The Common Final Exam, or the CFE, is the last exam of the CPA Canada’s PEP program. 

 

 

 

CFE is made up of 3 days of continuous examination: Day 1, Day 2 and Day 3.

Day 1 is 4 hours, Day 2 is 5 hours, and Day 3 is 4 hours. The whole exam is like a triathlon:

• Day 1 is the “warm up”
• Day 2 is the “marathon”
• Day 3 is the “sprint”

You warm up on Day 1, because you’re just getting into case writing. On Day 2, you have the longest case and you’re going into depth, which is why it’s called the marathon. Day 3 is when you’re moving quickly, so it’s the sprint.

Day 1 CFE

Day 1 doesn’t have a lot of technicals, you get only 1 comprehensive case which is based on the same company that came up in your Capstone 1. They will take that same company, move it forward 3 or 4 years, and give you new problems to solve. It’s meant to test your case writing skills, management accounting (MA) and finance technicals.

The strategy to passing Day 1 is to follow the CPA Way format, avoid fatal flaws and integrate. The CPA Way is to:

• Assess the situation,
• Analyze major issues
• Conclude
• Communicate

You should start your case with a Situational Analysis. This includes mission, mission, values, SWOT, key success factors, objectives and so on. You then move to Analyzing major issues, then you Conclude, and then wrap up the memo with an overall recommendation.

Fatal flaw means not providing useful qual or quant, making unsupported conclusions, providing generic discussions and not providing a balanced analysis. To provide useful quant, you need to study MA and Finance. Some of the quants include: net present value (NPV), payback (PB), return on investment (ROI), contribution margin (CM), make or buy, valuation, profitability, lease vs buy and so on. I have detailed lessons on how to tackle these quants with templates in my CFE Review program.

Integrate (“tie in”) means connecting the first part of the case (Situational Analysis) to the rest of your memo. For example, if you have a SWOT threat that the government will increase taxes in Eastern Canada, you can write in your pros that if the company opens the new branch in the Western provinces, then it will mitigate the threat of the potential tax increase.

Day 2 CFE

Day 2 has a new comprehensive case. It’s a very long case, more than 40 pages long, with 5 hour duration, and it has two parts. The first part is called Common, the second is Role.

Common is the same for everyone in Canada. It has only Financial Reporting (FR) and/or MA questions.

Role is based on the specific area that you choose. You have 4 options:

• Assurance
• PM
• Tax
• Finance

You choose the role when you register for the CFE and you ignore all other roles. For this reason, you don’t read the entire 40 pages of Day 2 case, you read only the Common and your Role, which is 20 to 25 pages.

Most students choose the role that they took as an elective, and for most people, it’s Assurance or PM. Even if you’ve never worked in assurance, it’s still recommended to take that as your role, because it has fewer technicals compared to other roles.

If you’re thinking of opening your practice and doing taxes or audits, there are specific requirements on what role you have to choose in the CFE, so make sure to check your province’s licensing requirements before you pick your role.

Strategy for the day 2 is to pace yourself. It’s the depth day, which means you have to go into depth and analyze all the questions very thoroughly. Day 2 has 12 to 14 AOs. You should expect to write 12 to 14 pages for a Day 2 case. I suggest spending 1 hour reading the case, 2 hours on the common area, and 2 hours on your role.

The second strategy is to aim for C. I will talk about the passing profile later in this blog. The way the CFE is marked, you must get Cs in Day 2 to pass CFE.

Day 3 CFE

Day 3 has 3 to 4 multi-competency cases and you’re going to get AOs on every topic: FR, MA, audit, tax, finance, and governance. This is why it’s called the breadth day, you have a big breadth of topics to tackle.

The problem with Day 3 is the time crunch. You’re writing 3 different cases, on the third day when you are extremely tired, and you get hit with every kind of AO. You’ll get 5 to 8 AOs per case and there will be 18 to 22 AOs in total.

The strategy for Day 3 is to move quickly and touch on everything. This is the day where you want to get mostly RCs, with Cs in the easier AOs and FR (or MA). 

The second strategy is to budget your time. When I’m coaching students and marking their cases, I see the same pattern: first two cases are done really well, then the 3rd case is halfway finished. It’s very easy to lose track of time in Day 3. It’s important to write how many minutes you’re gonna spend on each AO and stick to your time budget.

How to Pass CFE

Day 1 and Days 2/3 are graded separately. You may pass Day 1 but fail at Days 2/3, or vice versa. If you pass Day 1,  but fail Days 2/3, you have to re-do only Days 2/3, you don’t have to re-do the entire 3-day exam.

Day 1 is graded holistically, which means you’re graded on the following:

• Did you follow the CPA Way?
• Did you integrate well enough?
• Did you provide a useful qual and quant?
• Did you provide a balanced analysis and supported conclusions?
• Did you consider the constraints?

Days 2 and 3 are graded per the passing profile below:

To pass CFE Days 2/3, you have to pass 4 levels.

First level is called the sufficiency level. It means the sum of all Cs and RCs you got across Days 2 and 3. Days 2/3 will have 31 to 34 AOs in total and you should get as many Cs and RCs as possible. They’re gonna take every candidate who’s written this exam and they’re gonna add up all the Cs and RCs. For example, C may be worth 6 points, RC will be 3 points, NC and NA will be 0 points. They will list everybody, add up their scores and pass a certain threshold. This threshold is determined every year by the Board of Examiners depending on some factors: how well everybody did, how many CPAs are needed in the market, previous pass rates, and so on. If you don’t pass Level 1, you’re gonna get a decile ranking.

