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  1. 1. Business Law & Professional Responsibilities Updating Supplement Version 32.2 BUSINESS LAW & PROFESSIONAL RESPONSIBILITIES CPA 4979 TABLE OF CONTENTS About Updating Supplement Version 32.2 ..............................................................................................................2 Study Options Available to Candidates...................................................................................................................2 Other Sources of Information for Candidates..........................................................................................................2 Recent Pronouncements.........................................................................................................................................3 Telemarketing Sales Rule (TSR) ...............................................................................................................3 Computer-Based Testing (CBT)..............................................................................................................................4 CBT Content Specifications Outline: Business Environment & Concepts .............................................................9 We wish to thank the American Institute of Certified Public Accountants and the Financial Accounting Standards Board for permission to reprint the following copyright © materials: 1. Uniform CPA Examination Questions and Unofficial Answers, Copyright © American Institute of Certified Public Accounts, Inc., Harborside Financial Center, 201 Plaza Three, Jersey City, NJ, 07311-3881 2. Accounting Research Bulletins, APB Opinions, APB Statements, and Code of Professional Conduct. 3. FASB Statements, Interpretations, and Statements of Financial Accounting Concepts (SFAC), Copyright © Financial Accounting Standards Board, 401 Merrit 7, P.O. Box 5116, Norwalk, CT 06856, U.S.A. Reprinted with permission. Copies of the complete documents are available from the FASB. 4. GASB Statements, Interpretations, and Technical Bulletins, Copyright © Governmental Accounting Standards Board, 401 Merritt 7, P.O. Box 5116, Norwalk, CT 06856-5116. 5. Statements on Auditing Standards (SAS), Statements on Standards for Accounting and Review Services (SSARS), Statements on Standards for Accountants’ Services on Prospective Financial Information, Statements on Standards for Attestation Engagements (SSAE), and Statements on Quality Control Standards (SQCS). 6. ISB Standards, Copyright © Independence Standards Board, 6th Floor, 1211 Avenue of the Americas, New York, NY 10036-8775 Copyright © 2003 by Bisk Education, Inc. Tampa, FL 33631-3028 All rights reserved. Reproduction in any form is expressly prohibited. Printed in the United States of America. This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is sold with the understanding that the publisher is not engaged in rendering legal, accounting or other professional service. If legal advice or other expert assistance is required, the services of a competent professional person should be sought.— From a Declaration of Principles jointly adopted by a Committee of the American Bar Association and a Committee of Publishers and Associations. © Copyright 2003 Bisk Education, Inc. All rights reserved. Page 1 of 10
  2. 2. Business Law & Professional Responsibilities Updating Supplement Version 32.2 ABOUT UPDATING SUPPLEMENT VERSION 32.2 Information that is only six months old is eligible to be tested on the CPA exam. This supplement is designed to bring the very latest information to candidates using our products to prepare for the November 2003 CPA exam. nd Candidates with the 32 edition and corresponding software will find Version 32.1 Updating Supplement plus the information in Version 32.2 Updating Supplement more than adequate for the May 2003 exam. When new information first becomes available, the examiners tend to test new or changed portions of concepts lightly. Coverage of information after that point may increase, if it is in a heavily tested area. Our updating supplements are adequate for updating recent material to the depth likely to be tested on exams. However, we do not design them for those few candidates who, for whatever reason, attempt to study for the exam without using current materials. Candidates who continue to use previous editions of our books must accept responsibility for adequately updating their materials. Candidates should consider the strain that this will add to the already time-consuming process of studying for the exam. In addition, do not fall into the trap of attaching undue significance to new information merely because it is new. Remember, with the information and techniques in our material, passing the exam is an attainable goal. Adhere to a reasonable study plan—and pass the first time! __________________ STUDY OPTIONS AVAILABLE TO CANDIDATES As every candidate’s needs are different, Bisk Education offers a variety of CPA Review formats and packages that are guaranteed* to help