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Israel CPA — Auditing and Special Audit Problems (ביקורת חשבונות ובעיות ביקורת מיוחדות)

Practice Questions
Exam Review

Key Facts: CPA Advanced Financial Accounting Exam

7-8

Open Questions in the Paper

Auditors Council focus list, Spring 2026

4 Hours

Exam Duration

Auditors Council Autumn 2026 exam notice

60

Points Needed to Pass

Auditors Regulations, 5716-1955

979 ILS

Fee per Final Part B Subject

Auditors Council Autumn 2026 exam notice

60

Minimum Points from Level 1 Topics

Auditors Council focus list, Spring 2026

100

Practice Questions

OpenExamPrep Bank

The Auditors Council sets Advanced Financial Accounting twice a year as a Final Part B paper — the Autumn 2026 sitting falls on 21 December 2026 at Binyanei Ha'Uma in Jerusalem, for a fee of 979 ILS. In the new format the paper runs four hours in two parts with a break and comprises 7-8 open questions, none worth more than 20 points, with at least 60 points drawn from Level 1 topics. A candidate scoring under 60 points fails the subject. This bank offers 100 independent English-language practice questions written by OpenExamPrep to the topics on the Council's focus list.

Sample CPA Advanced Financial Accounting Practice Questions

Try these sample questions to review concepts for the CPA Advanced Financial Accounting exam. Each question includes a detailed explanation. Start the interactive quiz above for the full 100+ question experience with AI tutoring.

