The Financial Accounting and Reporting (FAR) section of the CPA Exam is the most comprehensive, and often regarded as the most difficult, section. It covers a wide range of topics, from how to calculate depreciation to which financial statements are required for governmental organizations. Candidates should be able to demonstrate they can recall and apply financial reporting concepts on the FAR CPA Exam and prove they have the knowledge required by CPAs.
To help you get more comfortable with the FAR CPA Exam content, we’ve put together everything you need to know including the exam structure, content, scoring, and a few helpful exam tips.
Need to pass FAR?
Try Surgent CPA Review for FREE for 5 days!
Structure of FAR
FAR CPA Exam Format
The FAR section format is broken down into the following:
- Section 1: Welcome and Launch Code
- Section 2: Confidentiality and Section Information
- Testlet 1: 33 Multiple Choice Questions
- Testlet 2: 33 Multiple-Choice Questions
- Testlet 3: 2 Task-Based Simulations
- Testlet 4: 3 Task-Based Simulations
- Testlet 5: 3 Task-Based Simulations
CPA Exam FAR Questions
FAR has two types of questions within the 5 testlets:
Multiple Choice Questions – These are one sentence to paragraph length questions with four potential answers. Of the total 66 multiple choice questions on the FAR CPA Exam, 12 are pretest questions and do not count toward a candidate’s score.
Task-Based Simulations – These are practical questions requiring candidates to type in answers, and may include a research question, journal entries, filling out financial statements, or filling out a form with multiple questions. Of the 8 task-based simulations, one is a pretest question and does not count toward a candidate’s score.
Each section of the pre-exam takes 5 minutes for a total of 10 minutes before the actual exam starts.
The actual FAR CPA Exam is four hours long with one 15-minute break built in between the first and second task-based simulation testlets. There are also two optional breaks, one after the first multiple choice testlet and one after the second multiple choice testlet, although the timer does run during these breaks.
When taking the section, candidates should keep track of the time in relation to how many questions they have completed and how many they must finish. A good way to discover how to best allocate your time is to take a few practice exams and make mental notes on when you need to move on from certain sections of the exam to finish each part in time.
Candidates do not need to take the entire four hours on the exam and are not penalized for finishing early.
Like all four parts of the CPA Exam, the content of the FAR section is unique and covers the financial accounting side of the profession.
A High-Level Overview
FAR questions are based on four content areas, listed below with related exam content percentages:
- Area I: Conceptual Framework, Standard-Setting, and Financial Reporting – 25-35%
- Area II: Select Financial Statement Accounts 30-40%
- Area III: Select Transactions 20-30%
- Area IV: State and Local Governments 5-15%
Within these content areas, different skill levels are tested, which are listed below with their exam content allocation percentage:
- Level I: Remembering and Understanding 10-20%
- Level II: Application 50-60%
- Level III: Analysis 25-35%
Candidates looking to take the FAR CPA Exam should not only have a strong understanding of certain concepts but know how to apply them to specific situations. Candidates will likely face more application and analysis within the task-based simulation portions of the FAR CPA Exam.
To help you better understand what specific topics will be covered within each area of FAR, we’ll go over the specific content groups within each area.
Area I: Conceptual Framework, Standard-Setting, and Financial Reporting
- Conceptual framework and standard setting for nonbusiness entities
- Conceptual framework
- Standard setting process
- General purpose financial statements: for-profit business entities
- Balance sheet/statement of financial position
- Income statement/statement of profit or loss
- Statement of comprehensive income
- Statement of changes in equity
- Statement of cash flows
- Notes to financial statements
- Consolidated financial statements
- Discontinued operations
- Going concern
- General purpose financial statements: nongovernmental, not-for-profit business entities
- Statement of financial position
- Statement of activities
- Statement of cash flows
- Public company reporting topics
- SEC reporting requirements
- Earnings per share and segmented reporting
- Financial statements of employee benefit plans
- Special purpose framework
Area II: Select Financial Statement Accounts
- Cash and cash equivalents
- Trade receivables
- Property, plant, and equipment
- Financial assets at fair value
- Financial assets at amortized cost
- Equity method investments
- Intangible assets
- Payables and accrued liabilities
- Long-term debt
- Notes and bonds payable
- Debt covenant compliance
- Revenue recognition
- Compensation benefits
- Compensated absences
- Retirement benefits
- Stock compensation
- Income taxes
Area III – Select Transactions
- Accounting changes and error corrections
- Business combinations
- Contingencies and commitments
- Derivatives and hedge accounting
- Foreign currency transaction and translation
- Nonreciprocal transfers
- Research and development costs
- Software costs
- Subsequent events
- Fair value measurements
- Differences between IFRS and U.S. GAAP
Area IV – State and Local Governments
- State and local government concepts
- Conceptual framework
- Measurement focus and the basis of accounting
- Purpose of funds
- Format and content of the financial section of the comprehensive annual financial report (CAFR)
- Government-wide financial statements
- Governmental funds financial statements
- Proprietary funds financial statements
- Fiduciary funds financial statements
- Notes to financial statements
- Management’s discussion and analysis
- Budgetary comparison reporting
- Required supplementary information (RSI)
- Financial reporting entity
- 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
- Net position and components thereof
- Fund balances and components thereof
- Capital assets and infrastructure assets
- General and proprietary long-term liabilities
- Interfund activity, including transfers
- Nonexchange revenue transactions
- Expenditures and expenses
- Special items
- Budgetary accounting encumbrances
- Other financial sources and uses
CPA Exam Scoring
In the FAR section, 50% of a candidate’s score is derived from multiple choice questions while 50% is derived from task-based simulations. An exam score of 75 or more is required to pass.
