Author: Gevorg

Warranties are a commonly tested topic in Financial Reporting (FR). Similar to other standards, they have definition, recognition, measurement, and disclosure rules. As you learn the complexities of ASPE and IFRS frameworks, understanding how warranties are treated is needed to pass your CPA Canada exams. In this blog, we’ll look at how to solve warranty AOs, with the key differences between IFRS and ASPE.

Example of a Warranty AO

For example, consider that as of September 1, 202X, Entity A must, by law, provide a 3-year warranty on all appliances sold. This warranty is not sold separately and ensures that Entity A will replace any appliances that do not meet product specifications over this period.

Records of historical sales indicate that over the past 5 years, most appliances incur defects within the first 2 years following the sale. It is estimated that 15% of appliances will incur defects and need replacement within the warranty period.

The estimated warranty cost for appliances sold between September and December 202X is $950,000 at an average of $2,000 per unit. Expenses totaling $15,000 are related to warranty claims on these sales. The average warranty cost per unit is $300.

Solving Using IFRS

Nature of Warranty

The first step to assessing this issue, is to identify the nature of the warranty, and whether this should be accounted for as revenue or as a provision.

As per IFRS 15, there are two types of warranties:

1. Warranties that give customers assurance that the product will operate as intended by both parties, as it adheres to agreed specifications.
2. Warranties that provide the customer with a service in addition to the assurance that the product complies with agreed-upon specifications. 

If the following criteria are both met, the warranty should be assessed using provision and contingency standards. If one, or both, criteria are not met, the warranty should be assessed using revenue standards.

1. The warranty can’t be purchased separately by the customer. – MET, the example indicates that Entity A does not sell this warranty separately
2. The warranty doesn’t provide a service to the customer in addition to the assurance that the product complies with agreed-upon specifications. To assesses this, you can consider the following factors:
   • The warrant is required by law – if the warranty is required by law, this supports that the warranty is not a separate performance obligation.
   • The warranty period – A longer period of coverage supports that the warranty is a separate performance obligation.
   • The nature of the warranty tasks promises – Certain tasks such as return shipping related to the defective product supports that the warranty is not a separate performance obligation.

• MET, Entity A is required by law to provide this warranty and no additional services are provided.

Because both criteria are met, the next step is to assess the provision using IFRS provision and contingency standards within IAS 37.

Definition

A provision is a liability of uncertain timing or amount. To assess this definition, we need to assess the following criteria:

1. Is this a liability?
   • A present obligation – MET, the warranty is an obligation required by law to fix or repair issues with appliances.
   • Arises from past events – MET, the appliances have been sold
   • Expected outflow of resources – MET, will require economic resources to provide a new appliance or repair the existing one
2. Uncertain timing or amount – MET, the amount of the warranty spend is uncertain as this depends on the volume of claims and the cost to resolve each, and the timing is uncertain over the course of the warranty coverage period.

Therefore, the definition is met.

Recognition

Under IFRS, a provision should be recognized when the following criteria are met:

1. There is a present obligation resulting from a past event – MET, the event occurred in the past.
2. Probable outflow of economic resources will be required to settle the obligation – MET, based on historical trends provided, defects typically occur within the first 2 years so it is likely claims will occur that will require economic resources from Entity A to resolve it
3. The obligation can be reliably estimated – MET, historical trends as per the above assessment can be used

Therefore, the warranty provision should be recorded.

Measurement

A provision should be recognized at the best estimate to settle the obligation. If there is an effect of time value of money, a present value should be determined.

The estimated warranty cost currently is – $950,000

The expected expenses already incurred for the warranty claims – $15,000

The difference, and present value of the warranty expense and provision is $935,000.

Conclusion

The provision for the warranty of $935,000 should be recorded as of December 31st.

(Note to students: In this example, we solved the problem in a very detailed way to help you understand the warranty concept. In your CPA Canada exam, depending what module you’re taking – Core 1, Assurance, CFE Day 2, CFE Day 3 – the amount of depth and details you need to write will be different.)

Solving Using ASPE

Under ASPE, there isn’t a dedicated section to discuss warranties. ASPE 3290 for contingencies can instead be applied to warranty scenarios.

Definition

A contingency exists where there is an existing condition that involves uncertainty to a possible gain or loss to the company, which will be resolved by a future event. The following criteria should be assessed:

1. Existing condition – MET, Entity A is committed to replacing defective appliances and these appliances have already been sold.
2. Possible gain or loss – MET, it is uncertain how many appliances will be returned and need to be replaced so there is uncertainty about the extent of the cost
3. Resolved by a future event – MET, uncertainty will be resolved as appliances are returned, or after the 3-year warranty coverage has passed.

Therefore, this meets the definition of a contingent loss. 

Recognition

Under ASPE, a contingent loss should be recognized in the financial statements when the following criteria are met:

1. It is likely that the loss will occur – MET, Entity A estimates that 15% of appliances will be defected during the warranty period.
2. The amount of the loss can be reasonably estimated – MET, the average cost of replacing each appliance is $300.

Therefore, since the amount can be estimated and is likely, a contingent loss should be accrued for 15% of appliances sold in the financial statements.

