(Posted July 2024)

What is depth when it comes to the Common Final Examination (CFE)? Well, it depends on what you are talking about. Is it macro-level depth or micro-level depth?

Macro-level depth:

CFE candidates are required to demonstrate depth in Management Accounting or Financial Reporting at Level 2 of the assessment process and are required to demonstrate depth at Level 3 for the CFE Day 2 “role” chosen.  

Effectively, what depth means at the Level 2 and 3 is, “Did you score enough Competent (C) or Competent with Distinction (CD) rankings in the available assessment opportunities?” A minimum number of C/CD rankings will be set by the Board of Examiners as part of a passing candidate profile and if you score that number of more C/CD ratings then you pass that the depth test for that assessment.

That minimum number will be a function of the number of available assessment opportunities and the level of difficulty of those assessment opportunities. If there are 7 assessment opportunities, the minimum number to score might be as low as 2 or 3. However, it could be higher. That information is not disclosed and changes with each examination, so it is out of your control. Your goal should be to score as many C rankings on Financial Reporting, Management Accounting and your selected role assessment opportunities as that is what gets you depth at Levels 2 and 3.

It is important to note that a C/CD ranking on a Financial Reporting or Management Accounting assessment opportunity on Day 2 or Day 3 will count towards the overall depth assessment at Level 2. However, depth in your Level 3 role is only assessed using Day 2 assessment opportunities. If your role was Assurance on Day 2, a C/CD rating on a Day 2 Assurance depth assessment opportunity would help meet the Level 3 depth test. However, a C/CD scored on a Day 3 Audit and Assurance assessment opportunity would not help you pass Level 3.  Level 3 is only evaluated on Day 2 of the CFE. 

Micro-level depth:

Depth is also a major concept when writing assessment opportunities on Day 2 or 3 of the CFE. There are specific things required in the marker grid that will ensure you score C. Depth is a function of adequately covering enough of those required things.

Let’s use an audit procedures assessment opportunity under the Audit and Assurance competency area to illustrate this concept. The following things would typically be required to score a C:

  1. A three-part response for a procedure to be valid. Why is it a key risk area (supported by case facts)? What are you testing (audit assertion)? How are you going to test it (what information is required and what specific steps would be performed)?
  2. It has to be a major risk area from an audit perspective. Minor issues will not count.
  3. The assertion tested must correspond with the real risk / concern. There is no use discussing valuation if existence is the key concern.
  4. You will need to provide audit procedures for multiple risk areas. The number required to score C will vary case to case. 

So how do you score depth in this situation?

  1. You use the proper writing process so that each procedure area has the three necessary components.
  2. You rank the possible procedures so that what is covered relates is a major issue and will count towards the minimum number of procedures required.
  3. You understand that there is going to be a specific minimum number of procedures required and use strategies to ensure that you write sufficient number given the time constraints of the exam.

Let’s look at another example, this time in Financial Reporting. Many candidates struggle with depth in Financial Reporting, but the process to achieve depth and score C is straightforward.

  1. Identify the actual issue. Often candidates do not identify what the financial accounting issue actually is, and therefore, struggle to respond in an appropriate manner. For the purposes of this example, let’s assume that the issue is a rental contract for a large piece of equipment and the client wants to know how to account for it under ASPE.
  2. Apply the relevant technical. You need to use the relevant technical support from the Handbook. This does not necessarily need to be cut and paste from the Handbook, but it needs to be clear to the marker that you are applying the relevant technical. Notice I said ‘relevant’ technical. Technical that does not relate to your assessment of the issue is not relevant and will not be rewarded. In this case, you are likely looking to integrate the three criteria to determine whether it is a capital or operating lease.
  3. Integrate case facts to assess the issue. Integration is more than just restating case facts. It is applying case facts to the relevant technical to show how and when criteria are met, or how the technical applies in that situation. In our example, after each criterion, you would want to apply case facts to show whether that criterion is met. For example, you may know the term of the lease is five years and the useful life of the equipment is six years, which would result in a lease term of 83% of the useful life. You then need to compare that to the criterion (which is typically 75% or more) and conclude whether that criterion is met.
  4. Assess all of the criteria or relevant technical. This is often a step that is missed, and this causes a lack of depth in candidate responses. Even though just one criterion needs to be met in our lease example, you still need to assess them all to gain depth in your response and show the marker that you understand how to apply the technical. For example, even though the above criterion is met, it does not mean that you can stop your analysis. You need to assess all of the criteria.
  5. Conclude. A conclusion for financial reporting consists of a few items to gain depth. First, conclude on the current treatment – how will the transaction be treated now? For example, we would conclude this would be a capital lease. It would be set up as an asset, with a related lease liability. Then, conclude on any subsequent impact. In our example, there would be amortization of the asset, and the lease payments would be apportioned between drawing down the lease liability and interest expense for the time value of money. Finally, when you have the case facts to do so, you need to quantify the impact. This does not mean journal entries, but it does mean providing the quantification for the asset, liability, depreciation, and/or interest expense as time permits.

As you mark and debrief each of your practice cases during your study period, you will learn what kind of depth is required for each type of assessment opportunity and you will be able to better manage your time and develop your writing skills to more consistently achieve the right amount of depth and score C more often.