Everything you need to know to successfully pass FAR!
The Financial Accounting and Reporting (FAR) section of the CPA exam focuses on financial statement accounts, accounting principles, and how to reflect financial transaction and events in the financial statements under United Stated Generally Accepted Accounting Principles (GAAP). To successfully pass the FAR section of the CPA exam, you need to put yourself in the role of a Chief Financial Officer or Controller and understand how every transaction and event is recorded and reflected in a company’s financial statements.
FAR is often referred to as the “beast”, which is driven by the amount of material tested and the historical CPA Exam pass rates. With a historical CPA Exam pass rate of 46%, FAR has the lowest pass rate compared to the other sections of the CPA exam.
This page provides you a comprehensive guide of the FAR CPA exam section, including trends in historical pass rates, CPA exam format, AICPA blueprint topics, question types, key areas to focus on, common FAR simulation topics, general FAR tips, and frequently asked questions about FAR.
Over the last 5 years, the pass rate for FAR has an average of 46.4%, with both 2021 and 2022 CPA Exam pass rates trending below the average.
It is very important to understand the structure of the FAR exam so that you have a clear understanding of what to expect on exam day. We will go through all of the relevant information that you should understand so that your mind will be at ease and you can focus on efficiently and effectively solving the multiple choice questions and task-based simulations you see on exam day at the Prometric Center.
You will have a total of 4 hours to complete all five testlets. You will have an optional 15 minute break after you complete your 3rd testlet and the break will not count towards your 4 hours. The computer will ask you whether you would like to take the break or continue with your exam. We recommend utilizing the break to collect your thoughts and stamina as you will be approximately 2.5 hours into your exam by the time you finish the 3rd testlest. Once the 4 hour clock expires, your exam will automatically be closed and submitted, and any questions in-progress will be submitted as is. You will get partial credit for the simulation you are working on when time expires. We have another article that outlines how the CPA Exam is graded. To learn more, feel free to check it out!
The FAR exam consists of 66 multiple choice questions and 8 task-based simulations. Your score will be calculated based on a weighted combination, with multiple choice questions making up 50% of your score and task-based simulations making up the other 50%.
Will consist of one or more paragraphs and may include a table with financial or non-financial information. There will be four answer choices to choose from, and you will have to select A, B, C, or D. Not every single multiple choice question will be considered in the calculation of your score. FAR contains 12 pretest multiple choice questions, which means they will not be graded. Therefore, only a maximum of 54 multiple choice questions will be used to calculate your score. The AICPA may remove additional questions if they are deemed to be unfair. Watch the sample videos below to get a preview of a multiple choice question and a video explanation in the Universal CPA Review course.
Will consist of a prompt, exhibits, and then one or more tasks that you must complete. These tasks consist of journal entries, calculations, authoritative research, preparing financial statements, or reviewing documents. Of the 8 task-based simulations you will see, 1 will be a pretest question, which means that it will not count towards your score.
FAR consists of 5 total testlets. The first two testlets consist entirely of multiple choice questions, with 33 multiple choice questions in each testlet. The third testlet contains 2 task-based simulations, and then the last two teslets contain 3 task-based simulations each. You will also have a period of 10 minutes before your exam starts to go through the welcome and confidentiality screen. At the end of the 4 hour exam, there is a post-exam survey you will out, which takes about 5 minutes.
While Universal CPA Review aligns with the AICPA blueprint for the FAR CPA exam, you should still be familiar with the FAR blueprint. The AICPA blueprint is essentially an outline of all the different topics that can be tested, the skillsets required for each topic, and the weighting of each topic.