Second level is the depth level. This level checks how good you are with FR or MA, because these are the core competencies in the CPA program. The goal is to get 3 to 5 Cs in FR or MA. This number changes every year depending how well everyone did, but generally this is a good guideline. Notice that it’s FR “or” MA. You don’t need 3 to 5 Cs in both, in FR or MA.

For both Levels 1 and 2, you are graded on how well you did in Days 2 and 3, so both days are your assets.

Third level is your role level. In here, they’re counting how many Cs you got only on your role, only on Day 2. This means you’ll have only Day 2 to do a great job and that’s a problem. If you do badly in your role in Day 2 and you think you will catch up on Day 3, it won’t work. You have only Day 2 to score Cs in your role. This means you should focus on getting Cs on your role in Day 2 because you have only one chance to pass your role. If you fail at Level 3, it doesn’t matter if you passed levels 1 and 2, you’re gonna fail the entire Days 2/3 exam.

Fourth level is the breadth level. The idea behind level 4 is to check if skipped any competencies. For example, if you don’t like Finance, and you want to completely skip it in the entire exam and do a good job everywhere else, it won’t work. They want you get RC at least once or twice in every area. Though students do fail at Level 4, it’s relatively easier to pass. If you’ve gotten through Levels 1, 2 and 3, that means you got a lot of Cs and RCs everywhere, so if you haven’t skipped anything, then you’ll pass Level 4.

The average CFE pass rate is about 67%, yet over and over students are not successful at CFE because they don’t understand the structure of the exam, what strategies to use, they don’t practice enough cases, don’t get case marking, they have weak technicals, or they don’t have live, one-on-one support from mentors.

All these support resources are available in the highly-rated CFE coaching program called CFE Review.

 

You’ve successfully completed Capstone 1 and have one final module before you can arrive at the CFE. You’re almost there! Below is a guide to ensure you are well prepared for this next 8-week course.

What is Capstone 2?

Capstone 2 has only one objective: to prepare you for the CFE. It has no exam, no facilitator, and no new technicals to learn. Essentially this module is designed to ensure you are eligible to proceed to writing the CFE. Capstone 2 provides you two things:

• Practice cases for the CFE
• Marking by the national marking centre (NMC)

To pass Capstone 2, you must attend the module workshop, complete module workshop activities, and reach at least 75% on the weekly activities.

Structure of Capstone 2

The module’s activities include:

• 12 marked practice cases
• 2 marked module workshop cases
• 4 unmarked practice cases
• 2 surveys (one at the module workshop and one at the end of the capstone)
• Capstone 2 introduction quiz
• Academic honesty quiz
• Module workshop participation

The practice cases given to you in Capstone 2 are all past CFE cases (except Day 1 practice cases, which are new every year). You can download these past CFE cases ahead of time from the CPA Canada CRC. In the CRC, you can find them in the “CFE Reports,” which are 300-400 page documents that summarize each CFE. You will need to open the CRC webpage, download all reports, scroll through and extract the exam cases/solutions one by one. I’ve already extracted and organized them in my CFE Review course.

Realistically it is not challenging to pass Capstone 2. Your target is not to “pass it” (you will certainly pass), but rather to use the marking and resources to study for the CFE. 

Capstone 2 resources

Here’s a list of resources:

• To kick off Capstone 2, a module workshop will be held to provide you with information and practice session of all three CFE days. 
• Weekly webinars that are hosted by each region. These webinars will cover technical topics encountered in weekly practice cases.
• Facilitator-monitored discussion board for questions, announcements and can even be used to find study partners.
• A sample CFE study calendar and a Capstone 2 calendar of when cases are due.
• Video walkthrough and spotlight videos on various topics related to the CFE.
• Marking of your cases by the National Marking Centre (NMC)
• Sample strong answers to the practice cases
• Feedback guides, debrief notes, and walkthroughs to the practice cases.

What’s not available in Capstone 2:

• Assigned facilitator to ask questions and get feedback (you post in forums for someone to answer)
• Personalized marking of cases (NMC marking is generic and impersonal)
• Additional practice cases for Day 1 (you get only 3 practice versions)
• Marking of additional cases
• Technical practice drills to develop your skills in a specific technical area

Case submissions

Throughout Capstone 2, you will need to submit your cases to NMC for marking. Your case responses must be written in Word and Excel, and uploaded to D2L dropbox. Submissions containing an extra file (for example, two Word files) will not be marked. 

The Excel portion of case responses must be written using only one worksheet. Don’t  use multiple worksheets (tabs).

The naming convention is also different from prior modules. You must use your candidate ID number in place of your name. For example, a Week 2 Day 3 practice case would be “1234567_W2D3.docx”. Note that not all cases are to be submitted on Friday. Refer to the Capstone 2 calendar for the submission deadlines.

Feedback received in Capstone 2 

NMC will provide feedback on the 2 module workshop and 12 practice cases throughout the module.

Quartile performance scores will be provided to help you determine where you rank in relation to overall population.