Measurement

Under ASPE, the minimum amount is used for an estimate. Because a range is not provided, we will use the best estimate. Given that 475 units ($950,000 / $2,000 per unit) were sold between September and December 202X, and 15% are likely to be defective during the warranty period, this means approximately 71 units (475 units x 15%) will be defective. At an average warranty cost of $500 per unit, this is a total warranty cost of $35,500. Since $15,000 of warranty costs have been incurred, the remaining balance is $20,500.

Conclusion

A contingent loss for the warranty of $20,500 should be recorded as of December 31st.

Key Differences

The main differences between the two include:

• IFRS assesses the nature of the warranty, to determine if it should be assessed using revenue or provision criteria.
• Under ASPE, the term contingent liability is used opposed to the term provision.
• Under ASPE, instead of taking the best estimate or range for measurement, the minimum amount is used.

Overall, under both methods, be sure you are addressing the definition and recognition criteria, and then calculating a measurement of the warranty impact. Be sure to integrate case facts when assessing these criteria to achieve depth! For more information on provisions and contingencies, click here.

Refer to ASPE vs IFRS for other standards that are unique or similar under the two frameworks.

Extra resources

I’m Gevorg. I’m an instructor and CPA Canada exam coach. If you want CPA Canada exam tutoring, sign up for CPA Review courses, for a comprehensive learning package.

If you find yourself wondering whether to order a Performance Analysis Report (PAR) after you receive your Common Final Exam (CFE) results – particularly if it arrives late – the answer depends on your circumstances and when you’re planning to re-write the CFE. Using the May CFE as an example, if you order PAR after September CFE results, you’ll receive the PAR at the start of May, which gives you just 3-4 weeks to analyze and learn lessons from it. Let’s dive deeper on what is PAR, whether it’s worth buying it, and whether it’s worth buying it if you’re gonna get it only a few weeks before CFE. 

What is CPA PAR?

PAR means Performance Analysis Report. If you don’t succeed on the CFE, whether partially or entirely, you have the option to ask for a re-marking and/or a PAR. The PAR gives detailed insights and feedback on the AOs where you didn’t meet the minimum standard, along with guidance on how to improve your performance. It also shows areas where you did well. So it’s like a Feedback Guide, but a bit less helpful because it doesn’t show the grade breakdown, which we call MPIs (minimum proficiency indicators), instead it gives general comments per AO.

PAR is useful because it helps you see where you made mistakes so you can understand why you didn’t pass and where to improve in your next attempt.

PAR is not free. The price ranges from $400-$1,100, depending on your province and the type of PAR you order. You can find CPA Ontario’s PAR fees here.

Here are sample PARs for Day 1 and Days 2/3 of CFE:

• Sample Day 1 PAR
• Sample Days 2/3 PAR

Day 1 CFE PAR & AFR

For CFE Day 1, there is Automatic Feedback Report (AFR) and Performance Analysis Report (PAR). Only Day 1 has this, Days 2/3 have only PAR, but no AFR.

What is AFR? To provide more prompt feedback to unsuccessful Day 1 candidates, the Board of Examiners (BOE) recently started to issue this AFRs for Day 1 . This report is automatically generated based on the candidate’s specific responses and it’s free. It aims to highlight your main shortcomings in the Day 1, thus helping you decide whether to request the comprehensive PAR for a fee.

A lot of students ask me whether the AFR is personalized or generic. It’s both personalized and non-personalized. Here’s what  I mean. The AFR shows where you personally made mistakes. For example, it’ll show that you made mistakes in Strategic issue #1 quants, Strategic issue #2 qual, big picture issue and so on. In this way, it’s personalized to your performance, others will not get the same exact report. However, the commentary inside your report, like: “You didn’t do well in Strategic issue #1 quants due to incorrect quants tool…”, this comment is generic, everyone who made a mistake in this part of the exam will get that same comment. 

Here’s what the AFR looks like:

 

AFR is free and everyone who didn’t pass Day 1 can download it from their CPA portal.

Days 2/3 CFE PAR

Days 2/3 PAR is more comprehensive and gives a breakdown for each case and each AO. You’ll find information such as:

• Where are your specific mistakes
• Example of how to write it better (in 1-2 sentences)
• How you performed on your role
• Assessment by competency area (ie, how did you do in each of 6 technical competencies)
• CPA Enabling skills (how did you follow the CPA Way)
• General findings such as:
  • Did the response appear balanced?
  • Was the response easy to read and understand?
  • Was the response well organized with a logical flow?
  • Did the candidate understand their role?
  • Did the candidate focus their response on the appropriate issues?

Here’s an example of Days 2/3 PAR.

Should you order PAR?

I did a detailed analysis and walkthrough of PARs in this blog post, please review to see if it’s worth it.

Is PAR worth it if it arrives late?

For Day 1, I recommend to first thoroughly review your AFR. It gives you good information what areas you didn’t pass. If you’re still not clear why you didn’t pass Day 1, then I recommend to order the full PAR. Yes it is worth ordering it even if it arrives late. The reason is that, unlike Days 2/3 PAR, it’s only about 13 pages. You can easily review, learn lessons and optimize your strategy in the 3-4 weeks before your CFE.

For Days 2/3, I recommend to order PAR, even if it arrives late, if:

• Your transcript shows you failed in many areas, such as Level 1, Level 2, and Level 3
• You’re on your 2nd or 3rd attempt 
• You have the entire May off work to study for CFE and you have time to review your PAR

Make sure to take the time to thoroughly review it and summarize the key takeaways in your own words. I analyze PARs for my students in my CFE tutoring course, you can consider signing up to take advantage of this support.

