CPA Exam Flashcards for Every Section
Sitting the exam while billing full weeks means study happens in short, broken blocks. These CPA flashcards are built for that: one rule per card, an answer short enough to check on a phone, and a review round that returns whatever you missed.
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Every candidate passes AUD, FAR and REG, then exactly one discipline. Tap for what each one tests, its latest full-year pass rate, and the career signal the profession reads into it.
What This CPA Deck Covers
The licence takes four sections. Three are mandatory cores; the fourth is a choice of specialty.
AUDAuditing and attestation. Mandatory core.
FARFinancial accounting and reporting. Mandatory core.
REGTaxation and regulation. Mandatory core.
One disciplineBAR, ISC or TCP. One choice, and every choice earns the identical licence.
Where the Old BEC Section of the CPA Exam Went
CPA Evolution replaced the four fixed sections with three cores and a chosen discipline, dropping the Business Environment and Concepts section, BEC, in the process. Its content was redistributed rather than deleted, with much of it absorbed by the disciplines and a share by FAR.
Study sets assembled before that change still carry BEC material as if it were tested, which quietly wastes review hours. Every card in this deck is checked against the 2026 blueprint before it ships.
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FAR, Financial Accounting and Reporting
Which preferred dividend do you deduct in basic EPS?
Cumulative: deduct the current period’s dividend whether or not declared. Noncumulative: deduct only if declared. Never deduct prior-year arrears paid this period.
Impairment of a long-lived asset held and used
Step 1: is carrying amount greater than the sum of UNDISCOUNTED future cash flows? If no, stop. Step 2: loss = carrying amount − FAIR VALUE. Test at the asset-group level, only on a triggering event.
Modification or extinguishment? (the 10% test)
Compare the PV of the new cash flows with the PV of the remaining old cash flows. A difference of 10% or more is an extinguishment; less than 10% is a modification.
When is a valuation allowance recognized?
When it is more likely than not (over 50%) that some portion of a deferred tax asset will not be realized.
When are contributed services recognized?
Only if they create or enhance a nonfinancial asset, OR require a specialized skill, are provided by someone possessing that skill, and would otherwise have been purchased.
Cash flow statement: indirect method, the shape
Net income + depreciation, amortization and impairment − gains on disposal + losses on disposal, then adjust for changes in operating current assets and liabilities.
Gross profit margin
Gross profit ÷ net sales
Governmental fund types
Governmental: General, Special Revenue, Capital Projects, Debt Service, Permanent. Proprietary: Enterprise, Internal Service. Fiduciary: Custodial, Investment Trust, Private-Purpose Trust, Pension Trust.
Asset turnover
Net sales ÷ average total assets
Foreign currency: which part is FAR?
Transaction gains and losses on monetary items are FAR and hit the income statement. Translation adjustments are BAR and hit OCI.
Equity method carrying amount
Cost + (% × investee net income) − dividends received by the investor − amortization of basis differences. Do not apply your ownership % to dividends received. That share is already taken.
Pushdown accounting: whose basis?
An acquiree may apply the acquirer’s new basis in its separate statements after a change-in-control event. It is optional under US GAAP (ASU 2014-17), not automatic.
Variable interest entity: the consolidation trigger
The primary beneficiary consolidates. That is the party that has both the power to direct the activities that most significantly affect the VIE’s economic performance and the obligation to absorb losses or right to receive benefits that could be significant.
Segment reporting: whose CODM?
Reportable segments follow how the chief operating decision maker allocates resources and assesses performance. It is a management approach, not a legal-entity map.
Stock compensation: what date sets the fair value for an employee option?
Grant date, for equity-classified awards. Expense follows the requisite service period. Forfeitures can be estimated or recognized as they occur.
Cloud computing arrangement (customer’s implementation costs)
If the arrangement is a service contract, certain implementation costs are capitalized and amortized over the term, analogous to internal-use software. The hosted software license itself is not on the balance sheet.
