One of the most difficult sections of the Certified Public Accountant (CPA) exam is Financial Accounting and Reporting (FAR). It requires you to have a working knowledge of several different key areas of financial statements. Because of that, you’ll be asked to complete 66 multiple choice questions on these subjects, which constitute half of the test.
The second half of the test comes in the form of 8 task-based simulations. Completing these requires you to come up with answers to the various scenarios submitted to you. However, you must come up with the answers yourself, as a list of choices will not be made available to you.
In order to pass the FAR exam you must score a 75% or higher. Test takers have 4 hours to complete the exam. Are you worried?
If so, take a look at our detailed breakdown and learn some FAR CPA exam tips in order to pass this notorious section on your first try!
FAR Exam Format
- Exam Time Limit: 4 Hours
- Multiple Choice Test: 66 Questions, 50% of total score
- Task Based Simulations (TBSs): 8 TBSs, 50% of total score
- Test Segment #1: 33 Multiple Choice Questions
- Test Segment #2: 33 Multiple Choice Questions
- Test Segment #3: 2 TBSs
- Test Segment #4: 3 TBSs
- Test Segment #5: 3 TBSs
FAR CPA Exam Topics
- Conceptual Framework, Standard Setting and Financial Reporting: 25-35% of the exam
- Select Financial Statement Accounts: 30-40% of the exam
- Select Transactions: 20-30% of the exam
- State and Local Governments: 5-15% of the exam
Even though the CPA FAR exam sounds like a simple combination of MCQs and TBSs, the content covers a wide range of topics. Fortunately, you’ll have a much easier time with this CPA exam section if you can focus on the specific areas I’ve outlined below:
Required FAR Exam Skills
- Evaluation: 0%
- Analysis: 25-35%
- Application: 50-60%
- Remembering and Understanding: 10-20%
The first area of the FAR exam asks you to explain the Financial Accounting Standards Board (FASB) conceptual framework, as well as their methods of financial reporting and standard setting processes.
This can look complicated at first, but it gets much easier to remember once you break everything down into smaller parts. What follows is everything you need to study for this portion of the test:
- General-Purpose Financial Statements: These statements are used by most companies. You’ll be asked about how these apply to for-profit businesses, non-profit businesses, and non-governmental entities.
- Public Company Reporting Topics: You’ll need to know the various topics companies are required to disclose. This includes segment reporting, earnings per share, and FASB reporting requirements. On top of that, you’ll need to understand the interim, annual, and periodic filing rules for U.S. based companies.
- Special Purpose Frameworks: Lastly, you need to know which financial statements are crafted under special purpose frameworks and why. Examples of this are cash, tax, regulatory, contractual, or other bases of accounting. These frameworks are used for a specialized audience separate from a general purpose framework.
This information should serve as a good jumping off point but make sure to supplement it with your own studies. What’s listed here is not comprehensive and there’s much more you need to know— which is why we recommend using a CPA review course to get the big picture!
Next up are the FASB financial accounting and reporting requirements. Everything you see on this part of the test is based on the FASB Accounting Standards Codification. Make sure to study that heavily in order to truly understand this section.
These standards apply to select financial statement accounts in the following areas:
- Cash and cash equivalents
- Trade receivables
- Property, plant, and equipment
- Intangible assets
- Payables and accrued liabilities
- Long term debt
- Revenue Recognition
- Compensation and Benefits
- Income Taxes
Some of these areas are further split into subcategories. For instance, compensation benefits cover compensated absences, retirement benefits, and stock compensation. Because of that, you need to be sure you aren’t just studying a generalized overview of each section. Instead, you’ll have to dig deep into each area in order to truly understand this part of the test.
After financial accounting, you’ll be tested on financial accounting and reporting requirements for transactions made by companies that fall under the International Accounting Standards Board (IASB), as well as the aforementioned FASB Standards Codification.
Keep in mind that testing based on IASB standards has its own section on the exam: it’s labeled as “Differences between IFRS and U.S. GAAP.” Don’t neglect this part of your studying; many students are caught off guard at how extensive this area of the FAR exam is.
