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PQ magazine May 2014 /

The examiner says you shouldn’t rely on them, but we know it is what everyone does – so we’ve got exam tips for the May exams INSIDE!

BOLD INITIATIVE TO ACCESS ALL AREAS The accountancy profession is inherently too white, too male and too middle-class – and something has to change, according to KPMG UK chairman Simon Collins. He was the ‘opening act’ at the launch of the new social mobility drive for the whole profession – Access Accountancy – and has become a strong advocate for giving everyone an equal chance of accessing the profession. Collins stressed that accountancy needs to attract more diversity into its ranks because “it is right for business, right for the profession, and the right thing to do”. Access Accountancy starts at the very beginning by promoting work experience, but its remit could expand to include recruitment into the profession, too. At the launch David Johnson, commissioner, Social Mobility and Child Poverty Commission, said that he has been critical of the accountancy profession, and its ‘friends-and-family-and-client’ work

Accountancy’s future? Students from Elizabeth Garrett Anderson school experience schemes. He said work experience mattered because it allowed students to have a greater understanding of how the profession worked, helped them to make connections, and gave them something to put on their CV. Students who undertake work experience also have something to bring to interviews – real evidence that they are interested in a career in accountancy. But Johnson warned that the

THE WINNERS ARE... It was a tearful but joyous night for Sarah Williams, who was named Student of the Year at the inaugural AAT Training Provider Awards. Sarah, who was nominated by her training provider Eagle Education, said she wanted to provide a bright future for her family, so knew she had to study hard to get a good job. Single parent Sarah was made redundant (twice) and homeless, all within three years. But this didn’t

stop her achieving her goals. Eagle Education won its own award on the night, being named the ‘Distance Learning Provider of the Year’. PQ award winners Premier Training just can’t stop landing the prizes, either! Our ‘Student Resource of the Year’ winners walked off with the ‘Best use of e-learning’ award in Birmingham. • For the full list of winners go to

initiative will mean nothing unless the profession releases the stats on how it is doing when it comes to social mobility. KPMG’s Marianne Fallon has been spearheading Access Accountancy, which has been piloted at a number of firms. She told a packed audience at the launch at Elizabeth Garrett Anderson school in Islington that there was a vital need to ensure the profession attracted the best talent, Premier crew: the victorious Premier Training team

which means looking further afield than Russell Group universities. She promised that all those involved will be collecting and monitoring social and economic data on applicants on an annual basis. The scheme also provides real work experience – a minimum of 30 hours contact time per individual. The promise is to provide a minimum of 3,750 work experiences placements for students from September 2014 to September 2019. What is interesting, she ventured, is that partners in many firms today come from a much more diverse background than current recruits. The insistence on certain grades does seem to be changing, however. Just last month Grant Thornton said it was no longer screening out applicants based solely on their academic results. The challenge now is that the initiative reaches parts of the country others don’t. The scheme also has to be more than a nice page in the annual report.

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contents PQ


News 08The jobs market Things are looking up on the jobs front 10CIPFA moves Exam dates may change as institute relocates 12AAT conference Why students should get their percentages Features, etc 06Have your say Frustration over the ACCA website; CIMA earns praise; and our favourite tweets 14ACCA P3 Your exam technique will see you through this paper

16Technical update 1 Standard costing and price variance

18Technical update 2 Gareth

John on tackling questions on control accounts 21CIMA exam tips We’ve four pages of tips from the experts for May’s exam diet

26ACCA audit exams Practice

makes perfect – or how to pass the F8 and P7 papers

28Lifestyle You are what you eat – or how a healthy, balanced diet can get you through

May 2014 34Viewpoint The UK must start

to put young people first 35CIMA apprenticeships Scheme gets off to flying start 36CIPFA Budget response What the chancellor’s measures will mean for public finances 37Careers Life at Rotherham College; harnessing the power of social media to get a new job; and the PQ Book Club 42Fun time George Osborne’s favourite word; April Fool high jinx; and more great giveaways The columnists Prem Sikka Why international standards distort audit picture 8 Robert Bruce Burying the evidence just won’t work 10 Carl Lygo Visa rules are damaging Britain’s reputation 12 Subscribe to PQ Magazine It’s FREE – see page 39 or go to ABC July 2012–June 2013


29ICAEW focus Why strategic Business Management is the bridge to the case study

30ACCA optional papers Eight

things you need to do to pass P4; and what the examiners said about the December exams

32Risk management Part one of a two-part series on the tricky area of futures contracts

Publisher’s statement:We have a digital issue of the magazine which is sent to 9,312 requested readers

So what did you learn? It was one of those months for this correspondent – busy, but not like one of Carl Lygo’s (that boy gets around, he is reporting from Philippines’ this month – see page 12). One particular day I started at Elizabeth Garrett School (Michele Obama’s favourite in Islington) for the launch of Access Accountancy (see front page). I then spent the afternoon in the wonderful company of Paul Taylor of CPA Australia, and finally ended it at a CIMA event at St Paul’s for its ‘look beyond the checkbox’ initiative. The following day I got on a train to the NEC (Birmingham) for the AAT annual conference two-dayer. So what did I learn? Well, for a start, the profession looks serious about changing its elitist ways. As KPMG’s Marianne Fallon (pictured) says, the profession has for too long equated talent with the number of A grades its recruits could accumulate, without looking at how these were achieved and the talent behind them. By choosing only certain universities to recruit from many chartered firms have created a haven for middleclass white men. But don’t take my word for it – see what KPMG’s chairman Simon Collins says on our front cover. CPA Australia is a qualification that can take you places too and its work with UK universities really seems to be paying off. They also have a great new app, which you will hear more of in the coming months! At St Paul’s the discussion homed in on the concept of ‘purpose’. Making lots of money at everyone else’s expense, it seems, is no longer acceptable. Businesses and business leaders need to show their purpose. That sounds all very good, but what I really learnt is that St Paul’s crypt is full of mice! Then it was off to the AAT Training Providers’ awards – it was nice to hear ours was their ‘inspiration’. But then again, ours are very good. It’s a real shame that AAT lecturers can’t talk to the assessors anymore. The AAT has always been very professional in the way it has facilitated access to the assessors, but it appears other bodies have not been so good. That has taken the edge off what has always been a great two days. Well, that was just a few days in the life of PQ magazine. Enjoy the read. Graham Hambly, PQ magazine editor (

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PQ have your say


My ACCA web woes I managed to pass my final ACCA exam at the last sitting. Since the exam results came out I have had several emails from the ACCA encouraging me to complete the Professional Experience Requirement (PER) and become a full member. So I took a day off work in order to make some decent progress on the PER. However, I kept being greeted with a message on the website telling me the myACCA site was down for ‘essential maintenance’. It was frustrating, but I guess sometimes you

“Oh dear – looks like another ACCA trying to complete the Professional Experience Requirement”

have to accept that things just go wrong. However, the following Saturday I tried again to work on my PER, only to be faced with the same problem. It’s starting to drive me nuts! At this time of year I’m busy with year-end accounts and that weekend was probably my last opportunity for some months. Having worked so hard to get through the exams, it’s all rather disappointing from the ACCA. Robert Lines, Hove The editor says: Over to you, ACCA – we would welcome a response on this subject.

Hot & Tweet

We’ve tweeted about everything this month from the ACCA opening its 91st office in Myanmar to the ICAEW’s growing concern over HMRC being able to take money from tax debtors’ bank accounts Thanks to everyone who got the word out about what a great read PQ magazine is. We like the one from Mark Lee who said: “Believe me it will help you qualify – it’s a good read too!”

Keep up standards I noted with displeasure the exam changes coming into effect from December. What is ACCA trying to achieve? I trust they’re not trying to pander to those who keep bleating on about low pass rates? Standards need to be kept as high as possible so the qualification does not lose any of its credibility. If an aircraft engine fails a test and the aircraft is grounded, then it’s not because there’s something wrong with the test – the engine is not up to scratch. It’s a safety issue. In our case it’s a reputational issue, and those who are not up to scratch need to be weeded out. Let’s hope standards don’t slip. Andreas MacFarlane, by email

Well done CIMA It was refreshing to read your front page lead about the possibility of CIMA raising the pass mark. Quite simply, getting half marks is ‘just not good enough’ (PQ, April ’14). The new CIMA education chief, Noel Tagoe, is also right in his quest to help make the move from classroom to workplace more seamless. Employers up and down the land will no doubt welcome this, and this will surely stand CIMA in good stead for the future as its students and NQs will become increasingly in demand. The move to a 70% pass rate, as suggested in your article, will only



help to maintain standards (and will hopefully spur all the other accountancy bodies to ‘raise their game’ too). Taking it back to the workplace, if you were working on an important assignment for a client and got it ‘half right’ you wouldn’t last long in the job! Name and address supplied The editor says: Please let us have your view on this contentious issue.

Hone your skills and practise exam technique by completing mock questions under exam conditions. Just £90 There was an interesting discussion on CIMA’s LinkedIn page recently about passing your exams first time. The main concern is that employers could be denying themselves a massive part of the talent pool by insisting on first-time passes. One consultant explained that in mainstream

One of our most retweeted stories was: “Half of young British women (28-44) say they have suffered some form of bullying/harassment at work in the past 3 years, says PwC study. Shame.” And KPMG’s Simon Collins’ suggestion that the accountancy profession is too male, too white and too middleclass provoked a reaction, too. @PQmagazine also tweeted away at the AAT Training Providers awards. We got the first pictures out there of the AAT Student of the Year, Sarah Williams along with Sonya Ashbarry of Eagle Training (see above). Great to be told that the PQ awards was their inspiration. We have a recommendation for all you tweeters out there – Reed Accountancy’s @PQHub. It really is worth following. finance once you are qualified and have a good CV no one asks how many times it took to pass your exams. It was also suggested that by insisting on first-time passes employers are simply trying to reduce applicants – nice! CIMA’s LinkedIn page is one of our favourites. If you have failed an exam, for example, there is some great practical advice on offer from fellow ‘suffers’.

PQ Magazine Fourth floor, Central House, 142 Central Street, London EC1V 8AR | Phone: 020 7216 6444 | Email: Website: | Editor/publisher: Graham Hambly | Advertising manager: Polly Thrasivoulou Associate editor: Adam Riches | Art editor: Tim Parker | Subscriptions: | Contributors: Robert Bruce, Prem Sikka, Tony Kelly, Ruhi Singha, Phil Gammon, Jo Daley | Origination and print services by Classified Central Media If you have any problems with delivery, or if you want to change your delivery address, please email

Published by PQ Publishing © PQ Publishing 2014

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PQ news

PREM SIKKA IFRSs are reducing value of accounts to regulators The regulators are concerned about adequacy of capital at banks. This has a major bearing on liquidity, a key indicator of any bank’s ability to meet its obligations. In the 1970s, 20–25% of the total capital of banks was provided by shareholders. However, in the zeal to create more credit, the level of capital requirements continued to decline. After the banking crash, the balance sheets of Barclays, HSBC, Lloyds and RBS show that shareholders provided 4.25%, 6.8%, 4.83% and 5.37% respectively of total capital. There is also a bigger problem. Regulators have used traditional accounting numbers to judge adequacy of capital, but this is now muddied by IFRSs, primarily concerned with providing information to investors. IFRSs permit banks to recognise unrealised gains and fluctuating values based on mathematical models into financial statements. Banks are not obliged to set aside capital to meet anticipated losses. They can to capitalise amounts expended on derivatives – bookies tickets for betting on financial horses. As a result, the usefulness of bank accounts for regulatory purposes is reduced. In view of the divergence between the interests of capital markets and regulators, the Commission on Banking Standards has recommended that there should be a separate set of accounts for regulatory purposes. How long before other users also give the thumbs down to IFRS-based accounts?  Prem Sikka is professor of accountancy at the

