OCTOBER 2010

ALL YOU NEED TO KNOW FOR THE DECEMBER 2010 EXAMS

THE ESSENTIAL GUIDE
EXAM ADVICE AND GUIDANCE FOR TRAINEES
INCLUDING EXAMINERS FEEDBACK AND
EXAMINABLE DOCUMENTS
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KEY DATES FOR THE DECEMBER 2010
EXAM SESSION
Exam entry deadline 15 October 2010
Exams start 6 December 2010

For a full list of the latest ACCA exam rules, go to page 72 of this issue
Welcome to the STUDENT ACCOUNTANT ESSENTIAL EXAM GUIDE 10/2010
04 CONTENTS
STUDENT ACCOUNTANT
In addition to this twice-yearly printed issue, we also email an alert to a new
issue of Student Accountant every two weeks. Make sure youre keeping up
to date with the latest issue at www.accaglobal.com/sa
EXAMS
RESOURCES
08 CAT QUALIFICATION FEEDBACK
08 CAT Paper 3
10 CAT Paper 4
13 CAT Paper 5
16 CAT Paper 6
17 CAT Paper 7
18 CAT Paper 8
21 CAT Paper 9 (UK)
22 CAT Paper 10
25 ACCA QUALIFICATION FEEDBACK
Feedback for Papers F1, F2, F3 and variant papers is available
at www.accaglobal.com/students
25 Paper F4 (Global)
28 Paper F5
29 Paper F6 (UK)
30 Paper F7
34 Paper F8
38 Paper F9
42 Paper P1
44 Paper P2
46 Paper P3
48 Paper P4
50 Paper P5
51 Paper P6 (UK)
54 Paper P7
58 EXAM SUPPORT
A range of materials is available from www.accaglobal.com/students to help you
with your exam preparation
59 EXAMINABLE DOCUMENTS
Relevant to ACCA and CAT qualifcation fnancial reporting, audit and tax
papers for the December 2010 exam sitting
STUDENT ACCOUNTANT TECHNICAL ARCHIVE
All technical content from Student Accountant is on ACCAs website at
www.accaglobal.com/students
Answers to frequently-asked questions about ACCAs qualifications can be
found at www.accaglobal.com/learningproviders/tuition_provider/faq
69 NOTICEBOARD
ESSENTIAL INFORMATION TO HELP WITH YOUR EXAM ADMINISTRATION
70 ACCA Connect contact details and the latest ACCA and CAT
Qualifcation fees
71 Detailed exam timetable for the December 2010 exam session, and dates for
June 2011 to help with your diary planning
72 Essential advice and rules that you should be aware of before you take your
December 2010 exams
73 Answers to your frequently-asked questions about exams and exam entry
EDITORIAL TEAM
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Published by the Certifed
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CAET 2010 ISSN 1473-0979
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Please email studentaccountant@accaglobal.com with your feedback on this issue
Welcome to the STUDENT ACCOUNTANT ESSENTIAL EXAM GUIDE 10/2010
W
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Welcome to the Student Accountant Essential Exam Guide.
This issue is packed with examiner feedback, examinable
documents, exam guidance, and essential information about
the December 2010 exams, including how to enter, deadlines,
and exam rules.
We strongly recommend that you read the examiner
feedback relevant to the papers you are planning
on taking in December. Reading the examiner
feedback together with the published questions
and answers from the latest exam session can help
you identify where students have gone wrong, and
how to develop your answers to achieve the best
marks possible.
In addition to the examiner feedback, this
issue also includes the examinable documents
relevant to the International papers for fnancial
reporting and audit, and the tax rates for the UK
tax papers. These are essential reading for the
December 2010 exams.
The Noticeboard section includes the exam timetable for
December 2010, information on how to apply for exams by the
deadline of 15 October 2010, and exam rules and regulations.
We have also set up an accompanying Essential Guide website,
which contains extra content to support you in your preparations.
Access the website via the URL on the front cover.
I hope that you fnd this essential guide useful in helping
you prepare fully for the December 2010
exams. The Student Accountant team
will be producing another essential
guide in April 2011 relevant to the
June 2011 exams.
Email me at studentaccountant@
accaglobal.com with your thoughts and
feedback on this issue.
Victoria Morgan
Editor, Student Accountant magazine
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Untitled-5 1 8/16/2010 11:14:17 AM
CAT FEEDBACK
PAPER 3
MAINTAINING FINANCIAL
RECORDS
The exam consisted of two sections.
Section A contained 20 compulsory
multiple-choice questions (MCQs) of two
marks each, and Section B contained four
compulsory questions of 15 marks each. In
both sections, around 2/3 of the available
marks were for computation and 1/3 of
the marks were for questions requiring a
narrative response.
It is encouraging that the vast
majority of candidates answered all
24 questions, indicating that most
candidates had developed good time
management skills. The fact that the
pass rate increased as compared to
previous sittings is also a welcome
development, indicating that the advice
in previous reports that candidates
must study across the syllabus has
been noted.
It is pleasing to note that, at this
sitting, the number of candidates having
difficulty with the theoretical aspects
of the syllabus was reduced. This is
further welcome evidence of preparation
through study of the whole syllabus.
The problem of highly targeted
preparation was evident from a number
of answers to Questions 1, 2 and 4
in Section B, where some candidates
did not complete all the requirements.
In all questions, there was evidence
of careless reading of the question
by some candidates.For example,
Question 4 (c) required the calculation
of valuation using periodic weighted
average, but a surprising number
of candidates applied the continuous
weighted average calculation. This
created two difficulties for such
candidates. First, they did not answer
the question which was on the paper,
and second, they wasted valuable time
completing the more complex (and
longer) calculations which continuous
weighted average entails.
The fact that very few scripts include
workings for computational questions
continues to a matter of surprise to
the marking team. Those candidates
who had completed workings tended
to gain higher marks that those who
did not. This was particularly evident in
Question 3 of Section B.
Candidates at future sittings
should note, however, that the term
workings refers to calculations which
are both logically presented and
clearly annotated. Annotations should
make it clear both what question
is being attempted, and what us
being calculated.
QUESTION 1
This question had four sub-parts
Parts (a), (b) and (c) were for four marks
each, and Part (d) was for three marks.
A number of candidates scored high
marks in some parts of the question,
although fewer candidates scored high
marks for the whole question.
Part (a)
This sub-part tested candidates
knowledge of the purpose of the two
main accounting statements.
While a number of candidates
provided clear and relevant comments
explaining the purpose of the income
statement/profit and loss account and
the statement of financial position/
balance sheet, number of candidates did
not appear to have a clear understanding
of the purpose of these statements.
A particularly disappointing aspect of
some answers was that some candidates
did not recognise that the income
statement/profit and loss account
summarised transactions for a period
while the statement of financial position/
balance sheet reported assets, liabilities
and capital at a particular date.
Part (b)
By testing the application of the
accounting equation, combined with the
difference between revenue expenditure
and capital expenditure, this question
required logical thinking and application
of knowledge. It was potentially the
most difficult aspect of the exam paper.
Although only four marks were available,
there were at least 10 valid points which
could have been made.
Those candidates who thought about
the scenario and worked out a logical
answer scored very good marks.
Where candidates did not score good
marks, the reason was invariably a
careless reading of the question, resulting
in answers which either referred to only
the year in which the error as made, or a
list of comments without any indication as
to which year the answer was discussing.
Part (c)
The impact of errors on the trial
balance was tested in Part (c). A large
number of candidates were able to
provide clear explanations of errors
and therefore obtained full marks.
The most common reason that some
candidates did not score well in this
part was that they provided incorrect
answers, so that errors which would not
be detected by extracting a trial balance
were identified as errors which would
be detected, and vice versa.
This is disappointing as the impact of
errors is a fundamental aspect of the
syllabus for this paper.
Part (d)
This sub-part required demonstration
of knowledge of double entry
book-keeping. This is another
fundamental aspect of the syllabus.
The vast majority of candidates
obtained the full three marks, which was
welcome. What was a little surprising
was the fact that some candidates did
not attempt the question at all.

QUESTION 2
In previous sittings, the topic of
reconciliations is one in which many
candidates have been able to obtain full
marks by adopting a careful approach
and thinking logically. This was again
the case at this sitting.
What was less encouraging was the
fact that some candidates do not seem
to have obtained the knowledge which
is fundamental to this paper. This has
already been noted above in comments
on Parts (c) and (d) of Question 1.
Here, a major disappointment was
that some candidates did not attempt
Part (c) (which required a journal
entry to be drafted) at all. Of even
greater concern was the fact that some
candidates did not present the journal
entry in an acceptable format (the
most common problem being that no
narrative was included) while some
answers presented an entry in which
the debit and credit total did not have
the same value. The most common
reason that some candidates did not
obtain marks for Part (c) was that
incorrect ledger accounts were used.
In Parts (a) and (b), the most
common errors were the same as
those noted at previous sittings.
These were:
entries made in the ledger account in
respect of errors which only affected
the listing of balances, and vice versa
incorrect value attributed to ledger
entries and adjustments to the
listing particularly in relation to the
discount and the credit note.
In one or two cases the total of the list
of balances was used as the starting
point for the ledger account, and
the ledger account balance was used as
the starting point for the reconciliation
of the list of balances. Given that the
question explicitly provided these values,
the only conclusion is that, in such
cases, candidates did not take sufficient
care in reading the question.
08EXAMS

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Untitled-5 2 8/16/2010 11:15:07 AM
THE FACT THAT, OVERALL, CANDIDATES ACHIEVED
A HIGHER PROPORTION OF MARKS IN PAPER 3
SECTION B THAN IN SECTION A IS A FURTHER
INDICATION THAT SOME CANDIDATES ARE STILL NOT
STUDYING THE WHOLE SYLLABUS.
QUESTION 3
This question tested candidates ability
to prepare final accounts from a trial
balance, incorporating a number of
post trial balance adjustments. The
structure of the question was intended
to male this overall task a little more
straightforward through the use of a
number of sub-parts relating to specific
sections of the accounts.
Overall candidate performance was
good. Many candidates were able to
calculate gross profit correctly and thus
obtain full marks in Part (a). In some
cases, this encouraging start to the
answer did not continue, with a lower
proportion of the available marks being
awarded in each successive sub-part.
This indicates that, although such
candidates had studied the topic, they
had not done so in sufficient depth.
The most common reasons that some
candidates did not score good marks in
each sub-part were:
Gross profit
the values for opening and closing
inventory/stock were switched
inclusion of carriage outwards
instead of carriage inwards as
a cost
omission of carriage inwards
inclusion of costs which should be
deducted from gross profit as part
of the calculation
Net profit
incorrect calculation of the
adjustments for accrual,
prepayment and depreciation
omitting the adjustment for accrual
or prepayment
using the straight line method to
calculate the depreciation cost for
both categories of asset
omission of depreciation cost
treating accumulated depreciation
brought forward as the
depreciation cost
including assets or liabilities
as costs
Non-current/fixed assets
exclusion of depreciation altogether
only including depreciation brought
forward in calculation
Current assets/current liabilities
omission of prepayment or
accrual altogether
value for prepayment or accrual
different to the adjustment made to
the cost on the trial balance
omission of other items
incorrect items included.

QUESTION 4
The most interesting aspect of many
answers to this question on the topic
of valuation of inventory/stock was
that a number of candidates who were
able to obtain very good marks for
the calculation of both cost and net
realisable value in Part (b) were unable
to provide explanations of these terms.
This suggests that study of this topic
was on the basis of rote learning of
calculations with little consideration
of the basis of the calculation. It
is harder to speculate on why a few
candidates referred to depreciation in
their explanation of net realisable value.
A good number of candidates were
able to obtain full marks for Part (b), but
a disappointing number did not seem
able to differentiate between costs which
had already been incurred (and thus
should included in the calculation of
cost) and costs which were expected to
be incurred (and thus should be included
in the calculation of net realisable value).
As noted above, the most common
problem in some answers to Part (c)
was the use of continuous weighted
average, but two other reasons led to a
few candidates not obtaining marks. The
first of these was the calculation of the
final value based on a simple average of
cost per unit, and the second was the
omission of the opening volume or value
of inventory/stock from the calculation.
PAPER 4
ACCOUNTING FOR COSTS
This two-hour paper consisted of 20
multiple-choice questions for a total of 40
marks (Section A) and four longer-form
questions worth a total of 60 marks
(Section B).
A lot of very high marks were
achieved by well-prepared candidates.
Many others, unfortunately, seemed to
be insufficiently prepared for the exam
and made little or no attempt at various
parts of the paper.
Presentation of answers to Section B
questions was, at times, poor with
unclear labeling of parts of questions.
Adequate workings were generally
provided and enabled appropriate marks
to be awarded.
It appeared that many candidates
had failed to read, or to consider,
sufficiently carefully the specific
requirements of some of the questions,
which will be illustrated in the specific
question comments below. This often
resulted in unnecessary work being
carried out which almost certainly
prevented some candidates from
making a reasonable attempt at all of
the questions.
The comments that follow relate
to each of the longer-form questions
in Section B of the paper.
QUESTION 1
This question was primarily on the
subjects of joint cost apportionment
in process costing (Part (a)) and
justification for further processing
(Part (b)). Answers to Part (a) were
generally reasonable although a very
large number of candidates failed to
read the question carefully. Part (b) was
much less well answered.
Part (a)(i) required candidates
to calculate the total net profit or
loss of the common process. Many
candidates calculated a profit/loss for
each product, which was not necessary,
but not the total for the process,
which not only wasted valuable time
but also did not answer the question.
A second very frequent error was to
calculate profit as sales revenue less
administration and selling expenses
only, leaving out the joint process costs.
In answer to Part (a)(ii), where the
net profit/loss for Product A only was
required, many candidates calculated
the profit/loss for each of the three
products. At times this was calculated
as sales less administration and selling
expenses only, without sharing the
joint process costs, or was net of the
joint costs but not including the
administration and selling expenses.
Many others simply calculated the joint
process cost apportionment, again
frequently to each of the three products
rather than Product A only, with no
attempt to calculate profit/loss.
While some candidates who
apportioned the joint costs were able
to apply the sales value method of
apportionment, as was clearly specified
by the question requirement, a variety of
other apportionment methods were used.
The use of net realisable value (sales less
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Untitled-5 3 8/16/2010 11:15:52 AM

administration and selling expenses) or
production units gained some marks, but
not a sharing of the joint costs based on
selling prices. A number of candidates
attempted a combination of methods, by
using production units as the numerator
and sales value as the denominator,
which resulted in a very small share of
the joint process costs.
Part (b) tested candidates awareness
of the usefulness of joint product
profit information and the principles
surrounding the analysis of the viability
of further processing. A large number
of candidates failed to attempt this
part. Of those who did, relatively few,
in answer to Part (b)(i), appreciated
the irrelevance of individual product
profit or loss or that profitability of the
whole process is what matters. Many
candidates simply agreed with the
managers justification.
In answer to Part (b)(ii), more
candidates, but still relatively few in
total, were able to carry out the analysis
required in order to reach a conclusion
about the effect of further processing.
This required incremental analysis.
Many others simply calculated that
Product ATWO would make a loss and
as a result wrongly concluded that on
that basis further processing would not
be worthwhile. They made no attempt
to compare the profit/loss of Product
ATWO (ie after further processing)
with that of Product A (ie at split-off
point) or, more directly, to identify the
incremental effect on sales (increase
of $8 per unit), costs (increase of $6
per unit) and profit (incremental $2
per unit).
QUESTION 2
This question was on the subject of
materials control and tested candidates
knowledge of, and ability to apply,
standard formulas. The question was
reasonably well answered. The most
common problem for candidates was
knowing whether annual or weekly usage
figures were to be used in each formula.
Part (a) required the calculation of
the economic order quantity (EOQ) for
Material X. Candidates at times included
the maximum usage in the given EOQ
formula despite the clear instruction
in the question that the EOQ was to
be based on average usage. Also, it
is the annual usage that is required:
some candidates calculated and used
the weekly usage instead or even
multiplied the annual usage figure,
which was clearly indicated as being
annual in the question, by 50 weeks.
Others calculated, and included in their
formula, the monetary value of the
usage. This was either by multiplying
the usage by the purchase price of the
material, or by simply including the
purchase price instead of the usage.
Other common errors were calculating
the square root of the numerator only
and including the total annual holding
costs ($0.8 per kg 12,250 kg =
$9,800), rather than the $0.8 annual
holding cost per kg, as the denominator
in the formula. Finally, the answer was
sometimes expressed not in kg but, for
example, as $875, 875 per kg or $875
per kg.
Parts (b) and (c) required the
calculation of the minimum and the
maximum inventory control levels. A
very common error, made by a very
large majority of the candidates, was
to multiply the appropriate number of
weeks of lead time by the usage per
annum. The appropriate annual usage
quantities needed to be divided by
50 weeks to get the respective weekly
usages for the purposes of calculating
the reorder level, minimum inventory
control level and the maximum inventory
control level. Also, a variety of incorrect
formulas were used along with a variety
of usages and lead times. It was not
uncommon for candidates to simply
calculate the minimum inventory control
level as minimum usage in minimum
lead time and the maximum inventory
control level as maximum usage in
maximum lead time.
QUESTION 3
This question required candidates to
demonstrate an understanding of profit
contribution and of the application of
contribution analysis in limiting factor
resource situations. Parts (a) and (b)
were frequently well answered but
Part (c) less so.
Candidates needed to multiply
the sales demand of each product
by the labour hours required to
manufacture each unit (Part (a)) so
that the total labour hours required
could be determined and then compared
with the hours available. The hours
required exceeded the hours available
and thus labour was the limiting factor.
In such situations the contribution
per unit of each product need to be
calculated (Part (b)) and then (Part (c))
divided by the direct labour per unit
to determine the contribution per unit
of scarce resource (contribution per
$ of labour or per hour of labour). It
is the amount of contribution per unit
of the scarce resource that is used to
determine how best to use the limited
amount of labour hours available.
In answer to Part (a), a number of
candidates calculated the required
labour hours incorrectly by confusing
hours with $ cost, or by dividing instead
of multiplying, or by multiplying the
direct labour hours per unit of each
product by the 11,100 available hours.
Many others, however, were able to
calculate correctly that there was a
shortfall of 600 hours and to conclude
that labour was the limiting factor.
Part (b) was generally well answered.
However, there were many candidates
who thought that contribution was sales
revenue less direct costs only, or
deducted the direct labour hours per
unit, as well as the variable costs,
from the sales revenue. A number of
candidates did not know how to calculate
the contribution to sales ratio or only
calculated the ratio for the total sales and
contribution (three products combined).
This not only failed to answer the
question but was also time consuming
because it required the calculation of
total values for contribution and sales
revenue for each of the products in order
to obtain the overall totals. As well as
these candidates, a number of others
also wasted valuable time calculating
the total sales, total variable costs
and total contribution of each product,
rather than simply per unit.
Many candidates failed to make
a reasonable attempt at Part (c).
Certainly many did not appreciate that
contribution had to be related to the
scarce resource (limiting factor). Where
an attempt to prioritise production was
made, but on an incorrect basis (for
example on the basis of contribution
per unit of product), a number of marks
were gained when candidates were able
to allocate the available labour hours
PAPER 4 QUESTION 2 WAS ON THE SUBJECT OF
MATERIALS CONTROL AND TESTED CANDIDATES
KNOWLEDGE OF, AND ABILITY TO APPLY, STANDARD
FORMULAS. THE MOST COMMON PROBLEM WAS
KNOWING WHETHER ANNUAL OR WEEKLY USAGE
FIGURES WERE TO BE USED IN EACH FORMULA.
12 EXAMS
toproductsinaccordancewiththeirown
priority.Onceagaincandidatesoften
wastedvaluabletimecalculatingthe
totalsalesand/ortotalcontributionthat
wouldresultfromtheirproductionplan.
Thiswasnotrequiredbythequestion.
Thetimewouldhavebeenbetterspent
readingthequestionmorecarefully.
QUESTION 4
Thisquestionwasonthesubjectof
discountedcashflowmethodsof
capitalinvestmentprojectevaluation.
Overallthequestionwasreasonably
wellanswered,withmanycandidates
showinganappreciationof themethods
thatweretestedinthedifferentpartsof
thequestion.
InPart(a),candidateswererequired
todemonstratethattheycouldboth
discountaseriesof cashflowsandalso
accumulatethediscountedvaluesin
suchawayastoestablishwhethereach
of thetwoprojectshadtherequired
discountedpaybackperiodtopassan
initialscreeningtest.Manycandidates
showedthattheywereabletodiscount
aseriesof cashflowsbutasignificant
numberwereunabletoapplythe
screeningtest.Instead,theyinvariably
simplycalculatedthenetpresentvalue
(NPV)of eachprojectbyaccumulating
thediscountedcashflowsoverthe
lifeof eachinvestment.Thiswasnot
requirednordiditenableaconclusion
tobedrawnaboutwhethereachproject
passedtheinitialscreeningtest.
Thereweremanyothercandidates,
inanswertoPart(a),whomadeno
attempttodiscountthecashflowsbut
whowere,ontheotherhand,oftenableto
accumulatetheundiscountedcashflows
overthreeyearsinordertoapplyaninitial
screeningtest(butusingpaybackrather
thandiscountedpayback).Candidates
shouldnotethatcalculationsof payback
toonedecimalplaceof ayearwerenot
required.Therequirementwastoassess,
basedontheaccumulatedcashflows,
whetherornotthepaybackof each
projectwaswithinthreeyears.Once
again,timewasfrequentlywasted.Those
candidateswhocalculatedthepayback
periodwerenotalwaysabletointerpret
theimplicationforwhethertheproject
passedorfailedtheinitialscreening.