A. Conceptual framework and standard-setting for business and nonbusiness entities
B. General-purpose financial statements: for-profit business entities
C. General-purpose financial statements: nongovernmental, not-for-profit entities
D. Public company reporting topics (U.S. SEC reporting requirements, earnings per share, and segment reporting)
E. Financial statements of employee benefit plans
F. Special purpose frameworks
A. Cash and cash equivalents
B. Trade receivables
C. Inventory
D. Property, plant and equipment
E. Investments
F. Intangible assets – goodwill and other
G. Payables and accrued liabilities
H. Long-term debt (financial liabilities)
I. Equity
J. Revenue recognition
K. Stock compensation (share-based payments)
L. Income taxes
A. Accounting changes and error corrections
B. Business combinations
C. Contingencies and commitments
D. Derivatives and hedge accounting (e.g. swaps, options, forwards)
E. Foreign currency transactions and translation
F. Leases
G. Nonreciprocal transfers
H. Research and development costs
I. Software costs
J. Subsequent events
K. Fair value measurements
A. State and local government concepts
B. Format and content of the financial section of the Annual comprehensive financial report (ACFR)
C. Deriving government-wide financial statements and reconciliation requirements
D. Typical items and specific types of transactions and events: measurement, valuation, calculation and presentation in governmental entity financial statements
We recommend that most CPA candidates start by taking the FAR section first. Why is this? FAR is a beast! FAR has the lowest pass rate and contains the highest volume of topics tested (~30% ore than AUD and BEC). Most CPA candidates typically spend 150 to 175 hours studying for the FAR exam. If you do not have an accounting background or you haven’t been using any accounting skills in your professional career, then it could take you longer to prepare for FAR.
At a high-level, your timeline will consistent of working through each module in the Universal CPA course. Each module has been designed to cover certain blueprint topics. Each module will have a video lecture, study guide, multiple choice questions (with video explanations), and possibly a task-based simulation (if applicable). There are a variety of different strategies you can take for each module, but the general approach is to watch the video lecture, and then work through the multiple choice questions, and watch the video explanations. You can utilize the study guide (textbook) to review what you learned in the lecture. For the task-based simulations, you can work through them after completing the multiple-choice questions, or you can revisit the simulation during your cumulative review.
We recommend doing cumulative practice tests on a weekly basis at a minimum (typically on the weekends). This means that if you have covered material from Chapters 1, 2, and 3, then you should perform a cumulative practice test over all 3 chapters at once. This will not only help with retention of the information, but it will also help you learn to get comfortable with seeing topics in no particular order. Watch our video tutorial on how to set up a cumulative practice test and why they are so important!
Looking for some tips specific to the FAR CPA exam? Here is a list of tips we put together to help you pass FAR:
FAR is all about understanding how transactions and events impact a company’s financial statements. Transactions are recorded into the financial statements through a journal entry, right? If you understand how to prepare the journal entry for each type of transaction or event on FAR, then you will be prepared. We have compiled a list of 100+ journal entries that you should be familiar with. Put yourself in the role of a CFO or Controller. A CFO or Controller needs to be able to explain the treatment of each transaction and event. Think about how you would explain or justify the journal entry to investors, the general public, or other stakeholders. This is the type of mindset you should have while you prepare for FAR.
Most CPAs utilize Excel to perform calculations, analysis, and prepare journal entries. If you can learn to efficiently and effectively utilize Excel while studying for FAR, you will be better prepared for the exam. You will have full/unrestricted access to Microsoft Excel on exam day. The Universal CPA course will provide Excel templates for certain topics like adjusting journal entries and the equity method.
As previously mentioned, you should put yourself in the role of a CFO or Controller as you learn each topic. Why is this? Well, if you were an experienced CFO or Controller, you would have a set series of steps you would perform for each topic or task. That is exactly what you need to do for the FAR exam. Every single topic in FAR can be broken down into a series of steps, which we refer to as your mental map. The mental map can be used to answer any type of multiple choice question or simulation for that specific topic that you could see on your exam. Come exam day, you will see that topic, picture your mental map, and then solve the multiple choice question or simulation correctly!
Yes, governmental and non-profit accounting are tested on the CPA exam. Unless you took a class in college on these specific topics or you currently work for a governmental or non-profit agency, then you probably are not familiar with these topics. While the accounting is similar to for-profit companies in some ways, there are also a lot of differences in nuances that you need to understand.
