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PQ magazine /

June 2014


Are you getting paid what you should be? We’ve the latest figures from Reed Accountancy



We’ve got four pages of great ACCA tips from our experts

Meet Vini Aujla, an entrepreneur who can stand the heat

GENDER PAY GAP JUST GETS WIDER What is the difference between a male and female chartered accountant? According to the latest ICAEW salary survey, around £50,000 in pay! That is not a joke. The survey revealed that the ‘typical’ chartered accountant earns a healthy £115,700 a year. The problem is that the ‘typical’ female CA takes home just £68,700 a year – a whopping £47,000 less. Worryingly, the survey shows the ‘gender differential’ starts early, although it is not so telling. A male accountant aged under 30 earns on average £55,100, says the study. This compares with £49,000 for his female equivalent – a gap of some £5,200. A salary survey at the tail end of 2013 found similar pay gap issues. A leading recruitment consultant

ventures that the pay gap between male and female accountants increased by an average of £1,000 a year for the first 10 years of an accountancy career. After 10 years

this gap had widened to what it felt was a “staggering £26,000”. Just two years after qualification this research found the pay gap was £6,433.

Sharron Gunn, the ICAEW’s executive director, commercial, told PQ magazine that the figures hide a more complicated picture. One factor that skews them is where men and women work. Many female CAs seem to prefer careers in the charity and public sectors, she explained. Male accountants are drawn to banking and the financial rewards there. She felt that many female accountants are also working part time. The figures were published just as PwC released its research ‘Next generation diversity – developing tomorrow’s female leaders’. Over 40,000 global workers born between 1980 and 1995 (the ‘millennials’) were asked about their opinion on breaking the glass ceiling. The report acknowledges that Continued on page 12

Digital Darwinism points to the future Students must keep abreast of technological developments, and try to anticipate what skills they will need both now and in the future, the ACCA’s UK head told students at a joint PQ magazine/LCA Business School seminar recently. Sarah Hathaway was outlining the findings of the ACCA’s ‘Digital Darwinism’ report. The association spoke to a wide range of accountants, academics and CFOs in compiling the research, which highlights “the top 10 technology trends that matter”. Hathaway used the imminent roll-out of 5G technology as a development that will be a “game-changer” for accountants, as it will make mobile connectivity 1,000 times faster.

Hathaway: be aware of technology trends She highlighted big data as another area of particular interest to accountants. She told students: “Big data demands the intelligent

use of technology and data. It is a huge challenge – some 90% of the world’s data was created in the past two years.” Cyber-security and social media where both important areas for young accountants, said Hathaway. She warned the assembled students about the dangers of Facebook, saying that all personal information and photographs should be kept in ‘private’ areas of the social networking site. The Digital Darwinism report is available via the ACCA’s website, and comes highly recommended by PQ magazine. • PQ is working with LCA to organise more seminars and lectures on subjects of interest to our readers. Watch this space for details.

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contents PQ


News 08CIMA ethical tool Institute launches new ethical e-resource 10Which qualification rules? Who are the top 60 firms looking for when they recruit PQs? 12Name and shame Students’ crimes and misdemeanours Features, etc 06Have your say Administrative review was waste of time; unease over MCQs; and the best from Twitter and LinkedIn 14Profile Vini Aujla on her time as a PQ and her business success

16ACCA F3 paper Calculators at the ready – you’ll need them

19ACCA exam tips We’ve got

four pages of fantastic tips from the accountancy experts 23Technical focus #1 Part two of our series on standard costing & direct materials usage variance

24Technical focus #2 How

activity based costing can boost organisational performance

26Risk management Tackling

June 2014 32Salary survey We drill down

into the salaries from Reed Accountancy’s PQ Salary Guide and Market Insight 2014 33Careers #1 Don’t overlook the value of company benefits and development opportunities 34Careers #2 Life at Breeze & Co; tackling issues around depression and the workplace; and our Book Club reviews 38Fun time The Rev’s ‘knight in shining armour’; cooking the books; and our great giveaways The columnists Robert Bruce In the accountancy world, reputation is all 08 Prem Sikka The trouble with corporate responsibility reports 10 Carl LygoWhy Indonesia is a land of opportunity 12 Subscribe to PQ Magazine It’s FREE – see page 37 or go to ABC July 2012–June 2013


questions on futures contracts

28CIPFA spotlight Institute

launches training partnership in Bangladesh

29ICAEW focus Timely advice on the Corporate Reporting paper, to be sat for the first time in July

31Technical focus #3 How to handle incomplete records

Publisher’s statement: We have a digital issue of the magazine which is sent to 9,211 requested readers

Behaving badly I am confused. It is easily done. You may have noticed in recent months we have been bringing you lists of various PQ ‘wrongdoers’. Last month it was convicted burglar and AAT student Ammar Khan. This month (see page 12) it is, among others, CIMA PQ Pritchard Bweupe, who stole £2m from his charity bosses. Both of these PQs were removed from the student register of their body. So the confusion? Well, it’s those other cases where things aren’t so black and white that are worrying me. What do you think should happen to fellow students who are found to have unauthorised material at their exam desk? And what should the punishment be? In the past, we have asked the bodies for a definitive policy and they have always explained that they take cases on an individual basis. Which, of course, is right. But a look at recent cases, however, shows some bodies allow students found to have ‘unauthorised material’ at an exam desk to carry on with the qualification. Is that right? Bodies need to be really clear here and a list might help. The case that really got me thinking was that of Kowk Keung Chan. In August 2006 he was convicted of indecent assault and sentenced to three years and three months in prison. The disciplinary committee of the Hong Kong Institute of Certified Public Accountants found him guilty of dishonourable conduct. However, he failed to notify CIMA of his conviction. Interestingly, the sanction imposed by HKICPA of a suspension for three years was due to expire in November 2012 and he had sent letters of regret and remorse to the institute. The committee, however, felt that the indecent assault on a vulnerable victim was a very serious departure from the standards of conduct required. Mr Chan was expelled and ordered to pay £6,448.28. So, the concern is this: HKICPA gave him a suspension, and CIMA seems to be punishing him for not telling them about the conviction. Now, that is not to say that he wouldn’t have been expelled had they known earlier, but just a suspension from HKICPA? Is that right? What do you think? (Email me with your views, I’d love to hear from you.) You could argue he has served his time. Is there no rehabilitation possible for this accountant? I must stop thinking. Graham Hambly, PQ magazine editor (

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PQ have your say


Timewasting review Following a recent article in PQ magazine (May 2014), I thought I would share my experience of an ACCA administrative review. I received a ‘fail’ for the P1 exam in the December 2010 sitting with a mark of 46%. Having never failed an exam (any!) in my life, I couldn’t understand how this had happened – I was well prepared for the exam and had for the first time attended a revision course. From the administrative view, it seems I did successfully pass question 2 and question 4 – this suggests to me

“That reminds me, have you heard about your ACCA exam administrative review yet?”

a bare minimum of 25 marks from these two questions. Based on this, I can only assume I received only 21 marks out of 50 from question 1. I went all the way to appeal but received no further useful information from the ACCA. My tutor kindly offered to mark question 1 for me, so I went through it again (under exam conditions). She marked it and gave me 30 out of 50 – so I was still none the wiser. My pet theory is that this is one of the first sessions where the exam papers were electronically scanned. I think my question 1 answer was in some way deleted or

The writer of the star letter each month wins a fantastic ‘I ❤ PQ’ mug! Thanks for seminar

Thank you very much for organising the ‘How technology is reshaping the finance profession’ seminar recently at LCA Business School. It definitely made me look at our profession from a different angle, to think about the future and how much more varied and interesting our roles are becoming thanks to the emerging technologies. Yulia Sitnikova, via Facebook The ACCA’s Sarah Hathaway presented the PQ seminar

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incomplete in the scan process. I went on to re-sit P1, did substantially less revision than I had the first time and passed with 74%. The ACCA administrative review and appeal process was in my view, a waste of time and money. Name and address supplied

Hot & Tweet It has been a busy month for Twitter. First, shares in Twitter dropped as it reported a slowdown in user growth. The number of active users reached 255m in the first three months of 2014, up 5.8% on the previous quarter. Twitter also reported a net loss of £78m for the quarter. Then Amazon announced a partnership that allows users to add products to their shopping carts by tweeting a special hashtag – #amazonbasket. Users will still need to go to Amazon to pay and complete the purchase. Our most ‘viewed’ story this month @PQmagazine was our visit to De Monfort University – we were blown away with the set up and enthusiasm there (see photo below).

Available on desktop, tablet and mobile. Unease over MCQs

I don’t want to be a killjoy but I am not sure if I like the idea of MCQs becoming a major part of the accountancy professional exams. Surely being an accountant means showing off an ability to write reports and communicating these to senior people in your organisation – both finance and non-financial people, of course. I am not sure MCQs will provide today’s accountants with the skills to do this. There seems to be no proper debate occurring about the educational benefits of going down this route. I just believe once we start this journey there will be no going back. Name and address supplied

020 3535 1111 There was a great discussion on ASNG recently after one PQ admitted to losing their motivation to study and called for help! Students said she had to think about why she started studying in the first place. Another explained that motivation can be a strange thing – it ebbs and flows and feels like it

has run out completely. It is, said Keith, the old work-life-study challenge. When you study for the ACCA ‘life’ has to go! Christopher stressed that PQs need to think big and long-term, and write down what the future looks like, feels like and smells like. Then you have to break this down into small achievable chunks. As Confucius said: “It doesn’t matter how slow you go as long as you don’t stop!”

Another top read was: “If Man City found guilty of falling foul to the financial Fair Play rules will Utd ask to take their place in Europe?” It transpires that City will be fined £50m and have to contest next season’s Champions League with a squad size of 21 players after being found guilty of breaching UEFA’s rules. City have appealed the ruling and fine. So don’t forget to follow us @PQmagazine.

PQ Magazine Fourth floor, Central House, 142 Central Street, London EC1V 8AR | 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, Tony Kelly, Ruhi Singha, Phil Gammon, Jo Daley | 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 2014

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PQ news

ROBERT BRUCE Reputation is all

It is easy for accountants to lose sight of what they are really about. The daily tasks keep noses to the page. And when the busy accountant does look up, they don’t sniff the air and wonder about the wider significance of it all. I was reading the latest in a long line of brilliant crime novels by Donna Leon* the other day. They are set in Venice and corruption is never far away from the narrative. The hero, Guido Brunetti, works for the police, but his social context is also at the heart of how the stories develop. In this one he is investigating the theft of rare books from an ancient library. While Brunetti and his wife are having dinner with her parents and discussing the endemic corruption in the city he suddenly asks: “What are you going to do about it?” And his father-in-law answers: “The only thing I can do is what I have been doing for the last five years.” Brunetti asks what that is. “Move my money out of the country. Invest in countries that have a future, invest in countries where there is the rule of law,” he says. And that, in the end, is where the real value of accounting lies. People invest in countries and companies where the security of credible accounting exists. Countries thrive with it, and decline without it. * ‘By Its Cover’ by Donna Leon is published by William Heinemann (£17.99) ■ Robert Bruce is an award-winning writer on accountancy for The Times

500 new EY jobs in Belfast EY is set to create 486 jobs in Belfast. A new business unit will, it is reported, be advising clients outside Northern Ireland, with the posts being filled over the next four years. The firm already employs 1,500 people in both Northern Ireland and the Republic. The Stormont’s ministerial executive has confirmed it will be contributing £19m a year in direct salaries once all the roles are filled. 8

NEW ETHICS TOOL LAUNCHED BY CIMA CIMA has launched a fantastic new ethical e-resource designed to support students with both their studies and ethical development. The tool has been created as part of the institute’s ongoing work to ensure students are more prepared for the ethical dilemmas they will face in their working lives. CIMA’s ethics guru, Tanya Barman (pictured), said examiners had reported that students seem to struggle when put in business situations where ethics is a key component. “They throw in words such as integrity without really understanding what it means,” she ventured. Understanding how ethics works in the real world will also get you marks in the exam hall, Barman stressed, and this e-resource can help do just that. The tool provides information around what ethics are, the Code of

Ethics and ethical conflict, and includes sample questions ranging from C05 to T4B. It includes three self-tests and a wide range of relevant resources. CIMA is keen to stress, however, that the tool is no substitute for CIMA study texts, but is meant to be used alongside them. • Go to studentethicstool

ICAS PQ numbers fall dramatically in the past year There was a dramatic 20% drop in the ICAS student intake last year, according to the ICAS annual report. This is the second year in a row that student recruitment has fallen. In 2011, ICAS recruited 1,000 chartered accountancy students. This dropped to 963 in 2012 and again, more dramatically, in 2013 to 767. The report puts the drop down to offshoring and the increasing number of school-leavers being recruited in England. Another factor was the merger of BDO and PKF, which resulted in reduced numbers of CAs starting the qualification. It appears that some SMEs in Scotland were not able to find suitable candidates, either. ICAS told readers that the institute will now focus its efforts on increasing the number of students recruited through traditional routes while opening up new routes of entry. To this end, ICAS now allows students to get the CA qualification outside a training contract.

