CPA Candidates: This is How You Study for the FAR Section of the CPA Exam
- Nikki Winston, CPA
- 3 days ago
- 10 min read
FAR has consistently had one of the lowest pass rates of all the CPA exam sections. Nothing new, that stat has been the case for eons at this point. The full year 2025 pass rate averaged 42%, and the early 2026 results followed a similar pattern. So yes, FAR has earned its reputation as the beast, the bear, and every other frightening animal it’s been nicknamed.
Even with all that, FAR is still the section I want CPA candidates to be excited about.
I took FAR three times, and I still consider it the easiest section of the CPA exam for me. That probably sounds wild until you understand how I saw the material. For added context, somebody once told me that my “passion for accounting is palpable.”
FAR, Financial Accounting and Reporting, is the DNA of accounting. The answers to the questions about what’s going on in a business is found in FAR. “Answers” is plural because there’s many things going on at the same time, as we think about how transactions start, become receipts, and move through the income statement, balance sheet, statement of cash flows, and statement of owner’s equity. I can look at the numbers and see how a company made money, what it cost to make that money, how it paid its bills, directly and indirectly, and what decisions need to be made in the future. That’s a beautiful thing!
FAR's content defines the foundation of accounting. FAR stands for Financial Accounting & Reporting - so thinking about that, you're telling the story of what happened in the business, and how it was accounted for on the company's books.
What’s on the FAR exam
Nobody can tell you specific topics that will be on the FAR exam. I cringe every time a CPA candidate runs out of the Prometric testing center and their first stop is the online CPA exam study groups to start singing like a bird about everything they just saw on their exam. The topics they didn’t expect to see, the question they got stuck on, the simulation that they ran out of time on – all the things they’re NOT supposed to say according to the acknowledgment they signed before they started their first exam testlet.
So, before we get into derivatives and direct vs. indirect statement of cash flows, let’s start on the first screen of every section of the CPA exam:
The Uniform CPA Examination Conduct and Non-Disclosure Agreement
This is an excerpt from the Uniform CPA Examination Conduct and Non-Disclosure Agreement that candidates must agree to when scheduling exams through Prometric. I have thoughts on this (another talk for another day) so I’ll end this with:
STOP GETTING ON SOCIAL MEDIA AND TALKING ABOUT YOUR EXAM.
From the Reporting side of Financial Accounting & Reporting, familiarize yourself with the governing bodies and those who are at the forefront of the reporting; this includes: the FASB, the SEC, the AICPA for starters.
Financial reporting can be up to 40% of your FAR exam so expect to see that testable content, in one form or another, on the FAR exam.
A huge part of the FAR exam also focuses on application - meaning you have to understand what's going on because memorization won't help you here.
Here’s some topics I recommend you study as you get ready to take your FAR exam.
Starting with financial reporting for for-profit entities:
Knowing what the P&L or statement of profit or loss tells you. In the accounting department world, understanding that the month-end close process is what complies the P&L each month and the P&L has to be completed before the balance sheet compilation starts because accounts on the P&L are closed to the balance sheet. So as a staff or senior accountant, when you go through month-end close, you go through revenue and gross margins and OpEx first, then reconcile the balance sheet.
In addition to the P&L and balance sheet, the statement of cash flows, and the statement of comprehensive income. Depending on the size, industry, and ownership of your employer, you may not see the statement of comprehensive income, but you should still be familiar with it.
The notes to the financial statements. When I review financials, I go straight to the footnotes. Reading the footnotes first gives me an expectation of what I'll see in the financials.
Ideally, the footnotes explain what was booked, the corresponding GAAP guidance supporting what was booked, why, and what the financial implications are. I say “ideally” because one of my FAR exam tutorials is about segment reporting and the year-over-year opacity of Microsoft’s financial statements. It has many eyebrows raised about the financial story of Azure, whose margins and profitability are reported as a consolidation even though Azure is a significant part of Microsoft’s portfolio. It’s my way of teaching FAR exam readiness through Accounting in Real Life.
I put together some FAR practice questions with explanations of the right answer. The FAR Final Review Workbook is for CPA candidates studying for FAR and having trouble understanding the concepts. Click below to start studying from the FAR workbook.