Once you receive feedback, you should compare the total score from your feedback guide to the quartile performance document. This will help you determine where you rank in relation to overall candidate performance. For cases that are not assessed by the NMC, the quartile performance is based on historic candidate results.

Mock cases

During week 4, you’ll write a “mock CFE.” The mock CFE is a simulation of the CFE exam: you’ll write back-to-back x1 Day 2 and x3 Day 3 cases. Day 2 should be written in five hours, and the Day 3 cases in four hours. The mock CFE will help you gauge how ready you are for the exam,

For the mock CFE Day 3 cases, you must write each case in a separate Word and Excel file and submit to the corresponding dropbox in D2L. This is different than the CFE, where the response for all three Day 3 cases will be written in one Word and one Excel file.

CPA Canada strongly recommends that you wait until Week 3 of Capstone 2 to write the mock CFE. This will ensure that you have received feedback from the National Marking Center on their Week 1 and 2 practice cases and are provided with an opportunity to apply some of the skills they have learned on the mock CFE.

Should you take Capstone 2 if you’re MOU student?

As a internationally trained accountant, you have the option to take Capstone 2, but it’s not required. I don’t recommend taking Capstone 2 due to limited exam-prep resources in that module. Instead, consider taking more personalized exam coaching program.

Should you take Capstone 2 if you’re re-taking CFE?

If you were unsuccessful at the CFE, you can choose to re-take Capstone 2 before your next attempt. Here are my suggestions:

• If you need to re-write only CFE Day 1, don’t re-take Capstone 2.
  • If you are writing version 2 of your Day 1 exam case, then use the 3 practice cases you received previously to study.
  • If you’re writing a new Day 1 exam case, then purchase only the Capstone 2 materials (usually $250 + tax).
• If you need to re-write only CFE Day 2/3, don’t re-take Capstone 2.
  • You already received the practice cases and feedback guides from your previous attempt. You are going to miss only on the latest CFE cases and the marking services. You can get the latest CFE cases and high quality marking services from me.
• If you need to re-write CFE Days 1/2/3, consider taking Capstone 2.
  • There are different factors to consider. Has it been a while since you’ve taken Capstone 2? Has your Day 1 exam case changed? If you said yes to any one of these two questions, I suggest re-taking Capstone 2. If you said no, I suggest taking a CFE coaching program.

Conclusion

The key to success during Capstone 2 and the CFE prep is to debrief each of the cases you write. This will provide you an understanding of how each case is marked, what the ideal response looks like, and act as technical review. The time you spend on debriefing should be at least as long as the time taken to write the case and should be done right after writing the case.

You also want to ensure you are writing your cases in the allotted time, as this will better prepare you for exam conditions. Lastly, if you can have peer review it would be a great opportunity to learn different approaches and help you see cases from a different perspective.

Extra study resources are available in CFE Review course.

 

If you’re preparing for Capstone 1, you’ve successfully completed all your module exams and are one step closer to writing and completing the CFE. This article will help prepare you for what to expect as you enter the 8-week course that is Capstone 1.

What is Capstone 1?

Capstone 1 focuses on teamwork. You’ll be placed in a team made of 4 to 5 students. You’ll work together to solve issues in one big case (50-60 pages long case).

To pass, your team must complete a written report and oral presentation. 

• Written report is completed in several parts and you’ll get feedback from your facilitator after each part. You’ll write in Word and Excel.
• Presentation is made to volunteer CPAs acting as a panel. The presentation is about 30 minutes, followed by Q&A of 15 minutes.

The main challenge of Capstone 1 is teamwork. I find that many students are put into teams where there is no synergy and one person does more work that the other. It’s important that you speak up and ensure everyone is performing their fair share. Don’t take more work than you have to, your target in Capstone 1 is to have free time to prepare for CFE.

The Capstone 1 case repeats in CFE Day 1. The users, background, and parts of the situational analysis remain the same, while the strategic and operational issues will change.

Your Role During Capstone 1

You and your team will solve strategic and operational issues in the case. There are usually 4 strategic and 5-10 operational issues. The quants will be difficult and require a lot of detailed analysis. I suggest assigning a team member with Finance background to the quants parts. 

You can assign each member 1 strategic issue and divide the remaining work equally. You can assign situational analysis to one member, all quants to another member, and divide equally the remainder. One way or another, you should discuss as a team and assign equal amount of work so that everyone contributes fairly.

During the presentations, your role will be to present the part you worked on to the panel of CPAs.

Scheduling will be difficult within your team as everyone may have different busy times and availability. This will require you to be flexible. During the first week, your team will make a Team Schedule. I suggest using this as the main scheduling tool as it will help you stay organized and plan the meetings.

During the presentations, your role will be to present the part you worked on to the panel of CPAs.

You can pass/fail Capstone 1 as a team or individual. Refer to the diagrams below for the passing schemes:

Team passing profile

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Individual passing profile

Outline of Capstone 1

Capstone 1 begins with a module workshop where attendance is required. You’re expected to complete the module workshop pre-work and I highly recommend that you read over the entire case.

In the first week, you’ll complete planning documents (team agreement, project plan, and a project schedule). In the next weeks, you’ll work on situational analysis, strategic and operational issues, with the final report being submitted at the end.

