red herrings (misleading traps) thread - please post for benefit of all

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jondoe

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I took the mock CFA yesterday (averaged 71%) and was surprised to see lot of calculations in FRA, which was my worst to date. I fell for many red herrings - defined as misleading data in the problem. Red herrings lead you to a compeltely wrong answer, which for sure is included as one of the options.
One example is in the afternoon mock where “investments” appears in dividends declared calculation. I fell for it and learnt the hard way that investments are not a new expense item in I/S.
Post some that stumbled your way in your studies (mocks etc) and posting here will help you refresh your memory and reinforce it!
 
Hi All,
New here. Here’s two I picked up for Ethics.
1) You CAN use simulated results as part of Performance Presentation as long as it is DISCLOSED. Commonly mistaken with the fact that you have to show only your real results.
2) When you are visiting a client in a remote location (can’t get there by normal travel arrangements) then it is OK to let the client pay for the travel. You can ALSO let them PAY for accomodation because I(B) Independence and Objectivity RECOMMENDS to pay for your own costs, it’s not a REQUIREMENT. Commonly mistaken with the fact that you can only accept travel arrangements.
 
jondoe wrote:
I took the mock CFA yesterday (averaged 71%) and was surprised to see lot of calculations in FRA, which was my worst to date. I fell for many red herrings - defined as misleading data in the problem. Red herrings lead you to a compeltely wrong answer, which for sure is included as one of the options.
One example is in the afternoon mock where “investments” appears in dividends declared calculation. I fell for it and learnt the hard way that investments are not a new expense item in I/S.
Post some that stumbled your way in your studies (mocks etc) and posting here will help you refresh your memory and reinforce it!
Click to expand...
Where do investments appear on the financial statments normally?
 
I was suprised as well to see so many calculations in FRA and Corp fin, my Elan mocks and live Kaplan mock were mostly word problems. But I noticed that the Fixed income section was much less difficult, Ethics were about what I expected but more wordy than the other mocks I’ve taken.
 
My strategy was very different with respect to the official CFA mocks. I did them months ago when they first came out. I’ve done them about 4 times by now and getting 90%+ (obviously after that many attempts). But hey I think it’s definitely worth redoing a paper if you get time. Actually is beneficial the second time round as you avoid those “red herrings”. Very effective way of learning.
 
Of course it is not a redherring once you know it is :)
Another redherring: in FCFF you do not need to reduce Working capEx from CapEx, FCInv is just CapEx.
 
Well that’s the point. You see it so many times that red herrings don’t exist anymore ;) Then you pass the exam lol.
Here’s one: restructuring costs are part of continuing operations for US GAAP.
Also, going from FIFO to LIFO is PROSPECTIVE, not RETROSPECTIVE even though it is a change in accounting assumptions. Accounting assumptions have to be changed on a retrospective basis (update the previous years), but not when you go from FIFO to LIFO. That is forward looking.
 
This confused me to no end at first but then I realized it was prospective because it would not be reasonably feasable to retrospectively adjust the statements. One thing I have used for this area is that when you are going TO LIFO is PROspective, when going FROM LIFO it is RETROspective.
 
ashcfa1 wrote:Well that’s the point. You see it so many times that red herrings don’t exist anymore ;) Then you pass the exam lol.
Here’s one: restructuring costs are part of continuing operations for US GAAP.
Also, going from FIFO to LIFO is PROSPECTIVE, not RETROSPECTIVE even though it is a change in accounting assumptions. Accounting assumptions have to be changed on a retrospective basis (update the previous years), but not when you go from FIFO to LIFO. That is forward looking.
Click to expand...
Not a change in an accounting assumption; a change in an accounting method. Changes in assumptions (e.g., wage growth rate for pensions, salvage value for depreciation) are prospective; changes in methods (straight-line to DDB, LIFO to average cost) are retrospective, with the one exception: FIFO to LIFO.
 
You mean principle :)
Thanks S2000magician - my work for 2-3 hrs today is to just go over all your answers to threads in this forum.
 
jondoe wrote:You mean principle :)
Click to expand...
Touché!
jondoe wrote:Thanks S2000magician - my work for 2-3 hrs today is to just go over all your answers to threads in this forum.
Click to expand...
There are quite a few of them.
Best of luck. (On the exam, that is.)
 
This is a useful thread. Red herring for me, CFA mock am, question 10. When changing a recommendation, should tell asset management clients before your newsletter recipients since the newsletter recipients includes non-clients. I thought you’d tell them at the same time. I know better now, hopefully I can remember this Saturday!
 
S2000magician wrote:
ashcfa1 wrote:Well that’s the point. You see it so many times that red herrings don’t exist anymore ;) Then you pass the exam lol.
Here’s one: restructuring costs are part of continuing operations for US GAAP.
Also, going from FIFO to LIFO is PROSPECTIVE, not RETROSPECTIVE even though it is a change in accounting assumptions. Accounting assumptions have to be changed on a retrospective basis (update the previous years), but not when you go from FIFO to LIFO. That is forward looking.
Click to expand...
Not a change in an accounting assumption; a change in an accounting method. Changes in assumptions (e.g., wage growth rate for pensions, salvage value for depreciation) are prospective; changes in methods (straight-line to DDB, LIFO to average cost) are retrospective, with the one exception: FIFO to LIFO.
Click to expand...
How about when we change the accounting method from Weighted average (or special identification) to LIFO, is it retrospective or prospective?
 
From my understanding yes. As perpetual and peridodic ineventory systems produce the same result under FIFO. only under LIFO do they change. As perpetual and periodic systems are the same under FIFO it will be a prospective change.
 
What is weighted FIFO - all I know is FIFO, LIFO, Average cost and Specific id. Please explain.
 
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