This section covers knowledge of generally accepted accounting principles for business enterprises, not-for-profit organizations, and governmental entities, and the skills needed to apply that knowledge.” — CPA Exam Candidate Bulletin
What Does FAR Cover?
FAR tests the knowledge of US GAAP, including the financial accounting concepts, standards and application for general business, non-profit organizations and government entities. The CPA candidates are expected to be able to:
- Compile financial statement (from journal entries to how the data is presented in a financial statement)
- Identify the different financial accounting and reporting methods
- Perform calculations (e.g. bonds and leases)
- Understand and analyze the information from financial statements
- Form conclusion from financial statements and present findings
Format of the CPA FAR Exam
The CPA FAR exam is the second longest test with 4 grueling hours. The format includes 3 “testlets” (groups of 30 multiple-choice questions) and 1 testlet of 7 simulation questions. This is a computerized test and you have to sit for the exam in one of the assigned testing sites known as the Prometric centers.
What’s Scary about FAR
FAR is one of the longest exams and the coverage is certainly the widest. Here is a very brief summary of what the exam covers.
- Conceptual Framework, Standards, Standard Setting, and Presentation of Financial Statements (17%-23%)
- Financial Statement Accountants: Recognition, Measurement, Valuation, Calculation, Presentation, and Disclosures (27%-33%)
- Specific Transactions, Events and Disclosures: Recognition, Measurement, Valuation, Calculation, Presentation, and Disclosures (27%-33%)
- Governmental Accounting and Reporting (8%-12%)
- Not-for-Profit (Non-governmental) Accounting and Reporting (8%-12%)
Historical CPA FAR Exam Pass Rate
The FAR pass rate remains relatively stable with a very slight improvement towards 50%. You can expect the same trend in the next few years.
You Recommend Tackling FAR First. Why?
Obviously people have different opinions on this, and it largely depends on your own strengths and personality. As a general rule, I do recommend you start with FAR. Here are the reasons.
1. FAR Takes the Longest Time to Study. I don’t think FAR is the most difficult, but sheer volume of materials can be overwhelming. You’ll be glad to get rid of this biggest beast.
2. The 18 Month Rule Consideration. This is a major reason for anyone consider taking FAR first. Since you only have 18 months to take AND pass all the 4 sections of the CPA exam, and that the clock starts to tick once you pass the first one, you might want to tackle the longest/hardest one first so in case you fail a few times your clock will still wait. One less thing to worry about.
3. Double Benefit. The great thing about FAR is that while it is time consuming to study, it isn’t the most difficult. If people have enough time to study (note that it is a big if, given the volume) they will likely pass. You get the double benefit of getting done with the biggest section and getting a quick win.
CPA FAR Exam Tips in 2016
1. Important! Schedule Your CPA FAR Study Carefully
Many candidates fail FAR because they do not have enough time to study. This is understandable given the huge amount of materials.
If you don’t want to repeat their mistakes, plan ahead your study schedule so you won’t run out of time. Specifically, if you allow yourself 3 months to study, try to schedule finish watching the DVD (or whatever your guided review) in the first 2 months, and set aside the last month for final revision. Chances are that you’ll need 2.5 months to finish everything off.
2. Don’t Skip the Difficult Concepts and Hope They Won’t Appear in the Exam
Many candidates find bond, pension and stock holder equity the most difficult sections. For me governmental accounting is also a killer. Towards the end of my study, I took the time to understand governmental accounting but ran out of the for the others. I almost wanted to give up but thankfully, decided to set aside one afternoon to tackle bond and pension. It’s worth the effort — I did see a lot of bonds and pensions in my exam.
Everyone has their special “blind spots”, which means — again — that leaving some buffer time for your study is very important.
Another lesson learned: you never know which part will be on your version of the exam. Unless you don’t mind a retake, don’t risk skipping any part of study materials.
3. Make Sure You Understand Journal Entries
The ability to perform journal entries is the foundation of financial accounting. If you are not an accounting major, or that you haven’t touched JEs for a long time, put in the extra effort to:
Here are two helpful sources:
My Recommendations and Tips
First of all, rest assured that if you have ample time to study for FAR, you can pass. The questions and answers tend to be computational and clear-cut: you either get it or not (unlike the subjective type of questions in CPA AUD). If you are familiar with GAAP and the calculation, this is a section that you can pass with relative confidence.
If you really worry about the risk of lagging behind your study and not able to study the entire module on time, you might as well postpone the scheduling of your exam at the prometric center. You may run the risk of the prometric center being full, but you don’t need to force yourself to take the exam when you are not ready. This is one of the best thing about the computerized exam since 2004. Take good advantage of it!
- How to handle your psychology when studying gets overwhelming
- My ultimate CPA studying and exam taking strategies
Strategies for other exam sections