A BRIGHTER FUTURE The world of the PQ accountant looks a brighter place to be, according to the latest Reed Accountancy Part Qualified Salary Guide and Market Insight 2014 report. Released in early April, the guide says the biggest single change in the past 12 months has been the increase in permanent opportunities, aided by wider economic growth. This has certainly helped the mood of PQs, with 83% saying they are satisfied or very satisfied in their job and a record 89% feeling secure. The growth across the business service and consultancy industries is driving recruitment activity as organisations help their clients to

Gert Nzimiro add a competitive edge. Financial services experience is also highly desirable, says the study, as increasing regulation and healthy growth levels is adding to demand

‘Pleasing’ CIMA resits CIMA resit candidates admitted they had found P2 time-pressured this time around, but many will have been more than pleased with the pass rate – a record 67% in February. CIMA’s executive director of education, Noel Tagoe, said he was happy with the results in E1, P2, F1 and the T4 part B case study, but felt there is scope for improvement in F2. At 52% the F2 pass rate might seem low, but at the last resit exam (September 2013) just 26% passed the paper. The F1 pass rate was an impressive 71% this time around, matching the February 2013 success. The only downside in February was the lower E3 and F3 pass rates – both were 50%. They have been even lower in the past, but last September candidates pass rates were five/six percentage points better. CIMA RESIT PASS RATES MAR 14 P1 Performance Operations 53% E1 Enterprise Operations 69% F1 Financial Operations 71% P2 Performance Management 67% E2 Enterprise Management 63% F2 Financial Management 52% P3 Performance Strategy 58% E3 Enterprise Strategy 50% F3 Financial Strategy 50% T4 Part B case study exam 65%

SEPT 13 52% 68% 57% 45% 65% 26% 56% 56% 55% 66%

MAR 13 58% 62% 71% 44% 55% 51% 56% 48% 52% 54%

SEPT 12 42% 88% 54% 51% 59% 53% 56% 40% 55% 48%

MAR 12 51% 74% 59% 38% 81% 44% 57% 54% 55% 62%

In brief CIFPA student body changes CIPFA’s National Student Forum is undergoing a ‘transformation’ in order to provide even more support for students. The new body will support CIPFA’s global network of PQs and still provide them with representation on CIPFA’s council and other key boards. The official launch of the CIPFA Student Network will take place at the annual conference in London on 2 July. 8

More assistance needed Younger chartered accountants, those aged under 35, have been seeking more help from the Chartered Accountants Benevolent Association (CABA). The number of these younger members approaching CABA for help doubled in 2013 – or by 115%. During the year, CABA issued 11 emergency food parcels and 102

people were provided with emergency winter fuel payments. Watford no more What has happened to the Watford Exam centre, CIMA students want to know. The Colosseum was the centre of choice for many but it has now disappeared. The nearest centre is Harrow, or London North West as it is called on the list. Students said that the Watford centre was always busy so can’t understand why it is no longer offered.

for candidates in this area. The market is becoming more candidate-driven, and in the survey just over a third of PQs (36%) said they will be looking for a new role in the next year. Head of Reed Accountancy Gert Nzimiro said: “While the pool of talent is currently meeting demand, the best candidates in the market often have a choice of roles, and employers have to put together enticing packages to secure the top candidates. This is about much more than financial rewards. PQ candidates are discerning in their choice of roles and career progression is often the most important factor.” Nzimiro felt that despite difficult economic conditions, practice firms have continued to provide funding for training, which is extremely attractive to candidates and often secures their loyalty. Interestingly, he said that employers must start using the interview process as an opportunity to sell themselves to a candidate and clearly communicate how the role will help to further their career. • The Reed Accountancy PQ Salary Guide and Market Insight Report 2014 is available by visiting

ACCA moving into MOOCS The ACCA is launching its first free MOOC course, giving an exemption from its professional ACCA paper F1. Called ‘Discovering Business in Society’, the course will be offered free online at FutureLearn from September 2014. The University of Exeter is developing the course, which is aimed at those interested in learning the principles of business, including prospective undergraduate students, working professionals without a background in business, and indeed anyone interested in entering the finance profession and seeking a route to ACCA membership. ACCA CEO Helen Brand (pictured) said: “We are delighted to be working in partnership with FutureLearn and the University of Exeter – from where I graduated.” She emphasised that MOOCs are the future and a great way for members to meet CPD needs. PQ Magazine May 2014

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PQ news

ROBERT BRUCE Burying the evidence doesn’t work! If pirates wanted to hide something they simply buried it. It became a stand-by in children’s stories down the ages. ‘Buried treasure’ became a romantic concept. But there is an essential truth behind it. If you really want to make sure that the people who might want the stuff cannot easily get it, then you simply bury it. And this is what has been happening in decades of financial reporting. There are rules. There are accounting standards. But if you are struggling to cope with the transparency that investors and shareholders might demand there is but one refuge. You bury the key facts deep within the verbiage. You stretch the number of pages in your annual report so that they become too-time consuming for an ordinary soul to bear. You take your embarrassing and revealing information and, like a needle, you bury it deep within your haystack. Now, interestingly, academics have shown the downside of this. The stuff may be obscure. But reports that analysts struggle to get to grips with create a knock-on effect. The analysts produce less accurate earnings estimates and the companies suffer. As a result, say the academics, Tim Loughran and Bill McDonald of Notre Dame Mendoza School of Business in Indiana, the most significant factor impacting on how share prices perform in the immediate postpublication period is the length of the annual report. It is time the pirates realised that their self-defeating game is up.  Robert Bruce is an award-winning writer on accountancy for The Times

CIFPA TO MOVE – AND OPENINGS A SWITCH EXAM DATES? CAUSE FOR CIPFA is set to quit its Robert Street premises in December and is also looking to change its exam dates. The institute has bought new premises in London’s Mansell Street, close to Tower Bridge. CIPFA is also selling its Borough High Street CETC and relocating staff to the new offices. On the exam front, while traditionally students have sat in June and December, it appears employers have said current exam dates give them real operational difficulties. So the institute is proposing later exams from 2015 onwards. The summer exams would move to late June/early July. Winter exams will be where the real change will be felt, moving from early December to early/mid-January.


Leaving home: Robert Street, CIPFA’s base for the past 30 years CIPFA says this will enable it to deliver results more quickly and help courses starting in August. The institute is discussing the changes directly with employers and is encouraging students who are funding their own progression through the qualification for their views, too.

EU audit reforms The Financial Reporting Council (FRC) was one of the first organisations to welcome the recent EU Parliament vote on audit market reform. The FRC’s Stephen Haddrill said: “The FRC is especially pleased that EU legislation will now follow the UK’s example of retendering an audit every 10 years.” MEPs agreed on a mandatory rotation rule whereby an auditor may inspect a company’s books for up to 10 years, which may increase by 10 additional years if new tenders are issued. The Commission had proposed a six-year rotation, but this was judged as too costly and overly prescriptive.

Student burglar punished by AAT The latest list of ‘wrongdoer’s has been released by the AAT. Among those named and shamed is former AAT student Ammar Khan. He was found to be in breach of Association policy after he was convicted of burglary and by consent has been withdrawn from student membership for four years. Another student, Jayne McKnight, had her student membership withdrawn until an unspent

conviction is spent, and has been declared unfit to become a full member. Fines of £50 have also been dished out to several students who were found to have unauthorised material in CBA exams. Glen Brinkley was severely reprimanded and debarred from sitting assessments for six months. Two other PQs, Billal Anjum and Shaquille Pierre, who had handwritten notes in their possession, were severely reprimanded.

viable financial plan and is in ongoing discussions with the Skills Funding Agency.

client for failing to recommend that he seek specialist advice on a complex tax planning product that would have avoided an £850,000 capital gains liability.

New accountancy firm openings are outstripping closures, suggesting the sector is bouncing back from the recession, according to Bloomsbury Professional. The number of new accountancy firms starting up in 2012 increased by 9% to 4,500, while some 3,700 firms closed in the same year – a net gain of 800. Compared with 2010, the low point for the creation of new accountancy firms, there has been a 30% increase in the number of accountancy firm ‘births’. Bloomsbury Professional’s Martin Casimir explained that accountancy firms were hit hard during the recession, and even now the number of closures is still quite high. This suggests that profitability is still a big issue with the continued downward pressure on fees and competition. He also felt demand for accountants may be recovering as a result of HMRC’s well-publicised campaigns that it is getting tougher on tax evasion. Casimir explained: “Sole practitioners or small businesses who may have once filled out their returns themselves are aware that the penalties for failing to submit forms on time or incorrectly could cost them heavily, and are now choosing to pay for the services of an accountant to avoid being caught out by the revenue.” • This story first appeared in PQ magazine’s sister publication NQ magazine. Take a look at this great e-magazine at

In brief College under fire Ealing, Hammersmith and West London College (pictured) has been accused of having a £4m black hole in its finances (Evening Standard, 12 March). The college, which offers AAT courses, said the story refers to a leaked internal audit report (a draft) from last summer, but not the final audit report which was completed in September 2013. The college stressed it is working on a 10

Tax avoidance ruling Accountancy firms do not have an obligation to advise clients to enter aggressive tax avoidance schemes, says the Court of Appeal. In Mehjoo v Harben Barker, the defendant firm was sued for negligence by a long-standing

Tighter visa controls The number of overseas students starting courses in England fell for the first time in almost 30 years, says new research. The biggest decrease was among students from Pakistan and India, who increasingly looked to enrol at US and Australian

universities instead. The worry is the perceived tougher laws are driving bona fide students to look for courses elsewhere. ICAS relaxes rules ICAS is opening up the routes to its qualification. Graduates in an accountancy or finance role, or those with five years’ experience, can now study to become a CA with ICAS. They can do this without having to leave their current role or secure a training contract with an approved employer. PQ Magazine May 2014

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PQ news


CARL LYGO Visa regime is damaging the UK’s world status This month I was in the Philippines, the 12th largest country by population in the world, home to 99 million people. Its name is a tribute to King Philip II of Spain, and although within two hours of mainland China its influence is decidedly Spanish (and latterly US). Most companies in the Philippines are subsidiaries of US corporations, so from an accounting perspective the AICPA (American Institute of Certified Public Accountants) dominates the local profession. On the McDonald’s Index, a Big Mac will set you back $2.98, compared with the US/UK price of $4.63. The standards of spoken and written English are exceptional (95% speak English), the highest in the South East Asia region. The Philippines is also part of the Association of South East Asian Nations (ASEAN), which is preparing to form a type of EU economic union in 2015. The oldest University in the Philippines is UST (University Santo Tomas), formed in April 1611, and is the oldest university in Asia in continuing existence. Although heavily influenced by Spain and the US there is a massive prestige attached to UK education. Currently, the tough visa regime adopted by the UK government has seen the Philippines send only 400 students to the UK, while Australia has grown to over 4,000. This represents a great loss to the British economy: about £72 million in direct primary spending alone. Including international students in net migration figures is damaging the UK’s economy, our worldwide reputation and the soft power and influence we have.  Professor Carl Lygo is chief executive of BPP

The call has come – again – from the AAT Training Providers conference for students to be provided with their assessment percentages. One AAT tutor started the ball rolling during a question-and-answer session with the head of assessment Martin Mackain-Bremner. The tutor, from Bournemouth & Poole, explained that AAT PQs and their employers have the right to know just how well they have done in their exams (assessments). That means percentages rather than the current broad range of expressions, such as ‘exceeded’ or ‘did not meet the requirement’! Mackain-Bremner asked the audience of 300-plus tutors if this was something they wanted and the hands of 300 delegates went up in unison. He pledged that he and his team would go away and come back with a practical solution.

However, the AAT has been told by the Qualifications and Credit Framework (QCF) that it needs to change the grading of exams to fail, pass, merit and distinction. If percentages are attributed to each of these levels then the problem might be solved to everyone’s satisfaction. Another bone of contention for many colleges is the fact that they have to administer students’ results.

