Navigating Unfamiliar AOs: Tips for CFE

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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.