Affiliates struggle to find experience More and more AAT affiliates appear to be struggling to find the relevant work experience they need to become members (MAATs). The AAT said that the job market is still affecting its people’s ability to move on to full membership. As they can’t meet the AATs work experience criteria they have to stay an affiliate. The AAT says that this is something it will look to address in what remains of 2014. It has already extended its CPD scheme to affiliates. This will give them a greater opportunity for career development and enable them to demonstrate their commitment to the accountancy profession to both potential and current.

Deloitte heads to Tech City Deloitte has joined a growing number of blue-chip companies that are locating their digital operations in London’s Tech City. It has opened up shop in Clerkenwell Green, moving its 170 strong team into a ‘technology studio’. KPMG is already there – they moved in two years ago. Ex-KPMG man jailed Former KPMG partner Scott London has been sentenced to 14 months in prison for insider trading. London tipped off his

CIPFA’s top bananas: Prize-winning students came out in force to collect their prizes at CIPFA’s annual ceremony. PQ Cerys Ledger picked up two prizes – the Arthur Collins Medal and Eric Gilliland memorial Prize. Oh, and £450!

golfing partner, Bryan Shaw, about KPMG clients including Herbalife and Skechers. Shaw made over $1m on the information received. In return, London was given cash, a Rolex watch and even Bruce Springsteen tickets. On top of the jail sentence London was ordered to pay a fine of $100,000. Audit ‘roundabout’ The Big 4 are playing audit ‘musical chairs’. The BBC has ditched KPMG as its auditor after

18 years. EY takes its place. Meanwhile, Barclays is looking to replace PwC, while EY is replacing PwC at the London Stock Exchange. And one of the UK’s biggest financial services group, Old Mutual, has put its contract out to the market. It has been audited by KPMG since 1999. Rio Tinto has bucked the trend to say it is sticking to PwC, who have audited its books since 1980. This falls foul of Brussels’ rules that require a switch every 20 years. PQ Magazine June 2014


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PQ news

PREM SIKKA Let’s replace PR puff with worthwhile CSR reports What would you do if a company published its annual accounts and all that they consisted of were some smiling faces, a few graphs and plenty of self-congratulatory statements? Not many people would have confidence in such accounts. There would be plenty of critical comments in the press, regulators and investors. Yet the same critical scrutiny does not apply to glossy corporate responsibility reports (CSR). These often contain little useful information; companies find it cheaper to hire PR experts to write self-congratulatory statements to assuage critics rather than producing meaningful reports. Most CSR reports provide little or no data on the impact of corporate practices on human rights, tax avoidance, environmental degradation, poverty wages, or anything else. Newspapers are full of stories about the rigging of interest rates, bribery to win contracts and consumers being sold horsemeat instead of beef. Some companies show remorse after the event, but none has ever owned up before the public exposure. In a world where corporations affect the quality of food, air, water, medicines and virtually everything else, there is an urgent need to remind them of their social responsibilities. This requires publication of meaningful social information. For far too long, the contents of CSR reports have been left to the assumed good intentions of companies, but that experiment has failed. It is now time for the law to act. ■ Prem Sikka is professor of accountancy at the University of Essex

Which qualification rules? The top 60 accountancy firms are falling back in love with the ICAEW – be it ever so slightly. Latest stats from Accountancy magazine show that trainees studying for the ICAEW qualification rose from 64.5% to 65.3% in 2103. The Scottish institute (ICAS) also saw a percentage jump in its PQs in the biggest firms – from 16.7% to 18.3% in one year. The figures aren’t perfect as some big firms, notably Moores Stephens (ninth biggest), Begbies Traynor (14th) and TaxAssist (24th) do not provide a complete breakdown of student numbers. Some have not provided any figures, so not much transparency here, one fears.

TOP 60 FIRMS Recruitment by body (Accountancy magazine) ACCA 1,212 (9.7%)

CIPFA 61 (0.5%) ICAS 2,281 (18.3%)

ICAEW 8,129 (65.3%)

ACCA PQs in the top 60 firms are holding up. In 2013, 9.7% of all PQs were studying with the association. Some firms really like their ACCAs –

March ICAEW results in When was the last time you saw a 37.5% pass rate in an ICAEW exam? Well, the answer will be the March 2014 Financial Accounting exam. In its defence, the ICAEW will say just 16 PQs sat the paper, but even so just six out of those 16 students won’t have to resit the paper again. The taxation (55.4%) and financial management (67.2%) pass rates don’t make pretty reading either. Two is definitely the magic number for students who want to

pass all the papers they sit first time. Those students sitting two papers (70.5%) in March again did better than those sitting just one paper (66.9%). They usually do! In all, 1,838 students sat the spring test, with 2,915 papers attempted. Some 1,255 students passed all the paper they took. The increasing global reach of the ACA qualification was also evident in the prizewinners – two from Malaysia and one from Singapore.

ICAEW MARCH 2014 PROFESSIONAL RESULTS December 2013 March 2014 Audit & Assurance 82% 87.4% FA & Reporting 80.1% 81.2% Tax Compliance 88.4% 78.2% Business Planning Taxation 62.5% 68.6% Business Strategy 90.4% 88.7% Financial Management 86.9% 67.2% Financial Accounting 67.6% 37.5% Taxation 75.1% 55.4% Financial Reporting 74.3% 63%

In brief New CEO now in place Mark Farrar has now taken over at the AAT, joining from the Construction Industry Training Board the UK. After time in the Royal Navy Farrar (pictured) trained as an accountant with Deloitte. Following senior roles with Barclays Bank and Norwich Union, he moved into the public sector and joined Cefas, a Governmentowned marine science and environmental research body. 10

Exporting expertise Teams of British accountants will help transform accounting standards and develop professional accountancy institutes in Africa and Asia. International Development Secretary Justine Greening said the UK will deploy staff from the ACCA, CIPFA and ICAEW to developing countries such as Zambia, Nigeria and Ethiopia to improve their financial management and investment climates in a £4.5m programme.

CIMA 768 (6.2%)

Non-financials rule All EU large firms will have to disclose a host of non-financial information in their annual reports under new rules. Gender diversity, corporate social responsibility, anti-corruption measures and environmental impact will all have to be ‘revealed’. The FRC’s Stephen Haddrill described the new non-financial disclosure requirements as a positive move for investors, complementing the FRC’s work on UK guidance on the strategic report.

step forward Haines Watts, FRP Advisory and Reeves & Co. CIMA numbers were down this year, but CIMA PQs still make up over 6% of the total. At EY they number nigh on 19% of all trainees, and as the firms move back into consultancy these numbers can be expected to rise. That said, PwC told Accountancy that while it has 2,134 in ICAEW training contracts, just seven CIMAs also work for the firm. It has been a mixed bag when it comes to the number of trainees being taken on. This year’s figures show Deloitte and EY have increased student numbers, whereas PwC and KPMG have taken on fewer trainees this time around. The same is true of the top 10 firms. Here Baker Tilley stands out and a firm ‘growing’ its PQ numbers.

Practice tests for ACCA PQs Great new revision aids have been produced for ACCA students sitting the new F1, F2 and F3 exams. The tests, which cost either £7 for one or £14 for three, replicate the CBE format and should help identify a candidate’s strengths and weaknesses. The ACCA is also hoping they will give students a real insight into the live exam experience. PQs will be given personalised feedback, which will tell them how well they have performed across the different areas of the syllabus, although the ACCA is quick to point out that if you manage a pass it won’t guarantee a pass in the real thing! These tests have been designed for the revision phase, and the ACCA has also stressed that you have to complete your studies of the whole syllabus before you take them. PQ Magazine June 2014


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PQ news

CARL LYGO Oppoutunity knocks in Indonesia

I was recently in Jakarta, capital of Indonesia, which is the fourth largest country in the world by population, home to some 252 million people. On the ‘McDonald’s Index’ a Big Mac will set you back $2.30, compared with the US/UK price of $4.63. Indonesia is part of the Association of South East Asian Nations (ASEAN), which is preparing to form a type of EU economic union in 2015. This includes reciprocal recognition of accounting standards/qualifications (in theory at least). I was surprised to learn that for a population of 252 million there are barely more than 1,000 accountant members of the Indonesian Chartered Accountants (IAI). The IAI appears to be the preserve of the partner level group and accounting outside that elite group has not been ‘professionalised’. Many graduates in accounting join the Big 4 firms, but then exit to industry without any formal professional qualifications other than experience of work. The legal profession in Indonesia is similarly sparse, with just one lawyer for every 11,000 of population – in the UK there is about one lawyer for every 460, and in the US the figure is one lawyer for every 260! Many professionals in Jakarta have expressed their concerns that the necessary legal and financial infrastructure is not in place to help the Indonesia achieve its full potential. The UK accounting professional bodies are all in Indonesia helping to develop the professionalism the country will need as it continues to grow at 6%-plus per annum. Opportunity is knocking for UK professional services. ■ Professor Carl Lygo is chief executive of BPP

CIMA’S WRONGDOERS Zambian CIMA student Pritchard Bweupe has been found guilty of theft. While working for his charity bosses the PQ finance officer diverted ZMK20,494,679.33 (£1.9 million) from his employers account into his own account. CIMA’s disciplinary committee found him guilty of misconduct. Bweupe provided no insight into his wrongdoing during the hearing, but the committee gave credit for the fact that the misappropriated funds were repaid. However, the serious nature of the wrongdoing meant his student registration was cancelled and he was ordered to pay £3,000 in costs.

Another student, Alistair Paterson, was also found guilty of misconduct. He was convicted of embezzlement and sentenced to 40 months imprisonment. Paterson’s student registration was cancelled and he is required to pay £6,448.20 costs. Four other CIMA PQs had disciplinary hearings recently. Richard Gardiner told his employer he had passed the CO2 exam when in fact he had only achieved 48%, providing his employer with a document headed ‘CIMA’ and ‘results’. His student registration was cancelled and he was ordered to pay £500 costs. Photograph: SUCCESS

All smiles: ICAS prizewinners got together to celebrate their success at a recent awards ceremony in Edinburgh

Pay gap widens Continued from page 1 women remain scarce at the top, with only 4.6% of Fortune 500 CEOs currently women. The study found that when it comes to internal promotion nearly one in three (29%) female millennials believe employers are biased towards their male colleagues. Women are still struggling to make it to partner level in many of the bigger chartered firms. EY stands out among the Big 4 with

113 female partners out of a total of 565 partners (20%). Women partner numbers in the other Big 4 firms hover around the 15% mark. However, it is much worse at other big firms. At Haines Watt just 8.7% of its partners are women, while at Johnston Carmichael it is just 7.5%. Among the top 30, Menzies has the dubious honour of the lowest number of female partners – two out the 34 (we make that 5.9%).

David Horner was found to have a mobile phone in his possession in an exam hall. He was severely reprimanded and fined £500, plus £600 costs. Ayotunde Odunsi had CIMA Bitesize Kaplan paper CO4 in his possession. The committee decided to impose a severe reprimand and annul Odunsi’s result for the exam in question. Odunsi was required to pay £500 costs. Assam IIyas submitted a false CIMA associate membership certificate to a prospective employer. The committee cancelled his student registration and he was ordered to pay £100 costs.