Reviews failing So how beneficial are the ACCA’s administrative reviews? Remember, these reviews are not a re-marking service, but simply a check that the marks have been added up correctly. Well, last December some 877 students paid £52 for a review. Of these, just three errors were picked up, and as a result the original mark was changed. However, all the final results remained as fails. Some 38 students appealed their case, which were then considered by the Appeal Committee, but none were successful. In effect, ACCA students spent £45,604 to be told again they real did fail! For many students and tutors the question remains – why doesn’t the ACCA offer a real remarking service? Several tutors felt that students


waste too much energy in trying to justify a fail. Instead, they would be better off putting that effort into passing the next exam. It was suggested to PQ magazine that students focus on the reviews now because of the gap between sittings. “Once the ACCA introduces more regular exam sessions [due to come in from late 2015/early 2016] the demand for these reviews will all but disappear,” suggested one expert.

The LCA Business School Lecture


Why, asked tutors, can’t the AAT make students’ results available to them via MyAAT? The tutors PQ magazine spoke to said that both students and employers are desperate for this information. “We have been waiting years for this,” said one disgruntled lecturer. Another stressed that these were students’ results and so should go to them.

The AAT Green Light Tests are reaching a new milestone. Since their launch two years ago, some 985,118 tests have been undertaken, explained the AAT director of education Suzie Webb (pictured). She told delegates at the AAT Training Providers conference that the tests are reaching the million mark – “a massive achievement” – and have now gone mobile, too. Her team is also constantly looking at the qualification and adding areas where students need more guidance. Level 3 has the most downloads to date – some 398,707. This is closely followed by Level 4, with 325,508 tests being taken.

Brought to you in conjunction with PQ magazine


The date/time: The cost: The venue:

Thursday 1 May, 5.30pm FREE LCA Business School London, 19 Charterhouse Street London EC1N 6RA

The accountancy profession is changing and new technology looks set to reshape the profession. Mobile, big data, artificial intelligence, cyber security and the cloud are just some of these, changing the landscape in which you will work forever.

How to book a place: Places are limited and will be offered on a first-come, first-served basis. To reserve a seat email Head up your email ‘LCA lecture’ PQ Magazine May 2014

PQ ACCA P3 paper

MODEL ANSWERS Kaplan’s Paul Anderson explains how the P3 paper is a test of exam technique as well as knowledge • Pass rate: 49% (December 2013) • Technical difficulty: 3/10 • Weighting of calculations: 15%-20% • Weighting of discursive elements: 80%-85% • Exam technique: 8/10 The syllabus . . P3 is a strategic paper aimed at improving longer-term business decisions where the accountant is able to provide information that can help an organisation improve its current and future market position. These strategic choices are supported by organisational and process changes which are also explored within the eight syllabus areas.


Strategic position analysis: Before an organisation can improve its strategic position it needs to understand where it stands at the moment. Some of the models used to do this such as SWOT, PESTEL and Porter’s 5 Forces will be familiar to students, but the focus in the syllabus is on the analysis of these models rather than the simple mechanics of creating the information. This is an area of the syllabus that students can typically perform well in, although one area, marketing, has been consistently challenging for many students.


Evaluating strategic choices: This is a key examination area that has featured regularly in the compulsory question. A key model is the JSW strategy evaluation test model, which explores three criteria that should be used to assess any strategic choice. This part of the syllabus builds on the assessment of the strategic position and students can only be successful in this area if they make those linkages in their answers.


Putting strategy into action: The syllabus explores how different structures support different strategies and how organisational resistance can be overcome through strong leadership and cultural shifts. This is an area of the syllabus that builds on ‘brought forward’ knowledge from paper F1.


Business and process changes: Successful organisations often achieve success from a redesign of current organisational processes. Students need to be able to determine which processes to redesign (using Harmon’s matrix), what changes should be made and the key role that software can play in redesigning software.

E 14

Information technology: In this part of the syllabus students study how IT can improve

an organisation’s supply chain and improve its customer relationship management. These are areas that students are often less familiar with in their own working environments and therefore more work is needed here to understand potentially new concepts. But information technology controls is an area that some students may be familiar with from their auditing studies.


Project management: This has become a key syllabus area. Accountants are involved in projects in many aspects of their work and much of the P3 syllabus involves new projects. The material in this part of the syllabus requires a lot more learning than most other syllabus areas, but it means that it is one of the few areas of the syllabus where rote learning can pay off.


Financial analysis: This is the area where calculations can come into the paper. While most of these calculations have been studied in previous papers, P3 focuses on the analysis and suitability of what the calculations tell us. So an understanding of what the number means and what it is trying to show is much more important than the ability to get the number itself correct.


Strategy and people: Strategy can only be successful if an organisation’s people are supportive of it and motivated and developed to

achieve it. Brought forward knowledge from P1 on areas such as leadership, teamwork and learning are important in achieving this. Sitting the P3 exam . The P3 exam is more about exam technique than it is about technical ability or a regurgitation of knowledge. There are some key techniques that students need to apply in the exam: • Many answers will require students to use a model as a framework for their answer, and those students who fail to do so typically do not score well. This means that students need to become familiar with when each model is used. • Very little time should be wasted on explaining models. Marks are only awarded for their application. • Answers must be relevant to the scenario. Simple regurgitation from the study notes will not score well unless it is personalised to the scenario. • When making recommendations or suggestions, these should be as specific and detailed as possible. • P3 scenarios can be very long and there is a lot of information to take in. This makes the exam very time pressured and means that students must practise time management techniques. PQ • Paul Anderson is a P3 Content Specialist at Kaplan Financial PQ Magazine May 2014

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PQ technical focus

FORMULA WON In the first of a three-part series, Mary Ofili explains standard costing and direct materials price variance STANDARD DIRECT MATERIALS The standard cost of direct materials is made up of: • The quantity of materials expected to be used; and • The unit cost of materials Material cost

Unit price



Where standard costing is used in an organisation for setting its budgets, this will have to be compared with the actual costs incurred and thereby the variances can be calculated. The direct materials variance is the difference between the standard total cost of materials for the actual level of production and the actual cost of materials incurred in the production. This is simply measuring the difference between what the materials should have cost for the actual level of production and what it actually cost. The total direct materials variance can be split into the following two variances: • Direct materials price variance. • Direct materials usage variance. These two variances will enable management to be able to narrow down and identify what would have caused the variance – whether it is the unit price or the quantity of materials used in the production process. I will be covering the direct material price variance in this article and will follow this with the direct materials usage variance in the next edition and then the direct materials variance. DIRECT MATERIALS PRICE VARIANCE This is the difference between the standard price due to be paid for the actual quantity of materials used and the actual price paid. Notice that this compares how much should I have paid per unit and how much I actually paid per unit, for the quantity of materials used in the production. It focuses on the price, so the difference between the standard unit price and the actual price paid for the quantity of materials purchased.

Standard cost of actual quantity used Actual cost of actual quantity used Material price variance

£ X X X

Where we have the standard cost and actual cost of the same quantity of materials actually used in the production being compared, any difference arising can only be as a result of the unit prices of the material. If the actual cost is less than the standard cost, then the variance will be favourable and if the actual cost is more than the standard cost, then the variance will be adverse. This will mean that: ACTUAL unit price > STANDARD unit price = ADVERSE variance ACTUAL unit price < STANDARD unit price = FAVOURABLE variance Where there is a favourable direct material price variance, it indicates to management that there was some efficiency in the unit purchase price of materials and where there is an adverse variance it indicates that there was some inefficiency in the unit purchase price of materials, which has contributed to the total material variance.

For example, if the standard cost of materials for a product called ‘Product F’ is as below:

1 unit of Product F



3.2 yards

Cost per yard (£)

Total cost per unit (£)



So 4,200 yards of materials that cost a total of £76,860 was used for the production of 1,300 units during the month. What will be the material price variance? SOLUTION STANDARD COST






4,200 yards



4,200 yards

Direct materials price variance: Standard cost of actual quantity used (4,200 yards x £16) Actual cost of actual quantity used Direct materials price variance

£67,200 £76,860 £9,660

Also: Standard unit price Actual unit price (£76,860 / 4,200yards) Materials unit price variance

£16.00 £18.30 £2.30



Material price variance = £2.30 x 4,200 yards = £9,660 Adverse**

Note: You may have noticed that the standard unit cost was budgeted to be £16.00 per yard but the actual materials were purchased for £18.30 per yard, which establishes an adverse unit price variance since the materials were purchased for a higher unit price than budgeted. This is then multiplied by the actual quantity of materials used, and with this, you arrive at the materials price variance. PQ • Mary Ofili is a director of The Training Place

Parts 2 and 3 of this article will feature in the next two issues of PQ 16

PQ Magazine May 2014


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PQ technical update

LET’S GET TECHNICAL allowed to customers were £1,000. What would the balance on the SLCA be at the end of the month? Let’s take each figure in turn: • Since the SLCA is an asset of the business (the trade receivables owed by credit customers) then the opening balance will be a brought forward debit balance. • The credit sales in the month will increase the balance owed by customers so this would be a further debit entry. • Payments made by customers will reduce the amount they owe so will be a credit entry. • Sales returns also reduce the balance owed by customers (they are certainly not going to want to pay for things they have sent back to us) so would also be a credit entry. • Discounts allowed to customers mean that we are letting them off with part of what they owe us which will reduce the outstanding balance and therefore requires another credit entry. To establish the balance at the end of the month we could work through each transaction in turn adding the debits and deducting the credits as follows: £50,000 + £40,000 – £30,000 – £3,000 – £1,000 = £56,000 balance at the end of January. Alternatively we could show the transactions on a ledger account:

Contol accounts is the subject for Gareth John’s incisive analysis this time


raham Hambly asked me the other day: “How many bottles of wine do you have in your cellar?” If I answered this by telling him about every bottle by each individual producer (a bottle of 1972 Chateau Musar, a bottle of 2000 Chateau Angelus, a bottle of 1982 Grange, etc.) then we would be there for several hours. It would be far easier to tell him I have a total of 2,345 bottles of red wine and a total of 1,764 bottles of white wine! In a similar way, although businesses do need to keep track of amounts owed by credit customers and amounts owed to credit suppliers, it would be rather cumbersome to include balances for every single individual customer and every single individual supplier in the general ledger. It is far easier to simplify things by just including a single total figure for trade receivable and a single total figure for trade payables. These single total figures are recorded in the so-called control accounts. Think ‘control account’ – think ‘total’! (Note – the records that do show the individual balances owed by each customer and owed to each supplier are called the subsidiary ledgers. There is a subsidiary sales ledger for individual customer account balances, and a subsidiary purchases ledger for individual supplier account balances.) Trade receivables . Trade receivables balances are amounts owed to the business by credit customers. The subsidiary sales ledger contains a list of balances owed by individual customers while the sales 18

ledger control account (SLCA) is the general ledger account showing the total amount owed by all credit customers as a single figure. The balance of trade receivables is an asset of the business which means that: • To increase the balance for new credit sales made we would debit the SLCA. • To decrease the balance for payments made by credit customers, sales returns or discounts allowed to customers we would credit the SLCA. Trade payables . Trade payables balances are amounts owed by the business to credit suppliers. The subsidiary purchases ledger contains a list of balances owed to individual suppliers whilst the purchases ledger control account (PLCA) is the general ledger account showing the total amount owed to all credit suppliers as a single figure. The balance of trade payables is a liability of the business which means that: • To increase the balance for new credit purchases made we would credit the PLCA. • To decrease the balance for payments made to credit suppliers, purchases returns or for discounts received from suppliers we would debit the PLCA. An example of completing a sales ledger control account At the start of January the balance on the SLCA was £50,000. During January credit sales totalled £40,000, payments made by credit customers were £30,000, sales returns were £3,000 and discounts

SALES LEDGER CONTROL ACCOUNT Opening balance b/d New credit sales

£ 50,000 40,000


Payments received Sales returns Discounts allowed Closing balance c/d (BF)

£ 30,000 3,000 1,000 56,000 90,000

Exercise Here’s one for you to try. Once you have finished your answer you can watch me work through my solution at An example of completing a purchases ledger control account The balance on the PLCA brought forward at the start of January was £56,780. During January payments were made to credit suppliers of £34,586, credit purchases were £42,745, purchases returns were £4,385 and discounts received from credit suppliers were £2,384. What will the balance on the PLCA carried forward at the end of January be? 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 May 2014

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CIMA exam tips PQ

TOP OF THE Top tutors supply top tips for the May sitting. But don’t forget our health warning! LSBF P1 • Section A: mixed topics including risk and uncertainty, working capital, investment appraisal. Make sure you revise last six exams papers to give a wider preparation. • Section B: costing, risk and uncertainty, budgeting and investment appraisal (some will be discursive). Again, check last six exam papers. • Section C: 2 long 25-mark questions, one from investment appraisal and one from either variances or ABC. Revise net present value calculations, cost driver rates, all variances including advanced. P2 • Transfer pricing. • Graphical linear programming and shadow prices. • Learning curves. • Operating and planning variances. • Imposed v participative budgets. P3 • Identification of risks. • Evaluation of methods of reducing those risks. • Internal audit. • Financial risk. • Risks associated with use of IT.

