According to analyses of CPA exam results and student feedback, the list includes governmental accounting, not-for-profit accounting, consolidations (business combinations), pensions, revenue recognition, lease accounting, and even deferred income taxes.

These areas stand out due to their technical complexity and the fact that many candidates have less experience with them.

FAR’s vast scope means these topics may not be heavily covered in school curricula – for instance, governmental and nonprofit accounting often receive minimal coverage in college, leaving candidates unprepared when they appear on the exam.

In short, FAR isn’t considered the hardest CPA section for nothing: it demands deep understanding across diverse accounting frameworks.

Let’s dive into each of the top trouble areas:

Governmental accounting under GASB standards consistently ranks as one of FAR’s hardest topics.

Unlike business GAAP, it uses fund accounting and a modified accrual basis that many find counter-intuitive.

The logic and terms differ greatly from corporate accounting, so it’s easy to get confused if you approach it like “normal” accrual accounting.

• A major misconception is trying to apply full accrual concepts to governmental funds.
  
  

• In modified accrual, capital assets are not capitalized on fund statements – they’re expensed as expenditures when purchased (no depreciation expense in funds!).
  
  

• Similarly, long-term debt isn’t carried in fund balances; it’s recognized when issued and later paid with current resources.
  
  

• Revenue recognition has an “available” criterion (e.g. property taxes can be accrued only if collectible soon after year-end) which candidates often forget.
  
  

• Many errors stem from treating government funds like for-profit books – for example, attempting to record depreciation or failing to use the unique budgetary entries (encumbrances for commitments, etc.).
  
  

• Another frequent issue is not knowing the fund types and their uses. Governmental funds (General, Special Revenue, Capital Projects, Debt Service, Permanent) use modified accrual, while Proprietary and Fiduciary funds use full accrual – mixing these up leads to mistakes in exam questions.

• First, recognize that this is largely a memorization and understanding topic.
  
  

• As one source notes, governmental accounting tends to be tested at a basic understanding/application level (and usually via multiple-choice rather than complex sims).
  
  

• Focus on nailing the fundamentals: the fund categories, their measurement focus (current financial resources vs. economic resources), and which basis of accounting applies to each.
  
  

• It can help to create side-by-side comparison tables of fund accounting vs. normal accrual accounting – for example, compare how a purchase of a capital asset, or issuance of bonds, is recorded in a governmental fund versus government-wide statements.
  
  

• Emphasize the unique journal entries (like budget openings/closings and encumbrance accounting) – but don’t overwhelm yourself trying to memorize every possible entry; concentrate on the core “unique” ones like the budget, encumbrance, and closing entries for expenditures.
  
  

• Closer to exam day, drill practice questions on this topic to reinforce memory.
  
  

• Candidates often save Gov/NFP for last in their review; one successful approach is to intensively practice MCQs in the final week until you consistently score 75%+ on government accounting questions.
  
  

• This repeated exposure solidifies the terms and processes (since it’s not as logic-based, repetition is key).

• Don’t skip the AICPA Blueprint – it allocates about 5–15% of FAR to State & Local Government, which could translate to a substantial number of questions.
  
  

• The Blueprint also outlines tasks like reconciling fund financials to government-wide statements, so be prepared for those.
  
  

• For authoritative guidance, consider browsing GASB Statement 34 (which established the current reporting model) or GASB’s online summaries for a plain-English overview of fund financial statements.
  
  

• Don’t underestimate government accounting.

• It may be only 10% of the exam, but neglecting it can put a big dent in your score – with focused study, you can turn this former “shock” topic into easy points.
  
  
  
  

• Not-for-profit entities follow FASB standards (ASC 958), but have their own financial reporting nuances that often stump candidates.
  
  

• In fact, not-for-profit accounting is commonly cited among the hardest FAR topics as well.
  
  

• Part of the challenge is that NFP accounting falls somewhere between commercial and governmental accounting – it uses full accrual like businesses, but with unique elements (e.g. restrictions on net assets) and even some fund accounting concepts internally.
  