Fornoapparentreason,anumber
of candidates,inanswertoPart(a),
eitheraddedafifthyeartoProjectC,
presumablysothatitthenhadthe
samelifeasProjectD,orelseusedthe
samecashinflowsforProjectDasthey
hadforProjectC.
InanswertoPart(bi),quiteafew
candidatesattemptedtocalculatethe
internalrateof return(IRR)of each
project.Thecalculationswereoften
quitelengthyandinthemainincorrect.
Calculationswereexpresslynot
requiredbythequestion.However,
candidatesfrequentlyfailedtoprovide
anyexplanationfortheIRRwhichwas
expresslyrequired.Nevertheless,there
weremanyotherswhowereableto
approximatetheinternalratesof return
correctlyfromthegraphandattimesto
provideacorrectexplanation.
InanswertoPart(b)(ii),candidates
againveryrarelyprovidedan
explanationastowhyProjectBwould
berankedhigheronthebasisof NPV.
Whereanexplanationwasprovidedit
wasfrequentlywrong.Manyexplained
thatitwasbecausetheNPVof Project
Bof approx$220kwasgreaterthan
thatof ProjectAof approx$105K.
Candidatesappearedheretobeusing
thefiguresfromthegraphforthesum
of theundiscountedcashflows,rather
thanwhendiscountedat11%.
PAPER 5
MANAGING PEOPLE AND SYSTEMS
This paper is in two sections; section one
has 12 multiple choice questions (MCQs),
each worth two marks and Section B has
a total of fve questions, four of which are
worth 14 marks each and one fnal question
is worth 20 marks. Each individual question
focused on a different and distinct syllabus
area and all of the fve key syllabus areas
were examined.
SECTION B
Itwasverypleasingtoobservethat
manycandidateswereabletoproduce
verysoundandwellwrittenpapers,
whichattemptedeveryquestionand
displayedaclearunderstandingof the
partsof thesyllabusbeingexamined.
Manyof theissuesarisingfrom
SectionBweresimilartothelastsession
anddespitetherecentchangeinformat
of thepaper(fromJune2009),thesame
issueshavecontinuedtoemerge:
Somecandidatesdidnotattemptall
questionsandmissedopportunities
toaccessanymarksatallforsome
questions.Candidatesarereminded
of theimportanceof developing
soundexamtechniqueandtime
managementskillsaswellasbeing
familiarwiththesyllabuscontent.
Candidatesarestillwastingvaluable
timebywritingoutallpartsof
thequestionatthebeginningof their
answers.Thisisnotnecessaryand
shouldbeavoided;markscannotbe
awardedforit.
Candidatesalsocontinuetowaste
timecreatingunnecessarilyelaborate
headingstopartsof theiranswers.
Headingscanbeveryusefulin
organisingandpresentingyourwork
butsimpleunderliningwillsuffice.
Thiscontinuestobeadiscursivepaper
withquestionsgenerallyrequiring
explanationandsomediscussionand
somecandidatesdidnotarticulate
andcommunicatetheiranswers
clearly.Simplestatementsinalist,
withoutanyexplanation,willrarely
beadequatetoachievefullmarks
unlessthisisspecificallyaskedforin
therequirement.
Itisalwaysimportanttotakecare
withpresentation,useof language
andthegeneralstructureof
theanswers.
Candidatesshouldensurethatthey
clearlyidentifythequestionnumber
thattheyareattempting.Some
candidatesnumberedthequestions
intheorderinwhichtheydidthem,
ratherthanintheorderinwhichthey
appearedontheactualpaper.This
shouldbeavoidedasitcanleadto
confusion.Inallcases,thequestion
numberwithintheanswerbook
shouldmatchthenumberof the
questionontheexampaper.
QUESTION 1
Thefirstpartof thequestionaskedfor
adefinitionof thetermhumanresource
planningandwasworthtwomarks.
Manycandidatesgainedfullmarksfor
aclearandcomprehensivedefinition
whichmadereferencetoplanningfor
theacquisition,utilisation,improvement
andretentionof anorganisations
humanresources.Answerswhichsimply
describedthefunctionof thehuman
resourcesdepartmentoridentifiedthe
tasksof ahumanresourcesdepartment
withoutanyreferencetoplanningdid
notachievefullmarksasthefocusof
thequestionwasonplanning.This
emphasisestheimportanceof reading
thequestioncarefully.
Thesecondpartof thequestion
wasworth12marksandagain,there
weresomeexcellentanswers,achieving
fullmarks.Therewereanumberof
approachestoansweringthisquestion
anditwaspleasingtoseeavariety
of answers,manyof whichshowed
agoodunderstandingof thevarious
stagesof ahumanresourceplan.
Theseincludedauditing,forecasting,
planningandcontrolling.Inaddition,
someanswersalsoreferredtodifferent
typesof plans,suchasrecruitment,
selectionandpromotionplans.Some
STUDENT ACCOUNTANT ESSENTIALEXAMGUIDE10/2010
13
candidates misunderstood what was
required here and described the work of
a typical human resource department
and focused on, for example, the
process of recruitment or identifying
training needs. While there was some
merit in referring to these types of
activities, it was important that they
were described in the context of human
resource planning in order to achieve
marks.
QUESTION 2
This question examined control
procedures, Part (a) focusing on
controlling weekly wages paid in cash
and Part (b) focusing on controlling
monthly salaries paid by bank transfer.
There were eight marks available
for Part (a) and a further six marks for
Part (b). Part (a) clearly asked for an
example and it should have been clear
to candidates that there was one mark
available for identifying the control
procedure and a further mark for the
example for each of the four procedures
that they referred to, giving a potential
of eight marks. Unfortunately, a number
of candidates failed to give an example
as requested and so could not be
awarded the marks. It is important to
read the requirements of the question
carefully and where examples are
required to give them.
There were two main observations
about the responses to this question:
first, a number of candidates did not
differentiate between the two parts
of the question and repeated points
made in Part (a) in Part (b); second,
candidates frequently described
the processes of paying wages in cash
and paying by bank transfer rather
than actually identifying the control
procedures that might be in place. The
question very clearly referred to control
procedures and not all candidates
recognised this and this meant that they
did not give themselves the opportunity
to achieve the marks available. Better
answers included the approval and
control of documents, the importance
of arithmetical accuracy, the use of
control accounts and controlled access
to assets and records in part (a) and in
part (b) made reference to the need for
correct records, correct authorisations
for transfers, segregation of duties
or the importance of having written
authority to change a salary rate or
payroll entry.
QUESTION 3
As in previous sessions, Question 3
required candidates to demonstrate
some knowledge of a particular
theoretical area, in this case the work
of Meredith Belbin and his work on
team types. It was very clear that
many candidates had no knowledge of
this work at all; with quite a number
of candidates making no attempt to
answer the question whatsoever. This
is very disappointing and candidates
are reminded that all parts of the
syllabus will always be examined on
every paper and as such candidates
need to be familiar with all sections of
the Syllabus and the Study Guide.
A number of candidates listed the
management roles identified by Henri
Fayol in Part (a) and then went on to
describe them in Part (b). This was
incorrect and marks could not be
awarded for it. Fayols work has been
examined in previous sessions and
it appeared as though some candidates
had memorised the suggested answer
for a previous question. Candidates are
reminded that the suggested answers
refer to the very specific questions on a
given paper.
Part (a) should have been very
straightforward and required candidates
to simply list any six of the team types.
Those candidates who were familiar with
Belbins work were able to list six team
roles very accurately and achieved the
full six marks. Some listed eight but
it was only possible to award marks
for six as per the mark allocation on
the question. Where candidates were
unable to list the correct team types in
Part (a), they were subsequently unable
to describe the characteristics of the
team types in Part (b). A number of
candidates described different types
of teams rather than the types within
the team for example, virtual teams,
cross functional teams etc. This was
not required by the question and marks
could not be awarded for it. Those
candidates who correctly listed the team
types in Part (a), were often able to
accurately describe the characteristics
of the team types and a good number of
candidates achieved full marks.
The key issue with this question
centres on knowledge of a very distinct
syllabus area, rather than anything to do
with misinterpreting the requirement in
any way. The question was very specific
and there was no scope for very vague
or general answers.
QUESTION 4
Question 4 was about learning; Honey
and Mumfords learning styles in
Part (a) and barriers to adult learning in
Part (b). As with Question 3, it was very
evident that some candidates were not
at all familiar with the specific syllabus
area and a number of candidates
did not attempt Part (a) at all. Some
candidates explained the stages of
Kolbs learning cycle and despite
some of them doing this very well, it
was not possible to award marks as
this was not required. Again, this had
been examined in a previous session
and some candidates had included
parts of the suggested answer for
this. Where candidates had studied
the syllabus area, they were able to
accurately explain the four different
learning styles classified by Honey and
Mumford, ie activist, reflector, theorist
and pragmatist. It was very pleasing to
see that a good number of candidates
achieved full marks.
Part (b) of the question asked
candidates to outline three potential
barriers to effective adult learning. The
key words here were adult learning
and unfortunately, this was missed by a
number of candidates. Answers which
offered very general barriers to learning,
eg noise or inappropriate learning
methods, were not dealing with the
requirement of the question and marks
were not awarded. Good answers which
included reference to time, money, lack
of confidence or lack of motivation
based on poor previous experiences and
explained these in the context of adult
learning, often achieved full marks.
QUESTION 5
Question 5 was in two parts and
examined computer hacking and risks
to computerised systems. The first
part asked candidates to describe
four different controls to help prevent
computer hacking, and was answered
well by a good number of candidates.
Good answers made reference to
the use of passwords, user profiles,
FOR PAPER 5 QUESTION 3, A NUMBER OF CANDIDATES
LISTED THE MANAGEMENT ROLES IDENTIFIED BY HENRI
FAYOL IN PART (A) AND THEN WENT ON TO DESCRIBE
THEM IN PART (B). THIS WAS INCORRECT AND
MARKS COULD NOT BE AWARDED FOR IT.
14 EXAMS
Untitled-1 3 8/23/2010 12:38:49 PM
data encryption, system logs and also
physical security. Some wasted valuable
time by describing what the term hacking
meant, in some considerable detail.
This was not required by the question
and marks could not be awarded for it.
Part (b) then asked candidates
to explain three further risks to
computerised systems and to explain
how they might be prevented. An
important point here was that this part
of the question explicitly stated, In
addition to hacking... and this was
missed by a number of candidates,
who went on to deal with hacking again.
This emphasises again, the need to
read the question very carefully and to
make sure that the precise requirements
are dealt with and key instructions
are adhered to. Where candidates
had read the question correctly and
dealt with three further risks, such as
service interruption, physical attack or
risks related to the environment in and
around the computer, appropriate
marks were awarded. Some candidates
missed the opportunity to gain
additional marks because they did not
deal with the latter part of the question
which asked them to explain how these
further risks might be prevented.
KEY LEARNING POINTS
My main observation from the
June 2010 exam is the importance
of reading the questions carefully
and then dealing with the precise
requirements of the question. This
means reading the question in
its entirely in order to distinguish
between the differing requirements of
the different sections.
All five parts of the syllabus will
always be examined and all parts are
equally weighted. This means that it
is important for candidates to revise
all areas of the syllabus. Far too many
candidates do not give themselves the
opportunity to access all of the marks
available by not answering one or more
questions on the paper. In particular,
I would encourage candidates to
prepare adequately for Question 3.
Some candidates appear to
have difficulty in answering
theorybased questions and this is a
recurring feature.
I would like to direct candidates
to the Good in theory article in
the August 2007 issue of Student
Accountant. Written by the examiner,
the article offers advice and guidance
on answering theorybased questions.
It also offers guidance on how to
study theories using the study texts
and includes a useful summary of the
key syllabus areas and study sessions
which lend themselves to this type
of question.
PAPER 6
DRAFTING FINANCIAL
STATEMENTS
There were two sections to the exam, with
all questions being compulsory. Section A
consisted of 10 multiple-choice questions
of two marks, each covering a broad range
of topics on the syllabus and Section B,
which had three longer questions worth
80 marks.
There was a good spread of marks,
with some candidates scoring very high
marks. The majority of candidates made
a good attempt at all the questions. The
presentation of answers was generally
good, with most candidates preparing
neat workings that supported the figures
in the financial statements.
SECTION B
QUESTION 1
This question was worth 35% of the
marks. Overall this question was
reasonably well answered with some
candidates achieving some very good
marks. The better candidates presented
neat workings to support figures shown
in the final statements.
In Part (a) of the question candidates
were required to prepare the income
statement (profit and loss account)
and the statement of financial position
(balance sheet). Most candidates
made a good attempt at this part
of the question. The most common
errors were:
recording the discounts received as
an expense
not adjusting the total closing
inventory figure, for the identified and
valued obsolete inventory
incorrectly calculating the
depreciation for buildings
incorrectly adjusting the accrual
for wages and salaries and the
prepayment of marketing expenses
incorrectly calculating the
revaluation reserve
not showing the
underpinning workings.
In Part (b) candidates were asked
to calculate the gearing ratio and the
interest cover ratio for the company.
A good number of candidates had not
revised this area of the syllabus and
used incorrect formulae for the ratios.
Some candidates appeared to confuse
the gearing ratio with liquidity ratio.
Future candidates are advised to learn
all the key accounting ratios.
QUESTION 2
This question was worth 25 marks. This
question was not as well answered by
candidates as Question 1.
In Part (a) candidates were required
to prepare the appropriation account
for the partnership for the year ended
31 May 2010. Most candidates made
a good attempt at this part of the
question and scored some marks. Two
frequent errors were including drawings
in the account and not apportioning the
profit in the correct ratio 2:3:1.
In Part (b) candidates were required
to prepare the partnership accounts
incorporating the adjustments for
the retirement of Jean from the
partnership. Nearly all candidates
attempted this part of the question.
Some candidates clearly did not know
the difference between a current
account and a capital account and
mixed up the entries between the two.
Goodwill was often missing from the
capital accounts and some candidates
did not recognise that Jeans credit
balance on the capital account was
transferred to a loan.
In Part (c) candidates were asked to
identify three advantages of operating
as a limited liability company rather
than a partnership. This part of
the question was not answered well as
students did not appear to appreciate
the key differences between limited
liability companies and partnerships.
Some candidates even described the
advantages of working in a partnership
rather than a sole trader. The marking
team were looking for answers like;
the maximum liability of the owners is
limited, it is easier to attract external
investment by issuing more shares, the
retirement or death of an owner does
not necessitate the dissolution and
reformation of the business.
ALL FIVE PARTS OF THE PAPER 5 SYLLABUS WILL ALWAYS
BE EXAMINED AND ALL PARTS ARE EQUALLY
WEIGHTED. THIS MEANS THAT IT IS IMPORTANT FOR
CANDIDATES TO REVISE ALL AREAS OF THE SYLLABUS.
16EXAMS
QUESTION 3
This question was worth 20 marks.
Both parts of this question were
well answered.
Most candidates who thought logically
about Part (a) were able to successfully
produce an answer by producing either
a T-account or a columnar account
to derive the correct figure.
In Part (b) candidates were asked to
prepare a statement of cash flow for
AGD Co (Ltd) in accordance with IAS
7 (FRS 1). Candidates had clearly
practised how to prepare this statement
and achieved good marks.
The most common errors were:
showing the cash flows in the wrong
direction
the incorrect calculation of the
tax paid
not including some cash flows at all
(eg interest paid).
PAPER 7
PLANNING CONTROL AND
PERFORMANCE MANAGEMENT
Section A contained 20 marks of
compulsory objective testing questions (10
questions of two marks each) and Section B
contained four compulsory questions worth
20 marks each.
Candidates attempting CAT Paper 7
should expect it to:
Focus on the key syllabus areas as
specified in the Syllabus. On this
occasion 79% of the available marks
were based on key syllabus areas. In
the long-term I aim for key syllabus
areas to make up about 80% of
the paper.
Test both numeric and written skills,
on this paper 44% of the marks were
for discussion and 56% were for
calculation. In the long-term I aim
for a split of marks of approximately
40% for words and 60% for numbers.
Test application more than knowledge.
The June 2010 paper contained 28%
knowledge-based marks.
Overall the standard of answers on
Section B was disappointing. Some
excellent scripts were submitted.
However, at the other extreme some very
poor scripts were received and a small
minority of candidates appeared totally
unprepared for the exam.
There are only so many ways that I
can ask questions, for example, on the
construction of functional budgets.
Candidates who practise past exam
questions will be very well placed
to answer future questions. Past CAT
Paper 7 papers, together with answers
and marking guides are available on
the ACCA website and I urge candidates
to use them in their exam preparations.
Exam technique was weak at times.
On several occasions candidates failed
to answer all parts of the requirement.
A significant minority attempted
numeric sections only. Candidates time
management was, in the main, good and
there was little evidence of candidates
running out of time.
Presentation of answers was variable.
Some scripts were beautifully presented
and were a joy to mark. On others the
handwriting was so bad it was almost
impossible to follow.
QUESTION 1
This question covered the construction
of a standard marginal costing
operating statement to reconcile
budgeted and actual profit. This area
was the subject of a recent technical
article in Student Accountant. It went on
to cover the factors to be considered
before investigating a variance. Standard
costing is a key syllabus area.
Part (a) required candidates to
produce a reconciliation of budgeted
profit and actual profit using standard
costing variances that were given in
the question. Part (a) was split into six
parts to assist students in preparing
their answers. Despite the recent
technical article, this was probably the
worst answered question on the paper.
Common errors included:
Not beginning the statement with
budgeted profit as requested in
the question.
Failing to appreciate that profit + fixed
cost = contribution.
Using fixed cost expenditure variances
in the reconciliation of actual and
budgeted contribution.
Ignoring the sales price
variance altogether.
Not explicitly stating actual fixed cost
as requested in the question.
Adding a favourable fixed cost
variance onto budgeted fixed cost
rather than deducting it. (Remember:
favourable cost variances reduce cost,
not increase it.)
Double counting the fixed overhead
expenditure variance.
Markers made great use of the own
figure rule in marking this question
so that each mistake was penalised
only once. For example, if a candidate
incorrectly calculated budgeted
contribution they could still earn full
marks for standard contribution on actual
sales as long as their answer was $3,950
(the adverse sales volume variance)
smaller than their first figure. Candidates
with good presentation and clear workings
benefited most from these own figure
marks. It is worth noting that despite the
above comments a significant number of
near perfect answers were received.
Part (b) required candidates
to explain four factors that should be
considered in deciding whether or not
to investigate a variance. A significant
minority of candidates wrote about
the potential causes of variances (a
question from the last sitting) and
earned no marks, as they did not answer
the question set. Other, better prepared
candidates, listed four relevant factors,
but scored only half marks because they
failed to explain them. The best answers
explained (literally made plain) why
each of their suggested factors should
be considered. For example, an answer
that said Trend in variances would
score one mark out of two, whereas an
answer that said Trend in variances: a
series of increasingly adverse variances
may indicate a process is drifting out of
control, would score two marks.
QUESTION 2
This question covered forecasting in
a period of changing prices. The final
section required candidates to interpret
a compound bar chart. This was the
best answered question on the paper.
Forecasting is a key syllabus area.
Part (a) required candidates to restate
costs in 2010 price levels using four
observations of a price index. The slight
twist in the question was that price levels
decreased over the period concerned.
Many candidates scored the full four
marks in this section. A significant
number did not offer a figure for 2010,
presumably because it was already in
2010 prices and they considered it did
not need restating. These candidates
were given full credit. The most common
error was to mix up the numerator and
denominator in the price level adjustment.
Part (b) required candidates to
construct a graph to represent the
relationship between output and total
cost. Full credit was given to candidates
who plotted their own, incorrect, figures
from Part (a). Common errors were:
not labelling the axes
using years rather than volume on
the x axis
putting cost on the x, rather than the
y axis
using an inappropriate graph to
represent the relationship (eg a
bar chart)
wildly inaccurate plotting of data.
STUDENT ACCOUNTANT ESSENTIALEXAMGUIDE10/2010
17
Despite these errors many perfect
graphs were submitted with candidates
scoring full marks.
Part (c) asked candidates to use the
high-low technique to estimate the fixed
and variable elements of total cost,
expressed in 2010 price levels. Once
again this was generally well done. Full
credit was given to candidates who
used their own incorrect figures from
Part (a). A maximum of two out of four
marks were awarded to candidates who
used non price adjusted figures from
the question as these were clearly not in
2010 price levels.
The most common error in this section
was to use the highest and lowest
costs in the variable cost calculation
rather than the costs associated with the
highest and lowest levels of output.
Part (d) required candidates to use
the results of the high-low analysis to
make a cost forecast for 2011. Two
steps were involved. First candidates
needed to calculate total cost for a
volume of 2,000 units and secondly
the 2010 prices needed to be indexed
to 2011. These calculations could
be performed in any order. The most
common error was to omit one of
the steps. Another was to index the
volume level of 2,000 units rather than
the costs.
Part (e) asked candidates to identify
three trends apparent in a compound
bar chart. This was generally well
answered. Problems occurred when
candidates tried to over-complicate
matters by trying, for example, to
identify seasonal trends in the data.
This was clearly impossible as only
annual data was given.
QUESTION 3
This question covered the construction
of a budgeted income statement in the
context of a principal budget factor
of limited labour availability. It was
almost entirely computational. Budget
preparation is a key syllabus area. In
general it was well answered.
