CPA FAR Study Guide - Financial Accounting & Reporting

Complete study guide for the CPA FAR exam. Covers GAAP, financial statements, government accounting, and not-for-profit accounting.

Flashcards

300

Mini Exams

Full Exams

Format

66 MCQs + 8 TBS

FAR Exam Overview

FAR is widely considered the most challenging CPA exam section due to its breadth. It covers 66 multiple-choice questions and 8 task-based simulations across four testlets. You have 4 hours. The passing score is 75. FAR tests financial accounting under U.S. GAAP, government accounting under GASB, and not-for-profit accounting. It is the most calculation-intensive section.

Conceptual Framework & Standards

Start with the FASB Conceptual Framework: qualitative characteristics (relevance, faithful representation), elements of financial statements (assets, liabilities, equity, revenues, expenses, gains, losses), and recognition and measurement principles. Understand the hierarchy of U.S. GAAP and the role of the FASB Codification. These concepts are foundational for every other FAR topic.

Revenue Recognition (ASC 606)

The five-step model is heavily tested: (1) identify the contract, (2) identify performance obligations, (3) determine the transaction price, (4) allocate to performance obligations, (5) recognize revenue as obligations are satisfied. Study variable consideration, contract modifications, licensing, and principal vs. agent considerations. Know the difference between point-in-time and over-time recognition.

Assets: Inventory, Fixed Assets & Intangibles

Master inventory cost flow assumptions (FIFO, LIFO, weighted average), lower of cost or market vs. NRV, and the retail method. For fixed assets, study capitalization rules, depreciation methods (straight-line, declining balance, units of production), impairment testing, and asset retirement obligations. For intangibles, know amortization vs. impairment-only approaches and goodwill testing.

Liabilities: Bonds, Leases & Pensions

Bond accounting is calculation-heavy: issuance at premium/discount, effective interest method, extinguishment gains/losses. Lease accounting under ASC 842 requires classifying, measuring, and presenting right-of-use assets and lease liabilities. Pension accounting (ASC 715) involves PBO, plan assets, service cost, interest cost, and the components of net periodic pension cost.

Equity, EPS & Stock Compensation

Study stock issuance, treasury stock (cost and par methods), dividends (cash, property, stock, stock splits), and retained earnings. EPS calculations are common: basic EPS, diluted EPS with convertible bonds, convertible preferred stock, and stock options (treasury stock method). Stock compensation under ASC 718 requires understanding the measurement date, vesting, and expense recognition.

Government Accounting

Government accounting represents about 15-20% of FAR. Study fund accounting (governmental, proprietary, fiduciary funds), modified accrual vs. full accrual, GASB pronouncements, and government-wide financial statements. Key topics include capital assets, long-term liabilities, deferred inflows/outflows, and the reconciliation between fund and government-wide statements.

Not-for-Profit Accounting

NFP accounting covers about 10% of FAR. Study net asset classification (without donor restrictions, with donor restrictions), contribution revenue recognition (conditional vs. unconditional promises), functional expense allocation, and the required financial statements (statement of financial position, statement of activities, statement of cash flows, and statement of functional expenses).

Study Tips for FAR

FAR requires the most study hours (350-450). Focus on calculation-heavy topics first since they are the most testable. Practice journal entries extensively. Use flashcards for standards numbers and effective dates. Government and NFP accounting are high-ROI topics since many candidates skip them, but they represent 25-30% of the exam.