F1 • Section A: Q1 will consist of mainly knowledge marks. Expect written rather than multiple choice questions, which means that knowledge is vital. Likely topics include regulatory framework, principles of business taxation, related parties. • Section B: Q2 topics expected include calculation of corporation tax and deferred tax for entities, ethics, calculation of cash flow statement balances or consolidation adjustments for group accounting. • Section C: mainly calculation marks. Q3 will test a particular standard in detail, eg. IAS 2 or IAS 18. • Section B will require the preparation of single entity financial statements, consisting of a statement of comprehensive income, statement of financial position and statement of changes in equity. Q4 – consolidated financial statements including a parent, subsidiary and associated entity; or a statement of cash flow for a single entity. F2 • Statement of financial position. • Stepped acquisition.

• Fair values. • Cash flow statement. • Ratio analysis of a single company. • Share-based payments. • Pensions. • Liabilities. • International issues. F3 • Section A: new acquisition for the P group and subsequent valuation exercise (expect this to be combined with a reference to cost of capital). • Section B: an alternative investment appraisal requirement such as adjusted present value in one task. It has been a while since working capital management has featured. A financing conundrum may appear in the final question, which would require a discussion on how to resolve shortage of funds. E1 • MCQs – all areas of the syllabus. • Efficient regulation. • Offshoring and outsourcing. • Changeover process. • Cousin’s corporate supply strategy. • Marketing in not for profit organisations. • Value chain.

• Motivation. • Characteristics of emerging economies – BRIC. • Lean management. • PESTEL analysis. • Causes of relational procurement. E2 • Organisational flexibility. • Resource-based approach to strategy. • Different types of power. • Five Forces model. • National cultures – cross-cultural management. • Discipline procedures. • Features of PRINCE 2. • Network diagram. • Features of effective meetings. • Groups and teams – Belbin team roles. • Ethics and social responsibility. E3 • Change management. • IT based strategic evaluation. • Performance measurement issues. • External environment. • Ethics and CSR.

KAPLAN FINANCIAL E1 • Section A: expect questions to cover the full range of the syllabus. • The global business environment – free trade & protectionism, CSR. • Information systems: IT/IS developments, systems implementation. • Marketing: market planning process and the 4Ps, marketing in a not-for-profit context. E2 • Strategic management: strategic analysis, especially models such as value chain or PEST, stakeholder analysis, resource-based view. • Relationship management: leadership theories, discipline/grievance, culture. • Project management: benefits/ drawbacks of a single methodology such as PRINCE 2, project management tools, such as CPA or software, project completion or post-completion audit. E3 • Strategic analysis and evaluation. Continued on page 22

Exam tips and advice to help you pass with Åying colours

PQ Magazine May 2014


PQ CIMA exam tips Continued from page 21 • Project management and IT/ e-business. • Change management. • Performance – balanced scorecard/RI/ROI. F1 • Consolidated income statement and statement of financial position incorporating adjustments for inter company selling/balances, unrealised profit, impairment, fair value and depreciation. • Business tax – VAT calculations, overseas tax explanation/calculation, calculation of deferred and current tax with FS extracts. • New qualitative characteristics – section B question. • Statement of cash flows using the direct method (likely in section B). • IAS 18 Revenue recognition relating to a scenario. • IAS 11 Construction contracts – possibly a loss making scenario. • PPE note – including depreciation, disposal, revaluation and possibly asset held for sale. F2 • General interpretation plus limitations of analysis/further information. • Financial instruments – convertible debt or derivatives/ hedging. • Share-based payment. • Pension schemes. • Substance over form. F3 • Section A: In the past, section A has focused on investment appraisal and business valuation. • Section B: Key topic areas which may be tested are working capital management; rights issues (theoretical ex-rights prices); the link between financing, dividends and investment policies. P1 • NPV. • Planning and operating variances. • Decision trees and expected values. • Budgeting. P2 • Activity based costing. • Kaizen costing. • Ranges of shadow prices. • Transfer pricing.

P3 • Management control systems – employee or management risks and controls. • Risk and internal control – fraud, corporate governance. • Review and audit of control systems – internal audit. • Management of financial risk – foreign exchange risk management. • Risk and control in information systems – IT strategy, IT risks and controls.

DE MONTFORT UNIVERSITY P1 • ABC vs absorption. • Purposes of budgets. • IRR. • Working capital ratios. P2 • Linear programming. • Budgeting behavioural issues. • Kaizen/TQM. • Organisational structure. P3 • Cost of quality. • Risk ID. • Factors impacting FX rates. • Internal audit. E1 • Inventory management. • CIMA Code of Ethics. • Centralised versus decentralised IS/IT systems. • Quality management implementation. • Marketing segmentation and marketing mix. • Motivation. E2 • Groups and teams. • Leadership styles. • CIMA Code of Ethics. • Project completion and postcompletion. • Porter’s Five Forces. • PESTEL analysis. • Disciplinary procedures. E3 • Strategic planning methods. • Performance pyramid. • CIMA Code of Ethics. • Strategy evaluation (SAF). • Change management. • Control measures. • Transfer pricing. F1 • Income statement, statement of

financial position and changes in equity for single company. • Key principles of taxation. • Ethical reporting principles. • Fair value @ acquisition. F2 • Ratio analysis with interpretation. • Group accounts. • JVs (IAS 31). • (IAS 21) Foreign currency transactions. F3 • Non-financial performance measures. • Lease vs. buy. • Intangible valuation. • Capital structure – M&M.

FIRST INTUITION F1 • Taxation, including deferred tax and a tax computation. • Statement of cash flows. • Ethics. • The framework. • Single company accounts – including revaluations, leases. • Group accounts. F2 • Groups – statement of cashflows. • Interpretation of company accounts. • Group SOCIE. • Financial Instruments. • Earnings per share. • Pensions. • Discussion of whether to include people on the SFP. • US accounting vs international. F3 • Overseas project appraisal. • Financial forecasts. • Business valuations. • Cost of capital and risk. • Decisions on sources of finance. • Working capital. P1 • Marginal and absorption costing. • Variances. • Investment appraisal techniques. • Working capital management. • Environmental costing. P2 • Learning curves. • Variances. • ROI and RI. • Pricing. • Multiple limiting factors. • ABC.

• TQM/JIT. • Budgeting. P3 • Identification and management of risks for the company in the preseen using elements of the risk management cycle. • Evaluation of company controls. • Corporate governance –internal audit, internal controls, boards of directors. • Financial risk – currency risk: ways of managing currency risk, including options. • IT risks and controls, including CAATs. • Evaluation of two projects. E1 • Corporate governance. • Human resource plan. • Marketing mix. • International trade. • Use of IT in operations management. E2 • Project management – stakeholders and graphical tools. • Corporate governance. • Stakeholders and strategies to deal with them. • Managers and subordinates. • Organisational culture. • Rational planning.

BPP E1 E1 • The political, social and economic context. • Operations management (TQM, relational procurement). • Information systems – how IS can add value. • The marketing mix (possible ethical implications). • Managing human capital (HR plan, recruitment and selection). E2 • The competitive environment – distinguishing between different environments (e.g. using stakeholder mapping & PEST). • Strategic management – how a firm develops a strategy, including the rational planning model and its alternatives. • Project management – explaining what a project is and discussing tools and techniques used to manage it (e.g. 4-D/7-S models).

Tips to help you stand out in your job search


PQ Magazine May 2014

CIMA exam tips PQ • Linking project management to the external environment (e.g. stakeholder management/ reconciling time, cost and quality criteria). • Leadership – difference between power, authority and responsibility, understanding/managing conflict. • Managing the relationship between manager and subordinate, including teamwork, legal issues and interpersonal (negotiating/ communication) skills. E3 • Competitive environment – the way an organisation develops strategy is affected by its external environment and stakeholders (know PEST and 5 Forces models). • Strategic planning approaches vary from the rational model to emergent strategy. • IS and IT – can have a significant impact on an organisation and its competitive position. • How internal resources and capabilities of an organisation shape its strategic options. • Identifying different strategic options, using models such as Ansoff, Lynch and Porter’s generic strategies. • The evaluation of strategic options should be structured around the SAF framework. • Discussion of the change process and identifying triggers for change (draw on models such as Balogun & Hope Hailey’s change matrix and Lewin’s Force Field Analysis). • Managing change to support an organisation’s strategy; how resistance to change can be overcome (refer to the McKinsey 7S model). • Performance measurement – evaluate performance implications of a given strategy, and whether it is delivering expected benefits. • Balanced scorecard and the performance pyramid. F1 • Taxation – definition of key terms such as jurisdiction and hypothecation; calculations such as corporate tax due, underlying and withholding tax and sales tax. • External audit: purpose of audit; rights and duties of the auditor.

• Ethics: definitions of fundamental principles and ethical threats. • Accounting standards – questions testing definitions/calculations on areas such as IAS 18 Revenue, IAS 38 Intangibles and IFRS 8 Operating Segments. • Taxation – tax definitions, detailed calculations on direct, indirect, international and deferred taxation. • External audit – practical questions on whether the auditor’s report needs to be modified. • Ethics – explain ethical dilemma and consider steps that could be taken to address the issue. • Accounting standards – written or computational questions on areas such as IAS 7 Statements of Cash Flows, IAS 11 Construction Contracts, IAS 17 Leases and IFRS 5 Assets Held for Sale and Discontinued Operations. • Prepare the statement of profit or loss and other comprehensive income, statement of financial position and statement of changes in equity for a single entity

(including adjustments for inventory, property, plant and equipment, intangibles, current and deferred tax, provisions, leases and construction contracts). • Prepare the statement of cash flows for a single entity. • Prepare consolidated statement of financial position and/or the consolidated statement of profit or loss for a parent, subsidiary and associate (including adjustments for goodwill, the impairment of goodwill, inter-company trading and unrealised profit). • The preparation of financial statements for a single company and a group. Statement of cash flows. F2 • Groups question – consolidated statement of profit or loss and other comprehensive income, financial position or changes in equity; extracts/workings from group financial statements) or written question (explanation of accounting treatment of various investments).

