CPA Exam Mnemonics & Memory Aids

Control Environment (tone at the top)

Risk Assessment (management's process)

Control Activities (policies and procedures)

Monitoring Activities (ongoing evaluation)

Information & Communication (IT systems, reporting)

Unmodified (clean, everything's fine)

Qualified ("except for", one issue)

Adverse (statements are wrong, pervasive misstatement)

Disclaimer (can't opine, pervasive scope limitation)

Audit = Reasonable assurance (highest)

Review = Limited assurance (moderate)

Compilation = No assurance

Preparation = No assurance, no report

1. External from Independent sources (bank confirmations)

2. Internal with strong controls

3. Internal with weak controls

4. Oral evidence (inquiry)

Vouch: Records → Source docs = Verify Existence (catches Overstated items)

Trace: Source docs → Records = Test Completeness (catches Understated items)

Sample size INCREASES when:

Confidence level increases (want more assurance)

Tolerable rate/misstatement decreases (less room for error)

Expected rate/misstatement increases (expect more problems)

Type 1 (recognized): condition Existed at B/S date → Adjust the statements

Type 2 (nonrecognized): New event after B/S date → Disclose only

Governmental funds (in GRaSPP order):

G = General

R = special Revenue (the "a" is silent filler)

S = debt Service

P = capital Projects

P = Permanent

Enterprise (external customers, like a water utility)

Internal Service (internal customers, like a motor pool)

1. Identify the contract

2. Identify performance obligations

3. Determine transaction price

4. Allocate to performance obligations

5. Recognize when/as satisfied

Service cost (+)

Interest cost (+)

Return on plan assets (−) (expected return REDUCES expense)

Amortization of prior service cost (+)

Prior gains/losses amortization (corridor)

Expected vs actual adjustments

Stock options → Treasury Stock Method: assume exercised, use proceeds to buy back shares at market price. Net new shares = dilutive shares.

Convertible bonds → If-Converted Method: assume converted at beginning of period. Add shares, add back interest expense × (1 − tax rate) to numerator.

Convertible preferred → If-Converted Method: assume converted. Add shares, add back preferred dividends to numerator.

Anti-dilution rule: If including a security INCREASES EPS, it's anti-dilutive, EXCLUDE it.

Ownership transfers

Written purchase option (reasonably certain)

Ninety percent (PV ≥ 90% of FV)

Economic life (term ≥ 75% of useful life)

Specialized asset (no alternative use)

With Donor Restrictions (purpose or time restricted)

Without Donor Restrictions (unrestricted)

The two-part test for governmental fund revenue recognition:

Measurable: Can you reasonably estimate the amount?

Available: Will it be collected within 60 days of year-end?

Both must be met. Property taxes collected in July (within 60 days of June 30 year-end) = recognized. Property taxes collected in October = deferred.

No gain or loss on property contributed to a corporation for stock IF the transferors, as a group, own at least 80% of the corporation immediately after.

Receive boot (cash or other property)? Recognize gain up to the lesser of the boot received or the realized gain.

Section 1245 (equipment, personal property): recapture all prior depreciation as ordinary income, up to the total gain.

Section 1250 (real property): recapture only depreciation taken in excess of straight-line (usually zero today). The rest is unrecaptured 1250 gain, taxed at a maximum 25%.

Basis for a gain = the donor's carryover (adjusted) basis.

Basis for a loss = the lesser of the donor's basis or FMV at the date of the gift.

If the later sale price lands between the two, there is no gain and no loss.

Price / rate variance = (actual price − standard price) × actual quantity.

Quantity / efficiency variance = (actual quantity − standard quantity) × standard price.

Contribution margin = Sales − Variable costs.

Break-even units = Fixed costs / CM per unit.

Break-even dollars = Fixed costs / CM ratio.

For a target profit, add it to fixed costs in the numerator.

Nonspendable (inventory, prepaids, permanent principal)

Restricted (external or law)

Committed (highest level of government, formal action)

Assigned (intended use, less formal)

Unassigned (the residual in the General Fund)

Confidentiality (only authorized users see the data)

Integrity (data is accurate and unaltered)

Availability (systems are up when needed)

Access to programs and data (logical access, passwords, segregation of duties)

Change management (program changes are tested and approved)

Operations (backups, job scheduling, incident response)

SOC 1: controls at a service organization relevant to a user's internal control over financial reporting.

SOC 2: the Trust Services Criteria, security, availability, processing integrity, confidentiality, privacy (restricted use).

SOC 3: a general-use, public version of SOC 2.

Type 1 = design at a point in time. Type 2 = operating effectiveness over a period.

Post-TCJA, Section 1031 applies only to real property held for business or investment.

Recognize gain equal to the lesser of the boot received or the realized gain. You never recognize a loss.

New basis = old basis + gain recognized − boot received.

Traditional: contributions may be deductible; qualified distributions are fully taxable.

Roth: contributions are after-tax (no deduction); qualified distributions come out tax-free.

Unlimited deduction for transfers to a U.S. citizen spouse.

Unlimited deduction for transfers to charity.

Annual exclusion per donee, per year, before any lifetime unified credit is used.