Significant improvement demanded Baker Tilly has come under fire from the Financial Reporting Council (FRC) in its annual Audit Quality Review. The FRC said the firm’s emphasis on obtaining audit evidence through analytical review procedures is not performed well on a consistent basis, and the FRC continues to find quality and robustness issues in the audit evidence obtained. Half of the individual audit reviews were deemed to require ‘significant improvements’. The FRC has provided a long list of where attention is needed, including the firm’s monitoring processes of training and professional development. There is a worry that Baker Tilly seems resistant to some of the criticisms. The FRC commented: “The firm has been reluctant to accept some of the conclusions we have drawn from the findings of our file reviews which may inhibit it from determining how the required improvements in audit quality can be achieved.” In its defence, Baker Tilly said it was addressing the findings “that will contribute to an improvement in audit quality”.

In brief Joint arrangements amends The International Accounting Standards Board (IASB) has published amendments to IFRS 11 Joint Arrangements. New guidance on how to account for the acquisition of an interest in a joint operation that constitutes a business has been added, specifying the appropriate accounting treatment for such acquisitions. 12

New online shop opens LSBF has launched a new online shop for ACCA and CIMA part-time students. PQs are just a few clicks away from enrolling themselves on a course. To mark the launch, LSBF is offering a discount of up to £160 off ACCA revision when booked in a combination of papers. Visit http://shop/

Blog it to me! Eos, the ICAEW case study specialist tutors, have unveiled its new improved website. A new blog allows student to access business news, business ethics, case study articles and ICAEW material. The tuition programme remains the same – with weekend masterclasses in July. For more go to

CIPFA training partnership CIPFA has launched a training partnership with LCBS Dhaka, a major training provider, allowing accountancy students in Bangladesh to study for CIPFA’s international professional qualification, and ultimately giving these PQs the opportunity to achieve chartered public finance accountant status. See page 28 for more. PQ Magazine June 2014

PQ profile


PQ spoke to Vini Aujla, co-founder of Vini & Bal’s Indian curry sauces business, about her time as a PQ and her career to date


ini & Bal’s is an award-winning range of fresh, chilled Punjabi spice blend bases that allow food lovers to easily create intensely-flavoured, authentic Indian cuisine from scratch in their own kitchens. Vini and Bal Aujla, the husband-and-wife entrepreneurs behind the range, recently appeared on BBC’s Dragons’ Den and secured investment – the first British Asian couple to do so in the history of the programme. Before Vini & Bal’s, Vini worked in the City at an investment bank, RIT. She studied ACCA part time, although she did not complete the course.

It is vital that you have complete confidence in your business and the concept behind it

Why did you choose to study accountancy? I found the subject interesting. I have always had a keen interest in business and I found that accountancy offered a real variety of subjects; it wasn’t just about numbers. The various subjects give a real insight into the fundamental elements of business; anything from business structures and the legalities, to the fundamental elements of financial management. How did you find the exams? I was actually expecting our first child during my exams. I found the course to be extremely flexible, which greatly helped me manage my studying alongside my pregnancy. It was convenient as there were various options and resources available. What is it that you didn't like about being an accountant? It can become quite repetitive, hence my desire to pursue my dream of developing a range of fresh, authentic and delicious curry sauces. We read that you had the idea for your sauces as a student. What was it that sparked the concept for rustic sauces? The inspiration for Vini & Bal’s came when I first realised how different the perception of Indian food was to the reality. It was impossible to find anything resembling authentic, fresh Punjabi home cooking in restaurants or shops. Vini & Bal’s sauces are inspired by the traditional recipes that have been passed down through the generations, to allow British households to experience real Indian cooking; the very same that Bal and I both enjoyed growing up and now prepare for our own children. Do you feel you have always had an entrepreneurial spirit? Yes, I have always shown ambition and a desire 14

to succeed. I also have always maintained a positive attitude, which is crucial, as it can be tempting to just give up at the first hurdle. It also helps that Bal and I have each other. We continuously motivate and support one another. What advice would you give anyone else thinking of going it alone? I’m not alone – I am lucky enough to have Bal’s support both at home and at work! For anyone thinking of launching their own brand, it is vital that you have complete confidence in your business and the concept behind it. Not only that, but you need to know your market inside out, including any competitors. It’s also important to expect a major change in your lifestyle; Bal and I had to make some sacrifices to launch Vini & Bal’s, including cutting down on leisure activities, but it was all worth it in the end. You now have the backing of a ‘Dragon’ Piers Linney.What has he added to your business? As well as providing the finance our business needed, partnering with Piers has bought the expertise, drive and ambition of a third party. What was your first job? I worked in a local chemist, assisting the pharmacist.

What was the last book you read? Decoded What is your favourite TV programme? TV is a luxury I do not have time for unfortunately! However, when I do, I really enjoy Masterchef. It is possibly one of my favourite shows next to Dragons’ Den. Do you have a claim to fame? Being one half of the first Asian couple ever to secure investment in the history of Dragons’ Den is a great claim to fame! While I haven’t seen my name in lights yet, spotting our names on the shelves of major supermarkets gives the same thrill! Who is your hero? My dad. In the early 1980s I watched my father lose his business, but instead of giving up he picked himself back up and started over again. As I grew older I became more aware and more appreciative of the long hours he put into providing for the family – I can never remember being without. With my mother’s help he built himself up to be successful, which is something I really aspire to. My dad taught me that hard work pays off and that I can be whatever I choose to be. PQ • You can check out the Vini & Bal’s product range at PQ Magazine June 2014


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FIGURING IT OUT Kaplan’s Tony Sweetman explains the ins and outs of the F3 syllabus – so get your calculator out

• Pass rate: 57% (December 2013) • Technical difficulty: 6/10 • Weighting of calculations: 70% • Weighting of discursive elements: 30% • Exam technique: 5/10 The syllabus . . The ACCA F3 syllabus is designed to help students develop knowledge and understanding of the underlying principles and concepts relating to financial accounting. In addition, students should develop their knowledge and understanding of double-entry accounting techniques which should enable them to prepare basic financial statements. This provides a foundation for future study of financial reporting as students’ progress through their ACCA examinations towards qualification. The syllabus content of ACCA F3 is also relevant to the practical work requirements of many students. Students who are in work may find that they can relate part of their ACCA F3 studies to the activities they and colleagues perform in the workplace. F3 has eight key syllabus areas: The context and purpose of financial reporting: This section of the syllabus introduces students to the scope and purpose of financial statements for external reporting, together with other related factors such as the regulatory framework and governance issues. Included within this syllabus area is recognition of the different types of business organisation, together with how this affects the format and content of financial statements. Students will need to understand the format and content of the primary financial statements, together with the underlying definitions which relate to these statements. The qualitative characteristics of financial information: This section requires students to understand and apply the qualitative characteristics of useful financial information as derived from the 2010 Conceptual Framework for Financial Reporting. The section also includes accounting concepts and principles relevant to the preparation of financial statements. While these are relatively straightforward topics, students need to ensure that they understand the definitions, principles and concepts which are examined in this paper and which provide a foundation for their future financial reporting studies. The use of double-entry accounting systems: This is a key element of the ACCA F3 syllabus that introduces students to double-entry book-keeping principles, together with the role and purpose of ledger accounts, books of prime entry and journals. Recording of transactions and events: This is a major element of the ACCA F3 syllabus




D 16

that will act as a foundation for subsequent ACCA studies. It focuses upon the recording of transactions together with classification of transactions and account balances as a basis for preparing a trial balance and a set of financial statements. Students will also be introduced to formalised accounting requirements derived from financial reporting standards. Preparation of a trial balance: This section requires students to understand the nature, purpose and limitations of a trial balance, including identification and correction of errors within the accounting records and trial balance. Students may be required to prepare a trial balance in full or in part. Preparation of basic financial statements: This could include a requirement to prepare in full, or in part, a statement of financial position, a statement of profit or loss and other comprehensive income or a statement of cash flows. Based upon the new format examination from February 2014, this is of great importance as one of the two 15-mark questions will be an accounts preparation question. The accounts preparation question could be for an unincorporated business or for a limited liability entity and may include an element of incomplete records that requires students to calculate or derive information based upon their knowledge of accounting principles, techniques and relationships. Preparation of simple consolidated financial statements: This section requires students to understand and apply definitions relating to control, significant influence and non-controlling interest as a basis for preparing simple consolidated financial statements. This will form the basis of the second 15-mark question in the exam and may require students to calculate and



account for goodwill, account for fair value adjustments and identify and account for intercompany trading, including any unrealised profits on that trading. Interpretation of financial statements: Students will be required to understand the importance, and limitations, of interpretation of financial statements. They will be expected to calculate and explain a range of financial accounting ratios dealing with business profitability, liquidity, efficiency and financial position.


Sitting the P3 exam . In February 2014, ACCA introduced a revised format exam consisting of two sections. Section A comprises 35 compulsory multiple choice style or equivalent questions for 70 marks. Section B comprises two compulsory 15-mark questions; one dealing with accounts preparation and the other dealing with consolidated financial statements. Students have two hours to complete the exam, which may be attempted in either a paper-based or computer-based format. The introduction of the longer-style questions in Section B of the exam paper represents a move towards making the examination a better test of student knowledge and understanding. This should benefit students as they progress through their ACCA studies and deal with more challenging issues in financial reporting. Students therefore need to understand at an early stage of their ACCA F3 studies, that they need a combination of theoretical understanding allied with practical application of elements of the syllabus to be successful in their ACCA F3 studies. PQ • Tony Sweetman is the F3 Content Specialist at Kaplan Financial PQ Magazine June 2014

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ACCA exam tips PQ

Kaplan Financial F4 • English legal system: types of law, court vs tribunal, Human Rights Act. • Contract law: exclusion clauses, offer & acceptance, intention to create legal relations. • Tort of negligence: duty of care, breach of duty. • Employment law: common law duties, redundancies. • Agency/partnership: how agency relationship arises, termination of partnership. • Company law: separate personality/lifting the veil, articles of association, dividends, class rights, corporate governance. • Fraudulent behaviour: money laundering, bribery, fraudulent and wrongful trading. F5 • Specialist cost and management accounting techniques. • Decision making techniques. • Budgeting. • Standard costing and variance analysis. • Performance management systems, measurements and control. F6 • Income tax: detailed income tax computation, employment income, self assessment. • Corporation tax: long period of account, chargeable gains to calculate, with rollover relief, property income, single company losses and/or group loss relief – with some tax planning. • VAT: VAT return – including some discounts and impaired debts relief, deregistration, flat rate scheme, capital gains tax, husband and wife making disposals, wasting assets or chattels, rollover relief. • Inheritance tax: transfer of unused NRB between spouses. F7 • Q1: company SOFP or consolidated statement of profit or loss with SOFP workings to include goodwill, retained earnings, NCI. Adjustments to include: PURP, intragroup sales, deferred consideration, share exchange, impairment, revaluation, fair value adjustment.

The experts tell you what they think might come up in June – but, remember, there are no guarantees • Q2: published accounts to include statement of profit or loss, statement of financial position and statement of changes in equity from trial balance. Possible adjustments to include: revenue recognition, depreciation, revaluation, tax & deferred tax, convertible loan, share issue. • Q3: either a mix of statement of cash flow with some ratio analysis, or an question involving ratios. • Q4/Q5: the framework, intangible assets, events after the reporting date, earnings per share. F8 • Audit framework: confidentiality/ conflicts of interest/audit committees. • Internal audit: outsourcing, VFM. • Planning and risk: audit risk. • Internal control: payroll system (including tests of control). • Audit evidence: purchases, payroll, inventory, review engagements. • Completion & reporting: going concern (ISA 580), evaluation of misstatements (ISA 450) and auditor’s reports.

• Specific standards/topics: elements of internal control (ISA 315), inherent limitations of internal control, risk assessment procedures (ISA 315), audit planning (ISA 300), expectation gap, sampling (ISA 530), auditing accounting estimates (ISA 540). F9 • Investment appraisal. • Working capital management. • Valuations. • Business finance. • Cost of capital. • Risk management. • The financial management function and the financial management environment. P1 • Corporate governance critique and improvements. • Effective internal control systems, reporting within differing jurisdictions. • Influence of and intervention by institutional investors. • Function and importance of internal audit. • Risk definition, analysis of risk and the role of board of directors.