With that out of the way, we can finally look at what’s being tested in this area. Every topic covered by Select Transactions is listed below:
- Accounting changes
- Error corrections
- Fair value measurements
- Software Costs
- Subsequent events
- Nonreciprocal Transfers
- Research and development costs
- Derivatives and hedge accounting
- Foreign currency transactions
- Contingencies and commitments
- Business combinations
As you can see, there’s a lot you need to know for this segment of the CPA exam. However, preparing for this isn’t as tough as it looks. Make sure to give yourself plenty of time to cover each section in detail. Most of these are fairly straightforward, so everything should fall into place if you put in the time to learn it.
State and Local Governments
The final portion of the exam is the shortest, but that doesn’t mean it’s simpler than the others. In this section, you’ll need to understand the Governmental Accounting Standards Board’s (GASB) conceptual framework in addition to the requirements for financial accounting and reporting to state and local governments. Because of that, you’ll need to have a solid grasp of the GASB’s standards and interpretations.
The following concepts are the last things you need to learn for the FAR exam.
- State and local government concepts
- Format and content of the financial section of the Comprehensive Annual Financial Report (CAFR)
- Deriving government-wide financial statements and reconciliation requirements
- Typical items and specific types of transactions and events: measurement, valuation, calculation, and presentation in governmental entity financial statements
As you can see, these concepts are much more complicated than other aspects of this exam. Each of them has a set of highly detailed subcategories in addition to their overarching information.
Don’t slack off just because this topic only covers 5-15% of the test. That small amount could be the difference between a passing and failing grade!
FAR Exam Structure
Now that you know what areas to study, it’s important that you learn how the test works. I’ve already mentioned that the test is split up into 5 sections made up of 2 MCQ segments and 3 TSB areas. However, there’s more you need to know about the FAR CPA exam section.
Multiple Choice Questions (MCQs)
To start with, the MCQ testlets have variable difficulty; here’s what that means:
The first section issued is based on a medium difficulty average. So while some questions may be harder or easier, the overall difficulty of the testlet balances out to medium. If you do well on the first segment, you’ll be issued a more difficult set of MCQs for the next part. These are worth more points but are much harder than before. However, if you don’t perform as well you’ll instead receive a second medium difficulty MCQ testlet.
Bear in mind that it’s possible to pass the FAR exam with 2 medium difficulty test sections, especially if you do well on the second one. But if you’re doing well on your early sections, don’t be surprised if the exam starts becoming more difficult to compensate!
Task Based Simulations (TBSs)
Unlike the multiple choice sections, TSBs are not graded on a binary correct or incorrect scale. That’s because you can receive partial credit for getting certain parts of the simulation right, even if other parts are wrong.
Because of this, you should try and complete each of these questions to the best of your ability; even if you’re only partially right, you can get some credit for your response and boost your FAR section score!
FAR Exam Timing
Candidates are given four hours to complete the FAR exam, although it’s not required to use the full time period. You’ll also have the option to take a 15 minute break between the MCQ and TBS sections, which doesn’t count against your test time.
Each individual testlet doesn’t have a time limit. That means that you need to set your own limits and manage your pace accordingly. Personally, I recommend spending extra time on the TBSs because they’re far longer and more complicated— and you can get partial credit for incorrect answers.
It may seem difficult to complete questions quickly, but you’ll naturally speed up as you become more comfortable with the material. That’s why getting the best CPA study materials is so important for this section.
FAR Exam Strategies
Here are some parting words of advice to help you get the highest possible FAR exam score:
- FAR is considered the most difficult section of the CPA exam, so it’s generally recommended to take it first. That way if you fail you don’t lose all your progress and if you pass then the hardest part is behind you.
- When it comes to studying, nothing helps more than experience. Practice with multiple choice questions and task based simulations as much as you can. This will go a long way towards making you more comfortable with the test and speeding up your testing process. Gleim offers the largest volume of practice exams and questions, but Becker has the most powerful platform to guide your study plan.
- Finally, make sure to get plenty of rest the night before and eat a good breakfast in the morning. This is a simple yet essential step that many candidates fail to take. This will ensure you have enough energy to pass FAR and will help you avoid making any simple mistakes.
As long as you spend plenty of time studying the topics on this list, you’ll have a pretty good chance of passing the FAR exam. Good luck, and make sure you find a study method that works for you!