At the end of Capstone 1, you’ll make a presentation. You will use presentation software, such as PowerPoint or Google slides, and presentations must not exceed 30 minutes. The presentation won’t contain the same amount of detail as the written report.

Important dates

Throughout Capstone 1, you will have two live 30-minute chat calls with the facilitator to address any questions and raise any concerns.

Weekly submissions are due Friday and revisions are due on Mondays. I recommend scheduling team reviews prior to Friday in the case of problems and be sure to designate some time in your schedule for revisions to be safe.

Success tips for Capstone 1

Here are some helpful tips for the written report:

• Schedule and plan ahead: Knowing which weeks will be more challenging will help you plan around these tough times.
• Review the submission guidelines as a team: Review guidelines, like word count, so that there are no errors. It’s easy to make small mistakes as an individual, so review them as a team to ensure your report is 100% accurate.
• Leverage team strengths: If someone is skilled in one area, let them complete that part. For example, someone working in tax can provide more depth on tax implications.
• Understand the entire report: This will be a huge benefit when you reach the CFE Day 1 stage. During CFE Day 1, you’ll be dealing with the same case, so knowing the report inside-out will help you pass Day 1.
• Take advantage of chats: Be prepared, ask lots of questions and ask for feedback.

Here are helpful tips for the presentation:

• Prepare as a team: Practice together to master the speaker handoffs and overall flow of the presentation.
• Practice your part: No scripts or que cards will be allowed, so practice as much as needed so that you’ve memorized your part.
• Be high level: Make your presentation like a business proposal, with less detail and more high level.
• Have backup slides: Show details in backup slides at the end of the deck, in case you are asked by someone regarding this at the end of the presentation.
• Practice Q&As: All team members will be required to answer at least one question to pass. You should develop an approach as a team to who will answer as well as anticipating which questions will be asked.
• Dress for success: You should dress in professional business attire.

Conclusion and extra resources

Don’t stress over Capstone 1. While it does require active effort, Capstone 1 has 99%+ pass rate from my coaching experience. You should be using your free time during Capstone 1 to study for the CFE, which is your ultimate challenge.

Extra study resources for CFE are available in CFE Review course.

 

Candidates often select the Finance module due to their financial professional background. However, Finance has many similarities to Core 2 and prepares well for Day 1 of the CFE. Below are some helpful tips for successfully completing the Finance module.

#1: Expect F/S Analysis

Providing explanation on a company’s financial position is common AO in the Finance exam. These AOs ask you to determine the expansion possibilities, financing options, and comparing financial structures to competitors or industry trends. Your recommendations should focus on improving the company’s financial health.

Similar to Core 2, some examples on key areas to focus on include:

• Vertical Analysis: Analyze company’s F/S by different accounts (eg. gross margin ratio involves revenues and COGS)
• Financial Ratios: Measuring liquidity (eg. Current Ratio), Profitability (eg. Profit Margin Ratio, Return on Equity, etc.) and Leverage (eg. Debt Ratio, AP Turnover, etc.)
• Horizontal Analysis: Analyze company’s F/S over multiple periods to spot trends and patterns.

It’s not as simple as stating that a company is in good or bad health. You should discuss company’s strengths and/or weaknesses using numeric and qualitative support, with the integration of case facts. This will ensure you get C grading.

#2: Practice Quants

Because there is a large portion of quant analysis required in Finance elective, it’s important to practice quants calculations and use your time effectively. Being able to identify the most appropriate analysis (“quants tool“) will help you save time when writing cases. Identifying the user’s ask (i.e. the ultimate goal of the calculation), the financials available, and the time frame will help you isolate what quants tool you need.

Some examples include:

• WACC – know how to calculate and when to use it
• Working Capital (Current Assets – Current Liabilities) – know how to calculate
• Capital Investments – Net Present Value (NPV), Internal Rate of Return (IRR), Payback (PB)
• Cash Flow Statements and Capital Budgeting
• Financial analysis/ratios
• Valuations

These will come with practice, so actively track your time as your practice cases. Spend the necessary time debriefing your calculations to determine where best to begin, what approaches enable you to solve for missing components, and how to lay out your exhibits in excel in an organized manner. Sticking with the time and learning when to walk away from an AO will set you up for success.

#3: Practice Valuations

Knowing how to value a business is important for acquisition AOs. You’ll be asked to determine if an offer price for the business is appropriate, or how much to offer on the potential acquisition. This is a common testable AO as there are several methods to valuing a business.

Some examples of valuations include:

• EBITDA multiple
• Replacement cost method
• Relief-from-royalty method
• Capitalized cash flows
• Discounted cash flow
• Asset based

Understanding the core differences between each of the valuation methods and understanding when best to use each method by looking at the inputs and case facts will be critical. Additionally, keep in mind that these AOs will often require an interpretation / discussion on the result, core assumptions / considerations used in the calculation, and a recommendation on if the proposal should be pursued.

#4: Add Qualitative

Qualitative discussions in Finance elective are based on interpreting results, discussing causes, and providing recommendations. The case will require concise and specific explanations, while integrating case facts.

