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PQ magazine February 2018 /

Feline groovy! More accountancy cats to brighten up your study and revision

ACCA: why trust is vital


Applicants from low income families are still less likely to be taken on as chartered trainees by the world’s largest firms, says a new study. The firms are now being urged to take another look at their recruitment polices as potential recruits from low income backgrounds are consistently losing out on jobs to their wealthier counterparts. Research by the Bridge Group found that applications to the firms from higher income backgrounds had a one in 18 chance of being hired. This compared with a one in 22 chance for those from a low-income background. The study also discovered that those educated at independent schools had a one in 14 chance of being signed up as a trainee, compared with one in 17 of state school-educated applicants. Even the university you go to affects the chances of getting a training contract, with one in 10 graduates who studied at Oxbridge being hired. This contrasts with one in 14 graduates who studied with one of the top 30 universities in the UK. The Bridge Group says accountancy firms must stop using A-levels as a filter for talent as it feels school exams are not a good indicator of future professional performance. Firms have also been told to review the use of their online tests for candidate screening, too, because they “are very effective at filtering out” ACCA recently reached an impressive milestone – its 200,000th member. To celebrate, ACCA has created a transportable wall of member names, featuring every one of ACCA’s 200,000 members. It has also created a digital replica of the wall so members can find their names and leave a message to describe what their

job seekers from lower incomes and ethnic minorities. Bridge Group said: “Performance in these tests is only weakly correlated with performance at later stages of the selection process.” The Bridge Group’s CEO, Nicholas Miller, said: “Everything associated with recruitment and selection is derived from an established, traditional model of what makes a good accountant. The real challenge for the sector is

to interrogate notions of talent and to define what competences really count when delivering a professional service.” KPMG’s head of social mobility, Jenny Baskerville, admitted the research showed there is more work to be done to ensure the industry represents society as a whole. She was also troubled by the fact that applicants with a private education were more likely to succeed in the application process.

ACCA now 200,000 strong membership has meant to them. CEO Helen Brand says reaching 200,000 members is a landmark occasion and an opportunity to champion the profession. She said: “Over the past 113 years, our members have helped lead and

advise organisations of all sizes across geographies and economic sectors. We want all of our members to feel immense pride in what they have achieved in qualifying with ACCA and to celebrate with them their career success.”

The digital wall launches at the ACCA’s online event ‘Accounting for the Future’ in late 2017, while the physical wall was unveiled in Ethiopia at the ACCA’s first-ever member engagement event in sub-Saharan Africa.

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comment PQ


News 06CIMA fees Three-tier system leads to variable fees for PQs 08ICAEW exams Move to CBEs is gathering momentum 10ACCA warning PQs must be aware of the ‘seven-year rule’ 13AAT changes Association unveils three new qualifications Features, etc 05Mind your Ps&Qs Where’s the value for PQs?; one student explains why he has had enough; and why today’s young accountant has a bright future 14Purr-fect pets More cool cats helping you with your studies 15College focus Premier Training is celebrating 20 years at the top

16CIPFA Certificate level How to tackle those tricky audit and assurance questions

17ACCA spotlight Why trust

between you and your body is so important

24Technology The experts at

PwC predict how technology will impact accountants in 2018 26ACCA F3/F7 Tackling questions on inventory; and our famed Troubleshooter explains all about normal loss, abnormal loss and abnormal gain 29Careers Life at the top of the AAT; our Book Club review; and the best of social media 30Fun stuff – and our giveaways The columnists Robert Bruce When it comes to reports, words really do matter 6 Prem Sikka Industrial strategy is all about the short term 8 Zoe Robinson Modigliani and Miller – RIP? 10 Subscribe to PQ magazine It’s FREE – go to ABC July 2016 – June 2017


18ICAEW resources Are you making the most of the institute’s huge online study resources?

20Wellbeing You really can beat exam stress – and our guru explains exactly how

21ACCA sample papers Are

these resources any use to you? Our author is sceptical…

Creating diversity

February 2018

Publisher’s statement: We send a digital issue of the magazine to an additional 6,772 requested readers Free to subscribers who fulfil our terms of control Annual subscription: £35 (£50 overseas)

So, is there a problem if it is easier to get a training contract with an accountancy firms if your parents are in the higher income bracket? Well, if the profession wants to reflect society (which I hope it does) then the simple answer is yes. The latest Bridge Group Report (see our front page story) was undertaken on behalf of Access Accountancy, and the top professional firms are certainly talking the talk. However, boosting socio-economic diversity is not a simple task. The appointment of a head of social mobility is just the start of a long journey! The reports recommendations show this, too. It says that firms should avoid using A-levels as a single filter for talent. They have to be considered in the context in which they are achieved. That means asking more questions about candidates not less. The firms favourite – online testing – also comes in for a bashing. Bridge Group stresses these are not a precise tool for assessing required competences. Aren’t they currently just being used to reduce the sheer numbers of applicants down to a manageable total? PQ really likes the call for the introduction of regional assessment centres outside London. We have a story in this month’s issue about how much it costs the average graduate to find their first role, and that’s coming in at around £500 at the moment. One company, Barclays, was offering graduates free accommodation to help offset the cost. Finally, Bridge recommends that the firms ring-fence a proportionate number of places for students from under-represented groups on internship programmes. That needs to happen too. The Bridge Group will now be reporting annually on how the firms are doing, and we will be looking on, as always… Graham Hambly, PQ magazine editor (

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have your say PQ

email We are the future!

Where’s the value? I am writing regarding letters in the most recent issue of PQ, headlined ‘Costs are too high’ and ‘Platinum complaint’. I must say I agree. Often the tuition costs alone exceed £1,000 for just one course, and these courses sometimes have only four classes and, in the case of online courses, often relate to the previous sitting. More so, as is usually the case, the support and assistance provided by these ‘platinum’ providers is substandard when compared with some of the other providers out there. Personally, I

did not fare well with a recommended platinum provider and found the tuition, support and learning experience far better with a smaller provider.

The bodies need to do more to support their students. Instead of focusing on their bottom line, they should ensure members and students are well looked after. It is understandable that they want to have a prestigious qualification; however, when many of their students complain about the difficulty of the exams they should look at the issue, especially as they affect pass rates. ACCA in particular needs to pull its socks up and get into the 21st century. Outdated exam methods, long waits for exam results and poor feedback does not make me want to recommend them to prospective accountants. Name and address supplied

Our star letter writer wins a fantastic PQ memory stick! Signing off I have decided to call it a day with my ACCA studies. Having worked on and off in accounts for a number of years I thought the ACCA qualification would be my ‘golden ticket’. I have passed all the exams except P5, but potential employers don’t seem interested in me. I must have applied for hundreds of jobs, but without a solid work history the exams don’t seem to matter. So it’s the end of the road for me. I’m (kind of) glad that I made the effort, as I would have always been wondering ‘what if?’ However, in some ways it was a waste of time, money and energy. So I am cancelling my PQ subscription and am going to look for non-finance work. Richard Jones, by email

I need

New CIMA syllabus

Thanks for top event I was a delegate at your recent ‘The Future of Accountancy: Success in a Changing World’ conference at London South Bank University and was so impressed with the day. I attended the changing skills sets seminar with Dr Noel Tagoe who just blew me away. I then moved on to the IFRS 15 and 16 update seminar. I could have listened to Joe and David for

I see PQ magazine has jumped on the ‘do accountants have a future?’ bandwagon. The answer to your question is, of course, yes! But then both Alan Hatfield and Noel Tagoe also seem to be agreeing with me in your front cover article (PQ, January 2018). Technology is just a tool to help us do our jobs better. I find it hard to imagine what life would be like without my calculator, but now I hardly ever need it and spend many happy days in the Cloud instead. Accountancy has never, or perhaps I should say, should ever be just about the numbers. We are there to help businesses grow and allow entrepreneurs to do what they do best. As Christopher Agent of Generation CFO says: “We are problem solvers, analysts and highly talented – of course we have future.” On his great LinkedIn Group he rightly took you to task for your tired tone. He went on: “Yes, we need to be more on the technology and embrace the digital changes that are happening around us, but this is easily done with the right people around you!” Name and address supplied

another hour! Is there going to be another one in 2018, because I for one am sure to sign up again. Susan Tring, by email The editor says: Thanks Susan, we are glad you enjoyed it. Watch this space – we are currently working on the next event for later this year.

Just when I thought I could enjoy another England team taking me through emotional turmoil this summer (in the form of the soccer team) you tell me that this is exactly the time that CIMA is planning to unveil its new syllabus. Thanks for the heads up, but when are we going to see how progressive CIMA is going to go? I will (hopefully) be near the end by 2019, and hope there aren’t too many changes as I have actually enjoyed the exams to date. I know that makes me a bit strange. The OTs and case study combo works for me, and those case studies are surprisingly sophisticated. Mr Tagoe says that he plans to be much clearer to us about what we need to study. There is nothing to stop him bring in this idea early! Name and address supplied

PQ Magazine Unit 3a, Kingfisher Heights, 2 Bramwell Way, Royal Docks, London E16 2GQ | Phone: 020 7216 6444 | Email: Website: | Editor/publisher: Graham Hambly | Advertising manager: Polly Thrasivoulou Associate editor: Adam Riches | Art editor: Tim Parker | Subscriptions: | Contributors: Robert Bruce, Prem Sikka, Zoe Robinson, Tony Kelly, Phil Gammon | Origination and print services by Classified Central Media If you have any problems with delivery, or if you want to change your delivery address, please email

Published by PQ Publishing © PQ Publishing 2018

PQ news

ROBERT BRUCE What’s in a word?

