What US GAAP topics are covered in the CPA exam FAR section?

The CPA exam FAR (Financial Accounting and Reporting) section tests mastery of 16 primary US GAAP topics drawn from the FASB ASC Codification. Success requires understanding not just the rules, but the specific ASC paragraph numbers cited in exam questions and the interconnection between topics. The FAR section covers these major US GAAP topics, each weighted by exam importance and testability: - Revenue Recognition (ASC 606) — Recognition when control of promised goods/services transfers to customer. Tested heavily; requires five-step model understanding (ASC 606-10-05-1 through ASC 606-10-25-1). Exam focuses on performance obligations, transaction prices, and variable consideration. - Leases (ASC 842) — Right-of-use asset and lease liability recognition for lessees; lessor classification and sales-leaseback treatment. ASC 842-10-25-1 and ASC 842-20-25-1 are critical. Distinguish operating vs. finance leases; calculate present value of lease payments. - Business Combinations & Goodwill (ASC 805, ASC 350) — Acquisition accounting, fair value measurements, and goodwill impairment testing. ASC 805-20-30-1 (acquisition-date fair values) and ASC 350-20-35-1 (impairment measurement) appear frequently. Watch for contingent consideration changes post-acquisition. - Consolidation (ASC 810) — Control assessment under variable interest entity (VIE) model and voting interest model. ASC 810-10-25-38A (primary beneficiary definition) is heavily tested. Understand consolidation vs. equity method vs. cost method classification. - Investments in Securities (ASC 320, ASC 321) — Fair value through OCI vs. amortized cost. ASC 320-10-25-1 (classification requirements) drives exam questions on impairment, realized gains/losses, and reclassification adjustments. - Equity (ASC 505, ASC 718) — Stock compensation measurement, recognition periods, and forfeiture estimates. ASC 718-10-30-7 (service condition measurement) and ASC 505-10-50 (disclosure requirements) appear in scenario questions.

How do you apply the practical expedient for short-term leases vs. recognizing ROU assets under ASC 842-10-35-5?

- Liabilities & Contingencies (ASC 450) — Provisions, accruals, and contingent liability recognition. ASC 450-20-25-1 (probable threshold) and ASC 450-20-30-1 (measurement at best estimate) require precise application; common pitfall involves confusing "reasonably possible" with "probable." - Income Taxes (ASC 740) — Deferred tax assets/liabilities, uncertain tax positions, and valuation allowances. ASC 740-10-30-16 (gross vs. net presentation) and ASC 740-10-25-6 (recognition thresholds) are tested via complex multi-year scenarios. - Pensions & Post-Retirement Benefits (ASC 715) — Service cost, interest cost, and actuarial gains/losses. ASC 715-20-35-1 through ASC 715-20-35-10 cover remeasurement and settlement accounting. Often tested with plan amendments or curtailment scenarios. - Intangible Assets (ASC 350) — Amortization, impairment, and finite vs. indefinite-lived assets. ASC 350-30-35-1 drives amortization period questions; ASC 350-20-35-1 covers impairment testing methodology. - Property, Plant & Equipment (ASC 360) — Capitalization, depreciation, and impairment. ASC 360-10-25-1 distinguishes capital expenditures from repairs; ASC 360-10-35-18 covers component depreciation. - Cash Flow Statements (ASC 230) — Classification as operating, investing, or financing. ASC 230-10-45-1 through ASC 230-10-45-27 specify treatment of non-cash investing/financing and unusual items like debt modifications. - Subsequent Events (ASC 855) — Recognition vs. disclosure of events after balance sheet date. ASC 855-10-25-1 requires adjustment for events providing evidence of conditions at balance sheet date; ASC 855-10-50-1 covers disclosure-only events. - Error Corrections (ASC 250) — Retrospective restatement or prospective correction depending on materiality and achievability. ASC 250-10-45-1 covers comparability and ASC 250-10-50 drives disclosure requirements.

What is the difference between 'probable' under ASC 450-20-25-1 and 'more likely than not' under ASC 740-10-25-6 in audit scenarios?

