CPA Exam · GAAP Reference

CPA Exam GAAP reference — key standards for FAR and BAR

FAR is the broadest CPA section, covering US GAAP, IFRS differences, and governmental accounting (GASB). BAR adds business analysis. This reference organises the highest-frequency ASC topics and GASB standards tested across both sections.

Revenue Recognition Lease Accounting Financial Instruments Business Combinations Governmental Accounting

Revenue Recognition — ASC 606

Step 1

Identify the contract with a customer (approval, commitment, rights, payment terms, commercial substance)

Step 2

Identify distinct performance obligations — each good/service that is separately identifiable and distinct on its own

Step 3

Determine the transaction price, including variable consideration (constrain to amount unlikely to reverse)

Step 4

Allocate transaction price using standalone selling prices; residual approach if SSP unobservable

Step 5

Recognise revenue when (or as) each performance obligation is satisfied — point-in-time vs. over time

Contract costs

Capitalise incremental costs of obtaining a contract (e.g., sales commissions) and amortise over expected period of benefit

Lease Accounting — ASC 842

Lessee — Operating

ROU asset + lease liability on BS; single lease cost (straight-line); no bifurcation of P&I on IS

Lessee — Finance

ROU asset (amortised) + lease liability (interest method); front-loaded IS charge

Finance lease criteria

Ownership transfer; purchase option reasonably certain; major part of economic life; substantially all of fair value; specialised asset

Initial measurement

Lease liability = PV of future payments; ROU asset = lease liability + initial direct costs + prepaid payments

Lessor classification

Sales-type, direct financing, or operating — same criteria but from lessor perspective; derecognise asset for sales-type

Short-term exemption

Leases ≤ 12 months: not on balance sheet; straight-line expense; disclose nature and amounts

Financial Instruments — ASC 320/321/326

Debt securities — HTM

Amortised cost; no FV adjustment; impaired only for CECL; intent + ability to hold to maturity

Debt securities — AFS

Fair value; unrealised gains/losses to OCI; reclassify to NI on sale or impairment

Debt securities — Trading

Fair value; unrealised gains/losses to net income immediately

Equity securities (ASC 321)

Fair value through NI (no AFS category for equity); practical expedient for non-marketable equity

CECL — ASC 326

Current Expected Credit Loss model: lifetime expected losses at origination; replaces incurred loss model

Derivatives (ASC 815)

Fair value through NI unless designated hedge; cash flow hedge — OCI; fair value hedge — both sides to NI

Business Combinations — ASC 805

Acquisition method

Only method under US GAAP; recognise identifiable assets + liabilities at fair value at acquisition date

Goodwill measurement

Goodwill = Consideration + NCI + FV of prior equity − FV of net identifiable assets

Goodwill impairment

Annual qualitative or quantitative test; write down if carrying amount > fair value; no amortisation (US GAAP)

Contingent consideration

Classify as liability (FV through NI) or equity (not remeasured); determine at acquisition date

Acquisition-related costs

Expensed as incurred (legal, advisory, due diligence); not part of purchase price

In-process R&D

Recognised as indefinite-lived intangible asset at acquisition date; tested for impairment annually

Governmental Accounting — GASB

Fund types

Governmental (General, Special Revenue, Capital Projects, Debt Service, Permanent); Proprietary (Enterprise, Internal Service); Fiduciary (Pension, Investment, Custodial, Private-Purpose)

Measurement focus

Governmental: current financial resources (modified accrual); Proprietary/Fiduciary: economic resources (full accrual)

GASB 34 financial statements

Government-wide: Statement of Net Position + Statement of Activities (full accrual). Fund: Balance Sheet + Statement of Revenues/Expenditures

Budget reconciliation

Reconcile GAAP fund balance to budget basis; explain encumbrances, timing differences, project-length budgets

Infrastructure assets

Modified approach: expense only maintenance keeping assets at set condition level; disclose targets and results

Pension (GASB 68)

Recognise net pension liability (NPL); actuarial assumptions; deferred outflows/inflows from plan changes

The research TBS — use the codification

Every CPA Exam section includes at least one research TBS requiring you to find the authoritative standard in the AICPA codification database. Practise navigating ASC structure (XXX-YY-ZZ) and searching by keyword. Knowing where to look is faster than memorising every paragraph. Practice CPA FAR questions →

What GAAP standards are most tested on the CPA Exam FAR section?

ASC 606 (Revenue Recognition), ASC 842 (Leases), ASC 350/360 (Intangibles/Impairment), ASC 320/321 (Investments), and ASC 805 (Business Combinations) are consistently high-frequency. Governmental accounting (GASB) is also heavily tested in FAR.

Is IFRS tested on the CPA Exam?

Yes, but with lower weighting than US GAAP. FAR and BAR include IFRS comparisons. Key IFRS differences: no LIFO, different lease classification, different impairment model (expected credit loss earlier under IFRS 9).

What is ASC 606 and why does it matter for the CPA Exam?

ASC 606 is the revenue recognition standard covering the 5-step model: (1) Identify contract, (2) Identify performance obligations, (3) Determine transaction price, (4) Allocate price, (5) Recognise revenue as obligations satisfied. It replaced ASC 605 and is heavily tested.

How is ASC 842 (leases) tested on the CPA Exam?

ASC 842 requires lessees to recognise a right-of-use (ROU) asset and lease liability for most leases. The CPA Exam tests initial measurement, subsequent amortisation, operating vs. finance lease classification, and lessor accounting.

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