Category: CFE Case Writing

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.

When studying for the CPA Canada CFE, many candidates find time constraint to be one of the most challenging aspects of passing the exam. One way to save time is to skip the unnecessary parts of the “CPA Way” template that are not part of the marking rubric. Let’s look at Financial Reporting (FR) AOs to understand whether you need to write the issue statement or whether it can be skipped.

CFE Feedback Guide Review

Using the CFE Day 2 “RMZ” case feedback guide, you’ll see that writing an issue statement doesn’t grant any marks towards the AO: 

Instead, to get a C grade, you should be starting with analysis of the CPA Canada Handbook IFRS 15 criteria (i.e. 5-steps of recognition).

This is true for most AOs in CFE, so the issue statement can be skipped in your memo to save time.

However, it’s not all about time management – you still need accuracy, depth, consistent conclusions, and effective formatting. Let’s look at whether there are any reasons to still write the issue statement.

When to write Issue statement

While it doesn’t explicitly give you marks, there are several reasons to still take the time to write out the issue statement.

First, writing the issue statement can help in your case planning step. As you write down the AOs when you complete your initial read of the case, writing what exactly the issue is will help you determine how much time should be allocated to that AO. For example, if the issue statement is lengthy with multiple sub-issues, then you need to allocate more time. If the issue statement is short, you should allocate less time.

This issue statement used for planning can also be used as the start of your answer’s framework. You can build up your answer by using the issue statement as a framework and avoid duplication of work. It also ensures that you remember exactly what to address when the time comes to write your response. 

Additionally, writing an issue statement tells the marker that you have a clear understanding of the issue. It is also the foundation of your analysis and will help guide you on what criteria should be addressed. For example, for RMZ’s R&D issue, the issue statement outlines the current treatment of capitalization and the issue being whether it should be capitalized or expensed.

This is a short issue statement that does the job and helps to structure the answer.

Writing the issue statement also helps you build a solid conclusion / recommendation by acknowledging the current treatment of the item and what adjustment is necessary to treat the item correctly. For example, since RMZ’s issue was capitalization, we can conclude by directly addressing the issue and explaining what portion should be capitalized vs expensed.

Conclusion

While the issue statement is not directly required to get a competent (C) grade in CFE, it indirectly helps in structuring your response, ensuring a proper approach, and accurately writing your conclusion. So I recommend to always include short issue statements in your CFE case responses.

Extra CFE resources are available at CFE Review course.

CPA Canada’s CFE Days 2 and 3 has a 4-level evaluation approach called the passing profile. Here’s an overview and some strategies to help you navigate this process, including why your role AOs should be written at the end.

Level 1: Sufficiency Level

Level 1 counts how many Cs and RCs you got from combined Days 2 and 3. Every AO is given a numerical value:

• Not Addressed (NA) = 0
• Nominal Competence (NC) = 0
• Reaching Competence (RC) = 2
• Competence (C) = 4
• Competence with Distinction (CD) = 4

Your score in level 1 is combination of RCs and Cs you got in both Days 2 and 3. Strategies for Level 1 include answering all AOs (don’t miss any), aiming for as many RCs/Cs as possible, and not aiming for CDs (because they are worth the same as C).

Level 2: FR or MA Depth Level

At Level 2, your FR and MA marks from both Days 2 and 3 are evaluated. Your goal is to get 3-4 Cs in either FR or MA. It’s not both, it has to be 3-4 Cs in either FR or MA. Only Cs count, RCs won’t help.

Strategy for Level 2 is to pick one area (FR or MA) and aim to get Cs on it in both Days 2 and 3. The other area can be RCs. For example, you can pick FR and get 2-3 Cs in Day 2 and 2-3 Cs in Day 3. You’ll have combined 4-6 Cs, which is enough to pass. 

Level 3: Role Level

Level 3 is based on your chosen role on Day 2. You need 4-5 Cs to pass. Only Day 2 counts for Level 3. Gettings Cs in Day 3 won’t help.

Strategy for Level 3 is to give enough time to your role in Day 2 to get Cs.

Level 4: Control Level

Finally, Level 4 assesses all AOs from both Days 2 and 3. To pass Level 4, you need minimum 1-2 RCs across all competencies (ie,  FR, MA, Tax, S&G, Finance, Assurance). This level is also called the “breadth” level.

Why you should write FR/MA first in Day 3

As noted above, passing Level 2 is about getting 3-4 Cs in either FR or MA in both Days 2 and 3.

