Tips for Improving on FRA?

I have failed the Level 1 exam on my first attempt. My performance in FRA was terrible! <50%. It seems like everyone found this part easy, and PM and Derivatives harder, but it was the complete opposite for me and it really sucks because FRA is weighted really heavily. Part of the reason may be because I took a derivatives and PM course while studying for this.

FRA (or anything beyond basic accounting) has not been my strongest area. Can anyone give me some advice on improving in this topic area? I found the EOC questions and Topic Tests on FRA to be quite different from the real exam questions (while everything else seemed the same).

My score band was an 8.

i had 0 background in finance, accounting and economics. I started my study with FRA section. I had no idea about terms like Balance Sheet, Income Statement, Double Entry etc.

Chapters up to, but not including, Income Statement were somewhat ok. However, i was flabbergasted at Income Statement. I could not make a head or tail out of it. I did the following -

  1. I searched videos on YouTube explaining income statement and balance sheet.

  2. I realized that i need to know how to make Journal Entries, General Journal, General Ledger, T-Account, Chart of Accounts etc. I extensively watched the following series of videos -

  3. I watched plenty of YouTube videos on many basic terms. I found the following series of videos extremely helpful in understanding convoluted concepts - &

  4. After learning basics of accounting, i was stultified by inventory, long term assets etc.

  5. Online videos were helping me but they were covering a small piece at a time. I needed to have a comprehensive approach.

  6. I bought the book (used) called - Financial and Managerial Accounting by Warren, Reeve & Duchac. Great book !

  7. I studied the bond section in Long Term Liability in FRA along with Fixed Income.

  8. I solved the problems on FRA but only EOC on Scheweser Notes.

Few general guidelines regarding memory (from the book called ‘How We Learn’ by Benedict Carey) -

  1. Solve questions first - even if you have no understanding of the chapter. Try to make educated-guess.

  2. Read the chapter.

  3. After a day or two, write down your understanding without re-reading the chapter.

  4. Compare what you wrote to the information in the book. Understand the points you missed.

  5. Repeat the same exercise a week or two later but with a separate surrounding e.g. different room, different table etc.

  6. Solve more problems, quiz yourself.

Hopefully, it is helpful to you.



1 Like

Really helpful Phil, cheers.

FRA is something that you can only get with a lot of practice. Some people pick it up immediately, but coming from a liberal arts background, it took me many years of learning it separate times in different summer programs and jobs to finally internalize it.

FRA is really important for financial analysis, because in fundamental analysis, you have to understand the economic earnings or cash flow that an asset will generate in order to figure out what you’ll pay for it (and by extension, how to allocate capital). That’s my guess on why it’s such a high weight on Level 1.

Unfortunately the only way to get it is to practice, practice, practice. Make sure you know the readings down cold, do lots of practice problems, and maybe even download the 10-K (Annual report) of your favorite company and do some financial analysis (what are the revenue and inventory policies? what is their revenue growth? margins? free cash flow? Leverage in terms of Net Debt / EBITDA)? Once you understand how things are used in practice and why FRA is critically important in understanding the earnings power of a business (and how management teams can manipulate the representation of it), the FRA section should get a lot easier for you.

You may also want to consider taking an CFA L1-focused accounting review course. I think there are some accounting professionals that offer those through the year.

Best of luck.

These are great suggestions. Thank you Phil, I’ll check out those videos.

mgasses5, yes, practice. I plan on focusing more on the FRA EOC questions and topic tests for the next four months of my restudy. I was an ER associate at my school’s finance club and I’m familiar with security research, financial modeling and DCF analysis, so I have good knowledge of these concepts, but I think I need to work on DTA and DTL calculations, and converting inventory from FIFO to LIFO (i…e, adding the LIFO reserve).

Thanks again!

Read financial statements of companies that interest you. Ask yourself why the balance sheet of a company like Johnson and Johnson is so strong. Why do airline companies have such a low current ratio? What makes banking financial statements unique? There’s so much you can learn from the CFA or any finance textbooks. Some things you can’t help but memorize (like the differences between US GAAP and IFRS, and as you know there are many things to remember here including different treatment of impairment, what’s considered operating or a financing cashflow, etc).

A good way to really understand the fundamentals is to build a 3 statement financial model. They’re no where near as complicated as they sound. Of course analysts can make them very convoluted, however, at the beginner level they’re quite simple.

I found that free online courses and boards aren’t that great for this, some are too complicated while others are difficult to follow & aren’t explained very well. Best thing to do is pick up a 2nd hand book on financial modeling. Then pick a public company, download their 10K’s and follow the books instructions on how to build the model, using the information from the 10K’s. I’d suggest picking a very straight forward industry/company (i.e. retail) to keep things simple. You’ll learn heaps from both building the model & seeing how the statements relate to each other & also reading through the 10K’s. Just reading through 10K’s can be boring as shit, this will make it a little more interesting.

I also second Phil’s idea on getting a Financial and Managerial Accounting book.

I understand the basics and modeling. I have created three statement models and a DCF valuation model to value companies. I think where I went wrong were the IFRS/GAAP differences and calculating beginning/ending balances given a table of information.

I don’t have time to read another textbook on top of restudying, but thank you for the suggestion.

FRA is all about differentiate IFRS and GAAP. You can improve your score by making a note which clarify the difference between these two accounting standard and then try to memorize all of it. I did it and got >70 in this part.

Thank you very much for these tips, I am almost done with FRA and I know where I need to work more but I did not know how to approach the problem.

After one reading, I know that I have not retained 100% of it, I guess it is normal right? I will practice and re-read the part I have not fully understand while jumping on the next topic, or should I focus on FRA for now and fully assimilate it before changing the topic (learning one / reviewing another at the same time is not efficient ?)

With all due respect, no, it isn’t.

It’s partly about those differences, but it’s a lot about their commonalities.

In short, it’s about understanding accounting.

  1. First understand how all the different statements link to each other as well as where the specific accounts on each of these statements reside --> Balance Sheet, Income Statement, Cash Flows & Statement of Equity. If you know how everything connects , those pesky what increases decreases questions will become second nature on exam day and translate into easy points

  2. Once you have the above fundamentals down. Stat tackling the specific subject matter areas of FRA.

  3. Once you go through the material,Q-Bank the crap out of the subject areas. If you get a question wrong drill down into the explanation and review it until you understand it.

Rinse an repeat 2-3 and did i mention Q bank!

* Help full tips = Debits must always equal Credits (Assuming debits +, and Credits -. With any transaction you should always net to 0)

To get a firm grip on FRA to pass the CFA Level 1 exam, You need to understand Concepts in FRA Readings. Concepts are best understood and learnt when you go through many examples. Go through Blue Box and EOC Questions from CFA Curriculum.

Watch Mark Meldrum’s Videos on CFA Level 1 FRA Topics on YouTube: Fortunately, Level 1 videos by Mark are still available FREE (Unlike Level 2 videos on his new channel on vimeo)

Peter Olinto of WILEY (www.efficientlearning) teaches FRA really well. You can find some of the old videos of WILEY CFA Level 2 FRA on youTube.

Also attempt FRA Topic tests and do FRA Questions from Mock practice tests from CFA Institute website. They are your best friend to pass the exam.