Conclusion

In conclusion, deciding whether to order a PAR depends on your individual circumstances and preparation timeline. For most students, I recommend ordering PAR, even if it arrives late. The PAR provides valuable insights and guidance for improving your performance. Thoroughly reviewing the feedback, whether through AFR or PAR, is essential for identifying areas of improvement and optimizing your strategy for your next CFE attempt.

Extra resources

I’m Gevorg. I’m an instructor and CPA Canada exam coach. If you want CFE tutoring, sign up for my CPA CFE Review Course, for a comprehensive learning package.

As you prepare for the CPA Canada CFE, knowing your role subject is very important.  A question that a lot of CFE writers have is this: Should you review in-depth topics outside of your role too? For example, if you have chosen Performance Management (PM) as your role, should you review in-depth Financial Reporting (FR), Management Accounting (MA), and PM topics exclusively, or should you also get very familiar with Finance (FN), Taxation (TX), and Assurance (AS) technicals? This article will give you useful tips and tricks how to study for these secondary topics.

CFE Blueprint

The CFE is designed to assess your competencies across a big range of technical areas and your ability to apply these competencies in real-world scenarios, which we call “cases.” As a PM candidate, for example, your main focus is PM competency. However, this does not mean you should overlook other technicals.

To understand what areas you should be focusing your study time, it’s important to understand the CFE passing profile.

To pass Day 2/Day 3 of the CFE, you must pass the following 4 levels:

• Level 1 – Sufficiency Level: Combined Cs and RCs from Days 2 and 3. This includes all competencies, meaning those outside of your role as well.
• Level 2 – Depth Level: Need C in FR or MA. Regardless of your selected role, FR and MA are tested for all candidates. In one or the other (not both), you need 3 to 5 Cs.
•  Level 3 – Role Level: Score Cs on Day 2 in your assigned role. This is role specific. For example, if your role is Assurance, you will need to score enough C-level grades in Day 2 pass. Aim for 4-5 Cs.
• Level 4 – Breadth Level: This one tests on everything: FR, MA, FN, AS, TX, SG. Counts both Day 2 and Day 3. To pass Level 4, you need at least 2 RCs in all areas.

In summary, studying your role will help you pass Level 3 and Level 4, studying for FR and MA will help you pass Level 2 and Level 4, but you are required to study all competencies to pass Level 1 and Level 4.

The good news is that you don’t have to study these in-depth! For example, if you selected PM as your Day 2 role, you must score Cs in PM. You must also score Cs in FR or MA . However, on Day 3, you can get a mix of RC and C on secondary areas, such as Assurance, Tax and Finance. Aim to get 70% Cs and 30% RCs in these secondary topics.

Tips for Studying non-role AOs

Here are some study tips for the secondary areas:

1. Focus on Core-level topics: There is no need to study complex topics. These secondary areas are tested at the same level as you’ve seen in Core 1 and Core 2. For example, in Tax, you can expect basic questions like personal & corporate tax returns, employee vs contractor, salary vs dividends, but you won’t get tough questions like Section 85 rollovers, re-structuring or amalgamations. Another example is CAS in Auditing. While CAS should be studied for Assurance role writers, it’s not needed for non-Assurance writers. Day 3 assurance AOs are very repetitive, there’s a very low chance you’ll be required to look up CAS.
2. Study historical AOs: Though there are diverse topics that can be tested in Day 3, ~80% of them are repetitions from past CFEs. I recommend that, as you practice Day 3 cases, you spend some time summarizing the AOs in an Excel file. This will help you see a pattern of the repetitive topics. I’ve already done this and have 2015-to-now CFE data in my coaching programs. This strategy will help you study smart and use your time efficiently.
3. Embrace cases and mock exams: Practicing cases and mock exams is the best method in your preparation for the CFE. Past cases provide opportunities to apply knowledge and skills in an environment similar to the actual exam. Similar to how you learn a new language, no matter how much theory you read, it’s the actual experience talking that helps you master the skill.

Conclusion

In conclusion, while your role on Day 2 is the main competency you must master, it’s essential to maintain a balanced approach during preparation. Study your role in-depth. Study FR or MA in-depth. Then study all other topics at the core-level, which means knowing 80% of the subject. Remember, you don’t need to be an expert in these secondary areas; just get comfortable with the basics and common topics. This balanced approach will give you the confidence and skills needed to tackle all parts of the CFE successfully.

Extra resources

I’m Gevorg. I’m an instructor and CPA Canada exam coach. If you want CFE tutoring, sign up for my CPA CFE Review Course, for a comprehensive learning package.

Similar to prior CPA Canada Common Final Exams (CFEs), the May 2024 CFE had two Day 1, one Day 2 and three Day 3 cases.

The following Day 1 cases were tested:

• Neptune Point Fisheries Inc. (NPF) V1 (Download)
• Kingsdale Tea Inc. (KTI) v2 (Download)

The following Day 2 and Day 3 cases were tested:

• Day 2 (Download)
  • Fancy Luxury Jewellery Inc. (Fancy) (300 minutes)
• Day 3 (Download)
  • Best Buddies Inc. (BB) (85 minutes)
  • Laura Saeed GR Inc. (LS) (85 minutes)
  • Lotoski (70 minutes)

For the September 2024 CFE, the following Day 1 cases will be tested:

• Amuzu Parks Inc. (API) v1
• J.R. Pets Inc. (JRP) v2

For the May 2025 CFE, the following Day 1 cases will be tested:

• Neptune Point Fisheries Inc. (NPF) v2
• (New case to be announced later in 2024)

For the September 2025 CFE, the following Day 1 cases will be tested:

• Amuzu Parks Inc. (API) v2
• (New case to be announced later in 2024)

Where can I get the solutions?

