Supplementary Study Guide to Accompany the Quarterly CPE ...

Supplementary Study Guide to Accompany the Quarterly CPE Exam on

Topics Addressed in the Journal of Accountancy First Quarter (January ? March), 2018 (Course # 1801)

Instructions: Before you start a section of the CPE Final Exam, complete the corresponding section of this

Supplementary Study Guide. Do NOT submit answers to the Review Questions. Purpose:

To provide an interactive learning experience by listing Learning Objectives and Review Questions with Suggested Answers and Explanations. OUTLINE: The section numbers of Study Guide correspond to section numbers of the Final Exam. The page numbers below refer to the first page of each article in the printed version of the JofA. Sections I?III and Exam Questions 1 ? 15 Relate to the Journal of Accountancy of January 2018. Section I. Auditing Updates Featuring One Column and Two JofA Articles: News Digest (Page 9) The Risks, and Potential Rewards, of Rotating Chief Audit Executives (Page 30) How Data-Hosting Services Affect Independence (Page 42) Section II. Accounting and Financial Reporting Updates Featuring Two JofA Articles: Lease Accounting Laggards Face Serious Risks (Page 18) Getting Ready for the EU's Stringent Data Privacy Rule (Page 36) Section III. Tax Updates Featuring One Tax Article and Three Tax Columns: What to Do with Math Error Notice Letters from the IRS (Page 50) From The Tax Adviser: Mortgage Broker Is Not a Real Estate Professional (Page 56), Tax Practice Corner: Documenting Virtual Currency Transactions (Page 58), and Tax Matters (Page 62) Sections IV ? V and Exam Questions 16 ? 35 Relate to the Journal of Accountancy of Feb. 2018: Section IV. Help Small Businesses Choose the Right Employee Retirement Plans (Page 14) Section V. Congress Enacts Tax Reform (Page 52) Sections VI ? VIII and Exam Questions 36?50 Relate to the Journal of Accountancy of March 2018 Section VI. Factoring in the Time Value of Money with Excel (Page 34) Section VII. Two Tax Articles: Donation-Based Crowdfunding and Nontaxable Gifts (Page 42) and The AICPA and the Ongoing Tax Reform Process (Page 48) Section VIII. Tax Updates Featuring One Tax Article and Three Tax Columns: From The Tax Adviser: Divorce Traps: Portfolios Harboring Unrealized Gains (Page 54), Tax Practice Corner: Aiding Employees after a Disaster via Sec. 139 (Page 64) Tax Matters (Page 66)

Accounting Education Associates / accounting- /P.O. Box 4192 / Greensboro, NC 27404-4192

The Learning Objectives are stated in each of the following sections.

Section I. Auditing Updates Featuring One Column and Two JofA Articles from January 2018. News Digest (Page 9) The Risks, and Potential Rewards, of Rotating Chief Audit Executives (Page 30) How Data-Hosting Services Affect Independence (Page 42)

Section I Assignment: 1. Study the article (reference text) in the Journal of Accountancy, paying particular attention to our Learning Objectives stated below. 2. Answer our Review Questions that have been designed to provide an interactive learning experience. 3. Study the Solutions and Suggested Responses to the Review Questions. 4. Answer Final Exam questions 1 through 5.

Section I Learning Objectives: 1. To learn certain recent developments in audit standards. 2. To learn the risks and potential rewards of rotating the chief audit executive. 3. To learn when providing data-hosting services can affect an auditor's independence.

Section I Review Questions: 1. The PCAOB defines "critical audit matters" as any matter arising from the current period's audit of the financial statements that should be communicated to the audit committee and that: a. Relates to accounts or disclosures that are material to the financial statements. b. Involved especially challenging, subjective, or complex auditor judgment. c. Both a and b. d. Neither a nor b.

