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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?

How to study during your UFE study period

CA Students love to study technical. I don’t know why, but it seems that when a bad case is written, or in almost every other situation surrounding the UFE, everyone just wants to hide away somewhere and study technical. My best guess as to why is that either people feel lazy or just perpetually weak in technical. I say lazy because it’s easier to sit around and read technical rather than do the hard work of writing another case and debriefing it properly. You can convince yourself that your are still studying and being productive this way, which you are, but it’s not optimal.

This is a mistake and the level of technical required for the UFE is exaggerated and for the more technical subjects you have the Handbook available to use. Except for taxation, I did not study anymore technical after the CKE except for the simulations and the occasional reference lookup. If you still insist on having something, I recommend (it’s the only one I used so this is not an opinion about the other material out there) Densmore’s Competency Map Study Notes which cover the material in appropriate detail for the UFE.

What You Should be Doing

  1. Write simulations! Lots of them. The UFE puts you in business simulations (with a heavy tilt to accounting) and it is largely a writing exam. The best way to get good at this and reach competence on the UFE is to practice lots of exams and debrief them. This is hard work and there is no avoiding it. 
  2. For highly technical issues, you should be aware of what triggers these issues in the simulation, roughly where you can find the issue in the Handbook and then use The Handbook to find the criteria. Finding the triggers is often the toughest part and the only way to develop this is through writing and debriefing lots of cases.
  3. The solutions to the UFE Simulations contain all the technical you need to know so don’t spend a lot of time going even more in depth after debriefing. These are the solutions already! They don’t need anymore from you in order to reach competency.
  4. Many important things on the UFE to reach competence such as writing procedures, ranking issues and identifying PQ indicators come with practice and cannot be studied. Don’t overlook these, so I’ll repeat one last time, write lots of simulations!

When it’s okay to study technical

  1. For taxation related issues. Taxation is extremely rule based and the tax act is hard to navigate. It may be prudent to work some taxation technical into your study schedule if this is a weak area of yours. Keep in my that it’s only part of your entire study schedule so don’t go overboard. You don’t want to have the best taxation response in the world at the expense of all the others.
  2. For PMR, You should have a general awareness of a broad range of accounting issues so if you don’t even know what non-monetary transactions, capital leases or financial instruments are then you won’t even identify the issues and get NAs. I still recommend you start by writing cases but if you are getting a lot of NAs at this point you are missing issues and will need to brush up on technical.

Chances are that the UFE is a different kind of exam from your University days so it’s important to change the way you play the game.

Let us know in the comments: How have you been studying and do you have any other advice that’s worked?

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