Tag Archives: ufe blog 2012

Discussing Control Weakness on the UFE

You’ll more than likely encounter control weaknesses at some point during the UFE and you’ll have to probably discuss at least 4-5 of them to get the C in this assurance indicator. Here’s the WIR (weakness, implication and recommendation) strategy most students will probably use to tackle control weaknesses. As always, I caution that this is just a strategy and not always applicable so use your judgment in determining when this is appropriate and inappropriate to apply.

Weakness

Here you are answering, using case facts, what the specific control weakness is. You can include this as part of a longer paragraph covering off everything or I prefer to keep everything separate and just use “Weakness: … ” so it’s even more clear and keeps you on track.

Examples of a weaknesses:

  • Presently the finance department is overworked and there are insufficient segregation of duties since the same individuals are creating POs, entering information into the accounting system and preparing the cheque runs.
  • The transposition error for the receivable contract of $1.5M was not caught despite managements insistence that this would normally be caught by a manager’s review.

Implication

The implication answers the “so what?” This is equally as important as identifying the weakness, you must state what will continue to go wrong if this weakness is not resolved. Think about the Financial Statements or the business itself. Will amounts be misstated? Will the business lose cash? Will fraud occur? And so forth.

Examples of an implication:

  • The lack of segregation of duties is inappropriate since it does not separate accounting entry from payment and can result in finance staff making inappropriate accounting entries (for example payments to themselves) and then issuing the cheques to themselves with no oversight. Fraud could occur without being detected in time to prevent it.
  • It is possible that there are other (possibily material) errors due to similar oversights by management review. Managers are presently being overworked and unable to keep up with their duties resulting in a lack of functioning controls such as this review. This can result in misstatements due to errors not being caught by management review.

Recommendation

The recommendation is your suggested solution to this problem. This must be a control that is specific and practical given the circumstances and of course must be related to the simulation risk and implication discussed.

Examples of a recommendation:

  • Hiring a new controlled ASAP should be given priority in order to set up proper segregation of duties and have proper oversight. Presently, management review is too late and merely a detective control and not preventative.
  • For the time being, managers should be spoken to regarding the importance of reviewing these forms and held accountable for their oversights. Longer-term, CompanyX should assess whether they should hire additional staff in order to allow the manager to focus on reviewing such forms appropriately since the cost of errors may outweigh the savings in management reductions.

 

Now altogether, what an actual response might look like:

Segregation of Duties

Weakness: Presently the finance department is overworked and there are insufficient segregation of duties since the same individuals are creating POs, entering information into the accounting system and preparing the cheque runs.
Implication:  The lack of segregation of duties is inappropriate since it does not separate accounting entry from payment and can result in finance staff making inappropriate accounting entries (for example payments to themselves) and then issuing the cheques to themselves with no oversight. Fraud could occur without being detected in time to prevent it.
Recommendation:  Hiring a new controlled ASAP should be given priority in order to set up proper segregation of duties and have proper oversight. Presently, management review is too late and merely a detective control and not preventative.

Oversight Problems

Weakness: The transposition error for the receivable contract of $1.5M was not caught despite managements insistence that this would normally be caught by a manager’s review.
Implication: It is possible that there are other (possibily material) errors due to similar oversights by management review. Managers are presently being overworked and unable to keep up with their duties resulting in a lack of functioning controls such as this review. This can result in misstatements due to errors not being caught by management review.
Recommendation: For the time being, managers should be spoken to regarding the importance of reviewing these forms and held accountable for their oversights. Longer-term, CompanyX should assess whether they should hire additional staff in order to allow the manager to focus on reviewing such forms appropriately since the cost of errors may outweigh the savings in management reductions.

As you can see, each is 4-5 sentences in total and covers off everything neatly. I’m sure the wordsmiths out there can even get them shorter and more direct.

Do you have any trouble discussing Control Weaknesses? What’s the worst part about these?

 

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?

Advice from 2010 UFE National Gold Medallist Vicky Au for this year’s UFE writers!