2. The PCAOB suggests that audit firms may wish to: a. Continue to evaluate the effectiveness of their systems of quality control. b. Perform root-cause analyses of recurring deficiencies. c. Remain vigilant when planning and performing procedures in the challenging areas identified in the brief in upcoming audits. d. Have engagement quality reviewers keep the challenging areas in the brief in mind when they perform their reviews. e. All of the above.

3. Neil Amato suggests that, when hired, the chief audit executive be told ______ his or her next position in the organization will be. a. When b. Where c. Both a and b d. Neither a nor b

4. The Code of Professional Conduct precludes CPAs from _____ for an attest client. a. Serving on the board of directors b. Supervising employees c. Approving invoices d. Holding assets e. Any of the above activities

5. The Code of Professional Conduct precludes CPAs from _______ internal controls for an attest

client.

a. Designing

d. A, b or c

b. Implementing

e. A or b but not c

c. Maintaining

Section I Solutions and Suggested Responses to Review Questions Appear on the next page.

Section I Solutions and Suggested Responses to Review Questions: Review Question 1. (Please see page 9 of January JofA.) a. Incorrect. This is part of but not the most complete answer. b. Incorrect. This is part of but not the most complete answer. c. Correct. The PCAOB defines "critical audit matters" as any matter arising from the current period's audit of the financial statements that should be communicated to the audit committee and that relates to accounts or disclosures that are material to the financial statements and that involved especially challenging, subjective, or complex auditor judgment. d. Incorrect. The PCAOB defines "critical audit matters" as any matter arising from the current period's audit of the financial statements that should be communicated to the audit committee and that relates to accounts or disclosures that are material to the financial statements and that involved especially challenging, subjective, or complex auditor judgment. Review Question 2. (Please see page 10 of January JofA.) a. Incorrect. This is part of but not the most complete answer. b. Incorrect. This is part of but not the most complete answer. c. Incorrect. This is part of but not the most complete answer. d. Incorrect. This is part of but not the most complete answer. e. Correct. The brief suggests that firms may wish to take each of the actions listed in "a" through "d." Review Question 3. (Please see page 33 of January JofA.) a. Incorrect. Neil Amato suggests that, when hired, the chief audit executive not be told when his or her next position in the organization will be. b. Incorrect. Neil Amato suggests that, when hired, the chief audit executive not be told where his or her next position in the organization will be. c. Incorrect. Neil Amato suggests that, when hired, the chief audit executive not be told when or where his or her next position in the organization will be. d. Correct. Neil Amato suggests that, when hired, the chief audit executive not be told when or where his or her next position in the organization will be. Review Question 4. (Please see page 43 of January JofA.) a. Incorrect. This is part of but not the most complete answer. b. Incorrect. This is part of but not the most complete answer. c. Incorrect. This is part of but not the most complete answer. d. Incorrect. This is part of but not the most complete answer. e. Correct. The Code of Professional Conduct precludes CPAs from performing any of the above activities for an attest client. Review Question 5. (Please see page 43 of January JofA.) a. Incorrect. This is part of but not the most complete answer. b. Incorrect. This is part of but not the most complete answer. c. Incorrect. This is part of but not the most complete answer. d. Correct. The Code of Professional Conduct precludes CPAs from performing any of the above activities for an attest client. e. Incorrect. The Code of Professional Conduct precludes CPAs from performing any of the above activities for an attest client.

=========================================End of Section

Section II. Section II. Accounting and Financial Reporting Updates Featuring Two JofA Articles: Lease Accounting Laggards Face Serious Risks (Page 18) Getting Ready for the EU's Stringent Data Privacy Rule (Page 36)

Section II Assignment: 1. Study the article (reference text) in the Journal of Accountancy, paying particular attention to our Learning Objectives stated below. 2. Answer our Review Questions that have been designed to provide an interactive learning experience. 3. Study the Solutions and Suggested Responses to the Review Questions. 4. Answer Final Exam questions 6 through 10.

Section II Learning Objectives: 1. To learn about several factors that should be considered before implementing FASB Accounting Standards Update No. 2016-02, Leases (Topic 842). 2. To learn about the key elements of the General Data Protection Regulation (GDPR), the penalties for noncompliance as well as an action plan for complying with GDPR.

