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PQ magazine /

April 2014


We spoke to Clare Minchington about the association’s progress in developing its e-learning


From funding expansion to time-series analysis, we’ve got loads of technical stuff inside!


What exactly does the word ‘policy’ mean? Martin Jones explains

HALF MARKS JUST NOT GOOD ENOUGH Is getting 50% right in a CIMA exam sufficient to create the competent accountant of the future? This was a major debating point at the recent Lecturers’ Conference, where the institute unveiled its new 2015 syllabus to the experts. Tutors believe that if CIMA wants to create accountants who can take what they have learnt online and in the classroom straight into the workplace then the pass rates for the proposed MCQ papers might have to rise. There was some heated discussion on this point, and a new 70% pass rate was suggested by some leading lecturers to PQ magazine. The introduction of an on-screen calculator and whiteboards also worried many tutors, who have seen students in tears trying to use these calculators for the entry level exams. They pointed out that PQs sitting the ICAEW online exams are provided with a calculator on the exam desk, and felt that this would be a better approach to start with. The lack of calculations in the case studies that now appear at every level also worried some educationalists. Will CIMA newly qualfieds be able to pass the exams without doing a set of accounts, they asked. The new syllabus also aims to test the whole syllabus in each exam. That, said some tutors, will require more learning time, and could increase the cost of qualifying for employers and students alike. Executive director of education Noel Tagoe

Stewart: ‘don’t eat the elephant all in one go’ confirmed to PQ magazine that there will be calculations in the case study. He also said he was open to suggestions and ideas, although he felt the online calculator would not be something to frighten ‘Generation Y’ students. A 50% pass rate for the MCQ exams was another area he was prepared to discuss, he said. On day two of the conference, CIMA director of learning Peter Stewart asked for the dialogue to continue. He stressed that no current student will be disadvantaged, and all papers earned in 2014 will carry through to the 2015 set-up.

On the plus side, students studying the ‘old’ 2010 syllabus (there are still three sittings left) will get their November results early in January 2015. CIMA confirmed to PQ magazine that it is looking to release the November results in the first week of January 2015. Under the new system there will also be fewer hours at an exam terminal/desk – dropping from 21 to 15 for the professional exams. The transitional arrangements do seem very logical and there is even a small concession at the operations level. Here, if PQs have passed two papers (not exemptions) they will be given the option to waive the third paper and go straight to the case study. This is available only in year one of the new syllabus. Stewart’s advice is for PQs to aim to complete levels rather than approaching the exams via pillars. He also warned students against trying to “eat the elephant all in one go”. He said: “Don’t try to get too much passed – like trying to complete operational and management in what is left of 2014.” November will be when the big decisions need to be made. Do you sit exams you are familiar with (the devil you know) or do you wait until January and sit an MCQ paper? Before students have to make that choice CIMA has promised to make the new-look exams available online – probably in July. Watch this space. • Read our exclusive interview with CIMA’s Noel Tagoe about the new syllabus – see page 14.


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News 06ACCA changes New exam formats will kick in in December 08CIPFA apprenticeships Scheme is rolled out nationally 10CIMA growth Institute sees strong growth across the globe Features, etc 06Mind your Ps and Qs – held over for this month. 12Profile We spoke to ICAEW prize-winner Charlotte Wells 14CIMA syllabus Education chief Noel Tagoe explains what the syllabus changes will mean

16CIPFA spotlight More on the

growing apprenticeship scheme

18Say cheese! More fun photos

from accountancy’s top awards

20ACCA P4 How to get a pass on this technically tough paper

21ACCA interview E-learning

chief Clare Minchington udates us on the progress being made

23How to study Make the most of your brain by taking a holistic approach to your studies

April 2014 29Viewpoint Garry Carter of the

ICB explains why legislation on late payments is a bad idea 31ICAEW conference Update from the annual get-together of ICAEW lecturers 32Salary survey Market update; plus salaries for Wales and NI 33Careers Our PQ of the Year answers our questions; job prospects are improving for PQs; and our Book Club review 38Fun time Our great giveaways – and the lighter side of life The columnists Robert Bruce Politicians should mind their own business 6 Prem Sikka IFRS: they may be trouble ahead… 8 Carl Lygo Taiwan, a small country with a big reputation 10 Subscribe to PQ magazine It’s FREE – go to page 34 ABC July 2012–June 2013


25International standards How the word ‘policy’ can mean different things to different folk

26Let’s get technical Gareth

John tells you all you need to know about time-series analysis

28Financial management The final part in our series dealing with various sources of finance

Publisher’s statement:We have a digital issue of the magazine which is sent to 9,215 requested readers

Change is the new black It is always interesting to see how we cope with change. Tutors at the recent CIMA Lecturers’ conference could be seen going through all the emotions. Some were angry, some confused, and others more resigned to embrace change. All will have to radically change how they teach CIMA PQs, and many will have to learn new skills if they want to get involved in the case studies now sitting over each level. So CIMA has a bright, new 2015 ‘all singing and dancing’ syllabus replacing the now defunct 2010 syllabus. The immediate worry for PQs is whether they will be viewed any differently if an employer knows they qualified under the old syllabus. The answer is, of course, ‘no’. That is because of the power of your CV, which shows just how employable you are. This is why all the professional bodies put so much emphasis on the practical experience requirements before you can become a fully fledged member of their body. Gaining a practical professional qualification without this balance of work experience can make you almost unemployable. Ask any recruitment consultant. Now, if you are interested in forging a career in accountancy then you must bookmark Reed Accountancy and Finance’s brand new PQHub. It is a great resource for the PQ hungry for career advice and guidance. See Finally well done Charlotte Wells, who recently won a top ICAEW prize. She attended Reed Business School, who themselves walked off with my first-ever Special Editor’s Award at this year’s PQ awards. Charlotte was rewarded by a lovely bottle of bubbly by Reed’s top man Sir Alec Reed (see photo – and page 12). Take a look at Sir Alec’s Wikipedia page to see what you can achieve with your accountancy career. He really is an inspiration. Graham Hambly, PQ magazine editor (

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PQ news

ROBERT BRUCE The curse of the meddling politicians There is one thing that seems to drive politicians insane, and that is an independent body. And, in particular, one which refuses to give ground when the politicians try to bully it flagrantly and unmercifully. The politicians then turn nasty – they have the power and use it sneakily. A case in point is the International Accounting Standards Board. It has been firm over the years. If the politicians tell it to do something daft it invariably sticks to its guns. But then the politicians start inflicting collateral damage on anyone else associated with it. Take the shocking saga of the study into the impact of International Financial Reporting Standards across Europe. This was a very sensible idea from the European Commission. The study, after an appropriately open, lengthy, transparent and competitive tendering process, was awarded to the ICAEW, which has a long track record of IFRS studies, and Mazars, a truly pan-European accounting firm. It was a sound and impeccable decision. But the politicians were furious. It looked to them as though there was a chance the IASB and IFRS might be treated fairly. They weren’t having that. So they ranted until the contract was cancelled. The European Commission apologised and told the ICAEW its competency and independence were not in question. It is time someone commissioned a study into the behaviour of politicians. ■ Robert Bruce is an award-winning writer on accountancy for The Times

ACCA CHANGES COMING The ACCA has begun to implement some of the changes outlined at recent conferences and during consultations with tutors and PQs. New exam formats in the Fundamental Skills exams (F5, F7, F8 and F9) will happen in December. That means you have one sitting of the old format left – this June! The new paper format will have two sections, one of multiplechoice questions and one section of longer, written questions. Paper F6, due to the different exam year, will follow in June 2015. The F4 paper will also undergo significant changes. The exam will be reduced to two hours and be available as a computer-based

exam (English and global papers) from the end of 2014. When it comes to fully ondemand CBEs, the ACCA has said that it will be working with target markets to remove paper exams on a market-by-market basis. The first target markets are Oman, the

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LSBF looks to the east LSBF has opened a new institute in Singapore. This sees LSBF stepping up its plans to create a hub for professional education in South East Asia. The new campus opening ceremony was attended by the British High Commissioner to Singapore Anthony John Phillipson. LSBF's Aaron Etingen explained that over 6,000 students have come through LSBF Singapore classrooms since 2011 and the new base at Springleaf Tower will help accommodate LSBF's fast-growing student base.

Czech Republic, Sri Lanka, Hong Kong and Cambodia. The aim is that from January 2015 these countries will offer CBEs for foundation level exams and F1-F3 assessments. The ACCA is committed to adding flexibility into the exam schedule. First, it wants to introduce additional paper-based sessions for those exams not available by on-demand CBE, namely F5-F9 and papers P1-P7. This is likely to be four exam sessions a year – March, June, September and December. The current ‘target’ for this is late 2015/early 2016, but the ACCA needs to progress the plans further before it can provide an exact date.

