Financial Reporting
30-40%of exam
Select Balance Sheet Accounts
30-40%of exam
Select Transactions
25-35%of exam
Revenue RecognitionLeasesBusiness CombinationsDeferred TaxesPensions & Stock Comp
Quick Facts
- Exam
- FAR
- Credential
- CPA (AICPA/NASBA)
- Time
- 4 hours
- Format
- 50 MCQ + 7 TBS
- Score Weight
- 50% MCQ / 50% TBS
- Pass
- 75 of 99
- Level
- CPA Core section
- Blueprint
- Jan 1, 2026
GASB 54 Fund Balance Order
Nonspendable, restricted, committed, assigned, unassigned
Nonspendable: not in spendable formRestricted: externally imposed limitsCommitted: self-imposed by boardAssigned: intended use, less formalUnassigned: General Fund residual only
Governmental Funds vs Government-wide
Fund statements
- Modified accrual basis used
- Current financial resources focus
- Five fund balance categories
Government-wide statements
- Full accrual basis used
- Economic resources measurement focus
- Net position categories reported
Fund view vs entity view
Held-for-Sale vs Discontinued Ops
- Sale probable within one year→Classify held for sale
- Held for sale asset→Stop depreciating, lower of cost
- Major strategic shift disposed→Report discontinued operations
- Minor component disposed→Report in continuing operations
Core Financial Statements
- Balance Sheet
- Point-in-time position
- Income Statement
- Period performance result
- Statement of Cash Flows
- Operating, investing, financing sources
- Statement of Equity
- Owners' claims rollforward
- OCI
- Unrealized gains, translation, pension
- Discontinued Operations
- Major strategic shift disposal
- Error Correction
- Restate prior periods
- Subsequent Events
- Recognized vs disclosed only
Governmental (GASB) Accounting
- Modified Accrual
- Governmental funds basis
- Full Accrual
- Government-wide basis
- Fund Balance Categories
- Nonspendable to Unassigned
- Encumbrances
- Committed but unspent
- General Fund
- Only fund with Unassigned
- GASB 34
- Government-wide reporting model
- GASB 54
- Fund balance classifications
- MD&A
- Required supplementary analysis
Not-for-Profit (ASC 958)
- With Donor Restrictions
- Time or purpose limited
- Without Donor Restrictions
- Board-designated or unrestricted
- Functional Expenses
- Program vs support activities
- Natural Expenses
- Salaries, rent, supplies
- Contributions
- Unconditional means recognize now
- Conditional Promise
- Barrier plus release condition
- Endowment
- Donor-restricted, often permanent
SEC & Interim Reporting
- Form 10-K
- Annual SEC report
- Form 10-Q
- Quarterly SEC report
- Regulation S-X
- SEC financial statement rules
- Interim Reporting
- Integral part of year
- Segment Reporting
- CODM operating segments
- 10% Test
- Reportable segment threshold
Treasury Stock Method Steps
Assume exercise, use proceeds to buy back shares
Assume options are exercisedProceeds buy back sharesNet incremental shares addedOnly if dilutive to EPS
FIFO vs LIFO
FIFO
- Oldest costs expensed first
- Higher net income, rising prices
- Approximates current balance sheet value
LIFO
- Newest costs expensed first
- Lower taxes, rising prices
- LIFO conformity rule required
Cost flow assumption differs
Inventory Method & LCM Picker
- Using LIFO or retail method→Apply LCM test
- Using FIFO or weighted avg→Apply LCNRV test
- Prices rising, want higher NI→Choose FIFO
- Prices rising, want lower taxes→Choose LIFO
- Costs fluctuate frequently→Choose weighted average
Inventory Costing
- FIFO
- Oldest costs expensed first
- LIFO
- Newest costs expensed first
- Weighted Average
- Blended unit cost
- LCM
- LIFO/retail replacement cost floor
- LCNRV
- Other methods net realizable value
- NRV
- Selling price minus costs
- LIFO Conformity
- Tax LIFO requires book LIFO
LCM vs LCNRV
LCM (LIFO/retail)
- Compares to replacement cost
- Floor and ceiling limits apply