Section II Review Questions: 1. The overriding goal of the new FASB lease accounting standard is to: a. Reduce required disclosures. b. Increase transparency in financial reporting. c. Both a and b. d. Neither a nor b.

2. Which of the following functional areas should be included in implementing the new lease accounting standard? a. Finance. b. Information technology. c. Whoever handles real estate negotiation and contracts. d. Whoever handles procurement, treasury and tax functions. e. All of the above.

3. The new lease accounting standard may: a. Cause state tax apportionment issues in some states. b. Trigger transfer-pricing implications related to related-party issues. c. Both a and b. d. Neither a nor b

4. The GDPR: a. Will affect all companies that use personal data of persons in the EU to provide services, sell goods or monitor their behavior. b. Will require affected companies without a physical EU presence or location to have an appointed representative for EU enforcement action. c. Will become enforceable on May 25, 2018. d. A, b and c. e. A and b but not c.

5. The GDPR's rules apply to organizations that: a. Have an establishment in the EU. b. Are not established in the EU but provide services or offer good to persons in the EU. c. Monitor the behavior of persons in the EU. d. A, b or c. e. A or b but not c.

6. The General Data Protection Regulation (GDPR) was adopted by the European Union in ______

and with an enforcement date of ______.

a. 2014...2016

d. 2017...2019

b. 2015...2017

e. 2018...2020

c. 2016...2018

7. The GDPR applies to businesses handling personal data of individuals in the EU even: a. When no transaction takes place. b. When a business has no physical presence in Europe. c. Either or b. d. Neither a nor b. Section II Solutions and Suggested Responses to Review Questions appear on next two pages.

Section II Solutions and Suggested Responses to Review Questions: Review Question 1. (Please see page 19 of January JofA.) a. Incorrect. The overriding goal of the new FASB lease accounting standard is not to reduce required disclosures of lease activity. b. Correct. The overriding goal of the new FASB lease accounting standard is to increase transparency. c. Incorrect. The overriding goal of the new FASB lease accounting standard is to increase transparency but not to reduce required disclosures. d. Incorrect. The overriding goal of the new FASB lease accounting standard is to increase transparency but not to reduce required disclosures. Review Question 2. (Please see page 20 of January JofA.) a. Incorrect. This is part of but not the most complete answer. b. Incorrect. This is part of but not the most complete answer. c. Incorrect. This is part of but not the most complete answer. d. Incorrect. This is part of but not the most complete answer. e. Correct. All of these functional areas should be included in implementing the new lease accounting standard Review Question 3. (Please see page 21 of January JofA.) ) a. Incorrect. This is part of but not the most complete answer. b. Incorrect. This is part of but not the most complete answer. c. Correct. The new lease accounting standard may cause state tax apportionment issues in some states and trigger transfer-pricing implications related to related-party issues. d. Incorrect. The new lease accounting standard may cause state tax apportionment issues in some states and trigger transfer-pricing implications related to related-party issues. Review Question 4. (Please see page 37 of January JofA.) a. Incorrect. This is part of but not the most complete answer. b. Incorrect. This is part of but not the most complete answer. c. Incorrect. This is part of but not the most complete answer. d. Correct. The GDPR will affect all companies that use personal data of persons in the EU to provide services, sell goods or monitor their behavior, will require affected companies without a physical EU presence or location to have an appointed representative for EU enforcement action and will become enforceable on May 25, 2018. e. Incorrect. The GDPR will affect all companies that use personal data of persons in the EU to provide services, sell goods or monitor their behavior, will require affected companies without a physical EU presence or location to have an appointed representative for EU enforcement action and will become enforceable on May 25, 2018. Review Question 5. (Please see page 38 of January JofA.) a. Incorrect. This is part of but not the most complete answer. b. Incorrect. This is part of but not the most complete answer. c. Incorrect. This is part of but not the most complete answer. d. Correct. The GDPR's rules apply to organizations that have an establishment in the EU, are not established in the EU but provide services or offer good to persons in the EU, or monitor the behavior of persons in the EU. e. Incorrect. The GDPR's rules apply to organizations that have an establishment in the EU, are not established in the EU but provide services or offer good to persons in the EU, or monitor the behavior of persons in the EU. Review Question 6. (Please see page 37 of January JofA.) a. Incorrect. The GDPR was not adopted by 2014. b. Incorrect. The GDPR was not adopted by 2015. c. Correct. The General Data Protection Regulation (GDPR) was adopted by the European Union in 2016 and with an enforcement date of 2018, specifically May 25, 2018. d. Incorrect. The GDPR was not adopted before 2017. e. Incorrect. The GDPR was not adopted before 2018.