There is a telling point in the latest report from the Audit and Assurance Lab at the Financial Reporting Council. The report itself is valuable in that it describes what investors want from audit committees and what they currently get, and it is illustrated with anonymous quotes from investors interviewed by the FRC’s Lab. This is where someone says the obvious, and you can feel everyone else tripping over it. A quote from an ‘audit committee chair’ says: “We try and use the language that reflects best what we do, rather than just grab for a thesaurus to come up with another word for ‘review’.” There you have it. The quote oozes with the frustrations of those meetings where the wording is being reviewed for the umpteenth time by yet another person in the hierarchy who wants to make it sound different, but is stymied by the obvious words being relevant but familiar, and therefore seen as dull. Sadly, this is the culture of accounting. Anything fresh has to be reviewed until it is dead. People on audit committees may want to provide more clarity about what was actually done, and what the worries might have been. Some investors in the report said that they would have liked the description of the audit committees’ work to be more ‘active’. Others said that they were less interested in the language used and wanted more on the actual results of the audit committee’s work. But accounting culture doesn’t allow for that. Reach for the thesaurus again. Robert Bruce is an award-winning writer on accountancy for The Times

The cost of qualifying CIMA’s three-tier exam fee system means UK students now pay £390 more than their colleagues in South Africa to sit the professional qualification exams. Current exam fees show students in tier 1 (this includes the UK) pay £1,610 to sit all nine OTs and the three case studies. Based on 2018 prices the same students in tier 3 would pay £1,220. CIMA says it is offering a tier-based exam fee system as part of its continued commitment to improving access to

the qualification and assessment worldwide. For UK students, just the operational OTs now cost less than £100 each to sit – they are £95. Every other exam costs over £100 each time, rising to £240 for the strategic level case assessment. CIMA has also worked out how much it would cost a student (or their employer) to ‘get qualified’, in

either three or five years. It assumes you have no exemptions, you sit and pass first time, and you are in a tier 2 market (this means those in China, Cyprus and UEA, to name but a few). After adding the annual subscriptions and exam papers (£1,514) and study costs (£3,480) it comes up with a figure of £4,994 for three years. For five that figure rises to £5,210. However, this price only includes a textbook and CMA study prime modules. And, remember, you haven’t failed anything in these costs.

EY graduates to become apprentices EY has announced that it will be transforming its graduate programme in 2018 by offering apprenticeships to both existing students and new joiners. Eligible graduates will now have to work towards their professional accountancy qualification and a government-led Level 7 Apprenticeship in Accountancy and Taxation. By the end of next year, EY said around 1,000 tax and assurance graduates and school leavers are

expected to be completing a Level 7 Apprenticeship at EY on top of taking their professional exams. The scheme will only cover graduates in England. EY said the move will “better prepare students with the skills and experiences needed

UK GAAP simplified The FRC has completed its latest review of FRS 102 and has confirmed the simplification of the measurement of directors’ loans to small entities, following the interim relief granted earlier this year. The other principle amendments to FRS 102 are: • Require fewer intangible assets to be separated from goodwill in a

business combination. • Permit investment property rented to another group entity to be measured by reference to cost, rather than fair value. • Expand the circumstances in which a financial instrument may be measures at amortised cost, rather than fair value. • Simplify the definition of a

body. He went on: “As a CA, ICAS is close to my heart. I intend to focus upon our partnerships within the global accountancy profession; grow the membership; and build on the strength of our communities wherever our members are in the world.”

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for the workplace”. MD of Talent Maggie Stilwell said EY wants to help change the perception of apprenticeships, which are now an increasingly attractive option for student of all abilities and backgrounds. financial institution. Amendments have also been made to provide relief from recognising tax payable when a trading subsidiary expects to make a distribution of a gift aid payment to its charitable parent, and to incorporate the new small entities and micro-entities regimes in the Republic of Ireland. In general, these amendments are effective for accounting periods beginning on or after 1 January 2019.

In brief New ICAS CEO named CA Bruce Cartwright, a former partner at PwC, has been appointed the new chief executive of ICAS. Cartwright (pictured) qualified as a chartered accountant in 1989 and spent most of his professional career in PwC’s restructuring team. He has also worked in Malaysia, Central Europe and Denmark. As CEO he said he would advance ICAS as a modern, leading and virtual professional 6

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Looking the business The ‘average’ accountant spends 10 months of their life thinking about what to wear to work, says a new study. That same study found accountants spend £49 a month on clothes – that’s about £588 a year, or £27,636 over the span of your career. However, the move away from a suited environment is adding to the work

‘stress code’, with one in four (25%) of accountants being subjected to unwanted comments about their appearance. P4 was the toughest P4 was without doubt the hardest exam in December for ACCA PQs, according to the latest feedback on Open Tuition. For over 75% of sitters this paper was seen as either a ‘disaster’ or ‘hard’. By contrast P3 was the easiest paper this time around. The other tough tests were F3 and P6. PQ Magazine February 2018

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PQ news

PREM SIKKA Government industrial strategy neglects the long term The government’s long-awaited White Paper, called ‘Industrial Strategy: Building a Britain fit for the future’, is more a wish list than a plan to address low investment, low productivity, low wages and a weakening of the industrial base. A focus on the long term is essential for rebuilding the economy but receives little attention in the government’s document. The UK’s shareholder-centric model of corporate governance has been dogged by shorttermism as shareholders push for quick returns. Company boards ought to be restructured so those with a long-term interest in companies, including employees, have a substantial presence. Rather than engendering a vigorous debate, the Financial Reporting Council (FRC) is treading water. Its latest draft of the revised Code of Corporate Governance rules out direct employee representation on boards. Instead, it offers three possibilities: assign a non-executive director to represent employees; create an employee advisory council; or nominate ‘a director’ from the workforce. This tokenism cannot prioritise the long term. The FRC could have looked at practices within the EU where worker representation on unitary boards or two-tier boards is common, but does not do so. Despite the banking crash, failures of the gig economy and scandals at BHS and Sports Direct, the UK is yet to have a serious discussion about reforming corporate governance to build a sustainable economy. Prem Sikka is Emer itus Professor of Accounting at the University of Essex

CBE adoption gathering pace The move to CBE exams will quicken for ICAEW PQs in 2018. From March 2018, Business Planning and Business Strategy and Technology will join Audit & Assurance, Tax Compliance, Financial Accounting and Reporting and Financial Management online. Then it will be the turn of the

The ICAEW has made lots of resources available for its ACA PQs online, where there are webinars, practice software, sample questions, and other helpful hints. To find these resources and more information on key dates, how to book exams and access arrangements go to

Transforming UK audit analytics

Kingston Smith has joined forces with MindBridge Analytics to help the top 20 firm use artificial intelligence (AI) to transform and future-proof its audit processes. Kingston Smith believes MindBridge’s Ai Auditor will allow it to rival the Big 4 in the application of AI technology and at the same time help debunk the misconception that AI benefits

come at a multi-million pound price tag. Partner Becky Shields explained: “There has been much hype around AI to date, but a by-product of that has been a perception that it is costly and complicated to implement, which needn’t be the case.” She went on to say: “Rather than our trainees using random number sampling or trying to pick

risky transactions out of a large set of data the MindBridge Ai Auditor ranks all transactions on perceived risk.” Shields felt this stands up to scrutiny by the regulators and offers a robust, objective reasoning for each sample selected. She said the solution will also become more accurate at assessing the riskiness of transactions over time.

Chris Jones (1967-2017)

Chris Jones, a real personality in the tax world, sadly passed away on 25 November 2017. After graduating from Nottingham University with a degree in industrial economics, Chris became a member of the PKF tax department, before moving into the training world. He joined LexisNexis in 2003 and led the exam training business. He became President of the CIoT for a year in May 2015 and was heavily involved in the evolution of the ethical code for the tax profession.