You may decide that you do not have the extra time to practice the task-based simulations, which is completely understandable. However, you should still become familiar with the structure of commonly tested FAR simulations, and have a basic plan of attack. The Universal CPA Review course has video explanations that walk you through simulations that are commonly tested on the FAR exam. The CPA instructor will help you understand the details and format of the simulation, how to navigate through multiple exhibits, and how to actually solve the simulation from start to finish. The video explanations will revisit key topics learned in the lectures and utilize relevant visuals to help the learning stick!
You will need to work through FAR multiple-choice questions very efficiently. FAR is known to have some questions that are short, but others that are long and include a ton of information. When an MCQ is very long, try reading the last sentence first to give you an idea on what the topic is. Then go back and read through the MCQ from the start. Learn more about this technique by watching a video explanation we put together for you!
Earlier in the FAR CPA exam guide, you learned the format of the the FAR CPA exam. The exam includes multiple-choice questions and task-based simulations. You will have a total of 4 hours to complete the exam, but how much time should you spend on each question so you can complete the exam within the allotted time?
Multiple-choice questions – We recommend spending 2 hours on the two multiple-choice testlets. Since there are 66 multiple-choice questions, we recommend averaging about 1.8 minutes per question. You will spend more time on difficult question, but less time on the easier questions. It’s very important not to spend too much time on a particular question! One technique you can use to efficiently work through longer multiple choice questions is to read the last sentence first!
Task-based simulations – The remaining 2 hours can be spent completing the 8 task-based simulations. One of the simulations will be the authoritative research simulation, and you should spend no more than 10 minutes on it. The score weighting is significantly lower for the research simulation as compared to the other simulations.
While you could see a simulation on just about any topic on the FAR blueprint, the list below represents topics that you should focus on during during your FAR preparation. Simulations on these topics are included in the Universal course. Since it is likely that each simulation will have multiple exhibits, we have included multiple exhibits in the Universal course so that you can learn how to navigate through exhibits in an efficient manner. This list is not meant to be comprehensive, but rather, it is intended to provide you direction and guidance and where you should focus your time and efforts.
You should be familiar with both the direct and indirect method, but it is more likely to see a simulation on the indirect method since that is the method used by a majority of public companies in the United States. You should be familiar with how and where to classify various transactions and events into the three sections of the cash flow statement (operating, investing, and financing).
This type of simulation would have you start with the unadjusted accounts receivable or accounts payable balance and then determine what the adjusted balance would be in the financial statements. The prompt or exhibits would provide information about potential adjustments, and you would be required to determine what adjustments to make (if any). You could have a similar simulation that tests you on other financial statement accounts like inventory or fixed assets.
The prompt would likely list out various transaction and events and you would have to determine whether the company is required to record a loss contingency on the balance sheet. This requires that you understand the terminology around accounting for a loss contingency.
This is a very common simulation because it combines several key topics including the acquisition method, intercompany eliminations, and the consolidated financial statements. The prompt would likely indicate that the parent company acquired a subsidiary at an earlier point in the year. The prompt would then require you to prepare any entries to eliminate the acquired subsidiary, any entries to eliminate intercompany activity (revenue, cost of goods sold, inventory, payables, etc.), and determine what the consolidated income statement and balance sheet would be. The simulation may also ask you about goodwill and non-controlling interest.
You will need to be familiar with how to account for an investment under the equity method and the journal entries that would be recorded throughout the year. This would include the journal entry to record the initial investment, the share of net income or loss, the share of dividends received, and the amortization premium (if any). Remember, we do not record a journal entry for any goodwill!
You could definitely see a simulation on investment debt or equity securities, and you would have to understand how to classify the security, and account for changes in fair value in the financial statements. One difficult area of debt securities that could be tested is the current expected credit loss (“CECL”) model for available-for-sale (“AFS)” or held-to-maturity (“HTM)” debt securities.
You could be required to complete a bank reconciliation. The simulation could give you all the necessary information and potential adjustments to make. Just remember, if your bank reconciliation balances, then you there is a good chance you have the correct solution for the simulation!
You could be required to take the company’s unadjusted trial balance and prepare the adjusted trial balance. The simulation would likely give you a variety of exhibits or transactions, and you would be required to understand if an adjusting journal entry should be recorded. An adjustment would typically be driven by a timing difference and requires you to have a solid understanding of accrual accounting. The adjustments could relate to any type of account in the financial statements, with an individual adjusting entry impacting multiple accounts.
