The Financial Accounting and Reporting (FAR) section of the CPA Exam can be the most difficult of the overall four-part exam. The "far"-reaching and meticulous depth of material covered can intimidate even the best-prepared student! Don't worry though, as long as you study the topics on the exam and practice, you can sit for the exam with confidence.
FAR requires answering 90 multiple-choice questions across three MCQ-testlets; these account for between 50% - 60% of your score. There are also seven task-based simulations -- written case-studies and one research question -- which represent the remaining 40% - 50%. Simulations are time-consuming, so you must use your time wisely to finish them all. This is important; you won't be able to pass FAR simply by doing well on the multiple-choice testlets.
Subject Matter of the FAR Exam
Subjects areas covered on the FAR exam can be divided in the order they are presented:
- Concepts and standards for financial statements, accounting for 17-23% of FAR exam material;
- Accounts and disclosures, typical items found in financial statements, covering 27-33% of exam material;
- Specific types of events and transactions, 27-33%;
- Financial reporting for governmental entities, 8-12%, and
- Financial reporting for non-governmental and not-for-profit entities, 8-12%.
You'll be expected to proficiently assemble a working financial statement, complied from journal data-records, to render a reliable statement-format. Overall, you must display:
- familiarity with the entire range of methods for financial accounting and reporting;
- ability to accurately assess and evaluate all financial statement data, to
- present dependable conclusions about the meaning of the statement's financial matter, in the form of verifiable findings.
5 Most Difficult Topics on the FAR Exam:
1. FAR's diversity of subject matter is its most difficult condition. This is true even within a single topic. The test is structured so that one topic might solicit 7/8 different responses, including its: theoretical underpinnings, credit/debit values, financial statement positioning, post-transaction account balance, its value mid- year (6/30) or year's-end (12/31); inquiries into fair value elected/not-elected, LIFO, the installment method or cost recovery may also surface.
2. You will be required to demonstrate their proficiency analyzing unusual fluctuations in financial activity and the best ways to make appropriate adjustments for these reports. This entails preparing account reconciliation and related schedules, as necessary.
3. Similarly, be able to select/utilize correct accounting treatments for new/unusual transactions, assessing their economic substance. For instance, you may be asked to account for Business Combinations, which often require unusual journal entries, including reports of Intercompany Transactions, as well as calculation of Goodwill and Non-controlling Interest.
4. FAR also asks you to recognize and show understanding of distinctions between American generally accepted accounting principles (U.S. GAAP) and financial reporting standards for international business (IFRS).
5. You will also be asked to write cash-flow, comprehensive-income, and changes-in-equity statements. Pension, bond and stockholder equity problems have been cited as among FAR's most difficult. Similarly, familiarity with Securities Exchange Commission (SEC) reporting requirements will be required for Forms 10-K and 10-Q.
Also necessary will be displaying your skill in these areas, among many others:
- compensation/benefits accounting, including for example, non-retirement post-employment benefits, compensated absences and stock compensation,
- items diverse as bonds, deferred taxes, derivatives, hedging, inventory-valuation, leases, liabilities, non-monetary exchange, or variable-interest entities,
- recognizing, measuring, calculating and disclosing hold-to-maturity investments and joint ventures,
- exhibiting expertise presenting earning-per-share, segment reporting, fair value measurements, disclosures and reporting, as well as
- providing evidence of appropriate accounting acumen for both governmental and non-profit entities.
These topics represent but a fraction of knowledge required to pass the FAR; 75% is the passing score, so definitely go to the test prepared. But don't let FAR intimidate you. It's certainly NOT beyond your means. You've come this FAR, so take the next step!!