Some examples of qual. include:

• For ratio analysis, you’ll be required to discuss the results of efficiency, liquidity, and solvency ratios. You’ll also be asked to identify causes and compare to industry benchmarks or prior years.
• For leasing, you’ll be required to discuss the pros and cons of leasing an asset vs. buying.
• For expansion or sale of a business, you’ll be required to discuss the different ways to sell or acquire a business including the purchase of shares vs assets.
• For sources of financing, you’ll be required to discuss the pros and cons of each option to help the company come to a decision.

See my PM tips article on how to write good quals with a handy formula.

#5: Understand Financing Sources

Like Core 2, you’ll likely be asked to provide an analysis on the various financing options available (“sources of financing”). Ideal approach is to use a pros and cons format to discuss the options: loan amount, interest expense, any constraints/risk, flexibility, etc. Then perform quants calculations, if enough information is provided. Offer any mitigations or suggestions for the options available and finally make a clear recommendation on which option to pursue.

Extra Resources

To be successful in the CPA Canada Finance module, you must understand the core quantitative topics and how best to manage time for calculations. Extra study resources are available in the Finance Review course.

The Capstone 1 CanDo Fitness (CFL) case will be tested in September 2022 and 2023 Common Final Exams (CFEs) on Day 1. The original Capstone 1 case was made available to candidates enrolled in Capstone 1 and released publicly by CPA Canada.

How do I prepare for CFL case for the CFE Day 1?

On CFE Day 1, you will be presented with the same CFL case and you will be required to analyze and answer new strategic and operational issues.

Follow these strategies:

• Step 1: Study the Capstone 1 original case well: It’s important that you know the Capstone 1 case inside-out. You will encounter the same users and similar industry challenges. I suggest making notes of the following key situational analysis factors:
  • Users
  • Mission, vision and values
  • Key success factors (KSF)
  • Strengths, weaknesses, opportunities and threats (SWOT)
  • Board objectives
  • Quantitative analysis
• Step 2: Know the Capstone 1 strategic issues: In Capstone 1, CFL was facing 4 major strategic issues (acquisition MFI; indoor climbing wall facilities; distribution and video contract with Zenfit; develop PurCafes in 5 gyms) and several minor issues. In the Day 1 CFE exam, you’ll get 4 new strategic issues.
• Step 3: Make note of the timeline: CFE Day 1 case is several years in the future and there are new issues to analyze. It helps to stay organized by creating a timeline of events as you are reading the case.
• Step 4: Understand key stakeholder preferences: CFL case has several users who have opposing views. It’s important that you understand these user preferences as these will repeat in the CFE Day 1.

I strongly recommend practicing with supplemental mock exam cases. In Capstone 2, you will get 3 practice versions of the CFL case. However, most writers find that this is not enough and feel unprepared.

Where can I get extra CFL mock exam cases?

I provide one (1) original CanDo Fitness (CFL) supplemental mock exam practice case to help you better prepare for the CFE Day 1. The mock exam case is a realistic simulation of what you may get on your exam and covers typical AOs that you may find in your Day 1. The casepack includes the CFL mock exam case, marking guide and the solution.

Head over to the cases section of my website for a free preview. If you have any questions or need additional help, I’m here for support.

 

 

 

 

 

In this post, I’ll discuss what is decile ranking, in both CPA Canada PEP and CFE results.

What is Decile Ranking?

Decile ranking is a statistical measure that tells writers who failed how close they were from passing. For example, decile 1-3 means they were close to passing, while decile 8-10 means they were far. Decile ranking is meant to help you decide whether you should appeal your results. Decile ranking shows ONLY if you failed. If you see N/A, it means you Passed or Marginally Passed.  

CPA Canada PEP  (Core 1, Core 2, electives) – Decile Ranking

In PEP exam results, you’ll receive a transcript that shows your result: “Pass with Distinction”, “Pass”, “Marginal Pass” or “Fail” (note: Marginal Pass is as good as a Pass). For example, here’s a transcript of a writer who did not pass:

 

 

 

 

 

 

 

 

 

 

 

 

 

The decile ranking will show only if you failed. If you passed, it will not show, and you don’t have to worry about it (it’s irrelevant to you if you passed).

In the above example, the student did not pass which is why they see a decile ranking. Their decile ranking is 7. This means they were far from passing, so they should not appeal the results. Decile ranking closer to 0 (such as 1-3) means a student was close to passing so it may be worth appealing.

For a detailed post on how to read your CPA PEP exam transcript and what to do if you failed, please see this post on PEP results.

CPA Canada CFE– Decile Ranking

Similar to PEP exam, CFE results will show the decile ranking ONLY if you failed.  CFE results are more complex, with several levels to pass. Please see this detailed post to learn how decile ranking works in CFE results.

 

 

 

If you’ve made it to the elective modules, you’ve been successful at Core 1 and Core 2, congrats! While some candidates find the Performance Management (PM) module to be overwhelming with both qual and quants, others find it overlaps with Core 2, so it’s easier to study. Below are some helpful tips for succeeding in the PM module.

#1: Don’t Forget The Qualitative

Many candidates think of calculations (quants) when they think of performance management. However, ~70% of the AOs will be qualitative, while ~30% quantitative. The practice cases will require concise and specific explanations, while integrating case facts.