  

• Many candidates simply have never seen NFP financial statements until CPA study, leading to confusion.
  
  
  

• A big source of errors is misconception of terminology and treatment.
  
  

• Unlike a corporation with equity accounts, NFPs report net assets in two categories: with donor restrictions and without donor restrictions.
  
  

• Candidates may forget to reclassify net assets when restrictions are satisfied, or may confuse a donor-imposed restriction with a conditional promise (which doesn’t get recognized as revenue yet).
  
  

• Another frequent mistake is assuming not-for-profits use the same fund structure as governments.
  
  

• While internal accounting may use fund designations, external NFP financial statements are entity-wide and do not separate funds in the primary statements.
  
  

• As one candidate noted, there are “many nuanced differences” between NFP and governmental accounting despite both involving funds – failing to appreciate those differences can hurt.
  
  

• For example, NFPs follow FASB standards similar to businesses, so they do depreciate assets and accrue expenses in the normal way (unlike governmental funds).
  
  

• Mixing up rules from GASB vs FASB realms (e.g., trying to apply “available” revenue criteria to an NFP donation, or misclassifying an NFP expense by function vs nature) is a recipe for error.
  
  
  

• Master the net asset classification and contribution rules.

• These are central in NFP accounting.

• Make sure you understand when a donation is considered restricted and how it flows from revenue with donor restrictions to being “released” to without restrictions once conditions are met.
  
  

• It may help to memorize a simple rule: donor-imposed restrictions = initially increase restricted net assets; when spent for the purpose, release to without restriction.
  
  

• Also, learn the categories of program vs support expenses and how NFPs must present a statement of functional expenses.
  
  

• Practice identifying whether a scenario describes a conditional promise, an unconditional pledge, an exchange transaction, etc., because the accounting differs (conditional contributions aren’t recognized as revenue until the condition is substantially met, a point many miss).
  
  

• Work through some NFP financial statement examples – seeing a full Statement of Activities and Balance Sheet (Statement of Financial Position) for a non-profit can help you visualize how it all comes together (e.g., how donations, grants, expenses, and reclassifications appear).
  
  

• The FAR exam has been known to present task-based simulations where you must classify NFP transactions or prepare journal entries for contributions; being comfortable with the format can save you time.
  
  

• As with governmental, leverage mnemonic devices or comparison charts if that helps (for example, chart out how a $100,000 donor-restricted gift for a new building would be accounted for at each stage).

• The FASB Codification (ASC 958) is the ultimate guide for NFP accounting – you can use the free Basic View on FASB’s website to read key sections on contributions and net assets.
  
  

• Sometimes reading the actual standard, this clears up uncertainties about definitions (like what counts as a restriction or how endowments must be handled under UPMIFA).
  
  

• Practice questions are crucial here too; high-quality question banks will include plenty of NFP scenarios.

• Business combinations (consolidations) are a classic FAR nightmare for many.
  
  

• In surveys of candidates, consolidations often top the list of “most challenging concept” alongside governmental accounting.
  
  

• The consolidation process is multi-step and fraught with places to slip up: acquiring a subsidiary requires eliminating intercompany transactions, calculating goodwill or gains from a bargain purchase, and dealing with non-controlling interests (NCI), among other issues.
  
  

• The elimination entries are the crux of consolidation problems – and also where candidates make mistakes.
  
  

• It’s easy to forget which accounts to eliminate and which to adjust.
  
  

• For example, when a parent buys a majority of a subsidiary, you must remove the sub’s equity accounts entirely, eliminate the investment account, and recognize goodwill (or a gain) and NCI.
  
  

• Candidates who haven’t practiced this may omit parts of the entry or double-count something.
  
  

• Intercompany transactions are another minefield: unrealized profits on intercompany sales of inventory or fixed assets need to be eliminated, and many struggle with this concept.
  