Today we have a special post lined up for you. I recently had the opportunity to speak with 2010 UFE National Gold Medallist Vicky Au. Vicky captured the Canadian Gold Medal as the top writer out of 3,046 successful candidates and was kind enough to let me pick her brain about how she studied for the UFE. 

Despite her exceptional results on the UFE, Vicky’s study schedule remained fairly standard. Vicky largely followed the internal study schedule provided by Deloitte, which is similar to what is out there from the Densmore prep courses. Vicky felt that it was beneficial to mimic the actual UFE and therefore she spent Mondays doing her comprehensive simulations followed by a debrief session which often took her into Tuesday. When her debrief was complete the next day, she wrote one multi and debriefed.

Vicky mentioned, “I had a lot of trouble with cut-offs between exams so I would often write two sims in a row, particularly towards the end of the study process” which might be a deviation from the standard approach but solved her problem and provided strong results judging from Vicky’s final performance. The remainder of her standard study day was spent marking, providing and receiving feedback and reviewing a little technical with her group of three. It’s worth adding that Vicky’s entire group successfully completed the UFE with one other member finishing on the honour roll.

As mentioned in The Bottom Line interview, Vicky did have additional support through a Deloitte coach whom she spoke with often. Vicky told me, “The coach was for emotional support.” Vicky’s coach would review her marks tracker consistently, and above all, provide emotional support which helped Vicky deal with the stress. Vicky used this resource often and felt that it provided her a lot of benefit to be able to talk out loud with her coach away from her study group. On the days Vicky wrote the actual UFE she mentioned that, “I don’t like to talk about the exam after but I could talk to my coach for support.” This strategy helped Vicky maintain her confidence and not second guess her performance during the UFE.

Vicky felt that it’s important not to blindly follow everything you hear in a prep course but to understand the rationale for this advice. “I’m a little different, at night I got very nervous and felt like I had to be doing something.” Vicky understood that the reason for rules such as not studying nights was to avoid burnout so she was able to calm her nerves by completing some very light technical review. She felt like she was doing something while also not doing anything too intensive and burning out.

In Week 4, Vicky began to see a decline in her scores, “I couldn’t seem to get above an NC level,” which was nerve wracking so close to the exam. Vicky’s coach caught the change in her results tracker quickly and advised her that she was burned out and needed a break. “I didn’t do anything the Thursday and Friday; and for the last week, I ended up divorcing my group.” The break helped get Vicky back on track and she ended up studying on her own for the final week of her study period. Her advice: “You have to put yourself first. Your group will understand.” Vicky was spending too much time marking of her peer’s exams and this was impacting how much time she could spend on her own debriefing.

I asked Vicky if there was any must-have study material she recommends for the UFE. Although she had access to a lot of in-house study material, Vicky’s main recommendation is the marking guides, which “helped me extrapolate, I was able to quantify and qualify what was required and found them very valuable.”

Vicky discussed with me what she felt some of the more challenging aspects of studying for the UFE are. Without a doubt, “the pressure to pass … the results are published and everybody knows.” The way Vicky dealt with this pressure was to make it about something she wanted to do. “I wanted to do well, I wanted to pass this for myself and I have to go with what’s best for me.” So Vicky’s advice would be to try to disregard the external pressure and do it for you.

Any final advice for this year’s candidates? 

“Study smarter, not harder.” Vicky felt that candidates, in general, spend way too much time on technical and not close to enough time on figuring out what’s wrong with their cases. “It’s very valuable to get feedback from other people but [few] read the comments and learn from what you wrote”. Vicky felt that time is best used reviewing your case and learning what went wrong rather than jumping into studying technical or writing another case.

I would like to sincerely thank Vicky for taking time out of her schedule to share her advice with this year’s writers. Vicky Au currently works as a Senior with Deloitte’s M&A Transaction Services practice in Toronto, Ontario. She continues to be active in mentoring UFE writers both with Deloitte and providing marking services with Densmore Consulting.

