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The Examiner Reports - December 2016

What little gems did the December ACCA examiner’s report hold? Here’s our take on them…

May 2017


THE DECEMBER EXAMINER REPORTS...

F5 Performance Management
The examiner told future candidates that they must remain vigilant when reading and interpreting the requirements of a question. It may be helpful to underline both the instruction and the content requirements. The examiner emphasized that when writing your answer it is useful to keep referring back to the requirement to make sure you are answering the actual question.
In broad terms candidates performed better in section B than they did in section A.
The examiner is concerned about the lack of understanding of limiting factor analysis. Students also struggled with the throughput accounting element.
The long-form Q31 covered budgeting. A common error in December was for candidates to start the rolling budget with the actual quarter one figure that had been given in the question and then only produce three further quarters. This, said the examiner, showed a lack of understanding of how rolling budgets work.
Q32 looked at divisional performance measurement. Many PQs lost marks in part (b) where they were asked to explain why they had included/excluded items in part (a). Candidates needed to explain why items were controllable or uncontrollable, and easy marks were lost because answers were repetitive and too brief.

F6 Taxation (UK)
Interestingly in December candidates performed better in section B than they did in section A.
The examiner used the group relationship, which is necessary for chargeable gains purposes, as the section A example from December.
The section B question on IHT also caused particular problems. Do you know your chargeable lifetime transfers as a result of the donor’s death?
Q31 involved a taxpayer who had cashed in a substantial share portfolio.
Q32 was the income tax question, involving an employer company that had provided various benefits to four of its employees.
Q33 was the corporate tax question. A company was incorporated in the UK, and its three directors were non-resident and they held board meetings overseas.

F7 Financial Reporting
The December paper was a fair paper, well it was according to the examiner anyway!
In section A candidates found the narrative question showing the importance of understanding ratios particularly difficult. Another problem came with the testing of how a revaluation surplus is constructed for a consolidated statement of financial position.
The first of three questions in section B focused on the area of non-current assets (it was the best answered). The second scenario looked as events after the reporting period and non-current assets held for sale.
The final question in this section was on financial instruments.
Section C’s Q31 was a consolidation question, where candidates were asked to calculate goodwill and complete a consolidated statement of profit or loss.
Students lost marks on intra-group sales.
Q32 covered the restatement of figures of a target company and provide equivalent figures once benefits gained from trade with a competitor were lost.
Candidates then needed to recalculate some ratios and discuss the performance and gearing of a company targeted for acquisition.

F8 Audit & Assurance
The examiner says to pass this exam candidates should ensure they devote ‘adequate time’ time to obtain the required level of knowledge and application. But, we could find any guidance on what is constituted as ‘adequate’. So this is a fairly pointless comment.
In section A sitters struggled with the understanding of the role of internal audit and the substantive test questions.
Q16 in section B covered the areas of matters to consider before accepting an engagement, calculation of ratios to assist in planning, audit risks and responses, and safeguards to manage conflicts of interest.
Q17 looked at control objectives, internal control strengths and internal control deficiencies.
Q18 covered substantive procedures and the auditor’s report.

F9 Financial Management
A warning has gone out to CBE sitters from the examiner. He said that having the use of a spreadsheet does not remove the need to show the build up to, for example, an internal rate of return (IRR) or to show the detail of a cost of equity calculation, nor does having the ability to type an answer remove the need to write professionally with good use of English. In too many cases in December written answers were poorly structured with both grammatical and typographical errors.
The examiner stressed that it is not sufficient to rely on the fact that formulae are provided in the question paper. You have to know the purpose for which the Fisher formula, purchasing power party, and interest rate parity, are used as well as how they are used. December responses in answers seem to show many candidates are still struggling with the application here.
Q31 was from the business finance part of the syllabus. It asked candidates to calculate the weighted average cost of capital (WACC). Students also had to explain business risk and financial risk. Finally candidates needed to discuss the key features of a rights issue as a way of raising equity finance.
Q32 came from the investment appraisal part of the syllabus. Candidates were asked to calculate the NPV of a project and comment on its financial acceptability. Students then had to determine the optimum investment schedule given limited capital investment funds and divisible projects. In part 9c) the reasons for hard and soft capital rationing occurring needed to be discussed. Finally, part (d) asked for a discussion on the ways in which the risk of an investment project can be assessed.

P1 Governance, Risk & Ethics
The examiner pointed out that the exam is challenging enough to pass by attempting the correct number of questions but becomes extremely difficult of only one question from section B is attempted. Was that you in December? Similarly missing out sections of questions or parts of questions, which could add up to a significant number of marks, should also be avoided.
The examiner points to the resources available via the ACCA website, these should be part of your overall learning strategy.
Q1 in December was a typical P1 case with part (a) requiring an evaluation of the board structure within the company. For part (b) candidates needed to suggest measures to mitigate the risk of communication failure. Corporate governance was there in part (c) and part (d) was looking for a letter from the chairman to shareholders.
For part (d) students will often have to tailor their answers in a particular format – this could be a letter, email, press release or draft presentation, to name a few possibilities.
Q2 looked at internal controls and a critique of a fund manager’s behaviour. Candidates also need to explain why good quality information matters and loo at ethical relativism.
Q3 covered environmental risk and how you could reduce its impact. In part (B) students needed to manage risk and part (c) look at integrated reporting.
In Q4 PQs had to show the five fundamental threats to a football club. The second part of the question asked about threats to independence and safeguards.