• Interpretation of accounts – pre-calculated ratios/statement of cash flow, written/numerical EPS question, segment reporting, limitations of financial analysis. • Convergence of US GAAP and IFRS, narrative reporting, environmental/social reporting or human asset accounting. • ‘Issues in Recognition and Measurement’ – classification, recognition, initial and subsequent measurement of financial instruments – requiring explanation of accounting treatment and/or calculations and/or journals. • Discussion of accounting treatment (risks and benefits). • Share-based payment – cash or equity settled; requiring explanation of accounting treatment and/or calculations and/or journal entries. • Pension accounting (accounting treatment for defined benefit plan and/or defined contribution plan). • Asset valuation and changing prices; IFRS 13 Fair Value Measurement. • Group financial statements – preparation of consolidated statement of profit or loss and other comprehensive income, financial position, changes in equity or cash flow incorporating a change in group structure (step acquisition and/or disposal), a foreign subsidiary or a complex group and often written explanation of accounting treatment. • Analysis of financial performance and position in a scenario (including some or all of statement of profit or loss and other comprehensive income, financial position, changes in equity, cash flow, segment analysis, pre-calculated ratios). F3 • Formulation of financial strategy – produce a forecast to assess whether objectives will be achieved. • Financial decisions – you are often required to analyse a source of finance (leasing is an especially important area), including cost of capital calculations and discussion of gearing levels; knowledge of the role and limitations of Modigliani & Continued on page 24

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PQ Magazine May 2014


PQ CIMA exam tips Continued from page 23 Miller theory is very important. • Make sure that you can discuss the role and structure of a Treasury Department. • The different working capital financing and dividend strategies are popular with this examiner. • Investment decisions and project control. • Overseas investment appraisal is one of the most important areas in this syllabus and is often tested in question 1. Make sure you can apply the two different methods for assessing overseas investments, and that you can discuss risk and financing issues. • Business valuations are another crucial area; make sure that you can apply all the valuation methods and you can debate financing issues and post acquisition integration. • Adjusted present value and real options are important areas where a solid knowledge is important. • Discussion of project control techniques (such as post auditing). P1 • Working capital management – the calculation of the cycle, the impact of decisions on the cycle, EOQ calculation, cash flow forecast and compound interest calculation. • Operating statement reconciling budgeted to actual profits including fixed overhead variances and possibly mix and yield calculations. • NPV – including tax and inflation and/or incremental revenue and costs. • Sensitivity calculations and yield to maturity using the IRR. • Expected values, joint probabilities and risk based decisions. • Decision trees requiring both appropriate construction and evaluation. • Activity based costing calculations and discussion of benefits and drawbacks. • Benefits/problems of budgeting techniques for discursive marks. P2 • Limiting factors – calculations and discussion of shadow prices. • Pricing – optimal pricing and


These tips should only be used in conjunction with proper study. We cannot guarantee that these topics will appear in the actual exam as we have not seen the exam papers. Examiners are not predictable so it is vital that all core syllabus areas are revised fully. The tips are based on our experts experience and understanding of the CIMA exams and will help focus your last minute revision. Please also read all the Examiner’s Articles and PEGs– available on the CIMA website discussion of pricing policies. • Learning curve – calculations and impact on variances. • Budgeting – impact of participation on motivation. • Performance evaluation – via financial and non financial measures. • Transfer pricing – discussion of differing policies and their consequences linked with NPV. • Brought forward knowledge from P1 – this can be pretty random, so expect the unexpected! P3 • Risk management – being able to evaluate risks and discuss their significance in the context of the scenario (both preseen and optional). • Corporate governance (but not always in a profit-making context) and its role as a form of organisational control, including identifying weaknesses and recommending improvements. • Controls (especially organisational, HR and management accounting – don’t

forget what you’ve learned in P1 and P2!). • Internal audit – especially as a form of control and when being used for specific internal control purposes (such as fraud investigations or value-for-money projects). • Financial risk (including hedging controls and economic risk in the context of transnational organisations exposed to multijurisdictional currency risk – you must be prepared to discuss these risks as well as perform the necessary calculations). • IT/IS systems in specific organisations for specific purposes – recent examples have included supermarket customer data analysis, transport route revenue analysis and online vacation booking systems.

MANCHESTER MET UNI F2 • Section A: usual mix of share based payments, pensions, consolidation, analysis (not EPS), financial instruments and developments. Substance over form may be tested, and developments may cover some of the additional reporting requirements such as the Global Reporting Initiative. • Section B: there may be a full cashflow, although a section A cashflow came up in March. If not a cashflow, expect an SFP rather than an income statement. Foreign exchange may be tested. The ratio analysis questions are fairly standard; however, questions can be tested where ratios are already given, and the marks are purely for comments. P2 • Be prepared to use linear programming for profit maximisation. • Cost analysis and product mix decision making is worth being familiar with. • Learning curves, life cycle costing and balance scorecards are always popular topics. • Being able to highlight the alternative measures of performance for responsibility

centres and having full knowledge on all aspects of divisions and transfer pricing is recommended. • Continous improvement methods such as Kaizen Costing and TQM are often examinable areas. P3 • Be ready to evaluate risks and recommend risk management strategies. The examiner tests this area on virtually every paper, so you need to be familiar with the tools for performing risk analysis and evaluation, including the risk matrix, all the standard approaches to managing risks and the CIMA risk management cycle, etc. Good marks can be earned on these questions by identifying the types of risk specifically asked for from the scenario given. Marks can be lost by identifying other types of risks or only general risks not highlighted, particularly as this can make it very difficult for you to assess the risk adequately or propose an appropriate strategy. Remember, that a risk arises due to uncertainty as to whether something will or will not happen and is not simply when costs fluctuate during the normal course of business. • The evaluation of financial risks and the management of those risks and exchange rate theory are also very popular questions. While there may be an element of computation in these types of questions, you will still be expected to interpret your calculations and demonstrate an ability to use them to discuss, evaluate or advise on proposals. • Ensure that you are also familiar with information systems, internal audit and accounting controls as these topics appear on a regular basis. • While corporate governance and ethics have not been examined so frequently, this is a topical area and questions have appeared more regularly on the recent papers, so it may be an area to ensure that you are familiar with and that, in particular, you would be happy to evaluate from a given scenario any weaknesses in corporate governance or ethical issues arising. PQ


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PQ Magazine May 2014

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PQ ACCA audit exams

KEEP YOUR HE Paul Merison offers some tips on how to pass F8 and P7 – a case of practise making perfect


have been an audit tutor for almost 18 years. Throughout that time students have struggled to pass audit papers. In fact, I regularly meet students who have only two papers left to complete their ACCA exams – F8 and P7. It happens far too often. So here is my advice on how to pass F8 and P7 (it is mostly the same advice for both papers). But this will not make you pass. I can tell you what to do to pass. I can explain all the knowledge and have you nodding at me with a smile, showing you understand it all clearly. I can work past exam questions in front of you over and over again, and you will tell me you totally understand the technique and what I have shown you. But that will not make you pass, either. I know how to be an excellent golfer. The main technique is easy to explain and to learn – just keep your head absolutely still when swinging any golf club, and the ball will probably go straight. Simple. And it works. So why, when I hit a golf ball, does it fly off sideways so often? There are two reasons. When I am hitting the ball, my body wants my head to move, so unless I remind myself ‘head still, head still, head still’ while I am swinging the golf club it regularly goes wrong. I suppose the ‘head still’ thing would come naturally if I swung a golf club every day, but I do not practise enough to make it natural (even world-class golfers sometimes let their head move by accident, suggesting that even they sometimes need to remind themselves ‘head still, head still, head still’). How to pass audit exams. Most of the marks on P7, and at least 60% of the marks on F8, are not a reward for knowledge. Instead, the majority of marks on F8 and P7 are for your ability on practical scenario questions. STAGE 1 In practice, here are only five or six types of practical audit question (audit exams are very repetitive). Stage 1 is to learn the technique for each type of practical audit question (ethics/professional issues, audit risk, internal controls, substantive testing,


Fore! You need to become Tiger Woods to pass these exams

audit reports, non-audit assignments – this last one is more for P7 than F8). STAGE 2 A lot of students do stage 1 and when I ask they clearly know the technique. Unfortunately, far too few ever bother to learn from my golf story above. Practise using the technique, on real past exam questions: firstly to practise identifying the points you want to make; secondly to practise the explanations, in writing, in full. STAGE 3 Repeat Stage 2. Repeat it a lot, especially in the final weeks, days and hours before the exam. Repetition is annoying and eats up time but it works – how many golf balls do you think Tiger Woods hits each week? STAGE 4 On exam day, think through the techniques as you enter the exam hall. Write them on the exam paper next to each question requirement during the 15 minutes reading time. When writing your answers (i.e. hitting the golf ball), keep re-reading the technique and repeating it inside your head (not out loud!) and make sure you are sticking to it.

STAGE 5 For the pure knowledge/theory questions (more for F8 than P7), practise writing out your own explanations of the technical areas of the syllabus. It is so much easier to explain something for the tenth time than it is for the first (trust me, all experienced tutors know this all too well!). Advice for P7 students. You learned most of the audit knowledge (the standards) at F8 – there are only a few more added for P7. However, the accounting standards that you are auditing are much more numerous on P7, so take some time to practise writing a minimum of five bullet points to summarise each accounting standard, to help embed the key points in your head. So if it is that simple, why the poor pass rates? Sorry, but you are not going to enjoy reading this bit. It is depressing in many ways, but you need to read, understand, grit your teeth and do what I say. Most students seem happy to practise the numbers questions, and if you can get the methods half right, you pass. Unfortunately, almost all audit questions require writing, not numbers, PQ Magazine May 2014

EAD STILL! practise, and most students seem to hate doing this (or will make rough notes instead of writing things out in full). I think the problem here is that calculations cannot be half done, so students will try the whole thing just like in the exam hall. With written answers it is far too easy to think up some ideas, then check the answer to see if your ideas are there – and then stop. How much should I write?. There seems to be some confusion about how much detail is needed to earn a mark. Aim for two to four lines of writing for every mark you are trying to earn, and bear in mind that anything less than 10 words is unlikely to be clear enough to earn a full mark. Look at the points made in this article and aim for a similar amount of words for each point you make in the exam.

To make your points longer, explain everything – and that means every point you write should aim to include the word ‘because’ (or similar, such as ‘in order to’ or ‘as’).

ACCA audit exams PQ important, especially for F8, so: • For F8, make sure you are able to explain the key points of every audit standard from ISA 200 to ISA 720 (except ISAs 220, 550 and 600) • For P7, the more basic ISAs are less likely to be tested directly, but more complicated ones such as Subsequent Events, Other Information, and Initial Audits remain worth knowing well, and core standards on areas such as audit risk and response, evidence, and audit reports must not be ignored. Hard work requirednting Audit has a relatively low knowledge requirement compared to some exam papers, so there is no excuse for not putting in the effort and knowing your stuff. Remember what I said above – staring at the knowledge does not make it go in. Practise writing it out or speaking it out loud without the notes in front of you.