The solutions will NOT be released by CPA Canada until 2025. I have written sample strong answers to May 2024 CFE cases. These are realistic answers that you can use for self-debrief or send for marking. You can get them from here.

Will I get these cases in Capstone 2?

If you are registered for the Capstone 2 module for Summer 2024, you will not receive these cases at the module. You should download using the links above. If you are someone challenging the exam, such as an internationally trained accountant applying under MRA/MOU, please also download using the links above.

How do I prepare for the CFE?

There are several prep methods for the CFE. You will need to focus on these three items:

1. Technical knowledge
2. Case writing skills
3. Strategy

I speak a lot about these items on my YouTube channel and webinars. You can check out my latest videos.

Technicals:

• Know the key topics on each of the competencies
• Distinguish depth from breadth
• Debrief

Case writing skills:

• It’s all about following the CPA Way
• Know your case inside out
• Integrate throughout the case

Strategy:

• Prepare a study plan
• Obtain study materials
• Get support and resources

Pass the CPA Canada CFE Exam

I’m Gevorg. I’m an instructor and CPA Canada exam coach. If you want tutoring with me, sign up for my CPA CFE Review Course, for a comprehensive learning package.

In CPA Canada’s CFE, Core 2 and PM exams, you can expect to see complex management accounting (MA) topics tested. One example of such topic is equivalent units. Understanding how to calculate equivalent units is a fundamental concept, particularly in the context of process costing. This is often tested, particularly for the Core 2 multiple-choice questions (MCQs). Determining equivalent units are important in determining total units of production, but it also influences cost allocation decisions in manufacturing processes. In this article, you will see the comparison between FIFO and weighted average, with an easy to understand example.

What’s the point of process costing?

Process costing is used to figure out how much it costs to produce items that are very similar or identical, like chocolate bars or cans of soda. In this costing system, costs are tracked for each step, or “process,” in the production, and then the total cost is divided by the number of units produced. This way, we can find out the cost per unit. It’s useful for companies making large quantities of similar products because it helps them understand cost per item.

Something similar to process costing is job costing. While process costing tracks costs for huge number of identical products, job costing tracks costs for specific, individual jobs or orders, which are often unique. For example, building a custom piece of furniture or a unique construction project would use job costing. In this case, we would track the costs of materials, labor, and overhead for each specific job separately. Both methods help businesses understand and manage their production costs, but they are used in different situations based on the type of products being made.

How does process costing work?

Process costing works by tracking the costs of each step, totaling the costs, and dividing by the total number of items produced. This is called the Weighted Average method and there are other methods too (discussed below).

Example:

Imagine a company that makes chocolate bars. They have 3 main steps in their production process:

1. Mixing ingredients
2. Molding the chocolate into bars
3. Packaging the bars

In process costing, the company tracks costs at each step. Let’s say in one month, the costs are as follows:

1. Mixing ingredients: $1,000
2. Molding: $800
3. Packaging: $200

In that month, the company makes 10,000 chocolate bars. To find the cost per chocolate bar, they add up all the costs ($1,000 + $800 + $200 = $2,000) and then divide by the number of chocolate bars (10,000). So, the cost per chocolate bar is $2,000 ÷ 10,000 = $0.20.

This means it costs $0.20 to make each chocolate bar, and this helps the company understand their production costs and set their selling prices.

What’s Equivalent Units?

Equivalent units (EU) is a way to measure partially completed products as if they were fully completed. The reason we do it is because it helps to calculate the costs of products that are not yet finished at month-end or year-end. Without this, we can’t assign costs to products in different stages of completion, so we won’t know the true costs at period end.

For example, a factory is making chocolate bars and they have 200 bars that are halfway done at month-end. Instead of counting these as 200 incomplete bars, we use equivalent units to measure them. Since they are halfway done, it’s like having 100 fully completed chocolate bars. This helps the factory calculate costs more accurately for the partially finished products.

What’s FIFO and Weighted-Average?

FIFO (First-In, First-Out) and WA (Weighted-Average) are methods used to assign costs to units produced. FIFO assumes that the oldest costs are assigned to the units completed first. For example, for a factory is making chocolate bars, FIFO means the cost of the ingredients and labor from the beginning of the production period are used first to calculate the cost of the finished bars. This helps to track the flow of costs more accurately based on the production timeline. On the other hand, the Weighted-Average method blends all the costs together to find an average cost per unit. So, if the factory had different costs for chocolate bars at different times, the Weighted-Average method would add up all the costs and divide by the total number of bars produced to get a single average cost per bar. This makes it easier to calculate costs when there are many different costs over a period.