£1,000 cash prize for the best sustainability essay ICAS has launched an essay competition, supported by SSE, which designed to raise awareness about the role of accountants in the creation of a more sustainable society. An impressive £1,000 cash prize

KPMG write offs hit partners in pocket Partner pay at KPMG has been cut by 10% to £519,000, after the firm wrote off a host of technology investments. KPMG recently announced a 5% increase in revenues from £2,068m to £2,172m for the financial year ended 30 September 2017. However, the investment write offs and one off items saw the firm’s profits decrease by 19.5%. As a result, the firm’s profit before tax and members’ profit shares fell from £374m to £301m. This led to a reduction in average 8

Advanced Level papers! Corporate Reporting and Strategic Business Management will move to CBE in July 2018, and in July 2019 the final paper, the case study, will complete the set. Students are being encouraged to start to get to know the new formats as part of their study plans.

will be awarded for the best essay. The competition is open to members, students and nonmembers, who are invited to submit an essay on the following subject: “How might accounting, and the role of accountants and assurance

partner remuneration from £582,000 to £519,000. Meanwhile the firm pointed to the doubledigit growth in audit, establishing it as #1 auditor of both the FTSE250 and FTSE350. It secured the audits of BT, Legal & General and Micro Focus among others. The management consulting practice also grew by 11%, driven by clients seeking new and costeffective operating models for areas such as IT services, finance, people and learning. Chairman Bill Michael said: “We took some tough

providers, evolve to contribute to the creation of a more sustainable society?” Your submission should include one or more of the following disciplines: tax, assurance, reporting, or corporate finance. Submissions of a minimum of 1,000 words and a maximum of 2,000 are requested by 12 noon (GMT) on 31 January 2018. Essays should be emailed to

decisions, writing down our stake in a selection of historic investments where performance has not met expectations.” He went on to say KPMG was confident about the strength of the UK economy and have plans to recruit an additional 2,500 colleagues in the forthcoming months. Key points from annual survey • Total tax payable of £824m to HMRC. • The chairman’s pay was £1.4m – nine months of Simon Collins’ pay and three months of new chairman Bill Michael’s. • KPMG’s gender pay gap was 22.1% (median) and 22.3% (mean). • The firm’s ethnicity pay gap was 11% (median) and 13.9% (mean). PQ Magazine February 2018

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PQ news

ZOE ROBINSON Modigliani and Miller (M&M): RIP

The headline above is not so much a prediction, more an observation about sacred cows and how financial education is changing. Many qualified accountants will state with some pride that they remember M&M, yet have little idea what it was all about. M&M is a theory about capital structures from the 1950s and is still taught, but should we be referring to a theory that is over 60 years old in 2018? The answer to this may be yes – it’s fundamental knowledge and is as relevant today as it was in 1958. This highlights the very difficult balancing act professional bodies need to get right – what new subjects and content should be included in the syllabus and what should be removed? What would you take out in order to introduce blockchain, coding, cyber security, integrated reporting, etc? This dilemma is not new, but the pace of change is throwing up new topics, ideas and concepts so quickly it may be hard to keep up. In addition, the very role of an accountant is being reshaped, so much so that it might be unrecognisable in the future. One answer could be that the professional bodies, tuition providers, students and employers need to collaborate far more than in the past, working together to continually review content, skills and methods of teaching and assessment. A syllabus that can be changed incrementally every six months rather than every five years would add to the agility and relevance of a qualification. Zoe Robinson is Learning and Programmes Director at Kaplan Financial

Be wary of the seven-year rule Professional level ACCA students need to be aware that they now have seven years to complete their exams before the results ‘expire’. Previously, students were removed from the register if they had not completed the exams within 10 years of their initial registration date. This never really happened as the 10 years were reinstated every time the syllabus was changed! The seven-year time limit starts as soon as you pass your first professional level exam. So, if you passed P1 in December 2010 you would have

been given an ‘expiry date’ of December 2017. If you did not complete all the professional level exams by December 2017 then you will be required to re-take P1.

Advanced results out – and they are far from rubbish! The ICAEW November winter exam was the biggest-ever Advanced Level sitting, seeing over 3,000 taking the case study exam. For the second year running the Strategic Management exam came out on top with a pass rate of 85.4% closely followed by Corporate Reporting at 83.2%. The case study pass rate also held steady at 75.3%.

The first attempt pass rates were even more impressive. The Strategic Management pass rate was 88.5%, Corporate Reporting was 88.2%, and for those sitting the case study for the first time it was 79.8%. One PwC PQ stood out from the crowd too. Mihir Patel took first place in the case study and Corporate Reporting paper. Perhaps

There is an added complication because of the changes to the professional qualification come September. The ACCA has said that if difficult personal circumstances have prevented you from taking exams you can apply for an extension to the time limit. But it added that extensions will only be granted under the most extenuating of circumstances. And the maximum extension it will grant is one year (four exam sessions). Students whose first exam session was December 2015 or earlier still have a 10-year time limit to qualify. This is from the date you registered as a student. ICAEW NOVEMBER RESULTS


Nov 17 75.3% 83.2% 85.4%

Nov 16 75.6% 81.1% 87.9%

Nov 15 75.7% 79.2% 85.1%

not surprisingly she took first place in the International Order of Merit and added the Peat prize to her Whinney and Quilter prizes. Grant Thornton’s Damian Taylor picked up the Business Management top prize. PwC students James Green and Katherine Fulton also picked up the second and third places in the order of merit.

Finding all AAT tuition providers just got tougher There is rising concern among some of the smaller AAT providers that it might become harder for AAT students to find a comprehensive list of training providers, as the AAT is commercialising this part of its website. A leading tutor told PQ magazine that the AAT is looking for 10 providers to pay

£10,000 each to obtain a promoted advert at the top of the search pages. In a version seen by the tutor and now PQ magazine, there was no indication that these adverts are paid-for, in the way that Google does. In future there will a lot more clicking to find all the providers.

Tax briefs New powers ‘a worry’ Tax expert David Redfern has warned that new HMRC powers could spell disaster for many taxpayers. From April 2019, HMRC will be able to take additional tax revenue immediately from PAYE taxpayers where they have calculated that there has been an underpayment of tax by changing their tax code, rather than waiting until the end of the tax year to collect any underpayments. Redfern said: “Although it is important that HMRC are able to 10

collect the tax they are owed, these new powers have the capacity to throw the finances of hard-working taxpayers into chaos.” ‘Punishment tax proposed’ The global tech giants could face tax ‘punishments’ for failing to help the UK government deal with the threat of terrorism, says security minister Ben Wallace. The minster said ‘ruthless profiteers’ would no longer be tolerated. He went on to claim that too many of these internet firms are slow to

remove radical content online, forcing the government to police the web at the cost of hundreds of millions of pounds. It has been suggested that such a tax could be similar to the bank levy imposed on banks in 1981, or the windfall tax imposed on the excess profits of privatised utilities put in place in 1997 by the Blair government. Facebook tax move Facebook has said it will now pay taxes in the countries where its

profits are earned, rather than routing them through Ireland. The social media giant plans to record revenue locally. However, this won’t happen worldwide until the first half of 2019. Finance chief Dave Wehner (pictured) said: “We believe that moving to a local selling structure will provide more transparency to governments and policy makers around the world, who have called for greater visibility over the revenue associated with locally supported sales in their countries.” PQ Magazine February 2018

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AAT unveils three KMPG creates its new qualifications own degree AAT has launched three qualifications for those aiming to take their first steps into a career in finance. The three qualifications are all pitched at entry-level (Level 1) and will take between six to 12 weeks to complete. They are: • Access Award in Business Skills – provides a broad understanding of the business environment and preparing for the world of work. • Access Award in Bookkeeping – provides a solid grounding in singleentry bookkeeping, designed for students

Improvements issued by IASB

The International Accounting Standards Board has issued its annual improvements to IFRS standards, making narrow-scope amendments to four standards. The amendments clarify the following: • IFRS 3 Business Combinations – a company re-measures its previously held interest in a joint operation when it obtains control of the business. • IFRS 11 Joint Arrangements – a company does not remeasure its previously held interest in a joint operation when it obtains joint control of the business. • IAS 12 Income Taxes – a company accounts for all income tax consequences of dividend payments in the same way. • IAS 23 Borrowing Costs – a company treats as part of general borrowings any borrowing originally made to develop an asset when the asset is ready for its intended use or sale. The amendments are effective from 1 January 2019, with early application permitted.

with no previous bookkeeping knowledge or experience. • Access Award in Accounting Software – a starting qualification for people carrying out basic finance and administrative duties using accounting software packages. AAT director of education and development, Suzie Webb (pictured), said: “While these new qualifications are individually available, they can also be usefully studied together, for those hoping to continue to AAT’s accounting qualifications at higher levels.

In what is being seen by some as a snub to traditional universities’ offerings, KPMG has announced it has launched its own digital degree apprenticeship. The degree will initially be based in London (13 places), Manchester (10 places), and Leeds (four places), with more places becoming available in the North West later in 2018. Future apprentices to the four-year KPMG degree will earn a BSc in Digital and Technology Solutions from BPP University. They will, of course, be earning a salary at the same time. Similar degrees are being offered by BT, Goldman Sachs, IBM and Lloyds Bank. It has been suggested that many students leaving university lack the ‘soft’ employment skills that are needed by companies like KPMG.

Top class: AAT level 4 students at Gower College Swansea enjoy their graduation event, along with some staff members who helped them get through

Shorter and sharper is FRC goal The Financial Reporting Council (FRC) has published what it hopes is a shorter and sharper revised UK Corporate Governance Code. The code focuses, says the FRC, on the importance of longterm success and sustainability, and tries to address the issues of public trust in business. The FRC now wants boards of companies to undertake ‘effective engagement’ with wider stakeholders, to improve trust and achieve

mutual benefit. This means having a regard to wider society too. There is now also a stated need to gather views of the workforce. When there is specific opposition on any resolution at an AGM the code wants to see more ‘specific’ actions from boards. Remuneration committees have also been given broader responsibility and discretion for overseeing how remuneration and workforce policies along with strategic objectives.