• Risk correlation and strategies for management of such risks. • Kohlberg’s human moral development theory. • Ethical standpoints and their application to business decisions. • Corporate codes of ethics critique and improvements. • Tucker’s ethical decision making model. • Social and environmental footprint. • Sustainability accounting. P2 • Q1: groups and ethics, consolidation of an overseas subsidiary hasn’t been tested since 2011 so this is a possibility, and also statement of profit or loss and other comprehensive income seems more likely. • Q2 & Q3: core areas that have not been examined in discursive form recently include: deferred tax, related parties, IFRS 10 and the definition of control, de-recognition and impairment of financial instruments • Q4 (essay style): focus seems to have been on existing standards so the adequacy of the existing framework seems a possibility as well as how companies have accounted for and disclosed goodwill impairments (IAS 36). P3 • Project management and benefits management. • Supply chain management and the value chain. • Strategy evaluation. • Managing strategic change and culture. • Decision making techniques. P4 • Salary vs dividend. • Lease vs buy assets: net cost. • IHT vs CGT for gifts. • Stamp duty and SDLT. • Ethics. P7 Core areas likely to be examined in every paper: • Engagement planning and risk assessment (business risk & risk of material misstatement). • Engagement procedures (or evidence). Continued on page 20

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PQ Magazine June 2014


PQ ACCA exam tips Continued from page 19 • Ethics and professional issues. • Completion (matters to consider/evidence on file) and engagement reporting. • Current topics. Subjects of recent articles: • Reporting on audited financial statements – significant changes proposed. • The control environment. • A question of ethics. • Planning an audit of financial statements. • Completing the audit. Significant topics not examined for at least 18 months: • Prospective financial information. • Related party transactions. • Relying on the work of others. • Auditing accounting estimates. • Outsourcing. • Review of interim FS. • Tendering.

Becker Professional Education F5 • ABC. • Linear programming. • A budget calculation possibly including ABC. • Variance – mix & yield variances and discussion. • Performance measurement in service industries – Fitzgerald & Moon. F7 • Construction contracts. • Revenue recognition. • Substance vs. form. • Convertible instruments (IAS 32/IFRS 9). • Accounting for taxation (part of Q2). • Accounting for assets – IAS 16. • Provisions & contingencies. F9 • Rights issues. • IRR. • Capital rationing. • Debt factoring. • Dividend policy. • Efficient markets hypothesis. • Equity valuation. • Bond valuation. P2 • Consolidations in Q1. • Disposals & complex groups (June 2010).

• Disposals (December 2009). • Step acquisitions (December 2011). • Cash flow (December 2013). • Foreign sub (June 2010). • Complex group (December 2012 and June 2013). • Foreign subsidiaries – not examined for a few exams. • Financial instruments (IAS 39/IFRS 9) to include hedging accounting, get this topic in most exams. • Employee benefits (IAS 19) – this standard was amended by IASB in 2011 and is now examinable under the new standard. • Leases (IAS 17), Share-based payments (IFRS 2), Impairment of assets (IAS 36), Deferred tax (IAS 12). P3 • Project management focusing on documents (such as business case, benefits review, etc). • Internal strategic capabilities or value chain. • Finance – possibly sources of finance or working capital management. • Organising business success – organisational structures and international strategy. P5 • Budgeting – possibly including beyond budgeting. • EVA or value based management. • The performance prism. • Reward schemes.

De Montfort University F5 • ABC vs. traditional costing techniques. • Linear programming. • Planning and operational variances. • Sources of management information. • Performance measurement. F6 • Profit adjustments. • Capital allowances. • Benefits. • Capital gains. • Look out for small adjustments/ written parts about FY2013 changes such as the child benefit charge or the cash basis for sole traders.

P1 • Agency relationship. • Corporate governance reporting and disclosure. • Stakeholders. • Roles in risk management. • Kohlberg. • Gray, Owen & Adams positions. P2 • Q1: Foreign currency consolidation with a complex group, ethical issues. • Q2-4: Financial instruments, leases, revenue recognition. P3 • PESTEL analysis. • Portfolio analysis (BCG, PLC, Ashridge). • Value chain. • Stakeholder analysis. • Supply chain management. • Project management – business case and benefits. • Variance analysis. • Ratio analysis.

LSBF F4 • Judicial precedent. • Civil vs. criminal law. • Offer and acceptance. • Intention to create legal relations. • Doctrine of privity. • Breach of contract and remedies. • Liability of auditors in tort. • Volenti and contributory negligence. • Redundancy. • Types of worker. • Agency position of partners. • Doctrine of incorporation and company names, promoters and pre-incorporation contracts, issue of shares, duties of directors (including ultra vires), company meetings and resolutions, CVL v MVL v administration, fraudulent and wrongful trading. F5 • ABC/target costing. • Linear programming and limitations. • Flexible budgets and budget revisions. • Mix & yield, sales mix and quantity variances. • Corporate performance, profit or non profit organisations.

F6 • Q1: employment income including the evaluation of benefits, savings income and dividend income and interest payable on special loans, ISAs and the rules for individuals, child benefit income tax charge, introducing a partner into the partnership with opening year rules, computing the income tax payable, computing national insurance. • Q2: (a) corporation tax computation, adjustment of a trading loss including capital allowances for plant and machinery and relief for the trading loss, VAT or maybe a separate question, errors on the VAT return, VAT implications of a business offering a discount to customers, flat rate scheme for VAT. • Q3: capital gains tax for individuals, a mixed bag. • Q4: the cash basis of accounting vs. the normal or accruals basis. • Q5: the residency position of a number of individuals, IHT on making lifetime gifts into a trust. F7 • Q1: consolidated statement of financial position (maybe with P/L) with associate – no associate last time. • Q2: published accounts, possibly redrafting (missing for many years) and including SOCIE and EPS. • Q3: interpretation with cash flow (15 marks on standards). • Q4: mixed standards: EPS, fin inst, PPE, intangibles, provisions, substance, deferred tax, discontinued, etc. • Q5: concepts with standards, for example, contracts, provisions, leasing, events after reporting period, impairment, etc. F8 • Conflicts of interest. • Threats to objectivity. • Confidentiality. • Audit risk with ratios to calculate. • Internal controls (objectives, procedures, tests) over multiple areas. • Substantive tests over payables. • Subsequent events. • Audit report scenarios. • Reliance on internal audit work.

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PQ Magazine June 2014

ACCA exam tips PQ • Pros and cons of outsourcing internal audit. F9 • Investment appraisals: NPV, capital rationing/asset replacement. Discussion question on risk and uncertainty – possibly sensitivity analysis and probability distribution. • Working capital management: quantity discount (EOQ) and factoring calculations or cash budget. Discussion of working capital financing and/or investment policies. • Cost of capital: WACC – calculating cost of equity using CAPM or dividend valuation model, cost of redeemable debt and bank loan/preference shares. • Business valuation: valuation of equity using; DVM, P/E ratio and asset basis. Valuation of convertible debt and calculation of conversion premium. • Sources of finance: the effect of different financing options on key ratios like EPS, debt/equity ratio and interest cover, including calculation of TERP. Discussion of factors to consider in raising short/long-term capital or equity/debt capital. • Risk management: hedging currency risk using forward contract and money market hedge – using purchasing power parity and interest rate parity theories. P1 • Role of chairman. • Induction/performance appraisal. • Institutional investors. • AGM/proxy voting. • Global standards. • Failure in internal control. • Auditor conflict. • Risk committees. • Risk audit. • Absolutism and relativism. • Kohlbergs model. P2 • Group position or performance. Two mix questions plus current issue question in framework or integrated reporting or consistency. P3 • External analysis. • Stakeholder management. • Strategic choice. • Improving business processes. • Project management.

P4 • Investment appraisal using modified internal rate of return and adjusted present value or net present value. • Mergers and acquisitions – valuation using free cash flows; cash or share exchange as purchase consideration. Discussing defensive tactics and regulations of takeovers. • Cost of capital using the principles of Modigliani and Miller prepositions or geared and ungeared betas. • Hedging exchange rate or interest rate risk using forward contract, futures, options and swaps. • Option pricing theory. • Valuation of company using the Black-Scholes option pricing model and delta hedge. • Capital reconstruction schemes – designing a capital reconstruction scheme or assessing the success of a given scheme. P5 • RI, ROI & EVA. • Building block model (dimensions, standards and rewards appraisal system). • Traditional budgets vs. beyond budgeting. • Quality – TQM or Six Sigma. • The difficulties of performance measurement possibly with corporate failure. • BCG matrix. P6 • IHT with the death estate including BPR, APR and gifts into a trust. • Changing the will after a person is dead, using a deed of variation to apply the reduced rate of IHT when a charitable legacy is made. • Company selling shares and the substantial share exemption or a company selling its trade/ assets. • Research and development expenditure for large companies. • Controlled foreign companies. • Badges of trade, partnership with a partner joining/leaving with opening year rules, choice of accounting date, conditions to change the accounting date. • Trading losses at the beginning or middle of the trading cycle, maybe

in a partnership. • Personal pension schemes. • Errors on the VAT return – prompted/unprompted disclosure. • Capital gains tax including entrepreneurs’ relief, PPR relief/letting relief and shares matching rules. • Opting to tax a building, electronic filing of the VAT return, flat rate scheme. • The capital goods scheme. • Overseas aspects of VAT including exports and imports. • Ethics and the duties of a senior accounting officer. P7 • Business risk and risk of material misstatement. • Ethics and professional issues, including money laundering and advertising. • Matters and evidence on various IAS/IFRS. • Criticism of a given audit report. • Discussion on benefits of proposed new audit report format. • Quality control of audit. • Prospective financial information. • Social and environmental reporting KPIs and evidence. • ISAs 210, 240, 250, 510, 550, 560, 720.

First Intuition F4 • Sources of law. • Formation of a contract – invitation to treat. • Veils of incorporation. • Directors. • Professional negligence. • Contract of employment. • Remedies for breach of contract. • Insider dealing. • Fixed vs. floating charge.

F5 • Activity based costing. • Target costing. • Limiting factors. • Profit tables. • Budget systems. • Mix/yield variances. • Building block model. • Performance assessment. F7 • Q1: consolidated SFP, with associate, deferred consideration, Pups and fair value adjustment. • Q2: single company accounts question, including taxation, lease, and intangible assets. • Q3: statement of cash flow and comments thereon with no ratios. • Q4: computation for non current assets. • Q5: provisions. F8 • Scenario-based ethics question. • Audit risk and auditor response. • Internal controls – deficiencies, recommendations and tests of control. • Substantive testing and audit evidence. • Going concern. • Modified audit reports. F9 • Working capital management. • Investment appraisal and cost of capital. • Business valuations. • Discussion of the economic environment and the impact on interest and exchange rates. P1 • 50-mark scenario question, to include: ethics, AAA model, rules vs. principles governance, also corporate social responsibility. • Optional questions to include: importance of internal controls, NEDs and remuneration committee and structure of directors remuneration, business risks, Gray Owens and Adams. P2 • Q1: group question on disposals, piecemeal acquisitions or foreign subsidiary. Will contain a variety of non-group topics too. • Ethics. • Revenue recognition or leases – current issue. Continued on page 22

ACA Simplified The simplest way to revise for your ACA 2014 editions of our self-test revision Q&As out now Sitting Case Study in July 2014? Check out Cracking Case and our July 2014 mock exam pack PQ Magazine June 2014


PQ ACCA exam tips Continued from page 21 • Deferred tax. • Share based payments. P3 • Environmental analysis, people with financial analysis. • Project management, strategic action, information technology – pricing strategy. P4 • Investment appraisal techniques focusing on risk management tools such as value at risk. • Impact on WACC following hedging of interest rate risk. • Company valuation based scenario, possible MBO finance to structure. • Adjusted present value with link to real options and Black Scholes option pricing model. P5 • Critique an existing performance management system. • Transfer pricing. • ROI, RI and EVA. • Activity based principles. • Corporate failure prediction. • Performance management models. • Assess performance against financial/non-financial targets. • Value based approaches to performance management. P7 • Business risks in a scenario. • Identifying ethical and other professional issues in a scenario. • Matters to be considered and audit evidence for a couple of core accounting issues. • Audit reports. • Money laundering.