FIFO, WA, and EU are all tools used to calculate the cost of producing products. A company will choose either the FIFO or WA. Equivalent units help measure the production activity by converting partially completed products into an equivalent number of fully completed products. The FIFO method uses these equivalent units by assigning the oldest costs to the units completed first, which helps track costs in the order they were incurred. The Weighted-Average method, on the other hand, averages out all the costs over the period, using equivalent units to find a single cost per unit for both completed and partially completed products. Together, equivalent units and the chosen method (either FIFO or Weighted-Average) help companies accurately calculate production costs.

What’s conversion costing and WIP?

Conversion costing is the cost spent to turn raw materials into finished products. For example, in the case of chocolate bars, conversion costing means the cost for mixing, molding, and packaging. Work In Progress (WIP) are the products that are still being made and not finished yet. In the case of chocolate bars, WIP means the bars that are partially made and not ready to be sold.

Full Example

Let’s imagine a chocolate bar manufacturing company.

• Beginning Inventory: At the start of the month, the company has partially finished chocolate bars. These bars are 70% complete in the process (mixing, molding, and packaging) and have all the necessary materials (100% complete for materials like cocoa, sugar, and milk).
• Ending Inventory: By the end of the month, the company has some chocolate bars that are still in the production process. These bars are 20% complete in terms of the conversion process and have all the necessary materials.
• Units Started: During the month, the company starts production on 200,000 chocolate bars.
• Transferred Out: By the end of the month, 160,000 chocolate bars are fully completed and moved out of the production line to be ready for sale.
• Ending Inventory: There are 90,000 chocolate bars still in production at the end of the month.

In CPA Canada exams, this information would be presented like this:

The requirement is to determine equivalent units (EU).

Solving under FIFO:

FIFO separates the cost of current work, and work in beginning inventory. It also assumes all beginning WIP are transferred out first (i.e. FIFO is first-in, first-out). This means that the ending WIP is what was started in the current month.

Under FIFO, the approach would be:

• Step 1: If we started 200k units this period, and transferred out 160k units, with 90k units left in ending inventory, this means we had beginning inventory of 50k units (160k units transferred out + 90k units in ending inventory – 200k started this period). This also means 250k units were worked on during this period (160k units transferred out + 90k units in ending inventory). Because 100% of materials are used at the beginning of the process in FIFO, 0% of materials need to be added to complete the beginning inventory. For conversion costs, only 70% is added at the beginning, which means 30% is needed to complete beginning inventory. Think of this as what you have left to do, or what is left to complete the inventory.
• Step 2: Now we need to determine the units started and completed. This means that these units are 100% completed with respect to conversion and material costs. If we started with 50k units in beginning inventory, these units would have been transferred out first as part of FIFO. Since we transferred out 160k units, this would leave 110k units that were started and transferred out in addition to the beginning inventory.
• Step 3: For ending inventory, you will take the ending inventory units, and multiply them by their corresponding percentage of completion. This will become your beginning inventory for the next period.

For total EU, this is the sum of the beginning inventory, the units started and completed, and the units still in the ending inventory. The answer is 200K EU for materials, and 143K for CC.

We format our answer in CPA Canada exams like this:

Solving under WA:

Weighted average takes the units completed during the period and adds it to your ending WIP.

• Step 1: Identify the units completed (transferred out) – Units being transferred out are transferred with both material and conversion costs. This would be 160,000 for both.
• Step 2: Identify the ending WIP – For materials, there is 100% completion, and with 90,000 units in ending inventory, this would be 90,000 units for materials. However, there is still work to be done on these units, as conversion costs are only 20% complete. Using the WA method, we don’t specifically know which units are complete, so the 20% will be applied to the full 90,000 units.

For total equivalent units, this is the sum of the units transferred out, with your ending inventory. The answer would be 250K EU for materials, and 178K for CC.

We format our answer in CPA Canada exams like this:

Conclusion

Both FIFO and WA methods calculate equivalent units to determine the total units of production. The specific calculation differs in terms of how ending work in process inventory is treated: FIFO focuses on the partially completed units in ending WIP inventory separately, while the WA method combines all units completed and in process to calculate an average cost per equivalent unit.

Extra resources

Extra resources are available in Gevorg’s CPA review programs.

As you’re working toward your CPA Canada designation, the CPA Canada Practical Experience Requirements (PER) can seem daunting. One common question I get is: “Can I submit experience reports on items not pre-assessed by CPA Canada, and will it impact my ability to get that experience accepted?” Here’s a straightforward answer to help you navigate this part of your CPA journey.

Understanding the Pre-Assessment

The pre-assessment is designed to ensure you have at least one Level 1 technical competency, which allows you to start reporting your experience. However, it’s important to know that this pre-assessment isn’t rigid.

You aren’t restricted to only those tasks or examples that were pre-assessed.

It’s perfectly fine to write about examples and job tasks that differ from what was pre-assessed or even from your initial job description. As you progress in your career, it’s normal—and expected—to take on tasks beyond your original scope of work. Promotions, new tasks, and special projects often come your way, adding valuable experiences that weren’t part of your initial role.

What Really Matters in PER

Here’s what truly counts in your PER submissions:

1. Complexity: Ensure your examples demonstrate relevant and complex tasks.
2. Exposure: Have at least 3 examples for level 2.
3. Supervisor support: Your supervisor must support you by providing extra tasks and special projects.
4. Following guidelines: Follow the guidelines provided by CPA Canada and my templates for your PER submissions to ensure you hit all requirements.

