Task-based simulations and research tasks

Task-based simulations make up half the score in each core section, and most candidates who fail a section score lower on simulations than on multiple-choice questions. Simulations are harder because they present realistic situations with several exhibits, ask for several related answers and give no options to choose from for some of them. They also take time, which is why lesson 2 budgeted 16 to 23 minutes for each. This lesson describes the common simulation formats, a method for working them and the research task that asks you to find guidance in the authoritative literature. The examples use Tamarind Bay Foods and Copperline Outdoor Gear Inc.

Simulation formats

Simulations come in several formats, and a single simulation may combine them. In a numeric entry task you compute and enter amounts, such as the components of a lease liability or the taxable income of a partnership. In an option list task you choose from drop-down lists for each row, such as classifying items as operating, investing or financing. A journal entry task asks you to select accounts and enter debits and credits. A document review simulation shows a draft document, such as a memo, a set of notes or an audit report, with highlighted phrases, and asks you to accept, replace or delete each one. A research task asks you to find and enter a citation from the authoritative literature. Each format has its own techniques, but the same method applies to all.

A method for every simulation

First, read the requirement and look at the response area before reading the exhibits. Knowing what you must produce tells you which information matters. Second, scan the exhibits to see what they contain, then read the relevant ones closely. Third, work the parts you can do quickly, then return to the harder ones; scoring is by item, so each completed cell earns its own credit. Fourth, check your answers against the requirement: the right number for the wrong date, or a debit entered as a credit, earns nothing. Finally, if time is short, make your best attempt at every remaining cell rather than leaving any blank.

Be alert to irrelevant information. Simulations often include exhibits or facts that do not affect the answer, such as an email with an opinion from a manager, a list of balances that includes accounts outside the question, or a tax fact for a different year. The exam is testing whether you can distinguish relevant from irrelevant, which is a skill used every day in practice. When a fact seems to have no role, it may be a distractor; check that your answer does not depend on it, then move on.

Document review simulations

Document review simulations are common in AUD and increasingly in other sections. The document is a draft with several highlighted phrases, and for each you choose whether to keep the original text or replace it with one of several alternatives, or delete it. The key is to compare each phrase with the exhibits and the standards: is the statement true, complete and appropriate for this document? The program below scores one candidate's responses to a short document review of a revenue and lease memo for Tamarind Bay. Each of the five items is scored separately, which is why partial credit matters.

# A document-review TBS: flag each sentence of a draft memo as keep, change or delete.
memo = [
    ("Revenue is recognized when control transfers to the customer.", "keep"),
    ("The warranty is a separate performance obligation because customers can buy it separately.", "keep"),
    ("Inventory is written down to replacement cost.", "change"),
    ("The lease is classified as operating because the lessee has a purchase option.", "change"),
    ("The CFO says the numbers are fine.", "delete"),
]
answers = ["keep", "keep", "change", "keep", "delete"]     # one candidate's responses
score = sum(a == k for (_, k), a in zip(memo, answers))
for (s, k), a in zip(memo, answers):
    print(f"{'ok ' if a == k else 'XX '} {k:7} {s}")
print(f"\n{score} of {len(memo)} correct; each item is scored separately, so partial credit counts")

ok  keep    Revenue is recognized when control transfers to the customer.
ok  keep    The warranty is a separate performance obligation because customers can buy it separately.
ok  change  Inventory is written down to replacement cost.
XX  change  The lease is classified as operating because the lessee has a purchase option.
ok  delete  The CFO says the numbers are fine.

4 of 5 correct; each item is scored separately, so partial credit counts

The candidate kept the lease sentence, but it should have been changed: a purchase option does not make a lease an operating lease; under ASC 842 a purchase option the lessee is reasonably certain to exercise is one of the criteria for a finance lease. The candidate also correctly changed the inventory sentence, because inventory measured at FIFO is written down to net realizable value, not replacement cost, and deleted the irrelevant sentence about the CFO's opinion. Four of five correct is a good result on a document review, and the miss is a typical one: a sentence that sounds plausible but reverses a rule. Read every highlighted phrase as if it might be wrong.

Research tasks

A research task asks you to find the paragraph in the authoritative literature that answers a question, and enter its citation. In FAR and BAR the literature is the FASB Accounting Standards Codification; in AUD it is the AICPA's professional standards and the PCAOB's standards; in REG and TCP it is the Internal Revenue Code. You do not need to memorize citations, but you need to know how each source is organized so that you can search efficiently. The Codification is organized by topic, subtopic, section and paragraph: topic 842 is leases, subtopic 20 is lessee, section 25 is recognition, and so on. The auditing standards are organized by AU-C section number, such as AU-C 705 for modified opinions. The Code is organized by section number, such as section 1031 for like-kind exchanges.

Search with precise terms. If the question asks when a lessee should classify a lease as a finance lease, search for 'finance lease' and 'classification' within topic 842 rather than for 'lease'. Read the paragraph you find to confirm that it answers the question, not a related one; research tasks often have a nearby paragraph that addresses a different point. Enter the citation in the format requested. A research task is usually worth the same as any other simulation, and a candidate who knows how the literature is organized can often finish one in five minutes, which saves time for harder simulations.

Numeric and journal entry simulations

Numeric simulations reward organization. Set up a small schedule in the spreadsheet tool with labeled rows, compute step by step and transfer the results. Check signs: a decrease in a liability, a loss or a refund may need to be entered as a negative number depending on the instructions. Check units: if the response area says 'in thousands', enter 1,250 rather than 1,250,000. Journal entry simulations ask you to choose account titles from a list; read the titles carefully, because similar titles such as 'right-of-use asset' and 'lease liability' are easy to swap, and make sure debits equal credits.

Simulations often build on earlier cells. A lease simulation may ask for the initial liability, then the interest for the first year, then the carrying amount at year end; an error in the first cell carries through. Spend your care where it matters most: get the first number right, then the rest follows. If you are unsure of the first number, make your best estimate and continue: a completed cell has a chance of being correct, while a blank has none, and some later cells may not depend on the first one at all.

What simulations look like in each section

Each section has its typical simulations. In FAR, expect numeric and journal entry tasks on leases, revenue, income taxes, bonds, the statement of cash flows and governmental reconciliations, and at least one research task in the Codification. In AUD, expect document reviews of audit reports, engagement letters and audit programs, option lists that match procedures to assertions, sampling evaluations and research in the auditing standards; few AUD simulations require lengthy calculations. In REG, expect computations of taxable income, basis, gain and character for individuals and entities, option lists on business law and procedures, and research in the Code. In the disciplines, BAR adds financial analysis and complex accounting computations, ISC adds scenario-based tasks on controls, data and SOC reports, and TCP adds multi-step planning comparisons. Knowing what to expect helps you plan: a REG candidate should be fast with the spreadsheet tool, while an AUD candidate should be fast at reading documents critically.

Practicing simulations

Practice simulations in exam conditions: timed, using the exam's tools and without notes. After each, review not just whether you were right but how long you took and what slowed you down. Many candidates find that their main problem is not knowledge but process: reading exhibits before the requirement, recomputing numbers already given, or getting stuck on one cell. Keep a log of these process errors as well as content errors, and work on both. The AICPA releases sample tests that show the exam interface and formats; use them to become familiar with the tools before exam day.