Advice from 2010 UFE National Gold Medallist Vicky Au for this year's UFE writers!

Today we have a special post lined up for you. I recently had the opportunity to speak with 2010 UFE National Gold Medallist Vicky Au. Vicky captured the Canadian Gold Medal as the top writer out of 3,046 successful candidates and was kind enough to let me pick her brain about how she studied for the UFE. 

Despite her exceptional results on the UFE, Vicky’s study schedule remained fairly standard. Vicky largely followed the internal study schedule provided by Deloitte, which is similar to what is out there from the Densmore prep courses. Vicky felt that it was beneficial to mimic the actual UFE and therefore she spent Mondays doing her comprehensive simulations followed by a debrief session which often took her into Tuesday. When her debrief was complete the next day, she wrote one multi and debriefed.

Vicky mentioned, “I had a lot of trouble with cut-offs between exams so I would often write two sims in a row, particularly towards the end of the study process” which might be a deviation from the standard approach but solved her problem and provided strong results judging from Vicky’s final performance. The remainder of her standard study day was spent marking, providing and receiving feedback and reviewing a little technical with her group of three. It’s worth adding that Vicky’s entire group successfully completed the UFE with one other member finishing on the honour roll.

As mentioned in The Bottom Line interview, Vicky did have additional support through a Deloitte coach whom she spoke with often. Vicky told me, “The coach was for emotional support.” Vicky’s coach would review her marks tracker consistently, and above all, provide emotional support which helped Vicky deal with the stress. Vicky used this resource often and felt that it provided her a lot of benefit to be able to talk out loud with her coach away from her study group. On the days Vicky wrote the actual UFE she mentioned that, “I don’t like to talk about the exam after but I could talk to my coach for support.” This strategy helped Vicky maintain her confidence and not second guess her performance during the UFE.

Vicky felt that it’s important not to blindly follow everything you hear in a prep course but to understand the rationale for this advice. “I’m a little different, at night I got very nervous and felt like I had to be doing something.” Vicky understood that the reason for rules such as not studying nights was to avoid burnout so she was able to calm her nerves by completing some very light technical review. She felt like she was doing something while also not doing anything too intensive and burning out.

In Week 4, Vicky began to see a decline in her scores, “I couldn’t seem to get above an NC level,” which was nerve wracking so close to the exam. Vicky’s coach caught the change in her results tracker quickly and advised her that she was burned out and needed a break. “I didn’t do anything the Thursday and Friday; and for the last week, I ended up divorcing my group.” The break helped get Vicky back on track and she ended up studying on her own for the final week of her study period. Her advice: “You have to put yourself first. Your group will understand.” Vicky was spending too much time marking of her peer’s exams and this was impacting how much time she could spend on her own debriefing.

I asked Vicky if there was any must-have study material she recommends for the UFE. Although she had access to a lot of in-house study material, Vicky’s main recommendation is the marking guides, which “helped me extrapolate, I was able to quantify and qualify what was required and found them very valuable.”

Vicky discussed with me what she felt some of the more challenging aspects of studying for the UFE are. Without a doubt, “the pressure to pass … the results are published and everybody knows.” The way Vicky dealt with this pressure was to make it about something she wanted to do. “I wanted to do well, I wanted to pass this for myself and I have to go with what’s best for me.” So Vicky’s advice would be to try to disregard the external pressure and do it for you.

Any final advice for this year’s candidates? 

“Study smarter, not harder.” Vicky felt that candidates, in general, spend way too much time on technical and not close to enough time on figuring out what’s wrong with their cases. “It’s very valuable to get feedback from other people but [few] read the comments and learn from what you wrote”. Vicky felt that time is best used reviewing your case and learning what went wrong rather than jumping into studying technical or writing another case.

I would like to sincerely thank Vicky for taking time out of her schedule to share her advice with this year’s writers. Vicky Au currently works as a Senior with Deloitte’s M&A Transaction Services practice in Toronto, Ontario. She continues to be active in mentoring UFE writers both with Deloitte and providing marking services with Densmore Consulting.