  

• Adjusting cost of goods sold and inventory for an intercompany sale (upstream or downstream) is “very, very hard” for a lot of candidates – it requires careful analysis of what portion of profit is still in ending inventory and reversing it.
  
  

• Without a solid method, it’s easy to either over- or under-eliminate profits.
  
  Candidates also find it difficult in handling the non-controlling interest in the subsidiary.
  
  Remember, NCI represents the portion of the sub not owned by you, and it must be reported in equity and updated each period.
  
  Mistakes include miscomputing NCI’s share of net income or forgetting to report NCI on the consolidated balance sheet.
  
  Finally, push-down accounting adjustments (fair value adjustments at acquisition date) can trip you up – e.g., adjusting the sub’s assets to fair value and dealing with depreciation or amortization of those adjustments in subsequent periods.
  
  There’s a lot to juggle, and under exam pressure the complexity can cause panic.

• Start by understanding the big picture: consolidation is essentially combining two companies as if they are one economic entity.
  
  

• The mechanics (eliminations) all stem from that principle: you can’t report parent-subsidiary transactions with yourself, and the sub’s equity is replaced by the parent’s investment.
  
  

• Elimination journal entries to remember: eliminate Common stock, APIC, Retained Earnings of sub; eliminate Investment account; create Non-controlling interest; recognize Balance sheet adjustments to FV, Intangibles, and Goodwill). Learning a framework like this can give you a structured approach on exam day.
  
  

• Practice is critical: work through multiple consolidation problems of varying scenarios – 100% acquisitions, less-than-100% acquisitions, intercompany sales, intercompany bond holdings, etc.
  
  

• There’s no shortcut to building comfort with the process.

• When practicing, always tie it back to fundamentals: ask yourself, “What does this entry achieve in terms of presenting one unified set of financials?” If you find consolidations unintuitive, consider using a consolidation worksheet where you lay out the parent and sub trial balances and then systematically post elimination entries to see the consolidated result.
  
  

• This visual grid method helps many learners track the effects.

• Also, pay attention to dates and phases: e.g., what happens at acquisition date versus in subsequent years (consolidation involves one-time purchase accounting adjustments and then recurring eliminations each period).
  
  

• Make sure you can compute goodwill or gain on bargain purchase correctly (fair value of consideration vs FV of net assets acquired) and know how to treat contingent consideration or acquisition costs (commonly tested details).

• The authoritative guidance for this area is ASC 805 (Business Combinations) and ASC 810 (Consolidation).
  
  

• It may help to read a summary of these – for instance, the sections that outline how to account for a non-controlling interest (ASC 810) or the approach to identifiable intangibles in a purchase (ASC 805).
  
  
  

Pension accounting (particularly defined benefit pension plans) has a reputation for complexity.

Why is it so challenging?

• Mainly because it involves abstract concepts and several interrelated calculations: present values of future obligations, expected vs actual returns on plan assets, amortizations of deferred items, etc.
  
  

• Many candidates simply find it hard to wrap their heads around all the moving parts.
  

• One issue is that candidates approach pensions as a pure memorization exercise (the dreaded pension expense formula) without truly understanding each component.
  
  

• This can lead to mistakes like omitting a component of pension expense or using the wrong values.
  
  

• For example, under U.S. GAAP, pension expense comprises service cost, interest cost, expected return on plan assets, amortization of prior service cost, and amortization of net actuarial gain/loss (depending on corridor or other amortization). It’s easy to forget one of these pieces or confuse which items increase vs decrease expense.
  
  

• Additionally, there’s the Projected Benefit Obligation (PBO) vs plan assets and funded status to consider.
  
  

• Candidates might calculate pension expense correctly but fumble when asked for the pension liability to report (which is the PBO minus plan assets, i.e., funded status).
  
  

• If you don’t realize that an underfunded plan appears as a net liability on the balance sheet, you might erroneously list the wrong amount.
  
  

• The OCI component trips people up as well.