``` Dr. Accounts Receivable $720,000 Cr. Revenue (ASC 606) $720,000 ``` - Misidentifying control in consolidation scenarios (ASC 810-10-25-38A). Candidates conflate voting interest > 50% with control. VIEs require primary beneficiary analysis—review power and economic exposure separately. Exam traps include passive investors in VIEs who are NOT primary beneficiaries. - Revenue recognition: Confusing contract assets with receivables (ASC 606-10-45-42). A contract asset arises when a performance obligation is satisfied before payment is due. Failing to distinguish these leads to incorrect balance sheet classification and disclosure misstatements. - Lease accounting: Forgetting to reassess at remeasurement events (ASC 842-10-35-3). Changes to lease terms, renewal options, or probability assessments trigger lease liability recalculation. Common trap: treating all lease modifications as new leases when only some qualify. - ASC 606-10-25-1 (revenue recognition criteria—5 steps) - ASC 842-20-30-1 (lessee ROU asset and liability measurement) - ASC 805-20-30-1 (acquisition-date fair values) - ASC 810-10-25-38A (primary beneficiary definition) - ASC 450-20-25-1 (contingency probable threshold) - ASC 740-10-30-16 (deferred tax gross vs. net presentation)

CPA Exam US GAAP Topics Guide

CPA Exam — Core Rule

The CPA exam FAR (Financial Accounting and Reporting) section tests mastery of 16 primary US GAAP topics drawn from the FASB ASC Codification. Success requires understanding not just the rules, but the specific ASC paragraph numbers cited in exam questions and the interconnection between topics.

How CPA Exam Works

The FAR section covers these major US GAAP topics, each weighted by exam importance and testability:

Revenue Recognition (ASC 606) — Recognition when control of promised goods/services transfers to customer. Tested heavily; requires five-step model understanding (ASC 606-10-05-1 through ASC 606-10-25-1). Exam focuses on performance obligations, transaction prices, and variable consideration.

Leases (ASC 842) — Right-of-use asset and lease liability recognition for lessees; lessor classification and sales-leaseback treatment. ASC 842-10-25-1 and ASC 842-20-25-1 are critical. Distinguish operating vs. finance leases; calculate present value of lease payments.

Business Combinations & Goodwill (ASC 805, ASC 350) — Acquisition accounting, fair value measurements, and goodwill impairment testing. ASC 805-20-30-1 (acquisition-date fair values) and ASC 350-20-35-1 (impairment measurement) appear frequently. Watch for contingent consideration changes post-acquisition.

Consolidation (ASC 810) — Control assessment under variable interest entity (VIE) model and voting interest model. ASC 810-10-25-38A (primary beneficiary definition) is heavily tested. Understand consolidation vs. equity method vs. cost method classification.

Investments in Securities (ASC 320, ASC 321) — Fair value through OCI vs. amortized cost. ASC 320-10-25-1 (classification requirements) drives exam questions on impairment, realized gains/losses, and reclassification adjustments.

Equity (ASC 505, ASC 718) — Stock compensation measurement, recognition periods, and forfeiture estimates. ASC 718-10-30-7 (service condition measurement) and ASC 505-10-50 (disclosure requirements) appear in scenario questions.

Liabilities & Contingencies (ASC 450) — Provisions, accruals, and contingent liability recognition. ASC 450-20-25-1 (probable threshold) and ASC 450-20-30-1 (measurement at best estimate) require precise application; common pitfall involves confusing "reasonably possible" with "probable."

Income Taxes (ASC 740) — Deferred tax assets/liabilities, uncertain tax positions, and valuation allowances. ASC 740-10-30-16 (gross vs. net presentation) and ASC 740-10-25-6 (recognition thresholds) are tested via complex multi-year scenarios.

Pensions & Post-Retirement Benefits (ASC 715) — Service cost, interest cost, and actuarial gains/losses. ASC 715-20-35-1 through ASC 715-20-35-10 cover remeasurement and settlement accounting. Often tested with plan amendments or curtailment scenarios.