goods/cash in transit). • Q2: accounts restatement or preparation from trial balance – with the usual adjustments for depreciation, revaluation and current/deferred tax, plus a mixture of adjustments. May include earnings per share or statement of changes in equity with a prior period adjustment. • Q3: interpretation or cash flows and interpretation, which may include discussion of how aims of not-for-profit organisations are different. Interpretation may focus on limited ratios and their interpretation (e.g. liquidity). • Q4 and 5: context of conceptual framework; other containing one or two discrete topics, possibilities: inflation, deferred tax, provisions, intangible/tangible assets,


BPP F5 • Variances have always been tested historically. Since basic variances were designated as assumed knowledge from 2013 it is likely that mix and yield and/or planning and operational variances will be tested for syllabus area D. • Performance management – appraisal of a company or divisions within one company. May include transfer pricing/use of ROI and RI. F6 • Income tax areas including the employed earner and sole trader. • Capital allowances – aspects of groups. • Companies chargeable gains. F7 • Q1: consolidated statement of profit or loss and other comprehensive income and/or consolidated statement of financial position with one subsidiary plus associate (including usual adjustments – fair values, PUP on inventories/PPE, intragroup trading, 22

These tips should be used in conjunction with proper study and revision. They are not a substitute for in-depth revision. We cannot guarantee that everything we mention will be on the paper. These tips are a rough guide only, no one knows what the examiner was thinking 18 months ago when the paper was set! government grants, earnings per share or financial instruments. P2 • Section A: a 50-mark compulsory case study, including preparation of a group statement of profit of loss and other comprehensive income and/or statement of financial position, which may include discontinued activities, disposals, acquisitions or a foreign subsidiary. This will include other accounting complications such as financial

instruments, pensions, share-based payment and impairments. There will also be discursive requirements on a linked accounting adjustment and social/ethical/moral aspects of corporate reporting. • Section B: Q2 and Q3 – two case study questions, one a multi-part question covering a range of topics or a theme such as deferred tax, foreign currency transactions, financial instruments, pensions, share-based payment, non-current assets (recognition and/or impairment of tangible and intangible assets), borrowing costs, the effect of accounting treatments on earnings per share or ratios; the other an industry-based question testing a range of standards such as accounting policies and the framework, leases, grants, IFRS for SMEs, reorganisations, provisions, events after the reporting period and related parties. • Q4: a discussion question looking at current developments in corporate reporting and problems with existing standards, such as regulatory issues over adoption and consistent application of IFRSs, implementation issues, updating the conceptual framework, impairment in the current economic climate, management commentary, application of the definition of control, improvements in performance measurement. P5 • Performance analysis. • Risk analysis. • Strategic performance measures in the private sector. Divisional performance measurement is another key area; ROI, RI, EVA, NPV, share price movement or even costs of quality could feature here. • Reward systems – HR issues are new to the syllabus from June 2011 and the examiner is interested in the impact of reward systems on performance management. • Alternative views of performance measurement. Good understanding of the balanced scorecard, the building blocks model and the performance pyramid is needed by students. • Performance hierarchy: linking strategic decisions to mission statements or suggesting strategic options using models such as Ansoff’s matrix or the BCG matrix lend themselves to questions containing a mixture of financial and discursive elements that could easily include a simple NPV or profit analysis.

P6 • Groups of companies, unincorporated business, capital gains tax versus inheritance tax. P7 • Planning scenario – test risk assessment, audit procedures and professional issues. •Audit reports, evidence, ethical and other practice-related matters.

Manchester Met University F7 • Q1: consolidation with usual mix of consolidation adjustments. Detailed goodwill calculation with various elements to the consideration for the subsidiary. • Q2: trial balance & adjustments questions preparing SFP, statement of P&L and OCI and perhaps a statement of changes in equity. • Q3: analysis question including cash flow. • Q4 & Q5: asset based standards – calculating initial cost of assets, impairments, construction contracts, leases and investment properties. • Provisions. • Inventory, revenue recognition and substance. F8 • Internal control assessment and testing. • Audit risk assessment – linked to a new client acceptance and consideration of ethical issues. • Ethics. • Audit evidence – going concern issues. • Audit reporting – content of audit reports, modified reports. • External auditor’s right/duties. F9 • Investment appraisal – more than likely calculating an NPV of a project with inflation and tax. • Working capital management: managing accounts receivable, accounts payable, inventory levels, cash. • Business valuation: work out the value of equity using the dividend growth model and/or P/E ratio. • Foreign exchange risk management. • Sources of long-term finance. • Effects of a rights issue. P1 • Need to know Kohlberg, Gary Owen and Adams and AAA. • Ethical conflicts. • Risk identification/analysis – identify controls. P4 • Discount rates and valuation in a takeover scenario – ways to pay for a takeover target. • Foreign exchange rate risk, real options, bonds and interest rate PQ swaps. PQ Magazine June 2014

technical focus PQ

VARIETY PACK In part two of a three-part series, Mary Ofili explains standard costing and direct materials usage variance

STANDARD DIRECT MATERIALS The standard cost of direct materials is made up of: • The quantity of materials expected to be used; and • The unit cost of materials Material cost

Unit price




The total direct materials variance can be split into the following two variances: • Direct materials price variance. • Direct materials usage variance. These two variances will enable management to narrow down and identify what would have caused the variance – whether the unit price or the quantity of materials used in the production process. The direct materials price variance has been covered in the last edition and now we will be covering the direct materials usage variance. DIRECT MATERIALS USAGE VARIANCE . This is the difference between the standard cost of the expected quantity of materials to be used for the actual production and the standard cost of the actual quantity of materials used for the production. This variance focuses on the quantity of materials which was supposed to be used for the actual level of production and compares this with the actual quantity used for the production at the standard unit rate. It measures how much of the difference between the expected and actual cost of materials is due to using different quantity of materials. Where we have the standard quantity of materials to be used for the actual production and the actual quantity (both priced at the standard price) being compared, any difference arising can only be as a result of the quantity of the materials used. This variance will indicate whether the quantity of materials actually used in the production is more or less than the standard usage for that level of production. In this case, we are comparing the actual quantity to the standard quantity for the actual level of production and therefore, when valuing these quantities, the same standard price must be used.

Standard quantity required for actual production at standard price Actual quantity used for actual production at standard price Material usage variance

£ X X X

If the actual quantity is less than the standard quantity, then the variance will be favourable and if the actual quantity is more than the standard quantity, then the variance will be adverse. This will mean that: ACTUAL QUANTITY > STANDARD QUANTITY = ADVERSE variance ACTUAL QUANTITY < STANDARD QUANTITY = FAVOURABLE variance Where there is a favourable direct material usage variance, it indicates to management that there was some efficiency in the quantity of materials used for the production when compared to the budget, and where there is an adverse variance it indicates that there was some inefficiency in the quantity of materials used which has contributed to the total material variance. For example, if the standard cost of materials for a product called ‘Product F’ is as shown in the following table:

1 unit of Product F


Cost per yard (£)

Total cost per unit (£)


3.2 yards



4,200 yards of materials, which cost a total of £76,860 was used for the production of 1,300 units during the month. What will be the material usage variance. SOLUTION







4,160 yards


4,200 yards

Material usage variance: Standard quantity required for actual production at standard price (3.2 yards x 1,300 units x £16) £66,560 Actual quantity used for actual production at standard price (4,200 yards x £16) £67,200 Material usage variance £640 Also: Standard quantity (3.2 yards x 1,300 units) Actual quantity Quantity variance


4,160 yards 4,200 yards 40 yards Adverse

Material usage variance = 40 yards x £16 = £640 Adverse** Note: You may have noticed that the standard quantity for the 1,300 units produced should have been 4,160 yards but the actual quantity used was 4,200 yards, which establishes an adverse quantity variance since the quantity of materials used was higher than the budgeted quantity supposed to be used. This is then multiplied by the standard price of materials, and with this, you arrive at the material usage variance. PQ • Mary Ofili is a director of The Training Place

Part 3 of this article will feature in the next issue of PQ magazine PQ Magazine June 2014


PQ ACCA paper F5

AS SIMPLE A Activity based costing is an effective method to boost organisational performance, says Hafeez Qazi


or many years, ABC has helped improve organisational performance in the areas of planning, control and decision making. For paper F5 you must to learn and apply various management accounting techniques, and ABC too is examined in this context in F5. A typical exam question on ABC will have two elements: first, knowledge of the ABC methodology – how it works in relation to calculating overhead costs for various products; second, to discuss the application of ABC in improving organisational planning, cost control and making appropriate decisions. Students must gain appropriate knowledge of the ABC methodology as to how this works, especially ‘cause and effect’ relationships (how controlling the cost driver helps to control the costs). This causal relationship actually attempts to convert fixed and period costs into variable and product costs. Students must learn the following computation steps to build overhead cost per unit of each product: • Calculation of the cost driver rate for each overhead activity. • Linking each driver rate to each product on its consumption of the driver. It is also important to understand traditional or conventional approaches to absorbing overheads for various products, to see the real benefits of ABC to an organisation. Example 1 Say a company is manufacturing children toys and has provided details of its three most popular products. Figures from the latest budget working papers are set out below: Product Annual production (units) Selling price per unit ($) Direct costs/unit ($) Machine hours per unit

TowerRangers 1,000,000 4.75 3.50 2

Sokemon 2,000,000 3.70 2.00 3

JumboNinja 500,000 5.00 2.50 4

Annual budgeted overhead costs are $3,500,000. Required Using traditional absorption costing, calculate overhead costs for each product, in total and per unit. Solution Remember: Calculation of Sales revenue and direct costs is not required (which maybe required in the exam), but both sales and direct costs are calculated likewise under absorption costing and ABC (volume x value per unit). Therefore the emphasis of this article is entirely on the overheads only. Calculate overhead costs for each product as follows: remember absorption costing assumes Totality when it links overhead costs to the product, which means that complete production is carried out under one roof. Overhead absorption rate = Total overhead costs for the period Total machine hours for the period If hours are given per unit, first calculate total hours for all products for the whole period, multiplying time per unit into total volumes of each product. = = 24

$3,500,000 (2x1,000,000 + 3x2,000,000 + 4x500,000) $0.35 per hour

Now you can multiply this rate back to the above denominators for each product (machine hours for each product) to get a share of overhead costs for each product. TowerRangers



700 $0.70

2,100 $1.05

700 $1.40

Total overhead costs ($000) ($0.35 x 2,000,6,000,2,000 hours) Per unit overhead cost

The example 1 continued Company carried out an investigation of ABC analysis, and the following data has been collected from such investigation. $ Machine running costs 1,400,000 Set up costs 1,500,000 Purchase order costs 600,000 Total 3,500,000

Batch size (units) Machine hrs per unit Set ups per batch Purchase orders per batch

TowerRangers 1,000 2 4 2

Sokemon 500 3 4 3

JumboNinja 250 4 6 1

Required Calculate the overhead costs for each product in total and per unit using the ABC method. Solution Your first step should be to find the relevant cost driver for each overhead category, then calculate the total of such driver for the period if it is not provided per annum. Then calculate the cost driver rate for each overhead activity, dividing the overhead cost of each activity by the total number of cost driver selected Then link the above rate to each product on consumption of each product. Overhead Category

Driver selected

Total of driver for the period

Cost driver rate

Linking of driver rate to each product

Machine running costs

Machine hours

As per above 10,000,000 hours

$1,400,000 / 10,000,000 = $0.14 per hour

Multiply $0.14 x by hours of each product

Set up costs

Number of set ups

32,000 set ups

$1,500,000 / 32,000 = $46.88 per set up

Multiply $46.875 by number of set ups for each product

Purchase order costs

Number of purchase orders

16,000 POs

$600,000 / 16,000 = $37.5 per PO

Multiply $37.5 by purchase orders for each product

Total number of set ups TowerRangers 1,000,000 units/1,000 units in a batch = 1,000 batches x 4 = 4,000 set-ups Sokemon 2,000,000 units/500 units in a batch = 4,000 batches x 4 = 16,000 set-ups JumboNinja 500,000 units/250 units in a batch = 2,000 batches x 6 = 12,000 set-ups Total number of purchase orders Total number of POs = (2 x 1,000 + 3 x 4,000 + 1 x 2,000) = 16,000 POs Therefore the overhead costs for each product would be as follows (answer from the last column above): PQ Magazine June 2014


