Ultimate Guide to CFE of CPA Canada

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 75%, 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 my CFE coaching program called CFE Review.