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PwC responds to the AICPA’s CPA Exam Exposure Draft
Publication date: 17 May 2020
us PwC comment letter
May 18, 2020
Mr. Michael Decker
American Institute of Certified Public Accountants
100 Princeton South
Suite 200
Ewing, NJ 08628
American Institute of Certified Public Accountants
100 Princeton South
Suite 200
Ewing, NJ 08628
Re: Maintaining the Relevance of the Uniform CPA Examination: An Exposure Draft and Invitation to Comment
Dear Mr. Decker:
PricewaterhouseCoopers LLP (PwC) appreciates the opportunity to comment on the AICPA’s combined Exposure Draft (ED) and Invitation to Comment (ITC): Maintaining the Relevance of the Uniform CPA Examination. We support the AICPA’s effort to ensure the content of the Uniform CPA Examination (“CPA Exam”) remains current with the profession and that it continues to assess the appropriate knowledge and skills required of newly licensed CPAs (nlCPAs) to protect the public interest.
We appreciate that the two main themes of the 2019 Practice Analysis (PA) were focused on the impact of technology on the work of nlCPAs and identifying areas where existing CPA Exam content may have become too broad and less focused on the critical knowledge and skills required of an nlCPA. Our clients’ processes are increasingly reliant on technology. In addition, new tools have made it more feasible to apply data analysis techniques to examine entire populations to support risk assessment and/or other testing procedures.
We are pleased that the PA technology research identified specific findings from a technology perspective that support the need for nlCPAs to have increased knowledge and skills related to:
- Understanding the business
- Digital and data-driven mindset including data analytics
- Reliance on System and Organization Controls (SOC1) reports
Overall, we believe the proposed changes to the CPA Exam content resulting from the PA findings, and outlined in the ED section of the document, broadly align with the changes we see in the nature of the work assigned to nlCPAs. For example, as many audit firms are centralizing the performance of certain routine audit activities, nlCPAs spend less time performing high volume, low risk procedures and instead focus on resolving questions on test exceptions and unexpected outcomes. This also affords them more time to focus on non-routine areas of the audit that often require more analysis and professional judgment. Higher order skills—such as business acumen, critical thinking, and understanding market trends—have always been expected of more senior auditors. However, the merger of technology and auditing, as well as the evolving structure of the audit team, makes developing these skills to a greater extent earlier in an auditor’s career more important.
We generally agree with the proposed changes, but have included in the Appendix the specific proposals with which we do not agree or have additional comments. The basis for our responses was an assumption that nlCPAs are professionals with two to three years of practical experience.
We understand that the proposed content changes are separate from the current discussions around the AICPA’s CPA Evolution initiative (“CPA Evolution”). We support the AICPA’s and other stakeholder’s efforts to explore changes to the licensure structure in the future. We look forward to continued dialogue on CPA Evolution and will provide input on that initiative when it is requested.
The AICPA has posed two questions in the ITC. We realize these items are for future consideration and may require additional research and investigation before proposing changes to the CPA Exam.
1. Do you agree or disagree with the recommendation to remove the essay question (written communication question)?
We do not agree with the recommendation to remove the essay question from the BEC section. Assessment of higher order skills, including written communication, are becoming increasingly important for newly licensed CPAs. As stated in our response to the Exposure Draft: Maintaining the Relevance of the Uniform CPA Examination in December 2015, we believe writing skills are essential to the success of our profession, and encourage the AICPA to explore ways of incorporating writing tasks into other sections of the CPA Exam beyond the BEC section.
We understand that the current essay question is assessed only for a candidate’s writing ability and does not assess the technical accuracy of the subject matter. We also understand that the prior ITC and the AICPA’s PA found broad interest in adding an assessment of the technical knowledge, which would require human graders that would increase cost to candidates and potentially delay score release time.
Given the rapid advancements of technology, we encourage the AICPA to continue to explore options that might accommodate automated scoring of content and writing ability. We also encourage the AICPA to consider alternative scoring models that might be effective, such as combining automated and human scoring. In the meantime, we support retaining the current assessment of writing ability.
2. Should accounting for state and local governments continue to be assessed on the CPA Exam?
We support reducing or removing accounting for state and local governments from the CPA Exam. Given the specialized nature of state and local government accounting and its limited applicability to the majority of nlCPAs, we believe that reducing or removing this content would create an opportunity for the AICPA to incorporate other content areas that more directly impact a majority of nlCPAs.
Other matters
Given the rapid advancements of technology and the resulting impact on entities’ business models and the work of nlCPAs, we encourage the AICPA to consider alternative ways to identify and incorporate needed changes into the CPA Exam more quickly than conducting a full practice analysis. The proposed changes currently being considered for the CPA Exam are not expected to be operational until July 2021. Yet, even by then, we will likely see the emergence of new technology or new applications of existing technology that will impact both how nlCPAs perform their work and how their client companies conduct their business. We encourage the AICPA to consider how the skills needed to perform effectively in this fast changing environment can be incorporated into the CPA Exam in a more timely manner.
We note the AICPA’s efforts to enhance the task-based simulations included in the CPA Exam, and applaud the planned introduction of Excel-based simulations in the AUD section for later this year. We believe simulations are an effective tool for assessing higher-order skills, and encourage the AICPA to continue to incorporate newer technologies into the simulations, such as visualization tools to more closely replicate the work required of nlCPAs.
Again, we appreciate the opportunity to express our views on the content for the next version of the CPA Exam, and would be pleased to discuss our comments or answer any questions. Please contact Laura Martinez at laura.e.martinez@pwc.com or (415) 307-3178 or Valerie Wieman at valerie.wieman@pwc.com or (917) 837-4324 regarding our submission.