Level 1 vs Level 2 vs Level 3 fair value
Level 1: quoted prices in active markets for identical items. Level 2: observable inputs other than Level 1 prices. Level 3: unobservable inputs. Classification is by the lowest-level input that is significant.
Sales taxes collected from customers
Never revenue. Amounts collected for a taxing authority are a liability until remitted; revenue is presented net of them. The same agency logic keeps excise-style pass-throughs off the top line.
Bonds issued between interest dates
The buyer pays the price PLUS interest accrued since the last payment date, and the issuer books that accrued piece as a payable, not revenue. At the next payment date the issuer pays a full period of interest, returning the buyer’s advance.
Equity securities: where do value changes go now?
Through NET INCOME, every period. The old available-for-sale treatment survives only for debt securities. Equity stakes without a readily determinable fair value may use the measurement alternative: cost, minus impairment, adjusted for observable price changes.
A new tax rate is enacted. What happens to deferred taxes?
Remeasure every deferred tax asset and liability at the newly ENACTED rate in the period of enactment, with the whole adjustment through income tax expense from continuing operations, even for items that arose through OCI.
Uncertain tax positions: the two-step
Step one, recognition: is the position more likely than not to be sustained on its technical merits, assuming the taxing authority sees everything? Step two, measurement: record the LARGEST benefit with a greater than 50% chance of being realized on settlement.
Repair or capital improvement?
Expense costs that merely maintain the asset. Capitalize costs that extend useful life, increase capacity or improve efficiency (betterments, additions, replacements of components). A cost that extends useful life may be charged against accumulated depreciation instead of the asset account.
Trademark costs: what actually gets capitalized?
Registration fees, legal costs of a SUCCESSFUL defense, and purchase price if acquired. The costs of developing the mark internally, like advertising, are expensed, and an unsuccessful defense is expensed too, usually alongside an impairment look.
A construction contract turns loss-making
Recognize the ENTIRE expected contract loss immediately, whether revenue is recognized over time or at a point in time. Profitable contracts spread margin across progress; loss contracts never do.
Property dividends
Remeasure the nonmonetary asset to fair value at declaration, run the gain or loss through income, then record the dividend at that fair value. Two entries, and the remeasurement step is the one candidates skip.
Treasury stock: par value method
Buying treasury shares strips the original issue: debit treasury at PAR and remove the related APIC, with any excess against retained earnings. The cost method, by contrast, parks the whole cost in one line until reissue.
When does a dividend become a liability?
On the DECLARATION date. The record date only fixes who gets paid and the payment date settles it. No liability is ever booked for stock dividends, which stay in equity.
Retiring bonds early
Gain or loss equals the reacquisition price versus the NET carrying amount, which means face adjusted for unamortized premium or discount and remaining issuance costs. It lands in income; it is not an extraordinary item, that category no longer exists.
An inventory error that fixes itself
Overstate ending inventory and this year’s income is overstated; next year the same error understates income by the same amount, so retained earnings is correct after two years. Correct only the years still presented; the counterbalancing does not excuse restatement.
AUD, Auditing and Attestation
Setting overall materiality
A judgment anchored to a benchmark users care about: commonly a percentage of pretax income, or of revenue or total assets where income is volatile or near zero. It is set at the statement level first, then performance materiality is carved below it.
Sufficient vs appropriate evidence
Sufficiency is the measure of QUANTITY. Appropriateness is the measure of QUALITY: relevance and reliability. More evidence may not compensate for poor quality.
What is an engagement quality review?
An objective evaluation of the significant judgments and conclusions by a reviewer who is not on the engagement team and has sufficient competence and authority. It must be COMPLETED ON OR BEFORE THE REPORT DATE. The report cannot be dated until the reviewer signals completion. Under PCAOB AS 1220 the tested phrase is concurring approval of issuance.
Statistical vs nonstatistical sampling
Statistical sampling uses random selection and probability theory to measure sampling risk quantitatively. Nonstatistical relies on auditor judgment. Both require the sample to be representative; only statistical lets you quantify the risk.
