ACCO 659

Capstone II
CFE Day 1 Preparation
Friday July 2, 2021
by Eva Lagou
Today’s Agenda
Topics

1. Capstone II - CFE Day 1 Overview

2. CFE Day 1 - Case Analysis and Write-up Approach

3. Sample CFE Day 1 Evaluation Grid

4. BOE September 2020 and 2019 Reports - Key Takeaways

5. Additional Simulations and Study Resources

15 minute health break

6. CFE Day 1 Review - PRI (Capstone I 2016) Simulation B

 1. Capstone II
CFE Day 1 Overview
1. Capstone II – CFE Day 1 Overview

Structure of the CPA Common Final Exam (CFE)

 Day 1 – 4 hours length – Extension of Capstone 1 Case
• Pass / Fail exam
• Assessed independently of Day 2 and 3
 Day 2 - 5 hours length – Comprehensive Role Based Case (also
covering 1 common issue in either Management Accounting
and/or Financial Reporting at core level)
 Day 3 – 4 hours in length – Combination of 3 Short Cases (60-
90 minutes each) – multi-competency at core level
JMSB Capstone II Final Exam Grade is worth 42% composed of
the total marks from Day 1 (12%), Day 2 (15%) and Day 3 (15%)
1. Capstone II – CFE Day 1 Overview

Capstone II – Day 1
 Focus is on the enabling competencies
• Problem Solving and Decision Making
• Professional Judgement and Ethical Behaviour
• Communication Skills
 Focus on the Big Picture
• Qualitative impact rather than a detailed quantitative
correct answer
• Strategic implications of each issue
• Integration of analysis and recommendation
 2. CFE Day 1
Case Analysis and Write-up
Approach
2. CFE Day 1 - Case Analysis and Write-up Approach

Key Features of Capstone II Day 1 Write-up

 Targeted to a Board of Directors or
Senior Management.
 Key issue to address is strategic or
tactical.
 Need to prioritize issues, sequence and
emphasize accordingly.
 Need to provide useful and relevant
advice.
 Write-up needs to be concise and
professional. It can be personalized. It
can be in bullet form.
2. CFE Day 1 - Case Analysis and Write-up Approach
Linked to Capstone I Case
 Access to WDI Capstone I Case question (Provided)
 Requires input knowledge of the Capstone I Case
• Mission/Vision, Core Values, Stakeholder Preferences, key
SWOT, key Industry KSFs
• WDI business targets (2021 and 2022)
• Improve total operating profit margin to 9%, to be more in line with competitors
• Improve the recycling division’s operating profit margin to at least 5%
• Increase annual free cash flows by at least $1,700,000
• Lower GHG emissions by 10% or increase the avoidance of GHG emissions by 10%
• Minimize spending on new investments and ensure they are cash flow positive in the short term

• Key Constraints – GBI Bank Debt Covenants

• The line of credit is secured by the A/R and has a maximum limit of $5M. The loan bears interest at prime plus 2% (prime
is currently 2.5%). The line of credit cannot exceed 50% of the balance in the accounts receivable. Earnings before interest
and taxes (EBIT) to interest cannot be less than 1.8
• The $50M term loan is secured by the PP&E. The loan is repayable in annual principal payments of $4M, due in January of
each year, and bears interest at 6.5%. The loan matures in 2033. In early January 2020, GBI added a debt covenant to this
agreement that requires the total debt-to-equity ratio not to exceed 3.5.
2. CFE Day 1 - Case Analysis and Write-up Approach
Linked to Capstone I Case cont’d
 Testing if you can you think on your feet and adjust to
changes in the case. For example, it is now February 2026
and WDI:
• Did not enter a Public-Private Partnership (PPP) for an organic waste treatment facility. As a result, WDI lost the four
existing municipal waste disposal customers when their contracts were up for renewal in 2023. These municipalities
offered the arrangement to other competitors.
• Opened the Environmental Consulting Division and it was a success. This is the fastest growing business segment WDI is
involved in today.
• Rationalized the recycling plant products but did upgrade the equipment since funding was tight. As a result, they did
not expand into any new products (Aluminum and PET Plastics).
• Did not acquire 45% of the equity of Pristine Research Inc. It was concluded this investment was too risky for WDI to
pursue.
• Now needs to address an opportunity to enter a Partnership Agreement with BCE and recycle all its electronics (e.g.
telecom equipment, computers, cell phones) by transforming 20% of its four recycling plants and implement new
hazardous waste disposal services. and electronics will increase the demand for these specialized disposal services. The
hazardous waste treatment segment is now expected to grow at 11% annually for the next few years.
2. CFE Day 1 - Case Analysis and Write-up Approach