In brief Driven to distraction How is your driving? Not so good, according to 1st Central car insurance’s latest survey, as accountants were deemed the sixth worst professionals behind the wheel. But hey, that’s good news. Last year accountants were said to be the worst drivers of all. So, which five professions have even worse drivers than accountants? Well, topping this year’s list are financial advisors, closely followed PQ Magazine February 2018

by doctors, pharmacists, dentists and solicitors. And the best drivers? Painters, farm workers and builders! Cyber attacks on the rise UK companies are under attack, with the average firm ‘experiencing’ a whopping 231,028 cyberattacks during 2017. That equates to 633 attempts to breach firewalls every day. Research by Beaming, a provider of internet

services, found that the attacks rose by a quarter (24%) in the final quarter of the year. The report comes just days after flaws in microchips, which could be exploited by hackers, were exposed. Upfront VAT fears Companies may be forced to pay VAT upfront to HMRC following Brexit, it has been claimed. Treasury Select Committee chair Nicky Morgan has now written to

the Revenue to seek clarification on what exactly the new VAT rules will mean in practice. Under current rule goods imported from the EU don’t pay VAT until the products have been sold to the final customer and paid for. However, if the UK leaves the Customs Union goods from the EU will have to be treated like all other imports after Brexit and will attract VAT from the 15th day of the following month. 13

PQ purr-fect pets

Herding more cats

We have photos of cats who love accountancy coming out of our ears – thanks! Among the pics we have Aggie, the mock exam invigilator! We are told she is quite strict and sits on the answer book so Laura can’t cheat. Smart cat. Then there’s Juan, who loves a bit of ACCA, and Dougie, who gives his owner a hand with revision on a regular basis. That’s not forgetting Brintha’s Bessie. But winner of the cutest cat award goes to Bruce, who wants a sneak read of that AAT notebook.

Need help preparing for your exams in March? Join the ACCA Exam Club Hub for a wide range of resources and practical advice to help you get ahead in our qualification. Register today for access to: • live and on-demand webinars by our staff and members • ACCA student profiles with tips and advice for exams • past exam papers, study guides, retake guides and other downloads • information on and contact details of available tuition providers • planning and booking your exams

Join today:


PQ Magazine February 2018

college focus PQ

It’s all about

the people As it celebrates its 20th anniversary, Sam Hannigan relates the tale of how Premier Training started and why it continues to go from strength to strength


t’s just before Christmas 1997. The wind is howling, snow is falling and it’s very dark outside. Pierce Brosnan is starring as James Bond in ‘Tomorrow Never Dies’ at the cinema, Windows 98 is the hot new operating system from Microsoft and the Spice Girls have just replaced the Teletubbies at the top of the UK singles charts. In a freezing cold college in North East Lincolnshire the AAT team are discussing the things that make studying AAT more difficult than it need be in traditional day and evening classes… • “Lots of students are too tired for evening classes after a hard day at work.” • “If only we could spend more time explaining the tricky topics to individual students.” • “Many students need longer than the regular academic year of only 32 weeks.” • “Be nice if we could fast-track the exceptional students so they can complete the course quickly rather than having to progress at the same speed as everyone else.” • “I prefer to focus on one area at a time instead of having to run several units alongside each other all at once.” • “I wish all of the students would get stuck on the same topics so we could focus all our efforts on these.” • “I know that individual students wish they could skip over sections they already understand and not have to sit and listen while we explain it to the rest.” • “They all say they wish they could study at the times that suit them rather than having to build their whole lives around the hours that suit the college.” • “Imagine if each student could have an individually tailored study plan rather than having one-size-fits-all.” • “Coffee’s gone up again”

PQ Magazine February 2018

• “It’s time the car park was a bit bigger.” • “I wish we didn’t all have to turn out in the The team in 2009 wind and rain.” • “Students should be able to start the course at any time and not just in September.” extra notes the tutor felt would be useful. • “If only each student could have their own Furthermore, in ‘exam season’ tutors would personal tutor… who was available by phone or also post out lots of past papers for extra email whenever needed.” practice, and there were days when the postman • “So why don’t we?” had to make two trips to the van such was the And so we did! weight of outgoing post. In retrospect, hardly the At the beginning of January 1998, with most environmentally friendly way to operate! nothing more than a telephone, a PC and some With the advent of broadband internet access borrowed furniture, Premier Training was we were able to switch all of this hard copy launched. Adverts were placed, assignments output over to email, starting with past papers were written and after a couple of days the first and extra notes, and then in 2011 the student was enrolled. assignments moved from hard copy submission A modest start but by the end of that first year to an online format. the word had got round and that first As a result of this change students now send enrolment had been followed by a work in and receive full feedback by email couple of hundred more, and it was typically within two days or less of pressing the becoming apparent that we were not submit button. This applies not only to students the only people who thought there was in the UK but anywhere in the world. a better way to study. Another big step forward was the introduction In those early days timetables were of materials and books written by our own drawn up manually and typed up by specialist team of in-house authors rather than hand and assignments were posted relying entirely on other people. In addition to out in hard copy along with all of the this, an award-winning online resource area was study manuals. These were bought in created, called the ‘Premier Programme’, which from a range of publishers, comprises videos, quizzes, practice exercises depending on who we felt was the and much more. best in each subject area. Few organisations can match this level of The first significant change to this procedure support and this is a major reason why Premier was that software was created to generate each Training students consistently achieve individual timetable automatically depending on outstanding exam results year after year. parameters such as how quickly the student A final thought. Despite all these changes in wanted to complete the course technology there is one thing that has and when exam sittings were not changed At the AAT awards, 2017 available. This saved time on in all these enrolment and subsequently years. made it much easier to change Students can a student’s unique personal still ring and timetable if circumstances speak changed. directly to Let’s not forget that in those their own or days exams were available another tutor only in two sessions each year, at any time so a student joining in January and as often would get a timetable as they need structured very differently to to. Likewise, one joining, say, in April. all questions With the advent of sent in by computer-based assessment this all changed email are completely, and today our software enables answered promptly – again by their own tutor or timetables to be configured with exams at any another if their tutor is not available. time. For all the technology in the world we think it’s At that time assignments arrived by post and the people that make the difference. PQ were returned by post along with a hard copy • Sam Hannigan is AAT Programme Manager feedback sheet, model answer and any relevant at Premier Training 15

PQ CIPFA certificate level

A substantive


Alan Wan explains the difference between tests of control and substantive procedures, relevant to Audit and Assurance questions


great many students struggle to distinguish between tests of control and substantive procedures. This is an area that is frequently examined, so it is essential that students feel confident about the difference. This short article will try and provide clarity between the two using a worked example. Firstly, let’s define the two procedures: Substantive procedure A substantive procedure is one that is designed to detect material misstatements at the assertion level (from the FRC glossary of terms, 2015). There are two categories of substantive procedure: tests of detail and substantive analytical procedures. Tests of controls Tests of control are audit procedures designed to evaluate the operating effectiveness of controls in preventing, or detecting and correcting, material misstatements at the assertion level (from the FRC glossary of terms, 2015). Substantive procedures are used by 16

the auditor to obtain direct audit evidence that the financial statement assertions (e.g. completeness, accuracy, cut-off, etc.) are materially correct. Tests of controls will provide indirect, probabilistic evidence that the figures in the financial statement assertions are materially correct. If the control environment is strong, errors are less likely to happen and are more likely to be detected if they do. If the tests of controls indicate the internal controls are strong, the auditor is able to reduce the amount of substantive procedures needed. Worked example A local authority has a housing repairs and maintenance operation. They hold significant amounts of inventory, such as door knobs, bathroom shower units, window frames, paving slabs, sand, copper tubes, etc. The external auditor would be interested in the inventory balance at the year-end and the relevant assertions are: existence, rights and obligations, completeness, and valuation and allocation. Assuming the local authority has a financial year-end 31 March 2018, the auditor will carry out the interim audit typically around January 2018. The final audit will be completed around July 2018. Additionally, for inventory, the auditor may attend the year-end inventory count at 31 March 2018. At the interim audit the auditors will

carry out tests of control. The focus here is to ascertain whether the internal controls carried out by the entity are operating effectively. For example, one internal control is that the audit client undertakes a monthly inventory count on the 31 January 2018. The auditor carries out a test of control, for example they could re-perform a recount of a sample of the inventory items already counted by the client. Assuming the auditor is satisfied the internal control is operating effectively, this provides indirect evidence the inventory held on the accounting system is materially correct and the auditor can reduce the amount of substantive procedures at year end. The external auditor usually undertakes substantive procedures a few months after the year-end to allow the client to close their accounts. Uniquely for inventory, the auditor usually carries out substantive procedures at two stages. Firstly, the auditor will attend the year-end inventory count at 31 March 2018, to carry out tests of detail, such as independently count (inspection) some of the inventory items. The purpose here is a substantive procedure rather than a test of control; the auditor is obtaining direct audit evidence whether the items in the warehouse accurately reflects existence, completeness and valuation of the inventory. That is, by inspecting a sample of inventory items, the auditor may disagree with the valuation of a batch of 20 shower doors, because 20% were damaged, so the original purchase cost of £100 x 20, should be reduced to £100 x 16. The auditor may also carry out further substantive procedures at the final audit stage in July 2018. This could include an inquiry with the accountant about adjustments to the valuation of aged inventory; and substantive analytical procedures such as budget versus actual or inventory valuation comparison with a similar-sized organisation in the same industry. The relationship between tests of control and substantive procedures is demonstrated by the audit risk formula. • Audit Risk = Inherent Risk x Control Risk x Detection Risk The auditors will establish the control risk by performing tests of controls to establish the strength of internal controls. If internal controls are strong, and hence control risk is low, the auditors can accept a higher level of detection risk, meaning fewer substantive procedures need to be carried out. In reality, this could mean the auditor reduces their sample size of the number of warehouses to be audited at year end and for each warehouse the sample size of the items to be audited can be reduced. PQ • Alan Wan is a Senior Trainer at the CIPFA Education and Training Centre PQ Magazine February 2018

