Financial Accounting and Reporting (FAR) is among the four Certified Public Accountant (CPA) Exam sections that you must qualify for CPA licensure. It assesses your understanding of different accounting standards used by government, not-for-profit, and business entities. Being one of the most demanding sections of the CPA Exam, FAR requires the right preparation tips and strategies to pass it in the first go.
This section incorporates standards and regulations issued by the following entities:
- Financial Accounting Standards Board (FASB)
- International Accounting Standard Board (IASB)
- US Securities and Exchange Commission (US SEC)
- American Institute of Certified Public Accountants (AICPA)
- Governmental Accounting Standards Board (GASB)
Please note that AICPA conducts the CPA ExamCPA ExamThe CPA Exam assesses accounting professionals not just on their financial knowledge, but also on their ability to review and seek out key abilities. jointly with the National Association of State Boards of Accountancy (NASBA) and the 55 US jurisdictions.
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Now, let’s take a look at the details of the FAR CPA Exam Section.
|Exam Section Particulars||Details|
|Question Item Types||Multiple-choice Questions (MCQ) Task-based Simulations (TBS)|
|Number of Questions||66 MCQ 8 TBS|
|Scoring Weightage||50% for MCQ 50% for TBS|
|Passing Score||75 (on a scale of 0-99)|
|Pass Rate||46.64% (Q1 2021)|
|Main Content||Conceptual framework and standard-setting for business and non-business entities|
Financial accounting and reporting requirements for select financial statement accounts under the FASB
Financial accounting and reporting requirements for select accounting transactions under the FASB
Financial accounting and reporting requirements for local and state governments under the GASB
FAR is often considered the most comprehensive exam section due to the vast range of the testable topics. It requires you to be well-versed in numerous technical topics containing formulas and calculations. Candidates usually dread taking it due to the extensive syllabus and memorization required.
It is advisable to keep the format in mind and use reliable preparatory tools to nail this section. From designing an effective study plan to mastering the time management skill, we discuss the top ten FAR CPA Exam tips.
1. Take practice exams
AICPA offers several CPA Exam sample tests so that you can get a preview of the real exam experience. You can also access the CPA Exam tutorials to get more information on the functions and features of the CPA exam software.
Kindly watch these tutorials before taking the exam to get familiar with the tools, resources, and navigation. Also, avail practice exams and quizzes that effectively mimick TBS and MCQ testlets. This will ensure you become comfortable with the format of the exam before taking it.
Always start and end your study schedule with a sample test. Mark the questions you don’t understand and review them after answering the other ones. This will help you ace the time management skill and know when to move on from questions. Also, pay attention to keywords while reading the questions.
2. Cover everything!
This is one of the most important tips for anyone preparing for the FAR CPA exam. With a wide range of diverse topics in this section, candidates usually focus on preparing some topics very well while overlooking others. However, such an approach will surely backfire. Remember that an overwhelming number of details are tested in this section.
So, whether you choose self-study or prep course material, ensure to cover everything. You don’t need to cram every topic but try to comprehend it well. Make it a point to learn something from every single topic. This way, you can stay assured to not miss out on anything.
Segregate the number of topics as per the days, weeks, or even months in your FAR exam prep schedule. Allocate 1-2 topics per day. Don’t go overboard and take it one day at a time. Also, don’t skip a difficult concept just because it is time-consuming. Instead, keep it aside for weekends and gain a detailed understanding.
3. Understand journal entries
Journal entries are the foundation on which the financial integrity of an entity rests. Every correct entry ensures that the financial records reflect the real financial picture of an entity to its stakeholders. Hence, the importance of journal entries cannot be overstated.
AICPA has allocated 50%-60% weightage to the application tasks. These application tasks mainly involve preparing journal entries and financial statementsFinancial StatementsFinancial statements are written reports prepared by a company's management to present the company's financial affairs over a given period (quarter, six monthly or yearly). These statements, which include the Balance Sheet, Income Statement, Cash Flows, and Shareholders Equity Statement, must be prepared in accordance with prescribed and standardized accounting standards to ensure uniformity in reporting at all levels.. You may also be required to use your comprehension of accounting standards and concepts to calculate, recognize, or correct entries in financial statements.
Therefore, practice journal entries beforehand to be well-prepared for the final exam. Gain a basic understanding of recording all kinds of transactions. You can also practice making journal entries for the following topics:
- Trade receivablesTrade ReceivablesTrade receivable is the amount owed to the business or company by its customers. It is also known as account receivables and is represented as current liabilities in balance sheet.
- Property, plant, and equipmentProperty, Plant, And EquipmentProperty plant and equipment (PP&E) refers to the fixed tangible assets used in business operations by the company for an extended period or many years. Such non-current assets are not purchased frequently, neither these are readily convertible into cash.
- Intangible assetsIntangible AssetsIntangible Assets are the identifiable assets which do not have a physical existence, i.e., you can't touch them, like goodwill, patents, copyrights, & franchise etc. They are considered as long-term or long-living assets as the Company utilizes them for over a year.
- Payables and accrued liabilitiesAccrued LiabilitiesAccrued liabilities refer to the obligations against expenses which the company incurs over one accounting period; however, it has not made any monetary payment for such expenses in the same accounting period. These expenses appear as liabilities in the corporate balance sheet.
- Long-term debtLong-term DebtLong-term debt is the debt taken by the company that gets due or is payable after one year on the date of the balance sheet. It is recorded on the liabilities side of the company's balance sheet as the non-current liability.