One PQhub to rule them all Did you know that some 89% of recruiters check a candidate’s social media profiles? Well, you would if you read a fantastic new resource that has been launched for part qualified accountants looking to access the latest jobs and news – the Reed Accountancy and Finance PQHub. The PQHub was launched this month and includes news from PQ magazine, along with interactive salary guides, the latest hot jobs, social media advice, consultant chat and a PQ blog. This is much more than just a website, and over the coming months should develop as a ‘must have’ resource for all PQs. • Take a look at the PQhub at

Where’s me stuff? Deloitte consultant Nilay Shroff recently arrived home to his New York pad to find everything gone except his TV and PS3! His apartment had been emptied by a removal man who took his stuff to the city dump. The consultant called 911. Then Shroff discovered the removal man should have emptied 2B and not his flat, 2D. He is suing!

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, Phil Gammon, Jo Daley, Richard Heaton | 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

PREM SIKKA IRFS: there may be trouble ahead… There is turbulence ahead for the IASB. The US Securities and Exchange Commission is lukewarm about global convergence around IFRSs as it has to satisfy local constituencies. Differences have emerged on the accounting treatment of insurance contracts. The US has opted for additional disclosures, whereas the IASB’s preference is for changes to the numbers in the financial statements by discounting future cash flows. The IASB wants convergence of accounting around IFRSs, but that is a long way off. We see modifications of IFRSs rather than the wholesale abandonment of local traditions. For example, Japan supports IFRSs, but uses last-in, first-out (LIFO) method for valuing inventories rather than the first-in, first-out (FIFO) method. Supporters of convergence say that numbers based on a single global accounting standard would improve comparability. Little supporting evidence is presented. Comparability, it may be argued, depends on theories in our head rather than simply what is placed in front of us. Everyone will recognise a cow, but its significance is contestable. To meat eaters, a cow is a source of food, but orthodox Hindus may regard a cow as a deity. Thus established practices cannot easily be standardised without doing violence to some traditions and values. Accounting is no different and its meanings will continue to depend on value systems rather than accounting standards issued by a private company based in London. ■ Prem Sikka is professor of accountancy at the University of Essex

CIPFA goes national with apprenticeships CIPFA is rolling out its unique and innovative apprenticeship scheme across the country. The national scheme was launched this month after a successful pilot in the West Midlands last year. Designed to attract individuals to a career in public finance, the oneyear apprenticeship is managed by CIPFA, allowing employers to focus on cultivating new talent within their organisations. The apprentices on the scheme gain valuable work experience at the same time as studying for the AAT Level 4 qualification. CIPFA’s Giles Orr said there was a need for a more innovative approach to engaging young people and tackling youth unemployment. Students who join the scheme are, he stressed, part of the delivery team, not just ‘passengers’. They will end the year with an AAT

Happy to be a part of it: Ian Barber, Grant Thornton, Tom Middleton, GLA, and Neil Chamberlain, Coventry City Council at CIPFA’s London HQ

qualification and be on their way to getting the CIPFA qualification, too. The scheme will now be offered out of CIPFA’s Manchester, London and Birmingham centres. The hope is to grow the scheme from the current 10 to 90 by next year. Grant Thornton has already agreed to take on five apprentices

Does ACCA want new seven-year time limit? Is the ACCA looking to change the current 10-year limit it has on students completing their exams? Many ACCA students recently received an email asking them for their views on the 10-year limit. The new proposal is a seven-year time limit that would only start ‘ticking’ once you pass your first P paper. That means students could take their time completing the F1-9 papers. It has been suggested that under the new seven-year rule an expiry

date would be introduced on PQs’ papers. That is something that used to happen many years ago, and in effect would mean that students might have to retake a paper they have already passed. One student PQ magazine spoke to felt that this would be a positive move. They felt the problem was that everyone comes in at different stages. Some students start at F1, while others could get lots of exemptions. Both still get the current 10 years.

Grant Thornton transforms recruitment Grant Thornton is transforming the way it selects trainee talent. The firm says it no longer automatically screens out applicants based on their academic results. Instead, the firm now looks at this as just one element among other factors that have been identified as equally, of not more, importance. The firm has also streamlined the application process, updated its assessment tools, and created other ‘tactics’ to help it identify and prioritise. Grant Thornton’s Maria Floud explained the firm wants to make a stand in the market to reflect its values and culture. Early indicators are that around 10% of the trainees it has found through the new process would have been excluded before. 8

The firm takes on around 350 trainees each year via four main routes – graduates, school leavers, its pipeline programme and via 12-month placements.

in each centre. Coventry council is taking on extra apprentices, too. The GLA’s Tom Middleton confirmed on the launch night that it will be taking on two or three apprentices in London. There was interest from other London public service organisations. • See page 16 for more on this.

Getting better all the time Something happened to CIMA students sitting P2 in November – their handwriting got better! On top of that, there was also a noticeable improvement in the presentation of scripts and the layout of answers. That all helped push up the pass rate to 72% this time around in the UK. That said, the examiner said PQs needed to understand the depth of knowledge required for P2. There is also a plea that candidates clearly indicate if part of the answer to a question appears later in the answer booklet. A warning also went out about the knowledge gap in students scripts exempt from earlier papers. And no pencils or red ink please, said the examiner. At E2, the marks were varied. Too many PQs were stuck between 42% and 46%. These candidates did not write good enough answers to Q6 (b), Q3 and Q2. Q6 (b) was all about McKinsey’s 7 S model and worth 15 marks. Q3 covered organisational control. The wrong focus in Q2 meant many candidates received low marks here too – the examiner wanted a discussion of trade-off strategies. PQ Magazine April 2014

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PQ news

CARL LYGO A small country that has earned a big reputation This month I visited Taiwan, Republic of China, where I found what the locals describe as “the best kept secret in Asia”. The Big 4 firms are all present, but more interesting is the fact that the accounting profession is almost 75% female. Taiwan is a staging post for those wanting to gain entry into China now that rules on trade and travel between the two have relaxed. Taiwan provides the second-largest inward investment into China. With little corruption and a respect for the rule of law, it certainly offers an attraction to British firms wanting to develop in Asia. I was impressed with the entrepreneurial spirit, with seemingly every inch of curb space used by budding entrepreneurs. I was awoken at 4am on my first morning in Taipei by two earthquakes that rocked my 23rd-floor hotel room. The quakes, measuring 5.3 and 4.2 on the Richter scale, did not have the locals concerned, and as far as I could see there was no damage caused. It had me wondering if I had drunk too much the night before, as the room seemed to shake for a long time. Taiwan is the leading manufacturer of custom computer chips and brands such as HTC and ACER started in Taiwan. Walking around Taipei, Kaohsiung and Taichung, I could see that British manufacturing is strong, with brands such as Dyson, Clarks, Burberry and Hackett London all having prominent positions. Not only that, the Union Jack is worn as a fashion accessory by locals who welcome the British! ■ Professor Carl Lygo is chief executive of BPP

Over 33,500 new students joined CIMA last year, taking the total member and student population to just under 250,000, according to latest figures from the institute. Interestingly, the UK is among a number of key countries that saw record numbers of student registrations in 2013. CIMA MD Andrew Harding told PQ magazine in an exclusive interview that UK numbers grew by an impressive 15% to 11,400. This is a sure sign that businesses are rebuilding their management accountancy capacity. Harding believes the need for good business data is also driving recruitment of CIMA PQs. Undergraduates increasingly want real jobs in real businesses, and the CIMA qualification can give them that, stressed Harding. CIMA is having big successes in Africa, India and central Europe. Even China saw a 40% growth in new members. In Africa, Ghana saw a 56% increase in student numbers. South Africa also recorded record recruits.

CIMA is growing across the globe

CIMA has seen excellent growth worldwide, including in Africa CIMA recently opened a new office in Nigeria and is hoping that this will be a new pipeline of PQs. India is another successful recruiting area, with new registrations up by 61%. Harding admits that India is an extremely

challenging environment and this is the first time in a number of years that recruitment has really shot up. Russia is the final area where the CIMA qualification has caught more students’ eyes. Its number there rose by 30% in 2013.

Write proper!

EY to close office in Nottingham

Computer based exams cannot come soon enough for many ACCA examiners and markers. It might also help more PQs to pass! Poor handwriting was an ‘important concern’ for many F7 markers last December. The examiner stressed that if markers cannot read what the candidate has written no marks can be awarded. Illegible handwriting and poor formatting of answers was a key concern of the F9 examiner as well. This was also true for F5. The examiner here explained that it is an issue at every exam session, but in December it was a particular problem. The examiner said:

“Markers try as hard as they can to give any marks due on a paper, but if they can’t read the writing they simply cannot give the marks.” On top of this the F8 examiner complained about the poor layout of answers. One senior tutor said that the ACCA should send a warning to those who could be affecting their chances of success. He felt that some students might think they have done a great job, but if no one can read their handwriting then all that hard work is for nothing. • See next month’s issue for our take on the Examiners feedback.

Nottingham's status as a major professional services centre has suffered a big set-back with the announcement that EY is to close its office there and move staff to Birmingham. EY has said that there may be redundancies as a result of the move, which leaves just KPMG and Deloitte in the city. In a statement, EY explained that the move to more flexible working practices in the Midlands and the ending of the lease at its offices in City Gate were the main drivers to the announcement. The EY office will close on 1 July 2014.