Some examples of qual. include:

• When preparing variance analysis, you’ll be asked to explain what the variance implies and identify potential causes, based on case facts.
• For ratio analysis, you’ll be required to discuss the results of efficiency, liquidity, and solvency ratios. You’ll also be asked to identify causes and compare to industry benchmarks or prior years.
• When asked to assess responsibility centers, you’ll be asked to identify the type of center the division is and make a suggestion on how to evaluate performance.
• When asked to help with a decision, such as capital investment, purchase, acquisition, partnership, outsourcing, etc., you may be required to perform a pro/con analysis, in addition to quant analysis.

A good formula for writing pro/con qual analysis is: case fact + interpretation/explanation + impact (operating and financial) + integration.

Most candidates miss the “impact” and “integration” elements, which drops them to RC/NC. Impact means how and why the case fact is important to the company. Think of  impact as: “how are the company’s operations and financials affected.” For example, here are some operating impacts:

• New market access
• Geographic expansion
• Enhance brand awareness
• Employee morale
• Lead to synergies
• Give competitive advantage
• Help to retain customers
• Improve the supply chain
• Cause delays in delivery
• Enhance company reputation
• Access to new technology
• Tap into growing market

Here are examples of financial impacts:

• Improve sales
• Improve profits
• Improve the bottom line
• Improve ratio X
• Decrease costs
• Help with cash flow constraints
• Help with covenants

You can write either operating or financial impact, or both. I recommend both (see example below).

Integration means connecting to the big picture (eg M/V/V, KSF, objectives, user preferences, etc).

You should use “connecters” to tie these 4 elements together. Some examples of connectors include: which means, therefore, as such, as a result, consequently, while, etc.

Let’s look at an example of a “perfect qual”. Here’s a con that’s written in-depth (C/CD):

You have no prior experience in the clothing industry. This means you may not be able to buy the right amount of clothing in appropriate sizes and styles. As such, the store could be left with a large quantity of unsaleable clothing, or it may not have enough stock of the popular styles, which could affect the store’s reputation and be costly, while reputation is one of values of your company.

1. Case fact: You have no prior experience in the clothing industry.
[Connector: This means]
2. Interpretation/explanation: You may not be able to buy the right amount of clothing in appropriate sizes and styles.
[+Connector: As such]
3. Impact (operating and financial): The store could be left with a large quantity of unsaleable clothing, or it may not have enough stock of the popular styles, which could affect the store’s reputation and be costly. (Note: “Reputation” is operating impact, “costly” is financial impact).
[+Connector: While]
4. Integration: Reputation is one of values of your company.

A good method to practicing qual is to compare your response to the solutions while debriefing. CPA Canada case solutions are typically lengthy and unrealistic under exam situation. However, for PM qual AOs, you should write at the same length and depth as the solutions to ensure you get C. I suggest that you re-write the required, compare your response to the solution, and identify what elements you’re missing using the formula above.

#2: Identify The Appropriate Calculation

Being able to identify the most appropriate analysis (“quants tool“) will help you save time when writing cases. Identifying the user’s ask (i.e. the ultimate goal of the calculation), the financials available to you, and the time frame will help you isolate what quant tool you need.

Some examples include:

• When reviewing potential capital investments, you can choose NPV (Net Present Value) or IRR (Internal Rate of Return). NPV is more appropriate when you have the discount rate, long-term projects, or when you need to find the potential surplus from a project. IRR is more appropriate for short-term projects or when you have benchmark rate to compare to.
• Opportunity costs should be considered when there is potential forgone income or expenses between multiple options. For example: outsourcing vs insourcing, operating capacities, closing down a division, or adding a new product.

There are several other quants tools: Payback, CM analysis, ratio analysis, break-even point (BEP), valuation, constraint, product mix, pricing, net advantage of leasing (NAL) and so on. MA Templates toolkit is a great resource to master these.

#3: Consider the Big Picture

For many of the assessment opportunities (AOs), it’s important to realize the content is often big-picture focused. Big picture means you’re asked to assess the overall strategy and make suggestions that align with company’s values or user objectives.

Some examples include:

• You’re asked to help with deciding to pursue a new business venture. You should write about alignment with user preferences, integrating the company’s mission, vision, values (M/V/V).
• In some cases, you may be asked for suggestions on how to revise the mission or vision, based on strengths and weaknesses of the company. You should discuss the current M/V/V with their strengths/weaknesses, what ideal M/V/V should look like, and suggest new ones.
• You’re asked to identify major risks and discuss the impact on the overall strategy. You should perform a variation of WIR analysis (Weakness + Implication + Recommendation) called RIM (Risks + Implication + Mitigation).
• You’re asked to address strategic decisions or perform external environment analysis. You should perform a Porter’s 5 Forces, SWOT (Strengths, Weakness, Opportunity, Threat) or PESTEL (Political, Economical, Social, Technological, Environment, Legal).
  

Keep the big picture items in mind when addressing each of the above AOs, while making recommendations that are practical and realistic for the company.

#4: Understand Integration of Various AOs

One of the challenges you’ll face in the PM module is the integration of AOs. Many appendices and calculations will overlap and you’ll need to use case facts interchangeably.

Some examples include:

• Discount rate is provided in one appendix, while NPV analysis will be required in various external and internal projects. You’ll need to note the discount rate in your case outline, so that you can use it in different AOs.
• You’re given financials, such as Income Statement, and you’ll use it for Cash Flow forecast and valuation AOs.
• You’re asked to calculate CM (contribution margin), which is later used for beak-even analysis, target sales or deciding which product to pursue given an input constraint.