1Under IFRS 3 (צירופי עסקים), how is the consideration transferred (התמורה שהועברה) in a business combination measured at the acquisition date?
A.At fair value, calculated as the sum of the acquisition-date fair values of assets transferred by the acquirer, liabilities incurred by the acquirer to former owners of the acquiree, and equity interests issued by the acquirer.
B.At the historical book value of the assets transferred as recorded in the acquirer's separate ledger.
C.At the discounted present value of the acquiree's projected future gross revenues over five years.
D.At the par value of the equity shares issued by the acquirer plus notary fees.
Explanation: IFRS 3.37 states that the consideration transferred in a business combination shall be measured at fair value, which is calculated as the sum of the acquisition-date fair values of the assets transferred by the acquirer, the liabilities incurred by the acquirer to former owners of the acquiree, and the equity interests issued by the acquirer.
2How must an acquirer account for acquisition-related costs (such as finder's fees, advisory, legal, accounting, valuation, and other professional or consulting fees) under IFRS 3?
A.They must be recognized as expenses in profit or loss in the periods in which the costs are incurred and the services are received, except for costs to issue debt or equity securities which are accounted for under IFRS 9 and IAS 32.
B.They must be capitalized as part of the initial cost of goodwill.
C.They must be deducted directly from the acquiree's retained earnings at the acquisition date.
D.They must be amortized over a period of 10 years on a straight-line basis.
Explanation: Under IFRS 3.53, acquisition-related costs are expenses in the periods in which they are incurred, except for the costs to issue debt securities (deducted from the initial carrying amount of debt under IFRS 9) or equity securities (deducted from equity/share premium under IAS 32). They are never added to goodwill.
3Under IFRS 3, what accounting choice is available to the acquirer at the acquisition date for measuring Non-Controlling Interest (NCI / זכויות שאינן מקנות שליטה) that are present ownership interests?
A.On a transaction-by-transaction basis, at either Fair Value (Full Goodwill method / מוניטין מלא) or the NCI's proportionate share of the acquiree's identifiable net assets (Partial Goodwill method / מוניטין חלקי).
B.NCI must always be measured at zero at acquisition date.
C.NCI must be measured at the historical cost of the acquiree's common stock.
D.NCI must be classified as a non-current financial liability at amortized cost.
Explanation: Under IFRS 3.19, for each business combination, the acquirer has an accounting policy choice to measure components of NCI that are present ownership interests and entitle holders to a proportionate share of net assets upon liquidation at either: (a) fair value (resulting in Full Goodwill), or (b) the NCI's proportionate share of the acquiree's recognizable net identifiable assets (resulting in Partial Goodwill).
4Company A acquires an 80% controlling interest in Company B for 800,000 ILS in cash. At the acquisition date, the fair value of Company B's identifiable net assets is 700,000 ILS, and the fair value of the 20% NCI is determined to be 180,000 ILS. What is the amount of Goodwill under the Full Goodwill method versus the Proportionate NCI method?
A.Full Goodwill method: 280,000 ILS; Proportionate NCI method: 240,000 ILS.
B.Full Goodwill method: 100,000 ILS; Proportionate NCI method: 100,000 ILS.
C.Full Goodwill method: 380,000 ILS; Proportionate NCI method: 140,000 ILS.
D.Full Goodwill method: 240,000 ILS; Proportionate NCI method: 280,000 ILS.
Explanation: Calculations: (1) Full Goodwill = (Consideration transferred 800,000 + NCI at Fair Value 180,000) - Identifiable Net Assets 700,000 = 980,000 - 700,000 = 280,000 ILS. (2) Proportionate NCI method: NCI = 20% * 700,000 = 140,000 ILS. Goodwill = (Consideration 800,000 + NCI 140,000) - Identifiable Net Assets 700,000 = 940,000 - 700,000 = 240,000 ILS (or 800,000 - 80%*700,000 = 800,000 - 560,000 = 240,000 ILS).
5When an acquirer completes a 'Bargain Purchase' (רכישה במחיר הזדמנותי / מוניטין שלילי), where the net of the acquisition-date amounts of identifiable assets acquired and liabilities assumed exceeds the sum of consideration transferred plus NCI, what MUST the acquirer do before recognizing a gain in profit or loss under IFRS 3?
A.Reassess whether it has correctly identified all of the assets acquired and all of the liabilities assumed, and review the measurement procedures used to measure all identifiable assets, liabilities, consideration, and NCI.
B.Immediately credit the excess to equity under share premium without review.
C.Distribute the excess as an immediate cash dividend to the parent company's shareholders.
D.Amortize the negative goodwill over 20 years through other comprehensive income.
Explanation: Under IFRS 3.36, before recognizing a gain on a bargain purchase (מוניטין שלילי), the acquirer must reassess whether it has correctly identified all of the assets acquired and all of the liabilities assumed and recognize any additional assets or liabilities. The acquirer must also review the valuation procedures to ensure measurements appropriately reflect all available information. Any remaining gain is recognized immediately in P&L.
6How is Contingent Consideration (תמורה מותנית) classified and subsequently accounted for under IFRS 3 and IFRS 9?
A.If classified as equity, it is NOT subsequently remeasured, and its subsequent settlement is accounted for within equity; if classified as a financial liability, it is remeasured at fair value at each reporting date with changes recognized in profit or loss.
B.Contingent consideration is always classified as equity and never recorded until cash is paid.
C.All contingent consideration is capitalized into goodwill each year as the probabilities change.
D.Contingent consideration must be discounted at zero percent and expensed immediately on day one.
Explanation: Under IFRS 3.58, contingent consideration classified as equity is not remeasured and its settlement is within equity. Contingent consideration classified as an asset or a liability (such as an obligation to pay cash if earnings targets are met) is a financial instrument within the scope of IFRS 9 and is measured at fair value at each reporting date, with changes in fair value recognized in profit or loss.
7In a Step Acquisition (רכישה בשלבים) where an investor previously held a 30% associate interest accounted for under the equity method and acquires an additional 40% interest to achieve control, how is the previously held 30% interest treated under IFRS 3?
A.The acquirer remeasures its previously held 30% equity interest at its acquisition-date fair value and recognizes the resulting gain or loss in profit or loss; any amounts previously recognized in OCI relating to that interest are recycled to profit or loss on the same basis as if the investor had disposed directly of the previously held interest.
B.The previously held 30% interest is retained at its historical equity-method carrying amount with no gain or loss recognized.
C.The difference between the previous carrying amount and fair value is added directly to goodwill.
D.The previously held interest is transferred to retained earnings without any revaluation.
Explanation: IFRS 3.42 mandates that in a business combination achieved in stages, the acquirer shall remeasure its previously held equity interest in the acquiree at its acquisition-date fair value and recognize the resulting gain or loss, if any, in profit or loss. Any related OCI balances are reclassified to P&L or retained earnings as required by the relevant standard.
8In a Purchase Price Allocation (PPA) under IFRS 3, an acquired machine has a book value of 100,000 ILS and a fair value of 160,000 ILS. The applicable corporate tax rate is 25%, and the tax base of the machine remains at 100,000 ILS. How does this fair value step-up affect the Deferred Tax liability and Goodwill recognized at acquisition date?
A.A Deferred Tax Liability (DTL) of 15,000 ILS (25% of the 60,000 ILS temporary difference) is recognized, which directly increases the amount of Goodwill recognized by 15,000 ILS.
B.A Deferred Tax Asset (DTA) of 15,000 ILS is recognized, reducing goodwill by 15,000 ILS.
C.No deferred tax is recognized because of the initial recognition exemption under IAS 12.
D.A deferred tax liability is recognized only if the acquiree pays cash taxes within 30 days.
Explanation: Under IAS 12.19 and IFRS 3, identifiable assets acquired are recognized at fair value (160,000 ILS) while their tax base remains at historical cost (100,000 ILS), creating a taxable temporary difference of 60,000 ILS. A Deferred Tax Liability of 15,000 ILS (60,000 * 25%) is recognized. Because DTL reduces net identifiable assets, Goodwill increases by exactly 15,000 ILS.
9What is the maximum duration of the 'Measurement Period' (תקופת המדידה) under IFRS 3 during which an acquirer may retrospectively adjust provisional amounts recognized for a business combination?
A.It shall not exceed one year (12 months) from the acquisition date.
B.Exactly 90 days from the end of the fiscal year.
C.Up to five years, matching the statutory tax audit period.
D.Indefinitely, until all contingent lawsuits of the acquiree are resolved.
Explanation: IFRS 3.45 stipulates that the measurement period provides the acquirer with a reasonable time to obtain information necessary to identify and measure assets, liabilities, and consideration. The measurement period ends as soon as the acquirer receives the information or learns that it cannot be obtained, and shall not exceed one year from the acquisition date.
10Under IFRS 10 (דוחות כספיים מאוחדים), which three cumulative elements MUST be present for an investor to have Control (שליטה) over an investee?
A.Power over the investee; exposure, or rights, to variable returns from its involvement with the investee; and the ability to use its power over the investee to affect the amount of the investor's returns.
B.Ownership of more than 50% of ordinary shares, a common corporate name, and shared IT servers.
C.Holding at least one seat on the board of directors, lending money, and receiving annual dividends.
D.Approval by the Tel Aviv District Court, registration at the Registrar of Companies, and a joint bank account.
Explanation: IFRS 10.07 defines control through three cumulative pillars: (1) Power over the investee (having existing rights that give the current ability to direct relevant activities); (2) Exposure, or rights, to variable returns from involvement with the investee; and (3) The ability to use power over the investee to affect the amount of the investor's returns (the link between power and returns).

