The Financial Accounting and Reporting (FAR) CPA Exam section tests a candidate’s competency in understanding and applying financial accounting and reporting standards. It covers an extensive range of accounting and finance concepts. Its comprehensive syllabus, exam format, and grading process make it one of the most challenging CPA exam sectionsCPA Exam SectionsThe Uniform Certified Public Accountant (CPA) Exam comprises four sections, namely, Auditing and Attestation (AUD), Business Environment and Concepts (BEC), Financial Accounting and Reporting (FAR), and Regulation (REG). The unique content, structure, format, and scoring of the CPA exam earn it the title of one of the most challenging professional exams. read more.

This section consists of accounting frameworks of the following entities:

  • Financial Accounting Standards Board (FASB)
  • Governmental Accounting Standards Board (GASB)
  • US Securities and Exchange Commission (US SEC)
  • American Institute of Certified Public Accountants (AICPA)

AICPA collaborates with the National Association of State Boards of Accountancy (NASBA) and the 55 US State Boards of Accountancy to conduct the CPA Exam. There are four exam sections you need to clear to become a CPA. You must clear all the sections within 18 months with a minimum pass score of 75 in each. Let us take a look at the FAR section in detail.

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How do I pass FAR?

To pass this subject, you need to have in-depth knowledge of accounting standards used by different entities. Apart from understanding the accounting standards, you have to recollect important formulas and perform accounting calculations within a certain time limit.

Try to know the material well and practice sample quizzes before you appear for the exam. FAR has the lowest pass rate, which clearly shows that the exam is not easy. However, if you plan well, you can certainly clear it.

FAR pass rates

The table below shows FAR pass rates for the past five years. 

YearFirst QuarterSecond QuarterThird QuarterFourth QuarterCumulative

CPA FAR Exam format

The FAR exam sections consist of five testlets to be finished in four hours with a 15 minutes break. The first two testlets are multiple-choice questions (MCQ), and the remaining three are task-based simulations (TBS).

CPA FAR testing process

The CPA ExamCPA ExamA Certified Public Accountant (CPA) is a US state board-issued license to practice the accounting professionread more uses the multi-stage adaptive model of testing for MCQ testlets. Hence, the two MCQ testlets vary in difficulty. The first MCQ testlet is of medium-level difficulty. At the same time, the difficulty level of the next testlet will depend on your performance in the first testlet.

If you perform well in the first testlet, you get a difficult second testlet. On the contrary, if you do not perform well in the first one, you receive another medium testlet. Note that the exam will consider the question difficulty while grading, so there is no difference between receiving easier or harder questions. To put it straight, the more difficult questions, the higher your points. 

The TBS testlets are the same for all and are not based on performance. You receive the TBS testlets only after finishing your MCQ testlets.

CPA FAR question types

There are two forms of questions in the FAR exam. 

  • Multiple-choice questions

The questions have four possible answers, and you need to pick the right one. There are 66 MCQs, out of which 12 are pretest. The pretest questions do not account for your total points.

  • Task-based simulations

These questions are based on real-life case studies. Therefore, they test your conceptual understanding of the subject matter. There are different types of TBS like choice list, number entry, document review, and research-based. In all, there are eight TBS, of which one is a pretest question that will not account for your score.

Hence, there will be a total of 54 MCQs and seven TBS that will account for the total score you earn in the examination.

How is FAR graded?

In the FAR exam section, your final score will represent 50% of the score derived from the MCQs and the other 50% from the TBSs. Thus, you need to score 75 in aggregate on a scale of 0-99 to pass. You will have no penalty for wrong answers, and each correct answer will get points. Hence, attempt all questions.

You will receive the first testlet with medium difficulty, and if you do well in it, the second testlet will be more difficult. If you do not do well, the second testlet will have medium difficulty. You can score higher points in difficult questions as compared to medium questions.

However, if you do well in the first testlet but not in the subsequent testlet with difficult questions, you will not be penalized as the correct answers on the difficult testlet are worth more. Moreover, you can even pass the exam with two medium testlets.

Note that the task-based simulations are pre-decided, and they do not change with your performance.

CPA FAR Exam content

The content of the FAR examination is extensive and unique. Your skill levels will be tested throughout the content areas. Around 10-20% weightage is allocated to remembering and understanding, 50-60% to application, and 25-35% to analysis.

Here is an overview of the content.