Part (a) required candidates to
construct a labour budget in terms of
hours and costs. In the main this was
competently done. A very common error
was to calculate total pay for overtime
hours ($288,000 = basic pay + overtime
premium) rather than overtime premium
as requested ($96,000). Candidates who
took this approach earned one mark
instead of two.
Part (b) required the construction
of a number of functional budgets in
the context of limited skilled labour
hours. This was generally competently
done. The most common mistake was
to ignore the data in the question and
to assume that 30,000 units could
be produced, despite being told that
there was only sufficient labour for
23,040 units. Candidates who took this
incorrect approach were still able to
earn up to six out of seven marks on an
own-figure basis.
Part (c) required the construction of
a budgeted income statement, using
the data from Part (b). Once again the
own-figure rule allowed candidates who
had incorrectly answered Part (b) to
potentially earn full marks in Part (c).
The most common error in this section
was to treat fixed overheads as a
variable cost. Only a small minority of
candidates remembered to allow for the
under absorption of fixed overhead due
to the restricted production level.
Part (d) of the question required
candidates to suggest ways of
overcoming labour shortages. This
was well answered and many sensible
suggestions were received.
QUESTION 4
Part (a) required candidates to write
notes to define and explain various
pieces of terminology relating to the
behavioural aspects of budgeting. This
section was entirely knowledge based.
Some candidates had a very clear
understanding of these areas and
provided lucid explanations and
definitions. Others appeared confused
and appeared to simply reproduce study
notes and, therefore, failed to answer
the question set. Explaining the benefits
of a top down approach to budgeting
is of little use when the question was
about a participative (bottom up)
approach. Others attempted to guess
their way through by simply rearranging
the words in the question.
Part (b) involved the application
of some of the behavioural issues
discussed in Part (a) to a hotel
company. A large minority of candidates
realised this and produced excellent
answers. Others saw the problems but
failed to explain them well. To score full
marks candidates needed to identify
a problem (eg top down budgets) and
to explain its consequences (eg lack
of motivation).
PAPER 8
IMPLEMENTING AUDIT
PROCEDURES
The level at which candidates performed
in this session was generally inadequate.
While well-prepared candidates
performed well in both sections of the
paper, a signifcant minority performed
inadequately. Answers submitted to
questions in Section B were often
too brief, muddled, partially irrelevant or
totally incorrect.
The paper comprised two sections.
Section A contained 10 multiple-choice
questions (MCQs), each worth two
marks, on topical areas from across
the syllabus. Section B contained four
compulsory questions, two of which
were worth 25 marks each and the other
two were worth 15 marks each.
Most candidates attempted all
questions on the paper. While there
was no discernible pattern to answers
submitted to the MCQs, given the range
and frequency of incorrect answers
submitted, it is again evident that
a significant minority of candidates
were simply not properly prepared
for a test of this nature. In Section B, a
relatively high proportion of candidates
appeared to have anything more than
passing familiarity with the concept
of materiality (Question 3), relatively
few could identify four elements of
the control environment of a company
(Question 1) and a disappointing
number could not correctly identify
and explain four matters that should be
considered by an auditor when obtaining
an understanding of he business
operations of a company (Question 4).
The primary reason for a candidate
achieving a low mark for this paper is
lack of preparation. The key to success
in this paper is to set about the course
of study with a timely and structured
approach, ensuring that sufficient
emphasis is placed on revision,
question practice and exam technique.
SECTION A
It was again encouraging to note
that a relatively high number of
FOR PAPER 7 QUESTION 1, A SIGNIFICANT MINORITY OF
CANDIDATES WROTE ABOUT THE POTENTIAL
CAUSES OF VARIANCES (A QUESTION FROM THE LAST
SITTING) AND EARNED NO MARKS, AS THEY DID
NOT ANSWER THE QUESTION SET.
18 EXAMS

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candidates answered this section to a
pass standard. However, a significant
number of candidates submitted correct
answers to only four of the questions
or less. Inadequate preparation by
many of these candidates appears
to be the major reason for the
inadequate performance.
SECTION B
QUESTION 1
This question focused on various
aspects of internal control in a
company. There was a total of 25 marks
available over four parts.
At Part (a) there were eight marks for
identifying and explaining four elements
of the control environment of a
company. Most candidates were able to
identify and explain at least one but few
could identify and explain four. A large
number confused control environment
with internal control and proceeded to
identify (and explain) four components
of the latter. This was unsatisfactory.
Part (b) offered three marks for defining
fraud and error and for stating the
key distinguishing factor between
the two. A majority of candidates scored
all or most of the marks available here.
Part (c) offered a total of 10 marks
for identifying five control procedures
and five related control objectives of
a wages system. In the main this was
answered to a satisfactory standard,
however it was apparent that a relatively
high proportion of students do not fully
understand the difference between a
control activity and a control objective
as related to a functional accounting
system. At Part (d) there were four
marks available for identifying four
different computer produced exception
reports that could be used to facilitate
control over the weekly payroll for
factory employees. A relatively large
proportion of candidates seemed to
be unaware of the term computer
produced exception reports, which
I would stress are of importance in a
computer-based environment.
QUESTION 2
This question tested candidates
knowledge on the engagement of new
audit clients and analytical procedures.
There were 25 marks available over
four parts.
The scenario for the question clearly
indicated that the subject auditors
had obtained an understanding of the
business operations of the subject
company and Part (a) required
candidates to identify four matters
that the firm should have considered in
this respect.
Some candidates correctly identified
four relevant matters, and there
were a range of other answers with
some completely missing the point
and proceeding to explain matters to
consider in deciding whether to accept
the audit appointment and others
suggesting matters covering both
business operations and acceptance
issues. This was not answered
satisfactorily. Part (b)(i) of the question
offered two marks for explaining the
purpose of a newly instructed audit
firm making contact with the previous
firm and Part (b)(ii) offered three
marks for explaining why the subject
audit firm issued an engagement letter
to a new audit client. In the main,
most candidates answered this part
to a satisfactory standard. In Part (c),
candidates could offer several of a
whole multitude of issues as matters
for concern about the newly appointed
managing director of the subject client
company. A number put correct focus
on the relevant concerns and were
awarded at least two of the available
three marks. However, a significant
minority suggested that there were not
any matters of concern and, therefore,
obtained no marks.
The topic of analytical procedures
is important and aspects of it are
likely to feature in most professional
auditing exams. At Part (d)(i), the
particular focus was on the use of
such procedures to provide assurance
as to the completeness of the income
figure in the financial statements of
the subject company. A significant
number of candidates did not seem
to appreciate that in the situation as
described, analytical procedures would
be a crucial audit task due to the
inherent weaknesses of the internal
control system of the subject company.
As a consequence of this and also the
fact that a large number of candidates
appeared to have very sparse knowledge
of the topic generally, many students
scored only one of the three marks
available. In Part (d)(ii) there was a
requirement to provide six examples of
income stream relationships that could
be used by the auditor as a basis for
obtaining assurance as to the accuracy
of reported figures in the subject golf
club companys financial statements.
One mark was available for each income
stream relationship identified for
example, green fees to tournament fees.
Only a very small minority of candidates
obtained all six marks, with most
obtaining three or less.
QUESTION 3
This question on materiality and
audit evidence offered 15 marks over
three parts.
In Part (a), candidates were required
to state the matters that an audit firm
should consider in determining whether
an error, detected when carrying out
substantive procedures during the audit
of a subject company, is material.
In Part (b), candidates were required
to state the matters that an audit firm
should consider in determining whether
an error, detected when carrying out
tests of control during the audit of a
subject company, is material.
Both of the above requirements were
answered to an inadequate standard
by the majority of candidates. This is
unsatisfactory given the fundamental
importance of the concept of
materiality on every audit engagement
assignment. A significant number
of candidates wrote quite extensively
on matters totally irrelevant to the
question requirement.
Part (c) offered marks for describing
four procedures that an audit firm
should carry out to obtain assurance
that trade payables/creditors
and accruals are not understated in
a companys financial statements.
A relatively high number of candidates
answered this requirement to a
satisfactory standard.
QUESTION 4
All three parts of the question tested
candidates knowledge of internal audit.
In Part (a) there was a simple
two-mark requirement to define the
term internal auditing. While most
answers submitted were awarded at
least one of the marks, a large number
WHILE WELL-PREPARED CANDIDATES PERFORMED
WELL IN BOTH SECTIONS OF PAPER 8, A SIGNIFICANT
MINORITY PERFORMED INADEQUATELY. ANSWERS
SUBMITTED TO QUESTIONS IN SECTION B WERE OFTEN
TOO BRIEF, MUDDLED, PARTIALLY IRRELEVANT OR
TOTALLY INCORRECT.
20 EXAMS
of candidates provided a detailed
description of the tasks of a typical
internal audit function. This was not a
requirement of the question, and where
applicable answers often contained
incorrect points.
Part (b) offered six marks for
identifying and explaining three matters
which the internal audit manager of
an import and distribution company
should have reasonable understanding
of, in order to meet the recognised
criteria of being an experienced
auditor. There were a number of sound
answers submitted to this but overall
most students scored less than three
marks, with many completely ignoring
practical matters such as a sound
understanding of the implications of
a network of storage and distribution
centres for inventory valuation, and
instead focusing on ethical matters such
as professional behaviour. Again this
was unsatisfactory.
Independence is fundamental
to ensuring that an internal audit
function is efficient and effective and
to test candidates knowledge about
this, Part (c) of the question required
candidates to explain why a financial
director should not have responsibility
for the operation of his companys
internal audit department. A relatively
high number of candidates displayed a
sound knowledge of the relevant issues.
PAPER 9
PREPARING TAXATION
COMPUTATIONS (UK)
This exam followed the usual format of 10
multiple-choice questions of two marks
each and four long-form questions for the
remaining 80% of the marks.
This report is based on Section
B of the exam only. The majority of
candidates attempted all four questions
but many struggled with Question
3(c) and Question 4(a) and (b). Most
candidates produced very good answers
to Questions 1 and 2 but, as always, a
few candidates entered this exam with
little or no knowledge at all. Despite
basic income tax calculations, capital
allowance calculations and corporation
tax calculations being examined in every
paper, a few candidates still have no
idea how to approach these areas.
QUESTION 1
Part (a) required candidates to calculate
the taxable benefit of six separate
items. The first two were the use of a
company car and the related fuel. Most
candidates knew how to calculate the
required percentage and knew how to
apply this to the recommended list
price. However, many did not know that
the list price is restricted to a maximum
of 80,000. The fuel benefit calculation
required candidates to multiply the
given fuel benefit amount of 16,900
by the calculated percentage for the
car. However many were not aware of
this and either used the figures for the
actual fuel costs given in the question
or deducted these costs from the
benefit calculated (sometimes from
the car benefit). Candidates should
be aware that actual fuel costs and
contributions by the employee to fuel
are usually ignored.
The third benefit was the provision of
a loan at a beneficial rate of interest.
This will usually require the comparison
of two methods of calculation the
average method and the strict method.
Where there is a part repayment of the
loan during the year then two methods
must be done. Candidates were given
full marks where only the strict method
was done and a statement to the fact
that either HM Revenue & Customs
would take this if it was higher or the
employee would elect for this if it were
lower, was made. Many candidates were
aware of these rules but some of the
calculations performed gave ridiculous
results that common sense would say
could not be correct. Candidates must
check what they write and consider
whether it actually makes sense.
The other benefits were course fees
for a related business purpose this
was simply exempt, the use of an
asset this was simply a benefit of
20% of the value of the asset when first
provided and finally overnight expenses
which are taxable in full if they are
above 10 a night for overseas travel
and above 5 a night for UK travel, if
below these amounts then the expenses
are exempt. Most candidates were able
to demonstrate good knowledge of these
three benefits.
Part (b) required candidates to do
a basic income tax calculation. Many
of the items within the calculation
were items that are regularly examined
and, therefore, it is a surprise that so
many candidates do not know how to
treat these items. Candidates should
know that National Savings certificate
interest and premium bond winnings
are exempt, National Savings Bank
investment account interest is received
gross (and, therefore, requires no
grossing up) but is taxable and UK
dividends require grossing up by 10%
not 20% as many still do. Another
regular mistake is the treatment of
pension contributions once again I will
remind candidates that contributions
to an occupational pension plan are
deducted from employment income
and contributions to a personal pension
scheme are grossed up by 20% and
then increase the basic rate band.
The biggest problem for candidates
was the share of the partnership profit.
This was a simple case of deciding
which annual profit should be taxed
in 200910 and then taking 60% of
it for Stuart. Many candidates did
unnecessary workings, often covering
as much as two pages for no marks.
The most common error was to take
a proportion of the two profits or even
worse to simply add them both together
and take all of it.
Candidates must also remember to
give a reason for any item that is left
out of the assessment, eg premium
bond winnings are exempt. Failure to do
so will mean marks will not be given.
Part (c) covered property income
and was attempted well by most
candidates. The main error was to miss
that the period was for 11 months
only and, therefore, only 11 months of
the expenses were deductible.
QUESTION 2
Part (a) examined capital allowances
for a nine-month company accounting
period. It examined the calculation
of annual investment allowance
(AIA), first-year allowance (FYA) and
writing-down allowance (WDA). Many
candidates attempted this question very
well and many received full marks. The
main problems were not restricting AIA
and WDA to nine months and wrongly
restricting FYA to 9/12ths. The purchase
of the machine on hire purchase also
confused candidates but this simply
required the actual cash price of 40,000
to be taken and the interest element to
be ignored. The only other major error
was for some candidates to treat the
car under the old rules and restrict the
writing down allowance to 3,000 per
annum this only applies to expensive
cars bought prior to 6 April 2009
cars purchased since that date are given
allowances based on their CO
2
emissions.
Part (b) required the calculation of
a gain following the disposal of shares
by a company. Candidates produced
answers that were either excellent or
very poor. Companies must pool shares
of the same class in the same company
together and continuously index this
pool at every operative event (a purchase
STUDENT ACCOUNTANT ESSENTIAL EXAM GUIDE 10/2010
21
or sale). Many were able to do this
but many had no idea and produced
very confused answers. Candidates
must study this area and realise that
the calculation is totally different from
that required for similar situations
for an individual.
Part (c) was a standard corporation
tax assessment question. Once again
many candidates were able to do
this very well and earned full marks,
but, again, many had no idea. The main
problem was that some candidates did
not seem to know how to lay out he
assessment. Candidates must get the
format correct including deducting
losses brought forward from the correct
income, ie trading losses from trading
profit only and capital losses from
capital gains only if this is not done
then full marks can not be given. In
addition non-trade interest received
and paid must be netted together and
not shown separately. Many candidates
still tax dividends received instead
of grossing up and treating them as
franked investment income. Easy marks
were lost by candidates not being able
to use the correct marginal relief
formula despite this being given in the
rates and allowances sheet.
QUESTION 3
This was a two-part question of capital
gains issues for an individual.
Part (a) examined the calculation of
capital gains tax following the disposal
of three assets. The first disposal was
a chattel being sold for less than 6,000
having originally cost marginally above
6,000. This type of sale requires
the deemed gross proceeds to be
taken as 6,000 and the resulting loss
being restricted accordingly. This was
well attempted by most but many did
not deduct the expenses of sale from
the deemed proceeds of 6,000.
The second disposal was a sale of
a share of a painting, which required
the calculation to be done using the
part disposal formula. It was surprising
to see how many candidates still have no
idea how to calculate the part disposal
formula despite this being tested time
and time again.
The final disposal was a Victoria Cross
medal. This is exempt providing the
medal had not been purchased. Very few
candidates were aware of this.
The calculation of the tax payable
required the correct use of the capital
loss brought forward and the availability
of the annual exemption these had
to be put in the correct order to get
full marks.
Finally an easy mark was available for
stating the correct date of payment
this will always be 31 January following
the tax year of disposal no marks are
given for partially correct statements
such as January next year or for the
incorrect year.
Part (b) involved principal private
residence relief for an individual. The
question asked candidates to use the
table format given which was given
to assist candidates many ignored
this and did their own thing. Despite
this, if the information supplied
was correct marks were given. The
answers to this question showed,
in many instances, that candidates
do not really understand how this
relief works. Many correctly gave the
deemed occupation rules but were not
able to apply them, for instance saying
that the period given was chargeable
because the individual lived in the
house. If there is actual occupation or
one of the deemed occupation periods
applies then the period covered is
exempt from capital gains any period
not covered is chargeable. Letting
relief is not available for periods
covered by PPR as this would give
double relief therefore only letting
during chargeable periods can qualify
for letting relief, ie the two-year
period between 1 March 1997 and
28 February 1999.
QUESTION 4
Part (a) was very poorly answered. This
is probably due to this being the first
time it has been examined in CAT Paper
9 (UK). Many candidates had no idea
of the VAT issues involved and just gave
answers on any area of VAT.
Dispatches to EU businesses
are zero-rated only if the EU business
is registered, the supplier has the
customers VAT number, quotes it on the
invoice and provides proof of the goods
leaving UK.
The tax point for an acquisition of
goods from an EU business is simply
the earliest of the invoice or the 15th
of the month following the month
of acquisition. Most candidates who
attempted this part of the question gave
the UK tax point rules, which did not
apply here.
Part (b) has been examined several
times before but many candidates had
no idea of the payment dates and some
even gave the dates applicable
to companies.
Capital gains tax is not paid in
instalments and is always payable on
31 January following the tax year
this should have earned easy marks.
Income tax and class four national
insurance contribution (NIC) are
payable together in instalments on
31 January in the tax year concerned,
31 July after the tax year concerned
and 31 January following the tax year
concerned. The amounts payable are
based on the previous years totals
with half of that figure being payable
on each of the first two dates and the
final true balance on the 31 January
following the tax year concerned.
Unfortunately most candidates were
unable to apply these rules and earned
no marks in this question.
CONCLUSION
Future candidates are advised to study
the complete syllabus, look at past
examiners comments and practise past
exam questions. This will enable them
to get an idea of the most common
areas examined and an idea of how to
structure and lay out their answers.
PAPER 10
MANAGING FINANCES
Sections A consisted of 10 objective testing
questions, worth 20 marks overall, and
section B comprised 4 20 mark questions.
The calculation/written split in Section
A was 50:50 and the split in Section B
was 64:36.
Many candidates provided adequate
workings for the numerical parts of the
questions in Section B. It is imperative
that candidates show clear workings
in their answers, otherwise if the final
answer is incorrect, it is impossible to
award method marks.
Many candidates did not read the
requirements carefully enough. This was
particularly a problem with the written
questions, when candidates need
to focus on the verb used, eg define
vs explain.
SECTION A
The majority of candidates attempted
this section and the majority scored over
half marks.
FUTURE CANDIDATES ARE STRONGLY ADVISED TO LOOK
AT PAST PAPERS AND PRACTISE THE ABOVE AREAS
BEFORE ATTEMPTING PAPER 9.
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SECTION B
QUESTION 1
This question examined the cash
aspect of working capital. The
calculation in Part (a) was a cash budget
worth 17 marks, and was in the main
well attempted with many candidates
passing this part of the question.
The area of the calculation that
candidates found most difficult was
the course fee income. Once the total
budgeted number of attendees had
been calculated, this total needed to
be split between the new attendees
who paid the full price fees of $1,200
and the returning attendees who paid
reduced fees of $900. Errors arose
from not taking the 75% confirmation
rate into account when calculating
the total budgeted attendees, and/or
not allowing correctly for the reduced
fee income from returning attendees.
Candidates attempted the course fee
income calculation in many different
ways, although rarely got it completely
right. However, method marks were
gained by candidates whose workings
were clearly laid out and legible.
Food costs were dependent on the
budgeted number of attendees. If the
incorrect total budgeted attendees had
been carried forward consistently into
the food cost working, full marks could
be gained for food costs. This again
shows the importance of all numbers
being shown clearly within workings.
Candidates should pay close attention
to the wording of the question when
dealing with inflation. The food costs
needed to incorporate inflation of
2% per month, ie each month a further
2% inflation needed to be added,
whereas the wages costs only increased
once in September, so the new level of
wages of $4,200 was paid each month
September to December inclusive.
Candidates showed good exam
technique, and made sure that they
gained the easier marks that were
available in the question, such as the
business rates.
Part (b) was written for three marks,
asking candidates to briefly explain
three motives for holding cash. Many
candidates showed their knowledge and
stated the motives for holding cash, so
gaining some marks. In order to gain full
marks, candidates needed to explain the
motive, not just state it. Note however,
good explanations did gain full marks,
as the requirement was not to state and
briefly explain but to explain.
QUESTION 2
Part (a) asked candidates to calculate
the working capital requirement.
Most candidates did well for this type
of calculation and generally scored
highly, with many gaining full marks. A
common error was to increase sales by
a further 20% to $78,000,000.
Part (b) required candidates to
consider the factors that a bank will
consider when deciding whether
to grant a loan or overdraft. Some
candidates misinterpreted the
question, and wrote about factors to
be considered when deciding between
a loan and an overdraft. Those that
answered the correct requirement
often knew the pneumonic CAMPARI
and knew what each letter stood for, but
the descriptions were either missing or
much weaker.
QUESTION 3
This question examined investment
appraisal. Candidates seemed surprised
by the lack of a large net present value
calculation and were less well prepared
for the question that was set.
Part (a) asked for two easy definitions.
Many candidates missed the word
define, and instead stated which two
methods of project appraisal were
used by the hospital. Other candidates
confused accounting rate of return
with internal rate of return. This section
was generally poorly attempted, and
easy marks were not earned.
Part (b) required two calculations to
be performed, and conclusions to be
drawn. The accounting rate of return
calculation was particularly badly
done. Very few candidates knew how
to calculate the average investment
correctly, with many candidates
including operating costs in their capital
calculation. Depreciation was rarely
included in the profit calculation, with
cash flows only being incorporated.