ACCA paper F5 PQ

Machine running Set up Purchase order Total overhead costs Per unit cost

TowerRangers $280,000 $187,500 $75,000 $542,500 $0.54

Sokemon $840,000 $750,000 $450,000 $2,040,000 $1.02

JumboNinja $280,000 $562,500 $75,000 $917,500 $1.84

Possible discussions The above findings can be used to create various discursive requirements, general and specific to the scenarios, and students should be able to differentiate as to whether the question requires a general benefit or limitation of ABC, or whether it asks to link such benefits or limitations to the scenario under consideration. Some possible theory requirements maybe as follows: 1. What are the advantages and limitations of implementing an ABC system (a general answer)? 2. What are the benefits of ABC to the company (focusing on planning, cost control, pricing, product competitiveness, profitability, etc). Remember to compare the answers of both absorption and ABC before you lay out your discussion. 3. Explain relevance of the cost drivers with examples. 4. Why traditional method conclusions are often different to ABCs. Study advice • Remember to read the requirements very carefully and set out an answer plan for each requirement before reading the scenario. • Try to apply the ‘read-and-write’ approach (that means reading the question in parts and making use of it in the answer plan, before reading next paragraph or block of information). • Highlight/underline any important phrase from the scenario and link up with any requirement that may help to create a focused discussion. PQ • Hafeez Qazi is an ACCA tutor at LSBF

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PQ risk management


In the second part of a two-part series, Matt Holden outlines In the of aquestions two-part on series, Mattcontracts Holden outlines the bestsecond way topart tackle futures the best wayweto tackle the questions on futures contracts ast time, introduced


rationale Futures the ast time,behind we introduced Contracts. Let’s take this to the rationale behind Futures next levelContracts. and put a Let’s practical take application this to the tonext the level theory. and put a practical application to the theory. Unravelling the mystery? The best way the is tomystery? consider the position Unravelling ofThe thebest business. is the transaction way is What to consider the position that they are considering hedging? of the business. What is the transaction that are considering hedging? Forthey example, a gold jewellery For example, gold jewelleryneed to manufacturer will,a periodically, manufacturer will, periodically, buy gold. Therefore, they will beneed to buy gold. Therefore, they will be rising. concerned about the price of gold concerned abouttransaction the price ofthey goldare rising. The spot market The spotis market transaction they hedging therefore a situation of are buying hedging therefore a situation buying gold. The isinitial contract with theoffuture gold. The initial contract with thetofuture should be the same – a contract buy. should the moves same –on, a contract to buy. OK, asbetime if the price of as time on, if the pricewill of goldOK, rises, then moves the jewellery maker goldup rises, thenmore the jewellery maker will end paying for gold in the spot end upthan paying for have gold in the spot market theymore would wanted. market thanifthey wouldmarket have wanted. Don’t worry, the spot price is Don’t the worry, if themarket spot market is rising, futures price price will also rising, the futures market price will also be rising. When the business comes to be rising. When the business close out the opening contractcomes to buy,to close out the opening contract to buy, they will enter an opposite contract to they will enter an opposite contract to close (as described in the first article). close (as described in the first article). This will therefore be a contract to sell. This will therefore be a contract to sell. They will now have a situation where they They will now have a situation where they have a contract to buy at one price and have a contract to buy at one price and another contract to sell back at a higher another contract to sell back at a higher price – this is a ‘winning’ position. This price – this is a ‘winning’ position. This winning position will offset the loss (or winning position will offset the loss (or some of it at least depending upon how some of it at least depending upon how close they could get to their actual close they could get to their actual exposure with the value of the futures exposure with the value of the futures contracts they entered into) in the spot contracts they entered into) in the spot market, market,bringing bringingthe thenet net position position (like (like aa see-saw) back to somewhere near see-saw) back to somewhere near the the original originalprice. price. The Theextension extensionofofthis, this,of of course, course, isis how how totoaccount for it. We’ll leave account for it. We’ll leave that that for for another anotherday. day. How Howwould wouldititwork workififIIwas was looking looking to to sell sellsomething? something? IfIfI Iwas wasaawheat wheatfarmer farmer looking looking to to sell sell wheat in the future, I would be wheat in the future, I would be concerned concernedabout aboutthe theprice price of of wheat wheat

Where there’s muck, there’s… gold. Miners in South Africa Where there’s muck, there’s… gold. Miners in South Africa

falling. The spot market transaction is a falling. The spot market transaction is a contract to sell (wheat farmer selling contract to sell (wheat farmer selling wheat), therefore following the same logic wheat), therefore following the same logic as above, my initial contract with the as above, my initial contract with the futures exchange (assuming I was going futures exchange (assuming I was going to use futures to hedge the price of to use futures to hedge the price of wheat) be aa contract contract to to sell. sell. wheat) would would be IfIf the price of wheat falls, I lose in the the the price of wheat falls, I lose in spot market but on the futures market spot market but on the futures market II have winning –– that’s that’s how how itit works. works. have to to be be winning So, I have an initial contract to sell, so II So, I have an initial contract to sell, so will contract of of ‘buy ‘buy to to close’. close’. will enter enter aa contract Therefore, contract to to sell sell at at an an initially initially Therefore, aa contract higher and now now aa contract contract to to buy buy atat higher price price and aa lower therefore winning winning and and lower price price –– therefore offsetting some or or all all of of the the loss loss on on the the offsetting some spot position. spot market market position.

Futures are fixing Don’t forget though, that the futures Futures are fixing contract is a ‘fixing’that instrument. Don’t forget though, the futures Therefore, my jewellery maker looking contract is a for ‘fixing’ instrument. to buy gold, thejewellery price had fallen they Therefore, for ifmy maker looking win on theprice spot had market – paying towould buy gold, if the fallen they less for thanspot firstmarket thought. They still would wingold on the – paying have go through the futures less fortogold than firstwith thought. They still contract entered at the have to gothey through with into the futures beginning. initial into contract contract theyAn entered at theto buy at a higher price closing contract beginning. An and initiala contract to buy attoa sell at what is now price – therefore higher price and aa lower closing contract to sell a position the winning atloss what is now offsetting a lower price – therefore a loss position offsetting the winning position in the spot market. The see-saw position the spot market. The see-saw workinginagain. working again. For the wheat farmer, if the price of For the wheat rises, farmer, if the of gets wheat actually then theprice farmer wheat rises, then farmer gets– more actually for the wheat in thethe spot market more for the wheat in theinstrument, spot marketthis – winning. Being a fixing winning. fixingbyinstrument, this win hasBeing to be aoffset a loss on the win has tocontract. be offsetInitial by a contract loss on the futures to sell at futures Initial contract to sell to at a lowercontract. price and a closing contract abuy lower a closing contract at price what and is now a higher price –toagain buy at what is now offsetting a higher price – again a losing position, the win in the aspot losing position, offsetting the win in the market. spot market.

Real life and the exam Real life there and the Clearly, areexam numbers involved in Clearly, involved in real lifethere and are the numbers exam. I believe that real life numbers and the exam. I believe that easier these are made so much these arewhat made much going easieron if younumbers can grasp is so actually if you can grasp what is actually going on behind the numbers and the reason for behind the numbers and the reason for the actions being taken. the actions being taken. The other linkage in real life and higher The other linkage in real life and higher level exams is to corporate governance level exams is to corporate governance and the risk management report. and the risk management report. Stakeholders (specifically investors) have Stakeholders (specifically investors) have to know the business’ approach to to know the business’ approach to managing risk. They need to make managing risk. They need to make informed investment decisions. Imagine informed investment decisions. Imagine that you recently invested in a gold that you recently invested in a gold miningbusiness businessand andthen thenthe theprice price mining of of gold doubled. gold doubled. Yourinvestment investmentshould shouldlogically logically Your increaseininvalue. value.You Youthen thenfind find out that increase out that all that potential gain has been wiped all that potential gain has been wiped awaybecause becausethe theboard boardhedged hedged against away against goldprices pricesfalling fallingbybyusing usingfutures futures gold contracts! contracts! youget gettime, time,research researchAshanti Ashanti Gold IfIfyou Gold PQ – it was simply ‘a hedge too far’! PQ – it was simply ‘a hedge too far’! MattHolden, Holden,Reed ReedBusiness BusinessSchool School ••Matt

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PQ CIPFA spotlight

East meets west (from left): Raeesa Chowdhury, director of business development, Multidrive; MA Kalam, Chairman and CEO, LCBS Dhaka; Adrian Pulham, Education and Membership Director, CIPFA; Masud Ahmed, Comptroller and Auditor General, Bangladesh; and British High Commissioner Robert W. Gibson

BETTER TOGETHER CIPFA recently launched a new training partnership to improve public financial management in Bangladesh. Johanna Courtney explains all


here has been a great deal of activity in Bangladesh in recent weeks as CIPFA strives to improve public financial management globally; in April, CIPFA officially launched its partnership with LCBS Dhaka at a celebration event at the Lakeshore Hotel in Dhaka. The new partnership gives CIPFA a platform to provide its qualifications and training to people working across the public sector in Bangladesh. This is an exciting development for CIPFA to help improve public financial management, and support the future prosperity of the country. Guest speakers at the event included the British High Commissioner to Bangladesh, His Excellency Robert W Gibson, the CEO of LCBS Dhaka, M A Kalam, and chief guest, the Comptroller and Auditor General of Bangladesh, Masud Ahmed. Mr Ahmed was awarded an honorary membership of CIPFA at the event, in recognition of his ongoing commitment to improving public financial management. Bangladeshi students have been studying CIPFA’s professional qualification in International Public Financial Management (IPFM) since September 2013 and have demonstrated impressive pass rates so far, with the December 2013 exam achieving 11% above the global pass rate. The launch event provided an opportunity to congratulate a particularly outstanding student, Md. Mamun-Ul Mannan, who scored 98%, the best-ever global performance in the IPFM Financial Accounting exam. Such high marks are a clear indication that CIPFA’s passion for improving how public money is managed throughout the world is infectious.


A step change in global public financial management (PFM) The IPFM qualification gives students from across the world the opportunity to achieve Chartered Public Finance Accountant status. The global financial crisis highlighted how important good PFM is and in 2011 CIPFA published its discussion paper, ‘Fixing the Foundations’. It was a call to action for the accountancy profession to pull together globally to help deliver high-quality public services, economic growth and prosperity, and improvement in life chances. Since then, the institute has been deepening existing relationships and engaging with other organisations who want to transform public financial management globally, regionally, nationally and locally. CIPFA’s partnership with LCBS Dhaka continues the growth of CIPFA’s international public financial management training provision across the globe. Set and supported by the International Federation of Accountants (IFAC), these are the only accountancy qualifications based on International Public Sector Accounting Standards (IPSAS), and are designed to improve government transparency and accountability and allow for greater comparability between countries and public sector bodies. Speaking at the launch, CIPFA’s education & membership director Adrian Pulham said: “The launch of this new partnership is a significant contribution to the stability of public finances in Bangladesh and ensures specialist training for government and public sector staff in good public financial management. “It demonstrates how CIPFA’s continued

international growth is helping to ensure that the next generation of public sector managers across the world have the skills and expertise necessary to effectively lead and manage their country’s public services. This new partnership with LCBS Dhaka is yet another great example of CIPFA’s work to strengthen the accountancy profession and accountancy standards around the world.” LCBS chief executive MA Kalam added: “We are proud that LCBS Dhaka has been awarded Accredited Training Partner (ATP) status to conduct training and tuition programmes for CIPFA qualifications locally. “The launch is a milestone for both parties and is the first of its kind. I hope that LCBS Dhaka, being the first global ATP, will be a role model for all future ATPs established elsewhere and wish this new CIPFA ATP scheme great success.” Connecting public sector staff around the world In a global world no one country can ever be isolated from what goes on outside its borders. It is the foundation of the future financial stability of all countries across the world. CIPFA is uniquely placed to help governments develop stronger financial management practices; our new partnership with LCBS Dhaka in Bangladesh is an example of how CIPFA is working to strengthen the accountancy profession around the world. “CIPFA’s continued international growth will help ensure that the next generation of public sector managers has the skills and expertise necessary to effectively lead and manage their country’s public services.” For more information about the scheme visit PQ • Johanna Courtney is a marketing executive at CIPFA PQ Magazine June 2014

ICAEW focus PQ

TIME TO BOX CLEVER Martin Johnson has some timely advice on the new Corporate Reporting paper, which will be sat for the first time in July