you pass the CPA exam on your next sitting. Options include: our Online CPA Review with structured Internet classes and our self-study CPA Review utilizing multimedia CD-ROM software, video tapes, audio tapes, and books. *Purchase of software required. Call for complete details. __________________ OTHER SOURCES OF INFORMATION FOR CANDIDATES Candidates with the 32nd edition will need Updating Supplement Version 32.1. Updating Supplement Version 32.1 contains selected questions from the May and November 2002 AICPA examinations. st Candidates with the 31 edition also will need Updating Supplement Versions 31.1 and 31.2. Updating Supplement Version 31.1 contains summaries of the revised UCC Article 9, the Revised Uniform Partnership Act, and federal inflation-adjusted bankruptcy amounts. Version 31.2 contains coverage of the Sarbanes-Oxley Act and May and November 2001 examination released questions with unofficial solutions and Bisk Education explanations. There is no Updating Supplement Version 31.1 for the other exam sections. Information on previ- ous supplements is included in Updating Supplement Versions 31.1 and 31.2. __________________ © Copyright 2003 Bisk Education, Inc. All rights reserved. Page 2 of 10
  3. 3. Business Law & Professional Responsibilities Updating Supplement Version 32.2 RECENT PRONOUNCEMENTS The National Do Not Call Registry was created as a result of the Federal Trade Commission's (FTC) amendment to the Telemarketing Sales Rule (TSR). The registry streamlines the process for consumers to reduce the number of unwanted telemarketing calls. The National Do Not Call Registry became effective on October 1, 2003, for consumers who were on the registry as of August 31, 2003. Due to the uncertainity of this legislation, it is expected that the Do Not Call Registry will not be tested on the May and June 2004 exams. Telemarketing Sales Rule (TSR) The TSR prohibits deceptive and abusive telemarketing acts and practices, and requires certain disclosures. The TSR restricts call times and prohibits calls to consumers who have expressed their desire not to be called. It requires telemarketers to promptly identity the seller or charitable organization, the purpose of the call, and to disclose all material information of the sale. Since its inception in 1995, the Federal Trade Commission (FTC) has amended the TSR. 1. Do Not Call Registry The registry streamlines the process for consumers to reduce the number of unwanted telemarketing calls. The registry became effective on October 1, 2003. a. Five Years Registered telephone numbers remain in the registry for five years, unless discon- nected or deleted by the consumer. Consumers may renew their registration after five years. b. Telemarketers Requires telemarketers to search the registry every three months and syn- chronize their call lists. Telemarketers who fail to comply may be fined up to $11,000 for each violation. c. Exemptions Political organizations, charities, telephone surveyors, and the insurance busi- nesses, to the extent regulated by state law, are permitted to call. For-profit telemarketers calling on behalf of charitable organizations must honor consumer’s request to be on its do not call list. (1) Business Relationship Companies with which the consumer has an established business relationship can call for up to 18 months after the last purchase, payment or delivery. (2) Inquiries Organizations to which the consumer made an inquiry or submitted an appli- cation can call for three months. (3) Permission If the consumer asks a company not to call, the company must honor the request. However, consumers may give written permission to particular companies they would like to hear from. 2. Unauthorized Billing Restrictions Telemarketers must get the consumer's expressed consent before charging their account. This includes goods or services offered on a free trial basis before automatically charging the consumer's account (free-to-pay conversion offers). 3. Abandoned Call Reduction Telemarketers are required to connect calls to sales representatives within two seconds of the consumer's greeting. If telemarketers don't have representatives standing by, a recorded message must state who called and their telephone number. Telemarketers may not hang up before 15 seconds or four rings. 4. Caller-ID Transmission Starting January 29, 2004, telemarketers must transmit their telephone number and name, if possible, to consumer caller identification services. © Copyright 2003 Bisk Education, Inc. All rights reserved. Page 3 of 10