Intangible Assets (ASC 350) — Amortization, impairment, and finite vs. indefinite-lived assets. ASC 350-30-35-1 drives amortization period questions; ASC 350-20-35-1 covers impairment testing methodology.

Property, Plant & Equipment (ASC 360) — Capitalization, depreciation, and impairment. ASC 360-10-25-1 distinguishes capital expenditures from repairs; ASC 360-10-35-18 covers component depreciation.

Cash Flow Statements (ASC 230) — Classification as operating, investing, or financing. ASC 230-10-45-1 through ASC 230-10-45-27 specify treatment of non-cash investing/financing and unusual items like debt modifications.

Subsequent Events (ASC 855) — Recognition vs. disclosure of events after balance sheet date. ASC 855-10-25-1 requires adjustment for events providing evidence of conditions at balance sheet date; ASC 855-10-50-1 covers disclosure-only events.

Error Corrections (ASC 250) — Retrospective restatement or prospective correction depending on materiality and achievability. ASC 250-10-45-1 covers comparability and ASC 250-10-50 drives disclosure requirements.

Foreign Currency (ASC 830) — Functional currency determination and transaction vs. translation gains/losses. ASC 830-20-35-1 distinguishes remeasurement (functional currency ≠ reporting) from translation.

Discontinued Operations (ASC 205) — Classification criteria (held for sale, held for distribution). ASC 205-20-25-1 requires control and plan to dispose; ASC 205-20-45 covers presentation in income statement.

CPA Exam — Practical Example

Consider a typical FAR multi-topic scenario: Company A (US parent) acquires a subsidiary (ASC 805 acquisition accounting) that leases equipment (ASC 842 lease accounting) and recognizes revenue from long-term contracts (ASC 606).

Acquisition

Fair value of consideration: $5,000,000
Fair value of identifiable net assets: $3,200,000
Goodwill recognized: $1,800,000

Journal entry at acquisition:

Dr. Assets (net)           $3,200,000
Dr. Goodwill (ASC 350)     $1,800,000
  Cr. Cash / Equity        $5,000,000

Lease (lessee perspective, ASC 842-20-30-1)

Lease liability (present value of remaining $500k annual payments): $1,850,000
Right-of-use asset: $1,850,000

Dr. ROU Asset              $1,850,000
  Cr. Lease Liability      $1,850,000

Revenue (5-step model, ASC 606-10-05-1)

Performance obligation (3-year contract): $2,400,000
Recognized Year 1 (30% complete): $720,000

Dr. Accounts Receivable    $720,000
  Cr. Revenue (ASC 606)    $720,000

CPA Exam — Common Pitfalls

Misidentifying control in consolidation scenarios (ASC 810-10-25-38A). Candidates conflate voting interest > 50% with control. VIEs require primary beneficiary analysis—review power and economic exposure separately. Exam traps include passive investors in VIEs who are NOT primary beneficiaries.

Revenue recognition: Confusing contract assets with receivables (ASC 606-10-45-42). A contract asset arises when a performance obligation is satisfied before payment is due. Failing to distinguish these leads to incorrect balance sheet classification and disclosure misstatements.

Lease accounting: Forgetting to reassess at remeasurement events (ASC 842-10-35-3). Changes to lease terms, renewal options, or probability assessments trigger lease liability recalculation. Common trap: treating all lease modifications as new leases when only some qualify.

CPA Exam — Key Paragraphs

ASC 606-10-25-1 (revenue recognition criteria—5 steps)
ASC 842-20-30-1 (lessee ROU asset and liability measurement)
ASC 805-20-30-1 (acquisition-date fair values)
ASC 810-10-25-38A (primary beneficiary definition)
ASC 450-20-25-1 (contingency probable threshold)
ASC 740-10-30-16 (deferred tax gross vs. net presentation)

CPA Exam — US GAAP Topics Guide