UFE Q&A

Today we have a brief question and answer session based on some of the questions received here that might help everybody.

Our first question, related to the article about UFE Study Schedules, is what kind of daily study schedule should be followed during your UFE study period.

My Thoughts:
Generally, avoid studying past 5pm and in the final four weeks focus on writing cases and study the technical from the cases. Your schedule might be something like the following:
  • 9am to 11amWrite and mark a case with your study group, this might be shorter depending on the case your write
  • 11am to 1pm – Do your debrief of that case
  • 1 to 2Take lunch, this gets your lunch closer to the routine of the UFE days, not a big deal but every bit helps
  • 2 to 4pmWrite and mark a second case
  • 4pm to 6pm – Do the debrief of your second case
So you’ll see I put in 6pm there but that assumes that you’ve written two 90 minute cases that day which is worst case scenario. Your marking should take 30 minutes or so and you’d just go do the debrief after. You’ll also find the the more cases your write and debrief, the better you get and the faster the whole process moves so by UFE day you’ll probably be debriefing less mistakes and could be done even sooner. This is of course a rough estimate, individual results will vary but in general avoid finishing past 5pm.

Our second question, related to setting up a UFE study schedule, is what is a confidence booster multi?

My Response:

It’s important to go into the UFE confident and feeling good since it is already stressful enough. One of the ways to avoid shaking your confidence is to avoid writing a case close to the exam where you score really badly. To do that, many students will write these confidence builder cases instead of a new case. It consists of REWRITING a case you have previously written and done well on. So take two cases which you wrote during your study period and scored very well on and write them again like new and mark/debrief as you normally would. You’ll avoid the risk of writing a really bad case right before the UFE and still keep your writing and case writing skills sharp for the last few days.

Last question today, related to the UFE Report, is where can I get the UFE report if I haven’t started work yet?

My Response:
The UFE Reports are available to CA students through your provincial institutes portal site. Once you are registered as a student you can usually login and find it in there somewhere. They are usually released in May of every year. You may be able to get copies from your soon to be employer who might have a copies they can distribute.
If you cannot obtain them through these means and cannot wait, the UFE Reports are also available for purchase from the CICA at the following link:  http://www.castore.ca/product/uniform-evaluation-report-2011/1439
As always, feel free to post questions in the comments or e-mail me directly.

UFE Q&A

Today we have a brief question and answer session based on some of the questions received here that might help everybody.

Our first question, related to the article about UFE Study Schedules, is what kind of daily study schedule should be followed during your UFE study period.

My Thoughts:
Generally, avoid studying past 5pm and in the final four weeks focus on writing cases and study the technical from the cases. Your schedule might be something like the following:
  • 9am to 11amWrite and mark a case with your study group, this might be shorter depending on the case your write
  • 11am to 1pm – Do your debrief of that case
  • 1 to 2Take lunch, this gets your lunch closer to the routine of the UFE days, not a big deal but every bit helps
  • 2 to 4pmWrite and mark a second case
  • 4pm to 6pm – Do the debrief of your second case
So you’ll see I put in 6pm there but that assumes that you’ve written two 90 minute cases that day which is worst case scenario. Your marking should take 30 minutes or so and you’d just go do the debrief after. You’ll also find the the more cases your write and debrief, the better you get and the faster the whole process moves so by UFE day you’ll probably be debriefing less mistakes and could be done even sooner. This is of course a rough estimate, individual results will vary but in general avoid finishing past 5pm.

Our second question, related to setting up a UFE study schedule, is what is a confidence booster multi?

My Response:

It’s important to go into the UFE confident and feeling good since it is already stressful enough. One of the ways to avoid shaking your confidence is to avoid writing a case close to the exam where you score really badly. To do that, many students will write these confidence builder cases instead of a new case. It consists of REWRITING a case you have previously written and done well on. So take two cases which you wrote during your study period and scored very well on and write them again like new and mark/debrief as you normally would. You’ll avoid the risk of writing a really bad case right before the UFE and still keep your writing and case writing skills sharp for the last few days.