In brief So what are you worth? What are you worth to your accountancy body? The Financial Reporting Council (FRC) has compiled the average income per member/student for each of the professional bodies. So who is the cheapest? Well, it is CIMA, which generates £223.50 for each member and student. Next comes the ACCA at £279.20, followed by CIPFA, which has income of £377.90 per member/student. Then there is a big jump to the ICAEW’s £410.30 and the £670.40 10

for ICAS. But these both pale into insignificance when you look at the Irish chartered body (CAI), which brings in £707.70 per member and student. Women need not apply So how are the firms doing when it comes to their female partners? The latest survey from Accountancy (published by Wolters Kluwer) shows EY is leading the way with 20% of its partners being women. There are, however, still some practices who seem to

partners are female. We will have more on this in next month’s PQ.

struggle to attract top-flight women to their firm. In several very big firms fewer than 10% of their

AAT going Down Under The AAT is partnering the New Zealand Institute of Chartered Accountants (NZICA) to offer the AAT Diploma in Accounting. The diploma is open to all and has been designed to suit the New Zealand market, with four of the units being tailored for NZICA students. Home Learning College has been assigned as the training provider for this qualification. PQ Magazine April 2014

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PQ student profile

‘Prepare for every paper’ Meet Reed Business School PQ Charlotte Wells, first in the UK and winner of the ‘Spicer & Pegler' prize in the ICAEW’s FAR December exam What is your background? I have always loved maths and studied it throughout school and university. I work for Francis Clark LLP in the corporate services department. What made you choose your ICAEW career path? At university I did an accounting module in my first year and clicked with the material. ICAEW appealed due to the range of topics covered. It just so happened that the firm I wanted to work for (Francis Clark) offered a training contract for the ACA qualification. What is it like to study ICAEW exams at Reed Business School? All the staff are so friendly and the tutors are second to none. I ask lots of questions and they are always available to help. Reed Business School is just brilliant – like a home away from home! What were your thoughts on the new syllabus FAR subject and how did you approach your studies? I really liked the syllabus – I think it makes sense that FA and FR were merged. I made sure I knew the syllabus before going to Reed for the revision courses, so that this time


could be spent practising questions and perfecting exam technique. What was the hardest exam you have taken? Definitely Financial Management (June 2013). It was always going to be a time-pressured exam. I took a minute to panic, then I pulled myself together and got on with it. What tips could you offer to other students who are studying ICAEW? ICAEW is a huge commitment, the exams are designed to test you and you'll fall short if you don't put the work in. Do you have any superstitions/lucky charms for your exams? I was always told that you make your own luck, I make sure I'm prepared for every exam I sit. Reed Business School courses are designed to allow students to progress through their studies and exams with the same group of peers, how have you found working in this way? I have made some amazing friends through studying at Reed and I don't think I would enjoy it as much if I was studying on my

own. When an exam is looming it's nice to chat to others and be around people who are in the same boat as you. PQ • Other award winners from the December 2013 sitting included Ross Bickerton, also of Francis Clark, and Mark Johnstone (Thomas Westcott), who came in joint 8th place and 11th place respectively in the 2013 Professional Annual International Order of Merit.

PQ Magazine April 2014

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PQ CIMA 2015 syllabus

WHAT NOEL WAN PQ magazine spoke to CIMA’s director of education about the new syllabus, which is being introduced in 2015, and what the changes mean to current students


PQ magazine

IMA’s director of education, Noel Tagoe, is a man on a mission. He wants to create a professional qualification where students know the theory but also learn practically. In effect, that means you pass an exam in a subject and can then walk straight into the workplace and implement what you have learnt – you can just ‘do it’. His concern is that in the past learning has been driven by teaching, and he sees his role as reclaiming that learning. To do this he needs the help of technology, and in the past the technology hadn’t been up to the job. That, he believes, has changed. The possibilities are now there to re-couple learning and practice. To achieve this goal, CIMA is focusing on competences and what is needed at every new level of the new syllabus structure to make the PQ employable. For Tagoe, employability of his PQs is key – and putting the classroom and workplace together will give them the boost they need.


What is new? . Turning to the new syllabus, he said that there has been some rationalisation of topics, both across levels and within papers. After extensive consultation some key new syllabus areas have been beefed up. Transformation of the finance function is a prime example here. Another is big data, and what it means. You will see big data in E1, and it will move through the strategic areas and E2 and E3. The rest of the syllabus will also be written with ‘awareness’ of big data, emphasised Tagoe. Then there is sustainability and integrated reporting. “A lot of work has been done on that,” he said. Risk is a hot topic, and the economic crisis only helped to show how the failure of risk management can affect business. Tagoe said CIMA PQs will see a more streamlined view of risk in P3 – the renamed paper also gives a clue here. However, he wants to stress that risk needs to look beyond the financials. “We want to investigate enterprise risk as well,” he said. So you will see short-term 14

Noel Tagoe: employability is the key

risk in P1 and longer-term, mainly finance related risk in P2. P3 will take it further. Watch out for it also appearing in F3. Cost transformation and cost management is another key area. To an extent CIMA is going back to its roots. All businesses need to understand and manage costs and do it effectively. While these are some of the key subjects, Tagoe is looking at an even wider picture, and how CIMA PQs cope with the digitalised world and the masses of information out there. That means being able to exercise judgment and look beyond the mere financial. Internal information is all well and good, but businesses want accountants who can look forward and out! A learning machine . Tagoe and his team were given the task of finding out how an accountancy body can create NQs who have the ability to research and obtain information and develop a perspective about the future. A key element here will be gaining the confidence to deal with uncertainty, and that for him means moulding PQs into learning machines, not just accounting machines. It will be a fight, as he has found accountants often prefer to be precisely wrong rather than broadly right. The sustainability issue is a prime example here. Finance measures have helped to bring credibility, but it needed a mind shift outside the figures alone to increase the accountant’s relevance.

Assessment changes . CIMA is being bold when it comes to assessment, too. Pen and paper will be gone after 2014 and everything will be done at a computer terminal. Pearson VUE and its 5,100 global centres is where CIMA students will sit these new computer-based exams The nine current papers – E1, E2, E3, P1, P2, P3, F1, F2 and F3 – will all become CBTs, available to sit on demand. Each will last 90 minutes and use multiple-choice and other types of integrated questions. The results will be instant. Sitting atop each level, operational, managerial and strategic, is a case study exam, which will be available four times a year. Lasting three hours each, Tagoe wants the case studies to help break the silo mentality of learning. Students will still receive a pre-seen paper, but it won’t be 16 pages long. Instead, it will be a page-and-a-half and students will have to do their own searching and shifting of material – just like in the real world. The case study exam will also be very different. Students will receive emails from different people during the exam and have to cope with their demands – just like a real working day! Tagoe also envisages that during the four-exam week windows for the case study students can opt to sit on any day – Monday through to Friday. In effect, this will give 20 possible sitting days a year for the case study. The results will be marked by a real-live person and back with sitters in just four weeks. PQ Magazine April 2014

CIMA 2010 syllabus PQ

NTS... SMART LEARNING The CIMA lecturers’ conference provided real insight into challenges of the current Strategic Level. See next month’s PQ for more in-depth analysis


here are now just three exam sessions remaining for the 2010 syllabus. For the Strategic Level papers it is, of course, vital that candidates familiarise themselves with the pre-seen material. If you want to achieve success in the exam hall the examiners have stressed that you must give specific solutions and not just generic advice. That means knowing the appropriate application of models and theories.

Tagoe is hoping to also use the new assessment process to help fine-tune feedback to students, so after they receive their results they will be given guidance on their ‘weaker’ areas. CIMA will also be using big data to discover the areas where all students struggle. Transitional arrangements . The first CBT exams will start in January 2015, with pilot papers available in July 2014 for every paper. When it comes to the transitional arrangement, Tagoe said that the first principle is that students will not be disadvantaged. So if you have passed a current level you will simply move onto the next. There will, however, be a choice for students at the operational level if they have passed two papers. They can exercise a waiver and just sit the new case study exam. Tagoe felt that the risk of students failing here is low. But the same waiver will not apply at managerial level, as missing a paper would affect the chances of passing the case study here. The new syllabus, modes of assessment and general philosophy puts CIMA at the forefront of accountancy education globally. It will make other bodies sit up and take note. Tagoe has created a modern, dynamic qualification for what has become an increasingly volatile world. He also said CIMA won’t wait another four years to change the syllabus again – it will now be looked at on a much more regular basis. PQ PQ Magazine April 2014

PERFORMANCE STRATEGY – P3 AVERAGE MARKS Marks All UK Africa Question 1 50 44% 46.0% 42.0% Question 2 25 54% 55.6% 51.0% Question 3 25 40% 43.0% 38.6% Question 4 25 41% 45.4% 39.6%

