2014 Level 2 CFA Exam Changes

The changes to the 2014 Level II CFA Program exam are not as extensive as we’ve seen in the past but there are a few important differences. There are seven new readings and a few ones that have been dropped. All the new readings will have new LOS, though they may be similar to past LOS.
If you’re new to the exam, I wouldn’t change my study schedule too much for the curriculum changes but make sure you have a good grasp of the material. Those repeating the exam will want to focus on the new material since most of the old material will be relatively fresh in your mind.
The Standards and ethics material is the same next year as it has been in the past.
The material in quantitative methods (Study Session 3) and economics (Study Session 4) are basically the same, though some of the LOS have been split or combined but this won’t change the ideas or formulas that you need to know.
Study Session 6, Financial Reporting and Analysis, includes the same three readings (19-21) but they have been updated from last year. LOS 21b and 21h-j have been added and require a more detailed understanding of currency transaction exposure and multinational accounting.
Study Session 8, corporate finance, has not changed though some of the LOS have been split, combined or have slightly different wording. Again, these changes really do not affect what you need to study or understand. Focus on the bigger changes.
The Lessons we Learn, reading 22; Study Session 7 has also been updated
Study Session 11, Equity Valuation (Industry and Company Analysis) has seen the most changes with the addition of two new readings; Reading 33, “Your Strategy Needs a Strategy,” and Reading 34, “Industry and Company Analysis.”
The two new readings strike me as very similar to the Five Forces reading, more management-related than the rest of the curriculum. As an analyst, you need to be able to understand business models and management perspective but a lot of this stuff always seemed too theoretical to me. Easy to remember though.
Reading 44, “A Primer on Commodity Investing,” has been added to Study Session 13, Alternative Investments. The material is fairly close to that in the commodities reading that was dropped from the Level 1 curriculum this year. This happens often where the Institute moves the focus of material from one year to another. The LOS in the new reading look fairly basic and it shouldn’t be a problem for candidates.
Fundamentals of Credit Analysis (Reading 42, 2013) in the Fixed Income material has been replaced by Reading 45, Credit Analysis Models in Study Session 14. While the LOS have changed, they appear to cover mostly the same ideas and concepts. If anything, the new LOS are a bit more quantitatively focused.
Credit Derivatives: An Overview (Reading 53, 2013) has been replaced by Reading 56, Credit Default Swaps in Study Session 15. The new material actually looks a little easier because it is more narrowly focused on Swaps rather than all credit derivatives.
Study Session 18, Portfolio Management has also seen some pretty big changes. The Theory of Active Portfolio Management (Reading 55, 2013) has been dropped and two new readings have been added; Reading 58, “Residual Risk and Return: The Information Ratio” and Reading 59, “The Fundamental Law of Active Management.” Both of these new readings turn the focus to a quantitative approach to active management from last year’s focus on theory.
That concludes our review of the changes to the three exams for the 2014 season. We’ve still got a while before you need to start worrying about a study schedule so we’ll probably cover some miscellaneous topics or answer some questions in the coming weeks. Let me know if there’s anything you want covered.
‘til next time, take a break!
Joseph Hogue, CFA

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