achieving depth

Common Myths About the CFE Exam

Hey everyone,

We’ve now reached that special time of the year for those writing the upcoming CFE exam…study season!

What I find interesting about this time of the year is that emotions are really mixed among students: some of you are laid back because you took some vacation before Capstone 2, some of you are excited to get into case-writing mode and making study groups, and others are already pulling out their hair.

Back in July 2016, I was one of those people pulling out their hair. And one of the main reasons why was because, like many of you, I had a tendency to pay very close attention to what other candidates were saying. What bothered me the most was that there was very little consistency across the “words-of-mouth.” For example, I heard that some CFE Honour Roll student out there would recommend taking three months off to study, some other successful writer would recommend taking only three weeks off, others would say that I should take at least a month off, and so on.

The truth in all of this is that while you will all be writing the same standardized exam, you are all individually unique in your abilities. Coming from a guy who spent two full years in the CFE process, the best advice I can give you if you’re already doubtful on how to prepare for the exam is to focus on yourself: make a plan that’s tailored to your own performance level. And there are many good CFE tutors out there who can help you figure out your unique “performance level” at this stage in the game (I’d be happy to get you in touch with them if you feel you need the help).

The purpose of this article is to address 5 common myths I repeatedly hear from CFE candidates each year (related to my point above about the inconsistent “words-of-mouth” statements I just mentioned), hoping that it can ease the anxiety that some of you may be experiencing right now.

 

Myth #1: You automatically fail Level 1 on Days 2 & 3 if you score NA or NC on an assessment opportunity.

Truth: false.

If CPA Canada were to do this, you would be looking at pass rates at less than 20%, if not less. I must stress again that this is a standardized exam, based on relative grading. Given how Day 3 is structured with very minimal time for each assessment opportunity across the cases, it is very common for candidates to run out of time to address an assessment opportunity, even at an RC-level. Even looking back at the 2017 CFE Board report myself (which was the year I passed), I can tell that there were a few assessment opportunities that I likely scored NA or NC.

With this being said, you still need to be very cautious about scoring NCs and NAs in your cases. You must keep in mind that Level 1 is still the most common level in which CFE candidates fail. CPA Canada assess passing level 1 as to whether “the aggregate competency was demonstrated sufficiently.” What this means is that you still need to achieve a certain number of RCs and Cs across Days 2 and 3 to pass this exam, and this number is based on how all other candidates score.

My recommendation: minimize the risk of failing. Still aim to score a C-level response in your practice cases and on the actual exam. However, do not beat yourself up (like I did) if you score NC or NA on an assessment opportunity here and there.

 

Myth #2: The markers care more about quantitative responses than they do qualitative responses for Days 2 & 3.

Truth: false.

The CPA Board of Examiners is not interested in inviting strict number-crunchers to the profession. Their goal is to bring in people who are well-rounded both in technical abilities and in the enabling competencies. This is why they would only give an RC (at best) to candidates in an assessment opportunity that requires a qualitative discussion, even if the quantitative portion is excellent.

As you proceed with debriefing your Day 2 & Day 3 cases during the study season, you will often see in the simulated marking guides that you MUST have some qualitative discussion in your response to bring your response from an RC to a C. Sometimes, you may even see that the solutions carve out the qualitative discussion as a separate assessment opportunity, so missing out on qualitative discussions may increase the risk of you failing on Level 1.

My recommendation: allocate at least 40 to 50% of your time on each assessment opportunity to have a qualitative discussion, and make sure that you stick to this time allocation. This is a great thing to try as you attempt the practice exams. Furthermore, don’t be fooled by assessment opportunities that only ask you to calculate something; there’s always something qualitative that applies to a calculation (such as impact the result will have on your client’s operations), and including this in your response will help you bring it up to a C-level.

 

Myth #3: Practicing with old UFE cases is sufficient enough to prepare for the CFE.

Truth: false.

I know this myth is going to raise some eyebrows.

Practicing old UFE cases should definitely be part of your study plan, as there is a lot you can learn from them – not only case writing techniques but also technical content (assuming you are debriefing well, which I’ll elaborate on below). Even for Capstone 2, most of the cases that CPA will provide you are derived from these old UFE cases.

However, I strongly believe that practicing old UFE cases alone is insufficient preparation. For CFE Day 1, the exam response format you’re expected to use, and method of evaluation, is nothing like what was offered in the old UFE (as it was derived from the former CMA exam program). For CFE Day 2, the exam question structure on the former Day 1 “comp” cases is somewhat similar if your elected depth role is assurance; however, the difference lies in the fact the old UFE comp-cases focused on all technical competency areas rather than just financial reporting, management accounting & your selected depth role. Lastly, for CFE Day 3, the old UFE “multi” cases generally had fewer assessment opportunities (i.e. 3 to 4 per case) compared to the CFE Day 3 cases, which have anywhere between 6 to 8 assessment opportunities per case. Ultimately, this means that you need to be a lot more careful with time allocation across the assessment opportunities.

