Certified Public Accountant Research & Evidence-Based Practice 5

Question 1

A CPA is researching goodwill impairment testing procedures. Under ASU 2017-04, what did FASB eliminate from the impairment test?

Accepted Answer

Step 2 — the hypothetical purchase price allocation to measure impairment

Answer

ASU 2017-04 eliminated Step 2 of the goodwill impairment test, which required a hypothetical purchase price allocation; now impairment is simply the excess of carrying value over fair value.

Question 2

Under Circular 230, a CPA who provides written tax advice must ensure the advice meets which standard to avoid potential penalties?

Accepted Answer

The advice must be based on reasonable assumptions, consider all relevant facts, and not rely on unreasonable assumptions

Answer

Circular 230 Section 10.37 requires that written tax advice be based on reasonable factual and legal assumptions, consider all relevant facts, and not rely on representations the practitioner knows are unreasonable.

Question 3

A CPA researching inventory valuation finds a client using LIFO for US GAAP purposes. Which statement is TRUE regarding LIFO under IFRS?

Accepted Answer

IFRS prohibits the use of LIFO as an inventory cost flow assumption

Answer

IAS 2 (Inventories) explicitly prohibits the use of the LIFO cost formula, making it one of the significant differences between IFRS and US GAAP.

Question 4

When auditing accounting estimates under AU-C Section 540, which approach involves evaluating the estimate by examining events or transactions occurring after the balance sheet date?

Accepted Answer

Reviewing subsequent events to corroborate or contradict the estimate

Answer

AU-C 540 allows auditors to use subsequent events — transactions or events that have already occurred after the balance sheet date — to evaluate whether management's estimate was reasonable.

Question 5

A CPA is researching tax basis of property received as a gift where the fair market value at the time of the gift is LESS than the donor's adjusted basis. What is the donee's basis if the property is subsequently sold at a LOSS?

Accepted Answer

The fair market value at the date of the gift

Answer

Under IRC Section 1015, when gifted property has FMV less than the donor's basis at the time of the gift and the donee sells it at a loss, the donee's basis for loss purposes is the FMV on the gift date.

Certified Public Accountant Practice Test

Certified Public Accountant Practice Test

Certified Public Accountant Research & Evidence-Based Practice 5