The payback calculation was attempted
marginally better, but candidates
struggled with the timing of the cash
flows, often having the increased
revenues as year one cash flows,
increased staff costs as year 2 revenues
and so on. Some candidates calculated
the net present value rather than
the payback period.
Part (c) asked for the disadvantages
of accounting rate of return and
the payback methods. These were easy
marks that candidates should have
gained. However, some candidates
misread the requirement and wrote
about the advantages, while others
showed a lack of knowledge of this area
of the syllabus.
Part (d)(i) asked for an explanation
of the net present value method.
This was generally done fairly well.
The calculation in Part (d)(ii) was well
attempted. The main errors were the
non-inclusion of the residual value and
only using four years as the time period.
QUESTION 4
This question examined breakeven
analysis and the candidates knowledge
of marginal versus absorption costing.
Part (a) was a straightforward
breakeven calculation. The common
error was the not annualising the
fixed costs, but apart from this, it was
well attempted.
Part (b) was also a breakeven
calculation, but this time candidates
were required to calculate a
new contribution, and calculate
the breakeven revenue rather than
the breakeven units. The calculation
of the new contribution was generally
attempted well, although some
candidates did struggle with where
the decimal points should be. In
calculating the breakeven revenue,
a valid approach is to use a C/S
ratio. Some candidates knew they
could use the C/S ratio, but then did
not know how to calculate it, with
various combinations of sales divided
by variable costs, or sales divided
by contribution being used.
Candidates must check whether the
breakeven point is required in units or as
a revenue figure, otherwise easy marks
are lost.
Part (c) was either not attempted or
attempted very badly. Part (d) asked
candidates to outline three advantage
and three disadvantages of using
marginal costing for six marks. These
should have been easy knowledge marks
for candidates to gain. However, many
candidates included a definition of
marginal costing in their answer, which
was not required, or gave explanations
as to how marginal costing affected the
calculation of inventory value and the
subsequent effect on profit if inventory
levels decreased or increased, again
earning no marks.
CANDIDATES SHOWED GOOD EXAM TECHNIQUE, AND
MADE SURE THAT THEY GAINED THE EASIER MARKS
THAT WERE AVAILABLE IN THE QUESTION.
24 EXAMS
STUDENT ACCOUNTANT ESSENTIAL EXAM GUIDE 10/2010
25
PAPER F4
CORPORATE AND BUSINESS
LAW (GLO)
The performance in this paper was better
than in the recent past. As usual, results
were mixed but a higher percentage
of candidates managed to reach the
required standard. While many candidates
performed well, it still has to be recognised
that a signicant number of candidates
were less well prepared and unfortunately
did not meet the satisfactory standard
to pass the exam.
The structure of the paper, as usual,
consisted of 10 compulsory questions,
each carrying 10 marks, although
some were subdivided into smaller
subsections. The first seven questions
were essentially knowledge based, while
the latter three were problem-based
scenarios requiring both legal analysis
and application of the appropriate law.
The first point to make about the general
structure of answers is that it is pleasing
to note that the number of candidates
who failed to do all or even the majority
of questions was considerably down on
previous sessions. Although there were
a sizeable proportion of candidates who
did not do the entire question, the vast
majority managed to make an attempt
at answering all of the questions.
Even where they got the answer wrong
they at least recognised what the
questions were about, which is itself an
improvement on past performance.
Where candidates failed to attempt all
of the questions this appeared to be as
a result of a general lack of knowledge
in relation to particular questions, rather
than based on any time pressure or
structural difficulties in the questions
(the issue of time pressure will be
considered in relation to Question 10
below). However, it is still a fact that
the last three problem-based scenario
questions provide the greatest ground
for concern. Too many candidates were
let down by their performance in those
questions, which continues to suggest a
general lack of analysis and application
skills if not general knowledge. That
being said, it has also to be mentioned
that Question 8 on the UN Convention
on Contracts for the Sale of Goods was,
by and large, done fairly well.
However, the way Question 10 was
dealt with did give rise to particular
concern. Candidates clearly are aware
of the syllabus content and the structure
of the paper, which has been maintained
over a number of years. However, the
fact that Question 10 has on a number
of occasions been the slot for questions
relating to criminal aspects of company
regulation meant that a significant
number of produced answers relating
to various aspects of the criminal law,
rather than on directors duties, which
was the actual subject of the question.
Many candidates still fail to read the
question asked and provide general
prepared answers on a topic area
encapsulating the specific question
topic. As a result they still spend time
providing unnecessary material or even
worse, completely irrelevant material.
The sources of law examined in
the Global paper are not particularly
extensive, but candidates are expected
to have a detailed knowledge and
understanding of those sources. Where
candidates fail it tends to be because
they lack such detailed knowledge.
What follows will consider the
individual questions in and candidates
responses to the individual questions in
the paper.
QUESTION 1
This question required an explanation of
two important organisations operating
within the context of international
trade law. Those organisations
are the International Chamber of
Commerce (ICC) and the World Trade
Organisation (WTO).
Most candidates recognised what the
initials stood for and were able to supply
sufficient information about both bodies
to gain at least pass marks, with many
candidates scoring highly, especially
in relation to the ICC, which tended to
be done well. Less was known about
the WTO.
QUESTION 2
This question requires candidates to
consider two aspects of the Model law
on International Commercial Arbitration.
First, the requirement that arbitration
agreements should be in writing and
secondly, how arbitration awards may
be enforced. Given that the model law is
not an extensive document to study and
come to terms with, the performance
in this question was inadequate. Many
candidates still respond to specific
questions on the model law by providing
general explanations of arbitration,
with its advantages and disadvantages,
or alternatively provide a complete
explanation of the whole procedure
involved in going to arbitration together
with explanation of the appointment and
powers of arbitrators.
Part (a) was a specific and even fairly
narrow aspect of the model law, but it
was nonetheless an essential one that
merited study and examination. It is
surely fundamental that arbitration
cannot be insisted on if there is no
written agreement to that end. Too
few candidates were able to deal with
the topic in any detail, with a number
merely asserting that such agreements
had to be in writing, a fact they worked
out from the question itself before going
off on irrelevant material.
Part (b) was better done, but even
there too many candidates mistook the
question and provided answers about
appeal rather than enforcement, a
fundamental error to make.
QUESTION 3
This question requires candidates to
refer to the rules relating to acceptance
under the United Nations Convention
for the International Sale of Goods.
(UNCISG). The first part related to
how acceptance could be made and
the second part related to when such
acceptance was effective.
This question tended to be done fairly
well as candidates clearly know that
questions on UNCISG will be asked and
have studied the convention in detail.
However, even here problems arose from
the fact that some candidates spent too
much time explaining offers rather than
the acceptance of such offers. There
was also a tendency for candidates to
present prepared answers on acceptance
in relation to Part (a). As a result, they
tended to include information that should
really have been placed in Part (b), which
they then recognised when they came to
Part (b) and as a result tended to repeat
their previous answer.
Nonetheless, those who focused on
the central issue were able to perform
well in this part.
QUESTION 4
This question required candidates to
explain the meaning of three specific
ICC Incoterms. It was by far and
away the best-done question on the
paper, with a significant number of
candidates gaining full marks. Indeed
many candidates gave extremely full
answers explaining the whole system
of Incoterms, and not just the three
examples that they were presented
with. Clearly this is a very popular area
and one that candidates are extremely
comfortable with. Some candidates did
not pick up the full marks available as
they produced insufficiently detailed
answers: they knew what the terms were
but they simply didnt provide a full
explanation of how they operated and
what their consequences were, in terms
of passage of risk for example.
ACCA FEEDBACK
ANSWERS TO PAPER F4, QUESTION 6 PART (A)
WERE MIXED. SOME CANDIDATES THOUGHT THAT
DEBENTURES WERE ACTUALLY SHARES AND OR A
SHARE OF PROFIT GRANTED BY THE COMPANY. THE
MAJORITY OF ANSWERS WERE OF A HIGH STANDARD,
AND FULL MARKS WERE OFTEN AWARDED.
QUESTION 5
This question required candidates to list
and explain the documents required to
be submitted to the companies registry
in order to register a company.
This question was answered well by
all candidates. It was encouraging to
see that candidates understood the
documents needed and the procedures,
which need to be followed to set up a
public limited company. Full marks were
frequently awarded. However, one point
that has to be made is that a number
of candidates still made use of the old,
pre-2006 law, especially in relation to
the memorandum of association. As
a result they tended to overemphasis
the importance of the memorandum
and correspondingly to play down
the importance of the application,
which of course is now the most
important document.
A small minority of candidates
misinterpreted the question and
described separate legal personality and
the advantages of setting up a company
compared to a sole trader.
QUESTION 6
This question, split into three separate
parts, required candidates to consider
how companies may raise loan capital
and how they secure such loans against
their assets.
Answers to Part (a) were mixed. Some
candidates thought that debentures were
actually shares and or a share of profit
granted by the company. The majority
of answers were of a high standard,
recognising that a debenture was a written
acknowledgement of indebtedness, that
the debenture holder was a creditor
and that there were no voting rights
attached, just an entitlement to interest.
Full marks were quite often awarded.
In Part (b) candidates again could
either readily describe the features of
both fixed and floating charges, or made
the mistake of assume that a fixed
charge merely meant that a fixed rate of
interest would be charged on the loan
and that a floating charge related to a
variable rate of interest. Unfortunately,
this is always a common mistake
by candidates.
QUESTION 7
This question required candidates
to consider the company secretary
in the context of the idea of
corporate governance.
This was not answered particularly
well. While most candidates stated that a
company secretary was an administrative
officer of a company, there was then a
tendency to describe directors duties.
Some candidates recognised the
qualifications needed, to be appointed
as a company secretary and duties
described tended to be in relation to
maintenance and submission of records
and registers and were comfortable
describing the ostensible authority in
pursuance of administrative contracts on
behalf of the company. A small number
of candidates actually took the context
of the question seriously in explaining
corporate governance and considering
the role of the company secretary in that
context as required.
Given that many candidates
were able to cite the high level
of qualifications required for a
company secretary, it was somewhat
contradictory that their duties
tended to be explained in the most
mundane list of tasks. Some of
the less well-prepared candidates
even suggested that the role of the
company secretary was equivalent
to that of a PA to the managing
director, although alternatively some
suggested that they were superior to
the directors.
QUESTION 8
This question required candidates to
explain and apply Article 79 of the
UN Convention on Contracts for the
International Sale of Goods, which
allows a person to avoid liability for
breach of contract where they can
rely on an impediment beyond their
control. It was on the whole done well
with most candidates being able to
explain Article 79 and to apply in to
the circumstances of the case. Only a
minority of candidates were unaware
of the effect of Article 79, in which
cases they simply treated the scenario
as a breach of contract case, and still
managed to gain some credit. However,
some candidates explained the effect
of Article 79 clearly but then failed
to apply it to the scenario, incorrectly
assuming that it must apply.
QUESTION 9
This question required candidates to
analyse a given scenario and accurately
apply the law of partnership to it. The
question specifically raised the issues
of partners liability, both generally
and on specific contracts and their
authority to enter into such contacts in
the first place. While there were many
sound answers, it has to be said that
on the whole it was not done as well as
might have been expected. There was
a lot of repetition of the facts from the
scenario. Although this is sometimes
relevant to demonstrate application
skills, there was not often a link between
the scenario and the law identified. Most
candidates were good at dealing with
the general law of partnership and, as
in Question 8, they set it out, sometimes
in great detail before going on to apply
it to the three parties in the scenario.
However, it was in the application that
a significant number of candidates let
themselves down by not applying the law
they had actually stated and in many
instances actually contradicting what
they had written previously.
This was particularly the case with
the first character Fi. While some
candidates had explained that ordinary
partners did not enjoy the benefit
of limited liability, and that such
benefit could only be achieved through
specific registered partnership forms,
they nonetheless concluded that the
partnership was a limited one and that
Fi had limited liability.
Nor were the situations of the
other two characters particularly well
dealt with, again, by and large, in
contradiction of the previous accurate
explanation of the general law set out
in the first part of answers. However,
all that being said, many candidates
performed well in this question.
QUESTION 10
This question essentially was divided
into two distinct parts, one requiring
candidates to consider the issue of
directors duties with an element raising
the issue of share allotment. It has to
be stated at the outset that it was by
far and away the worst done question
on the paper. A surprising number of
candidates simply did not recognise the
issues raised in the problem scenario
and attempted to apply various aspects
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of company law such insider dealing,
money laundering, fraudulent trading
and wrongful trading, and some
sometimes all of these together.
A number of explanations may be
put forward for this failure to deal
adequately with the question. Time
pressure may have been an issue, as it
did appear that candidates might have
rushed this question, often leaving it
until last and not really understanding
the main principles in the scenario.
Such time pressure, however, would
appear to be the outcome of candidates
wasting time in earlier questions by
including lots of irrelevant material in
their answers.
However, it might be that on the basis
of past papers, where the final question
has indeed dealt with those topics,
candidates simply assumed that the
question must be the same. The flaw in
such logic is, of course, obvious. Even
where candidates recognised that the
fundamental issue was directors duties,
answers tended simply to list all such
duties and as a result not to deal with the
specific issues raised in the question.
Once again, that being said, it also
has to be recognised that a number
of candidates, although unfortunately
a minority, produce excellent answers
dealing with the issues of directors
duties and recognising and applying
appropriate case authorities in support
of their answers.
PAPER F5
PERFORMANCE MANAGEMENT
The paper consisted of fve compulsory
20-mark questions. The mix of narrative to
numerical requirements was 47% to 53%.
Most candidates attempted all questions
and there was no evidence that the paper
was found to be particularly time pressured.
QUESTION 1
Question 1 examined the area of
costing. In Part (a), candidates were
required to calculate the cost and
quoted price of two products using
traditional absorption costing and
total cost plus pricing. The majority
of candidates got these calculations
right without a problem. Part (b) then
required candidates to work out the
costs and prices using activity-based
costing instead. Again, many candidates
scored full marks here, demonstrating a
good understanding of the area.
Parts (c) and (d) were the narrative
parts of the question and definitely
where the problems began. Part (c)
asked candidates to suggest pricing
strategies for the company in question
and reasons for poor sales of one
product. The markers were looking for
common sense answers, for example, to
suggest that the company establish what
their competitors are charging and base
their prices on the going rates. Answers
tended to be repetition of paragraphs
learnt from textbooks rather than
actually giving thought to the question
and thinking about what pricing
strategies would really be suitable. For
example, to suggest market skimming
was hardly appropriate for a company
that is struggling with sales. Good
answers to Part (c) were hard to find.
Part (d) was similarly not well
answered. It required a discussion of
marginal cost plus pricing and the
implication that such a pricing strategy
would have for the mark-up on the
products. The main points were that
marginal cost plus pricing is simpler
than full cost plus pricing and takes
away some of the uncertainty that
unknown sales volumes cause when
using full cost plus pricing. If marginal
cost plus pricing is used, however, the
mark up must be sufficiently high to
cover both the companys fixed cost
and also its required profit. This latter
point should have been obvious but
was mentioned by a only minority
of candidates.
QUESTION 2
The second question on the paper
covered the area of variances. Part (a)
was a written requirement asking for a
discussion of a production directors
performance over the last month and
Part (b) was a numerical requirement
asking for the calculation of a set of
variances for the following month. On
the whole, this question was the most
well answered question on the paper.
It was good to see an improvement
in the variance analysis discussion
that was performed in Part (a) of the
question this time round, compared
to December 2009s variance analysis
question. Fewer candidates made
meaningless comments such as the
material price variance is favourable,
which is good. Good comments tended
to be along the lines of while there
has been a favourable material price
variance, this is because cheaper, lower
quality materials were used, which, in
turn, has led to an adverse material
usage variance.
Part of the skill in Part (b) was in
identifying the variances that needed to
be calculated. It was good to see that
most candidates were able to do this,
although a few missed the labour idle
time variance. The calculations were
performed with a reasonable degree
of accuracy as well, showing that
candidates were far better prepared
than in previous sitting.
QUESTION 3
This question was a predominantly
numerical question about linear
programming, with a written Part (c)
about overtime payments. This was
probably the least well-answered
question on the paper overall.
Part (a) was fairly straightforward.
The question showed a graph on
which the optimum production point
had already been identified. The
requirement then asked candidates to
find the optimum production mix and
maximum contribution. This should
have been really well answered and
I think the reason why it wasnt is
because candidates did not expect to
be given the optimal production point
in a question. They expected to have
to find it themselves. Because of this,
they didnt read the question properly
and many candidates performed lots of
calculations trying to find the optimal
production point. It is so important to
read questions carefully in all exams.
An expectation of what the requirement
will read, based on past questions
must not be developed as, when this
happens, candidates inevitably dont
answer the question that is currently
being answered. A good attempt at
Part (a) would have been to solve the
two simultaneous equations for the
critical constraints at point B, in order
to arrive at the optimum quantity of
W and L to be produced. Then, these
numbers needed to be put into the
objective function in order to find
IT WAS GOOD TO SEE AN IMPROVEMENT IN THE
VARIANCE ANALYSIS DISCUSSION THAT WAS
PERFORMED IN PART (A) OF PAPER F5, QUESTION 2 THIS
TIME ROUND, COMPARED TO DECEMBER 2009S
VARIANCE ANALYSIS QUESTION, AS FEWER CANDIDATES
MADE MEANINGLESS COMMENTS.
28 EXAMS
contribution. It is essential to show
all workings. Where workings are not
shown, full marks cannot be given. Also,
it was not sufficient to simply try and
read the optimum quantities off the
graph. The requirement said find by
appropriate calculation....
Part (b) tested shadow price
calculations. Some candidates gave
perfect answers to this but these
candidates were in the minority. Most
answers were poor and this is clearly
an area that needs to be revisited.
A common error was finding a total
shadow price of $14 for fabric and tailor
time jointly, rather than calculating them
separately. Such answers scored poorly.
Part (c) then tested candidates
understanding of shadow prices,
and was very poorly answered.
Many candidates could perform the
calculations in Part (b) but did not, on
the whole, understand that the shadow
price is the premium over and above
the normal price that could be paid for
extra tailor time. Again, this area clearly
needs revisiting.
Part (d) asked for the new optimum
production plan if the maximum
demand for W fell to 200. Candidates
needed to appreciate that while fabric
remained a critical constraint, maximum
demand for W now became the other
critical constraint rather than tailor time.
Therefore, the constraints for fabric and
W now needed to be solved in order to
find the optimum production mix. It was
surprising to see that candidates who
completed Part (a) correctly could not
do Part (d) as essentially, the technique
required was the same.
QUESTION 4
This question was 50% numerical (Parts
(a) and (b)) and 50% discursive. It
covered the area of costing within the
context of a transfer pricing situation.
Part (a) required candidates to derive
a price based on variable cost plus.
Part (b) asked what the increase or
decrease in that price would be if full
cost plus pricing was used. As with
Question 1, these numerical parts were
quite well answered by most candidates.
However, a disappointing number of
answers included the fixed costs within
Part (a) and Part (b), which defied the
purpose of the whole question really.
However, most answers were good.
Moving on to Part (c), a discussion of
whether fixed costs should be included
in a transfer price was required. The
quality of answers was really poor. The
question was looking for a couple of key
points, for example, that including fixed
costs guarantees a profit for the seller
but invites manipulation of overheads
and passes on inefficiencies from one
part of the business to another. Also,
that this strategy causes fixed costs of
one division to be turned into a variable
cost for another division.
Similarly, Part (d) rarely produced
answers scoring full marks. It asked
whether retail stores should be allowed
to buy in from outside suppliers. Key
points in any answer should have been
that the overall profitability of the
company is key, as is goal congruence;
these points were rarely made.
Thankfully, many candidates did spot
the more obvious points such as the
fact that the quality and reliability of
any external supplier would need to
be assessed.
QUESTION 5
The final question on the paper covered
the area of performance measurement.
Part (a) examined the calculation of
bonuses for a manager based on a set
of given targets; answers to this were
good on the whole. Part (b) required a
discussion of the extent to which the
three targets set were controllable by
managers. For a narrative requirement,
this was fairly well answered overall. A
minority of candidates did misread the
requirement though and instead gave
commentary on the extent to which
the targets had been met in the year.
Part (c) asked for a description of ways
in which the manager could manipulate
the situation in order to make sure
he gets his bonus. Again, there were
some good answers here, with only
a minority of candidates talking about
manipulating profits, which wasnt
relevant to a business where profit
based targets werent being used.
SUMMARY
Overall, this exam session showed
that candidates are getting better at
the numbers involved in Paper F5 but
that the discussion areas still need
substantial improvement.
PAPER F6
TAXATION (UK)
This style of this paper was slightly
different from recent papers, with more
smaller sub-parts enabling more of the
syllabus to be covered. Some of the other
changes were that the VAT information
needed for Question 1 Part (d) was not
shown separately (instead being included
within the main text), and in Question 2
the group relief and capital allowance
aspects were in separate sections (requiring
explanations instead of straightforward
computations) rather than being examined
computationally as part of the main
corporation tax question. Candidates
cannot expect to have an easy income tax
or benefts computation in every paper. The
pass rate achieved was quite satisfactory.