- Market-bounded test
LCNRV (other methods)
- Compares to net realizable value
- No floor or ceiling
- Simpler one-step test
Method used drives which test
PP&E & Depreciation
- Straight-Line
- Equal expense each year
- Double-Declining Balance
- Accelerated, ignores salvage initially
- Units of Production
- Usage-based expense
- Impairment Test
- Carrying value vs fair value
- ARO
- Future retirement cost liability
- Held for Sale
- Stop depreciating, lower of
- Componentization
- Depreciate significant parts separately
Basic vs Diluted EPS
Basic EPS
- NI minus preferred dividends
- Weighted average shares outstanding
Diluted EPS
- Adds dilutive potential shares
- Treasury stock method for options
- If-converted method for bonds
Actual vs potential shares
Intangibles & Goodwill
- Finite-Life Intangible
- Amortize over useful life
- Indefinite-Life Intangible
- No amortization, test impairment
- Goodwill
- Never amortized, test yearly
- Qualitative Test
- Optional goodwill impairment screen
- Quantitative Test
- Compare fair value to carrying
- Research Costs
- Expense as incurred
- Development Costs
- Capitalize if criteria met
Bonds & Long-Term Debt
- Bond Premium
- Issue price above face
- Bond Discount
- Issue price below face
- Effective Interest Method
- Required amortization approach
- Carrying Value
- Face plus/minus unamortized amount
- Debt Issuance Costs
- Contra-liability, amortized
- Convertible Debt
- No bifurcation (ASU 2020-06)
- Troubled Debt Restructuring
- Modification or settlement gain
Investments & Receivables
- CECL (ASC 326)
- Lifetime expected credit losses
- AFS Debt Securities
- Fair value through OCI
- Equity Method
- 20-50% significant influence
- Fair Value Option
- Elect FV for eligible assets
- Equity Securities
- FV through net income
- Allowance Method
- Estimate uncollectible receivables
Equity & EPS
- Treasury Stock (Cost)
- Contra-equity, no gain/loss
- Basic EPS
- NI minus preferred div/shares
- Diluted EPS
- Add dilutive potential shares
- Treasury Stock Method
- Options/warrants dilution calc
- If-Converted Method
- Convertible bonds/preferred dilution
- Antidilution Test
- Exclude if EPS increases
ASC 606 Five Steps
Contract, obligations, price, allocate, recognize
1: Identify the contract2: Identify performance obligations3: Determine transaction price4: Allocate the price5: Recognize revenue earned
Finance vs Operating Lease
Finance lease
- Meets 1 of 5 criteria
- Interest plus amortization expense
- ROU asset amortized separately
Operating lease
- Meets none of 5 criteria
- Single straight-line lease expense
- Total cost recognized evenly
Ownership-like vs rental-like cost
Lease Classification (OWNES)
- Ownership transfers by end→Finance lease
- Written bargain purchase option→Finance lease
- Term ~75% or more of life→Finance lease
- PV ~90% or more of FV→Finance lease
- Specialized asset, no alt use→Finance lease
- None of above criteria met→Operating lease
- Term 12 months or less→Short-term expense election
Revenue Recognition (ASC 606)
- Step 1
- Identify the contract
- Step 2
- Identify performance obligations
- Step 3
- Determine transaction price
- Step 4
- Allocate price to obligations
- Step 5
- Recognize revenue when satisfied
- Principal
- Controls good, recognize gross
- Agent
- Arranges only, recognize net
- Over Time
- Input/output progress method
OWNES Lease Criteria
Ownership, written option, ninety percent, economic life, specialized
O: Ownership transfersW: Written bargain optionN: Ninety percent of FVE: Economic life ~75%S: Specialized asset
Equity Method vs Consolidation
Equity method
- 20-50% ownership stake
- Significant influence, not control
- One-line investment balance
Consolidation
- Over 50% control or VIE
- Line-by-line combination of accounts