Candidates should keep in mind that there are no penalties for wrong answers. A correct answer gains points, no answer gets zero points and a wrong answer gets zero points. Therefore, it is always good to guess at an answer as opposed to leaving it blank; if you get it right, you’ll receive points toward a passing score.
Multiple Choice Question Scoring
Each candidate is presented with a multiple choice testlet of ‘medium’ difficulty first. This difficulty level refers to the difficulty, on average, of the questions in the testlet. Some may be harder, some may be easier, but on average, they are of a medium difficulty.
If a candidate does well on the first testlet, the second testlet will, on average, be more difficult. If a candidate does average or not well on the first testlet, the second testlet will remain at ‘medium’ difficulty.
Difficult questions are worth more than medium questions. A candidate who does well on the first testlet but struggles with the second testlet with more difficult questions is not penalized since correct answers on this testlet are worth more. Keep in mind, it is still possible to pass the exam if a candidate gets two medium testlets. If a candidate performs well on the second medium testlet, she or he can still pass the exam provided a good score is achieved on the task-based simulations.
CPA Exam FAR simulations are pre-set and do not change in relation to a candidate’s performance. However, candidates can receive partial credit on non-research based task-based simulations by answering part of the questions correctly.
FAR CPA Exam Tips
FAR is often regarding as one of the harder CPA Exams (although it does depend on who you ask), but by following these 6 tips, you can make your FAR section experience much easier.
Tip 1: Take FAR As Soon As Possible – Most of the information on the FAR CPA Exam you learned in your Sophomore and Junior year during your Intermediate Financial Accounting courses. To maximize on your memory, you should consider taking FAR as soon as possible after you graduate. You’ll likely still remember most of the concepts you learned during your Intermediate Accounting courses, and you’ll be able to easily recall this information as you study. FAR also intersects all three other sections, so learning material from FAR will translate as you start to study for any of the other three exams.
Tip 2: Become an Excel Expert – The spreadsheet tool on the CPA exam isn’t like Microsoft Excel, it is Microsoft Excel. By learning a few simple tricks, like how to create and execute functions and how to navigate easily within the spreadsheet, you can use the tool to your advantage on both multiple choice and task-based simulation questions. Want a helping hand? Surgent offers an Excel course specifically for the CPA Exam.
Tip 3: Take Practice Exams – This is true for all CPA Exams, but the bulk and knowledge required for FAR makes taking practice exams and learning to allocate your time even more critical. You need to know when it’s time to move on from questions, when you need to guess, and where you need to spend more time.
Tip 4: Make Sure Your Study Materials are Up to Date – FAR is updated to reflect new standards within the codification and the industry, so make sure you have study materials that also update. You don’t want to get stuck with outdated study materials going into an updated exam. Surgent updates content regularly and with updates to the exam, so you’ll never miss a new topic.
Tip 5: Spend More Time on Governmental, NGO and Non-Profit Accounting – Not everyone will have taken a specific governmental or non-profit accounting class in college; it’s usually just lumped in with intermediate accounting. If you didn’t take a specific class in college on governmental, NGO and Non-Profit accounting, spend some significant time going over these topics. They make up a larger portion of the exam now than they did in the past, and having a firm understanding of how they function and how they differ from For-Profit companies will help you ace any questions you come across.
Tip 6: Find Study Materials that Help You Study More Efficiently – Candidates are often told there is a certain hour threshold that must be met before an exam can be passed. However, not everyone learns the same, and candidates often waste time trying to attain a certain number of study hours even if they’re completely ready to sit for the exam. To study more efficiently, look for study materials that are adaptive and help you efficiently learn difficult topics. Surgent’s learning materials feature A.S.A.P. Technology, which helps students pass in half the time, and ReadySCORE which helps candidates objectively know when they’re ready to sit for the CPA Exam.
You can also check out our more general study tips here.