The pre-assessment is a starting point, not a limiting factor. Your evolving job responsibilities and the additional experiences you gain are valuable and should be included in your reports. The key is to clearly articulate how these experiences meet the CPA competencies and get them validated by your supervisor.

Conclusion

In summary, don’t worry too much about sticking to the pre-assessed items. The pre-assessment’s primary role is to ensure you’re on the right track. As long as you provide relevant, complex examples and follow the necessary guidelines, your additional tasks and responsibilities will contribute positively to your CPA Canada PER.

Extra resources

Extra resources are available in Gevorg’s CPA PER Review programs.

Successfully completing the CPA Canada Common Final Exam (CFE) requires lots of preparation and adaptability. Although your studying will cover a range of technical topics, coming across new AOs during the exam is highly probable, adding an unpredictable element to the challenge. In this article, you’ll learn smart approaches and clever exam tips for addressing unfamiliar AOs to help you pass.

New CFE Day 1 AOs

Let’s say you’re writing Day 1 and you come across an unfamiliar AO. This can a strange strategic issue or a quants you’ve never seen before. Don’t panic. The AOs may change, but the structure of Day 1 remains unchanged. Follow the standard CPA Way framework:

• Issue statement – What strategic decision needs to be made? Summarize it in a single sentence.
• Quantitative analysis – The Day 1 quants are driven by the BOD objectives and the case facts in dialogue / Appendices. Review the BOD objectives one more time and link to the appendices. What are the objectives? What quants makes most sense here? Given the available information, what reasonable calculation can you do? For example, if EBITDA multiple is given, valuation is a reasonable calculation. If a discount rate is given, NPV is a reasonable calculation. If multiple products are given, a CM analysis is reasonable.  You can practice a range of calculation exercises using the Day 1 Quants Mastery.
• Constraints / Objectives –Discuss the effect on the company’s financial and non-financial constraints, as well as the objectives.
• Qualitative analysis – No matter how different an AO is, the qual remains the same: compare the advantages and disadvantages (i.e. pros vs cons). Format your quals as case fact + implication statement + impact + integration (where relevant). Each pro and con should specifically say why it is is advantage or disadvantage for the company, which is covered in the “impact” part.
• Recommendation – Based on quantitative, constraint, objectives and qualitative, recommend the company to proceed with the strategic issue or not Be sure to justify your recommendation and speak about the strategic direction this AO supports.

In Day 1, you often don’t see new AOs; the exam format and content is repetitive. The biggest hurdles are:

• Finding the strategic issues
• What quants tool to use
• Strategic direction
• Additional (operating) issues

For more help with Day 1, review my coaching resources and read this blog on how to approach the Day 1.

New CFE Days 2/3 AOs

New AOs in Days 2 and 3 are typically “time traps.” They are long, convoluted AOs that will take too much time to solve. Here are some tips on how to handle them:

• Required: Read the required carefully. What are you being asked to address? What triggers jump out at you? For example, let’s say the case says: “Yasmin asks you to prepare a capital budget analysis of the project, discuss assumptions and risks that would affect your analysis, and make a recommendation.” The triggers are: capital budget analysis, assumptions/risks, recommendation. This is what you have to do: calculate the capital budget in Excel (which usually means NPV), write assumptions/risks in Word memo, and come up with a recommendation. Even if the Appendix is confusing and gives you lots of information, keep the required in mind and simply answer it to the best of your ability. 
• FR / Audit / Tax: If you encounter an FR, Audit or Tax issue you’re not familiar with, use Knotia (eg. CPA Canada Handbook) to search for the keywords and find the applicable standard. As navigating Knotia can be challenging without prior experience, I recommend you dedicate a portion of your debrief time to familiarize yourself with Knotia. Understand how to access it, where to search, and the most effective approach to exploring the various sections. A tip for finding results quicker is to use quotation marks. For example, if you have a tax AO about operating benefit, search using quotation marks (“operating benefit”) which will make Knotia look for that specific phrase, as opposed to each word separately. This will help you find the criteria faster.
• Apply case facts: When you don’t know, or can’t find, the technical, then your best strategy is to write a logical statement and apply case facts. For example, let’s say the case required says this: “CPA, I would like you to discuss the pros and cons of adopting blockchain technology for ABC company.” You may not know anything about blockchain technology and you won’t find much in the Knotia, so your recourse is to write something logical and apply case facts. From my personal life and professional experience, I know blockchain is a decentralized technology that records transactions across many computers so that the record can’t be altered. I’ll convert this piece of knowledge into a full AO answer: Here’s an example:
  • Issue: You would like me to discuss the pros and cons of adopting blockchain technology.
  • Analysis: Pros of blockchain:
    • Once recorded, transactions can’t be altered in blockchain, which increases the reliability of ABC’s records, thus helping to [insert case fact, like meet its new strategic mandate of having reliable records].
    • It enhances the ability to track the origin and movement of goods, given that blockchain provides reliable updates and unaltered records, improving ABC’s inventory management and accountability, which is important given that [insert case fact, like ABC has a new user like an investor].
  • Cons of blockchain:
    • High initial cost and complexity of setting up blockchain technology can strain ABC’s budget and resources, which is undesirable given [insert case fact].
    • Integrating blockchain with existing systems can be difficult and time-consuming, while the management is time constrained given the [insert case fact, like one of key managers resigned.]
  • Recommendation: Based on above qual analysis, I don’t recommend implementing blockchain technology given the costs, integration challenges, and the current time and financial constraints ABC is facing with the [insert case facts, like management turnover or bank loan repayment].
• Always recommend: Provide an overall conclusion regarding the treatment for the specified issue, incorporating case facts and considering the impact on users. As most AOs require a conclusion to obtain a C, allocate your final minutes on an AO to briefly summarize your findings.