ACCA spotlight PQ

A matter of trust Professional membership of the ACCA is all about trust, says Claire Bennison


he New Year is well and truly here, and now’s the time when many people make promises for the year ahead. Whatever your professional or educational goals are for 2018, it’s important not to lose sight of what you need achieve this year as you head towards membership. Membership of a professional body matters in today’s global economy. In a global business culture that relies on trust to function, professional qualifications and membership of a respected body are essential for success. Most of us would never trust a dentist, doctor or lawyer who is not professionally qualified, or did not have a professional designation, and was not a member of a recognised body. All of these are professions that need top qualifications to succeed, and accountancy is no different. Currently, membership of the ACCA has grown to over 200,000. This is a huge milestone achievement, showcasing how our members have helped lead and advise organisations of all sizes across geographies and economic sectors over the last 113 years. Membership bodies and professional qualifications have real value in these economically challenging times. When doing business with a member of a professional body, there is a guarantee that that person will be well trained and will practice with professionalism. ACCA and other leading professional bodies all have dedicated teams of qualified lawyers who will investigate and try to resolve problems that are brought to their attention. In some instances, if there is a breach of the code of conduct, this can involve the individual or company under scrutiny being fined or removed from membership of the body. When there is more than one body

PQ Magazine February 2018

Where am I? ACCA recently signed up its 200,000th member, and to celebrate it has created a transportable wall of member names, featuring every one of ACCA’s 200,000 members. See our front page story for more representing your profession, it is important that you choose the one best placed to enable you to develop your career and meet your long-term goals. A good professional body will have tough but business relevant qualifications at the end of its courses. Hard-earned qualifications and membership of a top body will be recognised in your chosen profession, and this recognition will only increase your credibility. Importantly, this could make the difference when your bosses decide if you or a similar professional gets the promotion. Becoming an accountant isn’t the only career path for an accounting qualification. Many qualified finance professionals progress into senior positions in other types of organisations, from banking and regulation to government and academia. Many of the skills taught on the course are ‘transferrable’. Qualifications like the ACCA equip people with skills and tools needed to achieve their dreams. Finding a qualification that is recognised worldwide is very important. A global qualification allows greater mobility between sectors and countries, as well as

making a candidate more attractive to employers. A top professional body’s involvement with their members should not just finish once they have completed their exams or handed in their membership fees. ACCA, for example, requires its members that provide services to the public to adhere to certain regulations that are intended to protect the public. These members may also be subject to inspections by ACCA staff who understand how accountancy firms operate and are able to assess whether the members have complied with relevant rules, regulations and standards. Importantly, membership of a professional body provides an individual with the opportunity to progress to senior positions in public practice, the corporate sector and government and, because of the position reached, contribute to the influencing and shaping of policy decisions at government or regulator level. Professional bodies act as a ‘critical friend’ to policy makers, using their membership base and considerable collective expertise to inform, educate and influence at the very highest levels. Looking to the future, ACCA is currently being studied by 486,000 students worldwide, many of them readers of PQ magazine. Job prospects are promising. With ethics and professionalism being central to the ACCA Qualification, qualified accountants are in high demand. ACCA members can be found working in the world’s leading accountancy firms as well as for multinationals – from Shell to JP Morgan – and for any number of growing or entrepreneurial small and medium sized enterprises (SMEs) or practices (SMPs). While it takes time and effort to become a member of trusted professional body – the benefits from that membership will make it more than worthwhile. PQ • Claire Bennison, ACCA UK


PQ ICAEW spotlight

Why it pays to go online

agreement – don’t leave any gaps. You can’t count study leave, courses, sickness days, holidays or office administration towards your work experience. If your employer’s internal professional development and/or ethical programmes have been accredited by ICAEW, you will only see the sections of the training file relevant to you.

Your online training file will help you get the most of your training experience, says Nicola White


n integral part to ACA training is the practical element that students record in an online training file, and keeping it up-to-date throughout the ACA training is essential. And doing so is easier than you may think… From the day you register as an ACA student you will be able to log in and access your training file. Providing a record of your training, you will log practical work experience, as well as recording professional development and ethics progress discussed in your six monthly reviews. It is solely your responsibility to keep your file current until it is signed off at the end of your training agreement. Keep your ACA progress on track Your training file is easy to navigate. Ensure you don’t miss a step by watching the guidance video, which provides everything you need to know. Watch it on demand at Once you have watched the video, start recording your progress as soon as your training starts and continue throughout your training agreement period. Professional development Provide an example from your day-to-day work experience to show how you meet each professional development skill. You’ll need to evidence all 52 skills before the end of your training agreement. Record how you demonstrate each skill within your training file and include feedback from your QPRT, counsellor or principal. Access webinars and past Vital articles on each professional development skill to ensure you continue to gain those all-important skills at

Ethics and professional scepticism You’ll develop your ethics know-how throughout your ACA training and it’s vital that ethics is discussed at every six-monthly review. Failure to complete this section in your journey will jeopardise your move to membership. Steadily progress through the ethics learning programme during your training and after completing each module watch the corresponding Practising Ethics webinar. Make notes on the ethical scenarios during the webinar, as well as ethical examples that you read in the news or see in the workplace, as you will discuss these at your next review. Practical work experience Keep a record of the number of hours you complete per day using a timesheet or noting the hours in a diary. One working day is seven hours so if you work longer than this, you may be able to record more time. Add your number of days in six-month blocks in your training file and make sure that the days you enter are for the full period of your training

Audit qualification Audit experience gained during your ACA training may help you to gain the Audit Qualification (AQ), if you’re working for a firm of registered auditors in the UK who is an ICAEW authorised training employer. You will need the AQ to become a Responsible Individual to sign audit reports in the future. Ensure you record your audit experience throughout your training agreement, not just after an audit. If you don’t record your audit experience, you will lose it. At the end of your training agreement, you will have six months to finalise your audit experience and submit it to ICAEW. Exams Book a Professional or Advanced Level exam via your training file and log-in on results day to view your marks. You can download and email your exam results to anyone when you’re logged into your file. Remember, you won’t be able to qualify if your training file is incomplete. By keeping your file current it will be much easier when your file is ready to be signed off and it will also help ICAEW to verify your records before you’re invited to become a member. For additional help and guidance on your online training file or six-monthly reviews, visit, or speak to your QPRT, counsellor, or principal. PQ • Nicola White is training and CPD manager at ICAEW Reproduced with the permission of ICAEW, this article was first published in Vital (October 2017)