Understanding the various quants tools and having an organized case outline will help you answer these integrated AOs.

#5: Practice Time Management

Because there is a mix of qual and quant analysis, it’s important to manage your time effectively. For each AO, you should be allocating your time appropriately during your planning phase, by considering: complexity of the AO, whether both quant and qual are required, size of the appendix (ie, number of case facts to read), how well you know the topic, and ranking of issues (ie, does one AO impact the other and should be done first).

This will come with practice, so actively track your time as you practice cases. Sticking with the time and learning when to walk away from an AO will set you up for success.

Conclusion

To be successful in the CPA Canada PM module, you should practice a balance of well laid out quants, case specific and detailed quals, big picture integration, and time management. Extra study resources are available in the PM Review course.

CPA Canada releases PEP (Core 1, Core 2, electives) results after every semester, usually 2 weeks after the exam is complete, at 12pm EST. Find out if you passed using the link below:

• CPA Canada PEP exam results: https://www.certificationenterprise.net/CPAcp/cpLogin.aspx
  (Note: To access, use your CPA portal log in and password, not your D2L) 

How to Read CPA Exam Transcripts

You’ll receive a transcript. It’ll show “Pass with Distinction”, “Pass”, “Marginal Pass” or “Fail”.

• Pass with Distinction: This means you passed with top results. Students need to score only Cs and CDs to be here.
• Pass: This means you passed the module and advance to the next one.
• Marginal Pass: This is as good as pass. It doesn’t hurt your chances at any of the future modules nor CFE. Marginal Pass means you were close to failing, so make sure to analyze your results and re-focus your efforts.
  
• Fail: This means you were unsuccessful, you will need to challenge the exam or re-take the entire module. You have 3 attempts at each module in total. After 3 attempts, you are de-registered from PEP and will need to re-register and start over from Core 1 again. 

Decile ranking

Your transcript may also show a “Decile ranking.” Decile ranking shows ONLY if you failed. If you see N/A, it means you Passed or Marginally Passed.

Decile ranking is a statistical measure that tells students who failed how close they were from passing. For example, decile 1-3 means they were close to passing, while decile 8-10 means they were far. 

Objective format and Case portion

Your transcript will be divided into two parts: (1) Objective format questions, (2) Case portion. 

Objective format means MCQs. For both these MCQs and the case portion, you’ll see the tested competencies (eg: Financial Reporting, Audit, Taxation, etc) and your results.

 

As you can see above, the transcript will show the 4 grades horizontally:

• Not competence (NC)
• Reaching competent (RC)
• Competent (C)
• Competent with distinction (CD)

For each grade, you’ll see percentages. These percentages show how the general population of writers did. For example, if 5,000 students wrote Core 1 in your semester, the breakdown will show what percentage scored NC, RC, C and CD. The yellow highlighted box shows where you ended up.

What to Do if You Failed

If you were unsuccessful at your PEP module exam, you can:

• Option #1: Request review and re-marking
• Option #2: Challenge the next exam
• Option #3: Retake the module

#1) Review and re-marking will have your exam re-marked by a senior marker. There are specific deadlines and fees. From my experience, only ~1% of remarks are successful. I don’t recommend this option for most students.

#2) You can challenge the exam where you sit at the next exam without going through the entire module. This is available for 2nd attempts only. If you are unsuccessful again at the 2nd attempt, you must re-take the entire module.

With this option, you should understand your weaknesses, build a study plan and re-write all PCs, IPs and MCQs. It helps to get extra cases and MCQs because you’re already familiar with the module PCs. If you need consultation, feel free to contact me.

#3) You can re-take the module and go through the module again with the help of your facilitator. Similar to #2 above, you should get extra cases / MCQs and build a study plan to ensure you’re on track.

Conclusion

I know failing CPA exams is demotivating. It doesn’t mean you’re not smart or unable to succeed, it means you need a new strategy. Take some time think about your options and decide what you will do differently next time. If you feel you need a coaching program to help you succeed, you can preview some of my free lessons.

 

 

 

Gevorg, also known as Georgios in Ancient Greek, is a first name. It’s an Armenian form of the name George. Gevorg is a masculine first name derived from two Greek words: geo (earth) + ergon (work). The correct pronunciation of Gevorg is: get-WORK (listen here).

Gevorg Grigoryan, CPA, is the founder of the Gevorg, CPA Coaching exam preparation company. Gevorg teaches accounting to university students and financial literacy to business professionals. He has previously worked with CPA Canada Western School of Business and various private companies. He has been featured in several news articles as CPA Canada exam preparation expert.

References: LinkedIn, Wikipedia

The following article will go over the key concepts for obtaining competent (C) grade in government grant AOs in CPA Canada PEP and CFE exams under IFRS.

In Part 2 (to be posted later), we will look at a similar example for ASPE. 

The best way to understand how to solve government grant AOs is to look at an example. In green color below I walk you through the example and in black color I explain the technicals. Let’s take a look.