Conclusion

Handling new and unfamiliar AOs on the CFE and other CPA Canada exams requires staying calm, using Knotia, and relying on your existing knowledge. This includes following the established format for addressing AOs (ie, CPA Way), your work experience, your general life knowledge and integrating case facts. The goal is to stay calm, aim for RC, and manage your time.

Extra resources

Extra resources are available in Gevorg’s CPA review programs.

Day 1 on the CPA Canada CFE exam is focused on testing your understanding of strategic analysis and applying this technical knowledge on a single case. This case is based on Capstone 1, set a few years in the future, with a new set of strategic options to decide on. All of these strategic options will require a quantitative analysis, some of which you will need to apply a discount rate. But if the Day 1 exam has not provided you with a discount rate, what rate are you supposed to use? Here’s the answer.

Use Capstone 1 rate

If an updated discount rate is not provided on Day 1, you can use the Capstone 1 discount rate. When you do this, you must also add an assumption highlighting where you obtained this amount from (i.e. Capstone 1 case).

It’s not often that an updated rate in not given in Day 1, they usually provide you with a new rate. However, certain inputs, including the discount rate, may not be updated or reiterated in the case and this has happened in past CFEs. This shows the importance of thorough review of the Capstone 1 case before your exam.

Since you will have access to the Capstone 1 case during the exam, you are expected to reference important details from it. To streamline this process and save precious time during the exam, I recommend you create a cheat sheet containing essential information, with page numbers, for quick reference. This includes the discount rate used in Capstone 1. For example, in the NPF Capstone 1 case below, the discount rate was given in one of the Appendices and this can be re-used in the Day 1 exam if a new rate is not given.

Can you use another rate?

Some CPA solutions use the rate from the objectives as the discount rate. Rates from the Financial Statements, such as the bank interest rate, has also been used. These are also acceptable and can be used instead of the Capstone 1 rate. When you use any of these rates, make sure to state them in the assumptions. 

Why do you need the discount rate?

There are several calculations that could require the use of a discount rate. Some of the more common assessments include:

• NPV: This is the most common quants tool where you use a discount rate. You would perform NPV when determining if a project will generate positive value or not. The NPV analysis involves discounting all future cash flows associated with a project or investment back to their present value using a discount rate.
• IRR: This is another important quants tool used in capital budgeting where you would use the discount rate. The Internal Rate of Return (IRR) is the discount rate that makes the NPV of all cash flows from a particular project equal to zero. In other words, it’s the expected annual rate of return that will be earned on a project or investment. You would calculate the IRR and compare to the discount rate. If the IRR exceeds the discount rate, the project is considered worthwhile as it is expected to generate a positive return. If the IRR is less than the discount rate, the project is likely to be rejected.
• Valuation: When valuing a company or a project, one method that can be used is the discounted cash flow (DCF) analysis. In this case, future cash flows are discounted back to their present value using a discount rate to determine the current worth of an asset or investment. However, Day 1 rarely requires a DCF valuation, most of the time it’s multiples based (eg, EBITDA x5).

Conclusion

In summary, when the discount rate for Day 1 is not given, use the Capstone 1 case discount rate, a rate from the Day 1 objectives, or the rate from another appendix (such as Financial Statements or another proposal). All of these methods are acceptable, just make sure you note it in your assumptions.

Extra resources

If you’re struggling with quants, the Day 1 Quants Mastery toolkit is a valuable resource to practice with.

As you’re studying for CPA Canada CFE and PEP exams, outside of the commonly tested ASPE and IFRS topics, it’s also important to know the Public Sector Accounting Standards (PSAS) and the Accounting Standards for Not-for-Profit Organizations (ASNPO), as these are included in the CPA Canada Competency Map.

What’s PSAB?

The Public Sector Accounting Board (PSAB) is a Canadian organization responsible for establishing accounting standards for the government, crown corporations, and other public entities in Canada. Some examples are the federal, provincial, and municipal governments, such as the City of Toronto in Ontario, Canada. The City of Toronto would be required to report its financial statements, cashflows, and operational results following Public Sector Accounting Standards (PSAS).

The PSAB sets the PSAS, it helps to guide financial reporting to provide accountability and transparency to taxpayers and public funds. They are based on the principles of fund accounting, which emphasizes tracking and reporting funds separately for specific purposes or activities.

The PSAB standards are in the CPA Canada Handbook:

Is PSAB tested on CPA exams?

Public Sector Accounting standards are not typically tested on CPA Canada exams, so you shouldn’t spend too much study time here. However, some topics that could theoretically be tested include:

• Introduction to the public sector accounting handbook (para’s: .02, .04-06, .09, .17).
• Fund accounting principals
• Accounting for government activities such as taxes and grants

What’s ASNPO?

ASNPO are the accounting standards specifically for not-for-profit (NPO) organizations in Canada, such as charities, associations, and clubs. NPOs can be organized and operated for social, educational, religious, health, or professional purposes, without the mission of earning a profit. For example, a community health center in a specific geographic location. These standards are developed by the Accounting Standards Board (AcSB), to meet the financial reporting needs of NPOs to provide transparency to stakeholders and donors (which are the key users).