Knowledge of accounting. Knowledge of accounting is important both on F8 and P7, so: • For F8, ensure you understand how the books of prime entry and supporting ledgers fit together, and make sure you are comfortable with the main points of total expenditure (te) accounting for inventory, tangible non-current assets, development costs, provisions and contingencies, and events after the reporting period (these seem to be the ones that get examined the most) • For P7, ensure you are happy with every accounting standard on F7 or P2 Knowledge of audit standards is also

Conclusion . No conclusion is needed. Read the above guidance. And do it, please! PQ

• Paul Merison is Head of ACCA Programmes at LSBF

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PQ Magazine May 2014


PQ lifestyle



ewspapers promulgate a lot of junk. the child’s brain is growing, and modifying as Stuff about Elvis, ‘moon landings’, it soaks up everything in their environment, Arsenal’s beautiful football being so working out how to think, react and solve much more important than winning trophies. important problems. Of course, the fine publication you are It is generally recognised, in a forgivable presently reading is a notable exception! scientific leap, that feeding babies and children Papers publish ‘news’ that something that well is important, too. Foods that contain would have killed you had you just sniffed it last antioxidants, choline, omega-3 fatty acids and week should now be at the centre of your diet. complex carbohydrates are all particularly Last July, many papers published research by helpful in boosting brain health. Because the Society For Study Of Ingestive Behaviour, children are reasonably clean slates their which found that consumption of ‘junk food’ responses and development is easier to during pregnancy alters the development of the measure. Effectively, children who are ‘fed well’ ‘opioid pathways’ (which help creat feelings of when they are formative are 85% more likely to euphoria), leading to permanently modified be ‘high achievers’ later on in their lives. They brain signalling. In turn, this led to those kids tend to read earlier, have better social skills, needing more junk food in order to initiate a interact better with their contemporaries and ‘feelgood’ response. Who would have guessed – are 90% less likely to suffer from ‘ADHD’ or you really are what you eat… other ‘social connective conditions’. At Neil Taylor Insolvency we have always led In the alternative, following a contemporary with the premise of ‘holistic exam preparation’. theme of sugar being the new devil, a study Mind-set, nutrition, prioritisation, fitness, Want to improve your exam grades? by the British Medical Association concluded memory stimulation; all of these feature large that the average person eats an average of in our publication ‘Pass Inspiration… A Study Then never forget you are what you eat! 322 calories a day of added sugars, which is And Life Guide’. Exams can be life-changing, 16% of the daily calorific intake. For example, and you owe it to yourself to present the best there is one teaspoon of sugar in one possible version of yourself to the examiner. Key acuity? If you put sugar in your car’s fuel tank tablespoon of tomato ketchup; there is one modules of ‘Pass Inspiration’ are aimed at will it really affect its performance? Can a heavy teaspoon of sugar in one slice of whole wheat empowering students to create the best possible lunch really affect your afternoon’s performance bread; there are two teaspoons in a ‘Happy Meal’. conditions to structure and maintain memory. at the negotiation table, or is that coincidence? We recognise how dull this may seem to those There is no question that some choices we all There is some pretty convincing science that of you tucking into a doughnut, but how much is make damage the process, making learning and holds that the blank brain processing chip of a your exam success really worth? Do you want to memory tougher, while some facilitate the very young child can be programmed by the read more? PQ experience. What do you think? Is there a link actions and attitudes of those around them in • Thanks to Neil Taylor Insolvency for this between what you put in your body and mental the first three years of their lives. During this time article

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PQ Magazine May 2014

ICAEW focus PQ

SBM: YOUR BRIDGE TO THE CASE STUDY Hazel Rogers passes on advice from the SBM examiners


he first sitting of the new Advanced Level module, Strategic Business Management (SBM), will take place in July. The SBM module forms a bridge to the case study, but has an identity in its own right in developing students’ expertise in formulating and implementing financial strategy. Finance, in particular areas such as valuation and securities, are important aspects of the SBM syllabus. The SBM syllabus covers the following core topics: • Strategy. • Finance. • Ethics. • Corporate reporting issues. • Assurance issues. None of the topics are tested in isolation; they interact in each exam paper. Strategy incorporates a number of disciplines in both business strategy and financial management areas, including corporate governance and financial strategy. Brought forward knowledge from relevant Professional Level modules is important. The SBM exam is three-and-a-half hours long and remains open book – you can take in any materials subject to space restrictions. Discount tables will no longer be provided with the exam paper – you should take discount tables into the exam and know how to use them.

Question 1: 60 marks approx. The mini case question provides the majority of information in the form of exhibits. This makes the scenario more realistic and gives you the opportunity to apply professional judgement and scepticism. The exhibits will be accompanied with an element of narrative to explain their purpose (unlike the case study, where all information is provided in the style of exhibits). The industry featured could be based in the UK or in another territory; there will usually be some kind of international context. You will be presented with one or more problems to solve, which may or may not interact, and you will need to assimilate the information and provide reasoned advice to the client. There will be no clear right or wrong answer; there may be several reasonable approaches. PQ Magazine May 2014

Question 2: 40 marks approx. Question 2 will also be scenario based, but with a wider topic range. The question will tend to focus on one issue (as opposed to the mini case, which might feature several), and will also integrate topics.

Approach to ethicsx. Ethics is important and will be covered in every exam. An ethical dilemma will arise and you will be expected to identify and explore the ethical issues and actions required. Take a balanced approach and offer reasonable solutions. Consider whether any further information or evidence is needed to support your recommendation.

problem solving and advice. The client in the scenario will present a problem and you will be expected to provide reasoned advice which solves the problem, rather than sitting on the fence and offering a variety of options. Identify the key issues and prioritise them. Follow the implications and identify any relevant links and interaction between the issues if present. Look for the embedded points within the scenario, which may be subtle. Apply professional scepticism – who is supplying the information, why it has been supplied? What is the motivation of the supplier? Can the quality of the information be relied upon? A questioning mind is important in all areas of work. Be realistic in your responses and don’t simply follow one particular line. Requirements should be answered in the order they are given – there is usually a logical flow to the requirements. Start your answer to each requirement on a new page – then you can go back and add further points later on. Full sentences are important; unexplained bullet points are not acceptable. If you have poor handwriting, clearly head up each paragraph and ensure that each heading is clearly legible. This can help the marker to decipher the detail of your responses if they know where you are headed. PQ

Advice to candidatesx. The key areas of the SBM module are

• Hazel Rogers, ICAEW Learning Delivery Manager

New topicsx. There are a number of new topics included within the SBM module which were not previously tested at the Advanced Level. The SBM module incorporates elements such as: • Strategic marketing and brand management. • Supply chain management. • Operations management. • Corporate governance. • Human resources management. • Information strategy. • Performance management. • Treasury and working capital management.


PQ ACCA optional papers

Lucky number 8 Eight things you need to focus on to get a pass at P4 – according to the examiner. And he should know! A sound knowledge of the whole syllabus P4 is a large syllabus. To pass it you have to be well prepared, which means sustained study over a long period of time. By taking this approach you will have a deeper understanding of the subject, and also of the current issues in financial management. Beware last-minute intensive study and question spotting. Apply your knowledge and understanding The excellent answers are where candidates have applied their knowledge and understanding to the scenario given. Weaker scripts tend to give more general answers. Provide balanced answers Good answers provide a balanced answer for all

parts of each question. Make sure you can answer all requirements of the question before opting for it. Good time management is key The marking team felt that December candidates managed their time better than in previous sittings, hence the increase in the pass rate. In June 2013, many candidates got bogged down in Q1. Answer the question set If you answer all of the question and no more, then this will help with time management. Good answers and good scripts do this effectively. Make it legible Legible, well-presented and well-structured answers often get high marks. It also helps you manage your time better. Remember, there are professional marks in this exam and if it is neat and you follow what is being asked then you can pick these marks up easily.

Other optional papers P5 . The examiner is concerned about the general downward trend in the quality of answers in P5 over the past five diets. Candidates don’t seem to be taking on board any of the sound advice from the examiner in the reports! It is felt good P5 candidates distinguish themselves by being aware that if they come to this exam expecting to repeat memorised material they will only score between 20%–30%. An additional worry was for December’s diet many candidates did not have clear definitions of some of the jargon that is present at the P5 level – like lean systems in Q3 and myopia, gaming and ossification in Q2.

P6 . The examiner told candidates they have to ‘know their stuff’. Successful candidates are able to demonstrate sufficient, precise knowledge of the UK tax system. This knowledge must be updated regularly. The examiner also wants you to think before you start and manage your time. Resit candidates (and that will be most of you) need to think about the number of additional marks needed. You then need to think about a strategy to get them. So, look at your weak areas and improve your knowledge here. Also practice exam papers so you know the style expected in answers.

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Don’t just file me away Don’t just do a quick read of the examiner’s report and forget about it. Internalise it and emulate the approaches it recommends. Checks the maths Do a quick check and make sure your numerical answer makes sense. PQ

P7 . For December, the examiner noted an improvement in exam technique, with the vast majority of candidates answering section A first, leaving the shorter section B to the end. This is a sensible exam strategy, emphasised the examiner, as section A accounts for 60 of the available marks. However, some PQs are writing too little for the marks available. Others are identifying the issues but not explaining them. Another concern for the examiner was the lack of basic accounting knowledge. Some scripts showed inadequate understanding of double entry bookkeeping, and this appears to be becoming more of an issue. PQ We want to know what you thought of the exams. Email with your thoughts

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PQ Magazine May 2014

ACCA examiners say PQ


horse’s mouth

We take a look at the December examiner reports. What easy lessons can you learn to make June a success? F4 . Although the December scripts were better than last June’s the examiner is still not happy, stating bluntly: “It was not as was hoped for.” Exam performances vary widely from those who do really well to those who come to the exam hall totally unprepared. A big bugbear here is the apparent increasing number of candidates engaging in question spotting. They said: “Question spotting does not work and indeed cannot work on a long-term basis.” Q5 had the worst answers on the paper. Here the candidates had to explain the operation of the Company Directors Disqualification Act (CDDA) 1986. Candidates simply failed to read the question.

F9 . For the F9 examiner there was little evidence of time pressure. There were four compulsory questions in the exam (each worth 25 marks) and almost all candidates attempted all four. The examiner is concerned about the things students could do better. Many candidates have illegible handwriting, and many of the answers were poorly formatted. This cannot be something that is newly acquired but be warned: it will start to affect a student’s chances of passing if it is not addressed. P1 . The examiner congratulated those who passed the December test. He said he knew that studying P1 can be challenging, as well as fascinating! Really? The examiner does, though, want to make one general point about the importance of the verb in the question being asked. In Q4 (a), for example, he asks candidates to describe the main ways in which directors of companies can leave the service of a board. This, he explains, is clearly a list that many candidates prepare in advance, and so it was disappointing to see bullet-point lists that did not obey the verb ‘describe’.

F5 . A happier examiner here – candidates seem to be taking advice and tackling the simplest part of each question first. This is a good way of scoring some of the more straight-forward marks on the paper before getting caught up in the detailed calculations. PQs are warned that it is not, however, appropriate to move from question part to question part on the paper, writing a bit on one question, then a bit on another, and mixing it all up. This makes it very difficult to find all of the candidate’s marks. F6 . Most December sitters attempted all five questions, and the examiner believes there was little evidence of time pressure. Performances, however, were not great in the main. One particular problem at this sitting was that candidates often spent far too long on what should have been fairly straightforward computations. The examiner says, for example, that there is no need to explain the adjustments made when computing the trade profit in Q1 (a), and for Q5 (a) many candidates produced detailed layouts when it was much easier to just consider each transfer separately. F7 . Too many PQs appear to be focusing on the ‘banker’ questions, complains the examiner. But concentrating on consolidation, preparation of single company financial statements from a trial balance and cash flow statements means they give the rest of the syllabus too little time. The worry for the examiner is that a lot of capable candidates are getting good marks – 40 to 45 – for the first three questions and then struggling to get a pass with what they do after that. The PQ Magazine May 2014

examiner also wanted to stress the importance of legible and referenced workings laid out in a logical manner that can be followed by markers.

P2 . The examiner reiterated the fact that Q1 is a lengthy and difficulty question, and often the one that determines whether a candidate is successful in the exam. A surprising phenomenon is the fact that candidates often do not answer all parts of all questions. This is contributing greatly to exam failure. With many questions based on real-life scenarios, rote learning of topics does not work. And while the examiner said the knowledge of standards does not need to be in great depth, the answer still has to be precise and relevant.

F8 . There was no time pressure with this paper, it seems. A concern for the examiner was poor time management – some candidates wrote far too much for some questions, which put them under pressure to finish the remaining ones. Poor layout was another complaint. Candidates need to use columns for questions as it helps to maximise marks. The examiner also saw too many irrelevant and generic answers. These score few marks and show that PQs haven’t read the question properly or don’t understand what is being asked.