My recommendation: to minimize the “shock” factor when writing the actual CFE, try to include cases from the prior CFE offerings (i.e. year 2015 & onwards) throughout your study period. You may also be able to obtain decent “mock Day 3” cases from third party CPA prep program providers. Whether you want to try these types of cases at the beginning, at the end, or spread evenly across your study period, that’s up to you. My personal preference is to spread these across your study period.

 

Myth #4: You need to work in audit & assurance to be successful on the CFE with assurance as your depth.

Truth: false.

While I was going through the CFE process, I was working in audit at a public accounting firm. The depth role I chose was assurance because I still wanted to pursue public accounting after getting my CPA, and I felt there were a lot more resources available from the old UFEs pertaining to assurance.

However, throughout the study period, I felt that the work experience that I was able to apply to the assurance assessment opportunities contained in the cases was limited. This was due to my limited involvement with planning assurance engagements on the job, contrary to the cases which usually ask you to perform planning work (whether it be a RAMP audit plan, control assessments, or what kind of assurance engagement to pursue). Instead, I found my resources to lie much more heavily on prior exam cases & technical content provided by my CPA mentor.

There may be some of you who do have a more senior-role at your job and are involved in the planning process. If so, then I’m sure that there are some things that are transferable to the actual exam. However, I want to stress that it is not a requirement for you to do very well on the CFE if assurance is your depth role.

My recommendation: If you see yourself working in public accounting later on in your career, choosing assurance as your depth role will open that door for you. If you do not see yourself doing this later on, I would still strongly consider assurance as your depth role, due to the many resources available from prior UFE & CFE exams in which assurance was tested frequently.

 

Myth #5: Writing more cases increases your chances of passing the CFE.

Truth: (partially) false.

I am a strong believer that for the CFE, practice makes perfect. However, it’s important to understand what “practice” really means.

I do not consider practice to be simply writing a lot of cases. By doing this, you are unable to gauge your performance. If anything, it may help you with time management, but even this benefit is questionable as you would not know if you perhaps missed assessment opportunities. The important piece missing in this is the DEBRIEFING.

Over time, I discovered that a proper debrief involves not only reading the solution after writing a practice case, but also comparing the solution to what you wrote, rewriting parts of your case response to bring it to a C-level, researching technical areas you are not comfortable with that came up in the case, and tracking your progress.

As you start in the study season, you will find that your debrief sessions take a lot of time. You may even find it takes twice or three times as long to debrief than to write the actual case – do NOT rush through this at the beginning! It’s a lot better to debrief one case thoroughly than to just write two or three cases in the same amount of time. I would reserve the strict case-writing near the end of the study season as you practice moving from case to case for Day 3.

My recommendation: Practice writing cases, but make sure your study plan allots a sufficient amount of time for debriefing each case you practice.

 

I really hope that this blog post helps you navigate through the complexities of the CFE study process. If you want to reach out to me, please give me a shout at stevenp2c@gmail.com.

 

All the best, and good luck!

Steven

How I Bounced Back after Failing the 2016 CFE

Hey everyone,

If you are reading this blog and you ended up passing the 2017 CFE, congratulations! You have successfully reached a milestone in your professional career. Make sure that you cherish this special time in your life.

If you did not end up passing the CFE this year, I know what kind of thoughts are going through your head right now:

“This program isn’t fair. Someone must have made a mistake.”

“There’s no way I can recover from this. I gave it my all and got nothing in return.”

“I’m not mentally fit to pass the CFE & become a CPA.”

“So many people passed but I didn’t, which makes me feel embarrassed.”

If this is you, I highly recommend that you continue reading.

 

My Story

I started the CPA PEP program in late 2014. This was eighteen months after I graduated from a highly competitive university undergraduate program in Toronto. Unlike many of my peers, I did not get hired by a Big 4 CPA firm right after I graduated. Instead, I worked for a bookkeeping & tax preparation office for a little over a year, and I later transitioned over to working at a small CPA firm.

At the time I entered the program, CPA Canada was still offering the “challenge exam” option for CA legacy students. Given the significant cost savings that this option entailed, I challenged the Core 1, Core 2, Assurance & Tax PEP exams throughout 2015, and I was very fortunate to pass each of them on my first attempt. During the spring of 2016, I got paired with an awesome group of other candidates as part of Capstone 1, and I was able to get through the module without any major hiccups.