The actual forms filed with the SEC: the 10-Q, 10-K and I-8-K that issuers, also known as publicly traded companies, are required to file with the SEC in accordance with the Securities Exchange Act of 1934.
What does that Act say? The Act functions like the rulebook for how the stock market operates, aiming to protect investors and ensure fairness and transparency in the markets.
The act established the Securities and Exchange Commission (SEC), which plays a crucial role in enforcing these regulations and overseeing the securities industry. So, as future CPAs, it's important for us to understand the ins and outs of this act because it's a cornerstone of financial regulation in the United States.
Taking that a step further, the PCAOB was established as a result of SOX (Sarbanes Oxley), which is also testable on the CPA exam. The PCAOB was created in response to major accounting scandals like Enron and WorldCom. However, the SEC does play a significant role in overseeing the PCAOB's activities.
The PCAOB is responsible for overseeing the audits of public companies and ensuring that auditors follow certain standards to maintain integrity and reliability in financial reporting. If you want to know the latest and greatest with the PCAOB, follow Erica Williams on LinkedIn. She was the chair of the PCAOB and she is NOT a game. She communicated the PCAOB's stance so eloquently yet firm in where things stood. Her posts were so refreshing for me.
Know how to compute basic and diluted EPS. When you take a company's earnings, divided by the common shares outstanding after deducting preferred shares.
Diluted EPS is considering that stock options and convertible bonds were converted into common shares so there would be more shares outstanding shares so EPS would be lower because you're dividing net income by a higher number of shares.
So if you get a conceptual question about EPS even if you get stumped by the calculations, just know that diluted EPS results in a lower Earnings Per Share because you've taken potential common shares and converted them to actual common shares so you denominator is bigger. Then it's a basic calculation: when you divide by a bigger number your solution is smaller.
Governmental - state and local governments. There's a different basis of accounting used for state and local governments. Understanding the purpose of the different funds and how activities are recorded in the Statement of Activities - state and local governments don't have P&Ls, they have Statements of Activities. Small things like that can easily become a multiple choice question.
How to study for the FAR exam: financial reporting study tips
Knowing what's included on the nonprofit's financial statements. Realizing that nonprofit financial statements are named differently than for-profit entities.
Special Purpose Frameworks
Then there's the special purpose frameworks. The "Mom & Pops" who operate on the cash basis of accounting.
Again, if you work in an accounting department like I did, you may experience M&A activity where your employer acquires a company that uses QBO and operates on the cash basis of accounting. So, as part of the post-merger integration activities (which hopefully you're a part of because there's a ton of learning that happens here that you may not see elsewhere), you'll have to convert these newly acquired cash-basis financials to accrual basis of accounting - the one that's most widely accepted and complies with GAAP.
There's also the income tax basis of accounting. I haven't seen this ever in practice and I'm surprised that it's even testable by that's me. This is about you and knowing what you need to know as you sit for your exam. At least know what this income tax basis of accounting means and how it looks relative to other bases of accounting.
Financial Statement Ratios & Performance Metrics
So far, we've talked about the financial statements for different bases of accounting and what's included. The next step deserves your attention because this content is the confirmation that AI and technology will not replace accountants.
Artificial intelligence can tell us where things are and where they come from, but the business world needs CPAs to tell that story.
What does it mean when your margins are down? Did you sell less at the same cost? Did your accounting team make an error by posting prior period vendor invoices into the current month? Could it be that your margins are skewed by the fact that your accounting team isn't paying attention to details?
Does your team know what they're doing?!
Questions to Ask During Close as the Accountant
What's goes the gross margin looks like? Is that what you, as the business, expected to see in your margin? Is this a one-time or seasonal occurrence or is this the direction the company's been trending in?
Does the company have enough money to pay the bills?
Are the balance sheet reconciliations current?
If the account recs aren't current or reconciled, there's so much that could be going on that the company doesn't know about.
Balance sheet reconciliations are a detective control. If something funny is going on in the business, by either error, omission, or both, you can find it in the balance sheet recs.
As the accountant, do you have the eye & intellectual curiosity to spot it?
Do you understand the relationships among the financial statement accounts?
For example: if AR is decreasing but cash is also decreasing, what's going on
Or, why do we have credit balances in asset accounts?
Or why are we showing reconciling items from 7 months ago that haven't been resolved?