CPA
Capstone 1
Case Details
CICA
Handbook
1.5 hours maximum

 Read and understand Case

Requirements
Income Tax
 Determine Input Information,
organize and analyze
Act
CPA
 Write-up Situation Analysis (update)
Competency
Map
Rules of
Assessment reflects The CPA Way and its main components – refer to Appendix A Professional
Conduct
2. CFE Day 1 - Case Analysis and Write-up Approach

Key Issues

Feasible 2.5 hours maximum

Alternatives
 Determine what are the Relevant Case
Facts + Integrate Situation Analysis

 Identify and Prioritize Issues

 Identify & Evaluate Alternatives

 Conclude and Advise

Qualitative
Analysis
Quantitative
Analysis
2. CFE Day 1 - Case Analysis and Write-up Approach

Sample Table of Contents

1. Memo
2. Assess the Situation / Situation Analysis
3. Analysis of Major Issues / Strategic Alternatives
4. Conclude and Advice / Recommendations
5. Appendices (optional)
2. CFE Day 1 - Case Analysis and Write-up Approach

1. Memo
• To: Client
• From: Consultant
• Date
• Re: Subject
• One sentence on what the attached report
provides / discusses…analysis and
recommendations on the issues that Waste
Disposal Inc (WDI) is currently facing
2. CFE Day 1 - Case Analysis and Write-up Approach
2. Assess the Situation / Situation Analysis
• WDI Current Contextual Analysis Update (tie back to
Capstone I issues addressed)
• WDI Current Objectives / Constraints (can be the ones
stated in Capstone I and/or new ones)
• Identify key decision factors
• WDI Current Issues to Address (list by strategic importance)
• Analysis of Financial Performance
 Financial reporting conforms to ASPE GAAP. Mention adjustments
if applicable. Apply only if material!
 Some Financial Ratio analysis interpretations in summary bullet
format ( key material ones) – e.g. Expenses as a % of Total Revenue, Operating
Profit Margin, Return on Assets, Return on Equity, Current Ratio, Long-Term Debt to EBIDTA

 Conclude if WDI is financially healthy, weak, etc.

2. CFE Day 1 - Case Analysis and Write-up Approach
3. Analysis of Major Issues / Strategic Alternatives
• List and analyze by strategic importance (impact,
materiality, risk level)
• For each Major Issue
 List options (if applicable)
 Qualitative and quantitative analysis
 Alignment to WDI Mission/Vision/Core Values
 Financial Reporting, Taxation, and Financing
implications, if any and material
 Unbiased and integrated analysis – leverage key
decision factors (i.e. strategic implications)
 Conclude
2. CFE Day 1 - Case Analysis and Write-up Approach

3. Analysis of Major Issues / Strategic Alternatives cont’d

• For each Minor/Operational Issue
 Summarize current issue
 Briefly assess options/implications (balanced
discussion) – WIR type of analysis
 Perform light quants if any provided
 Make recommendation
 Should be a 1-2 short paragraphs or table format
4. Business Report Outline
4. Conclude and Advise / Recommendations
• Repeat the key recommendations
• This is in concise format since it is more of a conclusion.
The points have already been discussed prior. One should
say: alternative X is selected because best meets Laura
Simmons’ goals, objectives and is strategic aligned to WDI’s
mission/vision/core values.
• Leverage key decision factors
• List recommendations in order of importance (e.g.
Materiality, Level of Risk, Impact)
• Briefly recommend on any implementation strategy
considerations, priorities, and mitigate key risks (e.g. to
ensure success, also implement policies, coaching and
training programs, etc.).
4. Business Report Outline
4. Conclude and Advise / Recommendations cont’d
• Revisit the mission/vision. Briefly conclude on how
it is being met along with the prescribed mandate
and stakeholder objectives. Revise only if required.
• Only if one of the competencies being requested/
evaluated, include other types of analysis. For
example:
 Analyze financing options, covenants impact and
make recommendations
 Perform Cash Flow Analysis and discuss covenant
restrictions
 Include an Implementation Plan
 Include a Balanced Scorecard
3. Sample CFE Day 1
Evaluation Grid
3. Sample CFE Day 1 Evaluation Grid