FINANCIAL STRATEGY – F3 AVERAGE MARKS Marks All UK Africa Question 1 50 49.1% 52.0% 45.9% Question 2 25 37.0% 37.8% 34.8% Question 3 25 43.0% 45.2% 38.2% Question 4 25 48.2% 51.6% 45.0% FINANCIAL STRATEGY A quick look at the average marks achieved by F3 sitters shows many PQs don’t do well on Q2. This question is often taken from section B and you may need to focus more time on this area. There are also some recurring points made in the post exam guides that students must take note of if they want to ensure success at the next diet. The technical areas where students are continually weak are WACC, cost of equity, CAPM and rounding issues. The examiner continually pleads for answers that relate to the scenario. Other problems are the poor use of Excel and the inability of many candidates to identify the correct data. Exam sitters also don’t seem to be able to drill down on associated issues. There are some positives. CIMA PQs’ papers do not indicate problems with time management, according to the examiner. NPV is also a popular choice at exams and done well, and in general students appear to have a good understanding of section A. PERFORMANCE STRATEGY The average pass rates at P3 seem to show that sitters have problems with time management with this paper. This is leading to lower marks being achieved in the optional questions. The examiner pointed out that students struggle with two key areas of the syllabus:

management of financial risks (35%) and risk and control in information systems (15%). That is half the syllabus! There is also a worry about the lack of structure in answers. You can add to this poor time management, a lack of using the scenario, and just vague answers. PQs are good at some things, notably risk and inter controls (25%) and review of internal controls (15%). The average marks appear to show that students are ignoring Q1 and start with an optional question, perhaps one they are good at. However, poor time management means they don’t leave enough time for Q1 when they finally get around to it! ENTERPRISE STRATEGY Areas that E3 students need to improve on are: • Information technology/information systems. • Depth of the knowledge of the syllabus. • Bringing in knowledge from other syllabus areas. The examiner stressed that candidates need to know their verbs, and answer the question set rather than their own set of questions. There is also evidence of time pressure and that means students need to practise exam questions under real conditions. PQ

ENTERPRISE STRATEGY Marks Question 1 50 Question 2 25 Question 3 25 Question 4 25

– E3 AVERAGE MARKS All UK Africa 40.2% 42.8% 36.6% 40.0% 40.0% 38.4% 43.6% 47.0% 47.4% 42.4% 45.2% 39.8% 15

PQ CIPFA spotlight


n September 2013, CIPFA launched a pilot in the West Midlands for its Finance Apprenticeship scheme. The one-year apprenticeship offers employers the opportunity to nurture new talent within their organisations, enabling their young apprentices to gain valuable work experience while studying for the AAT Level 4 qualification. Employers supporting the pilot included Grant Thornton, Birmingham City Council, Coventry City Council, Birmingham Women’s NHS Foundation Trust and Nuneaton & Bedworth Borough Council. Fast-forward six months to National Apprenticeship Week (3 – 7 March 2014) and CIPFA hosted a launch event at its London head office. Following the huge success of the West Midlands apprenticeship pilot, CIPFA is now launching the scheme across England, focusing on London, Manchester and Birmingham. Over 60 people from across the public sector attended the events including representatives from the careers industry and employers. This unique recruitment and training solution has certainly caught the industry’s attention. Sourcing future finance leaders The recent figure for NEETs (young people ‘Not in Employment, Education or Training’) remains above one million. Half of those classified as NEETs are actively looking for employment, and through no fault of their own these young people find themselves unable to start their career. This is a massive call to action for CIPFA to do something to address the issue and help launch the careers of the finance leaders of tomorrow. There has been a big push by the government to raise awareness among young people (and their parents) about the benefits of apprenticeships. They give young people the chance to learn and develop skills in the context of the workplace and enable employers to grow their own workforce and recruit from a more diverse pool of talent. Although many young people report that they have had very little or no guidance at all about apprenticeships, CIPFA has been working with organisations such as Total Professions to try and ‘spread the word’ about the scheme and encourage young people to consider an alternative route to a professional career. The message is this: you don’t have to go to

AGE OF THE APPRENTICE CIFPA to roll out its Finance Apprenticeship scheme after successful trials

university to start a vibrant career in public financial management. So what makes the CIPFA Finance Apprenticeship scheme different? Under the scheme, young people are employed and trained by CIPFA while in post with partner organisations. Unlike traditional government funded apprenticeships, the CIPFA Finance Apprenticeship is open to anyone who meets the required entry criteria. Applicants need to have good level 3 qualifications such as two relevant A levels in business, finance, etc, or AAT Level 3 with minimum retakes, plus GCSE maths and English at grade C or above. The one-year apprenticeship is managed by CIPFA. This includes all recruitment, selection, payroll and training, allowing employers to focus on nurturing new talent within their organisations and apprentices on gaining valuable work experience while studying for the AAT Level 4 qualification.

As a minimum, apprentices will receive the National Minimum Wage for their age (starting from £5.03 per hour), with some of our employer partners offering a higher rate of up to £7.45 per hour. At the end of the 12-month contract the apprentice will be AAT Level 4 qualified and part CIPFA qualified. At this time, CIPFA will encourage partner employers to consider hiring apprentices who have successfully completed the scheme. If successful, the trainees would be expected to continue their studies with CIPFA, becoming qualified CPFAs with two more years of successful study. However, if the employer partner chooses not to hire the apprentice, the apprentices will have benefited from having gained a professional accountancy qualification and having had work experience, leaving them in a fantastic position to continue their career path in accountancy, if they wish. Speaking at the launch event, CIPFA’s CEO Rob Whiteman said that apprentices were essential to the economy. Grant Thornton’s James Cook commented on the quality and calibre of apprentices within the firm saying clients found it difficult to tell the difference between their apprentices and graduates. Next steps If you know a young person who is looking to start a fantastic career in public financial management, then get them to apply to become a CIPFA Finance Apprentice. For details visit, email, or call the Employer Relations team on 020 7543 5757. PQ

PQ Awards 2014

SAY CHEESE! The photo-booth at the PQ Awards proved a huge hit – and gave our guests the chance to behave in a very silly way. So did you make our final cut? If so, be afraid. Very afraid…


PQ ACCA P4 paper

FIGURE IT OUT • Pass rate: 42% (Dec 2013) • Technical difficulty: 10/10 (in common with all the Professional level optional papers – this is the final level of a prestigious professional qualification after all!) • Weighting of calculations: discursive elements is approximately 50:50 (although because there is a choice of questions in Section B, it is possible to choose questions to change this slightly one way or the other). • Importance of exam technique: 10/10 (critically important!) The syllabus . . The ACCA P4 syllabus builds upon the core financial management knowledge and skills covered in F9 (Financial Management) at the Fundamentals level. It prepares students to advise management and/or clients on complex strategic financial management issues facing an organisation. P4 has seven syllabus sections:

In the third article of its new series, Kaplan’s Andrew Howarth tackles the technically tough P4 paper These two syllabus areas are tested in great detail in every exam, so it is vital that you get to grips with the detailed numerical topics (such as NPV, IRR, MIRR, business valuation). However, given the likely split in exam questions between calculations and discursive elements, it is also important that you can understand and describe the circumstances in which each method should be used. Discussion of strategic considerations is also often tested alongside the calculations.


Corporate reconstruction and re-organisation: The P4 exam looks at financial management issues in a contemporary way. Therefore, this syllabus section is particularly important at the moment, as many companies have had to reorganise to survive in the deep recession following the credit crunch.





Role and responsibility towards stakeholders: This section of the syllabus includes a number of relatively familiar areas, such as conflicting stakeholder interests and ethics. These discursive topics were introduced earlier in the ACCA syllabus, and now have to be applied in a financial management context.

Economic environment for multinational organisations: This section of the syllabus sets the tone for much of what is to follow. Increasingly financial managers need to be aware of the factors affecting their businesses in a globalised economy. In common with syllabus section A (above) the topics here are discursive (rather than numerical) and most students cope well with them.

C/D 20

Advanced investment appraisal (C) and acquisitions and mergers (D):

Treasury and advanced risk management techniques: Many students find this section to be the hardest in P4. It covers the topic of hedging against the risk of currency rate and interest rate changes. You’ll have to practise lots of past exam questions to ensure that you can prepare the complex calculations accurately and then comment on your methods.

Emerging issues in finance and financial management: As mentioned above, the examiners are always keen to test contemporary (or emerging) financial management issues. This is a very interesting and relevant syllabus area. It has recently been expanded to incorporate the increasingly important topic of Islamic financing. Choosing the P4 exam . P4 is an optional paper. Students who performed well in the ACCA F9 paper, who have a strong

mathematical background and who have an interest in working in a financial management role tend to enjoy the P4 paper and perform well at it. If maths is not one of your strengths, and if you struggled with the F9 paper, then P4 is definitely not for you. Sitting the P4 exam . The P4 exam is made up of two sections. Section A comprises a single, compulsory 50-mark question. Section B contains three 25-mark questions of which students must attempt two. Exam technique is critical to success in P4. In particular: • Use the 15 minutes of reading time productively, to choose which section B questions to attempt and to identify the parts in each question that are likely to cause most problems. • Allocate time carefully to the questions (90 minutes to section A and 45 minutes each to section B) and stick to your allocations. • Within each question, don’t necessarily start at part (a) and work through sequentially. If one of the later parts to the question looks easier than part (a), start with that. • In section A there will be four ‘professional marks’ awarded for the format, structure and presentation of your report. These are the easiest marks on the whole exam, so make sure you get them. Although P4 has historically had a low pass rate, and it is perceived as a problem paper by many students, it is by no mean impossible to pass. To maximise your chances of success, practise plenty of past exam questions and look out for new articles on the ACCA website. As well as reading your textbooks to learn the key syllabus topics, read good quality newspapers and blogs too, in order to help you to understand how the theoretical topics apply in a real world context. PQ • Andrew Howarth is a P4 Content Specialist at Kaplan Financial PQ Magazine April 2014

