The key areas of concern for students writing the PA exams are as follows: 1) Time management 2) Missing level 3 of the competency and jumping directly to level 4 3) Missing the competencies to be found in the exhibits in the case questions.
Another concern is when students are writing both PA1 and PA2 at the same time. It is critical that those students “switch hats” from being a public practitioner in PA1 to a comptroller in PA2. And for those writing only one exam, make sure you write from the correct perspective.
Consider the following for each case: 1) Type of communication (memo, letter or report) 2) Who is writing 3) To whom the case is being written to 4) The time frame. a. ie when in the audit: beginning, middle, end; there is no point writing about issues at beginning of audit if the audit is over and there is a draft audit report b. ie regarding purchase or sale of property: has the decision already been made to buy the property (shares or assets) or not; and if so, has the financing been decided. Or maybe there is an issue such as in Feed & Grow with the auditor owning shares of company to be consolidated with client; the extra shares to result in >50% ownership have not yet been bought so it is next year’s issue. The issue must still be addressed but the recommendation might be to consider the issue further. Not all issues have to be answered today; just that they must be addressed. The recommendation can be to explore the issue further etc.
It is key to use subheadings in your response. It helps make it clear what you are writing about. It also helps you organize your answer better.
As for outlines, it is a personal preference how much you highlight on the exam paper rather than taking the time to rewrite it in an outline (time management). But it is important to write a bare bones outline. For example in Feed & Grow, the outline might be as simple as writing the subheadings: Lease Transactions (type of lease, multiple accounting issues for assets, liabilities, interest expense, depreciation& notes to f/s), purchase of additional 26% of shares of Canfarm, Non-resident payments, and Audit Deficiencies.
Write short sentences & short paragraphs.
Identify assumptions made in the case. These are areas to result in a discussion of skepticism. For example, doubling sales if purchase the retail stores may be unrealistic. Always state why the assumption may be unrealistic. Avoid making your own assumptions about the case. If you begin to make your own assumptions, you are writing about something that is not in the answer key.

Analysis of Ethics Issue in Feed & Grow:
FNG has decided to purchase Canfarm shares to increase their interest to 56%. This will happen in the future. The auditor owns shares in Canfarm. Note the issue relates to next year’s audit so the level 4 recommendation may be just to explore the issue further with the auditor.

Level 1: State
There is a conflict of interest issue with the auditor.
OR
The auditor is not independent from Canfarm.

Level 2: State and say why it is an issue
The auditor of FNG owns shares in Canfarm therefore there is a lack of independence, and maybe a conflict of interest.
OR
There is a conflict of interest because FNG’s auditor owns shares in CanFarm.

Level 3: State and Identify: the new word is “identify”. This is where you prepare an analysis of the issue and its impact on the financial statements, or provide a lists of alternatives.

The auditor of FNG owns shares in CanFarm creating the appearance of lack of independence, and possibly a conflict of interest. Each year the auditor must assess her independence in the audit engagement and provide FNG with a letter declaring that independence. If she is unable to prepare such a letter but continues with the audit engagement, her audit findings may be suspect and the audit report will lose its credibility.

[Note the response still focuses on the issue of independence. It talks about actions that must take place (representation letter) and the impact of the issue on the f/s or audit report.]

Level 4: Recommendation: (this could also mean a more detailed impact on the financial statements or audit.

Add the following paragraph to that written in #3 above.

The auditor’s ownership in CanFarm is very small and may not affect her independence. This issue needs to be addressed with the auditor to ensure both the reality and perception of her independence from the audit engagement.

Always give a reason for your recommendation.

Sometimes in recommendations you may consider “seeking extra help”, and that help could be from legal specialists, environmentalists, engineers, etc.

Feed and Grow Non-Resident Payments to the American professor who would give the 2 week seminar in Canada for $14,000.

Level 1 State:

Payments to non-residents are subject to withholding tax.

Level 2: State and say why it is an issue

Payments to non-residents are generally subject to withholding tax to be remitted to Canada Revenue Agency (“CRA”). The amount to be withheld is dependent on whether the non-resident is an employee of F&NG or is an independent contractor.

Level 3: State and Identify: add next paragraph to the paragraph above in level 2

Based on the information provided to me, the professor is providing a service to FNG for a fee. He is an independent contractor carrying on a business in Canada. FNG is required to withhold 15% of the fee and remit that tax to CRA pursuant to Regulation 105 of the Income Tax Act.

[Note the additional analysis within this paragraph, and then the impact that FNG must withhold tax.]

Level 4: Recommendation: add to the previous 2 paragraphs

The Canada-US Tax Convention states that if the professor does not have a permanent establishment in Canada, which is likely the case, he will not be subject to tax in Canada on the fees he earned from FNG. Notwithstanding the lack of a tax liability for the professor, FNG is required to withhold the tax unless it successfully applies to CRA for permission not to withhold the tax. If not, the professor will have to file a Part I tax return to receive a full refund of the tax paid by FNG on his behalf. The Tax Convention should be consulted for further consideration to ensure full compliance with the law.

[Note to always give the reason for your recommendation.]

STEPS

LEVEL 1:
What is the issue or problem?
LEVEL 2:
How is the issue a problem? (This should be stated in a single sentence if possible.)
LEVEL 3:
What is the impact of that problem? What alternatives are to be considered?
LEVEL 4:
What is the recommendation or preferred course of action? Explain why that is your choice.