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Case Writing Basics: Reading

An important part of writing simulations, whether they be SOA (Ontario) or UFE is the reading portion. Reading shouldn’t be mistaken for analysis of the simulation but it will require that you pay a lot of attention and your able to identify both the requirements in the case and the evidence in the simulation that can be used in your response. It’s sort of a very active version of reading.

The amount of time you can spend on reading is debatable but in general you should fall within 25-45% of the total case time spent on reading. With 25% being the extreme on one side – you may be missing important detail if you’re reading this fast and 45% of time being the other extreme where you’re not leaving yourself enough time to respond. You want to get into that sweet spot in the middle.

Reading Basics

You’re reading phase should find your the following information in each simulation…

  • What are you required to produce in your response? What is expected from you in the case? This is the same as if your boss asked you to produce something in your job but can often be a little hidden. In SOA it is a lot more clear so it’s just important to make sure you understand (this comes in analysis)
  • What is your role in this simulation? Each simulation will give you a role you play such as auditor, controller, advisor, etc. It’s important to know and understand your role so that you report from it. You’re not in the business of giving tax advice when you’re playing the auditor role, well, unless a partner in the case asks you to that is.
  • Understand the basics of each section of the case. If there are exhibits, make sure you understand what they are presenting. If there is a separate page with a conversation that seems unrelated, make sure you understand what it’s about, it fits in somewhere, I promise!

And what do you do with all this information? You have to make sure it gets on to your outline so that you can use it in your analysis. We’ll cover that starting later this week.

How’s your case reading going?

UFE Experience from a guy that never worked at a firm

Today we have a guest post from Minh D-N who wrote the 2012 UFE in Montreal, QC without any experience in a CATO or Accounting Firm. 

I’m Minh D-N from Montreal, QC. Wrote the UFE in 2012 and successfully passed it on the first attempt. Never worked in an accounting firm and never touched anything related to accounting outside school prior to this year.

I read UFEblog a bit too late… after the UFE and  found it interesting enough to provide my perspective on the UFE.  I think there are many tips and advice that are interesting on this blog. So I wanted to contribute my experience and views. I’m writing this entry to bring a positive light for the candidates of the UFE in 2013, especially those who do not work in a firm or never worked.

I never worked or touched any accounting related topic outside school until 2012, and I still passed the UFE. The UFE is only an academic exam. You should not stress because you are not working. In fact if you aren’t working, you have more time to study and write cases which is to your advantage. Plus, you don’t have to mix the theory (E.g. UFE examinable material) and the reality. If you don’t have a job, don’t stress about it, you’ll get one quickly after the UFE results.

To pass, all I did in the months preceding the UFE is focus on my studies without burning myself out, while enjoying every little free moment that I had escaping for a few hours the reality of the studies. It’s a long an grueling process leading up to the 3 days of the exam.

I don’t want to focus on what to do before and on the UFE days on this entry, but on the state of mind on those days. I did not over-stress or under-stress at the exam days; it’s just 3 days of cases writing, not that different than the weeks practicing before. Think about it, I can ‘pass’ the past UFEs, but I may fail this year. Why can I do well in practice but not on the exam? It’s because of what happens in my head. In my mind, if I am sitting in the examination center, it’s because I am capable and at the same level as the 3,000 other candidates through Canada.  I said to myself that I may not work in a firm, but I am there in the same room as the best and brightest of the Big 4/CATO, and I deserve the right to pass. The reality of the UFE is that you are battling time and yourself.

I hope my insight can provide some positive light for some, even if the UFE 2013 is in a few months.

UFE Blogger: Thanks Minh, for sharing your story. I think Minh makes an excellent point comparing the past UFE practice exams to the real thing, the big difference is a state of mind.

The Road Ahead to UFE 2013

Chances are that most people are hitting their busy season now so maybe you haven’t had much time to focus on UFE recently. That’s okay and don’t worry about it. It’s too early to start stressing about that. Here’s a bit of a high level roadmap of the course you could take.

January – Brush up on your technical, this is a good time to start reviewing your tax that you probably blew off for CKE (if you’re in Ontario). Nothing too heavy but take some time on the weekends if you can and review for a few hours here and there. If it’s just not in the cards right now, don’t worry about it. If you’re the type that needs to do something, review technical because later on you won’t have nearly as much time for this.

February – Same as January.

March – Same as February, review technical, get it solidified in your head.

April – In my opinion, April is a good time to start looking at case approach and learning the basics of cases. In Ontario this means start with SOA cases. Chances are that if you’re enrolled in one of the big UFE prep programs you’ll be forced into this anyway around this time. This doesn’t mean hitting cases full steam. Do one every weekend, learn from the process. I’ll post some material on this in early April to help you out.

May – Continue practicing cases, one a week is good recommendation. Keep brushing up on any technical that these cases may expose.

June – In Ontario, you’ll have SOA which will keep you busy busy, and you’ll find yourself writing 5 SOA cases a week on average. This is a lot of cases so this is where you’ll really get your method down. Outside Ontario, I’m unfortunately not familiar with the programs, but I imagine you’ll start writing cases more often too.

July – You’ll write less cases in Ontario as you wait for your results. Good time for one last brush up on technical, there will be almost no time in August for technical so finalize it here. Go back to one or two cases a week and learn what a UFE case looks like.

August – August is when you go hard on UFE cases. Most people take the four weeks prior to the UFE an do eight hour days Monday to Friday writing simulations. These will be days of writing and debriefing simulations, you might have some time to review technical but it’s not a good time to study heavy technical so keep that in mind.

September 10 – 12, 2013 – UFE

And that’s it for the average candidate. Those who are anxious can relax a little, plenty of time remains.

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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