Since both Days 2 and 3 are counted, you can use Day 3 to meet this level. For example, if you scored 2 Cs in FR in Day 2, you can score 2 more Cs in Day 3, thus get 4 Cs and clear Level 2. By answering FR first in Day 3 you ensure you have enough time. If you don’t write FR ahead of others, you may get NC or RC, because you’ll run out of time.

Why you should write your Role at the end in Day 3

To pass Level 3, you need 4-5 Cs in your role and only Day 2 counts. This means getting Cs in your role in Day 3 won’t count.

Let’s say a student chooses to write their role first in Day 3 and some other area, for example Tax, at the end. Due to time crunch of Day 3, they run out of time on their last AO on every case. They will score Cs in their role AOs in Day 3 (because they wrote it first), but NCs in Tax. This means they would fail at Level 4, because Level 4 requires at least 1-2 RC in all areas, but they got NCs in Tax.

Now let’s say the same student chooses to write their role at the end in Day 3 and other areas, such as Tax, first. Due to time management issues, they run out of time on their last AO on every case. They will score Cs in Tax in Day 3, but NCs in their role. They would still pass at Level 4, because they already got Cs on their role from Day 2 and now they have C/RC in Tax from Day 3.

Key to understanding this strategy is to know that your role AOs in Day 2 count towards Level 1, 3 and 4. Once you scored Cs on it in Day 2, you don’t have to worry about it anymore; the other areas take priority in Day 3.

Extra resources

Extra resources are available at CFE Review courses.

In the CPA Canada Common Final Examination (CFE) Day 1, there are two versions of cases offered. The first version (V1) is the new case released in the new Capstone 1, while the second version (V2) is a repetition from the prior year’s Capstone 1. Some candidates have a choice which case to choose. Let’s explore which one to choose.

[Further reading: What Day 1 Cases Will Be Tested in 2026, 2027 and 2028 CFEs?]

Who can choose which case?

For first-time writers, you are required to choose the case in Capstone 1 you completed, unless that case is no longer available. So for the majority of first-time writers, you don’t have a choice, you must choose the new case.

On the other hand, if you were unsuccessful in the previous CFE Day 1, or you are challenging the CFE, you have the option to choose from either v1 or v2 cases available for that CFE sitting.

Which Day 1 case to choose?

There are several factors to consider while choosing between the new V1 and the V2 case:

(1) Pass rate

• • Interestingly, V2 cases have a lower pass rate, according to Day 1 statistics. This suggests that writing new (V1) provides you statistically higher odds of passing the exam.
  • Conclusion: New (V1) is better.

For example, below are screenshots from CPA Canada’s Board of Examiner’s Reports. It shows that new (V1) cases have higher number students meeting the passing standards.

Example 1:

Example 2:

(2) Future proofing

• • Choosing the new (V1) case offers a safety net. In case you don’t pass, you have the option to attempt the same case on your next try. However, the V2 case will expire next CFE, because Day 1s are offered two times only, forcing you to prepare for another new case again.
  • Conclusion: New (V1) is better.

(3) Access time and additional cases

• • Choosing V2 allows early access to Capstone 2 practice cases, since they are already available. This is beneficial because it provides extra time for preparation, compared to the new (V1) case, which you will only receive eight weeks before the CFE, when new Capstone 2 starts. Additionally, V2 offers an extra case to learn from, as the prior exam version is available.
  • Conclusion: V2 is better.

(4) Industry type

• • If you’re currently working in a specific industry, like pets, teas, fitness or toys, choosing a case in a similar industry can give an advantage. Familiarity with the industry lingo can make it easier for you to understand and tackle the Day 1 case.
  • Conclusion: Varies.

Gevorg’s final verdict

Considering the pros and cons, both versions are acceptable. If you’re still undecided, my recommendation is to choose the new (V1) case, given its overall benefits and future-proofing potential. Remember, this is not a one-size-fits-all recommendation. Your personal circumstances, your readiness, and your work experience can come into play in making this decision. It’s best to consult a professional CPA Canada exam coach before making this decision.

Extra resources

Extra Day 1 resources are available at CFE Review courses.

In a recent update, CPA Canada announced a change to the May 2023 Common Final Examination (CFE).

Starting from May 2023 CFE, all tables on the CFE that contain 10 or more lines of financial information, including F/S, will be pre-loaded into the spreadsheet component of the exam writing software (SurPass). This change is applicable to all cases on all three days of the CFE.