Sincerely,
PricewaterhouseCoopers LLP
Appendix
Change number | Area | Change description and rationale | PwC comment |
6 | II | Group A: Planning an engagement. Topic 2: Developing a detailed engagement plan.
Remove the analysis skill level content on developing a detailed engagement plan. PA research indicates the analysis content tested is beyond the scope of nlCPA practice.
This change is proposed to focus the CPA Exam on assessing the critical knowledge and skills needed by nlCPAs. The CPA Exam will continue to assess preparing and documenting an engagement plan, as well as supporting client request materials as these are the tasks commonly performed by nlCPAs.
| We do not support removing the analysis skill level content for this area as nlCPAs are often required to assist with developing and modifying an engagement plan for audit and non-audit engagements. We expect nlCPAs to be able to critically evaluate changes in risk and other recent developments and suggest new or modified tests as part of the engagement plan.
|
10 | II | Group G: Planning for and using the work of others, including group audits, the internal audit function and the work of a specialist.
Remove content related to the use of the internal audit function. PA research indicates content on the use of the internal audit function is beyond the scope of nlCPA practice.
This change is proposed to focus the CPA Exam on assessing the critical knowledge and skills needed by nlCPAs. Content related to the use of internal audit will be removed, and content related to using the work of an IT auditor will be added while maintaining current content on group auditors and using the work of other specialists.
| While we agree with the addition of content related to using the work of an IT auditor, we do not support removing the content on the use of the internal audit function. The internal audit function remains a critical risk management function for many entities. An nlCPA should understand how the work of internal audit, as well as specialists and component teams, can be leveraged to support the audit.
|
11 | II | Group H: Specific areas of engagement risk. Topic 3: Related parties and related party transactions.
Eliminate analysis skill level content and focus on defining and identifying related parties. PA research indicates the content at the analysis skill level is beyond the scope of nlCPA practice.
This change is proposed to focus the CPA Exam on assessing the critical knowledge and skills needed by nlCPAs. The CPA Exam will continue to assess procedures to identify related party relationships and transactions at the application skill level.
| We do not believe the analysis skill level content in this area is beyond the scope of nlCPAs and support retaining it. The existence of related party transactions is an important fraud risk factor and can impact both internal audit and external audit. Newly licensed CPAs are increasingly required to assist with analyzing the potential impact of related parties and related party transactions and should be fluent in the relative risks. The representative task description incorporates testing related party transactions and disclosure and considering the related control implications. We consider these to be relevant, and in fact necessary, skills for an nlCPA.
|
17 | III | Group D: Specific matters that require special consideration. Topic 4: Litigation, claims and assessments.
Remove analysis skill level content from the topic. PA research indicates analyzing management’s estimates of accruals for litigation, claims, and assessments are beyond the scope of nlCPA practice.
This change is proposed to focus the CPA Exam on assessing the critical knowledge and skills needed by nlCPAs. This topic will now focus on performing procedures to identify litigation, claims, and assessments at the application skill level.
| We do not support removing the analysis skill level content for this topic. Newly licensed CPAs commonly assist with analyzing management's estimates of accruals for litigation, claims, and assessments. Understanding how to audit estimates in general is an important skill in a business environment that requires an increasing volume of subjective estimates.
|
27 | IV | Group A: Understanding of information technology (IT). Topic 3: Data.
Change the current Topic 3 - Data to be a Group of its own and add content related to working with data.
This change is in response to the findings identified in the PA research, more specifically the digital and data-driven mindset.
This new Group on data would include expanded content on data management, data governance, and data relationships. Additionally, the Group would include content related to extracting and loading data at the remembering and understanding skill level and content related to transforming and working with data and data relationships at the application skill level.
| We agree with making Data its own Group and adding content related to working with data. It is important for nlCPAs to embrace the data-driven mindset. We see the value in data management, data governance, and data relationships.
We believe it is important that when assessing the understanding of data extraction and data loading, the representative tasks include a focus on understanding the source of data and its reliability; how to assess completeness and accuracy; and understanding the data flows.
|
29 | IV | Group C: Controls that respond to risks associated with IT. Topic 4: Continuity and recovery plans.
Broaden the topic and revise the skill level from application to remembering and understanding.
This change is proposed to focus the CPA Exam on assessing the critical knowledge and skills needed by nlCPAs.
Revise this topic to focus on recalling concepts related to business resiliency. Business resiliency integrates crisis management and business continuity. The revised content will be at the remembering and understanding skill level rather than the application skill level. This change would more closely align with nlCPA practice.
| We agree with broadening the topic and focusing it on business resiliency. The coronavirus pandemic is only the most recent example to demonstrate the importance of crisis management and business continuity. We believe nlCPAs can benefit from having a good understanding of relevant issues businesses face in a crisis and the implications for accounting and auditing. Having more than just an understanding in this area will be important to the assessment of risk that is the foundation of the profession.
Given the critical importance of this area, we do not support revising the skill level to remembering and understanding and recommend maintaining assessment at the application level.
|
31 | I | Group B: General-purpose financial statements: for-profit business entities. Topic 9: Going concern.
Remove the topic. PA research indicates that this topic is beyond the scope of nlCPA practice.
This change is proposed to focus the CPA Exam on assessing the critical knowledge and skills needed by nlCPAs. Remove recalling the requirements for disclosing uncertainties about an entity’s ability to continue as a going concern from management’s perspective. The CPA Exam will continue to assess concepts related to going concern in the AUD section.
| We do not support removing content assessing an nlCPA’s ability to understand the disclosure requirements related to uncertainties about an entity's ability to continue as a going concern. We believe that recalling the requirements for disclosing uncertainties about an entity’s ability to continue as a going concern is fundamental to an nlCPA’s understanding of the purpose of financial reporting.
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