4. Develop an intelligent study plan
This universal tip is especially relevant to the FAR CPA Exam section. The only way to cover the extensive FAR material is by making a plan and sticking to it. So, design a study schedule that works the best for you. Keep your lifestyle, work timings, and study goals in mind.
Also, stay focused and keep track of your daily learning activities. Take frequent breaks to rejuvenate yourself and restart with a fresh mind. Keep revising concepts periodically. For instance, reserve Sunday to revise all the concepts you studied within a week.
Keep one month or at least two weeks for a final review. Go through the weak areas during this period and solve as many sample tests as possible.
5. Go through FAR CPA Exam Blueprints
AICPA-designed FAR CPA Exam Blueprints detail the minimal level of skills and knowledge required to pass this section. In addition, it includes sample task statements and content categorized by area, group, and topic.
It is developed by the same team drafting the examination, thus enhancing the reliability factor. The Blueprints are published 1-2 times a year. So, ensure to download the latest one and know about score weighting and skills tested in each topic.
Make your notes as per the given information. This way, you can practice time management with ease and assure excellent results.
6. Seek outside help
Ask for assistance from a former CPA, learned colleague, or an experienced accounting professional. Besides, you can hire an exam coach and benefit from a one-to-one learning session.
An industry expert can help you understand even the most challenging topics with ease through real-life examples. Some topics for which you can seek help are:
- Financial statements
- Payables and accrued liabilities
- Revenue recognition
- Income taxes
- Foreign currency transactions and translation
Keep making notes while interacting with the professional. Discuss your doubts and ask them to share some practical tips for dealing with tricky accounting questions in the FAR CPA Exam section.
7. Learn everything about Earnings Per Share
Earnings Per ShareEarnings Per ShareEarnings Per Share (EPS) is a key financial metric that investors use to assess a company's performance and profitability before investing. It is calculated by dividing total earnings or total net income by the total number of outstanding shares. The higher the earnings per share (EPS), the more profitable the company is. (EPS) is a crucial measure of the profitabilityProfitabilityProfitability refers to a company's ability to generate revenue and maximize profit above its expenditure and operational costs. It is measured using specific ratios such as gross profit margin, EBITDA, and net profit margin. It aids investors in analyzing the company's performance. of a business. Hence, its calculation is of primary importance to determine a company’s performance in the long run.
EPS is a commonly tested concept in the FAR exam section. Therefore, learn to calculate basic and diluted EPSDiluted EPSDiluted EPS is a financial ratio to check the quality of the Earnings per Share after taking into account the exercise of Convertible Securities like Preference Shares, Stock Option, Warrants, Convertible Debentures etc. correctly. Also, understand the factors affecting EPS. Moreover, study aspects related to the EPS reporting under the FASB Accounting Standards.
Talk to a professional for a better understanding of this concept. Study it as thoroughly as possible. Go through relevant examples and practice using real-life scenarios. Make a note of the formulas and revise them regularly or at least once a week.
Attempt sample tests to track your knowledge of the topic. Flag every EPS question. Make a list of the recurring questions and the ones you didn’t understand.
8. Pick up-to-date and reliable study material
With an exhaustive list of testable topics in the FAR CPA Exam section, this tip will ensure that you put your time and effort in the right direction. Preparing with suitable study material can make a world of difference between failing and passing the exam.
Leverage all the study materials that AICPA and NASBA have to offer. They are the most authentic and useful prep tools for CPA candidates. Furthermore, you can avail a variety of study materials, practice papers, and other learning resources by taking up a CPA Review course.
A review course is especially useful in guiding you through this rather tough exam section, considering the vast amount of syllabus to be covered. You can go through several user-reviewed and rated prep courses and select the most suitable one.
Buy the study material only after going through the CPA Exam Blueprints. This way, you can stay assured of picking efficient and upgraded study resources.
9. Brush up your time management skills
With its extensive syllabus and complicated calculations, the FAR Exam section demands an effective time management plan. It ensures that you complete the exam on time and in the best possible way.
Allocate two hours each for both MCQ and TBS testlets. Make sure you don’t waste your time on a difficult question. If you are unable to come up with a response, flag it, and move on to the next. Leave at least 5–10 minutes, in the end, to get back to the flagged questions for a final review.
Attempt plenty of sample tests. Try to finish them within the time frame of four hours. This practice will help you to get used to the pressure of the actual exam. Stay organized, and don’t lose focus. Keep track of the time, but don’t let the tension overwhelm you.
10. Keep the timing in mind
FAR has a reputation for being the most difficult CPA Exam section. Hence, schedule it wisely within the 18-month window. This way, you can avoid the stress and guarantee a stellar performance.
You may take this section first to let the burden off of your shoulders. Or, you can take it at the end and focus only on it. An order like FAR-AUD-BEC-REG or AUD-REG-BEC-FAR is highly recommended. However, you can also place it between two easier sections, i.e., AUD-FAR-BEC-REG or BEC-FAR-AUD-REG.
FAR seems to be a bit more daunting than all the other CPA Exam sections. However, by following these specific FAR exam tips, you can breeze through this relatively difficult CPA section. If possible, interact with former CPAs and learn from their experience.
Don’t let the examination stress get to you. Refresh yourself through meditation or hanging out with your friends. Lastly, don’t try to cram everything until the day of the exam. Start early and prepare well in advance. Relax and take the exam with a positive mindset.
This has been a guide to the FAR CPA Exam Tips. Here we discuss the top 10 FAR CPA Exam tips, which include both the do’s and don’ts of passing this section. You may also have a look at the below articles to compare CPA with other examinations –