Tag Archives: ramp

Common CFE Terminology (or a CFE Dictionary)

With the Common Final Examination (CFE) still being new, the jargon will change so we’ll keep updating this with your suggestions. You’ll hear all kinds of terms thrown around this year. Here are the translations for those who aren’t familiar yet with the CFE terminology:

  • .. Case / Simulation / Exam– These are just all the same terms for a ‘CFE business case’. The UFE typically called these ‘simulations’ which is why you might hear the term still used but most of the official CFE material has gone back to using ‘case’. There are no differences between any of these terms.
  • Multis (multi-competency) are shorter cases which range from 45-90 minutes. They may test around 3-5 competencies at a time. During the CFE, these are written on Day 3. Multis are usually easier to write because they are shorter and easier to manage all the information. The time-crunch level of multis varies.
  • Comps– or Comprehensive cases are the large five hour cases. These are large cases with a lot of information and their own problems/strategies. On the CFE these are written on day one of the exam.
  • NA, NC, RC, C and CD – These are how you are marked on the CFE during days two and three. While each mark is attached a numeric value, your feedback will not include a final score and only a mark ranging from NA to CD. For more description, see here.
    • NA = Not Addressed
    • NC = Nominal Competence
    • RC = Reaching Competence
    • C = Competent
    • CD = Competent with Distinction
  • Assessment Opportunity (Indicator)– An assessment opportunity is a term for a competency being tested. You might hear it referred to as competency indicator as well which means the same thing. An assessment opportunity is a specific requirement within the case that you are required to respond to. So if you’re expected to do an audit planning memo, you would have an assurance indicator that required you to create an audit planning memo. If you’re expected to identify incorrect accounting treatments, you would have a financial accounting indicator that required this. You would then receive a mark of NA to CD for each indicator.
  • Depth– Depth means the amount of detail and meaningful, thorough discussion you have about a specific topic. A superficial discussion without a lot of detail is said to lack depth because you are not exploring enough sides of the issue or not being thorough enough in your discussion. In some contexts, you are also said not have enough depth if you level of discussion within an assessment opportunity is at the RC level (rather than C)
  • Breadth Breadth refers to getting across indicators or issues and talking less thoroughly. If you don’t have enough breadth, it means you are not talking about enough indicators or issues within a single indicator and focusing too much on a single indicator or issue.
  • SecureExam– The software in which the CFE is written. This is a secure, built in word processor, spreadsheet, and reference look up software. You’re advised to start using this as soon as it’s available as it is considered more cumbersome to use than Word and Excel.
  • RAMP-– This acronym stands for Risk, Approach, Materiality and Procedures:  a strategy to tackle audit planning memos.
  • Required – Refers to what you are expected to answer/discuss in the case. This will usually come in the form of somebody asking you to do something as part of the case. Each required is linked to an assessment opportunity.
  • Core (Technical) Competency – The abilities expected of CPA in practice which specifically include Financial Reporting (accounting), Strategy and Governance, Management Accounting, Audit and Assurance, Taxation and Finance.
  • Enabling Competency – The soft skills around being ethical, decision-making, problem-solving, communication, self-management and teamwork and leadership.
  • Integration – Integration is a reference to incorporating multiple elements, usually from multiple competencies, within your case response. It is a bigger-picture, higher-order view of the case with your response discussing how the different portions of the case inter-relate with a view of adding significantly more value in your response than in a competency-specific analysis only.
  • Technical – The term technical is in reference to skills and abilities you need within the core competencies such as financial accounting or management accounting. For example, you need to be able to understand and apply accounting rules from the CPA Handbook – this is a technical skill.
  • Level 1-4 – To pass the CFE you have two pass four separate levels. Learn more here.
  • UFE (Uniform Evaluation) – The quasi-predecessor to the CFE. The UFE was the 3-day case-based qualifying exam for the Chartered Accountant profession prior to 2016.
  • BOE (Board of Evaluators) – The BOE is responsible for setting the passing standards around the Common Final Examination (CFE) and then for ensuring that the standard is held to during examination creation and marking.
  • Short forms for Competencies:
    • FA – Financial accounting and reporting
    • MA – Management accounting
    • Tax – Anything in the taxation competency

 

Heard any other terms that confuse you? Let us know in the comments and we’ll keep updating the dictionary!

Be confident in Assurance and PMR

While this advice is aimed at SOA candidates in Ontario, it does apply mostly to those writing only the UFE.

Assurance will make up 25-35% of the exam marks while PMR will make up 20-30% of the exam marks. It should go without saying that you should have some strength in these two indicators in order to stay competitive and make the rest of the exam easier on yourself.

By now, you have probably encountered the majority of the types of situations you may encounter on your final and you’ll have some idea where you stand.

Within the Assurance competency, here are some ways you might be able to stand out:

  • Strong procedures – It’s almost impossible that you won’t see at least one or two indicators where you’re required to write procedures. At this stage, a lot of candidates are still weaker with procedures so this might give you and edge if you can stand out. Remember that procedures cover off a risk area and be specific!
  • Know your special engagements – You should have these committed to memory. They come up often and it’ll go a lot quicker if you can remember them and what they’re about.
  • Understand the RAMP approach, especially the Risk – Understanding the different types of risk and how they work just makes your response easier to read and follow.
  • Link materiality to users – Materiality is related to users and not to risk so be clear why you’re setting materiality.
  • Control Weaknesses – The Weakess, Implication and Recommendation should be clear and specific.