P3 . The examiner pointed out that many candidates only use the quantitative data in questions superficially and often inaccurately. The worry is that where data was used the ‘back story’ behind the values was often not explored. A curiosity was why so few candidates answered Q2, despite the fact that it had clear reference to concepts introduced and examined in F5. One commentator claimed, said the examiner, that it was “a gift – something straight out of F5!” Why, for so many candidates, was it a gift they chose not to accept? PQ 31

risk management PQ

PERFECT FUTURES In the first part of a two-part series, Matt Holden outlines the best way to tackle questions on futures contracts


hen faced with a question about futures contracts, I have often found that the difficulty is how to get started with the answer. So a tactic to pick up marks, and help you to get into the scenario, has to be a useful tool in your exam technique locker! It is important to appreciate why futures contracts exist. Day-to-day business and financial transactions inherently contain risk. This is because the outcome is not known with certainty, as we are unable to predict the ‘future’. Therefore, the variability of potential outcomes creates risk. The lower the potential variability of outcome, the lower is the risk – and vice versa. With any risk management approach, it is always appropriate to assess what the potential downside is before considering how best to proceed. Assuming the potential downside is big enough to make it worthwhile, futures contracts can help business with their risk management by effectively ‘fixing’ the outcome in advance, reducing the variability and so the risk. In answering questions regarding risk management, it is always worth mentioning that the approach taken by

management should always be commensurate with the level of risk that the business is exposed. For example, a business with £5m annual revenue is unlikely to consider using futures the first time it trades overseas if the invoice value is less than £50,000 – the potential sterling value at risk from a movement in exchange rates really does not justify the cost of setting up and administering a futures contract. So assuming futures are a feasible hedging strategy (hedging the exposure to risk faced), a candidate should always be able to speak efficiently about the generic elements of a futures contract. The issues the candidate should mention regarding futures are as follows: • Fixing instrument: futures will allow you to protect against downside risk but will not allow you to benefit from upside risk if the spot price (ie price in the business' normal/everyday trading market) is more favourable than the futures position. • Over the counter (OTC): the futures contract is arranged with the futures exchange (or market). For this market to have liquidity of buyers and sellers, then the contract amounts have to be standardised. So it is quite usual for a business not to be able to hedge their

See next month’s PQ for part 2 of this article

exposure exactly. For example, they may have a $950,000 order from the US, but the futures contracts may cover them for say $900,000 or $1,000,000, depending on how many contracts they enter into. • Initial margin: effectively a deposit paid to the futures market, to ensure you complete on your contract commitments at the required time, at the end of the contract term. It is returned once the contracts have been closed out properly. • Variation margin: a daily cash flow, calculated by comparing the initial futures price with the current price. If the business is ‘winning’ on their position, the futures market pays the business; if losing, then the business pays the futures market. This potential cash flow commitment can dissuade some firms from using futures to hedge risk. Before we get into how to approach a calculation, it is important to have some semblance of how a futures contract can help a business manage their risk exposure. From a risk management perspective, the business has to have an underlying transaction that has potential for risk (or price movement) that they wish to try and manage (speculators can use futures to gamble on market prices with no underlying spot market transaction but this situation does not concern us here). To manage the risk using futures, the business will set up a similar contract (similar in terms of the ‘thing’ being traded and value) with the futures exchange. They don’t actually want the second contract with the futures market for buying or selling the ‘thing’ being traded so they will enter an opposite contract at the end of the contract term to close the position. The idea is that any gain or loss on the normal (or spot market) transaction is matched by a corresponding loss or gain on the futures market, thus like a seesaw bringing the overall position back to the price agreed at the beginning (or thereabouts). PQ • Matt Holden, Reed Business School

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Focus must be on the young T

he UK economy is now growing faster than predicted; the number of people out of work in the UK fell by 63,000 to 2.33 million in the three months to January 2014 and the inflation rate fell to a four-year low in February. However, one of the worst recessions for decades has uncovered fundamental challenges faced by the economy, and it is vital that the government, as well as policymakers and business, work together to improve the UK’s productivity. Improving national productivity is essential to our economic recovery; however, a recent Office of National Statistics report shows that UK productivity is significantly below the rest of the major G7 industrialised economies in 2012, the widest productivity gap since 1992. Productivity is defined as the ability of an organisation to convert available resources into profitable services or goods. Increasing national productivity can raise living standards because more real income improves people's capability to purchase goods and services, enjoy leisure, improve housing and education, and contribute

to social and environmental programmes. Productivity growth also helps businesses to be more profitable. So I would have expected Chancellor George Osborne’s Budget Statement to Parliament to address this inequality between the UK and our G7 counterparts; however, this was not at the heart of the 2014 Budget. The increased annual investment allowance, from £250,000 a year to £500,000 from 1 April 2014–31 December 2015 is a welcome measure, stimulating investment and contributing to sustained productivity growth. Doubling the UK Export Finance Direct Lending scheme and cutting lending rates by a third will also support businesses to invest, export and create jobs. However, the Budget offered little for young people; the younger generation are being hit particularly hard by increases in the cost of living and more needs to be done to address youth unemployment; the number of unemployed 1624 year olds is currently around 920,000. The younger generation are the future of the UK’s economic well-being and we must invest in their skills and training.

The government has doubled the number of apprenticeships during their term in office and have announced that they will extend the grants for smaller businesses to support over 100,000 more; this move will encourage many SMEs to take on more young people. However, more needs to be done to smooth the transition between education and work. Schools and employers must work more closely together to bridge this gap and ensure that careers advisors are better equipped to offer appropriate training and careers advice. The UK has to be prepared to train our younger generation with the skills needed for jobs that don’t yet exist, using technologies that are changing daily and may not even have been invented yet. Greater focus needs to be given to the nature of jobs for the future and greater investment in training and development to raise the UK’s skills aptitude and equip the younger generation to meet the skills required by employers in the future. PQ • Philip Turnbull is Chief Executive of the AIA 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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PQ Magazine May 2014

CIMA spotlight PQ


t’s a good bet that, come December, 2014 will have been dubbed the ‘Year of the Apprenticeship’. Recent figures show almost 870,000 people were on an apprenticeship in 2012/13, with the number set to break through the one million barrier this year. The Higher Apprenticeship in Management Accounting was launched by CIMA in September last year. It provides a highly credible non-university route into the world of business and finance for talented individuals. By the end of 2013 more than 40 vacancies had already been created and filled, with students taking their first steps on this structured new entry route into a career in business and finance. These students are just some of the 13,000 young people studying for a higher apprenticeship in England, double the previous year’s figure. The expectations CIMA had when first discussing the potential development of an Apprenticeship Programme in late 2012 have already been exceeded, and the most pleasing aspect has been the commitment and enthusiasm shown by employers since day one. The scheme was designed in consultation with a range of employers, ensuring the qualification is fit for purpose and meets employers’ needs. Inaugural programmes . Experian, Fujitsu and Siemens are just three of the employers that have already embraced and adopted the Higher Apprenticeship in Management Accounting, with many more finalising their inaugural September 2014 CIMA apprenticeship programmes. Siemens has been investing in its school leaver programme since the 1980s. Since then, the Siemens Finance & Commercial Academy has been refreshed and reworked to keep it relevant to changing business needs in the UK. The academy incorporates the CIMA qualification as the preferred route of study, with the aim of the programme to supply a talent ‘pipeline’ to help further develop and enhance finance and accounting capabilities across the organisation. Joanne Gogerly, Siemens’ Entry Level Talent Partner, explains: “We value this type of scheme as, as an employer, we get to make it relevant to our business needs. And the student enjoys a recognised external academic qualification, as well as varied on the job training with a blue chip company. “In addition, we believe that it enhances employee retention rates. We have many senior managers within the organisation from the original scheme and top talent from more recent intakes.” Fujitsu also believes that apprentices are vital for its success. “Apprenticeships are becoming a growing option for wellPQ Magazine May 2014

ON THE UP CIMA is toasting the early success of its apprenticeships, says Ben Lambert

qualified school leavers who may not wish to go to university,” says Fujitsu’s Peter Whitehead. “We don't want to miss out on that talent.” Whitehead explains that they aren’t just looking for good grades and willingness to learn – personality is important, too. “We're looking for candidates who will fit in with the organisation,” he says. “We like realism, openness and the ability to deal with people.” One of Fujitsu’s hires, 18-year-old Rachel Hodgson, was studying A-Level accounting at Priestley College, Warrington, when she decided that an apprenticeship was the right option for Above, Rachel her. “I wanted to start my career as soon Hodgson, and as I left college, earn a wage as well as the Experian gain a professional qualification,” she apprentices, top told PQ. “I was nervous before my first day, but excited too,” she says. “And I’m really looking forward to going back to Priestley College to speak to students about my apprenticeship experience and inspire others to follow the same path.” Helen Emmett, Head of the UK and EMEA shared service centre for Experian, echoes Whitehead’s comments: “As one of Nottingham’s largest companies, we’re always looking for ways to nurture local talent and create employment opportunities within USEFUL LINKS the city. We • Information for Employers: understand that, in accountancy, the • Information for Prospective Students: cost of training means it is difficult • The latest provisional Apprenticeship figures for some school can be found at http://www.thedata leavers to get that first step on the release/sfr_current/

ladder. So it’s fantastic that this scheme has made it possible. We were overwhelmed by the response and have been so impressed by the calibre of the candidates; we ended up offering positions to five candidates rather than the four originally agreed.” In future, all apprenticeships will be employer-led and designed so they respond to the needs of industry, meaning each apprentice has the requisite skills. They will also focus on quality, so the apprentice has to demonstrate their ability through rigorous assessment at the end of their scheme. Each apprentice will then be graded on completion – pass, merit, or distinction – to mark the level of achievement. However, there is still plenty of work to be done. A report last September from the Recruitment and Employment Confederation (REC) revealed that although more than 50% of employers were hoping to increase permanent positions in their workforce over the following three months, 71% were failing to offer apprenticeships in their firms. The government would like it to be the ‘new norm’ for people leaving school or college to either go to university or choose an apprenticeship. The CIMA scheme is helping make this reality, with students awarded the globally recognised Certificate in Business Accounting qualification at the end of their training. So 2014 is indeed shaping out to be the Year of the Apprenticeship. PQ • Ben Lambert, Business Development Manager – Apprenticeships, CIMA 35

PQ CIPFA spotlight

Budget: who wins? The Budget explained: what Chancellor George Osborne’s measures will mean for the future of public finances


s George Osborne stood up to deliver his fifth Budget statement to the House of Commons, he focused his intentions in his first line, proclaiming that this was “a Budget for building a resilient economy. If you’re a maker, a doer or a saver: this Budget is for you.” And as with his previous Budgets, the chancellor spoke of the deficit in the UK and made much of the fact that the government would continue to “fix the roof when the sun is shining, to protect Britain from future storms”. If we take these two statements as the central objectives of the chancellor’s Budget, how will this affect those working in the public sector and local government? First, the Budget will transform the way pensions work in the UK, fundamentally changing the pensions landscape and the way we save for the future. In this area the chancellor was right to promote choice as many annuity products do not work well. However, his policy may switch resources away from savings and be counterproductive in the longer term. As for the public sector, Osborne confirmed that he would take another £1bn out of public funding through additional changes to public sector employee pensions, meaning more cuts to absorb. This comes in addition to his decision to permanently take away £1bn of government departments’ underspend, some of which would have been money held back as a contingency. Both of these measures come on top of the

already announced cuts to government spending. The chancellor also announced that he would introduce a cap on welfare spending to come into effect in 2015/16, to be set at £119bn in its first year. He explained that this was designed to help control spending, but in reality this move only covers a third of welfare spend, as spending such as the state pension and debt costs will remain outside the cap. The chancellor’s ability to balance this Budget is critically dependent on the future path of interest rates. Government interest payments on UK debt are

forecast to be around £59 billion in 201516, more than the budget of the Department for Education. Since the financial crisis interest rates have been at an historic low. Given our current level of debt a 1% increase in government bond yields would add around £8bn a year to annual debt interest by 2018/19. An increase would also put pressure on household budgets – a 1% increase in mortgage rates would increase the average mortgage bill by around £1,000 a year. That will impact on people’s disposable incomes, limiting growth and in turn the government’s revenue projections. CIPFA welcome the fact that this budget has focused on hard-pressed savers and those approaching retirement. However, a great deal of these measures have come at the expense of frontline services with £2bn taken out of future funding by the chancellor. The government says that “tough choices” are necessarily to balance the nation’s books, but with so many budgets protected it could be questioned if they are making them or just delaying the inevitable. Other measures announced included: • £200m for local authorities to repair potholes, which is welcome, although local authorities currently estimate they face a £10.5 billion backlog of road repairs and that they need around £840m to repair this year’s damage. • An increase in the amount that the Public Works Loans Board can lend to local authorities, up from £70 billion to £95 billion. PQ • Thanks to CIPFA for this article

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PQ Magazine May 2014

careers PQ

The PQ Book Club

Life at Rotherham College


Samantha Hannigan, 40, has been curriculum leader at the college for 16 months. She has a Certificate in Education and is studying for a BA in education and professional development. Her claim to fame is that her husband was on Come Dine With Me!