• Certain pension adjustments (like actuarial gains/losses and prior service cost) hit Other Comprehensive Income first and then get amortized – this layering of deferred costs is unique and can be confusing in a simulation where you must fill out portions of financial statements or make journal entries.
  
  

• Some also struggle with distinguishing defined benefit vs defined contribution plans (the exam is more focused on the former, but be clear that in defined contribution, the accounting is much simpler – contribution expense each year).
  
  

• Finally, if the exam throws an IFRS pension question, remember that IFRS has some differences (like past service cost expensed immediately and all actuarial gains/losses in OCI with no amortization).
  
  

• Mixing GAAP and IFRS rules could lead to incorrect answers.
  
  
  

• Break the topic down into a few key areas:
  
  (a) how the pension obligation is measured and changes?
  (b) how plan assets change?
  (c) calculation of pension expense, and
  (d) the financial statement presentation (balance sheet net asset/liability and what goes to OCI).
  
  

• For each area, ensure you understand the cause-and-effect.

• For instance, list out what increases PBO (service cost, interest, prior service cost from plan amendments, actuarial losses) and what decreases it (benefits paid, actuarial gains).
  
  

• Do the same for plan assets (contributions in increase assets, benefits paid out decrease them, actual return increases them).
  
  

• Mapping these flows can help you answer qualitative questions about, say, “What happens if actual return on plan assets is lower than expected?” or “How does a plan amendment affect the financial statements?”
  
  

• It might be useful to memorize the mnemonic “SIR AGE” for U.S. GAAP pension expense (Service cost, Interest cost, (expected) Return on assets, Amortization of prior service cost, (Gain)/Loss amortization, = Expense).
  
  

• Yet more importantly, understand why each component is included.
  
  

• For example, service cost is the core operating expense – the present value of new benefits earned by employees this year. Interest cost accrues on the existing obligation.
  
  

• Expected return is basically an offset against cost for the growth of plan assets (using expected smooth returns rather than volatile actual returns in GAAP).
  
  

• Recognize that the difference between expected and actual return is one source of actuarial gain/loss that goes to OCI.
  
  

• When you know the “why” behind each item, you’re less likely to mix them up under pressure.
  
  

• Work a couple of comprehensive pension sims or problems. These usually have you compute the pension expense or the funded status given various data.
  
  

• Practicing these will reveal if you keep forgetting a piece.

• Also practice journal entries: e.g., recording pension expense and showing the split between expense and OCI.
  
  

• It’s often helpful to approach pension questions systematically: write down the pension formula or the PBO/asset reconciliation as a framework, then plug the given numbers into their places (this reduces the chance of accidentally using, say, actual return in the expense calc instead of expected return, or vice versa).
  
  
  

• Refer to ASC 715 (Compensation – Retirement Benefits) for authoritative guidance.
  
  

• The Codification’s outline can clarify things like: what constitutes an actuarial gain/loss, or how corridor amortization works (if at all under updated standards – note that as of 2025, GAAP still allows smoothing via the corridor method, but the exam could also test simpler amortization approaches).
  
  

• Some candidates find value in outside resources like employer benefit plan financial statements or even their old intermediate accounting textbooks for pensions – these can provide another explanation that might click.
  
  

• Don’t overlook the value of flashcards or quick drills for this topic. For instance, make flashcards for key formulas (PBO formula, pension expense formula) or definitions (what is a prior service cost? what is a corridor?). These help reinforce your recall.
  
  

• Also, leverage any practice questions from your review course – pensions are commonly tested in MCQs, sometimes in very theoretical ways (e.g., asking which assumptions will affect the PBO calculation).
  
  

• The more question types you see, the more confident you’ll get.

• Finally, keep in mind that while pensions are complex, they are also somewhat formulaic. Once you memorize and understand the “small parts” and formulas, you’re in good shape.
  
  

• With diligent practice, you can demystify pensions and be ready for whatever related question FAR throws at you.
  