ACCA update PQ

PQ magazine editor Graham Hambly is updated on the progress being made by ACCA e-learning chief Clare Minchington


CCA’s director of e-learning, Clare Minchington, told PQ magazine recently that the association is on track with its plans to introduce extra exam sessions, both paper-based and CBEs. She stressed that the ACCA has always been aiming to bring these in post-2014. So we are talking 2015 and maybe even 2016 before PQs get to sit ACCA exams four times a year. Admittedly, Minchington says, she was not as clear as she should have been on this point last year. The aim is to introduce additional paper-based exam sessions first for those exams not available via on-demand CBE – F5–F9 and P1–P7 – and this is likely to be four exam sessions a year (March, June, September and December). She stressed that introducing paper-based extra sessions required substantial changes to ACCA processes and systems and will take it some time to implement. So while the target is late 2015/early 2016 she will need to progress the plans further before an exact date is given. It will be interesting to see if CIMA’s announcements mean the ACCA move faster. The changes will have a significant impact on learning providers, and Minchington feels that it is incredibly important that it takes time to work with its partners to ensure they can manage the change. As we spoke, the ACCA was conducting further consultations with providers, in addition to detailed planning and analysis, to better firm up dates as to when these new sessions will be introduced. She promised to keep PQ magazine readers well informed as she progresses. The format of the F1, F2 and F3 exams will be the first to feel the effect of the changes that are coming. The introduction of F4 as a CBE has been moved back to November (from September). This will ensure students have time to fully prepare for the new exam format. The majority of support materials will be published in August 2014 to avoid confusion with the June exams. That has to be a good move. Minchington explained: “As this will be a change for students we want to ensure they have time to adequately prepare.” December 2014 is going to be a big time, as a new exam format will be introduced. Exam


PQ magazine


Minchington: wants to ensure students have time to prepare for change

papers F4–F9 (not F6) will change in December 2014. Paper specimens for the new format exams were made available for students on the ACCA website in late January. Minchington admits that the plan originally was to only offer the extra exam sessions – March and September – as CBEs. Having consulted with employers and students this will change. These stakeholders told the ACCA that added flexibility was their number-one priority, so the association wants to focus on getting four paper-based exam sessions launched first (F5–F9 and P1–P7) before moving to the next

phase of the vision of CBEs for F5–F9. She emphasised that this gradual change was requested by providers, so they can continue to offer quality tuition. The ACCA new format for December’s Richard Clarke broke the news that, come December 2014, F4–F9 (except F6) will be 40% multiple choice, with the remainder 10-15 mark questions. There was some concern that this would be seen as a dumbing down of the exams. Most PQs, though, seem more than happy to embrace the change. PQ

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how to study PQ

Whole body experience


t was Emo Philips who said that he used to think the brain was the most impressive organ in the body, before realising what it was that was telling him this. Since he first deliberated this on British TV in the early 1980s scientists have learnt a great deal more about the human species’ most northerly organ. For example, we now know that the average human brain is made up of 1.4 kilos of the most complex material discovered in the universe (says the species who have made it as far as an orbiting ball of rock 239,000 miles away). It consists of hundreds of billions of cells, called neurons and glia. Neuro-scientists use some of theirs to postulate that each neuron is as complex as a city, furiously busy making tens of thousands of interconnections every second by way of electrical impulses to neighbouring neurons. The average 19 to 24 year old uses about five glia texting 63 times a day while slipping, conscience free, into the 95% demographic who do not pay for music downloads. They have access (language permitting) to the one million books published each year and to the one thousand billion pages on the web. But for all those interesting facts my absolute favourite is that if you were to remove all of the empty space from the atoms that make up every human on earth, the entire world population could fit into an apple.

PQ Magazine April 2014

You must take a holistic approach to study if you want to enhance your chances of exam hall success The point of all this is awareness. Homo sapiens have defined a new generation in their existence; the generation of awareness. Massive leaps in technology have enabled us to make some of the calculations above, as well as give

us the time and resources to consider those that involve imagination. The same is true of education and learning. Many of you reading this will be contemplating sitting exams, or recovering from them, and know (using some part of the available conscious brain) that this process involves great chunks of memory. It used to be considered that memory was a structure, a single unit that existed somewhere, which could be called upon when necessary to answer questions such as what was the name of the lead singer of Slade? What is Latin for helicopter? Now it is widely regarded as a process. What the team at Neil Taylor Insolvency most passionately believe is that for people to inspire their memories they have to be ‘holistically prepared’ to do so; not just in mental set, positive internal language and the programming of thinking, but in their diets, physicality, exercise regimes and ‘whole body experience’. This is what our ‘Study And Life Guide’ Pass Inspiration is all about. Taking all the constituent parts of an exam candidate and making a whole that can take exams head-on with confidence and a sense of empowerment. PQ • Thanks to Neil Taylor Insolvency for this article


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international standards PQ


PQ Magazine April 2014




’m in the mood to deliver a sermon. The subject will be ‘the same word can mean different things to different people’. The word I am going to use to illustrate the point is ‘policy’. The particular problem with the word policy shows itself in stark relief when a student asks this deceptively tricky question: “I have changed my depreciation policy from straight line to reducing balance. Why does the text say this is not a change in policy? It obviously is a change in policy!” Goodness, I can feel myself quake. It is a horrible question with an even more horrible answer. The word policy comes to us from the mists of time long before anyone had the bold idea of inventing accounting standards and trying to impose consistency. Back then, accountants had a wide range of choices for their financial reporting and the choices they made became known as ‘policies’. For example, in the context of leasing, there was a choice between ignoring all finance resulting in pure operating lease accounting and accommodating some finance resulting in the mixed model of operating and finance lease accounting like we do today. Back before standards most companies chose pure operating lease accounting and that was their lease policy. But others chose the mixed model and that was their lease policy. Then, one-by-one, standards were issued and choices were closed. To continue the leases example, after IAS 17 a company previously applying pure operating leases had to swap to the mixed model and the policy choice disappeared. As each standard was issued the choice disappeared and companies had to align their policies with the standard. The idea of a policy as a choice has effectively gone. ‘Policy choice’ has disappeared. But as this was going on, a new and different meaning of ‘policy’ sprang into use. This



Martin Jones brings you his latest quarterly update from the IASB’s headquarters

meaning is nowhere in the standards and everywhere in real life, and this conflict is the root of the confusion. This very different animal is all about volume, compromise and materiality. It is true to say that IAS 16 on depreciation contains no policy choice. You must depreciate an asset on an individual asset-by-asset basis over its life to match the cost with use. And many companies do just that. They simply look at each asset on an individual basis and estimate its use, and thereby derive depreciation for each asset. But in big companies with lots of similar assets, a little trick called a ‘formula’ is used. Say there are hundreds of machines that are similar and all last roughly five years (some more and some less). In that company the accountant might say: “I shall depreciate all of them over five years.” Now this is in direct contradiction to IAS 16, which says that depreciation must be on an asset-by-asset basis. But here is the trick. The accountant comes back and says: “I know that, but if I do as I propose, the error will be immaterial and therefore I can.” Neat trick. Now this becomes the big company ‘formula’. So the big company policy is to match cost with use and the formula is the five-year life compromise used to deliver that policy.

Now say that same big company realises that reducing balance would better reflect the matching of cost with use. Well, then that company will keep its ‘policy’ of matching cost to use and change its ‘formula’ to reducing balance. Obviously, that is a change of formula and not a change of policy. But, as you know, accountants who routinely use these ‘formula’ in their accounting do not call them ‘formula’. They call them ‘policies’. You can now see this meaning is in direct contradiction to the standards. But these ‘formula’ are still called ‘policies’ just the same. Hence the problem. The original meaning of ‘policies’ is in the context of ‘choice’. The newer meaning of ‘policies’ is in the context of ‘formula’. So the standards have one meaning and people in the real world have another meaning for the same word. This is common. So when someone uses a word and the context seems skewed, then ask them to explain a little more and you might find they are using that word to mean something quite different to what you understand by that word. You can now understand them and save yourself a whole load of heartache. Here endeth the lesson. PQ • Martin Jones lectures at LSBF


PQ time-series analysis

LET’S GET TECHNICAL In the latest in his technical series, Gareth John tells you all you need to know about time-series analysis


f I could correctly guess this weekend’s lottery numbers then the next of these articles would be written in the Cayman Islands (I would still write the article as not only am I a man of integrity, but I have absolutely no doubt that Graham Hambly would hunt me down to my beach-side villa). The problem is that it’s virtually impossible to accurately predict the future, so I suppose that I will have to make do with writing on my sofa in Cambridge. In your studies you see a variety of numerical techniques that allow us to improve our predictions, including linear regression, index numbers, the high-low method and the one that I am interested in for this article, time-series analysis. Time-series analysis . Time-series analysis involves looking at what has happened in the recent past to help predict what will happen in the near future. A ‘time-series’ is a series of results over a period of time. Let’s say that the monthly sales made by a business over a period of are: Month 1 2 3 4 5 6