Now it was the summer of 2016: the CFE was two months away. I fixated my efforts on doing whatever it would take to get a competitive edge over the other candidates, such as:
• Hiring an experienced CPA marker to help me mark my cases and give me one-to-one feedback (something that was unprecedented across other CFE prep courses offered in Canada);
• Studying with another student who had failed the May 2016 CFE by a small margin but was willing to go hard-core until the CFE;
• Taking two full months of unpaid study leave from work (let’s not even talk about what my bank account looked like during the summer);
• Practicing over sixty cases from old UFEs, the Capstone 2 content, my marker’s cases, and even old SOA exams, all under time restraints;
• Reading binders and binders full of technical notes.

And then September came around. And I wrote the CFE. And then I waited two months for the results.

 

The September 2016 CFE Results

Day 1: FAIL

Days 2 & 3: FAILED on Levels 1 & 3

Just imagine that. After going to all ends of the earth to prepare for this exam, I failed all three days. I felt numb. As much as people were calling me to offer consolation, I really didn’t want to speak to anyone because I couldn’t explain what happened. I began telling myself,

“This program isn’t fair. Someone must have made a mistake.”

“There’s no way I can recover from this.”

And so on. For the weeks that passed, I tried to preoccupy myself with other thoughts, like Christmas, upcoming birthdays, etc. But deep down, I was in search for answers as to why I had failed the CFE, and I had begun to believe that I was just playing a game of chance.

Then I got a call from a close friend who I had not heard from in a while. And the recovery process started.

 

The Recovery Process

My friend had called me to see how I was doing. I told him how great things had been for me over the past month, and the first thing he said was,

“Yeah, so?”

My reaction to him was, “What do mean, ‘Yeah, so?’ The CFE is a big deal! If I don’t figure out where I went wrong, I’m screwed!” I went off telling him all the things I had done to get ready for that exam. Then he posed the following questions to me,

“Do you think you may have put too much on your plate? How many breaks did you take over that two-month period? Were you experiencing burnout before the exam?”

At that point, I had found my answer. During that two-month study period before the CFE, while I was so focused on planning & making sure I had all my bases covered, I totally missed out on a vital part of the process: maintaining myself. As much as the CFE tests you on technical & “enabling” competencies, it also tests you on stress management. I vividly remember the last week of CFE study being the week when I experienced the most amount of stress. Little did I know that overdoing it was just as bad, if not worse, than not doing enough.

So what was my game plan for 2017? The first thing I did was focus on me: I started going back to the gym, I began to write really good articles on LinkedIn, and once busy season was over at work, I enrolled to rewrite the CFE in September.

Before I knew it, I was only two months away from writing the CFE – all over again! Here’s what I did during that period:
• I found a new study buddy, who carried an open mindset & who was also willing to put in the time to help me with my weaknesses;
• I rehired my CPA marker, who provided me with new cases to try that were more reflective of the CFE along with useful online webinars covering technical & case writing strategies;
• I again took unpaid study leave for the entire two months (work stress is just as bad as study stress);
• I practiced only 30 CPA cases, one-half the amount that I did in the prior year, and I tracked my progress on Level 1 (hitting a sufficient number of requireds) & Level 3 (depth in assurance);
• I did not touch anything related to the exam after 7PM on (most) weeknights & weekends;
• The week before the CFE, I reduced my study load significantly. I also did not give in to other students who were doing the complete opposite.

And then September came around, again. And I rewrote the CFE. And then I waited two months for the results.

 

The September 2017 CFE Results

Days 1, 2 & 3: PASS

Ten seconds after CPA Canada released the results, I see a message on my phone that says, “It’s all over homie. Congrats.” You can guess who sent me that message.

 

Conclusion

Don’t be afraid of failure. I truly believe that failure has put me in a much better position than if I had passed on my first attempt in 2016. Failure gives you that opportunity to see what your weaknesses are and to figure out how you’re going to overcome them. As a future practitioner, I think it was so much more valuable for me to experience failure in my 20s than later on in my career, when the ability to bounce back becomes more difficult (but still possible).

Lastly, I want to address those statements I posted at the beginning of this blog:

“This program isn’t fair. Someone must have made a mistake.”
• What’s “fair” is very subjective. I would treat the CPA program as a source to obtain life lessons rather than simply start, write, and get out as fast as possible.
• Some of you may want to appeal your results. Unless if you got really close to passing (i.e. you only failed on Level 1 & received a Decile 1), there is a high likelihood that you will be blowing away money that you can instead put towards something more valuable. Remember that CPA Canada’s pass rates are highly controlled.