The AICPA knows this is a difficult topic for CPA candidates, but its also very important. The simulation could provide cash basis information and require you to calculate net income under the accrual basis. If you understand the fundamental of accounting and the relationship between the income statement and balance sheet, then this topic should not be very difficult. CPA candidates typically struggle with cash vs accrual because most review courses only teach a variety of formulas, which can be difficult to remember. The Universal course utilizes the rollforward method, which helps you understand what increases or decreases an account. It will also help you understand the journal entries for particular financial statement accounts.
The simulation would likely require you to calculate basic and diluted earnings per share (“EPS”). The simulation would include information in the prompt or in exhibits and you need to understand how it impacts the EPS calculations.
The simulation would likely require you to enter the journal entries the lessor or lessee would record for a financing lease (most commonly tested).
The simulation would likely require you to prepare a bond amortization schedule and input various amounts into the simulation. You may also be required to input the journal entries the company would record.
The bottom line is that the CPA FAR exam is very difficult to pass, but with the right approach, you can pass the FAR exam on your first attempt. With the Universal CPA course, you can be one of the many Universal students who have passed FAR on their first attempt, or passed FAR after adding the Universal course as a supplement to their existing review course. With the bite-sized video lectures and step-by-step explanation videos, you will be able to learn the previously AICPA released multiple choice questions at the depth that is necessary. Rather than memorizing information like other courses encourage, you will truly learn the intuition behind these complex topics. If you want to pass the FAR exam, then start a free 7-day trial today!
Unfortunately, there is not a set amount of study time that it takes to be sufficiently prepared to pass FAR. Every candidate will move through the material at a different pace. We generally suggest you plan for 150 hours of studying when you develop your initial study plan.
If you based your answer on the average pass rate, then yes, FAR has the lowest pass rate, which makes it the hardest exam. However, certain CPA candidates might find FAR easier than other sections. It all depends on your prior knowledge and interests!
We recommend passing FAR before you move onto the next section of the CPA exam. Since FAR is considered to be the hardest section, you do not want your 18-month timeline to start without passing FAR. If you fail FAR, retake it before you move onto the next section!
Hopefully you only need to take FAR once! However, if you do fail, you can take it until you pass. With continuous testing, you no longer have to wait until the next testing window to sit for a retake.
There are 5 testlets on the FAR exam. Testlets 1 and 2 have 33 multiple choice questions each. Testlet 3 contains 2 simulations. Testlets 4 and 5 contain 3 simulations.
This amounts to a total of 66 multiple choice questions and 8 simulations. It is important to understand that there are 12 pretest multiple choice questions and 1 pretest simulation. Pretest questions do not count towards your score. You will not know which multiple choice questions or simulations are tagged as pretest.
The pass rate for FAR has averaged around 45 to 46% over the last five years. FAR continues to have the lowest pass rate.
You will have 4 total hours to complete the exam. You will have an option 15 minute break after testlet #3 which does not count towards the 4 hour total.
Multiple choice questions will account for 50% of your score, with task-based simulations accounting for the other 50% of your score.
The reality is that almost any topic in the FAR blueprint could be tested in a simulation aside from a select few. The most common simulations for FAR tend to be on the statement of cash flows, accounts receivable rollforward, accounts payable rollforward, consolidation method, acquisition method, intercompany eliminations, commitments and contingencies, equity method, investments in debt or equity securities, bank reconciliations, adjusting journal entries, cash vs accrual, earnings per share, bonds, and leases!
I could keep going but we would be getting pretty close to including every topic in the FAR blueprint!
Yes, the AICPA has confirmed that the FAR blueprints will change with the CPA Evolution. However, we do not expect any major or drastic changes as there has bee no fundamental change in what a licensed CPA needs to understand about financial statements. Learn more about the CPA Evolution here.
If you are planning to study for other sections of the CPA exam soon, check out our detailed guides for AUD, BEC, and REG! These comprehensive study guides will help you learn everything you need to know so that you can pass those sections and move on in your CPA journey!
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