Independence in a Big 4 audit: the two tests
Independence of mind and independence in appearance. A covered member’s financial interest, certain family relationships, and prohibited nonaudit services can blow either test.
Why does every audit presume management override?
Because management can instruct staff to record journal entries, suppress results, or lean on estimates. The response is specific procedures: journal-entry testing, estimates bias review, and unusual-transaction scrutiny, not a checklist waiver.
Group audit: who owns the group opinion?
The group engagement partner. Component auditors may do the fieldwork; the group auditor still has to be involved enough to take responsibility for the group statements.
Using a specialist (auditor’s vs management’s)
An auditor’s specialist is part of the audit evidence process. Evaluate competence, objectivity and the specialist’s work. Management’s specialist produced accounting inputs; you still need evidence that those inputs are reasonable.
Related-party transactions: the audit worry
Not that they exist, but that they are unidentified or not accounted for and disclosed. Search beyond inquiry: unusual terms, round-trip deals, and parties that only appear in one document.
Critical audit matters are a PCAOB issuer concept
CAMs go in the audit report of a PCAOB issuer. They do not change the opinion. Nonissuer (AICPA) reports use KAMs only if the auditor is engaged to communicate them.
A client’s illegal act surfaces: direct or indirect?
Laws with a DIRECT effect on statement amounts (tax, pension rules) are treated like any misstatement risk. Indirect-effect laws (environmental, licensing) get inquiry and alertness, with procedures escalating only once noncompliance comes to light.
Contingent fees and commissions
Prohibited for clients for whom the CPA performs an audit, review, or certain compilations, and always prohibited for preparing an original or amended return. For other clients they are allowed with disclosure of commissions.
Doing nonattest work for an attest client
Allowed only if the client accepts responsibility for the work, designates someone with suitable skill, knowledge and experience to oversee it, and the CPA avoids management responsibilities. Otherwise independence is impaired.
The firm’s own quality system
Quality management standards make each firm design a RISK-BASED system: set quality objectives, identify risks to them, and build responses, with monitoring and annual evaluation by leadership. It shifted from a one-size checklist to the firm’s own risk assessment.
What a standard bank confirmation actually covers
Deposit balances AND direct liabilities to the bank on the form, in one request. It does not reliably surface every arrangement, so compensating balance terms, guarantees and lines of credit need a separate specific inquiry.
The client changed accounting principles. The report?
If material, add a paragraph pointing to the change (emphasis-of-matter for nonissuers, an explanatory paragraph for issuers) after concluding the new principle is acceptable and the transition was handled properly. The opinion itself stays unmodified if accounting is right.
Kiting
Inflating cash by drawing a check on one bank and depositing it in another near year end, so the amount sits in both balances while in transit. A bank transfer schedule around year end, matching disbursement and receipt dates, is the procedure that catches it.
Lapping
A receivables clerk pockets a customer’s payment and covers it with the next customer’s check, rolling the shortage forward. Segregating cash handling from ledger posting prevents it; comparing deposit details with postings, or a surprise lockbox test, detects it.
The cutoff bank statement
A statement for the first week or two after year end, sent directly to the auditor. It proves outstanding checks and deposits in transit on the year-end reconciliation actually cleared, and it is the standard tool against reconciliation games.
Why stratify a sample?
Split a population into layers by size or risk so the variable items (typically the large ones) get heavier coverage. Stratification cuts the effect of variability, shrinking the sample needed for the same assurance.
Evaluating a test of controls sample
Compare the sample deviation rate plus an allowance for sampling risk against the TOLERABLE deviation rate. If it exceeds tolerable, the control cannot be relied on as planned, so control risk rises and substantive work expands. Deviations are rates, not dollars.
Why confirming accounts payable rarely helps
The risk in payables is UNDERSTATEMENT, and confirming recorded balances only tests what is already on the books. Vendor statements and the disbursements review after year end aim at what is missing, which is where the misstatement lives.
Compiling statements without independence
Allowed under SSARS. The accountant may still compile, but the report must disclose the lack of independence, and may state the reason. A review or audit, by contrast, is simply unavailable without independence.