Review Question 7. (Please see page 37 of January JofA.) a. Incorrect. This is part of but not the most complete answer. b. Incorrect. This is part of but not the most complete answer. c. Correct. The GDPR applies to businesses handling personal data of individuals in the EU even when no transaction takes place or when a business has no physical presence in Europe. d. Incorrect. The GDPR applies to businesses handling personal data of individuals in the EU even when no transaction takes place or when a business has no physical presence in Europe.

=========================================End of Section II.

REFERRAL INCENTIVE PROGRAM - WE'LL PAY YOU FOR REFERRING NEW QUALIFYING CUSTOMERS: Receive $10 for each new customer you refer to us. For every new qualifying customer who pays for an exam and mentions your name, we'll send you a check for $10. It's as simple as that. We welcome any questions by either phone or email.

Section III. Tax Updates Featuring One Tax Article and Three Tax Columns: What to Do with Math Error Notice Letters from the IRS (Page 50) From The Tax Adviser: Mortgage Broker Is Not a Real Estate Professional (Page 56), Tax Practice Corner: Documenting Virtual Currency Transactions (Page 58), and Tax Matters (Page 62)

Section III Assignment: 1. Study the article (reference text) in the Journal of Accountancy, paying particular attention to our Learning Objectives stated below. 2. Answer our Review Questions that have been designed to provide an interactive learning experience. 3. Study the Solutions and Suggested Responses to the Review Questions. 4. Answer Final Exam questions 11 through 15. Section III Learning Objectives:

1. To learn how to advise clients who receive who receive math error notice letters from the IRS. 2. To learn what constitutes math errors. 3. To learn about the implications of the Tax Court's decision in Hickam. 4. To learn about taxation of transactions involving virtual currency. Section III Review Questions: 1. The IRS's computer program designed to detect what are called math errors including _______

errors on a tax return. a. Arithmetic-type b. Clerical c. Both a and b d. Neither a nor b 2. Which of the following is not considered a math error under Sec. 6213(g)(2)? a. An omission of required supporting forms. b. Claiming an EITC based on self-employment income without paying self-employment tax. c. Claiming a credit that is incorrect because of age limit or requirement. d. An error due to addition, subtraction, multiplication or division. e. Willful failure to report all dividends or interest received. 3. To be classified as a real estate professional under Sec. 469(c)(7)(B): a. More than one-half of the personal services performed in trades or businesses of the taxpayer during the tax year are performed in real property trades or businesses in which the taxpayer materially participates. b. The taxpayer must perform more than 750 hours of service during the year in real property trades or businesses in which the taxpayer materially participates. c. Either a or b. d. Both a and b. 4. If virtual currency is held by an individual for personal use, its disposal may produce: a. A taxable capital gain. b. A nondeductible capital loss. c. Either a or b. d. Neither a nor b. 5. Under a small employer health reimbursement arrangement, payments for, or reimbursements for an eligible medical expenses ______ includible in the employee's gross income if the employee provides the employer proof of having minimum essential coverage as defined in Sec. 5000A(f). a. Are b. Are not Section III Solutions and Suggested Responses to Review Questions appear on the next page.

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