CPA FAR common mistakes
CPA FAR · Understand the traps and how to avoid them.
Reads a cash-flow item (interest paid, interest received, dividends paid, dividends received) and assigns it to the operating section by reflex, without first checking which reporting framework the question specifies.
The candidate memorized the U.S. GAAP classification in one pass and never built an IFRS comparison, so the brain pattern-matches the word 'interest' to 'operating' before the framework cue is even processed.
What to do instead
Before answering any cash-flow classification item, draw three short columns on scratch paper - U.S. GAAP / IFRS / GASB - and fill in the four items (interest paid, interest received, dividends paid, dividends received). Answer only after locating the item in the correct column.
Computes diluted EPS by adding back the full convertible preferred dividend to net income while dividing by the full converted share count, or stops after the first dilutive security and never re-tests the remaining ones for antidilution.
Each convertible security is studied in isolation, so the cumulative, ordered procedure ('test each potential common share, most to least dilutive, and drop any that increases EPS') is never practiced as a single workflow.
What to do instead
Build a diluted-EPS schedule with one row per potential common share, ranked most to least dilutive. Recompute EPS after each row; any row that raises EPS is antidilutive and must be removed from numerator and denominator together.
Sees 'revenue' in a fact pattern and immediately books the cash received or the full contract price, skipping identification of distinct performance obligations and allocation of the transaction price.
Revenue is the highest-volume topic in FAR, so candidates develop a shortcut that jumps straight from 'contract exists' to 'record revenue' under time pressure.
What to do instead
Force the five steps in writing - contract, performance obligations, transaction price, allocation, recognition - and do not compute a single number until each step has one sentence next to it. If two obligations are distinct, allocate before recognizing anything.
Classifies a lease using only the 75%-of-useful-life and 90%-of-fair-value tests and ignores transfer of ownership, the purchase option, and the alternative-use criterion.
Those two thresholds are the only ones with round numbers, so they are the only criteria recalled quickly; the qualitative criteria are forgotten because they have no arithmetic attached.
What to do instead
Run a five-row checklist (ownership transfer, purchase option reasonably certain, term ≥ 75% of life, PV of payments ≥ 90% of fair value, no alternative use to lessor) writing yes/no beside each row, then re-run the list separately for the lessor, whose criteria differ.
Computes goodwill as consideration transferred minus 100% of the fair value of net identifiable assets even when NCI is measured at its proportionate share, producing goodwill that is overstated and internally inconsistent.
The partial-goodwill and full-goodwill models are learned back to back and blur together, so the NCI measurement choice and the goodwill formula get mixed.
What to do instead
Make the first line of the answer 'NCI measurement: fair value / proportionate share.' Then write goodwill = consideration transferred + NCI − fair value of net identifiable assets, inserting the same NCI figure that was chosen. If proportionate share, there is no goodwill attributable to NCI.
Records the entire tax effect of an unrealized available-for-sale gain, a pension prior service cost adjustment, or a translation adjustment through income tax expense.
Deferred taxes are drilled almost exclusively on depreciation and warranty differences, so candidates build a single reflex of 'deferred tax entry → income tax expense' and never link the temporary difference back to where the original item was reported.
What to do instead
For every book-tax difference, name the financial statement line the item originally hit. If it hit OCI or equity, the related deferred tax follows it to OCI or equity through a tax-effect entry and does not touch the tax provision.
Amortizes a bond premium or discount straight-line, or computes interest expense on the face amount instead of the carrying amount, particularly when issuance costs are present.
Straight-line is arithmetically easier and the discount/premium balance is mentally treated as a separate amortizing asset rather than as part of the carrying amount.
What to do instead
Write 'carrying amount × market rate = interest expense' as the first line, then 'face × stated rate = cash paid,' and take the difference as amortization. Fold issuance costs into the discount or reduce the premium before period one, and never amortize them separately on a straight-line basis.
Records property tax revenue when billed, or records a receivable for taxes collected more than 60 days after year-end, in a governmental fund.
This is the only place in FAR where revenue recognition turns on an availability rule rather than on a delivered good or service, so the instinct to record revenue when the tax is levied dominates.
What to do instead
For each governmental fund revenue, ask two questions: measurable? and available (collected within 60 days after year-end or in time to pay current-year liabilities)? Only yes/yes is revenue; otherwise it is a deferred inflow of resources. Write both words beside every revenue item.
Prepares the government-wide statement of activities by adding up fund-level totals, leaving capital assets, long-term debt, accrued interest, and interfund activity unconverted or uneliminated, and never reconciles fund balance to net position.
The fund statements and the government-wide statements look like two presentations of the same numbers, so the conversion layer is invisible unless it is deliberately written out.
What to do instead
Start from the governmental funds total and post a written conversion list: add capital assets net of accumulated depreciation, add long-term liabilities, back out capital outlay and debt principal as expenditures, accrue interest, eliminate internal service fund profit and interfund transfers. Finish by reconciling fund balance to net position line by line.
Applies private-sector FASB guidance - for example a material-right or contract-liability analysis, or the treatment of a donor-imposed condition on a contribution - to a state or local government fact pattern.
Most study hours go to for-profit standards, so on recognizing a transaction type the candidate reaches for the familiar FASB rule rather than first identifying which standard-setter governs the entity.
What to do instead
On every government question, first label the entity (governmental, GASB-governed) at the top of the scratch paper. Then answer only from GASB concepts - modified accrual, fund types, budgetary and encumbrance accounting, nonexchange transactions - and treat any FASB-flavored answer choice as a default distractor.