About the CPA Advanced Financial Accounting Exam

Advanced Financial Accounting (חשבונאות פיננסית מתקדמת) is one of the two Final Part B papers of the Israeli CPA qualification, set by the Auditors Council under the Ministry of Justice. The examinable material is fixed by the Council's focus list, which from the Spring 2026 sitting applies to the paper's new format and grades every topic by level. Level 1 covers provisions, contingent liabilities and contingent assets; revenue from contracts with customers; intangible assets; investment property; financial instruments — presentation, measurement, recognition and derecognition of financial liabilities, expressly excluding hedging, derecognition of financial assets and embedded derivatives; income taxes; the statement of cash flows; investments in associates, joint ventures and joint arrangements; business combinations and consolidated statements; financial statement analysis and firm valuation; share-based payment; and operating segments. Level 2 covers fair value measurement, employee benefits, borrowing costs, assets held for sale and discontinued operations, leases, foreign exchange effects excluding foreign operations, impairment, presentation of financial statements, accounting policies and errors, events after the reporting period, inventories, property plant and equipment, and separate financial statements. Level 3 is theoretical only and covers the main gaps between international and Israeli standards, the conceptual framework, not-for-profit accounting under Israeli standards, earnings per share, interim reporting, and government grants. The applicable standards are the international standards, except for not-for-profit accounting, which follows Israeli standards. The official examination is set and sat in Hebrew and consists of open written questions; this bank is an independent English-language multiple-choice study adaptation and is neither an official translation nor a simulation of the examination's format.

