CFE Day 1 Exam: Understanding the Big Picture Issues

Addressing the big picture issues is crucial in CPA Canada’s CFE Day 1 exam. It’s often misunderstood by students and taught incorrectly by educators, but it’s necessary to correctly address it to successfully pass Day 1. Let’s take a look at what is big picture, how it’s tested in Day 1, and how you should address it.

What is big picture (BP) issue?

A big picture issues is a major, pervasive issue that impacts all other issues. We use several terms for it:

  • Big picture issues
  • Overarching issues
  • Pervasive issue
  • Constraint
  • Strategic direction issue

All of the above mean the same thing: constraint that the company is facing which must be taken into account in your recommendations.

Examples of BP issues include:

  • Cash flow constraints
  • Lending constraints
  • Covenants
  • Management time constraint
  • Strategic direction
  • Upcoming IPO
  • Employee morale
  • Internal conflicts
  • Fraud

Note that the BP issue in Day 1 is not the same as you had in Capstone 1.

Quantitative and qualitative BP issues

Historically, Day 1s had either quantitive or qualitative BP issue. Examples of quant BP issues include financial resources availability, cash flow constraint,  lending restrictions, and covenants. Examples of qual BP issues include management time constraint, strategic direction, upcoming IPO, employee morale, internal conflicts and fraud.

However, new Day 1 CFEs tend to have both types of BP issues: quant BP and qual BP.

How to formatting your response in Day 1 CFE

In the CFE Day 1 exam, you must correctly identify the BP issues and address them in all your recommendations and the overall recommendation. For example, if you have quant BP of cash availability (eg $5M), then you must write in your strategic issue recommendations how the issue impacts the cash flows (does it reduce or add to $5M? Can they afford to accept it?) and in the overall recommendation. I also recommend discussing it separately with your quant analysis.

If your exam has both BPs (quant and qual), then you must again discuss them in all your recommendations and the overall recommendation, plus you have to discuss qual BP in operating issues. For example, if the company has cash constraints of $5M (quant BP) and it’s undecided on the strategic direction (qual BP), you need to: 1) first discuss how each strategic issue impacts both of these BPs in all your recommendations, 2) then you need to create a separate section in your operating issues, titled “Strategic direction,” and discuss qual BP there.

Extra resources

BP issues are taught poorly in Capstone 2 module. In there, the practice cases don’t have both BPs, while the actual CFE exams nowadays do. I recommend reaching out to me if you need support understanding this concept.

Extra resources are available at CFE Review courses.