Certified Public Accountant Research & Evidence-Based Practice 4

Question 1

A CPA is determining whether a variable interest entity (VIE) must be consolidated. Under ASC 810, which party consolidates a VIE?

Accepted Answer

The primary beneficiary, who has the power to direct VIE activities and the obligation to absorb losses or right to receive benefits

Answer

ASC 810 requires the primary beneficiary — the entity with both the power to direct the VIE's most significant activities and the obligation/right to receive significant losses/benefits — to consolidate the VIE.

Question 2

When performing tax research, what distinguishes a Treasury Regulation from an IRS Revenue Ruling in terms of authority?

Accepted Answer

Treasury Regulations are issued under specific Congressional authorization and generally carry greater weight

Answer

Treasury Regulations, especially legislative regulations issued under specific Code authority, generally carry greater legal weight than Revenue Rulings, which represent the IRS's position on a fact pattern but do not have the force of law.

Question 3

A CPA is researching the appropriate hedge accounting model for a client's interest rate swap. Which ASC topic provides this guidance?

Accepted Answer

ASC 815

Answer

ASC 815 (Derivatives and Hedging) provides the comprehensive framework for derivative recognition, measurement, and hedge accounting qualification criteria.

Question 4

Under the AICPA's SSVS No. 1 (now VS Section 100), a CPA performing a valuation engagement must issue which type of report for a conclusion of value?

Accepted Answer

A detailed report, a summary report, or a calculation report depending on engagement terms

Answer

VS Section 100 allows CPAs to perform valuation engagements resulting in a conclusion of value reported in a detailed or summary report, or a calculation engagement with a calculation report.

Question 5

A CPA discovers that a client's prior-period financial statements contain a material error. Under ASC 250, how should this be corrected?

Accepted Answer

By restating the comparative prior-period financial statements and disclosing the error

Answer

ASC 250-10 requires correction of material prior-period errors by restating previously issued financial statements and providing appropriate disclosures.

Certified Public Accountant Practice Test

Certified Public Accountant Practice Test

Certified Public Accountant Research & Evidence-Based Practice 4