S.No. Content Group                   Topics Weightage
1. Conceptual Framework, Standard-Setting, and Financial Reporting Conceptual framework and standard-setting for business and non-business 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
Financial statements of employee benefit plans
Public company reporting topics
General-purpose financial statements: not-for-profit, non-governmental entities
  • Statement of activities
  • Notes to financial statements
  • Statement of financial position
  • Statement of cash flows
Special purpose frameworks
2. Select Financial Statement Accounts Cash and cash equivalents 30-40%
Trade receivables
Property, plant and equipment
  • Equity method investments
  • Financial assets at fair value
  • Financial assets at amortized cost
Intangible assets (goodwill and other)
Accrued liabilities and payables
Long-term debt (financial liabilities)
  • Debt covenant compliance
  • Bonds and notes payable
Stock compensation (share-based payments)
Revenue recognition
Income taxes
3. Select Transactions Accounting changes and error corrections 20-30%
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
4. 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
Governmental entity financial statements: calculation, valuation, measurement, and presentation of specific types of transactions, typical items and events
  • 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

How hard is it to pass FAR?

Understandably, you would be worried about passing FAR due to the low pass rates. It is indeed one of the most challenging sections of the examination. AICPA has defined different levels of skills to test you. So, you must keep in mind that studying only the questions and answers will not be enough. You will have to learn the concepts thoroughly.

Moreover, you must be prepared for number crunching in FAR. It is a challenging exam, but you can pass on the first try if you prepare well.

When should I take FAR?

Fresh college graduates usually opt for FAR first. This is because FAR includes college accounting coursework content. Many candidates think that it is easier to take FAR first. Since FAR requires more study time, the extra study time will not be included in the 18-month window. Remember that you have to pass all four sections within 18 months of passing the first section.

Further, it has the lowest pass rate, so you will have less stress about the remaining three sections if you clear FAR first. The material also overlaps with the other sections, so if you begin studying for FAR first, you will get a head start for other sections. It is best not to take a hasty decision. Study well and practice enough to build your confidence in the subject and then take the exam.

FAR CPA Exam time management

The total time for FAR is four hours. You have to finish all the five testlets within this time limit. However, there is no time limit for individual testlets. So, you must effectively manage your time to ensure you complete all the testlets before the exam ends. 

There will be a standardized 15 minutes break in between the third and the fourth testlets. You also have three optional breaks after the first, second, and fourth testlets. Note that the exam timer is paused for the standardized break but not for the optional breaks.

Based on the difficulty of the questions, you can spend anywhere between 75 seconds to 1.5 minutes for each MCQ and 18 minutes for each TBS. A few practice exams will allow you to better plan your exam time. Take mental notes while you write the practice exams.

How do I prepare for FAR?

For any subject, you need to prepare a study schedule that works best for you. You may have to spend more time studying FAR than for other sections. You need to put in the time to understand the topics thoroughly.

The section has maximum accounting content, so you may need about 8-10 weeks to prepare for it. Allot the time accordingly and never skip any material from the course. Start with the difficult sections first, as it will take more time while you can finish the easier ones quickly. 

What is the best way to study for the FAR CPA Exam section?

FAR is considered one of the most difficult sections in the CPA examination. It may be difficult, but it is not impossible to pass the exam on your first attempt. Here are a few tips for studying for the FAR CPA Exam section to make learning easier.

  1. Take the exam as early as you can

A lot of concepts you learn in your accounting courses are a part of the FAR exam. It will be easy to relearn them as they will be fresh in your mind. Therefore, it is best to take FAR as early as you can. Since you will remember the concepts learnt in the accounting courses, you will find it easy to recall the information while studying. The concepts learnt in FAR will also help with the other three sections. 

2. Allot your time wisely

You must prepare a study schedule and allocate time according to your learning preferences. List the difficult sections and allot maximum time to them. Also, remember to practice the questions as much as you can. Practice the spreadsheet tool and learn a few basic tricks that will save you time in the exam. 

3. Practice, practice, practice

This universal tip is extremely relevant to the FAR CPA Exam. The knowledge needed for FAR makes attempting the practice exams critical. It will give you an insight into the type of questions asked in the exam. Also, you will be able to understand where you stand and bridge your learning gaps. No matter the section you are sitting for, practice will only take you closer to success.

4. Keep the study materials updated

FAR is a subject that sees regular updates in the form of new standards in the industry. Hence, you need to ensure that the study materials are also updated. Use CPA Exam BlueprintsCPA Exam BlueprintsCPA Exam Blueprint is a document that presents a detailed content listing of each CPA Exam section and is published by the American Institute of Certified Public Accountants (AICPA) once or twice annually.read more to check the content regularly for the latest updates. This way, you will not miss out on any new topic. 

5. Look for study material that increases your efficiency

Do not focus on achieving a specific number of study hours but focus on improving your efficiency. No one method works for all. You need to look for study material that helps you understand the concepts and get confident about the subject. 

A Guide to FAR CPA Exam. Here we discuss all the aspects of the FAR CPA Exam like exam format, pass rates, content, testing process, question types, how it is graded, how hard is it to pass, when should you take it, and what are the best ways to study for the FAR CPA. You may also have a look at the below CPA articles to learn more about the exam –

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