The standards are in Part III of the CPA Canada Handbook:

They address items unique for NPO organizations, including contributions, collections held, and reporting controlled and related entities. Where items aren’t included in this section, you must refer to ASPE standards.

Is NPO tested on CPA exams?

NPOs have been tested previously, especially in Core 1 and CFE Day 3 cases, so it’s important you practice this standard. The ASNPO is also tested in MCQs of the Core 1 Module. Common AOs tested under these standards include:

• 4400 F/S presentation
• 4410 Contributions revenue rec.
• 4420 Contributions receivable
• 4433 Tangible capital assets
• 4434 Intangible capital assets

For information on how to access both of these standards, check out this post where I discuss the CPA Canada Handbook.

Conclusion

In summary, PSAB focuses on establishing accounting standards tailored to public sector entities, like crown corporations, whereas ASNPO focuses on standards related to not-for-profit organizations, like charities. Each set of standards is custom designed to meet the distinct needs of the sectors and users. Both standards can theoretically be tested on the CPA Canada exams, though less likely for PSAS, and they are covered in the CPA Canada Handbook.

Extra resources

Extra resources are available in Gevorg’s review courses.

 The much-anticipated CPA Canada New Certification program (NCP), initially slated for 2025, has now been pushed back to 2027. This delay is significant, not just for its impact on timelines, but also for what it means for current and prospective CPA Canada students who must make critical decisions about what educational paths to choose.

Understanding the 2027 delay

Recent communication from CPA Ontario and other CPA provincial bodies have confirmed that the launch of the CPA Canada New Certification Program has been postponed to early 2027. This delay comes from financial struggles in CPA Canada, highlighted by layoffs and the withdrawal of Ontario and Quebec. These internal issues are raising concerns with me about the readiness and robustness of the planned new program.

Below is the communication from CPA Ontario on May 3, 2024:

Will there be CFE in the new CPA program?

Last year, CPA Canada said they want to shift away from the traditional three-day Common Final Examination (CFE). Today’s update suggests this will still be the case.

CPA Canada seems to be planning to offer “summative examinations” that incorporate case-based evaluations,  like the current CFE, but segmented into three different parts.

Below is the Draft Model, it’s not the final model, which in my opinion hints on what the new program may look like:

Above draft model, from 2023 presentation I was part of, proposed a four-level structure. Levels 1, 2 and 4 would have summative exams, similar to what CPA Canada noted in the recent update. The third level won’t have a formal exam but rather an assessment of workplace competencies.

If this draft model holds, it will alter the CPA pathway, giving you more flexibility and reducing the pressure of a single, high-stakes exam.

Additionally, the above draft model is similar to how other accounting bodies around the world hold their exams, which is my opinion is what CPA Canada is shifting towards: they want to align more closely with global standards and practices in the accounting profession.

Will the CPA exams be the same in all provinces and territories?

Yes, CPA Canada exams under the new certification program are expected to be the same across all provinces and territories. This is confirmed by CPA Ontario’s update.

This is beneficial for our CPA profession, consistency will help to maintain a standardized level of knowledge and competency among all Canadian CPAs, irrespective of their region.

Can you switch to the new CPA certification program?

Yes, you can switch to the new CPA certification program once it launches. CPA Canada is creating policies to help you move from the current program to the new one. I expect to see CFEs up to 2028, 2029 and maybe more, until all current students finish the current program and new students start the new program.

The update also said that if you transition, you’ll get exemptions so you won’t have to re-do the exams you already passed, you’ll be placed at a higher level in the new 2027 program.

Can you take the new 2027 program if you didn’t pass CFE three times?

There is no information whether you can register into the new program if you didn’t pass PEP or CFE exams three times and you were de-registered. I will update this as I get new information.

Should you wait or take the exams now?

The big question is: should you wait for the new 2027 CPA program or continue with the current CPA pathway? If you have the flexibility to delay your CPA certification, for example you don’t have CPA program expiry deadline or immediate need for the CPA designation, then I recommend to wait. You’ll get the advantage of seeing what the new 2027 program looks like and deciding which one is easier to pass.

However, if you need to get your CPA sooner, or your program expiry is coming up, it’s better to finish under the existing structure now.

Currently, we have many past exam papers to learn from and practice with, while the new program is new and different, so it may be more challenging to pass the new program, rather than the current one, simply due of lack of past exam cases. This makes the current program more advantageous.

Below is the new Competency Map 2.0 structure that will be built into the new program’s examinations.

Conclusion

The CPA Canada New Certification Program is going to be the biggest change since the unification of CA, CGA and CMA legacy designations in 2014. There’s a delay in the program’s start date from 2025 to 2027 and we know that there will be three summative examinations. It’s not clear now whether there will be CFE-like back-to-back exams or separate exams. The exams will be the same across all provinces and territories and current students can switch to the new program without losing their progress.

I recommend to wait if you can, otherwise continue with the current program and use the past exam papers to your advantage, as these won’t be available in the new program since it’s being built ground-up.

As CPA Canada keeps working on these updates, it’s important to stay updated. If you’re working towards becoming a CPA or thinking about starting, make sure to subscribe to my YouTube channel to stay informed about the changes and how they will impact you.