  4. 4. Business Law & Professional Responsibilities Updating Supplement Version 32.2 COMPUTER-BASED TESTING (CBT) The following information is provided merely to satisfy curiosity, rather than from a need for CPA candidates sitting for the November 2003 examination to know it. Prepare to pass the CPA exam now. Then you will not have to deal with the uncertainties that surround the CBT exam. Computer-based testing will be implemented in April 2004. The information presented here is intended to give candidates an overall idea of what the CBT exam will be like. This information is as accurate as possible; however, circumstances are subject to change after this publication goes to press. The AICPA plans a new edition of the Uniform Certified Public Accountant Examination Candidate Brochure. Candidates should check the AICPA’s web site ( 45 days before their exam for the most recent brochure. Registration Process To sit for the exam, candidates apply to the appropriate state board of accountancy. Some state boards contract with NASBA’s service to handle candidate applications. Once a state board or its agent determines that a candidate is eligible to sit for the exam, the board informs NASBA of candidate eligibility and NASBA adds the candidate to its database. With a national database, NASBA is able to ensure that no candidate can sit for the same exam section more than once during a single exam window. Within 24 hours, NASBA sends Prometric a notice to schedule (NTS). At that point, a candidate can schedule a date and time to sit for the exam with Prometric. Scheduling Candidates to whom taking the exam on a particular day is important should plan to schedule their exam dates 45 days in advance. Upon receipt of the NTS, candidates have a limited amount of time to sit for the specified exam sections; this time is set by states. The exam is called on-demand because candidates may sit at anytime for any available date in the open window. Candidate Medical Condition If any medical conditions exist that need to be considered during the exam, candidates should supply information about that situation when scheduling. Ordinarily, candidates may not bring anything into the exam room—including prescription medications. Granting of Credit / Conditioning With CBT implementation, the AICPA uses the term granting of credit as opposed to the former term, conditioning. Candidates who sat and conditioned in earlier exams should contact the appropriate state board regarding its transition conditioning policies. The AICPA recommends the following conditioning policy, but doesn’t have authority to require state boards to implement it. Future: CBT (post-2003 exam) section Current: Paper-and-pencil (pre-2004 exam) section Financial Accounting & Reporting Financial Accounting & Reporting Auditing & Attestation Auditing & Attestation Regulation Accounting & Reporting Business Environment & Concepts Business Law & Professional Responsibilities Prometric Prometric has facilities at different security levels; the CPA exam is administered only at locations that have the highest restrictions. In other words, not all Prometric facilities may administer the CPA exam. These locations have adjustable chairs, 17-inch monitors, and uninterruptible power supplies (UPS). Prometric generally is closed on Sundays. A few locations are open on Saturdays. Candidates can register either at individual Prometric locations or through Prometric’s national call center (800-864-8080). Candidates may also schedule, reschedule, cancel, or confirm an exam as well as find the closest testing location online at © Copyright 2003 Bisk Education, Inc. All rights reserved. Page 4 of 10
  5. 5. Business Law & Professional Responsibilities Updating Supplement Version 32.2 Prometric doesn’t score the exam. Candidates will not know their scores when they leave the exam site. Prometric sends a result file to NASBA that includes candidate responses, attendance information, and any incident reports. Incident Reports Prometric prepares an incident report for any unusual circumstances that occur during the exam. While Prometric will have UPS available at qualified testing centers, if some problem similar to a power outage should occur, an incident report will be included with the information that Prometric sends to NASBA after the candidate is finished with the exam. An incident report could be filed for such events as missing scratch sheets or a mid- testlet absence from the testing room. Exam Day On the day of their exam, candidates sign in and confirm their appointments. An administrator checks identifi- cation and digital photos are created. Candidates stow their belongings in designated locations. Candidates may not bring bottles of water, tissues, etc. into the exam room. Each candidate may receive six pages of scratch paper. Candidates may exchange used sheets for six more sheets. Candidates must account for the six pages at the conclusion of the exam. After the exam, candidates complete a survey to provide feedback. Fees States will inform candidates of the applicable total fee. The total fee includes fees for NASBA, AICPA, Prometric, the state board, and the digital photo. Cancellations in advance generally would result in a partially refunded fee. Cancellations (as opposed to a missed appointment) with no notice result in no refund. If a candi- date misses an appointment, there generally will be a $35 to $50 rescheduling fee unless due to circumstances beyond the candidate’s control. Those situations are