How do pre-loaded tables impact CFE?

Since the new rule applies to 10 or more lines of information, I anticipate this will impact management accounting (MA) and Finance AOs, in addition to financial statements. This means you may get some MA or Finance tables that are pre-loaded into your spreadsheet, in Days 2 and 3.

Day 1 may also be impacted. Sometimes Day 1 exams have F/S and sometimes they don’t. With this update, I expect your Day 1 exam to have F/S. I recommend to use it for Situational Analysis Framework analysis, by copying the relevant numbers and performing high-level quant analysis.

Will CFE be harder?

I don’t anticipate CFE to be harder due to this change. Prior to 2020, the CFEs had pre-loaded F/S, and their level of difficulty was equivalent to the ones from 2020-2022, where F/S were not pre-loaded.

With the reintroduction of pre-loaded tables, even if 10 lines, I expect the exam to maintain a similar level of difficulty. 

What are my CFE strategies now?

With the new update, you can optimize your CFE strategy to save time and improve the overall exam performance. Here are some suggestions on how to make the most of the pre-loaded financials:

1. Copy relevant numbers: Instead of manually transcribing the numbers from the F/S, simply copy the relevant figures from the pre-loaded tables and paste them into your calculations. This will save you time and minimize the risk of errors from manual transcription.
2. Expect Day 2 F/S adjust AO: You may get Day 2 FR AO to adjust the F/S due to FR errors. You can copy the pre-loaded F/S and make adjustments to arrive to revised F/S faster.
3. Perform calculations efficiently: You can now perform the MA and Finance calculations efficiently. For example, if you need to calculate the working capital ratio, copy the current assets and current liabilities from the pre-loaded financial statements and perform the calculation.

Overall, I don’t anticipate CFE to be more difficult. You should use this update to your advantage.

Extra resources

By adopting effective exam strategies, you can leverage this new feature to save time and improve your exam performance.

Extra resources are available at CFE Review courses.

As you’re progressing through the CPA Canada’s PEP program, you will eventually enroll into Capstone 2 module.

Capstone 2 module is designed to help you prepare for the Common Final Examination (CFE). It provides past, actual CFE Day 2 and 3 exams, as well as Day 1 mock practice cases. For Day 1, the actual, past exams are not given, because the Day 1 company changes every CFE. Instead, you will get three practice versions that “simulate” your Day 1 exam.

Many students have expressed concerns that the Day 1 practice cases offered in Capstone 2 are not good representations of the actual Day 1 exam. In this post, I will explore these concerns in more detail and give you other study options.

What Day 1 practice cases will I get in Capstone 2?

Capstone 2 provides (3) three practice cases of the Day 1 CFE exam: module workshop version (MW), week 3 (W3) and week 6 (W6). These practice versions are meant to prepare you for your Day 1 exam, similar to how core/elective module practice cases prepared you for those exams.

However, the Capstone 2 Day 1 practice versions do not accurately reflect the real Day 1 exam.

What’s wrong with Capstone 2 Day 1 practice cases?

There are several problems with the Capstone 2 Day 1 practice cases. For example, the way constraints and strategic direction (big picture issues) are handled in the Capstone 2 practice cases is flawed. In the actual Day 1 exam, constraints and strategic direction are supposed to be discussed in all recommendations, including the overall recommendation. Below is a screenshot of the marking rubric, taken from the Day 1 automatic feedback report:

As noted above, the constraints (in this case, the cash flow constraint) must be discussed in all recommendations. However, in the Capstone 2 practice cases, the constraints are not always integrated into the recommendations, which can be confusing for students.

Day 1 exams have recently started testing on strategic direction overarching issue. Missing this can be a fatal flaw in the exam and you may fail. Capstone 2 cases don’t have this overarching issues, which means you’re not getting full preparation for the actual exam.

Below is an example of strategic direction overarching issue from a recent Day 1 exam:

Second example of strategic direction overarching issue:

As you see above, the strategic direction must be discussed in all recommendations.

Spring 2024 update: Starting Spring 2024, the strategic direction required is now part of Capstone 2 practice versions.

What else is wrong with Capstone 2 Day 1 practice cases?

Another concern is that the Capstone 2 Day 1 quantitative analysis are much longer than those that come up in the actual Day 1 exam.  This means you have no real chance of finishing the quants in the Capstone 2 cases, but you can finish them in the Day 1 exam.