“There’s no way I can recover from this. I gave it my all and got nothing in return.”
• Yes you can. I recovered from it and you can too. As I alluded to in my personal story above, sometimes giving it your all is not the only means to success.

“I’m not mentally fit to pass the CFE & become a CPA.”
• There is no such thing as a “born CPA.” Yes, there may be some that are naturally able to read & write fast, or who have “photographic memories,” but don’t think that passing this exam is some sort of an elitist game. You can pick up the skills to pass through practice.

“So many people passed but I didn’t, which makes me feel embarrassed.”
• It’s really easy to compare yourself to others in this process. In my case, I felt that I was years behind the people I went to university with. However, every single writer has a different story. Maybe that guy or girl who’s boasting about his/her success on social media had to write more than twice before they passed. Maybe the difference between your paper and theirs was one or two sentences. Rather than trying to measure success just based on results (like the majority of people have a tendency to do), I think you should instead measure success based on what you’ve learned after failing.
• If you’re hanging around people that are making you feel embarrassed and are brining you down, whether it be your peers, your employer, etc., cut them loose. They will become irrelevant to you sooner than you know it.

I really hope that this blog post helps you get back on the right track. If you want to reach out to me, please give me a shout at stevenp2c@gmail.com.

 

All the best, and good luck!

Steven

How to get depth in accounting issues on the UFE

As mentioned in the comments the other day, if you’re coming off of SOA, you might be finding that it’s a little more difficult to score high in PMR issues on the UFE. The reason is often that you need a higher level of ‘depth’ in your discussion on the UFE.

You might be a little confused, what does it mean to get more depth in your discussion?

It essentially means you are looking more comprehensively at the issue, and where applicable, exploring alternatives and recommending the most appropriate treatment. Here is a rough framework of how you might look at an accounting issue.

1. Identify the Issue – Of course it’s paramount to find the issue itself.

2. Consider whether the accounting treatment was correct

  • If No / Maybe -> Support why this is the case using case facts and make mention of handbook/conceptual framework/definitions where appropriate

3. Are there valid alternative treatments? 

  • Yes -> Present alternative treatments with backup from the Handbook when possible. Otherwise use definition/conceptual framework reasons.
  • No -> Discuss the appropriate treatment with reference to the Handbook when possible. Otherwise to definition/conceptual framework reasons. Consider if criteria are met in this case and whether it has been accounted for correctly. Do not discuss alternatives where there are no valid ones!
  • You want to consider the impact on both sides of the financial statements and quantify when possible. At minimum mention the impact (i.e. will increase liabilities resulting in a weaker balance sheet which will negatively affect the loan covenant). Remember you are discussing the issue for a client (I assume) and you need to discuss the issue with respect to how it makes a difference in their situation.
  • If further information is required, mention it.

4. Recommend and/or Conclude

  • Choose the alternative that is best in this situation (it should be allowed of course)
  • Consider user needs or reporting objectives
  • What other areas does this impact? Audit? F/S? Covenants?

Now let’s see how this can be done on a very good response. Keep in mind this is a modified version of a honour roll response so yours might not be quite as great but we’re just illustrating the point here. Also remember that this is not required for every accounting issue, only those that require more depth. Other times your analysis would take the simpler path through this framework. My comments are added in bold italics.

Accounting Issues

1) Research and Development Costs (id of issue – Clearly marked which issue we are discussing)

• Currently XYZ Corp. is capitalizing all of the costs related to the Radio Tech Project (id of issue – what they are doing now + considering if it’s correct)
• Need to assess if this is appropriate based on IFRS criteria which is as follows: (If yes/maybe -> explore issue)

Analysis: (Alternatives -> In this case it is whether criteria has been met, Do not discuss if there are no alternatives)
1) technical feasibility – unclear if this criteria is met as Bob says that “I think they have all the knowledge they need” but does not demonstrate any concrete evidence of this being the case and the third party feasibility study has yet to be completed (Go through identifying criteria using case facts)
2) Measurability – so far the costs appear to be measurable as spending has been quantified as $5.7 million in 2012
3) availability of necessary resources including financial resources – XYZ Corp. may not have the financial resources needed as it is currently asking for $21 million more in resources from ParentCo and has not been given approval that it will receive the funding
4) demonstrated future economic benefit – the future economic benefit is the 5% decrease for all products and services due to more efficient distribution
5) management intention to complete the project – management declared its intention to complete thus this criteria is met
6) ability to use or sell the technology – plan is to use in distribution to increase efficiency; it appears that it will be used thus this criteria is likely met but should be considered in conjunction with the FEB because there is no guarantee that if it is used efficiency will increase (Look how every criteria has support using case facts!)