decided on a case-by-case basis. Some states structure their fees to provide incentive for taking more than one exam section in the same exam window. Testing Room Ordinarily, candidates are not permitted to bring any supplies into the testing room, including pencils, water, or aspirin. Candidates requiring medication during the exam should make sure to notify the state board as appro- priate during the registration process. Exam proctors will supply “scratch” or note paper. These pages must be returned to proctors before leaving the examination site. Testlets Questions and simulations are grouped into testlets. A testlet typically has either from 10 to 35 multiple choice questions or a single simulation. The typical exam has three multiple choice testlets and two simulation testlets. Candidates may not pick the order in which they answer testlets. In other words, candidates cannot choose to answer the simulation testlets first and then the multiple choice question testlets. Within the testlets, multiple choice questions cover the entire content specification outline and are presented in random order. Adaptive Testing Each testlet is designed to cover all of the topics for an exam section. After the first testlet is finished, the soft- ware selects a second testlet based on the candidate’s performance on the first testlet. If a candidate did well on the first testlet, the second testlet will be a little more difficult than average. Conversely, if a candidate did poorly on the first testlet, the second testlet will be a little less difficult than average. The examiners plan on adaptive testing eventually allowing for less questions, resulting in more time for testing skills. Initially, testlets with different levels of difficulty will have the same number of questions; however, the point value of a question from an “easy” testlet will be less than a question from a “difficult” testlet. Thus, some candi- dates may think that they are not doing well because they are finding the questions difficult; when in reality, they are getting difficult questions because of exceptional performance on previous testlets. Other candidates may think that they are doing well because they are finding the questions easy; when in reality, they are getting easy questions because of poor performance on previous testlets. © Copyright 2003 Bisk Education, Inc. All rights reserved. Page 5 of 10
  6. 6. Business Law & Professional Responsibilities Updating Supplement Version 32.2 Breaks Once a testlet is started, a candidate ordinarily may not leave the workstation until that testlet is finished. Once a testlet is finished, a candidate may not return to it to change responses. After each testlet, a candidate has the option to take a break, but the clock is still running: a candidate’s time responding to questions is reduced by the amount of time spent on breaks. For a well-prepared candidate, time should not be an issue. Candidates will receive a five or ten minute warn- ing. The software will stop accepting exam responses at the end of the exam time automatically. All information entered before that time will be scored. Multiple Choice Questions If there are six answer options and a candidate is told to choose one, the software will allow the selection of a second option and automatically unselect the previously selected option. If there are six answer options and a candidate is told to choose two, the software will not allow the selection of a third option without the candidate unselecting one of the other selected options. In the printed book, letter answers appear next to each answer option to simplify indicating the correct answer. In the exam, a radio button appears instead of this letter. During the exam, candidates will indicate their response by clicking the appropriate radio button with a mouse device. Simulations A simulation is a collection of related items. A single simulation likely will have several response types. In other words, objective and essay responses may be included in the same simulation. Simulations probably will be 20% or less of the exam score; as we go to press, the examiners have not addressed this issue conclusively. The BEC exam section will not have simulations in the initial CBT exams. The AICPA has not announced yet when simulations will first appear in the BEC section. Scenario Elements Simulations generally have one or two scenarios providing the basis for answers to all of the questions in the simulations. Objective Response Elements Simulations may require candidates to select answers from drop-down lists or to enter numbers into worksheets or tax forms. Tax forms or schedules may appear on the REG exam section, but not all simulations on tax topics will include tax forms. Candidates don’t need to know how to create a spreadsheet from scratch to earn full points on the exam; they do need to know how to categorize, determine value, and add to a previously constructed worksheet. Essay Elements Initially, essays will continue to be hand-graded. The essay score focuses