Sorted, thanks to


PQ Magazine February 2018

PQ CIMA spotlight

Keep calm… and carry on breathing Jackie Durham outlines how you can best prepare for and cope with exam stress


n a recent PQ, I focused on mindfulness as a way of creating a little peace in a generally busy and stressful world. I also discussed how we could use mindfulness to help with exam nerves. If we add breathing and relaxation techniques into our stress busting we can really power up our campaign! Learning techniques to control the breath can be incredibly powerful (in yoga we call this ‘pranayama’), but it can also be very demanding with some of the more sophisticated techniques taking years to master. However, from our point of view, basic ‘breath awareness’ is a perfect starting point – simply becoming aware of the breath and using it as a focus for the mind is very effective. It only takes minutes, can be practised anywhere quiet (eventually you can learn to do it anywhere), and you can be seated or lying down. It will also deliver a good night’s sleep and/or help if you can’t sleep or you wake up in the night stressing. Let’s have a look at how to practise basic breath awareness. If you think you’d prefer to breathe in a sitting position, make yourself comfortable with your spine straight and head sitting perfectly aligned on top of your spine. You may find it easier if you support yourself by sitting against a wall; alternatively, you can sit on a chair with your feet flat on the floor. With your palms facing up, place the back of your right hand on the palm of your left, allowing the fleshy bits of your thumbs to touch. Consciously relax your shoulders, feel the length of your neck as it grows out of your spine, relax your jaw and softly close


your eyes. Do not clench your teeth together or screw up your eyes – this is supposed to be relaxing! Breathing always through the nose, sigh out a breath, then breathe normally for a few breaths. Very quickly you should start to feel more calm and relaxed, so now is the time to bring the awareness to the breath itself. Begin to watch your breath, noticing sensations as the breath enters and leaves the body. Be aware of the coolness of the fresh clean air as it enters your nostrils, the warmth of the stale air as it leaves your body. Notice the rise and fall of your abdomen and chest as the air enters and leaves the body. It’s absolutely essential that you do not try to change your breath in any way, simply tune into your own breathing pattern. After a while you may find yourself wandering off and losing the focus on watching the breath – that’s fine, enjoy it. But if negative thoughts come into your mind, don’t engage with them, let them float away on your next

out breath and then bring your awareness back to watching the breath. Very occasionally, focusing on the breath in this way can make people feel a bit queasy or even panicky. If this happens stop the focus on what’s happening and simply breathe calmly in and out through the nose for a short while and then return to practice another day. If you prefer to try the exercise from a supine position (lying down), wrap up warmly, place your legs hip-width apart and allow your legs to roll out to the side. Relax your buttocks, feel the heaviness of your lower body. Have your arms a good distance away from your body, palms facing up. Consciously stretch out your neck, relax face and jaw (allow your jaw to hang open, no one can see!) and close your eyes. Be aware of the weight of your head and arms, feel that you couldn’t move a muscle, even if you wanted to. Practice watching the breath as above. Notice in particular the effect of relaxing your buttocks and allowing yourself to sink into the floor, when we are tense we often ‘perch’ on our buttocks without realising it. When you can tap into this awareness and learn to relax your physical body, lots of things become easier. Once you are comfortably practising this basic breath awareness, you can begin to add in other elements such as a little silent chant (a mantra) which you can coordinate with the breath. One I like is “breathing in, I calm my body; breathing out, I calm my mind”. Repeat as long as you feel comfortable. This is a great technique if you are feeling panicky or can’t sleep and can be done literally anywhere. A good mantra when lying down (do not try to co-ordinate this one with the breath) is “My whole body feels warm… and heavy… and relaxed”; repeat slowly for many rounds. To sum up, the Jackie Durham ‘CIMA’ approach to stress busting is: C – create space in your mind to just ‘be’. I – inhale positivity and exhale contentment (“I am well”, “I am happy” or “I am confident”, “I am calm”, etc). M – be mindful of the moment and appreciate the peace you are feeling right now. A – acknowledge any negative or unwelcome thoughts but let them go on your next out breath. PQ • Jackie Durham, CIMA

PQ Magazine February 2018

ACCA exams PQ

Are sample papers an Achilles’ heel?


he ACCA’s policy to publish a sample of exam questions from the previous two papers continued with the recent uploading of the Sep/Dec 2017 version. However, after reviewing the F9 and P4 papers I am concerned if they are of any true value. Let’s take the F9 paper. As is the norm, only two section C questions (40% of the paper) can be seen at the moment. A small sample of the section A and B tests will be within the examiner’s report. However, we have to wait until January to see those. Why do we have to wait? Why not publish these now? In addition, the two section C questions appear to be taken from the September exam. Would it not be more sensible to publish one from the September and one from December papers? That way March 2018 candidates can see at least one question from the latest exam. Turning my attention to P4, I am even more concerned. The latest published questions show Q1 and Q3 were taken from the December exam and the remaining two from the September paper. That at least is fair. However, my primary concern is the balance of topics contained therein. It

Sunil Bhandari is skeptical about how useful ACCA sample questions are when it comes to students trying to pass the real thing

was 100% correct to publish the Q1 from the December exam as this was far more challenging than its immediate predecessor. I can forecast a global

average score below 25 out of 50 for this question. Q1 included preparing a revised financial forecast of earnings and SOFP, which is becoming a common topic in recent papers. So why publish Q2, which also asked for a forecast SOFP? I can’t see the benefit to students. I have a stronger view regarding Q4. It was a standard question on interest rate risk hedging, and one that many students would have scored well on, given the number of similar past questions and my ACCA P4 article on this topic. However, the risk management question on the December paper was on forex risk. By all accounts this was ‘different’ to what we have seen in the past. I accept students’ recollections can be unclear after the event, but I have managed to see the wood from the trees and create this question. If it is different, let’s publish it so future candidates can learn and be ready for the challenge. I am not criticising the examining teams of both papers. They always have my admiration and full 100% support for the work they do. I just feel the arrow is a little misdirected on this occasion. PQ • Sunil Bhandari is a freelance accountancy tutor and writer

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PQ technology

So what does th PwC’s experts provide PQ with their technology predictions for 2018

Jon Andrews, head of technology and investment: “I believe 2018 will be the year in which businesses of all sizes engage with the hype and get to grips with the difference between tech for tech’s sake and understanding how it can be used to augment human capability. This is the year to overcome the tech fear.” AI and automation Euan Cameron, UK AI leader: “2018 is the year when AI will start to become mainstream in many organisations. The ability to provide comfort that these systems are built, deployed and operated in a responsible and transparent fashion will be critical. There will be significant benefits for organisations which adopt this approach when implementing AI, but potential pitfalls for those that decide to ‘play it by ear’.” Sultan Mahmood, robotic process automation leader: “Over the past year many companies have embarked on pilot and small deployments of robotic technologies to automate manual, mundane, repetitive tasks and have seen varying levels of success. The stage is set for 2018 to be the year in which companies deliver automation at scale which, when combined with transformed business process and operational improvements, will result in many thousands of robots being deployed in organisations. These will vastly improve employees’ roles by removing monotony and allowing for more creative work.” On AI in financial services, Aldous Birchall, AI solutions leader in Technology Consulting: “Our clients are moving beyond viewing AI and Machine Learning as experimental technology and shifting their focus to implementing commercially driven, end-to-end business applications. 2018 will be the year when many come to understand the limitations of trying to fully automate existing human processes and think more creatively about alternative operating models. The result will be a move away from the anthropomorphic concepts commonly used in the business AI community towards increasing sophistication around the possibilities for operating in ways that currently have no human equivalent.” 24

Blockchain Seamus Cushley, blockchain director: “The increasing demand in the ICO (initial coin offering) space will become yet more prevalent this year. This will disrupt traditional organisation structures and the means of investments and raising funds. We’re starting to see a move away from only financial services organisations looking at uses for blockchain, and are seeing more activity in energy and utilities, manufacturing and healthcare, which we predict will continue in the year ahead. There is a big opportunity for blockchain to provide transparency and accountability in the supply chain. Blockchain for digital identity purposes will also become more tangible over the next 12–18 months.” Cyber security James Hampshire, cyber security senior manager: “2018 will be the year in which organisations deliver a step-change in their cyber security capability by embracing emerging technologies, most notably AI and blockchain. Historically, we have seen confidentiality of data as

the primary goal of cyber security. In 2017, Wannacry and NotPetya elevated availability of systems and data to the same level on organisations' radars. 2018 could be the year that the third leg of the information security triad, integrity of data, really comes to the fore. All organisations rely on the integrity of their data to function, from the food supply chain to the medical profession, to any company reporting financial results. An attacker that can cause a question mark to appear over the integrity of their target’s data could cause huge damage.” Data analytics Neil Hampson, data analytics leader: “Data remains king – so, while emerging technologies like AI, blockchain and drones are becoming the new ‘it’ crowd, let's not forget about the magic ingredient behind them all – data. In the coming year it will be more important than ever for organisations to ensure they have a clear picture of the data assets they’re sitting on, in order to mine it for better business outcomes and to take advantage of the latest technologies.” PQ Magazine February 2018

technology PQ

he future hold? Drones Elaine Whyte, UK drones expert: “The drones market will continue to move from an early adopter tool to a mature professional service offering. Drones will become a key tool in enabling organisations to gather data about their operations quicker, more easily and more cheaply than ever before. “For example, we predict a real takeup in the use of drones in capital and infrastructure projects to provide an interactive 3D visual of the site to enhance all stages of the build. Uses include assisting the planning application process by providing 3D data with BIM (building information modelling) overlays and the visualisation of proposed infrastructure for local communities, monitoring performance during the build (including adherence to design, contractor performance and interactive stakeholder reporting), along with providing a ‘golden record’ of the site for handover to the maintenance side of the business along with supporting any potentially lengthy litigation claims.”

Future of Work Rob McCargow, AI programme leader: “2018 will likely see a proliferation of companies applying AI for a wide range of uses. The area that I believe requires the most scrutiny is the adoption of AI in HR and workforce management. AIaugmented recruitment stands out as a key growth area with a range of offerings in the market from CV selection, to advanced assessment through video analysis, and improved ‘candidate journeys’ supported by conversational agents. “Marching in lockstep with this plethora of opportunity is an abundance of risk. Whilst AI can be marshalled to drive efficiencies and make HR processes more fair, if not governed and implemented responsibly, it can lead to an amplification of bias and discrimination. As these technologies become more pervasive in the workplace, expect to see increased demand from candidates and employees seeking clear and transparent policies setting out how their data is used to make decisions.”