Exam sponsor: Israel Auditors Council, Ministry of Justice (מועצת רואי חשבון, משרד המשפטים). The requirements and fees below concern the certification or admission exam, separate from our free practice resources.

Assessment

Four-hour computerised examination in the new format, comprising 7-8 open questions sat in two parts with a break, at Binyanei Ha'Uma in Jerusalem from 11:00

Time Limit

4 hours (240 minutes)

Passing Score

60 points (a candidate scoring under 60 in a subject fails that subject, under the Auditors Regulations, 5716-1955)

Exam / Certification Fees

979 ILS per Final Part B subject (Auditors Council notice for the Autumn 2026 sitting)

Exam sponsor website

Fees, eligibility, and exam policies can change. Confirm them with the exam sponsor before applying or paying.

Our practice resources: topics covered

We aim to reflect publicly available exam outlines and topic information in our study resources. Coverage, format, and difficulty may differ from the actual exam, and we cannot guarantee that every detail is accurate or current. Confirm exam requirements, fees, and policies with the official exam sponsor.

30%

Business Combinations & Consolidated Statements (IFRS 3, IFRS 10)

Acquisition method mechanics, fair value purchase price allocation (PPA), contingent consideration re-measurement, goodwill determination under full and proportionate NCI methods, step acquisitions, changes in ownership without loss of control, loss of control deconsolidation, and complex intragroup unrealized inventory and fixed asset profit eliminations.

15%

Investments in Associates & Joint Arrangements (IAS 28, IFRS 11)

Application of the equity method, upstream and downstream transaction eliminations, impairment indicators and testing of associate carrying amounts, classification of joint arrangements as joint operations vs joint ventures, and deemed disposal calculations.

16%

Financial Instruments (IFRS 9, IAS 32, IFRS 13)

Classification and measurement of financial assets (amortised cost, FVOCI, FVTPL) on the business model and SPPI criteria, the own-credit-risk presentation under the fair value option, the three-stage expected credit loss model and the simplified approach, split accounting for compound instruments and their early extinguishment under IAS 32, the 10% test and modification accounting for financial liabilities, reclassification, offsetting, and the IFRS 13 fair value hierarchy including credit and debit valuation adjustments. The Council's focus list expressly excludes hedging, derecognition of financial assets and embedded derivatives from this paper.

20%

Revenue Recognition, Leases & Operating Standards (IFRS 15, IFRS 16, IAS 36, IAS 37, IFRS 8)

Five-step revenue recognition model, identification of performance obligations, variable consideration estimation and constraint, principal versus agent determinations, contract modifications, lessee accounting (right-of-use asset and lease liability amortisation), sale-and-leaseback transactions, cash-generating unit (CGU) impairment testing, restructuring provisions and contingent liabilities (IAS 37), and operating segment aggregation criteria (IFRS 8).

15%

Income Taxes, Employee Benefits, Foreign Currency & EPS (IAS 12, IAS 19, IAS 21, IAS 33)

Balance sheet liability method for deferred tax assets and liabilities, the initial recognition exception, outside basis differences on investments in subsidiaries, uncertain tax treatments, recognition of deferred tax on unused tax losses, defined benefit pension obligations (DBO, plan assets, net interest, and remeasurement gains/losses in OCI), past service cost, translation of foreign operations under IAS 21 (functional currency determination and cumulative translation difference in OCI), and basic versus diluted earnings per share including incremental share sequencing for anti-dilution.

4%

Intangibles, Investment Property, Share-Based Payment & Valuation (IAS 38, IAS 40, IFRS 2)

Capitalisation of development expenditure under IAS 38 and the prohibition on reinstating costs already expensed, the IAS 40 fair value model and its contrast with the IAS 16 revaluation model, grant-date measurement of equity-settled share-based payment and the charge based on the number of instruments expected to vest under IFRS 2, and enterprise discounted-cash-flow valuation and financial statement analysis — each of these a Level 1 topic on the Council's focus list.