Forecast vs projection
A forecast reflects expected conditions and may go to general users. A projection answers a what-if built on hypothetical assumptions and is restricted to parties who negotiated the assumptions. Neither ever gets plain assurance on achievability.
Significant risks: what is off the table
For a significant risk, substantive ANALYTICAL procedures alone are never enough; the response must include tests of details, and if relying on controls over that risk, those controls must be tested in the current period.
REG, Taxation and Regulation
Auditor liability under Securities Act §11
A purchaser in a registered offering suing on a material misstatement need not prove scienter, reliance or privity. The auditor’s escape is the DUE DILIGENCE defense: a reasonable investigation and reasonable belief the statements were true.
How are partnerships and S corporations taxed?
Both are flow-through: income is generally taxed once, at the owner level, whether or not distributed. C corporations are taxed at the entity level and again on dividends. Careful: S corporations CAN owe entity-level tax: built-in gains, excess net passive income, and LIFO recapture.
Capital loss deduction for individuals
Net capital losses offset capital gains in full; beyond that, only a limited amount offsets ordinary income each year. The excess carries forward indefinitely, retaining its character.
§1031 like-kind exchange: what qualifies now?
REAL property only, held for productive use in a trade or business or for investment. Personal property stopped qualifying after 2017. Real property held primarily for sale is excluded.
Consideration: what counts?
A bargained-for exchange of legal value. Past consideration and pre-existing legal duties do not count, at COMMON LAW. Under UCC §2-209(1) a modification of a contract for the sale of goods needs no new consideration to be binding, subject to good faith. That contrast is heavily tested.
Why firms care about Circular 230 even in audit
Anyone practicing before the IRS (including CPAs who sign returns or give written tax advice) is under Circular 230. Diligence as to accuracy and the written-advice rules travel with the tax practice, not just the audit opinion.
Securities Act of 1933 vs Exchange Act of 1934, in one cut
1933 governs the original distribution of securities (registration of the offering). 1934 governs the aftermarket: exchanges, periodic reporting, proxy rules, and 10b-5 antifraud.
Preferential transfer in bankruptcy
A transfer to a creditor on an antecedent debt, while insolvent, within 90 days (one year for insiders) that lets the creditor receive more than in a Chapter 7. The trustee can claw it back.
Medical expense deduction
Unreimbursed costs for diagnosis, cure, treatment and qualified insurance premiums, deductible only as an itemized deduction and only above the AGI floor. Cosmetic procedures and general health items stay out.
Investment interest expense
Deductible only up to NET investment income for the year; the excess carries forward indefinitely. Electing to treat qualified dividends or long-term gains as investment income raises the ceiling but costs them their preferential rate.
Municipal bond interest and the loan that bought it
The interest income is federally tax-exempt, and precisely because of that, interest on debt incurred to buy or carry the bonds is NONDEDUCTIBLE. Exempt income and its financing costs travel together.
Netting capital gains and losses: the order
Net short-term against short-term and long-term against long-term first, THEN net the two baskets against each other if they differ in sign. The surviving character decides the rate, and it is why a fact pattern gives you four numbers instead of one.
Unrecaptured §1250 gain
On depreciable real estate sold by an individual, straight-line depreciation is not recaptured as ordinary income; instead that slice of the long-term gain is taxed at a capped rate higher than the usual preferential rate. The rest of the gain keeps normal treatment.
Capital losses inside a C corporation
Deductible only against capital GAINS, never against ordinary income. Unused losses carry back three years and forward five, and they carry as SHORT-term regardless of original character. The individual rules do not apply.
Accumulated earnings tax vs personal holding company tax
Both are penalty taxes on parking income in a C corporation. AET is subjective: earnings retained beyond reasonable business needs. PHC is mechanical: closely held ownership plus mostly passive income. Paying dividends defuses either.
S corporation distributions with no C-corp history
With no accumulated E&P, distributions are simply a tax-free return of stock basis, and anything beyond basis is capital gain. The dividend layer only exists when C corporation earnings are sitting underneath.