What has changed? . The main change from old syllabus Business Reporting (BR) is the removal of the tax question (previously BR Question 2): Corporate Reporting (CR) will be a three-question paper, a reduction on the previous four questions of BR. BR tended to have four questions of 25 marks each but the CR sample paper has a 40/30/30 split, with an audit-heavy question (Q1) accounting for the 40-mark element. As each CR question will carry more marks, the CR examiner will provide much more scenario material (4.5 pages for Q1 in the sample paper) than under BR. This means you will have to improve your ability to read and absorb information quickly. You will also need to prioritise your answers because there will not be time to look at everything – these strategic choices over what to consider will be even more important given the increase in the stimulus material. It is likely that the examiner will be able to test more financial reporting and audit issues than under the old BR paper. You should invest time in building your breadth of knowledge; concentrating on only a few core areas could be a risky approach. What has stayed the same? . Financial reporting will remain a key area. For example, the mixed question may require you to identify financial reporting concerns, risks or errors before discussing an appropriate audit approach – if your financial reporting skills are weak you will not be able to identify the issues which will get the audit marks and hence you

could suffer badly from weak financial reporting skills. The new topics introduced in the CR study manual are: pension accounting, share-based payments, hedge accounting, deferred tax and foreign currency issues (including consolidation of an overseas subsidiary). Despite the extensive explanations of these topics in the new CR study manual, we are continuing to advise our students to ensure that they do not just study the new CR-only topics as these are not sufficient to serve as the full basis of three questions. The examiner is likely to continue to draw on financial reporting and audit issues tested at earlier stages of the ACA. CR remains an open book exam so creation of an appropriate and practical folder of notes and resources remains an important element of preparation. Given the increase in marks for each question, it seems likely that the average

CR exam will cover more topics in financial reporting and audit than the previous BR paper so your folder could be a useful back-up resource. At the same time, don’t fall into the classic trap of becoming dependent on your folder as the time pressure will remain significant; having knowledge in your head remains the safer approach. Given the relatively unchanged syllabus, students may benefit from using old BR papers as part of their preparation because there will be no past papers available for July 2014. You should of course ignore any tax questions within the old BR papers. Also bear in mind that the examiner will be providing much longer stimulus material than in the BR papers, given the higher number of marks per question; BR past paper questions will appear easier than new CR questions. We strongly recommend that you practice a few Financial Reporting/Financial Accounting & Reporting and Audit & Assurance papers from the Professional Stage/Level as a way of quickly revising relevant key areas of brought forward knowledge and the most efficient ways of explaining these for ACA exam purposes.

Conclusion . Overall, we believe that the removal of the tax elements of the syllabus should provide students with more thinking time per question. As always, practice really is the best method of preparing for the tough ACA exams, so make the most of the additional time you have to prepare for CR by looking at old BR papers or thoroughly revisiting your Professional Stage materials: the examiner can, and will, draw on this brought forward knowledge extensively. PQ • Martin Johnson is a tutor at ACA Simplified

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PQ Magazine June 2014


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technical update PQ

LET’S GET TECHNICAL • Purchases ledger control account If we know that the opening balance on the PLCA is £250 owed by the business, that cash payments to credit suppliers were £700 and that the closing balance on the PLCA was £280 then we can deduce that the value of credit purchases must be:

Gareth John turns his attention to the thorny issue of incomplete records


hen I last arrived at 221B Baker Street, Sherlock Holmes took one look at me and said: “You have just had a glass of claret with your wife at London zoo.” Mind-reading? Magic? Not at all. It was a simple deduction, based on the red stain on my shirt cuff, a single ginger hair on my lapel and the smell of monkey droppings on my suit. Similarly, sometimes in accounting when we think that a crucial figure is missing we may be able to deduce it from clues that we do have. Enter the exciting world of incomplete records, Dr Watson! Cost structures . If we know what the relationship between sales revenue, cost and profit is we can use this information to help us to deduce missing information. The two different relationships you need to know about are margins and mark-ups. • Margin A ‘margin’ is the percentage of sales revenue that profit represents. I think of it as ‘margin on sales’ as you would multiply the percentage margin by the sales revenue. – Using margin to identify cost If sales are £100 and your margin on sales is 10%, then you must have made a profit of £100 x 10% = £10. We can use this information to deduce that our costs must be the sales revenue less the profit which is £90. Alternatively, you can think of it this way: if profit is 10% of sales then costs must be 90% of sales and £100 x 90% = £90 cost. – Using margin to identify sales If you know that your margin on sales is 30% then your costs will be 70% of sales. If you know that your costs are £140 (and that this is 70% of sales) then you can deduce that sales must be £140/70% (or £140/0.7) giving £200. • Mark-up A ‘mark-up’ is the percentage of cost that profit represents. I think of it as ‘mark-up on cost’ as you would multiply the percentage mark-up by the cost. – Using mark-up to identify sales If cost is £500 and the mark-up is 10% then the profit will be £50. Sales must be the cost plus the profit which is £550. Another way to look at this is that since we add the mark-up of 10% to the cost, the sales will be 110% of the cost and £500 x 110% (or £500 x 1.1) is £550. – Using mark-up to identify cost With a mark-up of 20% you know that PQ Magazine June 2014

sales will be 120% of (or 1.2 times) cost. If sales were £360 then we can deduce that cost must have been £360/1.2 = £300. Control accounts . If we know some of figures that would sit in a control account we can often establish a missing figure using a ‘balancing figure’ approach. • Sales ledger control account (SLCA) If we know that the opening balance on the SLCA is £100 owed to the business, that cash receipts from credit customers in the period were £500 and that the closing balance on the SLCA was £120 then we can deduce the value of credit sales made by balancing off the ledger account:

Payments (known) Closing balance (known)

£ 100

Receipts (known)


Closing balance (known) 120 620

So we can deduce that credit sales must have been £520.

I love incomplete records!

Purchase ledger control account (PLCA) £ £ 700 Opening balance (known) 250 Credit purchases (BF) 730 280 980 980 Credit purchases must be £730.

Sales ledger control account (SLCA)

1. Opening balance (known) Credit sales 520 (BF)


£ 500

Using cost of sales . Cost of sales (COS) consists of three key elements. It is calculated by adding opening inventory (1) to purchases (2) and then deducting closing inventory (3). If we know what the COS figure is, and we also know two of the elements that make up COS, we should be able to deduce the third. Let’s say that COS is £5,000, and that we know that opening inventory (1) was £1,000 and that purchases (2) were £5,200, but we don’t know the value of closing inventory (3). Taking opening inventory plus purchases would give £1,000 + £5,200 = £6,200 so to get back to COS of £5,000 we must be deducting closing inventory of £1,200. Here’s one for you to try. Once you have finished your answer you can watch me work through my solution at

At 1 January, a business has inventory of £10,000 and trade payables of £40,000. During the year the business made sales of £400,000 and achieved a profit margin of 25%. They paid credit suppliers a total of £290,000 and at the end of the year trade payables were £65,000. On the 31 December a fire in the warehouse destroyed all units of inventory. Can you help Sherlock Holmes to identify the value of the inventory destroyed? PQ • Gareth John is a tutor/director with First Intuition and helps to manage their AAT online learning programme. He was PQ Magazine Accountancy Lecturer of the Year in 2011 31

PQ salary survey


We drill down into the salaries from Reed Accountancy’s PQ Salary Guide and Market Insight 2014

NORTHERN IRELAND Purchase Ledger £15,000 - £20,000 Accounts Assistant £15,000 - £22,000 Finance Assistant £15,000 - £21,000 Assistant Accountant £19,000 - £24,000 Accountant £23,000 - £28,000 Financial Accountant £24,000 - £32,000 Management Accountant £24,000 - £32,000 Finance Manager £26,000 - £36,000

SCOTLAND Purchase Ledger £16,500 - £19,000 Accounts Assistant £17,000 - £22,000 Finance Assistant £17,500 - £22,000 Assistant Accountant £19,000 - £26,500 Accountant £23,000 - £32,000 Financial Accountant £25,000 - £34,000 Management Accountant £23,000 - £33,000 Finance Manager £26,000 – 34,000

NORTHERN ENGLAND Purchase Ledger £15,000 - £21,000 Accounts Assistant £16,000 - £20,500 Finance Assistant £17,000 - £25,000 Assistant Accountant £21,000 - £27,500 Accountant £20,000 - £32,000 Financial Accountant £25,000 - £35,000 Management Accountant £23,000 - £33,000 Finance Manager £27,000 - £38,000

THE MIDLANDS Purchase Ledger £15,000 - £20,000 Accounts Assistant £18,000 - £25,500 Finance Assistant £18,000 - £22,000 Assistant Accountant £19,000 - £28,000 Accountant £22,000 - £37,000 Financial Accountant £25,000 - £37,000 Management Accountant £25,000 - £36,000 Finance Manager £30,000 - £40,000

WALES Purchase Ledger £15,000 - £21,000 Accounts Assistant £15,000 - £19,000 Finance Assistant £15,000 - £22,000 Assistant Accountant £19,000 - £26,000 Accountant £22,000 - £35,000 Finance Accountant £24,000 - £33,000 Management Accountant £23,000 - £32,000 Finance Manager £26,000 - £35,000

THE SOUTH WEST Purchase Ledger £16,500 - £21,000 Accounts Assistant £17,000 - £27,000 Finance Assistant £17,000 - £25,000 Assistant Accountant £20,000 - £28,000 Accountant £25,000 - £36,500 Financial Accountant £25,000 - £35,000 Management Accountant £26,000 - £34,500 Finance Manager £30,000 - £38,000

EASTERN ENGLAND Purchase Ledger £15,000 - £20,000 Accounts Assistant £15,000 - £24,000 Finance Assistant £17,500 - £24,000 Assistant Accountant £20,000 - £25,000 Accountant £21,000 - £36,500 Financial Accountant £24,000 - £34,000 Management Accountant £24,000 - £35,500 Finance Manager £25,000 - £35,000

LONDON Purchase Ledger £18,000 - £25,000 Accounts Assistant £19,500 - £30,000 Finance Assistant £19,000-- £28,000 Assistant Accountant £25,000 - £36,000 Accountant £27,000 - £44,000 Financial Accountant £35,000 - £49,000 Management Accountant £27,000 - £50,000 Finance Manager £35,000 - £50,000

THE SOUTH EAST Purchase Ledger £17,000 - £25,000 Accounts Assistant £17,000 - £28,000 Finance Assistant £17,000 - £26,000 Assistant Accountant £21,000 - £34,000 Accountant £26,000 - £40,000 Financial Accountant £27,000 - £38,000 Management Accountant £24,000 - £38,000 Finance Manager £30,000 - £40,000

• Go to for more great resources and the guide in full 32

PQ Magazine June 2014

careers PQ

Don’t overlook the value of company benefits and development opportunities, says Karen Young

Benefits matter


s job movement is created within the accountancy profession, opportunities are out there for PQ accountants looking for a new job. Many people will be job-hunting for the first time after opting for the security of staying put during the economic downturn, and should ensure they are aware of the benefits available to them and are prepared not only to negotiate salary and benefits in a new role, but also consider the career development path that will be available, too. It’s not all about the money, money, money! With your attention focused on the headline salary figure it can be easy to underestimate the importance of a good benefits package. Considering 70% of employees say they don’t receive any support to understand the benefits available to them, it’s not surprising this can be easily overlooked. However, generous benefits such as study support, pensions, annual leave allowance and support for continuous professional development can make a big difference to your overall remuneration package and future career path. Many employers also offer additional schemes such as season ticket loans and bike purchase schemes that can help to save you money. According to the latest Hays Accountancy & Finance Market Overview and Salary Guide, the