Last question today, related to the UFE Report, is where can I get the UFE report if I haven’t started work yet?

My Response:
The UFE Reports are available to CA students through your provincial institutes portal site. Once you are registered as a student you can usually login and find it in there somewhere. They are usually released in May of every year. You may be able to get copies from your soon to be employer who might have a copies they can distribute.
If you cannot obtain them through these means and cannot wait, the UFE Reports are also available for purchase from the CICA at the following link:  http://www.castore.ca/product/uniform-evaluation-report-2011/1439
As always, feel free to post questions in the comments or e-mail me directly.

To outline or not to outline on the UFE

This is one of those issues that can have strong opinions on both sides. On the one side, some say the outline is critical in organizing your thoughts and response and on the other, people consider it a waste of time since you can just take notes on the simulation sheet.

For comprehensive simulations I say the outline is critical and you cannot go on without it. For multis I’ve seen people go both ways and write fine cases so it’s a personal choice but I recommend using one. I found it helpful to stay organized and help with ranking and time management.

What is on a good outline?

A good outline will have the following elements:

  • A purpose and role. So you never forget what your role in the simulation is, and I like to have a purpose to all quants on the outline so that you understand why you need this quant. It helps avoid starting a quant and later realizing you didn’t need it or went in the wrong direction.
  • Who you are addressing and what kind of communication is it? You may have to do an audit memo to a partner on one hand and a report about a tax situation to the client on the other hand.
  • A timeline should be used unless dates are not an issue in the simulation. Write down every date you are given and keep track of where you are in proximity on a timeline.
  • A diagram or organisational chart to keep straight who owns what or works where. This is often an issue in taxation indicators and will help keep things straight.
  • A list of the required for the case which ensures that you address everything that was asked of you. If it helps, indicate which are primary indicators and which are secondary. Most people recommend you write these out almost word for word so you don’t misunderstand what is being asked of you.
  • Identify issues in the simulations. This is not the same as writing down case facts which should not be written down on your outline but referenced. Write down the issues you identify and then indicate on your outline which page they come from (could be many) and refer back to them once you are writing your response.
  • You’ll want quant information easily available if there is a lot of it. Consider having a separate page full of quant information so you can easily refer back to it rather than searching (and possibly missing) the data in your question sheet.
  • Finally, after all is said and done, rank the issues and allocate time to them. You are going to need to know which issues you’ll be dropping and which you’ll be tackling before you begin writing and it’s best done when you have the whole case in front of you on an outline.

How long should an outline take?

I’ve heard some people dedicate up to 1/3 of the time to outlining which is probably a good maximum. You don’t want to let it start impacting your actual case but it is where a lot of the hard work of composing your response goes on so don’t fly over it either. For a comp I don’t think its unreasonable to outline for upto 1.5 hours.

Also: Check out Kayla Switzer’s post on the topic over on her blog.

For the comments: To outline or not to outline, what do you think? How has it worked for you?

Weekend Update

Just a quick note that I have launched the community forums. As with many things around here, it’s “beta” and I’ll try to integrate it better with the site in the future. I originally thought the Facebook group might serve this purpose but I think it might be too difficult to have good discussions there so we’ll try this. I’ve done my best to test it out but please let me know if you have any trouble with it.

Also, I noticed that a lot of people do drop by the Study Partner search but so far only one ad has been posted. So if you are still looking for a study partner do give it a shot!

Thanks for all the feedback received so far!

Weekend Update

Thanks for all the comments and feedback received so far. Keep it coming!

I’ve updated the Getting Started with UFE Blog area for our new visitors to have a one-stop area to get started with the material so far. I’ve got a weeks worth of posts coming next week about debriefing UFE simulations, so check back on Monday if this is an area you haven’t quite grasped debriefing.

Have a great weekend!

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