QUESTION 1
This question was well answered,
especially Parts (b) and (c). In Part (a)
several candidates simply repeated
the information contained within the
question rather than explaining the
183 day rule and the substantial visits
rule. There were generally no problems
with Part (b), although a number of
candidates did not appreciate that they
had to deduct the salary and interest
on capital before allocating the balance
of profits. Most candidates scored
maximum marks for Part (c). In Part (d)
the tax point was explained reasonably
well, although some candidates wasted
time by also giving details for the supply
of goods. Some students struggled
with the VAT calculation, assuming this
to be much more complicated than it
actually was. For two marks, all that was
required was to select the output VAT
of 21,600 and input VAT of 140 and
180 from the text, and then calculate
the amount payable of 21,280. It
was not necessary to calculate any VAT
figures and, therefore, the fact that the
period spanned the date when the VAT
rate changed was irrelevant. The main
problem as regards the VAT calculation
using the flat rate scheme was that
candidates incorrectly deducted
input VAT.
QUESTION 2
This question was generally very well
answered, especially the calculation of
the property business profit in Part (a)
where most candidates scored virtually
maximum marks. The second aspect
of Part (a) was not so well answered
as candidates often did not appreciate
that additional loss relief was available
or that it was restricted to 50,000. In
Part (b) several candidates explained
whether or not group relief would
be available rather than calculating
the amount of relief. In Part (c) most
candidates were aware of what capital
allowances were available, although
some candidates incorrectly stated that
the ventilation system would qualify
for industrial buildings allowance.
Many candidates complicated Part (d)
by performing long calculations, making
this much more time consuming
STUDENT ACCOUNTANT ESSENTIAL EXAM GUIDE 10/2010
29
thannecessaryforthreemarks.
However,theyshouldhaveappreciated
thatthiswasadditionalremuneration
sothecalculationsweresimply
40,000x40%,40,000x1%and
40,000x12.8%forthethreemarks.
QUESTION 3
Itwaspleasingtoseethatthisquestion
waswellanswered.Onanoverallnote,it
doesnotcreateaverygoodimpression
whencandidatesdeducttheannual
exemptionwhendealingwithacompany.
Theonlyaspectthatconsistentlycaused
problemsinPart(a)wastherestoration
of theasset.Despitethequestiontelling
candidatesthataclaimtodeferthe
gainhadbeenmade,manyinsisted
thatsuchaclaimwasnotpossible
andinsteadcalculatedacapitalloss.
Manycandidatesdidnotevenattempt
Part(b)despitethefactthatthissection
generallyjustrequiredthemtoprovide
figuresalreadycalculatedinPart(a).

QUESTION 4
Thisquestionwasnotwellanswered,
withmanycandidatesattemptingit
astheirfinalquestionoromittingit
altogether.Thiswasdisappointinggiven
thatseveralsectionscoveredrecenttax
managementchangeswhichhavebeen
coveredinmyFinanceActtechnical
articles.InPart(a)mostcandidates
knewthedifferencebetweentaxevasion
andtaxavoidance,butmanyfailed
toscoreaneasymarkbynotstating
thatthetaxpayersactionswouldbe
viewedastaxevasion.Part(b)caused
problemsformostcandidatesbuta
common-senseapproachwouldhave
gainedmostof theavailablemarks.
Unfortunately,fartoomanycandidates
insteadjustincorrectlyexplainedthat
itwouldbenecessarytoinformHMRC
themselves.InPart(c)fartoomany
candidateswroteatlengthaboutan
enquiryratherthanjuststatingthat
HMRCwouldissueawritteninformation
notice.ThetimelimitsinPart(d)were
oftennotknown,andmostcandidates
wereunawareof theuseof adiscovery
assessmentdespitebeinggivenhelp
inthewordingof therequirement.
Therewaslittleexcuseforgettingthe
interestcalculationwronginPart(e)as
candidatesweregiventhetaxliability,
theduedate,thepaymentdateand
therateof interest.Therewaslittle
awarenessof thenewpenaltyregime.
QUESTION 5
Thisquestionwasreasonablywell
answered.InPart(a)veryfew
candidatesappreciatedthatthere
wasapossibleexceptionandthatthe
exceptiondidnotapply.Thiswasthe
reasonwhyfiguresweregivenforthe
previousyear,andlesswell-prepared
candidatescreatedalotof problemsfor
themselvesbytryingtousethesefigures
aspartof theircalculations.Candidates
hadlittledifficultyincalculatingthe
corporationtaxliabilityinPart(b),but
theyoftenstruggledwiththequarterly
duedates.Therewasasimilarproblem
inPart(c)wheremanycandidatesfailed
toscoreaneasymarkbyomittingthe
duedate.
PAPER F7
FINANCIAL REPORTING
I am very disappointed to have to report
a marked deterioration in candidates
overall performance for this diet of the
Paper F7 exam. Most commentators
considered the paper to be no more
complex or demanding than in recent
previous diets. The majority of the papers
topics had been examined before and
candidates who had studied the full
syllabus and revised using recent past
questions should have had no diffculties
obtaining a pass mark. It was particularly
worryingly that so many candidates failed
to gain enough marks to demonstrate any
progression of understanding from that
required at Paper F3. Indeed, some of the
easier computations on this paper such
as basic depreciation and accruals were
not done correctly, in extreme cases some
candidates made fundamental errors such
as including non-current assets as income
and conversely showing investment income
as an asset.
Thisreporthastwomainfunctions:
first,itgivesanassessmentof the
actualperformancethatcandidates
achievedand,second,tobeof use
tocandidatesattemptingthepaper
inthenearfuturetohighlightareas
of poorexamtechniqueandsome
of thecommonerrorsmadeby
previouscandidates.
Othercausesof thepoorperformance
arefamiliar,butmoreprevalentthanin
thepast.Themostcommonof these
wasafailuretoanswerallthequestions.
Asignificantnumberof candidates
gaveanswerstoonlyhalf of thepaper
andthushadnohopeof passing.One
markerreportedthatshehadlost
countof thenumberof candidates
thathadscored3540marksafter
completingthepaperuptoQuestion3
Part(a)(i)(whichis62marksintothe
paper)andthenfailedtoscoremore
thananotherfivemarksontherest
of thequestions(accountingforthe
remaining38marks).Manyanswersto
writtenquestionsdidnotaddressthe
specificpointsaskedforindicatinga
lackof focusorsimplynotreadingthe
requirementproperly.
Asonallrecentsittingsthewritten
elementswereansweredmuchworse
(if atall)thanthecomputational
elements.Anumberof candidates
displayedevidenceof poortime
managementbyproducingpagesof
unnecessarilydetailedworkingsforeven
simplecalculations.Aconsequence
of thiswasrunningoutof timeonthe
laterquestions.
Thestructureof thepaperisthat
of allcompulsoryquestions,with
Questions1,2and3beingfor25marks
eachandQuestions4and5arefor15
and10marksrespectively.Thefirst
threequestionscoverthecoretopics
of consolidatedaccounts,preparing
singlecompanyfinancialstatements
(onthispaper,fromatrialbalance)
andperformanceappraisal/cashflows.
Questions4and5coverthereminderof
thesyllabus.
Overallcandidatesperformancecan
besummarisedasgoodtoverygood
onQuestions1(a),Question2andthe
statementof cashflowsof Question3
Part(a)(i);beyondthistherestof
theanswerswerepoor,verypooror
nonexistent.
Candidatesshouldbeawarethat
markersmaynotbeabletogive
credittoanswersthatdisplayedpoor,
sometimesillegible,handwriting.
Therewerealsomanyunreferencedor
non-titled/labelledworkingswhichcan
hinderthemarkingprocess.
THE ONLY ASPECT THAT CONSISTENTLY CAUSED
PROBLEMS IN QUESTION 4 PART (A) OF PAPER F6 WAS
THE RESTORATION OF THE ASSET. DESPITE THE
QUESTION TELLING CANDIDATES THAT A CLAIM TO
DEFER THE GAIN HAD BEEN MADE, MANY INSISTED
THAT SUCH A CLAIM WAS NOT POSSIBLE AND INSTEAD
CALCULATED A CAPITAL LOSS.
30 EXAMS
The composition and topics of
the questions was such that on this
diet there was very little difference in
substance between the International
paper (the primary paper) and all other
adapted papers and, therefore, these
comments generally apply to all streams
of paper.
SPECIFIC COMMENTS
QUESTION 1
This question required (in Part (a))
the preparation of a consolidated
statement of financial position (balance
sheet) for a parent, a subsidiary and
an equity accounted associate. The
question specifically required the
calculation of consolidated goodwill
(involving contingent consideration and
two fair value adjustments), intragroup
adjustments and an impairment of
goodwill. Part (b) was a fourmark
written section.
The preparation of the consolidated
statement of financial position was
generally well answered, but answers to
the written section were very mixed.
The main errors by candidates in the
consolidation were:
Goodwill calculation: using an incorrect
share price for the share issue and
incorrectly revising the value of the
contingent consideration as a goodwill
adjustment (it should be to retained
earnings) [Note: for UKbased papers
it is correct to adjust the goodwill].
Incorrectly or not adjusting for
software that had no recoverable
value. Also a number of candidates
failed to include the noncontrolling
interest at its fair value with the
consequential effect on goodwill [not
applicable to UKbased papers].
The adjustment to the value of the
software was also often written off
the value of noncurrents (even
though the question said it had
already been written off) and rarely
was it accounted for as part of
the subsidiarys post acquisition
profit calculation.
The intragroup adjustments for
goodsintransit, URP (often calculated
incorrectly) and current account
balances were often wrong with no clear
pattern of mistakes; just about every
combination of error was reported.
The profit of the associate was often
not time apportioned.
The impairment of goodwill was
not apportioned between the parent
and noncontrolling interest [not
applicable to UKbased papers].
A lot of errors/omissions made in
earlier calculations were carried
through to the calculation of
consolidated retained earnings.
Some candidates accounted for the
share exchange issue (effectively
double counting it) even though the
question said it had already been
accounted for.
Some answers used proportional
consolidation for the associate (some
even proportionally consolidated
the subsidiary); others consolidated
the associate (rather than using equity
accounting) thankfully this is now
only a tiny minority of candidates.
Despite the above, this section was
well answered.
Part (b) was a short written section
testing candidate knowledge of the
legal position of a subsidiary within the
context of group financial statements.
The subsidiary provided a copy of
the groups consolidated financial
statements to support an application for
credit. Answers to this were generally
poor and even alarming. The majority
of candidates thought that a parent
(or other subsidiaries) was responsible
for the debts of its subsidiary. This
is not the case. Without a guarantee
from the parent, a strong group
statement of financial position does
not give any assurance to a potential
creditor of a subsidiary. It is essential
to base any extension of credit on the
individual (entity) financial statements
of the subsidiary itself. Another
misinterpretation of this section was
that some candidates thought it was a
question on ratio analysis and described
the ratios they would calculate to
determine the liquidity position of
the group.
QUESTION 2
This was a familiar question of
preparing financial statements from a
trial balance with various adjustments
required. These involved the dealing with
a sales cut off error, the use of the
effective interest rate for a loan, a fair
valued investment, an impairment of a
leasehold property (including presenting
it as held for sale International paper
only), a construction contract and
accounting for taxation.
As with Question 1, this question was
competently answered by the majority
of candidates showing good knowledge
of the format and presentation of the
two financial statements.
To help with future preparation, the
most common errors were:
cut off error: generally dealt with
quite well, but there were errors in
grossing up the cost (or only adjusting
by the profit element) to give the
correct revenue/turnover figure
loan: the issue costs were often ignored
(they should have been deducted
from the proceeds and also deducted
from administrative expenses) and
calculating the finance charge at the
nominal rate of 5% instead of the
effective rate of 10%. Omission of
accrued interest from current liabilities
or including it at the incorrect amount
despite the investment being
described as fair value through profit
and loss, many candidates credited
the gain directly to equity
leasehold property: a failure to
depreciate it up to the date it became
held for sale; not calculating the
subsequent impairment loss and
most candidates continuing to show
it as a noncurrent (rather than a
current) asset [the latter point is not
applicable to UK based papers]
construction contract: often
completely ignored, incorrect
calculation of cost (usually
omitting the plant depreciation),
incorrect (or nonexistent)
presentation in current assets
(amount due from customers) or
noncurrent assets (carrying amount
of the plant). A lot of candidates
who prepared workings for the
contract then made no attempt to
include the relevant figures in their
financial statements.
there were many errors in the
treatment of the taxation in both the
income statement and the statement
of financial position, these included:
PAPER F7 QUESTION 1 PART (A) WAS GENERALLY WELL ANSWERED. ANSWERS TO
PART (B), HOWEVER, WERE GENERALLY POOR AND EVEN ALARMING. THE MAJORITY
OF CANDIDATES THOUGHT THAT A PARENT WAS RESPONSIBLE FOR THE DEBTS
OF ITS SUBSIDIARY. THIS IS NOT THE CASE.
32EXAMS
debiting (should be credited) the over
provision of the previous years tax;
treating the closing provision (rather
than the movement) of deferred tax as
the charge in the income statement;
and confusion over which amounts of
tax should appear as non-current and
current liabilities.
a number of candidates are still
showing equity dividends in the
income statement (as an expense)
rather than as part of the calculation
of retained earnings.
QUESTION 3
This question was on the familiar topic
area of cash flows and interpretation
and was widely expected.
Cash flows remain popular with
candidates and those who had practised
past questions generally scored well.
There were a couple of tricky areas that
confused candidates: non-current assets
had only increased by new finance lease
agreements (which candidates did not
take into account when calculating the
payment of the finance lease liability);
and the taxation cash flow involved tax
relief and a future refund to compute
the tax paid during the year. A surprising
error was that several candidates did
not think the interest on the finance
leases was a cash outflow. An analysis
of retained earnings would have shown
that a dividend had been paid, however
only a tiny minority of candidates picked
this up.
Although most candidates scored
well on the cash flows, a significant
number showed a lack of understanding
including poor format knowledge.
In Part (a)(ii) candidates were asked
to review the available information
(including their statement of cash flows)
to advise on the renewal of the loan
due three months after the year end.
Although there were a few really good
answers to this, ie those that focused
on the requirement, many candidates
answered this as if it were a general
interpretation of financial performance
giving little regard to addressing the
issue of whether they would advise that
the loan renewal be granted.
The answer should have concentrated
on the expectations of a lender: does
the company have good liquidity,
interest cover, acceptable gearing and
securitisable assets. Good answers
referred to the company selling its
leasehold property and renting it back
as a sign of an inability to generate
cash flows from trading activity and
that there was a year-end overdraft
despite selling the property and issuing
shares. Many weaker answers were
dominated by profitability issues, such
as profit ratios and cost control, and a
detailed commentary on inventory and
receivables policies, with hardly any
reference to the position as portrayed
by the statement of cash flows. Another
problem was not understanding that
the loan had moved from non-current
to current liabilities: many candidates
thought that the non-current loan had
been paid off and a new loan taken out.
This error was also commonly presented
in the answer to Part (a)(i) although no
cash flow(s) had taken place.
For the first time Part (b) examined
an issue relating to a not-for-profit
organisation. It was a similar issue
to that in Part (a)(ii) in that it asked
for what ratios could be calculated to
decide whether to grant a loan to such
an organisation. Many candidates did
recognise and state that a not-for-profit
organisation doesnt have profits, but
despite this then went on to describe
many profit-related ratios without even
trying to relate them to the types of
income, expenses, assets and liabilities
of a sports club. The question clearly
stated that this was a separate matter
to the earlier question. Despite this
many candidates calculated (routine)
ratios using the figures from the
companys financial statements
(Deltoid) in Part (a) often referring
to the sports club as the company.
What was required in answering this
section was a recognition that although
the sports club is a not-for-profit
organisation, granting it a loan is a
commercial activity and should be
decided based on similar principles
to that of a commercial organisation.
Thus the ability to pay interest, capital
and the availability of any security is
still relevant.
A number of answers completely
ignored what the question had asked
and instead just gave a rote-learned
page of everything they could remember
about not-for-profit organisations such
as the three Es.
QUESTION 4
This question tested the
much-examined and important topic
of the principle substance over
(legal) form with reference to the
ASBs Framework. Part (a) was a
written section that should have
been straightforward. It asked why
this principle is important and
what features may indicate that the
substance of a transaction may be
different from its legal form. Most
answers started well referring to
matters such as relevance, reliability
and faithful representation. However,
the discussion of finance leases
dominated many answers (to the
exclusion of other issues) and few
attempted to describe the features
that may indicate a difference
between substance and form such
as the separation of ownership and
control, the use of options and
linked transactions.
Part (b) was a numerical test of the
substance principle which required a
short series of linked transactions to be
accounted for both in their legal form
and in their substance. Again, although
many candidates did score some
marks, it was clear that very few really
understood the issues. The example was
of a sale and repurchase of maturing
inventory. When treated in its legal form
a sale (and profit) should have been
recorded in years one and three with no
finance costs charged. The substance
of the transaction was that of a secured
loan where interest was the only relevant
item in the income statement in years
1 and 2 and a single sale/profit (as well
as further finance costs) recorded in
year three.
Many candidates got very confused
between the two and integrated
elements of the two answers,
particularly incorrectly including
finance costs in the answer to the legal
form. Many candidates either showed
statement of financial position extracts,
or mixed up items to be reported, when
the question clearly stated only income
statement extracts were required.
Part (c) asked how the two
different treatments might affect
an interpretation of the companys
performance. Where candidates had got
the numbers correct in Part (b) they
tended to do quite well in this section;
not surprisingly, if candidates did not
understand the numbers they couldnt
understand their interpretation.
The main points were that neither
method affected the overall profit (over
the three years) on the transactions
(although many thought it did) with the
main differences being in the timing of
recognising profit and the classification
of costs in the income statement.
The more substantial differences being
in the statement of financial position
where, under the substance method,
inventory and the loan were included
as assets and liabilities respectively.
This would have knock on effect
on ratios such as ROCE, gearing and
inventory utilisation.
STUDENT ACCOUNTANT ESSENTIALEXAMGUIDE10/2010
33
QUESTION 5
This question was based on the
relatively infrequently examined topic of
borrowing costs and as such caught out
many candidates who had not covered
this in their revision. A considerable
number of candidates did not attempt
this question. Those who had studied
the topic scored well thus answers
tended to be very polarised, either very
good or very poor.
Part (a) asked for the circumstances
when borrowing costs should be
capitalised. This should have proved
straightforward. An answer such as:
Borrowing costs relating to assets that
take a substantial time to complete are
capitalised at the effective rate interest
from the date construction starts and
should end when the asset is ready
for use would alone have attracted at
least three of the five marks available
for this part. Further discussion of
the suspension of capitalisation where
construction activity is suspended
and the deduction of any (temporary)
investment income from capitalised cost
would have been all that was necessary
to gain the full marks.
Instead many candidates just
guessed at the rules or interpreted the
requirement to be about what other
costs could be capitalised during the
construction of non-current assets (the
topic of a recent past question).
Part (b) was a numerical example
designed to put the above rules into
practice. The main errors made by
candidates were using the nominal/
coupon rate of 6% instead of the
effective rate of 7.5% to calculate the
interest to be either capitalised or
expensed and not correctly calculating
the period of capitalisation. A number
of candidates spent time calculating
what the liability for the loan would be in
the statement of financial position this
was not asked for and gained no marks.
CONCLUSION
As reported in the introduction, the
overall performance of candidates
was very disappointing with too many
candidates simply not doing enough
studying to prepare themselves for
answering questions across the breadth
of the syllabus, in effect hoping to
pass by answering three questions.
Poor exam technique was apparent,
particularly not reading or interpreting
several of the question requirements
properly, especially in respect of
the written questions. The worst
performing candidates did not show
an understanding of Paper F3 material
and could not, therefore, do themselves
justice. It was also apparent that many
candidates had done little, if any,
practising of recent past exam questions.
The above comments should not
detract from the very able candidates
who obviously worked hard and were
rewarded with good marks.
PAPER F8
AUDIT AND ASSURANCE
The exam consisted of fve compulsory
questions. Section A contained Question
1 for 30 marks and Question 2 for 10
marks. Section B comprised three further
questions of 20 marks each.
It was pleasing to see that the vast
majority of candidates attempted all
five questions, with the exception of
Question 2 Part (a). Many candidates
chose to start with Question 4 or 5 first,
and then moved on to Questions 1,
2 and 3. A significant proportion
of candidates answered Question 1
last and their answers were often
incomplete. As Question 1 is the case
study and represents 30 of the available
marks, leaving this question until
last can be a risky strategy, as many
answers presented were incomplete or
appeared rushed.
Candidates performed particularly
well on Questions 3 Part (b)(i), 3 Part
(b)(ii), 4 and 5 Part (b). The questions
candidates found most challenging
were Questions 1 Part (a), 1 Part (d),
2 Part (a), 3 Part (b)(iii), 3 Part (c)
and 5 Part (d). This is mainly due to
candidates not understanding core
syllabus areas well enough and also
partly due to a failure to read question
requirements carefully.
A number of common issues arose in
some answers:
Failing to read the question
requirement clearly and, therefore,
providing irrelevant answers which
scored few if any marks.
Wasting time by providing definitions
which were unnecessary.
Presenting answers inadequately:
Questions 3 Part (b) and 4 Part (b)
in particular lent themselves well to
a columnar format as opposed to
lengthy paragraphs of text.
Failing to answer each question on a
new page of the answer booklet.
Illegible handwriting.
QUESTION 1
This 30-mark question was based on a
paint manufacturer, Smoothbrush Paints
Co, and tested candidates ability to
cope with a number of areas including
audit risks, planning and inventory.
Part (a) for 10 marks required
candidates to identify and explain the
audit risks identified at the planning
stage of the audit.
Many candidates performed
inadequately on this part of the
question. Audit risk is a key element of
the Paper F8 syllabus.