Mrs Moneypenny’s Careers Advice for Ambitious Women with Heather McGregor (Penguin, £9.99) If you want to be the best in your chosen field, then read Mrs Moneypenny’s instructional guide. Candid, snappy and humorous, Mrs Moneypenny does not shy away from stating the basic, if slightly controversial, facts of the professional world, from sexism in the workplace to what qualifications you will need if you wish to succeed. Her manner is refreshing: she emphasises to women the value of saying ‘no’, how important personal appearance is, and how to prioritise in order to effectively manage your time. The guide offers practical tips on how women should conduct themselves at work and approach their careers in order to get to the top, from what to carry in your handbag to how to ask for a bigger bonus. She includes ‘Homework for Ambitious Women’ at the end of each section, requiring readers to put the lessons they have learnt into use, making the book genuinely useful. PQ rating: 4/5 Recommended for any ambitious woman, whether she is 16 or 60. What the most successful people do before breakfast by Laura Vanderkam (Portfolio Penguin, £8.99) Actually three books in one (originally published as e-books), this fine compendium is the last word in time management. The author explains early on how, for most people, the early mornings are ‘wasted’ – hers were centred on getting her and her children up and out and on time. However, setting the alarm earlier proved a revelation – suddenly the day was longer, and offered her much more scope for creative work and play. This book is snappily written, with easy-to-digest chunks of advice based on the author’s experience (it’s very much autobiography as selfhelp). If time slips through your fingers, then buy this book. PQ rating: 4/5 Time to reset your alarm clock, don’t you think? WE HAVE THREE COPIES OF THIS BOOK TO GIVE AWAY – SEE PAGE 42 FOR DETAILS PQ Magazine May 2014

What time does your alarm clock go off on a working day? 5.40am. What’s the first thing you do when you get to your desk? Check my emails What’s on your desk? Everything and anything What’s the best thing about where you work? The students. Where’s your favourite place to go for lunch? I have it while sat at my desk, working. What can you see when you sit at your desk? A mess. Which websites are your favourites and why? Facebook – I’m nosey. Which websites do you use for work? The AAT’s, so I can

check the exam results, and PQ’s, so I can keep up-to-date with what’s happening. Also, HMRC’s – I have my own practice. How many hours a week do you spend in meetings? As few as possible. What time do you leave the office? 9pm on Mondays and Thursdays, otherwise 5pm–6pm. How do you relax? Sleeping, or by having a nice massage. What’s your favourite tipple? Prosecco – by the gallon. How often do you take work home with you? Most days.

What is your favourite TV show? Educating Yorkshire. Summer or winter? Summer. Pub or club? Pub. Who is your hero? My mum. If you had a time machine, where would you go? I would love to go back to the Sixties, to see how things were when my mum was younger. She keeps raving on about how things have changed so it would be great to see. If you hadn’t chosen accountancy, where might you be right now? Not sure. I always wanted to own a bridal wear shop.

The workplace: harnessing social media Karen Young suggests five ways you can make social media work for you when you are looking for a new job It’s estimated that 90% of hiring professionals have viewed social networking profiles as part of their screening process, but social media is still an underused tool by many jobseekers. Here are some simple ways to make the most of social media in your job search and career.


Think before you tweet: PQs should use social media responsibly and avoid sharing anything that you don’t want to be seen by a current or future employer. An offhand remark on Twitter could easily land you in hot water and Facebook photos from your student days could come back to haunt you years later, so spring clean your online presence and check your privacy settings before you embark on a job search.


Professional versus personal: Think about who you connected with, the content you share and where you share it. Decide whether you want to interact with colleagues on Facebook and adjust your privacy settings accordingly. Check your employer’s social media policy before setting up any profiles mentioning your employer.


Sell your skills and experience: While you should always tailor your CV to individual roles your LinkedIn profile needs to have broader appeal.

Emphasise your transferable skills and experience and give examples. Think about the key words employers will look for, and don’t use clichéd buzzwords or jargon. Don’t forget to check your spelling and grammar and keep your traditional and online profile in line and up-to-date as your career progresses.


Grow your network: Once your profile is established you can now start to use these channels to develop your knowledge and grow your network. Joining groups run by the accountancy institutes is a good place to start. You should also follow employers you are interested in, recruiters you have worked with, and business and economic news sources. Once you’ve developed a network you can start sharing interesting news and articles and contribute to discussions, helping you extend your network and improve your knowledge.


Do your homework: Social media is also an invaluable research tool when looking for jobs and preparing for interviews. Most organisations will share their latest news and announcements through their social media channels, so show your enthusiasm for the role by keeping up-to-date. If you’re not making use of professional social media as part of a blended approach to your career management you could be missing out on the chance to make new contacts, find new job opportunities and improve your professional reputation. To read our guide to improving your social media profile and connect with Hays on social media visit • Karen Young, Director at Hays Accountancy & Finances 37

SUITABILITY AT WAlkeR DenDle We hAve mAny DiFFeRenT AbiliTieS. The SUiTAbiliTy OF OUR JObS SeTS US APART. Walker Dendle Financial Recruitment has become established as a leading recruiter of professional permanent and temporary finance staff in Surrey and the surrounding area for over 12 years, filling a diverse range of part qualified finance and accounting roles across financial and management accountants to commercial accounting and analysis to finance business partnering. We continually focus on adapting and refining our service to suit you, offering sound and knowledge based careers advice to part qualifieds seeking their next, all-important job move. For more information about the range of career openings available though Walker Dendle Financial Recruitment, please contact: Permanent Division Temporary & Contract Division Walker Dendle Financial Recruitment Swan House, 51 High Street, Kingston Surrey KT1 1LQ

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We are not easily impressed at PQ, but we were wowed by Manchester firm Cassons. Its Christmas greeting, a rendition of Bonnie Tyler’s classic ‘I Need a Hero’ cannot fail to put a smile on your face. It is smooth, smart and has international appeal. You have to listen to the song to get that! Cassons is also the firm behind ‘101 jokes about accountants’, which we found on Among our favourites here were: What do you call an auditor who can’t audit? Answer: An ‘or’! How do accountants liven up the office party? Answer: They don’t turn up. And: A religious man is about to die, and as a last request summoned his lawyer and accountant. When they get there they ask him why he didn’t ask for a priest. “I want to die like Jesus, between two thieves,” came the reply. And is Cassons’ managing partner really called Les Nutter?




You would have to get up early to fool PQ! Or would you? On 1 April, AAT tweeted to suggest that the AAT shop was starting to sell AAT branded pet treats – sweet. Open Tuition revealed the ACCA has unveiled revolutionary technology that would allow students to sit their exams on their own laptops or iPads. It said: “From 1 April 2015, students can take the exams anytime, anywhere, 24 hours a day!" The clue was there. So what did we tweet? “For a special one-off £199 fee the ACCA will provide exam results the day after you have sat them. The catch, it is only available in the UK.” We got retweeted and there was outrage – we loved it!. Rotherham College even got in on the fun – but a unicorn coming to the college farm wasn’t going to fool anyone.


So how did the Budget affect you? Good news on the personal allowance front maybe, but there was more to it all than a shiny new £1 coin and a penny off a pint of beer. The pension stuff was all very radical. As with last year the ICAEW provided us with a great ‘word cloud’ just minutes after the Chancellor had sat down. How disappointing to see ‘tax’ was his favourite word! Other words that he liked this time around were ‘Britain’, ‘people’, ‘today’ and ‘year’. What sentence you can make out of these words? “In Britain people will pay tax today and next year” is our best attempt.


New research has revealed that women are much nicer than men when stressed. It appears stressed-out men become egocentric and antisocial, whereas women become friendlier and more sympathetic. The scientists discovered in three sets of experiments that stressed men performed worse in all the set tasks, but the opposite was true of women, whose oxytocin (hormones) kicked in, allowing them to remain empathic rather than go all egocentric, like the guys.


Colorado has revealed that in the first month of 2014 it raised more tax from cannabis than it did from alcohol. The state is the first place in the US that


allows people to smoke pot ‘recreationally’. The state raised $2.1m from those smoking ‘for fun’ and another $1.4m for those smoking marijuana for medical purposes. During the same period alcohol sales brought $2.7m into the government’s coffers.

The Office of National Statistics has updated the ‘basket of goods’ – the 700-strong list of goods that help set the consumer price index and inflation rates. In all, nine items have been removed and 14 added. In comes video streaming (Netflix, etc), honey, flavoured milk and canvas fashion shoes. Out go DVD rental, hardwood flooring and gardeners’ fees.

Outgoing CEO Jane Scott Paul was genuinely humbled when she was awarded honorary membership of the AAT. She isn’t an accountant and if her recent attempt at the AAT’s ‘green light’ test is anything to go on she may never be one. Jane told attendees at the annual lunch that she decided to show willing and sit the double entry bookkeeping test. She got a red light, which was “probably right”, she admits. We discovered after lunch that new CEO Mike Farrar is an ICAEW qualified accountant. That is something that hasn’t been in any of the press releases we have seen.


Indispensible App from Whillans Time on your side Whillans Calc is the innovative new mobile phone app from Tolley, the people that created the world’s first Tax Table back in 1916. Whillans Calc contains 17 calculators you can use to get instant, precise answers relating to yours or your clients’ specific situation, and see the workings as to how the answer was derived. These calculators include calculating whether fuel benefit is beneficial, calculating your net pay increase following an increase to salary, penalties, calculating the amount of tax due on a variety of benefits and also entitlement to tax credits. There are also calculators for corporation tax, capital allowances, indexation allowance and pensions. Four calculators are free on the App Store/Google Play; 13 of the 17 calculators are available, priced from £2.49 to £4.99. For a chance of getting one of these apps for free (worth £29.99) send an email headed up ‘Whillans’ to We’ve five to give away.

Ever feel like there are just not enough hours in the day? Well, this book helps you maximise the time available to you by ‘stretching’ your day. Author Laura Vanderkam explains that by rethinking your daily morning routine you can “build habits that will lead to a happier, more productive life” (see review on page 37). And developing this kind of self-discipline is sure to help you in your revision and study routines, too, and help get you through those exams. We have three copies to give away. All you have to do is email, headed up ‘Breakfast’, and we will do the rest. Don’t forget we need 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 9 May. The main draw will take place on Friday 16 May 2014.


PQ Magazine May 2014


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PQ magazine, May 2014