P2 Corporate Reporting
The examiner says that rather than relying upon a tutor’s manual and revision pack, candidates should read articles published in professional magazines and try to see how this knowledge can be applied in practice in order to develop their understanding of the subject matter. That is quite a tall order!
It was acknowledged that some candidates may feel that there is a disproportionate amount of information to be learned in P2, and so may adopt a surface approach to learning. However, we all know that surface learning is not sufficiently robust to develop the professional skills required to practice.
In the current paper candidates also need to know the principles behind amortization, the determination of the functional currency, elated party disclosure, fair value, business combinations, and impairment of financial and non-financial assets.
Q1 required the preparation of a consolidated statement of profit or loss and other comprehensive income.
Q2 looked at IAS 21, IAS 38, IAS 36 and IAS 24.
Q3 covered IFDS 13, IFRS 3 and IAS 3
Q4: The current issues question asked about IFRS 9.

P3 Business Analysis
The examiner is worried about P3 students’ knowledge gaps in project management, big data, competency frameworks and the learning organization. Surprise was expressed in the report as there is an article on each of these in the learning resources on the ACCA website.
Big Data, for example, is now part of the P3 syllabus, and the examiner has defined what exactly ‘big data’ is, and how it can be used to inform and implement business strategy.
The learning organization article discusses why it is vital for organization to continue to learn to sustain their position in the dynamic marketplace.
The report also highlights articles on culture and configuration, conflict management and the accountant as project manager, business forecasting and strategy, and competency frameworks. You really do need to read all of these for the March exam.

P4 Advanced Financial Management
P4 sitters need to show they can read and quickly digest comprehensive and detailed questions, apply relevant knowledge and skills, and exercise professional judgment expected of a senior financial adviser, in recommending or making financial management decisions that are likely to affect the entire business. The section A Q1 in this exam tested a candidate’s ability to provide sound advice supported by relevant workings, in a coherent report, on the impact of divestment and further investment on a company’s costs of equity and capital, and on its financial statements.
For Q2 candidates were required to calculate the impact of hedging a currency exposure using futures markets and over-the-counter options. A comparison with exchange-traded options was also asked for. Finally daily mark-to-market price movements needed to be calculated.
Q3 looked at agency theory, free cash flows, PE ratios, and annual synergy benefits.
Q4 asked candidates to look at net present value calculations and their consequences.

P5 Advanced Performance Management
The first big piece of advice from the examiner and the team is for candidates to spend sufficient time reading the requirements to ensure they fully understand what is being asked. In December many students wrote long answers based on the question they though had been asked but was not in line with the requirements.
There is a rising concern about the about the quality of P5 answer. Sitters need to pay attention to the requirements ‘analysed’, ‘evaluated’ and ‘assessed’ rather than trying to provide a mere description. The examiner points out that the difference is fundamental, and a key to achieving success with the scenarios.
The examiner is also not after a history lesson! Getting a history lesson on models and their development, although interesting, adds little benefit to the advice given.
And, if you come to the exam expecting to repeat memorised material then expect to get between 20% and 30% come results day!
Many sitters last December showed a basic lack of knowledge. They couldn’t adjust a budget by an applicable percentage or failed to recognise the difference between profitability and liquidity. So do you?
A real worry is that many candidates can’t back up their figure work with comments – surely a key requirement of any professional accountant!
Q1 was based around performance management and the use of reports and metrics to improve performance.
Q2 covered preparation of budgets & evaluating the relative benefits of introducing a new budget system in a food manufacturing business.
Q3 looked at the application and usefulness of a performance management model in a manufacturing company.
Q4’s 25-marker was based around corporate failure and liquidity indicators in a service business.

P6 Advanced Taxation (UK)
The examiner feels that those performing poorly in this exam did not spend sufficient time carefully reading the question and thinking before they started writing! Too many answers were unstructured and did not include sufficient relevant points or candidates wasted to much time providing information that had not been asked for.
Those candidates obtaining marks in the 40s should ensure that they read the various non-technical articles aimed at improving performance in the P6 (UK) exam, which are available on the website.
Q1 concerned an unincorporated sole trader who was considering incorporating his business. Tax computations were needed here.
Q2 looked at CGT and IHT implications of making gifts of shares and other assets.
Q3 asked about various group aspects of corporation tax.
Q4 concerned various tax implications of being self-employed, including the basis of assessment, business property relief and VAT.

P7 Advanced Audit and Assurance
The P7 examiner stressed that candidates must consider at which stage of the audit process a scenario is occurring. At the planning stage phase of an audit the report outcome is unlikely to be a discussion point, at completion there may be a requirement for additional procedures to occur, but this is not generally something that occurs at the reporting stage when candidates are told the testing is complete and concluded on correctly.
The Exam Report emphases that on top of a strong ‘appreciation’ of the syllabus candidates need to be aware of current developments in the field, and should take note of the inclusion of new exam documents and updates to the syllabus.
The December exam covered:
Q1 was set at the planning stage of an audit and looked at risk. Part (b) asked for a RoMM.
Q2 was a completion question and focused on the accounting treatment and audit evidence obtained on three issues.
Q3 covered prospective financial information in the form of a cash flow forecast and a related party transaction.
Q4 examined the concept of skepticism in the context of a group audit.
For Q5 candidates were asked to discuss the newly introduced key audit matters section of auditor’s reports for listed companies.

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