Sales (the time-series) 70 80 150 130 140 210

A time series will consist of distinct patterns and if we can identify these it makes it far easier to predict what might happen in the future. The two main patterns you need to understand are: 1. Seasonal variations 2. Trends

Seasonal variation . A seasonal variation (SV) is a regularly repeating pattern over a fixed number of months. If you look at our time-series you might notice that sales rise from month 1 to month 3, and then similarly from month 4 to month 6. There appears to be a SV repeating over a three-month period where sales get higher each month for three months. We could expect this pattern to repeat in the future so sales are likely to rise from month 7 to month 9. Trend . A trend (T) is a long-term movement in a consistent direction. Trends can be hard to spot because of the confusing impact of the SV. The easiest way to spot the Trend is to look at the months that hold the same position in each set of three periods. For example month 1 is the first month in the pattern, as is month 4. The sales in month 4 are higher than in month 1, indicating a trend of rising sales. Identifying the trend . To identify the T we need to smooth out the impact of the SV. We do this by calculating what are known as ‘three-period moving averages’. This involves averaging the sales for three months at a time and then ’moving’ down to the next three months. Month Sales (the Three-period time-series) moving average (or Trend) 1 70 2 80 300/3 = 100 3 150 360/3 = 120 4 130 420/3 = 140 5 140 480/3 = 160 6 210


You can see that compared to the original time-series, the threeperiod moving average figures show a much more consistent increase; in fact it is increasing by 20 each month. We would expect this trend to continue in the future. (Notice that you can’t work out figures for the first or last month).

Identifying the seasonal variation . Now that we know the trend we can identify the specific impact of the SV. We do this by comparing the time-series to the trend to see whether it is above or below what we would expect. In month 2, the time series of 80 is 26

Gareth John’s luxury ocean-side villa… possibly 20 below the trend giving a SV of -20. In month 3, 150 is 30 above the trend giving a SV of +30. Month

Sales (the time-series)

Three-period moving average (the trend)

Seasonal variation

1 2 3 4 5 6

70 80 150 130 140 210

100 120 140 160

-20 +30 -10 -20

Predicting the future . We can now use our knowledge of T and SV to make a prediction of what sales will be in month 7. Extrapolating T: We would expect T to continue to rise by 20 each month (remember it is a long-term movement in a consistent direction!). This means that T in month 6 would rise to 180, and then in month 7 it will rise to 200. This doesn’t mean that we expect to sell 200 in month7 as the seasonal variations mean that any given month will be above or below T. Incorporating SV: Given our repeating three-period SV month 7 will be the first month of a new pattern of three months. This means that month 7’s SV can be expected to be the same as month 1 (for which we have no figure) and month 4 where we have -10. This tells us that the result in month 7 can be expected to be 10 below trend. Our prediction for month 7 will therefore be 200 – 10 = 190! Bear in mind that this is still ultimately an estimate and sales in month 7 are highly unlikely to be exactly 190. Now try this one . Sales for months 1 to 6 were 105, 140, 190, 135, 170 and 200 respectively. Assuming a three-period seasonal variation identify the trend, the seasonal variations and then predict sales for months 7 and 8. Once you have had a go watch me work my answers at For plenty of other tips and advice, including links to useful study resources follow @aattoptutor on Twitter. 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 PQ Magazine April 2013

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PQ financial management

Sources of finance: part 3 Matt Holden assesses the impact the choice of finance has upon the ratios we calculated in last month’s issue


aving taken a view on how business and financial risk are important in financing decisions, it is necessary for a successful candidate to take the discussion further by assessing the impact that financing decisions have on the key ratios (as identified in my previous two articles – see PQ magazine, February and March 2014). A reminder of the scenario . . Smith and Co are seeking to raise £50m to finance a potential overseas expansion project. The board is undecided as to how to raise the finance. The choices being discussed around the table are a one-for-four rights issue at an issue price of £2 per share or a £50m 8% five-year loan stock. The most recent financial statements are below: Income Statement:

Revenue Variable costs Gross Profit Fixed costs PBIT Finance charges PBT Tax PAT

£000 79,000 (12,000) 67,000 (47,000) 20,000 (5,000) 15,000 (3,000) 12,000

SOFP: Assets: Non-current Current Total

]] ]

Business risk Interest cover – the ‘link’ Financial risk

£000 200,000 57,000 257,000

Liabilities: Share capital (50p shares) Retained reserves Long term liabilities Current liabilities Total

business and the volatility of PBIT this creates. Clearly, the cash flow of the business needs careful planning, as £4m of extra interest will need to be paid per annum. NOTE: the calculations are very simplistic, keeping retained reserves the same as well as PBIT – not attempting to roll the calculation forward a year. This simplistic approach will allow you to do some easy calculations and derive judgement on the outcome in the time the exam allows (only roll the numbers forward a year if the question specifically requires you to).

50,000 116,000 45,000 46,000 257,000

Impact on ratios

RAISING £50M AS NEW EQUITY Operational gearing: As above, no effect. .


RAISING £50M DEBT FINANCE AS LOAN STOCK Operational gearing: No effect; financing decision does not impact upon operational gearing. Financial Gearing: (Existing debt + new debt)/equity funds (£45m + £50m)/(£50m + £116m) x 100 = 57.2% A substantial increase over the current gearing of 27.1%. This will increase financial risk faced by the shareholders of the business. The risk appetite of the shareholders must be considered but also consistency with any published risk management policy is essential. As always, comparison to suitable benchmarks will provide additional evidence. Interest Cover: PBIT/(existing finance charges + finance charges with new debt) £20m/(£5m + £4m) = 2.2 times The interest cover has almost halved, indicating further the increase to financial risk. The headroom compared to any interest cover covenant should be considered, as it may now be too small to be acceptable to investors, especially considering the high operational gearing of this 28

Financial gearing: Existing debt/(existing equity + new equity) (£45m/(£116 + £50m + £50m) * 100 = 20.8% A reduction to financial gearing and financial risk. Interest cover: No additional interest, therefore no change to the current interest cover of four times (£20m/£5m). The new equity reduces the financial risk faced by the investors. This business has high business risk and so the reduction to overall risk is probably the most sensible (but then I am a risk-averse tutor!). There are other considerations, however: • Risk appetite of investors. • Potential return from the project. • Accuracy of any forecasts (profit and cash flow, especially with additional interest charges). • Sensitivity analysis. • The board’s experience with overseas projects. The conclusion is rarely clear but reaching a conclusion based upon your own analysis is important. Don’t be afraid to have an opinion! You could also mention capital structure theory; traditional view, M&M, etc, and tax shield – but that is for another day. PQ • Matt Holden, Reed Business School PQ Magazine April 2014

viewpoint PQ

Garry Carter explains why more legislation on late payments penalties would be a bad idea


hen the Late Payment of Commercial Debt (Interest) Act was introduced in 1998 it was heralded by some as the end to unfair delayed payment practices operated by some companies that were starving micro, small and medium-sided enterprises (MSMEs) of their lifeblood – cashflow. Under the legislation, suppliers are enabled to charge interest at 8% over Bank rate, currently 0.5%, on any debt that is paid beyond the agreed terms (normally 30 days). They can also charge a small fee per invoice based on the value. But in reality the politicians who supported the introduction of the legislation were doubtless listening to lobbyists rather than the MSMEs that were supposed to benefit from this new panacea to all their ills: they misunderstood the basic relationship between businesses and their clients and how interdependent they are on each other. The success of the penalty regime within HMRC was sited as proof that it could work. Unfortunately, this is no real example on which to base such an important piece of legislation because HMRC is a monopoly. However much they upset us, we can’t take our business elsewhere. In reality, the interest and penalties that could be charged by MSMEs are often simply not even considered because it could potentially lead to

A penalty own-goal

Carter: do politicians really understand the relationship between client and supplier? the loss of important clients. Not fair perhaps, but the reality nonetheless. The problem now is that there is a movement within Europe to make this all compulsory and to penalise those businesses that do not apply the interest to overdue invoices. I therefore question again whether politicians have really understood the often complex relationship between client and supplier and, surely, to consider penalising businesses for not applying the interest is harming the exact same businesses that this

legislation was originally set up to protect and support. At the recent annual Bookkeepers Summit in London, it was agreed unanimously by the more than 400 bookkeepers and accountants who attended that imposing penalties would, in most cases, be commercial suicide for the majority of their clients. It was the overwhelming feeling of summit delegates that introducing better financial management and proper credit controls were by far the most important first steps towards eradicating late payment, not more legislation and that evidence showed that this could best be achieved by encouraging MSMEs to use professional bookkeepers and accountants. The MSME sector represents a staggering 99.7% of all businesses in the UK and Europe. As professionals, bookkeepers and accountants owe it to this vital sector to ensure that they play their part in making more of them a success. After all, it’s what they’re trained for. PQ • Garry Carter is CEO of the Institute of Certified Bookkeepers Would WE ARE LOOKING FOR CONTRIBUTORS FOR OUR ‘VIEWPOINT’ COLUMN, SO IF YOU HAVE AN IDEA FOR A FEATURE OR HAVE SPECIALIST KNOWLEDGE YOU’D LIKE TO SHARE EMAIL THE PQ EDITOR