  
  

• The new Revenue Recognition standard (ASC 606) was a game-changer in accounting, and it has also become a focal point on the FAR exam.
  
  

• Candidates often struggle with this topic because it’s principles-based and scenario-driven.
  
  

• FAR questions can require you to apply the five-step model to a complex contract, and there are many places to go wrong.
  
  

• Revenue recognition consistently shows up in lists of difficult FAR topics, and examiners consider it highly important (it’s a core part of financial reporting that nearly every company deals with).
  
  
  

• A frequent mistake is not fully identifying performance obligations in a contract.
  
  

• Step 2 of the model requires parsing the contract for distinct goods or services.
  
  

• Candidates sometimes overlook a distinct obligation (for example, a “free” service that is actually part of the sale, like a software license that comes with free upgrades – the upgrades are a separate obligation).
  
  

• Missing one obligation will throw off the entire accounting.

• Another area of confusion is determining when to recognize revenue – over time or at a point in time.
  
  

• The criteria for recognizing revenue over time (such as the customer simultaneously receiving benefits, or creation of an asset with no alternative use) must be understood; otherwise candidates may default to assuming point-in-time recognition when over-time is appropriate, or vice versa.
  
  

• Allocating the transaction price (Step 4) also causes trouble, especially if there are variable considerations or discounts.
  
  

• For instance, if a contract includes a bonus for early delivery (variable consideration), candidates might forget to apply the constraint on variable consideration or to use the correct expected value vs. most likely amount approach. Or if there’s a bundle discount, you need to allocate that discount to the performance obligations based on their standalone selling prices – a lot of examinees trip up by just dividing price evenly or by delivered items only, instead of the proper proportional allocation.
  
  

• Furthermore, ASC 606 introduced new terminology that can be confusing: contract asset vs receivable, contract liability (which is essentially deferred revenue).
  
  

• Not recognizing what these terms mean in context can lead to wrong answers.
  
  

• For example, if a question asks about the journal entry when payment is received in advance for a service, the correct handling is to increase cash and a contract liability (deferred revenue), but a candidate unfamiliar with the term might incorrectly think it should be some sort of receivable or revenue at that point.
  
  

• Finally, prior GAAP vs current GAAP confusion can occur.

• If you learned the old “earned and realized” criteria or industry-specific guidance, flush that out – the exam expects you to apply the five-step model now.
  
  

• Clinging to old rules like completed-contract vs percentage-of-completion (which were superseded by ASC 606) could lead to mistakes if, say, you default to percentage-of-completion thinking every long-term contract is recognized over time.
  
  

• Under ASC 606, it has to meet certain criteria to use over-time recognition.
  
  
  

Make sure you know the five steps cold:

(1) Identify the contract
(2) Identify performance obligations (POBs)
(3) Determine transaction price
(4) Allocate price to POBs
(5) Recognize revenue when/as each POB is satisfied.

For each step, understand the judgments involved.

For example, Step 3 could involve estimating variable consideration – review how to do that (expected value vs most likely amount) and the idea of constraining revenue if it’s not probable that there won’t be a significant reversal.

• The text of ASC 606 itself is extensive, but you might benefit from reading the Basis for Conclusions or an overview article (the Big 4 have good guides on the revenue standard) to understand the intent behind the rules.
  
  

• AICPA has published plenty of review materials and even questions in their sample tests covering revenue recognition – ensure you do those.
  
  

• In authoritative literature research questions, you might be asked to find guidance in the Codification about revenue (so practice navigating the FASB Codification for ASC 606 sections).
  
  

• For practice, the Big 4 firm websites often have free case studies or examples applying ASC 606 that mirror FAR exam scenarios.
  
  

• Take it step by step (literally five steps!), and it will start to click.
  
  

Lease accounting underwent a significant overhaul with ASC 842, and it remains a challenging area for FAR candidates.

Students often cite leases (particularly lessee accounting) as one of the hardest parts of FAR.

