CPA-Financial

The AICPA CPA Exam's Financial Accounting and Reporting (FAR) section is notoriously challenging, focusing on the principles and application of generally accepted accounting principles (GAAP). Here are the main points covered, categorized for clarity:

I. Foundational Concepts:

• Accounting Equation: Assets = Liabilities + Equity. Understanding how transactions affect this fundamental equation is crucial.
• Generally Accepted Accounting Principles (GAAP): Knowledge of GAAP is paramount, including the conceptual framework, and how it influences accounting choices. This includes understanding the differences between GAAP and IFRS (though the exam focuses primarily on GAAP).
• Financial Statement Preparation: This includes preparing and analyzing the balance sheet, income statement, statement of cash flows, and statement of changes in equity. Understanding the relationships between these statements is key.
• Accounting Cycle: A thorough understanding of the steps involved in the accounting cycle, from recording transactions to preparing financial statements.

II. Core Topics:

• Current Assets and Liabilities: Detailed knowledge of various current accounts, including receivables, inventories (including different inventory costing methods like FIFO, LIFO, weighted-average), and payables.
• Long-Term Assets: This includes property, plant, and equipment (PP&E), intangible assets (amortization, impairment), and long-term investments. Understanding depreciation methods (straight-line, double-declining balance, units of production) is critical.
• Long-Term Liabilities: This encompasses bonds payable, notes payable, leases (operating vs. capital), and pensions. Understanding bond issuance, amortization of premiums and discounts, and lease accounting is essential.
• Equity: Understanding different equity accounts (common stock, retained earnings, treasury stock), stock transactions, and dividend distributions is necessary.
• Revenue Recognition: A significant portion of FAR focuses on revenue recognition under ASC 606. Understanding the five-step model is critical.
• Expense Recognition: Understanding the matching principle and how expenses are properly matched with revenues.
• Accounting Changes and Errors: Knowing how to account for changes in accounting principles, estimates, and errors. This includes understanding the different types of accounting changes and their impact on financial statements.
• Consolidation: Understanding how to consolidate financial statements of parent and subsidiary companies. This includes intercompany transactions and eliminations.
• Governmental Accounting: This section often covers basic fund accounting principles, particularly governmental funds.

III. Important Skills Tested:

• Conceptual understanding: The exam tests your understanding of accounting concepts and their application. Memorizing rules won't be enough; you need to understand why things are done a certain way.
• Problem-solving: The majority of the exam is comprised of multiple-choice and task-based simulations requiring problem-solving and application of the concepts.
• Analytical skills: The ability to analyze financial information, identify issues, and make appropriate accounting judgments is crucial.

In short: The FAR section is a comprehensive test of your understanding of GAAP, its application to various business transactions, and the ability to prepare and analyze financial statements. Preparation requires a thorough understanding of all these areas, not just superficial knowledge. Use practice problems extensively to build your skills and test your knowledge.