Part 2 – PMR Tomorrow.

What other suggestions do you have to perform strongly in Assurance?

Creating good procedures on the UFE

Continuing from yesterday, today we put the P in RAMP and cover one of the most important aspects of assurance which is creating good procedures.

Procedures

Procedures are often the most critical part of your audit planning memo and most often specifically asked for so you’ll have to get good at these. I felt like the 2010 UFE was full of procedures. With procedures you want to focus on the key risk areas in the simulation which is related to audit risk and also often related to accounting issues in the simulation. Here are some things that a good procedure will cover off.

  • Specify how to audit the risk – you’ll need to give a specific procedures to be performed (i.e. inventory count, reconciliation, send out confirmations, etc.) The more specific and non-generic the better. Include specific steps such as observing an inventory count, match x to y, and so forth. These must be very specific to your simulation and shouldn’t be generic. Specificity is the key with procedures so make sure to specify what the overall procedure is (i.e. inventory count) and then some additional detail related to the case (such as for example: by weighing a number of widgets in each crate and multiplying it against an average weight).
  • Specify why you are testing this area, why is it a key risk area? This could be covered off in audit risk as well.
  • Specify what assertion you are testing – Make sure this makes sense, doing an inventory count might be great for existence or completeness but probably poor for accuracy and occurrence. It’s important you understand the assertions and what they mean so that your procedure makes sense.

You’ll want to try and give a good procedure for each risk if possible and, again, the number of procedures to shoot for in many cases is 3-4 valid procedures, but obviously use your judgment and experience in determining how many to write.

One additional insight about what the Evaluation Board expects from procedures can be found on page 8 in the 2010 UFE Report.

Candidates are encouraged to always consider the effectiveness of the procedures they provide. Procedures should address the risk area identified. In addition, when presenting an audit plan to an audit committee or a client, candidates should explain why the procedure is necessary, in other words, how it would successfully address the client’s assurance needs.

 

Last thing: with all of the above, I want to stress that it’s important to use case facts often and clearly when discussing each element. Generic discussion or knowledge “dumps” are seldom rewarded on the UFE so get in the habit early of using lots of case facts in your discussions.

What kind of trouble are you having with procedures?

The Audit Planning Memo on the UFE

Most people will be into their UFE study period now and possibly be seeing their first UFE mock marks. If they are not what you hoped, don’t worry too much yet, most people quickly improve in the first week or two before leveling off.

Today’s topic is something you will almost definitely see on the UFE, and probably more than once so it’s good to master it from the beginning. The Audit Planning Memo.

Although there are some different approaches out there, the most common elements and approach of an Audit Planning Memo is the RAMP approach (Risk, Approach, Materiality and Procedures). For most audit planning memos you don’t need to discuss all three and often two or three is enough with a discussion of risk and procedures being the most important.

Audit Risk Discussion

It’s important, first of all, to state what the audit risk is exactly based on the case facts. Generally the risk is either high or low but it can also be medium at times. If you’ve forgotten, audit risk the risk that the financial statements are materially misstated after a clean audit opinion is given an is usually calculated as Audit Risk = Inherent Risk * Control Risk * Detection Risk.

Next, you must support your conclusion by specific evidence from your simulation. The amount of evidence depends on the simulation but a general rule of thumb is that you should support your conclusion with at least three specific risks from the case. This is only my opinion so use your own judgment and experience to determine how many is enough! If prior year risk is mentioned or the risk is changing from a prior year, it is important to be specific about what has changed to increase or decrease the audit risk this year.

Some examples of risks:

  • New management or ownership may introduce new biases to misstate
  • Complex accounting issues may be prone to error
  • Weak controls discovered or problems reported by employees with the financial information

 

Audit Approach

This is often the least discussed area because most UFE simulations don’t have significant approach issues. You have three options here and must state which you will take and support it with case facts. The three options are substantive approach (you will be reviewing transactions), controls reliance (you are relying on the controls) or a combined approach (for some areas you will rely on controls).

If there are very weak controls all around you will take a substantive approach and support it with information from the case as to why. If all controls are functioning fine you can take a controls reliance approach but this will probably never occur so you are most likely to take a combined approach which will rely on controls in some areas and take a substantive approach in the weak areas.

 

Materiality

Materiality is usually the easier to score a quick few points over audit approach. Materiality is a number which is based on the financial statements so you must calculate it and state why you are calculating it this way. Materiality is mostly linked to users of the financial statements and not risk so when discussing materiality it is important to discuss how it relates to users of the financial statements. Quick reminder: an amount is material if it could influence the decision of a user of the financial statements. Typical materiality amount go-tos are 5% of Net Income from continuing operations or 0.5-1% of total assets but obviously use your judgment at the time.

Some examples of issues around materiality:

  • New users of the financial statements – they may have a lower or higher materiality than previous users
  • Loans or covenants are involved which are based on the financial statements – amounts which breach these covenants are material
  • Whenever there is a sale or purchase of a company occurring, materiality is often a factor since the purchase price is based on the financial statements

 

Last thing: with all of the above, I want to stress that it’s important to use case facts often and clearly when discussing each element. Generic discussion or knowledge “dumps” are seldom rewarded on the UFE so get in the habit early of using lots of case facts in your discussions.

Come back tomorrow where I’ll tackle procedures, the most important part of the RAMP and a critical element of scoring well on the UFE.

Did I miss anything? What else do you include in your Audit Planning Memos and why?

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