The new standard requires putting most leases on the balance sheet, which introduced new concepts like the Right-of-Use (ROU) asset and made the classification criteria trickier to navigate.

Moreover, leases combine elements of present value math, classification judgment, and dual perspectives (lessee vs lessor) – a lot to juggle in one topic.

• Under the new rules, lessees must record an asset and liability for nearly all leases (except short-term leases), but candidates sometimes misunderstand the difference between a finance lease and an operating lease for a lessee.
  
  

• A common mistake is thinking operating leases don’t go on the balance sheet – under ASC 842, they do.
  
  

• The difference is in how expense is recognized (finance leases have interest and amortization expense, whereas operating leases have a single straight-line lease expense).
  
  

• If you forget this, you might miscalculate the expense or the balance sheet values for an operating lease.
  
  

• Another tricky point is the criteria for lease classification.

• The exam expects you to know the 5 criteria (transfer of ownership, purchase option likely to be exercised, lease term is major part of asset life, PV of payments is substantially all of asset’s fair value, or specialized asset with no alternative use).
  
  

• Candidates sometimes misremember thresholds (e.g., “major part” 75% of life, “substantially all” 90% of value under old guidance – while these bright lines aren’t explicitly stated in ASC 842, the old benchmarks can guide your thinking).
  
  

• Missing a criterion can lead to classifying a lease incorrectly in a question.
  
  

• For example, if a question subtly indicates a bargain purchase option exists, that lease should be a finance lease – a candidate not attuned to that detail might wrongly classify it as operating.
  
  

• The present value calculations required for leases can also trip up students.
  
  

• You need to discount future lease payments to record the liability – choosing the correct discount rate (implicit rate if known, otherwise incremental borrowing rate) is crucial.
  
  

• Some candidates use the wrong number of periods or forget that if a lease payment is due at the lease commencement (beginning of period), the calculation differs (no discount on the first payment).
  
  

• In fact, some students confuse in lease questions often when the first payment is due – if due at signing, you handle it as an immediate reduction of the liability (or an initial direct deduction from ROU asset).
  
  

• For lessor accounting, there are pitfalls too, like determining if it’s a sales-type lease vs operating lease.
  
  

• If the exam presents a lessor question, ensure you know that if any of the finance lease criteria are met from the lessor’s perspective (plus collectability probable, etc.), it’s a sales-type lease for the lessor with a profit recognition upfront.
  
  

• Candidates might mistakenly treat a sales-type lease as operating or vice versa if they only studied lessee side.
  
  
  

• First, get very clear on the lease classification criteria. It might help to memorize a mnemonic (OLD GAAP had “OWNS” for the four tests; for ASC 842 you can use a similar idea, just adding the no-alternative-use criterion).
  
  

• Do a few examples of classifying: e.g., 5-year lease of a 5-year asset – clearly finance; 2-year lease of a 10-year asset with no transfer – clearly operating; a lease with a bargain purchase option – finance, etc.
  
  

• Being able to classify quickly will help on multiple-choice questions.
  
  

• Next, practice the journal entries and amortization schedules. For a lessee: at commencement, debit ROU asset, credit lease liability (present value of payments).
  
  

• Then each payment period: for finance lease, record interest expense and amortize the ROU asset; for operating lease, record a single lease expense but still reduce the liability and amortize the asset in a way that yields straight-line expense.
  
  

• Actually writing out an amortization table for a sample finance lease and an operating lease (with numbers) is extremely instructive.
  
  

• It illuminates how the liability reduces and how the expenses are recognized.
  
  

• If you can produce those numbers, you’re well-equipped for any calculation question.
  
  

• Also, study the special cases: short-term leases (you can elect to not capitalize, just expense – know that threshold is 12 months or less), variable lease payments (only include certain ones in the liability), and modifications or lease term reassessments (just in case the exam asks conceptual questions on how a modification might be handled).
  