primarily on writing skills. The essay content must be on topic to earn the full point value, but the examiners plan to focus on testing content in the objective response questions. Word Processor Tool There will be a limited word processor as a tool in some simulations. The word processor tool will have cut, paste, copy, do, and undo features. Spell check likely will be available. The word processor intentionally does not have bold, underline, or bullet features; the examiners don’t want candidates spending much time on formatting. Spreadsheet Tool The examiners plan to have a blank spreadsheet for use like a piece of electronic scratch paper. Anything in this spreadsheet will not be graded. In other words, if a candidate calculates an amount in a spreadsheet, it must be transferred to the appropriate answer location in order to earn points. Research Elements Each simulation in the FAR, AUD, and REG exam sections will have a research element, probably for one point. With an estimated two simulations per exam section, this means that the point value on any one of these three exam sections for the research element of a simulation will total two percent of that section’s point value. © Copyright 2003 Bisk Education, Inc. All rights reserved. Page 6 of 10
  7. 7. Business Law & Professional Responsibilities Updating Supplement Version 32.2 A research element involves an electronic search of authoritative literature for guidance. The examiners devise research questions with references unlikely to be known, requiring candidates to search the material. No written analysis of the reference is required; candidates merely provide the most appropriate reference(s) to a research question. Each research question will specify the number of references to provide. The research skill evaluation distills down to the ability to structure a search of an electronic database and select the appropriate guidance from the “hits” generated by that search. Candidates who are at ease using the advance search features of such general-use sites as or likely will have no problem with this simulation element. The BEC exam section simulations will not have research elements in the initial CBT exams. The AICPA has not announced yet when research elements will first appear in BEC section simulations. Simulation Appearance Simulations generally will appear as a collection of tabbed pages. Each tab requiring a candidate response will be designated by a pencil icon that changes appearance when any response is entered on that tab. Candidates should be alert to the fact that the altered icon does not indicate that all responses on that tab are entered, but rather that one response is entered. Advice to Candidates Arrive at the testing center ½ hour before your appointment. Midweek appointments probably will be easiest to schedule. If taking the exam on a certain day is important, schedule 45 days in advance. Prometric doesn’t overbook like airlines do—that is why there is a rescheduling fee for missed appointments. Don’t go to exam without spending at least an hour with the practice materials (also called a tutorial) that is available through the AICPA web-site. This tutorial is intended to familiarize candidates with the features of the exam software, so that when they take the exam, they are not worried about functionality and, hence, can con- centrate on the content. The AICPA does not intend its tutorial to demonstrate content. The Bisk Education editors recommend viewing this tutorial at least a month before taking the exam. Examination Time Budgeting You must plan how you will use your examination time and adhere faithfully to your schedule. If you budget your time carefully, you should be able to answer all parts of all questions. You should subtract a minute or two for your initial inventory on each section. Assuming you will use the Solutions Approach™ and there will be two simulations in all sections except BEC, your time budgets may be similar to these. Your actual exam may differ from this scenario. You may benefit by taking more breaks than are included in this schedule. Be sure to adjust your time budget to accommodate the number and type of questions asked as well as your individual needs and strengths. Minutes FAR AUD REG BEC Inventory examination 1 1 1 2 Answer multiple choice question testlet 51 58 33 37 Answer multiple choice question testlet 51 58 33 37 Answer multiple choice question testlet 51 58 33 37 Answer multiple choice question testlet n/a n/a n/a 37 Break 6 5 0 0 Answer simulation testlet 40 45 40 n/a Answer simulation testlet 40 45 40 n/a 240 270 180 150 Your objective in time budgeting is to avoid running out of time to answer a question. Work quickly but efficiently (i.e., use the Solutions Approach™). Remember that when you are answering an essay question, a partial answer is better than no answer at all. If you don’t write anything, how can a grader justify giving you any points? © Copyright 2003 Bisk Education, Inc. All rights reserved. Page 7 of 10
