CPA Exam AUD, REG, and Finance — Plus Big 4 vs. Regional Firm Career Paths

The Three Remaining CPA Exam Sections

After FAR, three sections directly shape your career direction as a CPA.

AUD — Auditing and Attestation

The Audit Risk Model

The core framework of AUD is the Audit Risk Model.

Audit Risk (AR) = Inherent Risk (IR) × Control Risk (CR) × Detection Risk (DR)

• Inherent Risk (IR): susceptibility of an assertion to material misstatement, absent controls
• Control Risk (CR): risk that internal controls fail to prevent or detect a material misstatement
• Detection Risk (DR): risk that auditor procedures fail to detect a remaining misstatement

The only risk the auditor can control is Detection Risk. If the auditor sets a low tolerable AR, and IR × CR is high, then DR must be very low → more extensive substantive procedures required.

Four Audit Opinion Types

Emphasis-of-Matter and Key Audit Matters

• Emphasis-of-Matter (EOM): auditor draws attention to properly disclosed information already in the financial statements (e.g., going-concern uncertainty, subsequent event, restatement)
• Key Audit Matters (KAM): required in PCAOB auditor reports for accelerated filers (AS 3101); most significant matters communicated to the audit committee during the audit

Audit Procedure Flow

REG — Federal Tax Strategy

Key Differences: Individual vs. Corporate Tax

Consolidated Tax Return — Key Concept for REG

The CPA REG section tests consolidated returns for affiliated groups (80%+ ownership).

• Eligibility: parent must own 80%+ of voting stock AND 80%+ of total value of each subsidiary
• Intercompany transactions: deferred until recognized in a transaction with an outside party
• Consolidated NOL: losses of one group member offset income of another
• Separate return limitation year (SRLY): limits use of pre-affiliation losses

Financial Management: Key CPA Exam Calculations

CAPM and Beta

Capital Asset Pricing Model (CAPM)

E(Ri) = Rf + βi × [E(Rm) − Rf]

E(Ri): expected return of the asset
Rf: risk-free rate
βi: beta (systematic risk relative to market)
E(Rm) − Rf: market risk premium

• Beta > 1: more volatile than the market (aggressive asset)
• Beta < 1: less volatile than the market (defensive asset)
• Beta = 0: risk-free asset level of volatility

DCF Valuation

Free Cash Flow to the Firm (FCFF) Approach

FCFF = EBIT × (1 − tax rate) + D&A − CapEx − ΔNWC

Firm Value = FCFF / (WACC − g)  [Gordon Growth / perpetuity model]

WACC = Wd × Kd × (1 − t) + We × Ke

Capital Structure: Modigliani-Miller Theory

Options Fundamentals

CPA exam tests put-call parity and the binomial model directly.

Put-Call Parity

C + PV(X) = P + S

C: call option price
P: put option price
S: current price of underlying asset
PV(X): present value of exercise price

Career Paths After Passing the CPA Exam

Big 4 Promotion Timeline and Compensation

CPA vs. JD vs. MD — Professional Comparison

Study Checklist

• AUD — Memorize Audit Risk Model (AR = IR × CR × DR) and DR adjustment logic
• AUD — Know all four opinion types and when each applies
• AUD — Walk through the 6-phase audit procedure flow
• AUD — Define KAM (Key Audit Matters) and when required (PCAOB accelerated filers)
• REG — Understand consolidated return 80% ownership threshold and SRLY rules
• REG — Practice individual vs. corporate tax rate structure and key preference items
• Finance — Memorize CAPM formula and interpret beta values
• Finance — Calculate FCFF-based DCF firm value using WACC
• Finance — Explain MM three-stage capital structure theory (1958, 1963, trade-off)
• Finance — Apply put-call parity to solve for missing option price
• Career — Research specific Big 4 / regional firm / industry roles aligned with your goals
• Career — Prepare resume and CPA license application timeline