The UFE in the spotlight

I was referred to a story in the September 10th Toronto Star about the UFE by my girlfriend’s Mom. It’s about time this momentous occasion is chronicled in the most-read daily in the country:

Starting Tuesday, more than 650 students will write the professional accounting exam in Toronto — more than 2,500 in Canada.

I’ll be one of those 650 students sitting in the International Centre right beside Canada’s busiest airport (and you can hear every plane fly overhead) on Tuesday. I won’t be the only one!

The UFE lasts three days, with a five-hour business case followed by two four-hour exams, each of which consists of a few shorter case questions. Last year, for example, the question on the first day was 15 pages long and candidates had to provide accounting, audit, tax and other business advice for a ski resort formed by the merger of three smaller ones.

This is not entirely correct. I know that case inside and out, and it was actually about a partnership between three ski resorts to sell a lift ticket that could be used at any of the partner hills. No merger. Minor details to the Star, but you’d be hard-pressed to earn any marks if you made such a big mistake when you were writing the thing last year.

Illness has not interrupted an exam in recent years, but evidence of serious stress — shaking hands, nervous ticks, vomiting — is routinely observed in washrooms beforehand.

I’m pretty lucky in that I deal with stress well. I’ll be nervous and anxious for sure, but I won’t be throwing up.

Bruce Densmore runs a UFE preparation program, Densmore Consulting Services, Inc. He won’t say how much he earns but he clearly makes more than his two main competitors, if only because his services are offered by three of the Big Four firms. He labels his company “a high-cost, high-quality provider.” As he says, “If we mess up, there’s a price to be paid” — with messing up meaning a low pass rate.

I was lucky enough to take Densmore’s course at the end of July at U of T. It really helped a lot – I learned valuable case-writing skills and improved my scoring immensely. It’s like night and day comparing cases I wrote before the course and after.

One thing is for certain about this monstrous exam – it will be the biggest challenge of my life so far.

UFE studying winds down

The UFE is next week – beginning September 12 and running for three days. I’ve spent the last four weeks straight writing, marking and debriefing cases, sometimes at home and sometimes at a library downtown with co-workers.

But really I’ve been preparing for this exam for the better part of the past year. My firm had us writing cases as far back as last fall, before last year’s UFE results were even out. It’s been quite a year.

The writing of cases is basically over now. There’s little to be gained at this point from writing a case, and one has to be careful not to blow their confidence this late in the game.

Write and bomb a case and you will go into the exam feeling dejected, like you’ve already failed. And you will likely be right.

So with that in mind, I’m going to spend the remaining few days before the UFE reviewing past cases I’ve written and the associated technical material.

This weekend I’m going to relax. My sister and nephew are having a birthday party on Friday. This likely won’t be the last blog post I make before the exam, but in case it is, thanks for being along for the ride.

MBA vs. CA – which is better?

Here’s an interesting article that discusses why an MBA is better than a CA. The article is from India but I think a lot of it is transferrable to Canada. Not that I agree with the author in any way – in fact, she is completely and utterly wrong in every available aspect.

Her main reason is that MBAs rise to CEO, whereas CAs rise to CFO.

The reason is simple: being CEO is about vision and leadership. This would require you — at times — to take a leap of faith, even when the numbers are against you. For example, you diversify into a new area of business. This may mean investing a lot of money, literally burning cash in the initial phase. It may look very bad on the balance sheet for a while, but there is a gameplan and eventually it pays off.

The author must, therefore, be contending that leadership and vision are teachable quantities. How else would all MBAs be blessed with such traits but through the always arduous path of study through Masters programs?

Apparently case based study in grad school will endow one with foresight and the courage to use it, but self-directed case based study under the CA program teaches one to look only to the numbers and the immediate effect on the balance sheet.

This is wrong. In any case I’ve written, you have to argue both sides to every issue and reach a reasonable conclusion, keeping the needs of the client first and foremost in mind.

Weighing qualitative and quantitative considerations are critical to writing a competent, well-rounded case response. Keeping the company’s strategy and critical success factors in mind will guide your response and frame your recommendations.

The truth is you can’t look at the letters after one’s name to determine how far they will go in their career. It’s an individual thing. Key is what one does with the credentials after they’ve earned them.

Apple brings in new director: Google’s CEO

It has been announced recently that Dr. Eric Schmidt, currently the CEO of Google, is joining Apple’s Board of Directors. Boards are responsible for overseeing management, protecting shareholder interests and overall strategy.

The move has been hailed as a signal of future partnership between Google and Apple in their joint fights against Microsoft. I have to admit it basically looks that way to me too. I would even go so far as to say a Google-Apple alliance poses the biggest threat to Microsoft’s continued dominance on the desktop, ever.

I’ve always wondered why some Boards have an even number of members, what with the possibility of vote tying. They must have some other method of resolving those situations when they inevitably crop up.

Steve Jobs is obviously an exception to most rules, but it’s rare to see someone in management on the Board in a public company, because of the inherent conflict of interest. I think Jobs is invested in Apple long-term though, so that’s no doubt why he gets away with it.

Novell investigating its options grants

Another tech company has announced it is conducting internal investigations into their options grant practices. This time it is Novell, a company known for its NetWare network operating system and more recently as a Linux company.

Novell said its audit committee began the investigation because of news about irregularities in the way that dozens of other companies accounted for stock options grants.

So it appears that Novell’s corporate governance has identified the need to and benefits of resolving any doubt about the company’s options accounting. Tech companies are the most frequent user of options as a form of compensation and have been the primary focus of the SEC investigation.

Options have to be accounted for at fair value on the date granted. If the options are granted in the money, the company must recognize the expense as being the difference between exercise and market price times the number of options granted.

So in the case of options abuses, the options were granted in the money at a certain date, then backdated to when they were out of the money, thus allowing the company to avoid reporting the expense while giving management options that are already in the money.

Stock options have been used as compensation in order to better align the interests of management and shareholders. Shareholders want the stock to go up, so options should guide management in making decisions that increase the stock price.

From a compensation standpoint, backdating makes sense. To reward a manager for doing well in the past year, you could give options dated at the beginning of the year so the manager can take advantage of the increase in the price during the year.

This ignores the more long-term outlook taken by shareholders, however. As well, sound management decisions this year will lead to stock price increases in future years as the benefits accrue over multiple years from, for example, deciding to upgrade to more modern and efficient equipment that decreases costs over its useful life.