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The only way is ethics PQ caught up with events at the ICAEW annual tutor conference


ore than 140 tutors travelled from as far afield as Malaysia, Botswana and Mauritius to talk to the examiners at the recent ICAEW annual tutor conference. The hot topic for the day was ethics. The opening session saw a presentation about how ethics is integrated throughout all aspects of the ACA qualification, and where students should focus to improve their chances. Tutors attended subject workshops with each examining team, who discussed how ethics is approached and how marks are awarded to scripts for skills and knowledge. Some tutors were pleasantly surprised at how generous the examiners can be – one (remaining nameless) even suggested they would be tougher on the students than the examiners. When asked for their view, one ACA examiner explained how they take a positive approach to marking: “We try to award marks for correct workings and presentation, which is why we encourage students to present all of their workings. We don’t penalise students for getting things incorrect. We try to write clear and structured questions and requirements so that students will gain as many marks as possible. Our overall aim is to have a paper which is achievable by a well-prepared student; ultimately we want students to pass.” The good news for those of you studying hard for the June exams is that the examiners want you to pass as much as you do. Duncan Frost, Head of ACA training at Kaplan Financial, supported the examiner’s position. He said: “The annual conference was extremely useful. The examiners as always were very open and conveyed clearly that their aim is to reward good performance, and they really want to see the students passing these exams.” Other top tips from the examiners include: • Audit and Assurance: Use the open book – the standards are allowed into the exam hall for a reason. Use page tabs to find relevant standards quickly and reference them in your answers. • Financial Accounting and Reporting: Mind the GAAP – differences between IFRS and UK GAAP are important and are tested. Know the differences and consider the implications on the scenario.

PQ Magazine April 2014

Chartered Accountants’ Hall was packed with tutors from across the globe • Financial Management: Make numbers talk – students generally perform well on NPV and numerical sections of exams, but need to improve on written sections and ensure that they link their answers to the requirements. • Business Strategy: Don’t ‘knowledge dump’ – make sure that you have applied appropriate numerical analysis and use that analysis to provide balanced, reasoned recommendations and conclusions. • Tax Compliance: Make sure you ‘explain’ – like Financial Management, students tend to fare better on requirements that ask them to ‘calculate’, ‘state’ and ‘identify’, but weaker students forget to ‘explain’. If you are asked to do this don’t avoid it and focus on what the requirement is asking of you. • Business Planning – Taxation: Watch your ethics – ethical issues may be embedded within the scenario and might not be obvious. Exercise your professional scepticism and apply a balanced approach to dealing with the issue. Ask yourself: what is the ethical issue? Is there an ethical issue? Who is impacted? What are the courses of action available? Who will these actions affect?

• Corporate Reporting: Don’t miss the point – the requirements are presented in the order that they are for a reason. By skipping requirements or answering them out of order, valuable ‘gateway marks’ are missed. These are marks attached to points that are embedded in the scenario and usually quite subtle. Once you have identified the point you can go on to discuss and consider the implications – leading to further marks becoming available. This point applies to all subjects. • Strategic Business Management: Question your sources – consider who the information is supplied by, why it has been supplied and the nature of the information in the exhibits. What is the motivation of the supplier? Can the quality of the information be relied upon? Be realistic in your responses and do not simply follow one particular line. • Case Study: Do your homework – you should know the financial story of the case in detail and be able to summarise the case in your own words before the exam. This will help you to react to the exam scenario and plan your answer, thus making the most of the time available. PQ


PQ salary survey

Positive trends Mark Sheldon’s market update, plus your salary checker for Wales and N. Ireland


ithout doubt, the return to economic growth is having a strong influence on hiring trends across the accountancy and finance profession. As businesses feel more confident about the outlook, they are gearing up for growth, and beginning to look at resourcing and performance in a different way. Organisations want skilled finance professionals who can interpret data, manage cash flow and work effectively with operations teams, while still ensuring that they meet their tax and compliance obligations. This is why the trend towards hiring business partners that we commented on in last year’s report is even more pertinent today. We have seen the most noticeable increase in demand for finance professionals in the financial services sector in London, where banks are recruiting qualified accountants in large numbers for the first time in years. While movement in other sectors is more modest, this is likely to change as the positive momentum spills out into the wider economy. As turnover and profit growth have picked up across the UK, particularly over the last quarter of 2013, industry sectors including property, production, business services, transport, and also some retail and wholesale, have begun to invest in finance professionals to help understand and drive results. Typically, much of the recruitment demand has come from medium to large businesses;

however, there are positive signs from small businesses who are seeking to invest and grow in 2014. During the downturn, employees shouldered larger workloads and worked longer hours because companies were not generally increasing headcount in finance and looked to re-deploy workload where possible, even if there were leavers. As the economy moves into better times, employers that want to hold on to their top performers will need to reward their loyalty or risk losing them. One obvious way to do this is to invest in the educational qualifications provided by the leading professional bodies in the finance sector, who offer their own insight in this guide. At Hays, we are proud of the relationships we build within the finance community and we value the expertise and insights from all of our customers across the UK. This sector expertise helped us to produce our 2013 report ‘DNA of a Finance Director’ that offers unique insight into what makes a successful finance leader. Look out for our new ‘DNA of a Partner’ report, which will be available later in 2014. You can keep in touch with all our latest reports and insights via our online expert insights hub – go to PQ • Mark Sheldon, Managing Director of Hays Accountancy & Finance See

Wales ACCA PQ ACCA Finalist CIMA PQ CIMA Finalist CIPFA PQ CIPFA Finalist ACA PQ ACA Finalist

Salary range £20,000-£25,000 £24,000-£29,000 £20,000-£25,000 £24,000-£29,000 £18,000-£23,000 £23,000-£31,000 £20,000-£25,000 £25,000-£29,000

Typical £22,000 £26,000 £22,000 £26,000 £20,500 £26,000 £22,000 £27,000

Salary range £20,000-£23,000 £24,000-£29,000 £20,500-£25,000 £24,000-£29,000 £18,000-£23,000 £23,000-£31,000 £17,000-£21,000 £18,000-£25,000

Typical £22,000 £26,000 £22,000 £26,000 £20,500 £26,000 £18,000 £23,000

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PQ Magazine April 2014

careers PQ

The PQ Book Club

Life at: our PQ of the Year


ACCA final level student James Field, 45, of Lewes, East Sussex, is finance manager at Cheesmur Building Contractors. He has been there for five years. He has a 2:1 in accountancy from Brighton University and won the top prize in our January awards

The Witch Biker’s Ride Through the Balance Sheet by Richard France (WisdomFiction, £18.50 – Kindle price £8.03) This is an accountancy textbook with a difference. Author Dick France’s ‘beginner’s guide’ to accountancy is written as a novel, with the hero and protagonist Jack Whackhead learning the rudiments as he embarks on the adventure of starting his own business. He is lucky enough to have Ashna as his accountant; she explains the concepts and practicalities as his business grows and develops. Along the way Jack encounters a Slovenian drug dealer who is laundering money, a police sting and various other outlandish (often slapstick) situations. It really is a novel and fun way of learning. On a practical level, the book is crammed with examples, questions (and answers) to explain each topic. PQ rating: 4/5 France deserves great credit for making a potentially dry subject so entertaining. Pass Inspiration ‘Study… and Life Guide’, published by Neil Taylor Insolvency Students who are just starting to study for insolvency exams with Neil Taylor Insolvency get given this excellent book on day one. It takes a holistic approach to the job in hand, with a dayby-day, task-by-task explanation of what is expected of you, and how you can achieve your goals. It includes modules on how to build memorable and creative notes and summaries, dovetailing into imaginative and useful tips on how to construct a long-term memory. It also introduces the studier to key exam techniques specifically for Joint Insolvency Examinations Board exams, and is packed with advice on how to develop (and keep) a positive mind-set, nutrition (it’s even got recipes!), exercise – and much more. Each chapter is crammed with exercises to reinforce the learning experience. WE HAVE COPIES OF THIS BOOK TO GIVE AWAY – SEE NEXT MONTH’S ISSUE FOR DETAILS PQ Magazine April 2014

What time does your alarm clock go off on a working day? 6.30am, to walk our dog Henry on the Sussex Downs. What’s the first thing you do when you get to your desk? Turn on my PC then start a heated debate over who’s turn it is to make the tea! What’s on your desk? A photo of my family. What’s the best thing about where you work? My colleagues. Working with builders means you need a sense of humour and be able to take as good as you give. Where’s your favourite place to go for lunch?As a treat there are some nice country pubs nearby at Glynde and Firle. What can you see from your desk? A cowshed and the sky through a velux window.

Which websites are your favourites and why? BBC News and Sport, Facebook, YouTube Music, Linked In, Brighton & Hove Albion’s website – and PQ magazine, of course! Which websites do you use for work? HMRC, Cheesmur’s (I maintain it), ACCA, IFRS, local authority sites and various construction industry ones. How many hours a week do you spend in meetings? Two to three. What time do you leave the office? Around 6pm. How do you relax? Watching my football team, family walks with the dog, reading, TV and my Xbox. What’s your favourite tipple? Ringwood Brewery beers, which remind me of my boozy student days living in Portsmouth.