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GDPR Stewart Room, lead partner for GDPR and data protection: “The General Data Protection Regulations (GDPR) introduces new data subject rights and personal data breach notification from May 2018. “These rules will shine an intense spotlight on the performance of technology systems and their ability to deliver on the law's requirements. Data controllers and processors may have a rude awakening if they have overlooked technology systems during their GDPR preparations.” Virtual Reality (VR) Jeremy Dalton, VR/AR lead: “With the release of standalone virtual reality headsets like the Oculus Go set for early 2018, we will see a significant increase in adoption of VR technology by consumers. Standalone headsets mitigate two of the serious challenges VR is facing in the goal for mainstream adoption – cost and user experience.” PQ • Thanks to PwC for this article

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INVENTORY COUNTS For many PQs, the new year heralds the busy season, not least because of the number of inventory counts (or stock takes). Here Cat Hill explains how to measure inventory under IAS 2


ith so many companies having a 31 December or 31 March year end, inventory counts all seem to come at once (and with Easter on 1 April 2018, this year might involve counting a lot of chocolate eggs!). Whether you are performing the count itself, or auditing the count, the next question to ask is ‘how should this be measured in the financial statements?’. Measurement: IAS 2 states that Inventory must be measured in the financial statements at the lower of cost and net realisable value, so we first need to determine each of these amounts, then decide which is lowest. Cost: IAS 2 gives two main formulas for calculating the cost: – First-In-First-Out (FIFO) – Weighted Average Cost (WAC) Companies can choose which one to use based on what’s most appropriate to their business. Let’s look at each one in turn:

FIFO example – Foodie Co, milk Foodie Co buys milk to sell in its supermarket. Foodie Co is invoiced and pays once every two weeks and the milk costs for the month ended 31 December 20X7 are as follows: Invoice date 4 Dec 18 Dec

Million Litres 6 10

Total cost $m 1.8 6.0

The month-end inventory count shows 2 million litres of milk at 31 December 20X7 and for this example we will assume there was no opening inventory. Clearly, for a supermarket, the first milk bought will be the first milk sold. Foodie Co won’t have the milk from 4 December still sitting in the fridge on 31 December, so the FIFO method is most appropriate. That means, the milk Foodie Co DOES have on 31 December X7, must be the very last milk bought at the end of the year, and therefore was bought at the most recent price. The last purchase had a price per litre of 60 cents ($6.0 million/10 million litres). Therefore the 2 million litres at the year-end cost $1.2 million (2m x 60 cents). Students often try to value inventory using the earliest prices, rather than the later ones. Just remember how awful that milk would be… WAC example – Foodie Co, petrol Foodie Co also has petrol stations outside its supermarkets, where it sells petrol to consumers. The petrol is delivered by tanker and poured into underground storage, where it mixes with any petrol already there. When a customer buys petrol, it is pumped out of the underground storage into the consumer’s car, so there’s no way of knowing if the remaining petrol in the underground storage was bought at the start of the month, or the end. This is where WAC is appropriate. Rather than using the cost from a specific date, WAC calculates an average cost, which changes every time a purchase is made. Therefore, the cost is weighted towards the most recent prices. Foodie Co’s sales and purchases of petrol for the month ended 31 December 20X7 are as follows: Activity Purchase

Date 4 Dec


13 Dec


Purchase Sale

18 Dec 28 Dec

10 10


Million Litres 6

Total cost $m 1.8 6.0

Every time there is a purchase, the WAC is re-calculated using the inventory held at that date, and every time there is a sale, the cost of the inventory sold is calculated using the most recent WAC. Again, for this example we will assume there was no opening inventory. Event 4 Dec - Purch 13 Dec - Sale

Million Litres 6 (4)

18 Dec - Purch 10 28 Dec - Sale (10)

Inventory Cost of in million Inventory litres 2 12 2

Total cost $m 1.8 4 x 0.30 = (1.2) 0.6 6.0 6.6 10 x 0.55 = (5.5) 1.1

WAC per litre $ Total cost/litres 0.30

Total Inventory $m 1.8







The final inventory is 2 million litres, with a total value of $1.1m. Consequences A common exam question is: ‘What effect do rising prices have on inventory?’ We can see that although Foodie Co had the same purchases, prices and quantity of inventory at the month end for milk and petrol, FIFO and WAC have given different results when prices are rising during the year. The milk was valued at the very last price paid of $0.60 per litre totalling $1.2m but the oil was valued at the WAC of $0.55 per litre totalling only $1.1m. This means, in times of rising prices, FIFO gives a higher inventory valuation than WAC. If prices were falling, FIFO would give a lower inventory valuation than WAC, because FIFO would use the last and lowest price, whereas WAC would be an average. Net Realisable Value Businesses hope they can sell their inventory for more than it cost – that’s how they will make profit. But if the inventory is damaged or customers don’t want to buy it, the selling price might fall below the cost. The inventory can’t be recognised in the accounts for more than its worth, so IAS 2 states inventory must be measured at the lower of cost or net realisable value. It is called net realisable value, because any costs of selling the inventory must also be deducted from the selling price; and that includes any future costs the business needs to incur before they can sell it. NRV example – Home Co Home Co makes bookcases. At their year-end of 31 December 20X7, they have a partly finished bookcase in their inventory. The costs incurred so far are $100. When it is finished, they can sell it for $120, but it will cost them another $30 to finish it. This is often where students trip up. We can’t add the costs to complete of $30 onto the costs incurred of $100, because we haven’t spent that money yet; that would artificially inflate the value. Instead, we are trying to compare how much we have spent so far ($100), with what that bookcase is going to be worth to us in the future ($120 - $30 = $90). Lower of Cost and NRV Once we have the Cost and the NRV, we have to choose the lowest. For Home Co that’s NRV of $90. Exam tip Comparing Cost and NRV seems easy, but don’t forget to make this decision separately for each inventory line. PQ • Cat Hill is the F3 and F7 tutor at AVADO PQ Magazine February 2018



Normal loss, abnormal loss and abnormal gain Our troubleshooter Philip Dunn tackles a subject that causes ACCA PQs lots of problems, and may also be of interest to AAT and ICB Level 3 students Question: I am an ACCA student currently studying F2 Management Accounting and am struggling with the concepts normal loss, abnormal loss and abnormal gain in process costing. Can you help? Answer: Inherent in process costing are the concepts of losses and gains as a result of the types of inputs involved in such processes. For example, in the canning or freezing of vegetables the quality of the raw materials may vary at differing times of the year and losses/waste may vary above or below that considered as a normal or acceptable level. Normal loss That level predetermined and considered to be the normal or acceptable allowance for losses in the production period. Example: Crescent Paints provides its production manager with a standard allowance for losses/waste in the production process and 3,000 litres of raw material entered Process A where the normal loss allowance was 3% of input. Therefore Normal Production (that expected from the process) would be: Litres Input 3,000 Normal Loss 3% 90 Normal Output 2,910

This shows that the process was less efficient than planned as 2,890 litres were actually achieved compared with 2,910 litres considered as normal production. Abnormal gain The excess of actual output over normal production. If for example the actual output was assumed to be 2,960 litres then: Litres Normal production as above 2,910 Actual output 2,960 Abnormal gain 50 This shows that the process has been more efficient than planned, with 2,960 litres of output actually achieved compared with normal or the acceptable level of 2,910 litres of output, and so is an efficiency gain. PQ • Dr Philip E Dunn is a freelance author and technical editor for Kaplan and Osborne Books

Abnormal loss The excess of normal production over the output achieved. If in the example above we assume that actual output was 2,890 litres then: Litres Normal production as above 2,910 Actual output 2,890 Abnormal loss 20 PQ Magazine February 2018



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social media ROUND-UP The December ACCA exam results are now out. Check the PQ magazine website for all our analysis – go to We also went on social media with our countdown to results day and got some great responses! Aayla, for instance, told us: “I’m just gonna sit in the dark and eat ice cream til that day.”

