CFP EXAM QUESTIONS AND ANSWERS
100-1: Defining Scope of the Engagement - Answer-• Mutually define scope of
engagement
• Identify services to be provided
• Disclose conflicts of interest
• Compensation agreement
• Responsibilities of each party
• Duration
200-1: Determining a Clients Personal and Financial Goals, Needs, and Priorities -
Answer-• Mutually define personal and financial goals
• Explore clients values, attitudes, expectations, and time horizons
• Subjective to practitioner
200-2: Obtaining quantitative Information and Documents - Answer-• Interviews,
questionnaires, client records and documents
• Mutually define clients relevant goals, needs, and priorities
• Objectives should be precise and measurable
• Obtain sufficient relevant, quantitative information and documents
300-1: Analyzing and Evaluating the Clients Information - Answer-• Personal
assumptions need to be made regarding: retirement age, life expectancy, income
needs, risk factors, time horizons and special needs
• Economic assumptions need to be made regarding: inflation rates, tax rates, and
investment returns
400-1: Identifying and Evaluating Financial Planning Alternatives - Answer-• What is
possible?
• What other actions can be taken other than one currently using
• May involve consulting other professionals
400-2: Developing the Financial Planning Recommendations - Answer-• What is
recommended?
• What strategy will best suit meeting clients goals considering alternatives
400-3: Presenting the Financial Planning Recommendations - Answer-• How to
present?
• Should present in manner to help client make informed decision
• Should communicate factors: assumptions, interdependence of recommendations,
advantages & disadvantages, risks, time sensitivity
500-1: Agreeing on Implementation Responsibilities - Answer-• Should mutually decide
how to split up responsibilities
, 500-2: Selecting Products and Services for Implementation - Answer-• Practitioner uses
professional judgement in selecting the products and services that the of clients interest
• Professional judgement incorporates both qualitative and quantitative information
600-1: Defining Monitoring Responsibilities - Answer-• What is to be monitored?
• Frequency of monitoring
• Communication method
Topic 4: Financial Statements - Answer-...
Personal statements - Answer-• Statement of financial position (balance sheet)
• Cash budget (statement of cash flow)
Business statements - Answer-• Balance sheet
• Income statement
• Statement of cash flows
• Pro forma statements
Statement of Financial Position - Answer-• Assets=liabilities+ Net worth
• Assets should be distinguished from items of income
• Assets and net worth increase through appreciations in the value of assets
• Paying off liabilities with cash does not increase net worth because assets decline by
an equal amount
• Buying an asset does not decrease net worth because assets increase by the value of
the asset purchased
• Assets should be shown at FMV
• Assets are categorized as cash and cash equivalent, invested assets, and use assets
• Footnotes are important for clarity
• Part of FP job is to help client increase net worth
• LIKE A SNAPSHOT IN TIME
Statement of Cash Flows - Answer-• Total inflows always equal outflows
• Outflows include spending and savings
• Cash flow is increased by selling non-income producing assets and by buying income-
producing assets
• Free cash flow will increase when debt payments are eliminated: paying off debt
• Outflows are usually categorized as fixed or variable
Balance sheet vs. indiv. statement of fin. position - Answer-• Net worth vs. shareholder
equity
• Majority of business assets will be use assets
Business statement of cash flows - Answer-• The majority of inflows typically come from
sale of products or services
• Majority of outflows usually are salaries, costs of goods sold, and rent
• All money coming in is either spent, saved/invested, or returned to shareholders
100-1: Defining Scope of the Engagement - Answer-• Mutually define scope of
engagement
• Identify services to be provided
• Disclose conflicts of interest
• Compensation agreement
• Responsibilities of each party
• Duration
200-1: Determining a Clients Personal and Financial Goals, Needs, and Priorities -
Answer-• Mutually define personal and financial goals
• Explore clients values, attitudes, expectations, and time horizons
• Subjective to practitioner
200-2: Obtaining quantitative Information and Documents - Answer-• Interviews,
questionnaires, client records and documents
• Mutually define clients relevant goals, needs, and priorities
• Objectives should be precise and measurable
• Obtain sufficient relevant, quantitative information and documents
300-1: Analyzing and Evaluating the Clients Information - Answer-• Personal
assumptions need to be made regarding: retirement age, life expectancy, income
needs, risk factors, time horizons and special needs
• Economic assumptions need to be made regarding: inflation rates, tax rates, and
investment returns
400-1: Identifying and Evaluating Financial Planning Alternatives - Answer-• What is
possible?
• What other actions can be taken other than one currently using
• May involve consulting other professionals
400-2: Developing the Financial Planning Recommendations - Answer-• What is
recommended?
• What strategy will best suit meeting clients goals considering alternatives
400-3: Presenting the Financial Planning Recommendations - Answer-• How to
present?
• Should present in manner to help client make informed decision
• Should communicate factors: assumptions, interdependence of recommendations,
advantages & disadvantages, risks, time sensitivity
500-1: Agreeing on Implementation Responsibilities - Answer-• Should mutually decide
how to split up responsibilities
, 500-2: Selecting Products and Services for Implementation - Answer-• Practitioner uses
professional judgement in selecting the products and services that the of clients interest
• Professional judgement incorporates both qualitative and quantitative information
600-1: Defining Monitoring Responsibilities - Answer-• What is to be monitored?
• Frequency of monitoring
• Communication method
Topic 4: Financial Statements - Answer-...
Personal statements - Answer-• Statement of financial position (balance sheet)
• Cash budget (statement of cash flow)
Business statements - Answer-• Balance sheet
• Income statement
• Statement of cash flows
• Pro forma statements
Statement of Financial Position - Answer-• Assets=liabilities+ Net worth
• Assets should be distinguished from items of income
• Assets and net worth increase through appreciations in the value of assets
• Paying off liabilities with cash does not increase net worth because assets decline by
an equal amount
• Buying an asset does not decrease net worth because assets increase by the value of
the asset purchased
• Assets should be shown at FMV
• Assets are categorized as cash and cash equivalent, invested assets, and use assets
• Footnotes are important for clarity
• Part of FP job is to help client increase net worth
• LIKE A SNAPSHOT IN TIME
Statement of Cash Flows - Answer-• Total inflows always equal outflows
• Outflows include spending and savings
• Cash flow is increased by selling non-income producing assets and by buying income-
producing assets
• Free cash flow will increase when debt payments are eliminated: paying off debt
• Outflows are usually categorized as fixed or variable
Balance sheet vs. indiv. statement of fin. position - Answer-• Net worth vs. shareholder
equity
• Majority of business assets will be use assets
Business statement of cash flows - Answer-• The majority of inflows typically come from
sale of products or services
• Majority of outflows usually are salaries, costs of goods sold, and rent
• All money coming in is either spent, saved/invested, or returned to shareholders
