I’ve written about Financial Reporting (FR), Assurance, and Tax common topics in CPA Core 1 module in other posts. In this post, I’ll cover the common Finance topics.

Unless your background is in Finance or you have good knowledge in Finance, you’ll find the “Finance” Assessment Opportunities (AOs) in CPA Canada’s PEP Core 1 and Finance electives modules difficult to solve.

To make things worse, the CPA Canada Learning eBook has 20+ long chapters on finance, with topics ranging from Capital Budgeting to Working Capital Management.

So what topics do you need to know?

Common Finance topics to know

Here are some of the common Finance topics you should know for Core 1 and Finance elective:

• Cash Flow Forecast
• Valuation (EBITDA, Asset-based, CCF)
• Weighted average cost of capital (WACC)
• Capital Budgeting
• Payback
• Internal rate of return (IRR)
• Net present value (NPV)
• Financial analysis/Ratios
• Financing sources

All Finance topics that can be tested

The full list of Finance topics that you will be tested on are listed in the CPA Canada Competency Map.

 

 

 

 

 

 

 

Here’s a list of all Finance topics you can be tested on (warning: it’s a long list):

Specific topics:

• (A) External Environment and Impact on Finance Decisions/Analysis
  1. Nature of and accessibility to capital markets (financial markets, public offerings and underwriters, private placements, secondary markets)
  2. Capital market efficiency (efficient market hypothesis)
  3. Other factors in market pricing
• (B) Finance Concepts
  1. Risk/return
  2. Financial leverage and risk (impact on residual return, interaction with operating leverage)
  3. Financial management goals and objectives
  4. Impact of inflation/deflation
  5. Income tax considerations
  6. Time value of money (including risk-adjusted discount rates)
• (C) Financial Analysis in a Finance Context
  1. Free cash flow analysis
  2. Horizontal and vertical analysis
  3. Ratio analysis
  4. Trend analysis
  5. Sensitivity analysis
  6. Scenario/simulation analysis
  7. Payback (PB)
  8. Internal rate of return (IRR)
  9. Net present value (NPV)
• (D) Data Analytics in Finance
  1. Information representation for decision making
     • Data visualization of financial and nonfinancial data
     • Dashboards, graphs, tables, report design
     • Communication of information for quality decision making
     • Framing information recognizing uncertainty
  2. Quality of information for decision making
     • Dimensions of information quality – relevance, ease of use, integrity, timeliness
     • Types of data and their attributes (nature, sources, format, timing, extent and level of aggregation)
     • Professional skepticism regarding data
     • Information quality and the impact of processing models
     • Data cleansing
  3. Data and information modelling
     • Analytics and model building (descriptive, diagnostic, predictive, prescriptive)
     • Standards for data tagging and reporting (XML, XBRL)
     • Model validation
     • Interpretation and professional skepticism of models and analytics
• (E) Financing Decisions and Finance Management
  1. Inputs into determining cash flow needs
  2. Working-capital management
     • Nature of working capital
     • Role of liquidity
     • Cash and marketable securities management
     • Receivables, inventory, and payables management
  3. Sources of short-term financing (trade, factoring, lines of credit)
  4. Credit policy decisions (evaluating credit risk, determining collection policy and credit period, making use of cash discounts, organizing the credit function)
  5. Short-term versus long-term financial planning (objectives and process, forecasting, pro forma financial statements)
  6. Sources of medium- and long-term financing
     • Bank loans
     • Internally generated funds
     • Initial public offerings
     • Venture capital
     • Securitization
     • Government assistance
  7. Asset-based financing
  8. Lease financing (direct lease, sale and leaseback)
  9. Derivative financial instruments
  10. Project financing
• (F) Investing and Risk Management
  1. Forms of ownership and extent of ownership (direct, outsourcing, strategic partnerships)
  2. Nature and use of financial instruments
  3. Debt instruments
  4. Equity instruments
  5. Derivative financial instruments (options, rights, warrants, futures, forwards, swaps, other derivatives)
  6. Convertible securities
  7. Stock-based compensation (options, appreciation rights)
  8. Tools to hedge exposures (e.g., interest rate swap, foreign currency hedge)
  9. Other types of investments
  10. Portfolio diversification and optimal investment decision making
  11. Macro-economic risk assessment
• (G) Capital Structure Decisions
  1. Optimal capital structure
  2. Ownership and control considerations
  3. Financial leverage
  4. Tax considerations (tax shield, etc.)
  5. Effects of bankruptcy costs
• (H) Determination of the Cost of Capital
  1. Capital components and cost
  2. Capital asset pricing model (CAPM)
  3. Weighted average cost of capital (WACC)
  4. Marginal cost of capital
• (I) Distribution of Earnings
  1. Dividend policy
  2. Alternatives to cash dividends (stock distribution of profts dividend, stock split, share repurchase, dividend reinvestment)
• (J) Capital Budgeting
  1. Role and nature of capital budgeting
  2. Discount versus capitalization rate
  3. Investment in working capital
  4. Evaluation criteria (capital rationing, abandonment decisions)
  5. Tax effects
  6. Post-audit of capital investments
• (K) Cash Flow/Net Income Estimation
  1. Tax effects
  2. Effects of non-cash items
  3. Discounting
• (L) Valuation
  1. Purpose and nature of the valuation
  2. Fair market value concept
  3. Common inputs to valuation techniques (credit risk, market price, marketability, volatility, etc.)
  4. Approaches to valuation (for fixed income securities and/or equity instruments):
     • Asset based (adjusted book value, liquidation value, replacement cost)
     • Transaction based (capitalization of earnings, capitalization of cash flows, discounted earnings, discounted cash flow)
     • Market based (multiples)
  5. Approaches to the valuation of intangible assets
• (M) Corporate Finance Transactions
  1. Forms of expansion and divestiture (mergers, acquisitions, strategic alliances, joint ventures, spin-offs)
  2. Transaction considerations
  3. Key risks and rewards in corporate finance
  4. Synergies involved in the combination of entities
  5. International considerations (exchange risks, political risks, economic risk, international sources of capital)

You don’t need to know all these topics for Core 1

If you’re in Core 1, I recommend focusing on the common topics I listed first. It’s near impossible to study all above topics in the 8-week module timeframe. Although all these topics are examinable, from my experience, the key topics I listed are more commonly tested. If you want to see a list of common Tax topics for Core 1, check out this post.

For Finance elective, any of the above topics can be tested. I suggest studying all of them.

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