What a surety can do after paying
Subrogation: step into the creditor’s rights against the debtor. Reimbursement: recover from the debtor directly. Contribution: collect proportional shares from co-sureties. Exoneration asks a court to force the debtor to pay BEFORE the surety does.
Who gets paid first in bankruptcy
Secured creditors from their collateral first, then priority claims in order: domestic support obligations lead, then administrative costs, certain wages and benefit contributions, consumer deposits, and most taxes. General unsecured creditors share what remains pro rata; equity usually takes nothing.
Debts a bankruptcy discharge does not touch
Most taxes, debts from fraud or false pretenses, domestic support obligations, student loans absent undue hardship, fines, and debts omitted from the schedules. The discharge wipes honest unsecured debt, not these.
The parol evidence rule
A fully integrated written contract cannot be contradicted by evidence of PRIOR or contemporaneous oral agreements. It never blocks evidence of later modifications, fraud, duress, or clarification of ambiguous terms, which is exactly where items hide the answer.
The undisclosed principal
A third party who did not know an agent was acting for anyone may hold EITHER the agent or the principal liable once discovered, and the principal can still enforce the contract. Authorized agents for disclosed principals drop out of liability entirely.
FICA and FUTA: who pays what
FICA is split between employer and employee, with the employer matching withholding. FUTA is EMPLOYER-only; nothing is withheld from the employee for it. The self-employed pay both halves of FICA-equivalent tax through self-employment tax.
Penalties on the preparer, not the taxpayer
An unreasonable position costs the preparer the greater of a flat amount or half the fee earned; willful or reckless conduct raises it to a larger flat amount or three-quarters of the fee. Signing without substantial authority, or without required disclosure, is what triggers it.
Are damages taxable?
Compensatory damages for physical injury or sickness are excluded, including related emotional distress. Punitive damages are TAXABLE almost without exception, and so are lost-profit and discrimination awards without physical injury.
Cancelled debt: income, usually
Forgiven debt is gross income unless an exception applies: discharge in bankruptcy, insolvency to the extent of it, certain qualified farm or real property debt. Excluded amounts usually reduce tax attributes rather than vanishing free.
BAR, Business Analysis and Reporting
Residual income vs ROI
Residual income is operating income minus a capital charge (required rate times invested capital). Unlike ROI, it rewards any project earning above the required rate, so a division will not reject a good project just because it dilutes a high ROI.
Operating leverage
The degree of operating leverage is contribution margin divided by operating income. Heavy fixed costs magnify how a swing in sales moves profit, in both directions. High-leverage businesses look brilliant in booms and brutal in slumps.
Payback and its discounted cousin
Payback counts years to recover the investment and ignores everything after, plus the time value of money. Discounted payback fixes the time value flaw but still ignores post-recovery cash flows, so neither measures profitability, only liquidity risk.
Profitability index
Present value of future cash flows divided by the initial investment. Under capital RATIONING it ranks projects by value created per dollar invested, which can beat picking the largest NPV when funds cannot cover every positive project.
CAPM in one line
Cost of equity equals the risk-free rate plus beta times the market risk premium. Beta measures only SYSTEMATIC risk, the part diversification cannot remove, which is why company-specific stumbles do not belong in it.
The balanced scorecard’s four lenses
Financial, customer, internal business process, and learning and growth. The design links leading nonfinancial measures to lagging financial results, so an exam answer pairing a measure with the wrong perspective is the usual trap.
COSO ERM vs COSO internal control
The internal control framework aims at objectives in operations, reporting and compliance. ERM sits above it: risk appetite, strategy selection and portfolio-level risk across the entity. ERM includes far more than control, starting with what strategy to pursue at all.
ISC, Information Systems and Controls
SOC 3: why does it exist?
Same Trust Services Criteria as a SOC 2, but issued as a general-use report: no detailed testing tables, freely distributable, often used as the public-facing summary. The restricted-use detail stays in the SOC 2.