PQ Magazine June 2014

most commonly received benefits by accounting and finance professionals are: an above minimum contributory pension; health insurance or private medical cover; over 25 days annual leave; and an individual or company performance-related bonus. To further their careers, PQs were also likely to receive financial support for training; this was the second most commonly received benefit after pension contributions. On the whole, the benefits accountancy professionals currently receive are in line with the ones that are important to them. However, when considering a new role flexible working options are a priority for many, yet almost half of employees

were offered no flexible working options in their current job. While home working or flexi-time may not be practical for all organisations, this can be an area where employers can stand out when competing for the best people. Aside from salary, our survey shows that accountants looking for new opportunities prioritise job security and a good work-life balance, followed by a challenging role or projects. Ambitious people also look for financial support for training from employers when looking for a new role, not only for their initial professional accountancy qualification but for continued professional development long after the final exams are passed. An overwhelming 90% of PQ accountants we surveyed are confident that they have the skills to progress in their careers, yet 73% do not feel that there is scope for career progression within their organisation. With many people looking for this career progression and changing jobs this year, employers will need to compete for the best people, giving part qualifieds the opportunity to choose the best role for them, with an employer of their choice. To request a copy of the Hays Accountancy & Finance Salary guide visit PQ • Karen Young, Director, Hays Accountancy & Finance


PQ careers

The PQ Book Club

Life at the Breeze & Co


Sarah Williams, 41, is an accounts assistant based in Llandudno, Wales. She has worked for Breeze & Co for 18 months. Currently studying AAT level 4, Sarah was recently named AAT Student of the Year and was shortlisted for this year’s PQ awards

The Failure and Future of Accounting by David Hatherly (Gower, £65) In this book, the author – Emeritus Professor of Accounting at the University of Edinburgh, no less – rethinks accounting in the light of a financial crisis which exposed its limitations. He proposes nothing short of a major revolution in financial reporting. By expanding on the traditional accounting model by accounting for the components of the market capitalisation of the business, the author challenges directly the world's present system of accounting. Using examples such as Enron and the financial crisis, Hatherly illustrates the deficiencies of the present model and, unusually, suggests how to rectify them. With its insights into both accounting and business more generally, this book is essential reading for accountants and accountancy students and for those running a business. When a commentator as distinguised as Sir David Tweedie says that this is “a must-read book for all who wonder where the future of reporting might lie”, then it’s time to take note. PQ rating: 5/5 Worth seeking out, but with a hefty price tag you might want to look in the college library. Essentialism – the Disciplined Pursuit of Less by Greg McKeown (Virgin Books, £12.99) This book is for anyone who feels life is just too busy, that they are being pulled in too many directions. Silicon Valley’s McKeown propounds his theory of ‘Essentialism’ which can be simply summed up as ‘less is more’. The author argues that we have to learn that we should only be doing what really matters. So are you doing something simply to please other people? Do you volunteer to take on new projects, even though you haven’t got the time to do them properly? If so, then this is the book for you. It will help you succeed at work, by focusing your efforts on your core tasks, and also help you to achieve a better work-life balance. PQ rating: 4/5 Seek this book out. WE HAVE THESE BOOKS TO GIVE AWAY – SEE NEXT MONTH’S PQ 34

What time does your alarm clock go off? 6am. What’s the first thing you do when you get to your desk? Switch the computer on and have a cuppa. What’s on your desk? Piles of accounts files – I’m not joking. What’s the best thing about where you work? I only work 20 hours a week – I’m a single parent. My boss is very flexible and when the kids are ill I can swap my day off. Where’s your favourite place to go for lunch? I work through lunch. What (or who) can you see when you sit at your desk? A

seagull that taps on the window – we’re three storeys up. Which websites are your favourites and why? Ebay, Amazon and Preloved – I love a bargain. Which websites do you use for work? AAT and Eagle Education and Training’s moodle. How many hours a week do you spend in meetings? Zilch. What time do you leave the office? 2pm at the latest – I start at 8.30am. How do you relax? All the soaps. What’s your favourite tipple?

Red wine. How often do you take work home with you? Never. What is your favourite TV programme? I bounce between Emmerdale, Coronation Street and EastEnders. I need to get a life! Summer or winter? Winter. Pub or club? Pub. Who is your hero? My late grandfather, Rolley Hughes. If you had a time machine, where would you go? Back to the 80s. If you hadn’t chosen accountancy, what might you be right now? A hairdresser.

The workplace: tackling depressive issues More than 90% of people believe that admitting to a mental health condition could damage their career prospects. The result is that most give a different reason to their employer, if they need time off from work. Against this backdrop, and during National Depression Awareness Week, KPMG’s Nick Baber, a director in the Financial Services Consulting Team who suffers from depression, argued that creating a culture of openness, early intervention and support in the workplace is critical if UK plc is to remove the stigma attached to depression and mental illness. He explained: “People often present a different persona in their personal and professional lives, fearing rejection by their peers if they fail to project a certain image. The stark reality is that so much energy is spent by individuals pretending to be

something they are not that mental and physical health, performance and productivity suffer as a result.” Baber said that it would be far better if employees were comfortable enough in their working environment to be themselves. But this will only happen, he felt, if senior business leaders with experience of mental health problems tell their own stories and implement performance indicators that measure and report on progress in the workplace. Stephen Frost, UK head of diversity & inclusion at KPMG, adds: “Being comfortable in your own skin is a key ingredient for career success and employees need to know that they will not face career road blocks if they ‘come out’ and admit to having mental health problems. • KPMG is a founding member of the City mental Health Alliance, which is committed to managing and supporting employees’ mental health.

In brief Vacancy surge The improving economic situation is generating renewed demand for accountants. There has been a ‘surge’ in opportunities for financial professionals, as year-on-year vacancies climb by 24%. The problem is that the supply has remained constant and one recruitment consultant is predicting that employers will need to offer enhanced salary packages to land sought-after candidates.

Beat Phil Oh dear, here comes Phil. He loves himself (someone has to) and he likes the sound of his own voice! Somehow he earns £15k more than you. You can, of course, do better than Phil, and is there to help. The site provides a quiz, free expert CV advice and a whole load of career tips, like follow companies that you want to work for on social media sites. It’ll help you learn more about them and what they like, bit by bit.

Your PQ hub If you are job hunting then social media can be key to your success, says Reed Accoutancy’s PQHub. Among 10 tips to help you stand out is the importance of updating your LinkedIn profile and matching it to your CV. Also remember that recruiters may screen you, so be honest and consistent with your profile. By connecting with other professions you can create a network, which can help put you on their radar. For more great stuff go to PQ Magazine June 2014

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YOUR JOURNEY AHEAD AHEAD YOUR JOURNEY MAKING THE RIGHT RIGHT CHOICE CHOICE MAKING THE Your professional accountancy accountancyexams examsmay maysoon soonbe bebehind behindyou youand and Your professional once you’ve gained gained your your newly newlyqualified qualifiedstatus, status,you’ll you’llneed needtotothink think once you’ve about the next next steps steps in in your yourcareer careerpath. path. about the There are aa number number of of things thingsyou’ll you’llneed needto toconsider considerand andtotoarrive arriveatat There are the decisions that that are are best best for foryour yourcareer, career,it’s it’scrucial crucialtotoequip equipyourself yourself the decisions with accurate, up-to-date up-to-date market marketintelligence. intelligence. with accurate, Our Journey Our Journey Ahead Ahead Guide Guide ofers offerspractical practicaladvice adviceon onhow howtotoapproach approach your career your career progression, progression, the therange rangeof ofcareer careerpaths pathsavailable availableand andhow how to meet meet your to your aspirations. aspirations. If you’re you’re starting If starting to to think thinkabout aboutyour yournext nextsteps stepsas asyou youwork worktowards towards becoming aa qualified becoming qualified professional, professional,we wehave havethe thetools toolsand andadvice adviceyou you to help help you to you make make the the right rightchoice. choice.

© Copyright Copyright Hays Hays Specialist Specialist Recruitment experts worldwide, thethe HAYS Recruiting experts worldwide logo andand Powering the the World of Work © Recruitment Limited Limited2014. 2014.HAYS, HAYS,the theCorporate Corporateand andSector SectorHHdevices, devices,Recruiting Recruiting experts worldwide, HAYS Recruiting experts worldwide logo Powering World of Work are trade trade marks marks of of Hays Hays plc. in in many countries. AllAll rights areare reserved. are plc. The The Corporate Corporate and andSector SectorHHdevices devicesare areoriginal originaldesigns designsprotected protectedbybyregistration registration many countries. rights reserved.

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Sir David Tweedie was the star turn at the recent IFA awards evening, aboard the Dixie Queen on the Thames. If he hadn’t been an accountant he would definitely have been a comedian! His top joke? There were so many. We particularly liked: what is the difference between a Big 4 partner and a coconut? You can get a drink out of a coconut! PQ felt sorry for one group of overseas visitors who had gone on a visit to Southampton during the day, only to miss the awards night boat. But it was great to see our good friend David Hunt (pictured above) win the IFA Lifetime Achievement Award – a worthy winner and a great guy.

GO STRAIGHT TO JAIL Finally we get an accountant in the popular comedy series Rev, only for him to turn out to be a City accountant just released from jail. It gets worse. The Rev is desperate to find the £60,000 he needs to keep his church open and the senior accountant could be his knight in shining armour. Then we find out that the saviour of St Saviours has been in prison for having 30,000 child abuse images on his computer – accountants really can’t get a positive role on TV for love nor money. No sooner had this been aired when another positive role model appeared on TV – not! – with Steve Pemberton playing the mildmannered kidnapping accountant in BBC’s Happy Valley.



Reed Business’s School’s chef was ‘featured’ in a recent issue of Stir It Up – a cooking magazine. Craig Wright was called a ‘calculating’ chef (groan). The school is known for its good food, which Craig explains he likes to keep ‘fresh’ and ‘radical’. He makes his own bread, and serves things like chipotle chicken and pulled pork, which is slow cooked for nine hours then shredded and served with homemade BBQ sauce and pitta bread. Craig and the team even made a 27ft-long filled baguette for an event called ‘Reed v Food’!


Nigel Farage has been called lots of things, but he’s never been accused of being an accountant. UKIP’s accounts have come under scrutiny, although millionaire Paul Sykes, who is bankrolling the European elections for the party, insists Farage “isn’t an accountant, he’s a character – that’s why he’s ahead in the polls.”


Writer Alex Bellos believes he has discovered the world's favourite number... and the answer is 7! Bellos surveyed 44,000 people to discover what numbers they liked best. It appears odd numbers are far more popular than even numbers. In all, a whopping one in 10 people chose 7 as their special number. At number 2 was number 3 with 7.5% of the vote. Bellos claims that 7 is different, it the


CIMA students who get Financial Management may have been concerned with the picture on the Exam notice page (p53). They will be pleased to hear that CIMA isn’t changing the size of exam desks!


‘most prime’ -– you cannot multiply or divide it within the first group of numbers (1 to 10). So it feels unique. We are told than even numbers are deemed feminine and odd numbers are masculine. It gets worse – those who like number 1 are thought to be independent, strong and brave: yes, that works – it is our favourite number of course!


Wise up to Wise Guides

PQ has teamed up with Osborne Books to offer five lucky AAT students at Level 2 the chance to win a free set of guides. These pocket-sized guides are the perfect study and revision tool for use anywhere, any time. Wise Guide’s use diagrams, bullet points and ‘plain English’ to distil accounting principles in a manageable and easily-memorised format. You will get Bookkeeping 1 Wise Guide, Bookkeeping 2 Wise Guide, Introduction to Cost Wise Guide, and Working in Accounting & Finance Wise Guide. • Send your name and address to, and head up your email Wise Guide

Any ACCA ebook of your choice Top ACCA publisher EW Publishing is offering 10 lucky PQ magazine readers the chance to download one of their student text ebooks. The 2014 kits retail at £9.99 and over 75,000 texts and kits have been downloaded in over 130 countries. • To be in with a shout of winning one of these 10 downloads just put ‘EW ebook’ in the subject header along with the paper you want (for example, F4). We also need your full name please for this giveaway. Send your entry email 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 6 June. The main draw will take place on Wednesday 11 June 2014


PQ Magazine June 2014


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2nd floor 5-7 Hill Street, Birmingham, B5 4UA *FBT Pass 1st Time Guarantee™ ensures that if you do not successfully pass your paper on the first sitting, you will be able to attend a free re-sit course. The nature of the free resit depends on the preferred study mode. **When you book a minimum of 6 papers. Full-time applicants will be entitled to 25% off the course when paying a deposit or 30% off when paying in full. Part-time applicants will be entitled to 30% off the sum of 2 Revision Papers and 2 Question Based Days ONLY when booking 2 Tuition Papers, 2 Revision Papers and 2 Question Based Days. Offers expire 06/06/14. See website for full T&Cs.

PQ magazine, June 2014