• The above criteria indicates that several of the criteria have not been met (all are required for capitalization under IFRS)
• The technical feasibility will not be proven until the third party is completed which isn’t expected for another 60 days
• Also it is unclear whether the necessary resources have been obtained since XYZ Corp. is requesting further $21 million financing that hasn’t been approved from the EC and Bob is not sure if SableTel has the “brain power”
• Also given that the future economic benefit is dependent on increased efficiency it appears this benefit also has not been proven as it would be difficult to demonstrate these increases until the technology is complete

Conclusion: (Important – conclude in the end!)
Based on the assessment above, XYZ Corp. has not met the criteria required by IFRS in order to capitalize its research and development costs relating to the Radio Technology Project.

The $5.7 million in spending needs to be expensed for fiscal 2012 and thus assets will be reduced and expenses increased for the fiscal year. (Mention F/S Impact)

Further, the reversal of the $3.458 million was in inappropriate as IFRS does not allow that expenses which are originally expensed to be capitalized. Expenditures can only be capitalized once the criteria has been met as assessed above and then capitalization is done on a prospective basis.

Conclusion:

The $3.5M capitalized in 2012 must be reversed again such that it remains expensed in 2011 as was originally recorded. (Looking at all areas of the F/S)

 

Since we’re having so much fun, let’s do one more.

 

Revenue Recognition
There are several components of revenue that ABC will have to account for separately.

Non-Refundable Fee upon Start of Membership – This revenue must meet the following criteria in order to be recognized as revenue: (ID the issue)

(Discuss under which conditions the treatment is correct)

– Performance of the transaction has been achieved – This is achieved when persuasive evidence of an arrangement exists (the membership agreement upon the start of the membership would qualify), when the price is fixed or determinable (price is fixed at $500), and when services have been rendered. The services that this fee is expected to cover relate to operating costs of running the club over the full five year membership. As such, the revenue and services relate to the full five years of the membership and performance of the transaction is achieved partially each year until the membership expires.

– Ultimate collection is reasonably assured – as the amount is due immediately, it will likely be received immediately or shortly thereafter, as such, collection will be assured upon start of the membership. In addition, the fee is non-refundable so once collected, it will not be returned to the customer.

(Quick look at the alternatives)

The policy options are to recognize the full fee in revenue upon receipt at the beginning of the membership, defer the full fee until the membership expires, or recognize one-fifth of the fee in revenue each year of the membership. Based on the above, the last option appropriately matches the revenue to the services rendered over the life of the membership and therefore, that is my recommended option. This would result in $100 in revenue earned each year. (Recommend + Quantify impact on FS)

Achieving Depth in PMR – Accounting Discussion

Acheiving depth in PMR / Accounting on the UFE is an important skill to continually try to develop since it often means taking your RCs to Cs which is necessary to successfully pass the UFE. While the issues on the UFE will vary and a template approach is risky and cautioned against by The Board of Evaluators, today I’m offering a framework which is used for discussing PMR issues which could give you some thoughts on tackling accounting issues and achieving depth.

  1. Identify The Issue – First, it’s obviously important to identify the accounting issue and rank it high enough to discuss. This is usually because the simulation asks advice about this particular issue, they are accounting incorrectly in the simulation or some other case fact points you to discussing this issue.
  2. Was the Accounting Treatment Correct? – Ask and answer whether the accounting is correct. Support WHY with case facts. Give reasons based on The Handbook or if guidance is not provided then based on the conceptual framework/definitions.
  3. Are There Alternative Accounting Treatments? – If yes, present these alternatives with reference to The Handbook. Consider and discuss the impact on the Financial Statements, both Statement of Operations and Statement of Financial Position, and where possible, quantify the impact. Consider whether there is further information required. If no alternative treatments are available, use relevant GAAP to discuss the issue, again, consider the impact on both sides of the Financial Statements and quantify where possible. Consider whether further info is required.
  4. Recommend and Conclude – It is important to consider Financial Statement user needs or reporting objectives and to conclude on which accounting treatment is superior for users, or alternatively, only one may be allowed for areas where specific guidance is available.
  5. Consider Impact on Other Areas – Consider how this accounting may impact other areas in the case, this is where you’ll think above how this may be a pervasive issue and could impact assurance, purchasing of a business, going concern, and so forth.

Not every accounting issue will open itself up to a discussion in all of these areas but I think that if you keep these things in mind you’ll be able to have a rich discussion and achieve depth in a lot of accounting discussion.

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