  

• Sale-leaseback accounting is another area that could be tested – ensure you know the criteria for when a sale is recognized vs when it’s essentially a financing.
  
  

• Since ASC 842 is relatively new, the AICPA exam blueprints have placed emphasis on it.
  
  

• Use the AICPA’s sample questions and practice exams, which often include a lease question.
  
  

• For authoritative text, ASC 842 sections (for example, the summary and the implementation examples in the Codification) are helpful for understanding the logic – they state that virtually all leases go on the balance sheet and explain the dual expense approach for lessees. 
  
  

• One tip: incorporate some PV calculation practice into your study routine (perhaps using the finance calculator or Excel, since on the exam you’ll have an on-screen calculator and Excel).
  
  

• Being quick and accurate with present value will save time and avoid errors.
  
  

• You might also use flashcards for the criteria and key definitions (e.g., what counts as a lease term? What are initial direct costs? etc.).
  
  

• Also, keep in mind IFRS – IFRS 16 doesn’t classify leases for lessees (all leases capitalized like finance leases).
  
  

• Sometimes an exam question will test that difference in a single MCQ.
  
  

• Knowing that could fetch you an easy point while others struggle.
  
  

• Overall, lease accounting is complex but very rule-based.

• Once you learn the rules and practice their application, you’ll find that leases become a strength rather than a weakness.
  
  

Accounting for income taxes (deferred tax assets and liabilities) is another technically difficult area that FAR examinees consistently find challenging.

This topic requires you to connect the accounting world with the tax world, and to project future tax effects of current transactions – a task that can feel abstract.

The calculations and classifications (current vs deferred, asset vs liability) can be tricky, and many candidates are less familiar with tax nuances if they focused on financial accounting in school.

• The primary source of confusion is distinguishing temporary differences vs permanent differences and understanding their impact.
  
  

• A classic mistake is treating a permanent difference (like municipal bond interest, fines, or meals & entertainment disallowance) as if it creates a deferred tax item – it doesn’t.
  
  

• Only temporary differences (those that reverse over time) lead to deferred tax assets/liabilities, but under exam pressure candidates sometimes include permanent differences in their deferred tax computation, which is wrong.
  
  

• Even with temporary differences, calculating the deferred tax liability (DTL) or deferred tax asset (DTA) can be tricky.
  
  

• Candidates might fail to identify all sources of differences.

• For example, if given a list of book vs tax differences, one might overlook an item like bad debt expense vs tax write-offs, or depreciation differences.
  
  

• Missing one will yield an incorrect net DTL/DTA.

• Another frequent error is using the wrong tax rate – you must use the enacted future tax rate for the years the difference will reverse. If a change in tax law is given (say, the tax rate will drop next year), the deferred taxes should be calculated at the new rate.
  
  

• Overlooking that detail leads to an incorrect amount.

• There’s also confusion in presentation: candidates sometimes get mixed up about what goes into income tax expense on the income statement (it comprises current tax expense and deferred tax expense).
  
  

• For instance, if asked for “income tax expense” many will just compute the current tax payable, forgetting to include the effect of changes in deferred taxes.
  
  

• Additionally, understanding the concept of a valuation allowance for deferred tax assets can be tough.
  
  

• The exam might test whether you know that if it’s more likely than not a portion of a DTA won’t be realized, you must reduce it with a valuation allowance (and hit expense).
  
  

• Some might ignore that requirement or not realize a DTA net of valuation allowance is what’s reported.
  
  

• Finally, candidates can be tripped up by the balance sheet classification (all deferred taxes are non-current under ASU 2015-17) or by the idea that DTAs and DTLs are netted by jurisdiction.
  
  

• While the latter details are less likely to be tested heavily, they’re good to know to avoid distraction by answer choices (e.g., an answer trying to split current vs non-current deferred taxes would be incorrect under current GAAP).
  
  

• Approach deferred taxes step by step.