Summative Assessments
STEP 1 STEP 2

Indicator P1 Indicator P2 IndicatorP3 Indicator P4 Indicator P5

Situational Analysis Analyzes the Conclude and Communication Summative
(Update) major issues Advise Hurdle Assessment
• Update • 1 to 5 major • Prioritization of • Clear points • Big picture analysis
Mission/Vision issues (qualitative Issues • Clear labelling of • Prioritize issues
• Key Objectives/ & quantitative, • Consider key quantitative (depth of discussion)
Constraints balanced) decision factors • Spelling & • Quantitative +
• Applicable/Updated • Address minor grammar Qualitative + tools
Industry KSFs issues • Professional tone • Leverage case facts
• Updated SWOT and • Conclusions (Cap1/Day1)
integrated into • Integrated • Communication of
analysis Recommendation ideas, integrating,
• financial analysis-key synthesizing info
ratios analysis

Overall:
 YES  CLEAR PASS
 YES  YES
Reasonableness of  UNSURE
 YES  MARGINAL
 UNSURE  UNSURE
Attempt  NO
 NO PASS
 NO  NO
 MARGINAL FAIL
 CLEAR FAIL

Indicator Maximum
3 3 3 2 4
Points
CFE September 2020 – DAY 1 – JMSB Performance
DAY 1 – Summative Assessments*
Indicator P1 Indicator P2 IndicatorP3 Indicator P4 Indicator P5
Situational Analysis Analyzes the Conclude and Communication Summative
* Distinct Hotels (Update) major issues Advise Hurdle Assessment
Corporation 2020 CFE • Update • 1 to 5 major • Prioritization of • Clear points • Big picture analysis
Day 1 Case Mission/Vision issues (qualitative Issues • Clear labelling of • Prioritize issues
• Key Objectives/ & quantitative, • Consider key quantitative (depth of discussion)
Constraints balanced) decision factors • Spelling & • Quantitative +
• Applicable/Updated • Address minor grammar Qualitative + tools
Industry KSFs issues • Professional tone • Leverage case facts
• Updated SWOT and • Conclusions (Cap1/Day1)
integrated into • Integrated • Communication of
analysis Recommendation ideas, integrating,
• financial analysis-key synthesizing info
ratios analysis

Indicator Maximum Points 3 3 3 2 4

Passed – 98% Passed – 68% Passed – 96% Clear Pass – 66%
JMSB -Sept 2020 Unsure – 1.5% Unsure – 30% Unsure – 3%
Passed – 100%
Marginal Pass – 22%

Average Quebec Passed – 97.5% Passed – 71% Passed – 91.5%

Passed – 100%
Clear Pass – 67%
University -Sept 2020 Unsure – 2.5% Unsure – 26% Unsure – 7.5% Marginal Pass – 20%

Relative Performance     

2021-07-01 21
3. Sample CFE Day 1 Evaluation Grid

Summative Assessments
Sample Case Evaluation Grid
Indicator P1 Indicator P2 Indicator P3 Indicator P4
Situation Analysis (Update) Analyze the major Conclude and Advise Communication
issues Hurdle
Overall • State • 1 to 5 major issues • Prioritization of • Understanding of
Mission/Vision/Core (qualitative & Issues write-up
Values quantitative, • Consider key • Clear points
• Key Objectives/ balanced) decision factors • Clear labelling of
Constraints • Address minor • Integrated quantitative
• Applicable/Updated issues Recommendation • Spelling &
Industry KSFs multi-
grammar
competency
• Updated SWOT and area • Professional tone
integrated into analysis
• High level financial
analysis, key ratios &
interpretation
3. Sample CFE Day 1 Evaluation Grid