Data owner vs data custodian
The owner is the business role that classifies the data and approves who may access it. The custodian, usually IT, implements the storage, backups and safeguards the owner requires. Access decisions belong to owners; execution belongs to custodians.
SOC 1 Type 2 vs Type 1
Type 1 is design of controls at a point in time. Type 2 is design and operating effectiveness over a period: the report user auditors actually want for a service organization that touches financial reporting.
Encryption at rest vs in transit
At rest protects stored data (disk, database, backups) and lives or dies on key management kept separate from the data. In transit protects data moving across networks, typically TLS. An exam answer that covers only one leaves the other exposed.
Zero trust in one line
Never trust by network location; verify every user and device on every request, grant least privilege, and assume breach. It replaces the castle-and-moat model where anything inside the perimeter was trusted by default.
Why auditors care about the SDLC
Each phase is a control gate: approved requirements, testing in an environment separate from production, user acceptance sign-off, and authorized migration. Skipped gates are how unauthorized or broken code reaches production, which lands squarely on processing integrity.
TCP, Tax Compliance and Planning
The built-in gains tax
A C corporation that elects S status drags its appreciation with it: sell those assets within the recognition period and the S corporation itself pays entity-level tax on the built-in gain. Planning is mostly patience: hold the assets past the window.
The HSA’s triple advantage
Deductible going in, tax-free growth, and tax-free withdrawals for qualified medical costs, the only account with all three. It requires a high-deductible health plan, and after the retirement-age threshold nonmedical withdrawals lose only the exclusion, not a penalty.
Front-loading a 529 plan
A donor may elect to spread one large 529 contribution over five years of annual exclusions, moving five years of gifting in a single day without touching the lifetime exclusion. Die within the window and a share is pulled back into the estate.
Reasonable compensation cuts both ways
In an S corporation the IRS attacks salaries set too LOW to dodge payroll tax on what should be wages. In a C corporation it attacks salaries too HIGH that disguise nondeductible dividends as deductible pay. Same phrase, opposite pressure.
Material participation as the NIIT escape hatch
The tax reaches passive business income but not income from activities with MATERIAL participation. Meeting a participation test, grouping activities, or the real estate professional route can move income out of the net, no rate planning required.
Charitable remainder trusts
The donor keeps an income stream for life or a term, the remainder passes to charity, and the up-front deduction equals the present value of that remainder. Appreciated assets sold inside the trust spread gain across the payout years.
Estate tax without selling the family business
When a closely held business is a large enough share of the estate, §6166 lets the executor pay the attributable estate tax in installments over roughly a decade and a half, with an interest-only front period, instead of forcing a liquidation.
FAQs
Do these CPA flashcards suit someone studying around a full workload?
That is what they are shaped for. Each card is one rule with a short answer, so a queue of ten fits into the time between meetings without needing a desk or a login.
Does the CPA discipline choice limit what a licence allows?
No. BAR, ISC and TCP all lead to the same CPA licence. The discipline is not printed on it and it does not restrict attest work. The three cores are required either way.
Why do the CPA discipline pass rates differ so much?
Largely because different candidates sit them. Tax specialists concentrate in TCP and systems specialists in ISC, so the populations are not comparable. A higher published rate is not evidence of an easier section.
Is the CPA deck useful during busy season?
Yes, if expectations stay modest. Marking cards for review keeps the short blocks pointed at material that actually failed rather than at whatever comes next in a chapter.
Can a firm or a training team use this CPA deck internally?
Yes. It is free to assign and free to link from an internal page or an intranet resource list. Link rather than copy: the deck gets corrected in one place and every reader sees the fix.
Are the cards derived from a commercial CPA review course?
No. Every card is written from the published blueprint and the underlying standards. No review-course wording or question bank is reproduced.
Sources
- AICPA: Exam blueprints · Pass rates · Scoring · Exam timetable
- NASBA: CPA Examination · Licensure · State boards
- AICPA and NASBA: CPA Evolution
This is an original study aid and is not affiliated with the AICPA or NASBA. Eligibility, exam credit and licensure are governed by each state board of accountancy; verify specifics with yours before relying on them.