A number of candidates wasted
valuable time by describing the audit
risk model along with definitions of
audit risk, inherent risk, control and
detection risk; this generated no marks
as it was not part of the requirement.
Candidates are reminded that they must
answer the question asked as opposed
to the one they wish had been asked.
The main area where candidates
lost marks is that they did not actually
understand what audit risk relates to.
Hence they provided answers which
considered the risks the business would
face or business risks, which are
outside the scope of the syllabus. Audit
risks must be related to the risk arising
in the audit of the financial statements.
If candidates did not do this then they
could not have passed this part of
the question as there were no marks
available for business risk explanations.
An example of this is most candidates
identified from the scenario a valid risk
factor of goods being in transit for two
months. The explanation of the audit
risk should have been to ascertain
that the cut-off of inventory was
appropriate at the year end. However,
many candidates went on to explain that
Smoothbrush Paints Co may encounter
problems with stock-outs of goods,
this is focused more on operational
business risk rather than on the risks
to the financial statements. Future
candidates must take note; audit risk
A SIGNIFICANT PROPORTION OF CANDIDATES
ANSWERED QUESTION 1 OF PAPER F8 LAST AND THEIR
ANSWERS WERE OFTEN INCOMPLETE. AS QUESTION 1
IS THE CASE STUDY AND REPRESENTS 30 OF THE
AVAILABLE MARKS, LEAVING THIS QUESTION UNTIL LAST
CAN BE A RISKY STRATEGY.
34EXAMS
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Untitled-1 3 8/23/2010 12:45:04 PM
is an important element of the syllabus
and must be understood.
Additionally, some of the candidates
who were able to provide valid audit
risks tended to focus too much on
inventory risks as opposed to any
number of the additional audit risks
presented in the scenario.
The majority of answers were
presented in detailed paragraphs as
opposed to a columnar approach;
either approach was suitable for this
question. In addition, a number of
candidates provided far too many points
for this question, which resulted in their
answers to later questions either being
incomplete or rushed.
Part (b), for four marks, required
a discussion of the importance of
assessing risk at the planning stage
of an audit. This was well answered by
the majority of candidates with many
identifying that assessing risk would
lead to an effective audit with the focus
of testing being on high risk areas only.
Part (c), for 10 marks, required
an identification and explanation of
controls over the continuous/perpetual
inventory counting system in order to
ensure completeness and accuracy of
the inventory records. This question
proved to be challenging for a number
of candidates and there were some
unsatisfactory answers. Many identified
controls, such as the inventory team
should be independent of the warehouse
staff but failed to then explain these
controls. This would have restricted
their marks to mark per control as
opposed to the 1 marks available for
an identification and explanation.
In addition, despite the question
asking for controls a significant minority
of candidates provided substantive
procedures the auditor would perform
at an inventory count. Candidates must
read the question carefully. Also many
candidates failed to appreciate that the
controls required were in relation to the
perpetual inventory system only and
not for the whole inventory cycle, hence
controls in relation to goods received
notes and purchase invoices were
not relevant.
Part (d), for six marks, required
three substantive procedures each
to confirm the valuation of inventory
and the completeness of provisions or
contingent liabilities.
Performance was mixed for this
question; candidates were generally
able to provide adequate substantive
procedures for provisions or contingent
liabilities. However, candidates are
reminded that procedures such as:
obtain management representations
discuss with management or
read board minutes
are only likely to score mark unless
there is an explanation of what the
management representation should
contain, what the management
discussions should cover, or what
the minutes are being reviewed for.
Substantive procedures must be
sufficiently detailed otherwise at best
only marks rather than one mark can
be obtained.
The requirement to consider valuation
of inventory, which is a topic which is
regularly examined, was on the whole
inadequately answered. Candidates
seemed to ignore the requirement to
consider valuation and often structured
their answers with headings such as
existence or rights and obligations.
Clearly many failed to read the question
properly. In addition, despite substantive
procedures being required, many
started with a definition of net realisable
value, this scored no marks.
QUESTION 2
This 10-mark question covered the areas
of assurance and materiality.
Part (a), for five marks, required
an explanation of the elements of an
assurance engagement. A large number
of candidates did not attempt this
question, and where it was attempted
it was inadequately answered. Most
candidates who provided an answer
clearly did not know what the elements
of an assurance engagement were
and proceeded to write down anything
they knew about assurance. The usual
answers focused on positive and
negative assurance or on the different
types of assurance engagements. Only
a small minority of candidates actually
understood the requirement and
provided valid answers.
It was fairly apparent from the
answers provided that many candidates
had simply not studied the area of
assurance and hence were unable to
score any marks at all.
Part (b), for five marks, required
candidates to define materiality and
determine how the level is assessed.
In general, candidates performed
well on defining materiality and were
able to provide a couple of points
in relation to the assessment of
materiality. Most candidates correctly
identified benchmarks that can be
used to calculate materiality and
many also commented on the need for
professional judgment.
Unfortunately, some candidates failed
to identify a sufficient number of points,
as a definition of materiality along with
an assessment of benchmarks such as
1% of revenue would only have scored
two marks in total. In order to pass
this part of the question further points
were required. In addition, only a small
minority of candidates commented
on performance materiality which is
a new topic from the revised ISA 320,
Materiality in Planning and Performing
an Audit.
QUESTION 3
This 20-mark question was based
on a window cleaning company,
Shiny Happy Windows Co, along with
unrelated requirements on substantive
procedures and tests of control as
well as substantive procedures over a
companys bank balance.
Part (a), for four marks, had two
sub-requirements which were not
related to the scenario. Candidates
were required to define a substantive
procedure and a test of control and then
provide an example of each procedure
relevant to sales invoicing.
A large number of candidates could
not provide valid definitions. Most
were able to define test of control, but
struggled with substantive procedure.
The attempts by most candidates at
providing examples of tests of control
and substantive procedures were
unsatisfactory. Many provided controls
rather than how to test the controls and
the substantive procedures were weak in
relation to the level of detail provided.
As noted in previous examiners reports,
a substantive procedure that starts with
check is unlikely to score many marks.
PAPER F8 QUESTION 2, PART (A), FOR FIVE MARKS,
REQUIRED AN EXPLANATION OF THE ELEMENTS OF
AN ASSURANCE ENGAGEMENT. A LARGE NUMBER
OF CANDIDATES DID NOT ATTEMPT THIS QUESTION,
AND WHERE IT WAS ATTEMPTED IT WAS
INADEQUATELY ANSWERED.
36EXAMS
In addition, some candidates provided
valid examples of tests of controls and
substantive procedures, but these were
not in relation to sales invoicing. It can
only be assumed that this was due to a
failure to read the question properly.
Obtaining evidence is a core part
of the syllabus and for candidates to
not be able to provide examples and
definitions for substantive procedures
and tests of control is unsatisfactory.
Future candidates must ensure that they
are mindful of the importance of this
topic area.
Part (b), for nine marks, had three
sub-requirements: an identification
and explanation of deficiencies in the
cash cycle, controls to address these
deficiencies, and tests of controls to
assess the effectiveness of the controls.
The first two sub-requirements were
answered well by almost all candidates,
and many scored full marks. Where
candidates did not score full marks
this was usually due to the fact that
they had not explained the deficiencies
and controls in sufficient detail or
because they identified deficiencies/
controls which were unrealistic, such as
suggesting that all customers should
be required to pay by BACS rather than
by cash/cheques or suggesting that
only senior members of the finance
team should be allowed to open the post.
The third sub-requirement for
tests of controls was not well
answered. Candidates do not seem to
understand what a test of control is
and how it operates. Many provided
unsatisfactory tests such as observe
the post or they provided substantive
procedures instead.
The question required three
deficiencies, controls and tests of
control and it was pleasing to see that
the vast majority of candidates were
able to clearly identify only the required
number of points.
Many candidates presented their
answers in a columnar format and this
seemed to provide clear and concise
answers which covered all parts of the
requirement. Some answered just the
first two sub-requirements in columns
while others answered all three parts in
columns; either approach was acceptable.
Part (c), for seven marks, required
substantive procedures for verifying a
companys bank balance. It presented
difficulties for many candidates.
Common errors included:
Writing at length about the steps
involved in obtaining a bank
confirmation, even though this was
not the requirement.
Focusing on testing transactions which
would go through the bank account
over the year as opposed to focusing
on the year-end bank reconciliation.
Providing tests of controls over bank,
this demonstrated the confusion over
substantive versus tests of control.
Those candidates who did understand
the requirement often failed to focus
enough on the auditing of the year-end
bank reconciliation and hence lost
out on marks in relation to such
items as unpresented cheques and
outstanding lodgements.
Substantive procedures over the key
categories of assets and liabilities is
a core part of the syllabus and future
candidates must ensure that they devote
adequate exam preparation time to this
critical area.
QUESTION 4
This 20-mark question was based on a
manufacturer of luxury mobile phones,
LV Fones Co, and addressed the syllabus
area of professional ethics.
Part (a), for five marks, was unrelated
to the scenario and required five threats
from the ACCAs Code of Ethics and
Conduct along with an example for
each threat.
This part of the question was very
well answered by the vast majority of
candidates with most scoring full marks.
A significant minority of candidates
confused the requirement for threats
with that of the fundamental principles
and hence provided answers in relation
to objectivity, integrity, confidentiality,
professional competence and due care
and professional behaviour; unfortunately
these answers gained no marks. In
addition some candidates did not provide
an example of each threat, choosing
instead to explain the threat in more
detail this was not what was required.
Part (b), for 10 marks, required an
explanation of the ethical threats for LV
Fones Co along with an explanation of
how the threats might be avoided.
This question was well answered by
most candidates; they were able to
clearly identify from the scenario the
ethical issues impacting the audit of
LV Fones. Some candidates did not
explain the threats in sufficient detail,
sometimes just identifying the issue and
not explaining how this was an ethical
threat. For example, many identified
that the offer of a staff discount of 10%
was an issue. However, if they did not
then go on to explain that this was a
self-interest threat they would have only
gained rather than one mark.
The second part of this question
required methods for avoiding the
threats, and candidates performance
here was generally satisfactory. Some
answers tended to be quite brief and
to include unrealistic steps, such as
resigning as auditors to reduce the
risk of fee dependence, not allowing
the finance director and partner to
be friends or suggesting the finance
director should resign. In addition,
many candidates demonstrated that
they had not read the scenario properly,
as a common suggestion was to not
allow the audit senior to undertake
the secondment, this was despite
the scenario clearly stating that the
secondment had already occurred.
Part (c), for five marks, required the
steps an auditor should perform prior to
accepting a new audit engagement. This
question was well answered by most
candidates who were able to identify
steps such as contacting the previous
auditors as well as various client
screening procedures.
QUESTION 5
This 20-mark question was based on a
pharmaceutical company, Medimade
Co, which was experiencing going
concern problems.
Part (a), for two marks, required
a definition of the going concern
assumption. Most candidates were able
to score at least one mark in relation
to a reference to continuing to trade for
the foreseeable future. In order to gain
further credit there either needed to be
an explanation of what the foreseeable
future was, or a reference to the IAS 1,
Presentation of Financial Statements
requirement to prepare financial
statements on a going concern basis.
Part (b), for eight marks, required
an identification of going concern
indicators for Medimade Co and a
description of why these indicators
could impact upon going concern.
Generally candidates scored well
in the identification of going concern
indicators for Medimade Co. A small
minority of candidates did not relate
their answers to the scenario and
instead produced a standard list
of indicators.
The requirement to then describe the
impact upon going concern was more
problematic for candidates, as many
answers just stated this will lead to
going concern problems as opposed to
explaining why there would be an impact
on going concern. Therefore, although
the marking allocation was to give
mark for an indicator and up to one
STUDENT ACCOUNTANT ESSENTIALEXAMGUIDE10/2010
37
mark for the explanation of the impact,
few candidates scored 1 marks
for their points. However, due to the
considerable number of going concern
issues in the scenario, many candidates
did score well in this question.
Part (c), for six marks, required audit
procedures to assess if Medimade Co
was a going concern. This question
was answered satisfactorily by
most candidates.
Many had a reasonable attempt at
this question and generated some
satisfactory tests such as obtaining
a management representation on
going concern and reviewing cash flow
forecasts, however there were also a
number of unsatisfactory tests provided.
Common errors included:
Providing procedures which were
based on the year that had passed
rather than the coming 12 months.
Requesting a written confirmation or
a meeting with the bank to ascertain
whether they would renew the
overdraft facility, this is unrealistic.
Lack of detail in the going concern
procedure, such as review board
minutes without an explanation of
what to look for.
Lack of variety of procedures;
many tests started with discuss
with management.
Part (d), for four marks, required
a description of the impact on the
audit report if the auditor believed
Medimade Co was a going concern
but a material uncertainty existed. In
addition, the scenario stated that the
directors had now agreed to make going
concern disclosures. This question
was unsatisfactorily answered by
many candidates.
As the auditors believed that the
going concern basis was appropriate,
and the directors had made disclosures
then the impact on the audit report
was dependent on the adequacy of the
disclosures made. If adequate then an
emphasis of matter paragraph would
be needed; if the disclosures were not
adequate then a material misstatement
modification would be required.
Unfortunately, not many candidates
understood the point about the
adequacy of disclosures. They did
suggest an emphasis of matter
paragraph or material misstatement
modifications, but this was without
any reference to disclosures and so
demonstrated a lack of understanding.
In addition, a number of candidates
wasted time on a discussion of
whether the company was a going
concern and whether the break up
basis should instead be used, this was
despite the scenario stating that the
auditor believed the company was a
going concern. Candidates must take
the time to read the scenario and
requirements carefully.

PAPER F9
FINANCIAL MANAGEMENT
Overall, performance in June 2010 was
encouraging. One pleasing development
was a decrease in the number of scripts
gaining very poor marks, indicating that
more students had made appropriate
preparations for the exam.
This paper was written when the
credit crunch, the current financial crisis
and deepening recession were important
topics in financial management, and
these were still important topics when
the exam was being sat. Candidates
may find it useful to bear these
topics in mind as they study the
suggested answers.
QUESTION 1
Part (a) required candidates to calculate
expected values and probabilities
from data given in the question, and
to discuss the usefulness of expected
value analysis.
A number of candidates lost marks by
calculating the expected values of the
cash flows for period 1 and period 2, but
not calculating the closing balances for
period 1 and period 2, which is what the
question had asked for. There is clearly
a difference between cash flow and
closing balance.
Candidates were expected to calculate
the closing balances using a probability
table approach, but many candidates
calculated the closing balances using an
average cash flow approach. While this
provided correct values for the closing
balances and hence was given full
credit, it did not help with calculating
the probability of a negative closing
balance in period 2, and it did not
help with calculating the probability
of exceeding the overdraft limit at the
end of period 2. Many candidates were
unable to calculate these probabilities
because they did appreciate the
importance of the joint probabilities
used in a probability table.
Candidates were then asked to
discuss whether the expected value
analysis could assist the company to
manage its cash flows. Many candidates
tended to discuss ways in which the
company could manage cash flows in
general, even in some cases discussing
cash management models, rather
than discussing the usefulness of an
expected value analysis. Better answers
discussed the benefits and limitations of
the analysis that had been undertaken.
In Part (b), candidates were asked
to identify and discuss factors relevant
to formulating a trade receivables
management policy. While many
candidates gained good marks here,
there was a very strong tendency for
answers to be framed around lists of
ways of improving trade receivables
management (a question that has been
asked in the past), rather than around
factors influencing trade receivables
policy. Fortunately, a strong relationship
exists between the two areas, and
it was possible to give credit for
knowledge about the management of
trade receivables.
Part (c) asked candidates to
discuss whether profitability or
liquidity was the primary objective of
working capital management. Many
candidates answered appropriately
that both profitability and liquidity
were important: profitability because it
related to the overall objective of wealth
maximisation and liquidity because
of the need to meet liabilities as they
became due for settlement.
QUESTION 2
Many students gained good marks on
Parts (a) and (b) of this question, while
not doing as well on Parts (c) and (d).
In Part (a) of this question,
candidates were asked to calculate
the after-tax cost of debt of a
redeemable bond.
Many candidates gained full marks
here by using linear interpolation to
calculate the after-tax cost of debt.
Some candidates calculated a bond
issue price, but this was unnecessary, as
the question stated that the bond was
MANY CANDIDATES HAD A REASONABLE ATTEMPT AT
PAPER F8 QUESTION 5 AND GENERATED SOME
SATISFACTORY TESTS SUCH AS OBTAINING A
MANAGEMENT REPRESENTATION ON GOING CONCERN
AND REVIEWING CASH FLOW FORECASTS.
38EXAMS
Untitled-1 1 8/23/2010 2:18:31 PM
issued at par, ie the bond was issued
at $100 per bond. Other candidates
wrongly used the redemption value of
$110 as the issue price, or wrongly used
a redemption value of $100, when the
question said that redemption was at
a 10% premium to par. Occasionally,
an answer used the annual before-tax
interest payment of $9 per year, but the
correct calculation of the after-tax cost
of debt uses the after-tax annual interest
payment of $6.30.
Weaker answers offered a monetary
value for the after-tax cost of debt,
rather than a percentage figure, or
offered the annual after-tax interest
rate as the cost of debt, or divided the
annual interest by the market value
of the bond, as though the bond was
irredeemable rather than redeemable.
Part (b) asked candidates to calculate
and comment on the effect of the bond
issue on the weighted average cost
of capital (WACC), clearly stating any
assumptions made.
Since candidates were asked to
calculate the effect on the WACC,
answers needed to offer two values for
the WACC, one before the bond issue
and one after the bond issue. Many
answers calculated the post-issue
WACC, and then implied rather than
calculated the pre-issue WACC.
Some answers discussed,
occasionally at length, optimal
capital structure theory in support
of a claim that issuing the bonds
would cause the WACC to fall, since
debt is cheaper than equity. This was
much more than the question, which
was worth five marks, was asking
candidates to do.
In fact there were two possible
answers about the effect of the bond
issue on the WACC. If an answer
assumed that the current overdraft was
not included in the WACC calculation
(even though the bond issue was
replacing the overdraft), the bond
issue caused a decrease in the WACC.
However, if an answer assumed that
the overdraft was included in the
WACC calculation, the bond issue
led to an increase in WACC, since the
more expensive bond issue (after-tax
cost of debt of 7.2%) was replacing a
cheaper overdraft (after-tax cost of debt
of 3.5%).
Many candidates did not state any
of the assumptions underlying their
calculations. The most obvious ones,
perhaps, were the assumptions that the
cost of equity was not affected by the
bond issue, and that the share price
was unchanged.
In Part (c) candidates were asked to
calculate the effect of using the bond
issue to finance the reduction in the
overdraft on the interest coverage ratio
and on gearing.
Although the question said calculate,
many answers chose to discuss their
findings, sometimes at length. This
discussion was not asked for in this part
of the question and students must learn
to follow the question requirement.
Since the question asked candidates
to calculate the effect of the bond issue
on the two ratios, values before and
after the issue were required. Interest
cover fell from 4.4 times to 2.6 times,
compared with a sector average of 8
times indicating a substantial increase
in financial risk. Gearing increased
from zero to 9.8%, compared to a
sector average of 10%. Many people
ignored the definition of the sector
average gearing given in the question
(debt/equity, market value basis), and
calculated gearing using their own
definition. The calculated gearing values
could not then, of course, be compared
with the sector average gearing. The
golden rule with ratios, remember, is to
compare like with like.
Part (d) required candidates to
evaluate the proposal to use the bond
issue to finance the reduction in the
overdraft, and to discuss alternative
sources of finance, given the companys
current position. Many answers were
very brief, given the marks on offer.
Better answers recognised that the
company had severe problems. Its
profit before interest and tax had fallen
from $5m to $1m over the last year, its
interest cover was dangerously low, its
bank had given it two months to reduce
its overdraft by $4m and no other bank
had been found that was willing to offer
an overdraft. This was the situation
forced on some companies by the
credit crunch.
Recognising these problems and
using the calculated ratios from Part
(c), better answers suggested that using
a bond issue to reduce the overdraft
was unlikely to be in the best interests
of the company. The company would
be committing to paying additional
interest each year, at a time when its
profitability had fallen dramatically.
Better answers then went on to discuss
alternative sources of finance that might
be suitable, while recognising that the
companys circumstances meant that
the search for sources of finance might
be fruitless.
Weaker answers, in contrast, ignored
the companys current position, or failed
to recognise the danger of taking on
more debt, or discussed the relative
merits of an overdraft and a bond issue
(when the overdraft was being largely
withdrawn), or suggested paying off
the overdraft from the companys $7m
of reserves (when the company had
no cash in its statement of financial
position), or proposed asking a venture
capitalist or a business angel to pay of
the companys overdraft.
QUESTION 3
Many students did well on Parts (a) and
(b) of Question 3, while finding Part (c)
to be more challenging.
In Part (a), candidates were asked
to identify and comment on any errors
in an investment appraisal prepared
by a trainee accountant. Candidates
who did not gain full marks failed to
identify clearly the errors they had
identified, or did not comment on
these errors, or identified errors that
did not exist.
Part (b) required candidates to
prepare a revised calculation of the
NPV of an investment project and to
comment on its acceptability.
Many candidates did well here, using
the template of the NPV calculation
provided in the question to prepare a
corrected calculation. The contribution
had to be inflated correctly, the fixed
costs had to be calculated correctly,
the depreciation and interest payments
had to be stripped out, the tax effect
of capital allowances needed to be
calculated and included, and the correct
discount rate had to be used.