For Indicator P2, range of 4-7 competencies:

Sample Case Evaluation Grid

Major Issue Current Context Analysis Key considerations, Recommendations

Analysis implications and risks

Competency 1: • Key elements to consider • Qualitative analysis • Recommended

Issue 1 to address • Alignment to • Quantitative analysis course of action
Mission/Vision/Core (using correct tools) • Key risks to mitigate
Values • Financing impact if • Priority of
• Alignment to Objectives/ applicable implementation
Constraints
• Impact on Financial
Statements/Ratios
Tie-backs to Updated Situation Analysis
Not addressed: Does Nominal Competency: Reaching Competency: Competent:
not address this Does not attain the standard of Analysis (Qual Pros, Analysis (Qual,Pros,
competency. reaching competence. Cons+Quant) and Cons+Quant) and
interpretation of results interpretation of results
with realistic
recommendations
Competent with
distinction
3. Sample CFE Day 1 Evaluation Grid

Overall Assessment
Clear Pass Marginal Pass Marginal Fail Clear Fail

Overall, the candidate Overall, the candidate Overall, the candidate Overall, the candidate did
provided an adequate provided an adequate provided an attempt at a not provide an adequate
response clearly meeting response, with some response, with several errors response because the
the minimum standards for errors or areas of or an incomplete analysis. response was deficiency in
each of the summative omission, but including multiple areas.
assessments. the underlying key
concepts.
To be assessed a Pass, candidates are expected to perform adequately in all the summative assessments and
demonstrate that overall, they addressed the issues presented by the Board.

Markers are asked to consider the following in making their overall assessment:
1. Did the candidate step back and see the bigger picture, and then address the broader issues identified?
2. Did the candidate prioritize the issues by discussing the major and minor issues in appropriate depth?
3. Did the candidate use both quantitative and qualitative information to support their discussions and conclusions?
4. Did the candidate use the appropriate tools to perform quantitative analysis?
5. Did the candidate use sufficient case facts (Day 1 case and Capstone 1 case) about the external and internal
environment to support their discussions?
6. Did the candidate communicate their ideas clearly, integrating and synthesizing the information?
7. Did the candidate add value with his/her conclusion on the different strategic issues?
 4. Board of Examiners’
September 2020 and 2019
Reports
Key Takeaways
4. BOE September 2020 Report Key Takeaways
BOE Remarks – what made a strong write-up?
• Included a relevant situational analysis and makes relevant
links back to the company’s situational analysis when analyzing
the specific strategic issues, and within their conclusions
• Recognized the more important decision factors for each of the
issues and focused their discussion on the strategic
implications of those decision factors
• Clearly explained the implications of the relevant case facts
within their analysis, appropriately linking to their situational
analysis.
• Provided calculations that were clear and on point, avoiding
overly complicated and unnecessary calculations. The required
calculations on DHC Version 1 were quite simple, and the main
quantitative skill being assessed was the candidate’s ability to
critique the calculations provided
• Approached their write-up in a coherent and organized fashion
4. BOE September 2019 Report Key Takeaways
 Indicator P1: Expected to recap the important decision factors
and highlight any significant changes from Capstone 1 (such as
trends and operational) that would influence the decisions
• Candidates were only rewarded when they made links to
their situational analysis in the body of their report
• Strong candidates drew on their knowledge from Capstone 1
and provided full thoughts in their discussions (Indicator P2
and P3) by not only stating a case fact, but also explaining
why it was relevant.
• Weak candidates spent an excessive amount of time on their
situational analysis, writing four to five pages of SWOT points,
without any focus on the significant factors.
• Although links to the situational analysis are important,
these links must be consistent with the stated objectives of
the company being assessed.
4. BOE September 2019 Report Key Takeaways
 Indicator P2: Analyze Major Issues
• For a major issue, strong candidates perform a balanced
quantitative and qualitative analysis. Discussed all the
components of the major issue.
• If missing quantitative information, they realize what key
quantitative information was absent from the case facts and
stated what additional information was required to complete
the analysis.
4. BOE September 2019 Report Key Takeaways
 Indicator P3: Conclude and Advise
• Candidates were expected to conclude on each issue
analyzed in a manner that was consistent with the analysis
they performed.
• There is no single correct strategic mix of decisions; Needed
to provide conclusions or recommendations that were
coherent and consistent with the analysis performed.
• Strong candidates concluded on each analysis, recognized
that some issues were more important than others, and
highlighted this fact within their overall conclusion. They
understood the interrelationships and were internally
consistent when making their recommendation.
• Weak candidates tended to conclude without considering
how those conclusions would affect the company when
brought together, failing to recognize the interconnectedness
of the decisions.
4. BOE September 2019 Report Key Takeaways
 Indicator P3: Conclude and Advise cont’d
 Indicator P4: Communication
• Weak candidates tended to use poor sentence structure,
confusing syntax and an unorganized response approach.
• Some candidates’ presentation of their exhibits in Excel was
difficult to follow due to poor labelling or no formulas in the
cells.
4. BOE September 2019 Report Key Takeaways
 Indicator P5: Summative Assessment
• Expected to meet the minimum acceptable standards in each
of the four assessment opportunities to obtain a “Pass” on
Day 1.
• Need to demonstrate a minimum level of numeracy skill.
• For each major issue, the board expected an in-depth
analysis before candidates proceeded to a reasonable
conclusion.
• Expected to step back, integrate the issues, and see the
bigger picture, not just the issues in isolation.
• Consider and address any borderline ethical issues (e.g.
implement a WDI Code of Conduct policy)
• BOE sought evidence of candidates having incorporated
information from Capstone 1, and the changes identified, in
their situational analysis (integration in indicator P2 and P3).
4. Bottom line