Above screenshot is an actual Day 1 exam quants. It’s much shorter than the Capstone 2 version.

Additionally, the situational analysis framework (SAF) provided in the Capstone 2 practice case solutions is very long and includes both Capstone 1 factors and Day 1 factors.

In the actual Day 1 exam, you don’t need to re-write the Capstone 1 and Day 1. You need to simply compare the Capstone 1 and Day 1 changes in a combined analysis. 

Similarly, the Capstone 2 SWOT analysis has an extremely long and detailed list of factors. These factors come from the narrative, dialogue and appendices of the case.

In Day 1, you need to briefly explain the SWOT factors, you don’t need to answer the “so what” in detail as this part is not graded (it’s only graded once you integrate it).

In the real Day 1 exam, the SWOT factors come mostly from the narrative (first 1-2 pages of the exam). There is small input from the board dialogue and rarely from appendices.  We would only add from the appendices if there is an appendix called “Industry update“.

Should you even practice with Capstone 2 Day 1 cases?

Despite these flaws, there are some good aspects to the Capstone 2 Day 1 practice cases. For example, the format in which qualitative points are discussed is a good way for you to write pros/cons during the exam. Though it is long and detailed, you need to write in similar depth during the Day 1 exam.

However, the number of pros and cons provided (“breadth”) in the practice cases is too much, and you should aim to write 3-4 pros and 3-4 cons in the actual Day 1 exam.

Do these flaws apply to every Capstone 2 case (eg Days 2 and 3)?

These flaws apply to only Day 1 practice cases. The Day 2 and Day 3 practice cases in Capstone 2 are the real, past CFE exams, so they are good representations of what may come up in your CFE.

What other resources can I get to learn about Day 1?

If you are looking for more accurate representations of the CFE Day 1 exam, I recommend to seek out supplemental cases from third-party providers. These cases are designed to simulate the actual exam and can provide you with more valuable practice and insights into the types of questions that may be asked.

Conclusion

In conclusion, while the Capstone 2 practice cases provided by CPA Canada are helpful for some aspects of Day 1 preparation, they may not be the most accurate representation of the actual exam. It’s important for you to be aware of the differences between the Capstone 2 Day 1 practice cases and the real Day 1 exam, and seek out additional resources if necessary. With the right preparation, you can increase your chances of success on the Day 1 of the CFE.

Extra resources are available at CFE Review course.

For each strategic issue in Day 1 of the CFE, candidates will be marked on a qualitative (qual) and quantitative (quant) component. In this article, I’ll discuss if this should be done in a specific order. For example, should qualitative be written before quantitative, or should quantitative be written before qualitative.

You can read about basics of Day 1 here. 

Day 1 marking

As per CFE Day 1 feedback guides, the marking of strategic issues is divided into quantitative and qualitative. For example, below is the marking guide for a proposal AO:

You’ll notice the feedback guide shows the quantitative first. However, even though the quantitative comes first, you can choose to write the qual (pros vs cons) first. There is no criteria in terms of which one you should write first.

Quant vs qual

Some candidates require more time to think about the most appropriate calculation to perform on an AO. Doing the qual (pros vs cons) first ensures they can finish the AO in the allotted time while they consider the calculation. This is better than spending the entire time solving quant and leaving qual empty.

However, there can be instances where the qualitative may still be fresh from your reading of the case or easier to spot, and in such cases, it’s beneficial to write the qual (pros vs cons) first.

I suggest picking one strategy and sticking with it throughout the exam.

Writing all quant/qual at once

Since you are likely highlighting and noting down potential pros vs cons as you read them, you can even do all of the qualitative responses first, for all strategic issues, and then take care of the quantitative at once for all issues. If your strength is performing calculations instead, the reverse can be true: you can solve all calculations first, and then come back to do your qualitative. Be careful with this strategy though, your recommendations must stay consistent. Don’t forget what your first analysis was as you’re doing the second part.

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

Conclusion

Some candidates prefer writing quant and then qual, others prefer the reverse. Some candidates prefer writing all quants, and then all qual, for all strategic issues. It’s usually because they are efficient in working in one workbook at a time (excel vs word). Others may find it more efficient to finish an entire AO while it’s fresh in their minds.

The preferred method is entirely up to your preferences and your strengths. I’ve coached students under both methods and the results were successful.

Extra resources are available at CFE Review course.