It's time, once again, for our CPA Exam Focus. In our last CPA Exam Focus article, we gave you the details on the Audit portion of the exam. This time, we'll go over the ins and outs of Financial Accounting and Reporting. Bookmark this page now for future reference.
Along with the other 3 parts of the exam, you must pass FAR to become a CPA. It's widely considered to be the toughest part of the exam because of the sheer volume of information you need to understand. Compare our CPA Exam review textbook for FAR to all the other parts and you'll see that FAR is the largest... by FAR. Hahaha... ahem.
More than for any of the three other parts, time management will be critical. You'll have 4 hours to complete the FAR exam, which means you'll almost definitely run out of time. But, don't sacrifice your answers by trying to beat the clock. Instead, stay focused on completing as much as possible. Break it down as follows:
Multiple Choice Questions:
70% of the exam is multiple choice. There are multiple choice 3 testlets, with 30 questions each. You should try to spend about 1.5 minutes per question. This will allow you to finish the multiple choice section in about 2 hours and 15 minutes.
Simulations make up 20% of the exam. There are 2 Simulations. You should spend about 45 minutes on each simulation, completing this section in 1.5 hours.
We're up to 3 hours and 45 minutes.
The final 10% of the exam is devoted to written communication. This part sounds harder than it is. You're being graded on your writing skills as well as your grasp of the information. Make sure you stay on topic, and standard letter style. Don't try to take shortcuts, such as bulleted lists or diagrams. You've got more than enough time to form your writing properly, using a beginning, middle, and end.
The AICPA BOE has set the following target weights for the testing of each skill set in FAR:
The FAR Exam part will test your knowledge of GAAP (Generally Accepted Accounting Principles) as they apply to business, non-profit and governmental entities. Of course, you'll need to demonstrate that knowledge by using your skills as well. You'll be asked to perform calculations, analyze and evaluate financial reports, and formulate your own conclusions, among many other related tasks.
The following is a loose outline of what kind of specific content you can expect on the FAR exam.
17%-23% of the FAR exam deals with concepts and standards for financial statements. This includes understanding how, why and by whom financial accounting standards are set. You'll also need to demonstrate an understanding of presentation standards for balance sheets, statements of cash flows, and other such financial statments.
27%-33% of the section covers "Typical items" such as receivables, inventories, and intangible assets and your ability to recongnize, value and present them in a financial statement according to GAAP.
27%-33% of the section covers your ability to recongnize, value and present specific transactions or events, such as income taxes, leases, and non-monetary transactions in a financial statement according to GAAP.
8%-12% is focused on accounting and reporting for governmental entities. You'll need to know the fundamental concepts, standards on formatting reports, and how to deal with typical items for government entities and governmental not-for-profit organizations.
8%-12% of the FAR section is devoted to accounting and reporting for nongovernmental not-for-profit organizations. Be familiar with the objectives, elements and formats of not-for-profit organization financials, including statements of activities, cash flows and financial position. Of course, you'll also need to know how to handle typical and specific items, transactions and events as pertaining to NFP's according to GAAP.
If this sounds like a lot of information you're expected to know and apply, that's because it IS! But, don't be worried. Go into the exam with confidence, fully expecting to do well. The importance of a positive attitude can't be underestimated.
Finally, as always, remember: if you study, you will pass!
Next CPA Exam Focus: Regulation