• One proven method is to set up a worksheet of book vs tax income: list your pretax book income, then list adjustments for each difference to get to taxable income.
  
  

• This helps ensure you consider everything.

• For each temporary difference, determine when it will turn around (reverse) and whether that will result in taxable amounts or deductible amounts in the future.
  
  

• If a book expense is higher than tax expense now (e.g., book depreciation > tax depreciation in early years), that means in later years book expense will be lower than tax (the difference reverses), causing taxable income to be higher relative to book income in future – which is a deferred tax liability (future taxable amounts).
  
  

• Train yourself with a few examples to identify whether a difference creates a DTL or DTA.
  
  

• A useful tip: if a book deduction is taken before tax (like an estimated bad debt expense recorded in books now, tax-deductible only when written off later), that’s a future tax deduction foregone -> a DTL now (pay more tax now, save later).
  
  

• Conversely, if you pay tax now on income that isn’t on the books yet (e.g., an unearned revenue taxed on cash basis), that’s a DTA (you paid more tax upfront, will pay less later when book catches up).
  
  

• Developing this intuitive sense prevents rote mistakes.

• Memorize and understand some common temporary differences: depreciation (usually DTL), warranty expense or bad debts (usually DTA), prepaid expenses (DTL), installment sales (DTL), accrued expenses not deductible until paid (DTA), etc.
  
  

• You might make flashcards for these to drill which side they fall on. Also, practice scenarios involving net operating losses (NOLs) if applicable – since under current tax law NOLs can create a DTA that may only offset 80% of future taxable income, the exam could test your ability to compute an NOL carryforward’s DTA and whether a valuation allowance is needed.
  
  

• Work a comprehensive example where you calculate current tax expense, deferred tax expense, and total tax expense. For example, book income $100k, taxable income $120k (due to some temporary differences) at 21% tax rate: current tax = $25.2k, but maybe there was a deferred tax benefit from those differences of say $4.2k, so total tax expense = $21k.
  
  

• Being comfortable moving between those components will help in sims or conceptual questions (like asking “if taxable income exceeds book income by X due to one temporary difference, what is the effect on deferred taxes?” etc.).
  
  
  

• ASC 740 (Income Taxes) is the key standard.

• It’s quite dense, but focus on sections dealing with recognition and measurement of deferred taxes.
  
  

• The Codification also has examples – reading one of those might clarify the process.
  
  

• The AICPA has published questions that involve analyzing a schedule of differences – definitely practice those.
  
  

• One more resource angle: the IRS tax rules themselves aren’t directly tested, but understanding basic tax concepts can help (for FAR, you don’t need deep tax knowledge – that’s more for REG – but you should know things like depreciation methods differences, what types of expenses are nondeductible, etc.).
  
  

• Sometimes reviewing a summary of tax vs GAAP differences (perhaps from a REG study unit) can solidify your understanding of what causes deferred taxes.
  
  

• Above all, don’t get discouraged – deferred tax questions can be wordy and tricky, but if you have a systematic approach (list differences, apply tax rate, sum to get DTA/DTL and plug into tax expense formula), you can get them right.
  
  

• Double-check the details (rates, future changes, valuation allowances) and you’ll be ahead of the curve on this notoriously tough topic.

FAR’s most difficult topics – governmental, not-for-profit, consolidations, pensions, revenue recognition, leases, and deferred taxes – may seem intimidating, but they are far from insurmountable.

By understanding common pitfalls (so you can avoid them) and applying focused study techniques, you can significantly improve your performance in these areas.

Use authoritative guidance (like the FASB Codification and GASB standards) to clarify tricky points and reinforce your learning with lots of practice.

Remember that every CPA candidate struggles with something on FAR; what sets successful candidates apart is how they respond to those struggles.

Be proactive in addressing your weak spots, utilize the wealth of resources at your disposal, and stay persistent.

With an informed, methodical approach, you’ll be able to walk into the FAR exam confident in even the toughest technical topics – and ready to earn that passing score.