Candidates who did not amend the
provided contribution figures were not
aware that inflation must be applied
every year and not just in the first
year. The development costs had to be
excluded from the fixed costs in the
investment appraisal because they had
already been incurred, ie they were not
relevant costs. Depreciation had to be
stripped out because it is not a cash
flow, and NPV is an investment appraisal
method that uses cash flows. Interest
payments had to be excluded because
they would be taken account of by the
discount rate.
The tax effect of capital allowances
(tax allowable depreciation) could be
included by any one of three methods:
by using the correctly timed tax
benefits of each capital allowance;
by subtracting the capital allowances
from taxable cash flow to give taxable
profit and then adding them back after
calculating the tax liability; and by
carrying out a separate tax calculation.
40 EXAMS
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Within the investment appraisal,
cash flows had been inflated by specific
inflation rates and so the evaluation
was a nominal terms (or money
terms) evaluation, requiring a nominal
discount rate. The real discount rate
was provided in the question, together
with the general rate of inflation, and
the nominal discount rate could be
calculated from these two pieces of
information using the Fisher equation.
Part (c) tested candidates
understanding of different aspects of
investment appraisal by asking what
problems were faced, and how these
problems could be overcome, in three
different investment appraisal areas.
The first investment appraisal area
related to assets with replacement
cycles of different lengths. Many
candidates stated correctly that the NPV
method may not choose the optimum
asset, and that this problem could be
overcome by adopting an equivalent
annual cost approach.
The second investment appraisal area
related to multiple internal rates of
return, a technical problem associated
with non-conventional cash flows that is
not experienced by NPV.
The third investment appraisal area
related to investments with a different
level of business risk than the investing
company. Many candidates identified
correctly here that the capital asset
pricing model could be used to calculate
a project-specific discount rate that
reflected project risk.
QUESTION 4
Candidates in general tended to find
parts of this question heavy going, but
well-prepared candidates picked up
some straightforward marks in Parts
(a) and (b). Many answers to Part (c)
did not focus on the question that
was asked.
In Part (a) candidates were required
to calculate dividend yield, capital gain
and total shareholder wealth, and to
discuss their findings with respect to
returns predicted by the capital asset
pricing model (CAPM), and with respect
to other financial information provided.
Many candidates were not able to
calculate the capital gain (the increase
in ordinary share price over a year),
and did not know that the sum of the
dividend yield and the capital gain is
total shareholder return. Shareholder
wealth is increased by capital gains and
dividends, and this increase is measured
by total shareholder return. Here, this
was the actual return that shareholders
had received (a positive return in the
prior year and a negative return in the
current year), while the CAPM-predicted
returns were given in the question
(positive in both years, but higher in the
prior year than the current year). The
discussion of the differences between
the actual and predicted returns was
generally quite weak.
The standard of the discussion
with respect to the other financial
information tended to be stronger.
With regards to the negative return
in the current year, candidates
could have commented on static
turnover, falling earnings per share,
increasing dividends per share and,
in particular, the falling share price.
There was general agreement that the
company was increasing its dividend
per share in a situation where the
market had, perhaps, doubts about its
future performance.
Part (b) required candidates to
calculate and comment on the share
price using the dividend growth model
(DGM), using first historical information
and, second, information relating to a
proposed change in dividend payments.
Most students calculated the
historical dividend growth rate and the
current share price using the DGM,
although some students used the
CAPM-predicted return rather than the
cost of equity provided in the question.
Comment on why this share price was
different to the current market price was
not strong. One possible explanation
was that the market felt that future
dividend growth would be less than
historical dividend growth. It is worth
remembering that analysing historical
dividends is only one of several ways of
estimating the future dividend growth
rate, and that using this approach to
estimating the future dividend growth
rate depends on the (questionable)
assumption that the future will repeat
the past.
Fewer candidates were able to apply
the DGM in the situation where no
dividends would be paid for three years
and then a higher dividend would be
paid, with a lower expected dividend
growth rate than had historically been
the case. Some candidates wrongly
said that the DGM could not be used if
no dividends were paid: the suggested
answer shows how to calculate the
current share price in this situation.
Many candidates calculated the share
price in three-years time, but did not
discount this share price to give the
current share price, thereby weakening
any comparative discussion of the two
share prices.
Part (c) asked for a discussion of
the relationship between investment
decisions, dividend decisions and
financing decisions, with illustrations
where appropriate.
Many answers did not gain good
marks because they did not focus on
the key word relationship, and instead
discussed at length a range of features
of each decision area, with little or no
attempt to relate the decision areas to
each other.
Candidates could have gained higher
marks by discussing the many practical
ways in which these decision areas
interact, or by discussing the theoretical
views of Miller and Modigliani on
the relationship between investment
decisions, financing decisions and
dividend decisions.
PAPER P1
PROFESSIONAL ACCOUNTANT
The June 2010 paper was similar in feel
and level to all previous Paper P1 papers
and I am pleased, as with the previous
diets, to report that many candidates
passed the paper with some achieving
exceptionally high marks. I am always
gratifed and pleased to see the hard
work of students and tutors rewarded
with pass marks and I congratulate all
successful candidates.
Before discussing the questions in
detail, I have two overall remarks to
make. First, I must repeat comments
made in previous examiner reports
about the four professional marks
in Question 1. Many candidates did
not gain many professional marks
in writing the statement required in
Question 1 Part (d). Second, the ethical
reasoning questions, Question 2 Part
(c) and Question 4 Part (c), were both
done poorly overall. This suggests that
candidates are less well prepared for
these tasks than they might be. I will
return to both of these points in my
review of questions.
In Section A, Question 1 was
compulsory, worth a total of 50 marks
and this was based on a longer case
study. Candidates were then required
to select two from the remaining three
questions contained in Section B of
the paper. Each Section B question was
based on a shorter case and worth a
total of 25 marks.
QUESTION 1
The Section A case, underpinning the
whole of Question 1, was on a range of
issues concerning a large nuclear complex
on the coast of Ayland. The issues raised
42 EXAMS
were similar to those present in many
such situations in a number of European
countries and elsewhere where nuclear
facilities are present. As in previous
papers, Question 1 covered a number
of sections of the Paper P1 Study Guide
including content from the professional
values and ethics section (Section E).
Part (a) was about stakeholders.
It contained three distinct tasks: to
distinguish between voluntary and
involuntary stakeholders, to identify the
voluntary and involuntary stakeholders
in Hesket Nuclear and finally to assess
the claims of three of the involuntary
stakeholders previously identified. The
first task (distinguish) was done quite
well in the majority of cases but after
that, candidates often became confused
over which stakeholders were in which
camp. The most prominent involuntary
stakeholders were the governments of
Beeland, Ceeland and the rare seals
near the HN facility. A common mistake
was to nominate the anti-nuclear group
NNN as an involuntary stakeholder when
it is obviously voluntary: it chose to
engage with HN of its own free will.
Part (b) covered the roles of a
trade union in corporate governance
for the first time in a Paper P1 exam.
The question contained two tasks: to
explain the roles and then to evaluate
the contribution of FT, the trade union
in the case, to the governance of HPC.
This was one of the better questions
in terms of candidate answers but the
highest marks went to those able to
show how FT had helped and challenged
HPC using the evidence from the case.
It was important to recognise that the
union had been helpful to HPC in some
respects but unhelpful in others.
Part (c) examined agency but
introduced the important idea that
agency relationships need not just be
between directors and shareholders.
In the case of HPC, the agency
relationship was between the board of
HPC and the government of Ayland. This
meant that HPC had objectives other
than profit maximisation because of
the political objectives of its principal,
the government. Most successful
candidates achieved a pass mark on this
part although others failed to see the
difference between a government being
the principal rather then shareholders.
Part (d) was the professional
marks component of Question 1. It
contained two tasks: the first about the
importance of accurate risk assessment
and the second about HNs social and
environmental footprint. Common
errors in Part (d)(i) were to explain
what risk assessment is rather than its
importance or to fail to link the answer
strongly enough with the case. Those
achieving the highest marks were able
to show, as the model answer shows,
the links with the NNN assessment and
the effects that this flawed assessment
might have. In particular, this task
was asking about the importance of
accurate (as opposed to inaccurate and
spurious) risk assessment.
Part (d)(ii) contained two tasks. Many
candidates were able to explain social
and environmental footprint but fewer
were able to do well on the second
task which was a level 3 intellectual
outcome: to construct a case. In this
task, candidates were required to
construct the argument in favour of
the proposition that HNs social and
environmental footprint is positive, ie to
argue that it made a favourable social
and environmental contribution. In
order to be able to do this, candidates
needed to know what such a footprint
was and what it involved, and then
to study the case for evidence to
support the argument. The case study
contained evidence on both the social
footprint (about local jobs, energy
and development abroad) and the
environmental footprint (clean energy
and very good safety/leakage record).
Despite my highlighting a poor
professional marks performance in
previous examiners reports, many
candidates failed to approach the
answer as required in order to gain all of
these marks. In this case, the required
format for the answer was a response
statement for a website. This means it
was not a letter or a report.
QUESTION 2
This question was based on a scenario
about the appointment of a new chief
executive of Tomato Bank, George Woof,
and a number of problems that arose
with his appointment, his salary and his
pension arrangements. Parts (a) and (b)
were done quite well overall but Part (c)
was done poorly by most candidates.
Question 2 was, nevertheless, the most
popular and best-answered question in
Section B.
In Part (a), candidates were required
to study the case to find the points to
criticise (a level 3 intellectual outcome)
the Tomato Bank remuneration
committee in agreeing Mr Woofs reward
package. I was pleased to see that many
candidates were able to do well on
this question with case analysis skills
being well demonstrated by successful
candidates. On questions containing
verbs such as criticise, careful analysis
of the case is usually essential in
preparing good answers.
There were two tasks in Part (b): to
describe the components of a reward
package and then to explain why a more
balanced package should have been
used. The first task, largely bookwork,
was done better than the second. The
marks for the balanced package involved
explaining, in context, about alignment
with shareholders interests, about past
and future performance and similar
points. There were ample points in the
case to pick up on for these marks and
careful study of the case was rewarded
with higher marks than those who
merely relied on lists of points.
It was Part (c), however, that was
badly done by most candidates.
Although Mr Woof was legally entitled to
receive the pension value, the question
specifically asked candidates about
the ethical case. Mr Woof could have
accepted a reduction in the value of
his pension in recognition of his failure
as CEO. This was done poorly by a
majority of candidates thus somewhat
underscoring the importance of
developing ethical reasoning skills in
preparation for Paper P1 exams.
QUESTION 3
This case scenario drew on recent
changes to the COSO guidance from
2009. It describes some of the contents
of the guidance (it was not necessary
to know about it prior to the exam)
and then introduces a conversation
between two journalists. Conversations
have been used before in Paper P1
scenarios and they are used to explore
differences of opinion over certain
issues which then may be asked about
in the requirements.
ANSWERING PAPER P1, MANY CANDIDATES DID NOT
GAIN MANY PROFESSIONAL MARKS IN WRITING THE
STATEMENT REQUIRED IN QUESTION 1 PART (D).
THE ETHICAL REASONING QUESTIONS, QUESTION 2
PART (C) AND QUESTION 4 PART (C), WERE BOTH DONE
POORLY OVERALL.
STUDENT ACCOUNTANT ESSENTIAL EXAM GUIDE 10/2010
43
Part (a) contained two tasks. The
first, to distinguish between rules
and principles-based approaches to
internal controls. This was quite well
answered overall although some became
confused in their answers with rules
and principles-based approaches to
corporate governance in general. The
second task was more challenging
which was to discuss the benefits to
an organisation of a principles-based
approach. This to an organisation
was important as it placed a particular
perspective on where the benefits
were obtained.
In Part (b) some less well-prepared
candidates introduced a bullet list of
purposes of internal control from one
or other of the study texts. This wasnt
quite what the question was asking. In
the context of the case, candidates were
required, in response to Mr Rogalskis
comment on industry specificity,
to comment on the non-industry
specific advantages (such as high
quality reporting, efficient operations,
compliance, etc).
The COSO guidance used the
term unmonitored controls tend to
deteriorate over time and the second
part required candidates to explain
what this meant. Most candidates who
attempted this were able to provide
something here but others seemed
unprepared to explain a phrase that they
had perhaps not encountered before
despite it being an important theme in
internal control.
Part (c) drew upon another part of the
COSO advice. Again, the COSO advice
was simply used to introduce a notion
that should have been familiar to a
well-prepared Paper P1 candidate as it
was on internal audit. The first task on
defining internal audit testing was done
well by many candidates but the second
task less so.
QUESTION 4
This question was on insider-dominated
(family) businesses, professionalism and
ethical behaviour. The case described a
situation about a small but established
family business, their auditor and the
son of the couple whose business it was.
There was evidence that the son, Ivan,
had stolen inventory from his parents
business and the auditor, Mr Shreeves,
had become aware of it.
Part (a) invited candidates to explain
the differences between a family
business and a public company. In
particular, this was about governance.
It drew on content that should have
been familiar to candidates that had
carefully studied the study texts and
many candidates were able to gain some
marks for this distinction.
There were two tasks in Part (b). The
first was seemingly more challenging
than the second. The second task was to
describe the fundamental principles of
professionalism and most well-prepared
candidates were able to do this. Fewer
were able to explain the position
of professionals in society and the
importance of the public interest to a
professional like Mr Shreeves.
Part (c) was done poorly overall.
As with Question 2 Part (c), this part
required candidates to bring their
ethical reasoning skills to bear on a
problem. Mr Shreeves faced a dilemma
on how to approach the issue of Ivan
with Ken and Steffi Potter. There were
a number of professional and ethical
issues that were relevant to his decision
and it was a discussion of these that
was required. More detailed preparation
for ethical reasoning tasks would have
benefited candidates and this should
represent a challenge to tutors and
future Paper P1 candidates.
PAPER P2
CORPORATE REPORTING
The paper dealt with a wide range of issues
and accounting standards. The paper was
quite testing but candidates responded
well resulting in a satisfactory pass rate.
Candidates generally applied good
exam techniques in answering the paper.
However, yet again there was evidence of
candidates only answering two questions
rather than the three questions required.
Candidates seem to be answering the
50-mark question quite well but often
the ethics section is not being answered.
This would seem to suggest that either
candidates have a problem with ethical
issues which is a concern or candidates
do not appreciate the importance of
attempting all of the exam paper. An
additional issue that was apparent
was that candidates still do not have
a good understanding of accounting
for financial instruments which are
examined frequently in this paper.
An understanding of the accounting
treatment of financial instruments is
a fundamental pre-requisite for sitting
this paper.
QUESTION 1
The question required candidates
to prepare a consolidated statement
of comprehensive income, describe
the amendments to the rules regarding
reclassification of financial assets,
and discuss how these rules could
lead to management of earnings.
Candidates were then asked to
discuss the nature of and incentives
for management of earnings and
whether such a process could be
deemed to be ethically acceptable.
Candidates generally performed well
in this question. Candidates were
required to calculate goodwill on the
purchase of a subsidiary in order
to determine the impairment of
goodwill to be charged in the income
statement. Candidates seemed to have
a good knowledge of the calculation
of goodwill under the full goodwill
method. The question also dealt with
the sale of an equity interest in a
subsidiary which resulted in a positive
movement in equity which was dealt by
a movement on equity and not through
other comprehensive income. Finally,
as regards the group accounting,
candidates had to deal with the sale of
a controlling interest which resulted in
the retention of an associate interest.
Generally candidates performed well
this part of the question. The question
also required candidates to deal with
the accounting for an available-for-sale
financial instrument using amortised
cost. Candidates made a reasonable
attempt at this element of the question.
Other elements of the question included
dealing with revenue recognition,
revaluation gains/losses on property,
plant and equipment, calculating non
controlling interest and accruing holiday
pay for the entity. In a question such as
this, it is very easy to make a mistake in
calculation. Thus it is always important
to show workings in a clear concise
manner so that marks can be allocated
for the principles and method used by
the candidate.
Part (b) of the question required
knowledge of the recent change in
accounting for the reclassification
of financial instrument. Candidates
did not perform well on this part of
the question. It is important that
candidates keep up to date with recent
developments as Paper P2 frequently
examines recent pronouncements.
Management of earnings was the
topic which linked Parts (b) and (c).
Candidates would benefit from wider
reading in this area and also in the
area of ethics. Often candidates
answers are narrow and seem to lack
application. A few hours researching
management of earnings and ethics
could be very beneficial. Candidates
who answered Part (c) on ethics
performed satisfactorily.
44 EXAMS
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STUDENT ACCOUNTANT ESSENTIAL EXAM GUIDE 10/2010
45
SPECS.indd 47 8/16/2010 9:52:05 AM
Untitled-1 5 8/23/2010 12:12:27 PM
A good performance on Question 1
is key to success in the paper. Good
performance is always linked to
answering all parts of the question and
to a fundamental understanding of
group accounting. However, candidates
should not spend a disproportionate
amount of time on the question.
QUESTION 2
This question dealt with real world
scenarios taken from corporate
financial statements. It is important
that the exam paper reflects actual
issues in financial statements and that
candidates can apply their knowledge
to these scenarios. The first scenario
dealt with deferred tax assets and their
recognition in financial statements. This
part of the question was well answered.
Part (b) dealt with impairment of assets
where an entity wished to use a method
not in accordance with the standard.
It required candidates to apply their
knowledge to the situation and not just
repeat the rules in the standard. This
part of the question was well answered.
Part (c) looked at a situation where
a company had a direct holding of
shares and the subsidiary issued new
shares which were not subscribed for
by the holding company with the result
that the interest was reduced to that
of an associate. The question required
candidates to determine whether the
results should be presented based
on principles provided by IFRS 5,
Non-current Assets Held for Sale and
Discontinued Operations. Candidates
performed quite well on this part.
The key to success is to set out the
principles in the standard and then to
apply each one to the case in point.
The final part dealt with the existence
of a voluntary fund established in order
to provide a post-retirement benefit plan
to employees. The entity considered its
contributions to the plan to be voluntary,
and had not recorded any related
liability in its consolidated financial
statements. The entity had a history of
paying benefits to its former employees,
and there were several other pieces of
information in the question. Candidates
had to apply their knowledge of defined
benefit schemes to the scenario. It did
not require an in depth knowledge of the
accounting standard but an ability to
apply the principles. The question was
answered satisfactorily by candidates.
QUESTION 3
This question was a case study type
question based around a company in
the edible oil industry. The company
processed and sold edible oils and used
several financial instruments to spread
the risk of fluctuation in the price of the
edible oils. Additionally, the company
was unclear as to how the purchase of
the brands and certain entities should
be accounted for.
It involved knowledge of derivatives,
hedging and embedded derivatives at
a fundamental level. Candidates did
not have to apply their knowledge to
any degree but simply had to recognise
the nature of the various financial
instruments involved and discuss their
accounting treatment. This knowledge
is essential knowledge and will be
examined in future diets. Candidates
answers were satisfactory in the main
but few candidates recognised the
embedded derivative. The accounting
for the brands was quite well answered
with many students gaining high marks.
The final part required candidates to
apply IFRS 3, Business Combinations to a
scenario. The answers were often quite
poor with the main weakness being
the application of the knowledge and
the understanding of the nature of the
purchase of the entities.
QUESTION 4
This question required candidates to
discuss the reasons why the current
lease accounting standards may fail
to meet the needs of users and could
be said to be conceptually flawed. The
second part of the question required
a discussion of a plant operating
lease in the financial statements
met the definition of an asset and
liability as set out in the Framework
for the Preparation and Presentation
of Financial Statements. Candidates
answers were quite narrow in their
discussion of the weaknesses in the
accounting standards. The definitions
of asset and liability were well
rehearsed and candidates scored
well on this part of the question. It
is apparent that very few candidates
read widely. This question always
deals with current issues which mean
that a wider reading base is required
to achieve a good mark. Student
Accountant, and ACCAs magazine for
members Accounting and Business
are just two examples of magazines
that provide wider exposure to
current issues.
The final part of the question
required candidates to show the
accounting entries in the year of the
sale and lease back assuming that
an operating lease was recognised as
an asset in the statement of financial
position and to state how an inflation
adjustment on a short-term operating
lease should be dealt with in the
financial statements of an entity. The
purpose of this question was to show
how a change in the current accounting
standards (by recognising operating
leases in the statement of financial
position) would affect their accounting
treatment. The question was well
answered and candidates scored well
generally on this question.
PAPER P3
BUSINESS ANALYSIS
Performance in this exam was generally
in line with previous papers. Candidates
were stronger in strategic concepts
(strategic position, Porters Diamond) and
less comfortable with business process
modelling and customer relationship
management. Part questions based
on specifc factual areas (competency
frameworks and CMMI) were either
answered well (because the candidate was
familiar with them) or poorly (because the
area was not studied or revised).
There was some evidence of poor
time management, apparently caused
by over-answering Question 1. The
first part of Question 1 (assessing a
strategic position) required candidates
to provide appropriate content and
detail in a time frame that reflected the
marks on offer.
The financial data given in Question 2
was well used by candidates, although
it would be helpful if candidates
showed their working out when deriving
appropriate financial ratios.
A GOOD PERFORMANCE ON PAPER P2 QUESTION 1 IS
KEY TO SUCCESS IN THE PAPER. GOOD PERFORMANCE
IS ALWAYS LINKED TO ANSWERING ALL PARTS OF THE
QUESTION AND TO A FUNDAMENTAL UNDERSTANDING
OF GROUP ACCOUNTING. HOWEVER, CANDIDATES
SHOULD NOT SPEND A DISPROPORTIONATE AMOUNT
OF TIME ON THE QUESTION.