Preparing for the CPA Advanced Financial Accounting Exam

What You Need to Know

  • Passing score: 60 points (a candidate scoring under 60 in a subject fails that subject, under the Auditors Regulations, 5716-1955)
  • Assessment: Four-hour computerised examination in the new format, comprising 7-8 open questions sat in two parts with a break, at Binyanei Ha'Uma in Jerusalem from 11:00
  • Time limit: 4 hours (240 minutes)
  • Exam / certification fees: 979 ILS per Final Part B subject (Auditors Council notice for the Autumn 2026 sitting) Official sources

Using Our Practice Resources

  • Work through all 100 available questions
  • Review every answer and explanation
  • Track weak areas and revisit them
  • Use our AI tutor for tough concepts

CPA Advanced Financial Accounting: Suggested Study Strategy

1Practice multi-step PPA consolidation worksheets by hand or spreadsheet until the step-acquisition and loss-of-control mechanics become second nature.
2Understand the exact balance sheet liability method under IAS 12, focusing on deferred tax consequences of PPA fair value adjustments, revaluations, and unused tax loss carryforwards.
3Work the Council's focus list as a scoring map rather than a reading list: at least 60 of the 100 points come from Level 1 topics, so consolidation, revenue, income taxes, associates and joint arrangements, share-based payment and valuation deserve the bulk of your preparation time.
4Pay careful attention to IFRS 16 lease modifications and sale-and-leaseback formulas, ensuring you only recognize gain on the proportion of rights transferred.
5Review diluted EPS calculation order under IAS 33, ensuring you rank potential ordinary shares from most dilutive to least dilutive to test for anti-dilution.

Frequently Asked Questions

How is the exam structured in the new format?

The Council's focus list, effective from the Spring 2026 sitting, sets the paper at 7-8 open questions over four hours, sat on computer in two parts with a break. No single question may exceed 20 points; questions whose principal topics are Level 1 must total at least 60 points; at most one question may be principally on a Level 3 topic and it may not exceed 10 points; and no more than four separate questions may be principally on Level 2 or Level 3 topics. The Autumn 2026 sitting falls on 21 December 2026 at Binyanei Ha'Uma in Jerusalem.

What is the passing score, and what does the exam cost?

Under the Auditors Regulations, 5716-1955, a candidate who scores fewer than 60 points in a subject is regarded as having failed that subject. The Council's Autumn 2026 notice sets the fee at 979 ILS per Final Part B subject, against 522 ILS for each intermediate and Final Part A subject.

Is this practice bank in the same language and format as the official exam?

No. The official paper is set and sat in Hebrew and consists of open written questions only. This bank is an independent English-language study adaptation in four-option multiple-choice form, written by OpenExamPrep to the topics on the Council's focus list. It is not an official translation, not a simulation of the examination's format, and no substitute for working full open answers under time pressure on the past papers and solutions the Council publishes.

Does the exam cover hedge accounting?

No. The Council's focus list places financial instruments at Level 1 for presentation, measurement, recognition and derecognition of financial liabilities, but expressly excludes hedging, derecognition of financial assets and embedded derivatives from this paper. Our bank follows that exclusion.

How are non-controlling interests (NCI) valued under IFRS 3 in Israel?

Under IFRS 3, an acquirer may measure non-controlling interest on a transaction-by-transaction basis at either: (1) Fair Value (the 'full goodwill method'), which includes goodwill attributable to NCI; or (2) the NCI's proportionate share of the acquiree's identifiable net assets (the 'proportionate method'), which recognizes goodwill only on the parent's share.

How are upstream and downstream unrealized profits handled under IAS 28?

Under IAS 28 (Investments in Associates and Joint Ventures), profits and losses resulting from upstream (associate to investor) and downstream (investor to associate) transactions are eliminated in the investor's financial statements only to the extent of the investor's interest in the associate. In an upstream transaction, the elimination reduces the share of associate profit; in a downstream transaction, it reduces the parent's revenue/gross margin against the investment in associate.

What is the treatment of gain or loss on sale-and-leaseback under IFRS 16?

Under IFRS 16, if the transfer qualifies as a sale under IFRS 15, the seller-lessee measures the right-of-use asset arising from the leaseback at the proportion of the previous carrying amount that relates to the rights retained. The seller-lessee recognizes only the amount of any gain or loss that relates to the rights transferred to the buyer-lessor.