These are all questions to ask yourself and also items that bring exposure to the company's financial health.
Another big conversation is budget vs. actuals. Knowing how to calculate the budget-to-actual variances and what that means to the business. The budget represents what the company expected to happen, and actuals is what actually happened. How do you explain those material swings if the budgeted expense was $3 million and the actual expense was $7.5 million?
Moving on to the balance sheet accounts themselves, knowing how they play off each other. Double entry accounting means the journal entries have to balance so when something happens on one side, the opposite has to happen on the other side.
Assets – Liabilities = Equity
When a company pays its bills, the journal entry is to debit a Payables account which decreases it, and a credit to cash, which reduces cash. When a client pays you upfront you debit (or increase) your cash and credit unearned revenue - a liability account. Once your perform the service or provide the product unearned revenue on the balance sheet is reclassed to revenue on the income statement.
Then there's inventory. That's a whole conversation by itself. From dropshipping to having a garage full of your products that you sell. There's so much involved with inventory. But, again, this is where your expertise comes in as the CPA because most likely the company is missing something when it comes to inventory. It could be the returns allowances, the inventory valuation method chosen, and the relationships with vendors.
PP&E, investments, intangibles, other assets, AP, Payroll, Other Payables, Debt, and Equity as we go down the balance sheet.
Revenue recognition (ASC 606) is a big thing - especially for companies operating in the SaaS or subscription-based services. Going back to my example of a client paying you upfront: if a client pays an annual invoice of $120,000 today, you'd have 1/12 (or $10,000) of that invoiced amount as revenue this period on the income statement and the rest as deferred (interchangeable with unearned) revenue on the balance sheet.
So you'd have a revenue recognition schedule outlining the amount by month that you'll reclass from deferred to revenue.
Contingencies, commitments, subsequent events - those things that happen after the end of the fiscal year but may impact that year and what needs to be accounted for and disclosed in those situations.
Income tax accounting, the journal entries involved. Calculating DTAs and DTLs.
A lot of this is APPLICATION of the concepts, so trying to memorize won't cut it with FAR. You have to understand what's going on. The accounts are interrelated and if you know what's going on with AR and Revenue for example, you can make sense of the Inventory Turnover Ratio or the DSO ratio. Each FAR exam includes two testlets both with 25 questions and 7 task-based simulations (TBSs). They can't test you on everything, but even if you get a question you don't know the answer to, by understanding what's going on, you'll at least be able to make an educated guess and eliminate a couple wrong answers.
This is why memorizing answers will betray you
You can complete hundreds of multiple-choice questions and still not catch the accounting concept.
After enough repetition of working the same practice questions, you start remembering the correct answer. You recognize the wording and remember which calculation worked the last time.
Then the CPA exam changes one fact.
Something “is not” instead of “is” or the asset is purchased in the middle of the year or the question asks for the balance sheet impact instead of the income statement impact.
Now you need to understand the relationship.
When you answer a FAR question, go beyond whether you selected the correct answer. Ask yourself questions like:
What happened inside the business?
Which accounts changed because of it?
Which financial statements were affected?
Did cash move during the same period?
What would change if the timing were different?
Could I explain this without looking at the answer choices?
You’ll spend the same amount of time memorizing, so instead use the time to learn. One day you’ll actually have to do these things and trying to remember the answer to a practice question won’t help you.
Use the FAR exam blueprint to organize your course material
FAR remains one of the three Core sections every CPA candidate must pass. The 2026 CPA Exam Blueprint organizes the section by content area, topic, score weighting, task statements, and the level of skill candidates may be expected to demonstrate. AICPA & CIMA
Use the Blueprint alongside your review course.
The CPA exam blueprints tell you what’s testable and how deeply you may need to know it. Then use your review course to learn the material and practice applying it.
You may need another way to study for the CPA exam
Sometimes your review course explains a topic, and it still doesn’t click.
You may need to hear the explanation in different words, see the transaction connected to a business example, or work backwards from the financial statements.
I have FAR lessons, accounting tutorials, workbooks, and other CPA exam resources at NikkWinstonCPA.com for candidates who need another way into the material.
You can also read my earlier post about Why the FAR exam felt easier for me, for another look at how I approach the section.
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