But our favourite tweet came at the tail end of 2017. One ACCA affiliate told us: “I have completed my papers but I keep having nightmares where I sit P8 and P9, which don’t exist.” The ACCA exams can do that to you. Remember to follow us @pqmagazine Our ‘New CIMA syllabus this summer’ post on CIMA’s LinkedIn group (it has nearly 57,000 members) got lots of ‘likes’ from members. It appears CIMA sitters were most torn about whether tax should be a key part of the CIMA syllabus going forward. Alan Scott told us that indepth tax knowledge is ‘not essential’. However, he felt a good grounding in the principles is. He went on: “I have always worked on the basis of being able to do the straightforward tax stuff and identify areas where specialist advice is needed.” Tawseef Yousuf commented: “Taxation is a must!” The introduction of VAT in India and the Middle East meant CIMA had to take tax seriously, according to Ajith Prasad. Then there was Marina Fleury, who felt CIMA should leave the tax and audit to ACA and ACCA. She thought it should concentrate instead on business partnering and data analysis. “Data and systems are the future,” she explained. Alan Moran was hoping CIMA can keep pace with new developments (for example cyber-currencies) and move away from its overwhelmingly conservative stance, while Sandy Hood felt it would be useful to know how assessment for CIMA will evolve. And then there was Siobhan Reid, who was just nervous that she was going to end up with more exams to sit! PQ magazine will be having another big chat with the man in charge of the review, Noel Tagoe, later this month. PQ Magazine February 2018

Life at the AAT Mark Farrar is the association’s CEO, based in London, and has been in the job for over three years. Mark’s claim to fame is that he once stood in at short notice for HRH Princess Anne at an awards event! He has a degree in oceanography from Swansea uni What time does your alarm clock go off on a working day? 6:15am. What’s the first thing you do when you get to your desk? Dig my laptop out of the ‘poodle’ and plug it in. The poodle in this case being a mobile trolley. What’s on your desk? A laptop and a phone. What’s the best thing about where you work? The people – a great bunch. Where’s your favourite place to go for lunch? You’ve not seen my diary then… What (or who) can you see when you sit at your desk? A large piece of Brutalist architecture otherwise known as the Barbican. I preferred the views from my two previous offices that overlooked the sea. Which websites are your favourites and why? BBC News and the Met Office. It’s good

to keep on top of what is going on in our 24/7 world, and I tend to get outdoors a lot at the weekend, so tend to keep an eye on the synoptic weather charts Which websites do you use for work? Relatively few on a regular basis, although the press and government policy sites tend to pop up regularly. How many hours a week do you spend in meetings? Too many! What time do you leave the office? No day is the same, but 6–6.30pm most days. How do you relax? I sail quite a bit at weekends. What’s your favourite tipple? Difficult to choose! A glass (or two) of red wine perhaps, but my inner Irish self will return to Guinness whenever necessary. How often do you take work

home with you? Infrequently, and I encourage others to step away as well. Today’s technology needs to be better controlled in workplace cultures. What is your favourite TV show? Blue Planet II (see oceanographic reference above). Summer or winter? Summer. Pub or club? Pub. Who is your hero? I don’t have heroes as such, although I’m quite impressed by yachtsman Alex Thompson. If you had a time machine, where would you go? Back rather than forwards – it would spoil the surprise. Maybe ancient Egypt to watch the pyramids being completed. If you hadn’t chosen accountancy, where might you be right now? On the high seas somewhere, I guess.

Signing up to the recruiters How many recruitment consultants should you sign up with? According to ProRecruitment Group’s Tom Eagle it is three (although he felt one or two was a better number). His other big bit of advice was to always meet the consultant. “A recruitment consultant not willing to do that are not worth signing up to,” he said. It was also suggested that you might need to kiss a few frogs until you find a consultant worth keeping! • Tom Eagle (pictured) was a star turn at the Future of Accountancy

conference, held jointly by LSBU and PQ magazine.

In brief Age discrimination rife A staggering two in three accountants say that age discrimination is common in their workplace. Some 26% of finance professionals feel they are not taken seriously at work because of their age. A further 37% of finance professionals told researchers that they were discriminated against at work because they were considered ‘too young’. Meanwhile, some 50% of accountants said they were discriminated against for being too old.

Free accommodation UK graduates are spending on average £500 landing their first job. With this in mind, Barclays has said it will offer graduate job interviewees free accommodation in London, Birmingham and Manchester to help offset the ‘shocking cost’ of landing a post-university position. Barclays discovered that more than half of the graduates it surveyed had not applied for a job because of the associated costs of travelling to an interview.

The PQ Book Club: books you should read Declutter Your Life: How Outer Order Leads to Inner Calm, by Gill Hasson (Capstone, £10.99) Published in December, this book was obviously timed to coincide with the new year’s resolution period. Yet while most resolutions are broken before the tree comes down, there’s much to be said for a programme of decluttering your life. Gill Hasson’s book will help you do just that. The author takes a simple approach,

splitting the text into two sections. The first, called Declutter Your Home, explains how and why we manage to hoard so much ‘stuff’ – and the barriers we put up to getting rid of it all! To get through this we have to change the way we think: we have to lose the guilt that we feel about discarding things we have had for a long time, and somehow developed an emotional attachment to. Easier said than done! The lessons learned from part

one of this book can then be transfered to part two – called Declutter Your Life. This is where it gets really tough; Hasson asks you to assess your commitments and even friendships. To help, the author offers plenty of practical tips and advice on how to reclaim your space, your time and your mind, and so achieve the life you want to live. PQ rating 4/5 It’s time to let go of all that emotional baggage. 29

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Tech-savvy twenty-somethings are more vulnerable to online fraud than the elderly because they are overconfident with technology, says a report by Policy Network. It was found that the digital natives were a little digital naïve, as they were more relaxed about sharing personal information online. More than 80% of 18 to 24 year olds were willing to share their email address and nearly one in three were happy to reveal their mother’s maiden name (a common security question). Under 24 year olds were also lax about installing security devices on their tablets. The report has suggested that all schoolchildren should have to undergo a course on fraud and cyber-security by the time they are 16.

JOKE CORNER Welcome to the accounting department, where everyone counts! It’s accrual world Be audit you can be Where do homeless accountants live? In a tax shelter… What do you call a trial balance that doesn’t balance? A late night What does an accountant say when boarding a train? Mind the GAAP What’s the definition of a good tax accountant? Someone who has a loophole named after them • Do you have any favourite accountancy gags? Send them to – we’d love to hear them.

MINDFULNESS CAN LOWER EXAM STRESS Maybe it’s time to get that Calm app! Mindfulness training could help reduce your stress during exams, says a new study. A trial at the University of Cambridge found that those who attended an eight-week face-to-face mindfulness skills course had lower distress scores during the exam term, when compared with students who received only the usual support. The mindfulness group started each day with an eight-minute daily meditation, rising to 25 minutes a day. They were also encouraged to go on mindfulness walks and eat mindfully!


Justin Rosenstein has removed the Facebook app from his phone because he fears about the psychological effect social media is having on his life. Now, normally this wouldn’t be much of a news story, but Rosenstein is the man who created Facebook’s ‘like’ button! There is rising concern, even in Silicon Valley, about the ‘attention economy’, where firms push for users’ attention in order to harvest their data so they can use it to sell them advertising. Rosenstein (pictured) said: “It is common for humans to develop things with the best of intentions and for them to have unintended, negative consequences.”



MEAT TAX ‘INEVITABLE’ A tax on meat in many countries looks increasingly more likely as governments strive to comply with the Paris Agreement, says an investor group. The Farm Animal Investment Risk and Return (FAIRR) network said that the possibility of a ‘sin tax’ in this area is increasing as the role meat plays in both climate change and illnesses such as cancer, becomes even more apparent. FAIRR said that meat could soon be taxed in the same way as tobacco and sugar. Countries such as Sweden and Denmark have already looked at a ‘livestock levy’.

So, how do you improve your brainpower? Researchers are now saying you need to go on the 5:2 diet! Enforced fasting in mice has shown that it causes changes in the brain, which enables it to grow more connections and give the neurons more energy. Dr Mark Mattson’s team found that fasting caused a 50% increase in brain chemical BDNF. This chemical helps both learning and memory.

SARAH, PUT THE PHONE DOWN! Repair firm iSmash says you should avoid lending your phone to anyone called Sarah or Ben. Apparently, they are the names that cropped up most often on the list of 25,000 people who needed phone repairs. It also appears men are more likely to break their phones, too. Three-quarters of those on the list were men. However, guys called Ian and Jonathan were found to have the safest pairs of hands.


How to build your soft skills We have three packs of three great self-help books up for grabs this month. So, if you need to know ‘How To Organise Yourself’, ‘How To Deal With Stress’ or ‘Develop Your Assertiveness’, then these are the books for you. The assertiveness book offers simple techniques that will help you become more aware of your strengths and weaknesses, so that you can modify your behaviour in social and business interactions. To enter this great giveaway send your name and address to Head up your email ‘How to’.

The Jungle Book We have three wonderful Jungle Book colouring books to give away this month. This very special book contains pictures and patterns inspired by Rudyard Kipling’s The Jungle Book. So you can colour in your favourite characters – Mowgli, Baloo the bear or Kaa the snake. It will be easy to get lost in this jungle! To be in with a chance of winning this giveaway send your email headed up ‘Jungle Book’ to

Terms and conditions: One entry per giveaway please. You must send your name and address to be entered for the draw. All giveaway entries must be received by Friday 9 February. The main draw will take place on Monday 12 February 2018.


PQ Magazine February 2018

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PQ magazine, February 2018  

PQ magazine is a free monthly magazine for student accountants, focusing mainly on the ACCA, CIMA, CIPFA, ICAEW and AAT qualifications. It's...

PQ magazine, February 2018  

PQ magazine is a free monthly magazine for student accountants, focusing mainly on the ACCA, CIMA, CIPFA, ICAEW and AAT qualifications. It's...