The CFE Knowledge Gap

(Posted October 2023)

Every year, candidates about to attend Capstone 2 tell me the same thing: they don’t know any technical. Really? By this point in the process, you will have passed the PEP Core 1 and Core 2 modules as well as two Elective modules.  Or, you completed an accredited university program that covers those modules. These exams require demonstration of in-depth technical knowledge to pass them, and no new technical knowledge is introduced for the CPA Common Final Examination (CFE). So, let’s be honest. The problem is often not a lack of technical knowledge, the problem is that you have not learned to apply this technical knowledge.

The perception is that in time-constrained, CFE-level cases, candidates assume that they scored Nominal Competence because they “do not know any technical.” The reality is that most of these candidates knew the technical, or were at least familiar with it, but had no clue how to tie the technical to the case facts, which is what is required to demonstrate competence. It is not enough to have the required technical knowledge; you must be able to apply that knowledge.

Now that you have completed the PEP Modules or an accredited university program, you should be using this time before the start of the Capstone 1 PEP Module to “review” your technical knowledge. If you are writing the May CFE, you should complete some technical review prior to the start of the Capstone 1 module in January.  If you are writing the September CFE, you should complete some technical review prior to the start of the Capstone 1 module in May. 

If you are looking for a summary of the technical knowledge needed for the CFE, consider our Competency Map Study Notes resource.  The publication covers the six technical competency areas and is organized in a digestible, summarized format. 

It is important to note that reviewing technical for the CFE is different from learning technical for objective-format questions. The focus is different. You need to get an understanding of what the relevant decisions variables are for a topic. You also need to understand how to use case facts effectively.

Let me take you through an example to demonstrate how to do this:

Government assistance

1. Identify
   1. Triggers – government funding/grant already received or to be received, may be recorded as revenue on I/S
2. Analyze – When to recognize?
   1. Use case facts to assess:
      1. Entity will comply/has complied with conditions attached
      1. Grant will be/has been received
3. Analyze – How to record?
   1. Does it relate to non-capital or capital expenditures?
      1. Support with case facts
      1. Analyze components separately
   1. Non-capital expenditures
      1. Does it relate to revenues and expenses in the current period or a future period?
         1. Current – included in income for period
         1. Future – deferred and amortized to income as expenses incurred
   1. Capital expenditures
      1. Explain policy choice
         1. Deducted from related fixed asset with depreciation calculated on net amount OR
         1. Deferred and amortized to income on same basis as related fixed assets are depreciated
      1. Consider user needs to select appropriate policy (covenants, bonuses, etc.)
   1. Forgivable loans
      1. Treated as grant
   1. Repayment
      1. Accounted for in period in which conditions arise that will cause it to be repayable (prospectively)
4. Conclude
   1. Definitive recommendation on appropriate treatment
   1. Quantify impact if given numbers in the case

So instead of just memorizing the standard, break it down into the POSSIBLE decision variables. When you write this issue in a case, use the case facts given to decide what the RELEVANT decision variables are to analyze. This process will train your brain to think in terms of developing depth in your response, not just regurgitating technical knowledge.  If you are looking for more guidance on preparing to write the CFE, check out this blog post.

As part of our CFE Prep course, we provide a technical review resource, our Scenario Flowcharts Workbook.  We break down the commonly tested topics into possible decision variables and highlight the key technical to apply so you are ready to apply your technical knowledge on the CFE.