  8. 8. Business Law & Professional Responsibilities Updating Supplement Version 32.2 Page Numbering Identify and label your scratch pages to avoid confusing yourself in the stress of the exam. AICPA Tutorial The AICPA provides a web-based tutorial for the CBT exam. This tutorial has samples of all the different types of simulation elements. The examiners believe that an hour spent with this tutorial will eliminate any point value loss due merely to unfamiliarity with the CBT software. Complimentary Video From Bisk Education The Bisk Education video, How to Pass the CPA Exam, is updated for computer-based testing. Qualified candidates may get a complimentary copy of this video featuring Robert Monette by contacting a Bisk Education sales representative. __________________ © Copyright 2003 Bisk Education, Inc. All rights reserved. Page 8 of 10
  9. 9. Business Law & Professional Responsibilities Updating Supplement Version 32.2 CBT CONTENT SPECIFICATION OUTLINE I. Business Structure (17% - 23%) III. Financial Management (17% - 23%) A. Advantages, Implications, and Constraints of A. Financial Modeling, Including Factors Such as Legal Structures for Business Financial Indexes, Taxes and Opportunity Costs, and Models Such as Economic Value 1. Sole Proprietorships and General and Added, Cash Flow, Net Present Value, Limited Partnerships Discounted Payback, and Internal Rate of Return 2. Limited Liability Companies (LLC), Limited Liability Partnerships (LLP), and Joint 1. Objectives Ventures 2. Techniques 3. Subchapter C and Subchapter S Corpora- tions 3. Limitations B. Formation, Operation, and Termination of B. Strategies for Short-Term and Long-Term Businesses Financing Options, Including Cost of Capital and Derivatives C. Financial Structure, Capitalization, Profit and Loss Allocation, and Distributions C. Financial Statement and Business Implica- tions of Liquid Asset Management D. Rights, Duties, Legal Obligations and Authority of Owners and Management (Directors, 1. Management of Cash and Cash Equiva- Officers, Stockholders, Partners, and Other lents, Accounts Receivable, Accounts Owners) Payable, and Inventories II. Economic Concepts Essential to Obtaining 2. Characteristics and Financial Statement an Understanding of an Entity’s Business and Business Implications of Loan Rates and Industry (8% - 12%) (Fixed vs. Variable) and Loan Covenants A. Business Cycles and Reasons for Business IV. Information Technology (IT) Implications in Fluctuations the Business Environment (22% - 28%) B. Economic Measures and Reasons for A. Role of Business Information Systems Changes in the Economy, Such as Inflation, Deflation and Interest Rate Changes 1. Reporting Concepts and Systems C. Market Influences on Business Strategies, 2. Transaction Processing Systems Including Selling, Supply Chain, and Customer Management Strategies 3. Management Reporting Systems D. Implications to Business of Dealings in Foreign 4. Risks Currencies, Hedging and Exchange Rate Fluctuations © Copyright 2003 Bisk Education, Inc. All rights reserved. Page 9 of 10
  10. 10. Business Law & Professional Responsibilities Updating Supplement Version 32.2 B. Roles and Responsibilities Within the IT V. Planning and Measurement (22% - 28%) Function A. Planning and Budgeting 1. Roles and Responsibilities of Database/ Network/Web Administrators, Computer 1. Planning Techniques, Including Strategic Operators, Librarians, Systems Program- and Operational Planning mers and Applications Programmers 2. Forecasting and Projection Techniques 2. Appropriate Segregation of Duties 3. Budgeting and Budget Variance Analysis C. IT Fundamentals B. Performance Measures 1. Hardware and Software, Networks, and Data Structure, Analysis, and Application, 1. Organizational Performance Measures, Including Operating Systems, Security, Including Financial and Nonfinancial File Organization, Types of Data Files, and Scorecards Database Managements Systems 2. Benchmarking, Including Quality Control 2. Systems Operation, Including Transaction Principles, Best Practices, and Bench- Processing Modes, Such as Batch, marking Techniques On-Line, Real-Time, and Distributed Proc- essing, and Application Processing C. Cost Measurement Phases, Such as Data Capture; Edit 1. Cost Measurement Concepts (Standard, Routines; Master File Maintenance; Joint Product, and By-Product Costing) Reporting, Accounting, Control, and Man- agement; Query, Audit Trail, and Ad Hoc 2. Accumulating and Assigning Costs (Job Reports; and Transaction Flow Order, Process, and Activity-Based Cost- ing) D. Disaster Recovery and Business Continuity, Including Data Backup and Data Recovery 3. Factors Affecting Production Costs Procedures, Alternate Processing Facilities (Hot Sites), and Threats and Risk Man- agement E. Financial Statement and Business Implica- tions of Electronic Commerce, Including Electronic Fund Transfers, Point of Sale Transactions, Internet-Based Transactions and Electronic Data Interchange __________________ © Copyright 2003 Bisk Education, Inc. All rights reserved. Page 10 of 10