How often do you take work home with you? I try not to. If I have a deadline to hit I’ll stay late or go into work over the weekend as I live only five minutes away. What is your favourite TV show? Breaking Bad and Game of Thrones. Summer or winter? Either, so long as it’s not raining! Pub or club? Pub. Who is your hero? Every person who has fought for this country. If you had a time machine, where would you go? To a time when mankind has discovered deep space travel and began to unravel the secrets of the universe. If you hadn’t chosen accountancy, where might you be right now? I changed to accountancy at 38. If I hadn’t I’d still be working in retail.

The workplace: power to the people Worker bees, vital cogs in the machine, the people that keep the economy working; whatever your analogy, for a company to be successful it needs the best people in all parts of the business, including at entry or graduate level. And as the economy continues to recover, the power is shifting towards workers. The recent REED 2014 Salary Guide and Market Insight Report found that the tide is once again turning in favour of the employee, with job opportunities in the UK increasing – up 28% in 2013 – and therefore the bartering power of talented PQ accountants is increasing, too. The research also found that almost half (43%) of businesses are worried about losing talented individuals. So, with the increasingly secure economy and only just over a third (38%) of all businesses having a clear strategy to retain talent, employees are more inclined to look for new opportunities. In fact,

40% of accountants have told us that they are already, or will be, looking for a new job in the next 12 months. But you can’t just walk into your dream job. Where there’s a great career on offer, with excellent pay (53% of part qualified professionals received a pay rise in 2013) that is highly secure (88% of finance professionals feel secure in their roles) and rewarding (84% of part qualified professionals are satisfied in their jobs) you can bet that competition will be fierce for the most attractive roles. Nonetheless, this is all great news for those taking their first steps in the profession. For outstanding candidates, forward-thinking companies will be putting together attractive and creative packages, so its employees can make sure they get the right balance between salary, training and job satisfaction. • The REED 2014 Salary and Market Insight and Talent Management reports were produced by REED and can be found on

In brief Is college worth it? A quarter of all graduates are earning less than workers who have completed an apprenticeship. Research shows they were paid less than the average £11.50 earned by nongraduates after a successful apprenticeship. However, there is a counter to this. Graduates are still more likely to be ‘in work’, although as EY pointed out recently they will be graduating with £53,000 worth of debt. Many accountancy firms, particularly the Big 4, have

changed their recruitment patterns to take on more and more apprentices to reflect these concerns. Been online recently? High flyers with good jobs are have a greater risk of becoming addicted to the internet than unemployed and young people, says research from Henley Business School. Having 24-hour access to email and the company

website means that overachievers can now work for as long as they like from any location! Companies need to be careful, as their top people can suffer mood swings and anxiety when they are forced to log off. The researchers found that some addicts wake up three times a night to check emails, disrupt their eating patterns and have relationships that suffer as a consequence. In the end it leads to loss of judgment, mistakes and burnout. 33

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PART-QUALIFIED ACCOUNTANT DRIVE EXCEPTIONAL RESULTS Newcastle upon Tyne ÂŁdependant upon experience + benefits P&G is recognised as a leading Global FMCG and services company with consumer-preferred brands that are used by 4.8 billion consumers three billion times a day. A successful candidate would be placed in one of the service areas within our Finance & Accounting Services Organisation, which includes General Accounting, Cost and Product Accounting, Forecasting Services, Payment & Banking Services and Accounts Receivables. Your experience demonstrating strong leadership, team work and problem solving in a similar role will enable you to make a difference by providing outstanding support to the business across Europe, ensuring timely and accurate financial accounting and business & process transformation via project work reaching across 20 countries. Fluency in a European language would be a distinct advantage. To apply, contact Laura Wilson Reed Accountancy Newcastle 01912 551 760

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A global leader within the insurance industry is looking for a commercially astute PQ financial analyst to partner with the wider business to ensure commercial decisions make financial sense. You will possess an exceptional academic background, impeccable communication skills and be confident in dealing with senior stakeholders. This is a rewarding role with a clear career path, industry leading remuneration and a supportive working environment which promotes and rewards exceptional performance. Ref: 2083589

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Dawn Meats is a high quality supplier of beef and lamb products, which supplies to large household name retailers across the UK. Within this challenging role you will be responsible for investigating operational issues on yields, labour and stocks, preparation of weekly accounts and assisting with the implementation of any new systems and projects. You will have strong interpersonal skills, with the ability to work to tight deadlines. Ref: 2047671 Contact Alex Robbins on alexandra., call 01792 642042 or visit

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A rare opportunity has arisen at one of the UK’s number one advertising companies, which is a global organisation. You will sit within the financial reporting team, based in the UK head office. Responsibilities will include management accounts, analysing balance sheets and P&L, as well as liaising with the operations team. You will be articulate and looking to study for the ACCA or CIMA qualification. This is a great chance to work in a highly supportive environment. Ref: 2083482

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CIPFA is rightly very proud to be the 2014 PQ magazine ‘Accountancy Body of the Year’, but its senior people were shocked recently at our global reach. At a high-level meeting with a Nigerian accountancy body and the first thing the Nigerians did was to congratulate them for winning the PQ award!



Did you know that in Japan iyokans are being marketed as good-luck charms for students in exams? More than one of your five sides a day (a joke!), the iyokan is a pentagon-shaped citrus fruit. PQ isn’t sure how easy it is to get this lucky orangelike food, as it is produced in Yawatahama, Japan.


Mark Ellis has had over 30,000 downloads of his Accounting Dictionary App. You can opt for either the Lite or the Pro v2.0 on your iPhone or Android. Both have the same functionality with v2 adding the ability to work offline – no data connection required. The Lite version is free but will have discreet ads, or you can go the Pro version, which is the cost of a cappuccino and is ad free. The thing to do is install the free Lite version and if you like it upgrade to the ad free Pro version – simple! So what are the most popular terms people are looking up? They are ‘depreciable amount’, ‘input cost’, ‘participating interest’, ‘limiting factor’ and ‘gross loss’.


Pop diva Rihanna has been offered a $10m settlement from her accountants after she claimed they had made her ‘financially vulnerable’. She



Sara Braidwood and her team at the NHS North West Student Forum didn’t win our ‘Student Body of the Year’ award recently. But she won’t be too disheartened as she walked off with the ‘Unsung Heroine of Women’s Cycling’ at the London Bike Show. Wow, that girl is a busy bee!

Dr Stuart Walton, writing in the Evening Standard, says the Scottish independence debate has been tedious “because the issue has been reduced to something that can be decided by accountants rather than people with passion and belief”. So accountants don’t have passion or belief?

took her accountants to court, claiming they made so many bad decisions she effectively became ‘bankrupt’ in 2009. She started that year




JAGUAR DRIVERS ‘SEXIEST’ Women believe men who drive Jaguars win the sexy stakes. A poll by Illicit Encounters put Audi and Mercedes drivers in second and third place respectively. So what are the least sexy car manufacturers? Bottom of the list came Nissan, followed by Volvo, Renault and Toyota. We at PQ tweeted this story but unfortunately got our ‘sexiest’ and ‘sexist’ mixed up, saying Jaguar drivers were the sexist. Many of our followers were quick to agree! with $11m in the bank and by the end of it had ‘only’ $2m left! Don’t worry too much, she’s recovered and now has $43m in her coffers. Her accountants,

Berdon LLP, had claimed it was RiRi’s own financial actions or inaction, and those working for her, that had caused the losses. They were not, however, prepared to test the case in the courtroom.

What would you do to avoid tax? DJ Chris Moyles pretended to be a used-car salesman in the hope of avoiding tax on £1m of earnings. The aggressive tax avoidance scheme, called ‘Working Wheels’, meant he had to tell HMRC that he had spent time “engaged in self-employment as a used-car trader”. On his tax claim he explained he had sold one car for £3,800 but had run up £1m of losses. A tax tribunal ruled that Working Wheels should be dissolved and the 450 people involved needed to pay £290m in tax owed. What we can’t understand is why HMRC is not pursuing Moyles and the others – surely it is a criminal offence to lie on your tax forms.


Three in one We have three great books by Christopher Stoakes to giveaway this month. ‘Know the City 2013/14’, ‘Commercial Awareness 2013/14’, and his ‘Get to the Point, how to write well at work’. These great books are indispensible guides for any PQ with career ambitions. We reviewed ‘Get to the Point’ in last month’s issue and gave it a whopping 5 out of 5! All you need to do is email (headed ‘Stoakes’) and we will do the rest. Send your address too!

A Complete Learning Solution from Kaplan up for grabs Kaplan Publishing is giving away a FREE ACCA Complete Learning Solution to one lucky reader, worth over £100! This package of ACCA-approved materials is all you need for effective exam preparation and includes the Complete Study Text, Exam Kit, Pocket Notes, Final Assessment and free online materials. To be in with a chance of landing this prize, email Head your email ‘Kaplan’ and include your address.

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 11 April. The main draw will take place on Monday 14 April 2013.


PQ Magazine April 2014

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PQ magazine, April 2014