- NCI reported separately
Influence vs control test
Revenue Timing & Principal/Agent
- Control transfers over time→Recognize over time
- Control transfers at delivery→Recognize point in time
- Entity controls good/service→Principal, recognize gross
- Entity arranges for others→Agent, recognize net fee
- Variable consideration exists→Constrain estimate to probable
Leases (ASC 842)
- Finance Lease
- Meets 1 of 5 criteria
- Operating Lease
- Meets none of 5 criteria
- ROU Asset
- Right-of-use, both types
- Lease Liability
- PV of lease payments
- Short-Term Election
- 12 months or less, expense
- Sale-Leaseback
- Sale plus leaseback of asset
- Finance Expense
- Interest plus amortization split
DTA vs DTL Direction
Deduct now equals DTA; taxed now equals DTL
Warranty expense now = DTANOL carryforward = DTAAccelerated depreciation = DTLPrepaid income received = DTL
Permanent vs Temporary Differences
Permanent differences
- Never reverses over time
- Municipal bond interest example
- Affects effective tax rate only
Temporary differences
- Reverses in future periods
- Creates a DTA or DTL
- Depreciation timing is common example
Permanent skips deferred tax
Consolidation Model Picker
- Entity is a VIE→Apply VIE model
- Power plus absorbs losses/benefits→Consolidate as primary beneficiary
- Over 50% voting control→Consolidate under voting model
- 20-50% ownership, influence→Equity method
- Under 20%, no influence→Fair value or AFS
Business Combinations & Consolidation
- Acquisition Method
- Only method allowed (ASC 805)
- Goodwill
- Price paid minus fair value
- Bargain Purchase
- Gain recognized immediately
- NCI
- Reported at fair value
- VIE Model
- Power plus losses/benefits test
- Voting Model
- Over 50% ownership control
- Primary Beneficiary
- Consolidates the VIE
Income Taxes (ASC 740)
- Temporary Difference
- Creates DTA or DTL
- Permanent Difference
- Affects ETR only
- DTA
- Future deductible amount
- DTL
- Future taxable amount
- Valuation Allowance
- MLTN not realizable
- UTB
- Uncertain tax position reserve
- NOL Carryforward
- Offsets future taxable income
Pensions & Stock Compensation
- PBO
- Projected benefit obligation
- Funded Status
- Plan assets minus PBO
- Service Cost
- Only operating-income component (ASU 2017-07)
- OPEB
- Other postretirement benefits
- Grant-Date Fair Value
- Stock comp measurement date
- Vesting Period
- Expense recognized over service
Common Traps
LCM ≠ LCNRV Method Scope
LIFO/retail: apply LCM test ≠ FIFO/avg: apply LCNRV test
Permanent ≠ Temporary Tax Differences
Permanent: no deferred tax impact ≠ Temporary: creates DTA or DTL
Equity Method ≠ Consolidation Scope
20-50%: one-line equity balance ≠ Over 50%: full line consolidation
Finance Lease ≠ Operating Lease
Finance: interest plus amortization expense ≠ Operating: single straight-line expense
Fund Basis ≠ Government-wide Basis
Funds: modified accrual basis ≠ Government-wide: full accrual basis
Basic EPS ≠ Diluted EPS
Basic: actual shares outstanding only ≠ Diluted: adds potential dilutive shares
Goodwill ≠ Identifiable Intangibles
Goodwill: never amortized, tested yearly ≠ Intangibles: amortized if finite life
VIE Model ≠ Voting Model
VIE: power plus risk test ≠ Voting: over 50% ownership test
Last Minute
- 1.Weights: 30-40 / 30-40 / 25-35
- 2.ASC 606: 5 steps to revenue
- 3.ASC 842: 5 criteria means finance
- 4.LIFO/retail uses LCM; others LCNRV
- 5.Book-first expense creates a DTA
- 6.Book-first income creates a DTL
- 7.Goodwill tested yearly, never amortized
- 8.Diluted EPS adds convertibles, options
- 9.GASB 54: 5 fund balance types
- 10.NFP: with vs without donor restriction
- 11.Test VIE model before voting model
- 12.TBS equals 50% of FAR score
- 13.Pass score is 75 of 99
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