Example

In January 20×0, the government provided a $20,000 grant to Company ABC to purchase new manufacturing equipment. At the time, the equipment was purchased for $100,000, and has a useful life of 10 years. To retain the grant, Company ABC must meet specific production criteria for the next 5 years. In the last few years, Company ABC has met this production criteria.

Definition

A government grant is defined as a type of assistance by the government in the form of a transfer of resources (monetary or non-monetary) to the entity. This could be for past or future compliance with specific conditions related to the entity’s operating activities.

This differs from government assistance in which economic benefits are provided indirectly through action, for example free marketing or business advice. (Note that ASPE 3800 uses the term “government assistance” to refer to both government grants and government assistance. On the other hand, IAS 20 distinguishes these two and provides different rules for government grants vs. government assistance.)

In the case of Company ABC, the transaction of $20,000 represents a monetary transfer of resources for future compliance, and meets the definition of a government grant. Therefore, the definition criteria is MET.

Recognition & Measurement

Government grants should only be recognized when the following criteria are met:

1. There is reasonable assurance that the entity will comply with the conditions.
2. There is evidence the grant is likely to be received. 

In the case of Company ABC, there is reasonable assurance of compliance with the conditions as they have been in compliance for the last few years and that can be expected to continue. The grant has also already been received. Therefore, recognition criteria are MET.

There are two approaches for measuring government grants:

1. Income approach
2. Capital approach

Under income approach, the grant is recognized in P&L depending on nature. Under capital approach, the grant is treated as a capital transaction and credited to equity. The capital approach is not used (per IAS 20, para. 12), so we’ll follow the income approach.

Income Approach – Grants for Current or Past Period Expenses

These should be recognized in the P&L immediately as revenue. This can be shown separately or netted against the corresponding expense.

Income Approach – Grants for Future Period Expenses

These should be deferred and amortized as the expenses are incurred (i.e. deferred revenue).

In the case of Company ABC, the transfer of resources don’t relate to the expenses (ie, it’s for capital equipment, not to cover their expenses), therefore the Income Approach would not make sense. Since it relates to the purchase of an asset, the Capital Approach is appropriate.

Income Approach – Grants for PPE

There are two acceptable methods for presenting these.

1. Reduce the PPE balance and amortize based on this new carrying amount.

Under this first option, Company ABC would deduct the grant from the equipment costs and recognize the grant as income by reduced depreciation expense. The initial entry would be:

Dr. Cash $20,000
   Cr. Equipment $20,000

At year-end, depreciation would be recorded as follows:

Dr. Depreciation expense $8,000 ($100,000 – $20,000 = $80,000 / 10 years)
   Cr. Accumulated depreciation    $8,000 

Note: Without this grant, the depreciation recorded would had been $10,000 ($100,000 / 10 years)

2. Record a deferred liability account and amortize on the same basis as PPE.

Under option 2, Company ABC would recognize the grant as a liability and amortize the income over the life of the equipment.

The entry would be:

Dr. Cash $20,000
   Cr. Deferred government grant $20,000

At year-end, the following adjustment would be made:

Dr. Deferred government grant $2,000
   Cr. Revenue from grant $2,000 ($20,000 / 10 years)

Note: The impact on income is the same under both approaches, so we need to assess user needs and how they want to see the information presented.

Non-Monetary Grants

These are grants for things like land or other resources (non-monetary). These are special measurement rules, these are accounted for at fair value. 

Forgivable Loans

If the government provides a forgivable loan, it can be treated as a government grant as long as there is reasonable assurance the entity will comply with the terms for the forgiveness of the loan.

Repayment of Grant

In the case where conditions are broken and the grant must be repaid to the government, this treatment will dependent on how the initial grant was recognized.

In the case of Company ABC, assume as of the end of 20X2, the conditions of the grant will be broken. The government now requires the entire $20,000 grant to be returned.

Repayment – Grants Related to Income/Expenses

This repayment will be treated prospectively as a change in estimate. Profit or loss should immediately be recognized for the extent in which the repayment exceeds the deferred credit for the grant.

For example, if a grant of $2,000 was received to offset salary expenses, but only $500 had been incurred, a deferred balance of $1,500 would exist. If the government required $1,800 to be repaid, there would be a loss of $300 ($1,800 – $1,500) to recognize immediately.

Repayment – Grants Related to PPE

Repayment for a grant related to an asset should be treated by increasing the carrying amount of the asset or reducing the deferred income balance by the amount repayable, dependent on which method was initially used.

If a deferred liability was set up initially under the Capital Approach option 1, the amortization expense will get reversed as the loan is to be repaid.

For Company ABC, the entry would be:

Dr. Deferred Revenue $14,000
Dr. Loss $6,000 ($20,000 – ($20,000 / 10 years) x 3 years)
  Cr. Cash  $20,000

If the grant was initially set to reduce the carrying amount of the asset, the additional depreciation that would have been recognized had the grant not been recorded, should be recognized immediately as profit or loss.

For Company ABC, the entry would be:

Dr. Equipment  $20,000
Dr. Loss   $6,000 ($2,000 depreciation x 3 years)
  Cr. Accumulated Amortization  $6,000
   Cr. Cash $20,000

Conclusion

In determining which method is right for the company, you should assess the nature of the grant, the user needs for the presentation and overall case facts. For more information on government grants under IFRS, review IAS 20 or get my technical FR summaries.