 Study beforehand and know the basic case facts on the

WDI Capstone 1 case
 Focus on the Big Picture
 Do not repeat WDI Capstone I case facts. Assume known
and leverage if help justify a new point
 Prioritize Issues and focus efforts accordingly
 Always answer the WHY? And SO WHAT? Do not just
repeat case facts
 Apply an integrated, unbiased and balanced qualitative
analysis. Ensure tie-backs to Updated Situation Analysis.
If no tie-back, then information not required in Situation
Analysis!
4. Bottom line cont’d

 Quantitative analysis does not have to be comprehensive.

Apply correct tools. Perform some quantitative analysis
even if missing information. Estimate if required.
 Mention strategic implications of each issue. Leverage key
decision factors (hint: use a decision matrix).
 Conclude and make a recommendation for each issue.
 Ensure you state the interrelationships of the issues. Stay
internally consistent when making recommendations.
 Budget and manage your time!!
5. Additional Simulations and
Study Resources
5. Additional Simulations and Study Resources

 Day 1 Case Debrief#2 – Friday July 9th at 3:30pm Incl

Evaluation
Guide

• PRI Simulation A Capstone II Day 1 Case and Solution

Incl
Evaluation
Guide

 Currently Available in Acco 659 Moodle Course Folder

• PRI Simulations B Capstone II Day 1 Case and Solution
• September 2017 - CFE Board of Examiners (BOE) Report - Part
B: Discussing the PRI Day 1 September 2016 and September
2017 CFE case, sample response and markers’ comments

 To be provided end of July, 2021: WDI Simulations A&B

Capstone II Day 1 Cases and Solutions
5. Additional Simulations and Study Resources cont’d
 Suggested BOE Report Sections to review:
• September 2020 - CFE BOE Report – Part B (Marmani Inc)
• September 2019 - CFE BOE Report – Part B (Heartbreak Estates Vineyard &
Winery Ltd. – HEVW)
• September 2018 – CFE BOE Report – Part B (First View Theatres Inc. – FVT)

 Other Available cases in the Acco 659 Moodle Course Folder

(OPTIONAL)
• Arndt Industries Sample Capstone I and Capstone II Day 1 Case and
Solutions
• Rejuvenating Spa Inc Capstone II Day 1 Case (September 16, 2015 CFE)
• Rejuvenating Spa Inc Simulation A Capstone II Day 1 Case and Solution
5. Additional Simulations and Study Resources cont’d
 Snapshot of CFE BOE Report Table of Contents