study for the CPA Exam with audio lectures?
14. I bought a cram course. When is the best time to watch it?
15. I’m going through my review process and scoring low on multiple choice questions that I was scoring in the 80s and 90s on just a few weeks ago. Any advice?
16. What is the best strategy for scheduling an exam?
17. How long should I study for each section?
18. I’m getting ready to take my first exam. What should I expect?
19. What is the best approach for attacking simulations on the CPA Exam?
20. I didn’t finish my second simulation and left several tabs blank. Can I still pass?
21. I couldn’t get my research tab to work! I thought I found the right text to insert, but the computer wouldn’t accept any of it. Will this hurt me?
22. My exam ended before I could click “DONE” on my last simulation. Did my answers get saved?
23. I had computer problems during my exam. What should I do?
24. I finished Auditing with 30 minutes to spare. Should I be worried?
25. Shouldn’t BEC be the easiest section of the CPA Exam? It’s only 2.5 hours and is basically a rehash of everything we learned in college, right?
26. How many questions on the CPA Exam are pre-test?
27. Is BEC adaptive? I swear the questions were getting harder each testlet.
28. How do I know if I’m getting the “hard” testlets?
29. Does your performance on the multiple choice questions have any effect on the simulations that you get?
30. I just took my exam and found it to be pretty easy. Should I be worried?
31. If I have to guess on my exam, what strategy should I use?
32. My boss keeps telling me how easy I have it now that I can take the CPA Exam on a computer. Is the exam easier than it used to be?
Score Reporting
33. What is the difference between the “AICPA release” and “NASBA release” of exam scores?
34. I see the term “NASBA state” on your website. What does that mean? How do I know if I live in a “NASBA state”?
35. I sat for my exam on _______. When can I expect my score?
36. What time of day do scores come out?
37. I didn’t get my score in Wave 1, but I took my exam early in the testing window. Does this mean I’m borderline or failed? I’m freaking out! Please help!
38. My friend and I sat for the same section of the exam on the same day, at the same time, in the same testing center, yet she received her score in Wave 1 and I didn’t. How can this be?
39. I scored a 74. Should I appeal?
40. I had to re-take a section and my old score was there online yesterday, but it’s gone today. What does this mean?
41. My diagnostic report says that I am comparable or stronger than the average passing candidate in all areas except written communication where I am weaker. If I am comparable or stronger in 90% of the exam compared to the average passing candidate – how could I have scored a 73?
42. I received an advisory score and I PASSED! It’s not going to change, is it?
43. I passed my final section of the CPA Exam. When will NASBA send me a confirmation letter?
44. I failed again and I’m thinking about throwing in the towel. I’ve been at this for
too long. I hate this exam.
Ethics Exam
45. How do I know if my state requires an ethics exam prior to getting my certificate?
46. I just sat for an exam. If I pass, I’m done. How long do I have to wait before I can take my state’s required ethics exam?
47. My friend is an AICPA member and can buy the course at a discount. Should I order it through my friend?
Certification and Licensing
48. I just passed my final section! I’m DONE! Can I call myself a CPA?
49. I have my certificate, I’m licensed, and I’m done! (Right?)
50. Should I expect to get a raise or be promoted after passing the CPA Exam?
Copyright © 2010 – Jeff Elliott, CPA
All rights reserved worldwide.
No part of this e-book may be copied or sold.
Ask Jeff – How Many Times Can You Reschedule a CPA Exam Section?
Q: How many times are we allowed to reschedule a CPA Exam section? I already have rescheduled it once. Can I reschedule it again? I still have 31 days before my exam date.
-Rescheduled in Raleigh
A: As someone who rescheduled more than their fair share of CPA Exam sections, you can certainly say that I’ve ‘been around the block’ in this regard. I could probably buy a nice vacation just with the rescheduling fees I paid – including dropping $95 to abort mission the night before my exam.
You can reschedule your exam as many times as you want, but there will be fees involved and a Notice to Schedule time limit to consider, so beware.
If your CPA Exam section is 30+ days away, the fee to reschedule is $0.
If your CPA Exam section is 5-29 days away, the fee to reschedule is $35.00
If your CPA Exam section is less than 5 days away, the fee to reschedule varies:
Auditing and Attestation (AUD): $111.60
Business Environment and Concepts (BEC): $62.00
Financial Accounting and Reporting (FAR): $99.20
Regulation (REG): $74.40
Technically, you are not allowed to reschedule an exam less than 24 hours prior to your exam.
However, I personally rescheduled less than 12 hours prior to one of my exams, but this tactic is very risky and I don’t recommend doing it.
The number for the Prometric Candidate Services Call Center is 800-580-9648.
You can also reach them online at www.prometric.com/cpa.
REMEMBER: Make sure your reschedule date is within the date limit of your CPA Exam Notice to Schedule (NTS).
Jeff@another71.com
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