Ch2. US CPA FAR — GAAP Financial Reporting & Revenue Recognition
FAR: The Largest CPA Section
FAR (Financial Accounting and Reporting) is the broadest and most content-heavy section of the CPA exam. It carries the lowest pass rate and requires the most preparation time.
FAR covers:
- GAAP financial reporting (business entities)
- Governmental accounting
- Not-for-profit accounting
- IFRS vs. GAAP comparisons
GAAP vs. IFRS Key Differences
| Item | US GAAP | IFRS |
|---|---|---|
| Inventory | FIFO, LIFO, weighted average | FIFO, weighted average (no LIFO) |
| R&D costs | All expensed immediately | Development phase capitalization allowed |
| Investment property | Cost model only | Fair value model permitted |
| Revenue recognition | ASC 606 (5-step) | IFRS 15 (identical model) |
ASC 606: Five-Step Revenue Recognition
- Identify the contract with a customer
- Identify performance obligations (distinct promises to transfer goods/services)
- Determine the transaction price (including variable consideration, time value of money)
- Allocate to performance obligations (based on standalone selling prices)
- Recognize revenue when (or as) each obligation is satisfied
ASC 842: Lease Accounting
Lessee accounting:
- Operating lease: Recognize ROU asset + lease liability; single straight-line lease expense
- Finance lease: Recognize ROU asset + lease liability; separate interest + amortization expense
Lessor accounting:
- Operating lease: Recognize straight-line rental income
- Direct financing/sales-type lease: Recognize a receivable
Governmental Accounting
Governmental accounting is approximately 25–30% of FAR — high-stakes content.
Two measurement focuses:
- Fund accounting: Resources segregated by purpose
- Government-wide reporting: Full accrual basis
Major fund types:
- General Fund: Primary operating fund (pays for day-to-day government operations)
- Special Revenue Fund: Restricted for specific purposes
- Capital Projects Fund: For acquisition/construction of capital assets
- Debt Service Fund: For principal/interest payments on long-term debt
Chapter 3 Preview
Next: AUD (Audit & Attestation) — audit standards, independence threats, the audit risk model, internal controls, and audit opinion types.
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