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Introduction to FAR

What Is FAR?​

The Financial Accounting and Reporting (FAR) section of the CPA Exam evaluates a candidate's knowledge of the accounting standards, principles, and frameworks used to prepare and analyze financial statements. Of the four CPA Exam sections, FAR is widely regarded as the most content-heavy and technically demanding.

Exam Structure

FAR is one of four sections of the Uniform CPA Examination, alongside AUD (Auditing and Attestation), REG (Taxation and Regulation), and ISC/TCP/BAR (discipline sections). You must pass all sections within a rolling 30-month window.

Key Content Areas​

The FAR blueprint—published by the AICPA—organizes tested material into three content areas:

Content AreaDescriptionApproximate Weight
Area I — Financial ReportingGeneral-purpose financial statements (for-profit and not-for-profit), state and local government concepts, public company reporting (10-Q/10-K/8-K, EPS), special-purpose frameworks, ratios and performance metrics30–40%
Area II — Select Balance Sheet AccountsCash, receivables, inventory, PP&E, investments, intangibles, payables and accruals, long-term debt, equity, and related disclosures30–40%
Area III — Select TransactionsRevenue recognition, leases, business combinations and consolidations, income taxes, fair value, accounting changes and error corrections, contingencies, subsequent events, foreign currency, and stock compensation25–35%

The exam also tests skills at four levels. The current allocation is:

Skill LevelApproximate Weight
Remembering and Understanding5–15%
Application45–55%
Analysis35–45%
Evaluation—
Content Weights May Shift

The AICPA periodically updates the CPA Exam blueprint. Always verify the latest version at aicpa.org before finalizing your study plan.

Financial Reporting Standards​

U.S. GAAP and the FASB​

U.S. Generally Accepted Accounting Principles (GAAP) are the authoritative standards that govern financial reporting for non-governmental entities in the United States. The Financial Accounting Standards Board (FASB) is the primary standard-setter. The FASB issues guidance through the Accounting Standards Codification (ASC), which organizes all authoritative GAAP into a single, searchable system. When studying FAR, you will frequently reference ASC topics such as:

  • ASC 606 – Revenue from Contracts with Customers
  • ASC 842 – Leases
  • ASC 350 – Intangibles—Goodwill and Other
  • ASC 820 – Fair Value Measurement
  • ASC 450 – Contingencies

The GAAP Hierarchy​

The GAAP hierarchy determines which sources of guidance are authoritative:

Exam Tip

For the CPA Exam, always apply authoritative GAAP (ASC) unless the question explicitly states otherwise (e.g., IFRS or cash basis).

The SEC​

The Securities and Exchange Commission (SEC) has legal authority over financial reporting for publicly traded companies. While the SEC generally defers to the FASB for standard-setting, it issues its own rules through:

  • Regulation S-X – Form and content of financial statements
  • Regulation S-K – Non-financial disclosures
  • Staff Accounting Bulletins (SABs) – Interpretive guidance

IFRS and the IASB​

The International Accounting Standards Board (IASB) issues International Financial Reporting Standards (IFRS). While the CPA Exam primarily tests U.S. GAAP, you should be aware of key differences between GAAP and IFRS, particularly in areas such as:

  • Inventory (LIFO is prohibited under IFRS)
  • Development costs (can be capitalized under IFRS if criteria are met)
  • Revaluation of long-lived assets (permitted under IFRS)
  • Component depreciation (required under IFRS)

Study Tips and Approach​

1. Build a Strong Foundation First​

Start with the conceptual framework and financial statement elements before diving into complex topics like leases or pensions. Understanding why a rule exists makes it far easier to remember.

2. Master Journal Entries​

FAR is fundamentally about the accounting equation: Assets = Liabilities + Equity. Nearly every topic comes back to journal entries. Practice writing them by hand. For example, if Bear Co. issues 10,000 shares of $1 par common stock at $15 per share:

Debit
Credit
Cash
$150,000
Common Stock
$10,000
Additional Paid-in Capital
140,000

3. Use Active Recall and Spaced Repetition​

Passive reading is not enough. After studying a topic:

  • Close the book and write down everything you remember
  • Revisit the topic 1 day, 3 days, and 7 days later
  • Use flashcards for key definitions and formulas

4. Practice Under Exam Conditions​

Time yourself on practice problems. The CPA Exam includes multiple-choice questions (MCQs) and task-based simulations (TBSs). Both formats require speed and accuracy.

5. Focus on High-Weight Topics​

Allocate study time proportional to exam weight. Spending three weeks on governmental accounting while ignoring revenue recognition would be a strategic error.

note

Government and not-for-profit topics feel unfamiliar to most candidates, but they are very testable. Budget adequate time for these areas even though the weight is lower.

How This Textbook Is Organized​

This textbook follows a logical progression designed to build your knowledge systematically:

PartTopics
Part 1: FoundationConceptual framework, financial statement elements, general-purpose financial statements
Part 2: AssetsCash, receivables, inventory, PP&E, intangibles, investments
Part 3: LiabilitiesCurrent liabilities, long-term debt, bonds, leases, contingencies, pensions
Part 4: EquityCommon and preferred stock, retained earnings, treasury stock, dividends, stock compensation
Part 5: Revenue & ExpensesASC 606 revenue recognition, expense recognition, income taxes
Part 6: Financial Statement PresentationIncome statement, balance sheet, statement of cash flows, comprehensive income, EPS
Part 7: Special TopicsBusiness combinations, consolidations, foreign currency, derivatives, fair value
Part 8: Government & NFPFund accounting, government-wide statements, GASB standards, NFP reporting
Navigation

Use the sidebar to jump to any topic. Each chapter includes learning objectives, worked examples, journal entries, and practice questions.

Conventions Used in This Textbook​

Throughout this textbook, you will encounter several recurring conventions:

  • Journal entries appear in journal code blocks with debits listed first and credits indented

  • Dollar amounts are shown with the $ symbol (e.g., $50,000)

  • Math formulas use KaTeX notation: Net Income=Revenue−Expenses\text{Net Income} = \text{Revenue} - \text{Expenses}

  • Company names in examples are bear-themed (e.g., Bear Co., Polar Co., Grizzly Inc., Kodiak Partners, Panda Industries, Cub Entertainment, Sloth Security, Bruin Community Foundation, Polar University, Bear Valley Hospital)

  • Admonitions highlight tips, warnings, and important notes using colored callout boxes

    Common Pitfall

    Many candidates underestimate FAR because they "already know accounting." The CPA Exam tests nuance—specific rules, exceptions, and edge cases that go well beyond introductory coursework. Treat every topic with fresh eyes.

Let's Get Started​

Turn to the next section—Conceptual Framework for Financial Reporting—to begin building the foundation that every other FAR topic rests upon.