Level I CFA Program Changes 2016: CFA Curriculum Updates

Miss these CFA level 1 changes in the 2016 curriculum and risk missing out on those important few points that could get you a passing score

The CFA Institute has published its curriculum changes for the 2016 exams. The CFA level 1 changes for 2016 are relatively light compared to last year but still extremely important. I have always suggested candidates get a jump on studying by reviewing prior year curriculum before their own books arrive but you have to be ready for the changes.
You can download a pdf copy of the CFA level 1 changes for the 2016 curriculum by clicking through this link. The curriculum changes are available in a combined document or individually for each of the 18 study sessions.

Level I CFA Program Changes 2016 in General

Only one reading has been added this year and about half of the learning outcome statements (LOS) in the CFA level 1 curriculum have been affected with changes. There are 29 new LOS with 23 changed LOS and eight removed from the curriculum.

Fortunately, the CFA level 1 changes do not affect topic weights in the exam as they did last year. Last year’s CFA curriculum changes to the topic weights in each exam caught a lot of candidates off guard. The table below shows the topic weights for each CFA exam.

There is no real proof to say that you need to study new or changed curriculum material more than older material. It seems intuitive that the CFA Institute would want to highlight changes in the curriculum by putting it on the exam but there is no way of knowing for sure since we can’t talk about exam questions. There aren’t many changes to the 2016 CFA level 1 curriculum so take a little time to make sure you master them.

Level I CFA Program Changes to Curriculum

The 11th edition of the Standards of Practice Handbook, effective July 2014, is still relatively new so its no surprise that the Institute has not changed much from last year’s level 1 exam. There are no changes to the Ethical and Professional Standards study session on the exam.

The changes to the CFA level 1 2016 curriculum do not affect study session two or three of Quantitative Methods.
The changes to the CFA level 1 2016 curriculum do not affect study session four through six of Economics.

Study session seven, the introduction to Financial Reporting and Analysis, is the first part of the CFA level 1 2016 curriculum where we see any changes.

  • LOS 7.2.1b and 7.2.2e have added or removed words but there is no change to the intent or the material you’ll need to study.
  • LOS 7.2.2a is new: Describe how business activities are classified for financial reporting purposes

Study session eight includes a new LOS (8.2.1d): Describe key aspects of the converged accounting standards issued by the International Accounting Standards Board and Financial Accounting Standards Board in May 2014.
Study session nine is where we see the most CFA level 1 changes to the LOS

  • 9.2.1c now asks you to “compare” the different inventory methods across perpetual and periodic inventory systems.
  • 9.2.1d through 9.2.1h have been removed and replaced
  • 9.2.1d through 9.2.1l are six new LOS

Make sure you spend some time on inventories section (Reading 29). There is a new focus on the material and it accounts for a big portion of the changes.
Reading 30 of study session nine on Long-Lived Assets has also been changed significantly

  • 9.2.2c and 9.2.2d have been removed
  • 9.2.2f now only asks you to describe the different amortization methods and calculate amortization expense
  • 9.2.2 (b,c,d,e,g,k,o,p) are all new LOS on the 2016 CFA level 1 exam. That’s a quarter of the new LOS in just one reading so you can bet the Institute will be looking at the section for the exam.

Reading 31 (Income Taxes) has one change, LOS 9.2.3h has been changed to be more specific. You now need to, “Explain recognition and measurement of current and deferred tax items.”
The changes to the CFA level 1 2016 curriculum do not affect study session ten of Financial Reporting and Analysis.

The changes to the CFA level 1 2016 curriculum do not affect study session eleven of Corporate Finance.

Reading 42 (Risk Management: An Introduction) in study session 12 is new. The seven LOS for 12.2.1 are new so make sure you master the reading. You will revisit risk management in more depth during the CFA level 2 and level 3 exams so make sure you get a really good base of understanding in the first exam.
Study session 13 (Equity) includes one LOS change. LOS 13.2.1g has been replaced. You no longer have to compare behavioral finance with traditional finance but must instead describe behavioral finance and its relevance to market anomalies.

LOS 14.2.1 of study session 14 (equity) includes some wording change to d, g, h and j. Most of the changes do not affect what you need to learn. Make sure you understand how barriers to entry affect price competition and how the macroeconomic picture influences industry growth and risk.
LOS 14.2.2 f and g include some wording changes. Neither of the changes is really material but more to better define what you need to understand.
LOS 15.2.1 of study session 15 (Fixed Income) changes the word ‘functions’ for ‘content’ in the 2016 curriculum. It seems this a more general approach to the section.
LOS 15.2.2e is new and places a little more emphasis on sovereign bonds.
LOS 15.2.2f and 15.2.2i include wording changes to take the emphasis off sovereign bonds and highlight risks of repurchase agreements.
LOS 15.2.3 of Reading 55 (Intro to ABS) includes a lot of changes so make sure your pay attention to the section. LOS 15.2.3 (b, e, g, h, i) include wording changes but do not change the intent very much.
LOS 15.2.3 (c and f) are new while 15.2.3e has been replaced.
LOS 16.2.1 (d and e) include wording changes but do not materially affect your studying. You no longer have to explain how embedded options affect interest rate risk.
LOS 16.2.2b is new, you must now describe default probability and loss severity as components of credit risk.
LOS 16.2.2f includes a wording change but only to better define that you need to know the four Cs of credit analysis.
LOS 16.2.2i has been removed.
The changes to the CFA level 1 2016 curriculum do not affect study session 17 of Derivatives.

LOS 18.2.1 of Reading 61 (Intro to Alternative Investments) include wording changes but do not affect the material or what you need to learn.

The majority of the CFA level 1 changes to the 2016 curriculum occur in study sessions 7 and 9 (Financial Reporting), study session 12 (Portfolio Management), and study sessions 15 and 16 (Fixed Income). Most of the wording changes do not amount to much but pay attention to the new reading (SS 12) as well as the new LOS. The easiest way to do this is just to highlight the sections that include the new LOS and make sure you understand the material when you get there.

‘til next time, happy studyin’
Joseph Hogue, CFA

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