46 EXAMS
SECTION A
Section A consisted of one compulsory
question. It was based on an extended
scenario that described the situation at
a charity in the country of Arcadia.
QUESTION 1
The scenario described how the
charity (WET) was going through a
period of change during an economic
recession in the country of Arcadia.
The founder, Zohail Abbas, had recently
resigned and a new CEO had been
appointed. She has asked for a concise
assessment of the strategic position of
WET covering environment, strategic
capability, stakeholder expectations
and organisational mission. It is this
assessment that formed the basis of the
first part of Question 1, worth (including
professional marks) 25 marks.
In general, the first part question
was answered well by candidates, using
a wide range of appropriate models
and frameworks. PESTEL analysis was
widely used, and although this was
appropriate, there was insufficient in
the case study scenario to completely
answer the question using this
framework. For example, there was little
about technology and socio-cultural
issues. Consequently, many candidates
discussed the restricted website
technology of WET under this heading,
which is strictly an internal weakness. In
this instance, we were prepared to give
credit, as this weakness was part of the
wider understanding of the strategic
position. However, candidates must be
careful in the future to stick to external
issues if a PESTEL analysis is specified
in the question.
Relatively few candidates used
the five forces framework, although
valuable points could have been made
using this approach. For example, the
low barriers to entry were a particular
issue raised by the Commission of
Charities reluctance to tighten up
on charity registration. Similarly, the
threat of substitutes is ever present,
with WET competing for the charity
dollar in an environment where doing
without is also likely. A discussion of
low switching costs would also have
brought credit.
Finally, some candidates did not
restrict themselves to assessing the
strategic position. They began to
suggest strategic solutions and options
which were not required by the question
and so no credit was no given. This
reinforces the need for the candidate
to carefully read the question and to
answer within its scope.
However, overall this part question
was answered well, if a little
narrowly, with many well-written and
well-structured answers, which gained
most of the professional marks on offer.
The case study scenario included
a description of the process for
membership renewal. This textual
description was supported by a swim
lane flowchart. Candidates were asked
to analyse faults in the renewal process
and to suggest solutions. This part of
the question was worth 15 marks. It
required an analysis of the business
situation and the formulation of
appropriate solutions. It did not require
long theoretical descriptions of process
redesign patterns, although these
could have been usefully applied to
the scenario.
This was a practical analysis question
and it is disappointing that many
candidates were unable to answer it
effectively. Too many answers simply
suggested that the computer system
was at fault and should be fixed.
Candidates failed to spot glaring errors
in the process (sales and marketing
received renewal confirmations
before payment was cleared, delayed
acknowledgement of payments led
to renewal notifications being sent to
members who had paid) and so many
answers were too general and did not
gain the marks on offer. Good answers
needed to identify the fault, describe its
consequences and suggest solutions,
which could have been quite simple, and
did not require any cross-reference to
theoretical concepts.
Effective customer relationship
management is essential to charities.
Sheila Jenkins wishes to use email
and website technology to facilitate
the acquisition and retention of WETs
customers and support WETs aim to
gain increased revenues from members
and donors. This part question was
about effective customer relationship
management; acquiring, retaining
and exploiting customers. It was not a
general question about the principles
and benefits of website and email
technology. Too many answers were
not in the context of the question. For
example, independence of location
(place) may be an attribute of the new
media, but how can this be harnessed
(if it can) in the context of customer
relationship management? Many
candidates probably thought they
had answered this question relatively
well (talking about 7Ps and 6Is) but
in reality many answers did not score
well and overall, this part question
was disappointedly answered. In many
cases, candidates provided good
answers to a very different question.
SECTION B
Section B contains three questions, and
the candidate was required to answer
two. The most popular questions were
Questions 2 and 3.

QUESTION 2
Question two described a transport
company (Swift Transport) who are
considering an acquisition (EVM)
in a foreign country (Ecuria). The
first part of the question asked the
candidate to assess, using both
financial and non-financial measures,
the attractiveness of this acquisition.
Candidates answered this part question
relatively well, using appropriate
calculations as well as describing the pull
factors of Ecuria (for example, absence
of restrictive employment legislation) and
the push factors of Ambion (for example,
government taxes and a mature market
place). The model answer is structured
in terms of suitability, acceptability and
feasibility, although very few candidates
actually used this approach.
The second part of the question
asked candidates to examine, using
Porters Diamond (or an alternative
model/framework), the factors which
would influence the companys decision
to move a large part of its logistics
business to Ecuria. This was the first
time, as far as I am aware, that Porters
Diamond had explicitly been asked for
in a question. Despite this, candidates
answered this part question very
well, not only showing knowledge of
the model but were also confident in
applying it to a case study scenario.
Overall, Question 2 was a popular
option and was well answered
by candidates.
MOST CANDIDATES ANSWERED QUESTION 3 OF
PAPER P3 RELATIVELY WELL, ALTHOUGH MANY DID NOT
RECOGNISE THAT THE FORMATION OF A JOINT
COMPANY MIGHT ITSELF BRING SIGNIFICANT
ADVANTAGES TO THE CITY AUTHORITY.
STUDENT ACCOUNTANT ESSENTIAL EXAM GUIDE 10/2010
47
QUESTION 3
The third question concerned a city
authority that has decided to outsource
its IT to a company called ProTechIT,
a private limited company that is
owned 51% by ProTech and 49% by
the city authority itself. The first part
of the question asked candidates to
evaluate the potential benefits of this
outsourcing to the city authority and
its IT employees. Most candidates
answered this relatively well, although
many did not recognise that the
formation of a joint company might
itself bring significant advantages to
the city authority. The formation of a
separate company in which the city
authority has a significant stake might
provide an appropriate vehicle for
gaining contracts with other public
authorities. They might be particularly
attracted to working with a company
which has significant public sector
expertise and ownership. Profits made
by the company may be distributed
by dividend to the authority, bringing
in income that can be used to reduce
taxes or improve services.
The scenario acknowledged that
business analysts within the city
authority will need to gain new or
enhanced competencies. The second
part of the question asked candidates
to analyse these competencies. Some
of these were clearly signposted in the
scenario; for example, strategy analysis
and business case development. The
need for a formal relationship between
the authority and the outsource
provider leads naturally to a discussion
of requirements definition and
procurement. Thus it should have been
relatively easy to identify competencies
around strategy, business cases,
requirement definition and procurement.
Two marks for each of these should
have resulted in full marks for this part
question. However, in practice, this was
not the case. Many candidates failed
to identify any relevant competencies
(falling back on generalisations such as
good communication skills) and hence
did not score well in this part question.
The current IT department has been
assessed as CMMI level 2. ProTech
has recently been assessed at CMMI
level 3. In the final part of this question
the candidate was asked to explain the
principles of CMMI and the advantages
to ProTechPublic of achieving CMMI
level 5. This part question was very
similar to a question in the Pilot Paper.
In general, this was well answered by
candidates, with many candidates
scoring full marks.
QUESTION 4
The final question described an
appraisal process and performance
measures at a National College. The
candidate was asked to evaluate the
appropriateness of the appraisal
process and performance measures,
from both an employee and an
organisational perspective. In general,
this part question was well answered
by candidates. Most candidates
recognised that the performance
measures were outside the control of
the person being appraised and that the
performance measures themselves were
partially flawed.
Competency frameworks are explicitly
considered in the Study Guide and have
been discussed in an article in Student
Accountant. Competency frameworks
also underpin the ACCA Qualification.
The second part of the question asked
candidates to explain the concept and
purpose of competency frameworks
and to assess their potential use at
the National College and the Institute
of Managerial Finance. This was not
particularly well answered by most
candidates. Most candidates seemed
to be unfamiliar with the concept
of competency frameworks or their
potential application.
PAPER P4
ADVANCED FINANCIAL
MANAGEMENT
The structure of the paper was similar to
past papers with two compulsory questions
in Section A, consisting of 60 marks, and
three 20-mark questions in Section B, of
which candidates had to do two, for the
remaining 40 marks.
The overall performance of the
candidates was satisfactory
In Section A, Question 1 consisted of
28 marks and Question 2 consisted of
32 marks. Four professional marks were
allocated to Question 2. Both questions
required candidates to undertake
computations and discussion. In Section
B, as per previous sittings, Question 4
was wholly discursive, while questions
three and five consisted of a mixture of
computational and discursive elements.
Excellent answers were obtained
from candidates who applied their
knowledge to the given scenario in the
question. The presentation of such
answers was good, with clear labelling
and structure. In Question 2 especially,
a clear structure and effective use of
appendices enabled such answers
to gain the maximum professional
marks. Most successful candidates
attempted all the parts of the
questions and managed their time well
between questions.
Many candidates attempted the
required four questions, although there
were a number of instances where
parts of a question were not attempted,
especially in the compulsory questions.
In Section B, most candidates answered
all the parts to the question.
In a minority of cases there was poor
time management with candidates
having to rush through the latter
questions. Candidates need to bear in
mind that it is easier to obtain marks
at the start of a question rather than
towards the end of a question. It is
imperative that candidates learn to
manage their time effectively through
practising past exam questions under
timed and exam style conditions.
Some candidates were poorly
prepared for the exam in terms of
their knowledge. This was especially
evident in question three. Candidates
need to be aware that for Paper P4 it is
expected that candidates develop their
knowledge and the ability to apply that
knowledge to current issues in finance.
Question 3 was using the example of
the recent financial crisis as a basis for
knowledge application and discussion.
Many candidates failed to achieve high
marks due to lack of knowledge and not
being able to apply that knowledge to
the scenario in the question.
Paper P4 has a large syllabus and
numerous technical areas. Candidates
need to know the syllabus well in order
to apply it to the question scenario. Poor
performance was also evident where
candidates did not read the content and
requirements of questions fully. Answers
need to be directed at the scenario in
the question, general answers did not
gain many marks.
The presentation of the answers
with clear structure, labelling and
workings is very important across all
the questions and especially so where
the question has professional marks
allocated to it. Question 2 consisted
of four professional marks and given
that many candidates missed a pass
by only a few marks, gaining these
professional marks is vital. Well
presented answers demonstrate to
markers and the examiner that the
candidate has the necessary knowledge
and application skills.
QUESTION 1
This question required candidates to
assess the net present value (NPV)
of a longterm project in part (i).
48 EXAMS
Candidates were required to calculate
annuity factors using formulae rather
than using tables. Parts (ii), (iii) and
(iv) required candidates to consider the
risks and uncertainties associated with
the project and assessing these using
sensitivity analysis and simulations.
Part (ii) asked candidates to discuss the
principal uncertainties associated with
the project. Part (iii) asked candidates
to undertake sensitivity analysis of the
projects NPV to changes in various
input factors. Part (iv) asked candidates
to explain how simulations could be
used to assess the volatility of projects.
Parts (i) and (ii) were generally done
well, with many candidates achieving
high marks for both parts. Those who
failed to score high marks in Part (i) did
so because they did not get the timing
of the cash flows correct and therefore
used incorrect discount factors. In
Part (ii) most candidates displayed a
good level of discursive knowledge in
answering this part.
Parts (iii) and (iv) were done less well.
Many candidates did not undertake the
correct sensitivity analysis to show the
impact on the NPV due to a change in the
factors which determine the NPV. It would
be advisable for candidates to study the
examiners solutions and understand how
sensitivity analysis should be conducted.
Many candidates confused simulations
with sensitivity analysis and, therefore,
the explanations given in Part (iv) were
often not relevant to the requirements. A
notable minority of candidates did not
attempt Parts (iii) and (iv) at all.
QUESTION 2
This question required candidates
to assess the value of an acquiring
company (Part (i)) and then use
the BlackScholes Option Pricing
(BSOP) model to assess the equity value
of the combined company: acquirer
plus target (Part (iii)). The question
also required candidates to explain the
use of BSOP (and its constituents) to
assess the value of the company and to
discuss whether the BSOP can provide a
meaningful value for a company (Parts
(ii) and (iv)).
Overall the computational Part of (i)
was done well with many candidates
gaining a high proportion of marks.
However, many candidates did not explain
the assumptions made in detail and
failed to achieve many marks for this.
Common errors in the calculations were
where candidates used the $580,000 or
$180,000 as the free cash flow, and not
using the r.b model to calculate growth,
resulting in fewer marks being gained.
In Part (ii) many answers talked
about option pricing in general, by
considering the value of option on an
underlying asset, such as a share, rather
than specifically relating it to corporate
valuation. Such answers should have
explained how equity can be regarded
as a call option on a companys assets
written by the lenders, and, therefore,
when it was appropriate to use it to
assess the value of a company. The data
required was also explained in general
terms in many answers, rather than
specifically to valuing a company.
Most answers in Part (iii) applied the
BSOP correctly, although the variables
used in most cases were not accurate. It
was disappointing that only in a minority
of cases were the exercise and asset
prices calculated or estimated correctly.
Therefore, although most answers
gained some marks for Part (iii), very
few gained the full nine marks allocated
for this part.
Overall answers to Part (iv) were poor
with few candidates able to provide a
meaningful discussion. A significant
number of responses did not answer
this part at all. Good answers to this
part considered the caveats of the BSOP
and applied them to the valuation of
a company.
This question had up to four marks
allocated as professional marks.
Given that many candidates only fail
marginally, gaining most of these marks
was highly beneficial. Unfortunately,
some answers assumed that giving a
report-like title was sufficient, which was
not the case. Higher professional marks
were awarded to answers that gave due
care to the structure of the report and
the presentation of the answer.
QUESTION 3
This question required candidates to
calculate the returns (income) receivable
by investors for each of three tranches
of a collateralised loan obligation (CLO)
security (Part (a)); to explain why and
how the credit rating of the CLO security
can be enhanced (Part (b)); and finally
to discuss the risks that the investors of
the CLO security would face.
Overall this question was the least
popular of the three optional questions
and also answered less well compared
to Questions 4 and 5.
In Part (a), common errors included
not calculating the income inflow and
outflow correctly, not knowing how to
treat the service charges correctly and
in a few cases not treating the impact
of the swap correctly. Very few answers
attempted to estimate the sensitivity of
the subordinated certificates to a fall in
returns generated by the pool. But most
of the answers in Part (a) estimated the
cash flows related to the A-rated and
B-rated bonds correctly.
In Part (b) few answers were able
to explain the purpose of credit
enhancement, which was basically to
convert a high-risk cash flow into a
varying range of tranches of different
risks. Most answers explained the
role of credit rating agencies in
credit enhancement, but few answers
considered the impact of tranching and
of over-collateralisation (in this case
only 95% of the pool value was used
as collateral) as alternative methods of
credit enhancement.
In Part (c) most answers discussed
default and collateral risk quite well but
fewer answers considered timing and
liquidity risk, and correlation risk.
It is surprising that this question
was not more popular given the recent
financial crisis and its ramifications
which continue to affect most of
the economies in the world. The
Paper P4 syllabus highlights the need
for candidates to be familiar with
emerging issues in finance and their
impact on the financial management
activity in companies. It is advisable for
candidates to be knowledgeable about
the continuing development of finance.
Securitisation is an alternative to the
more traditional methods of raising
finance and it is likely that different
forms of securities will continue to
be developed.
QUESTION 4
This question was the most popular
and probably the best answered of all
the questions on the paper with many
candidates gaining a high proportion
of the marks for their answers. It asked
candidates to consider the issues that
need to be considered when disposing a
part of a company.
Candidates considered a range of
relevant issues when answering this
question, which were broader than the
model answer. The marking scheme
allowed the examiner and markers to
give credit for alternative but relevant
points and as such the variety of
answers did not present any difficulties
when awarding marks.
Answers gaining fewer marks did not
give a large enough variety of issues
that needed to be considered in a
disposal. Overall though, many answers
gained over half marks and some
cases over 70% of the total marks for
this question.
STUDENT ACCOUNTANT ESSENTIAL EXAM GUIDE 10/2010
49
QUESTION 5
In Part (a), this question asked
candidates to convert a number of
amounts owing to and owed by group
and non-group companies in different
currencies into a common currency
(Euro), and then to undertake netting to
minimise the currency transfers between
the group and non-group companies.
On the whole, Part (a) was done well
with the candidates adopting a number
of different ways to achieve the netting
required. Common errors for this part
included not netting to the correct base
currency, and in a minority of answers
using the incorrect conversion rate for
netting purposes.
Part (b) asked candidates to discuss
the advantages and disadvantages of
netting for both group and non-group
companies. This part was also done
reasonably well with most answers
discussing a variety of advantages and
disadvantages. Sometimes the answers
did not explain the point in sufficient
depth and sometimes the same point
was repeated. In these circumstances
answers gained fewer marks.
PAPER P5
ADVANCED PERFORMANCE
MANAGEMENT
I would like to offer my congratulations to
all of those candidates who achieved a pass
at this diet and my commiserations to those
who did not.
The exam paper comprised two
sections, A and B. Section A consisted
of two compulsory questions for 60
marks in total. Section B consisted of
three optional questions for 20 marks
each from which candidates were
required to answer two questions.
It was pleasing to see a large number
of candidates providing good answers
to every question they attempted and
consequently achieving high marks.
However, the exam revealed a large
number of candidates who were either
inadequately prepared or failed to read
the question requirements carefully.
Nevertheless it was pleasing to observe
that the improved overall performance
of previous diets has been maintained,
where there have been few candidates
scoring very low marks.
In general, candidates are
demonstrating good skill at description
but are weaker on analysis. This is a
lesson that has gone unlearned from
previous diets. Many answers often
limited themselves to basic comments
on trends (eg in Question 1 (iii) and
Question 5) and tended to limit their
analysis to this has gone up, this has
gone down etc. At the Professional level,
comments should be helpfully quantified
where possible and the commercial
implications discussed. So prevention
costs have increased would be improved
to the prevention costs have risen by
(eg) 12% and this should yield benefits
by improving production quality and so
lowering future rectification costs and
improving customer satisfaction. This
shows the ability to create information
and interpret it for the business
being analysed.
As a further general suggestion
to improve candidates technique,
those who use the scenario to provide
illustrations of their general knowledge
of a topic score more efficiently and
effectively than book-learned definitions
supported by vague business examples.
QUESTION 1
The question requested a report
on the use of broader performance
management systems at a
consultancy business.
In general, answers to requirement (i)
were good with a number of candidates
gaining maximum marks by ensuring
that their example metrics were relevant
to SBC. Weaker responses often lacked
focus on the importance of non-financial
performance indicators and a
surprisingly large minority of candidates
lacked basic knowledge of the balanced
scorecard, which should be considered a
core topic in Paper P5. Requirement (ii)
received answers of variable quality with
many candidates not appreciating the
importance of calculating the chargeable
days which would exclude the business
development work. A surprising number
of candidates did not appreciate that the
main purpose of business development
was as a marketing activity.
Requirement (iii) was reasonably
answered but the answers could
have been improved by candidates
offering more in terms of commercial
reasoning, for example, the key trend in
the appendix was the drop in forecast
activity and this was the likely driver of
the changes in the company it was less
commercially realistic to be suggesting
that the drop in numbers of consultants
in a previously growing business was
driving the drop in demand.
Requirement (iv) was generally well
answered although some candidates
could have improved their answers
by avoiding bullet points and
demonstrating their understanding by
giving fuller answers.
There were four professional marks
available for this question and these
were given under the headings: format,
introduction, conclusion, use of
subheadings, professional language and
clarity. A conclusion was not required
as it is difficult to formulate for this
diverse report but credit was given
where it was reasonably attempted.
Candidates should note however that
a polite offer to discuss any question
that the reader of the report might
have at a later date does not constitute
a conclusion to the report. Most fairly
prepared candidates scored half of
the marks available and those who
had practised their professional
presentation often scored all of the
available marks.
QUESTION 2
This question presented data on an
academy (EMA) that provided teaching
on the care and riding of horses.
There were significant variations in the
overall quality of candidates answers
to this question. Most candidates
offered excellent answers to Part (a)
on preparing a budgeted profit figure
for the academy and many scored
full marks. However, when this basic
understanding was tested in Part (b)(i)
(finding an expected value) candidates
struggled. Stronger candidates scored
full marks on this part but many others
would have benefited from a structured
approach. The issue of risk and its
treatment are an important feature of
business decision making and are in the
syllabus and have been mentioned in
technical articles. Additionally, much of
Part (b)(i) is assumed knowledge from
Paper F5. This lack of knowledge was
then reflected in answers to Part (b)(ii)
where few candidates discussed the
implication of the use of expected value
in the risk appetite at EMA.
Requirement (b)(iii) for three
reasons for the national government
opening a competitor academy was
generally well answered although some
candidates did not read the question
IT WAS PLEASING TO OBSERVE THAT THE IMPROVED
OVERALL PERFORMANCE OF PREVIOUS PAPER P5 DIETS
HAS BEEN MAINTAINED, WHERE THERE HAVE BEEN
FEW CANDIDATES SCORING VERY LOW MARKS.
50 EXAMS
and offered six reasons briefly discussed
rather than three reasons each more
comprehensively discussed.
QUESTION 3
This question requested analysis of
concepts surrounding the upgrading
of housing stock by a local authority.
Many candidates who attempted
this question could have improved
their answers by using the scenario
of a local authority working for the
benefit of the community as a base for
their explanations.
Requirement (i) regarding a value for
money audit was reasonably answered
although many candidates did not
appreciate there are multiple principal/
agent relationships in the scenario (home
occupants/LGHD; LGHD/contractors). A
number of candidates did not read the
requirement and offered general comment
about VFM in the scenario when the
relevance of a VFM audit was requested.
Requirement (ii) was typically well
done with most candidates displaying
knowledge of the meaning of the 3 Es
and their application to the scenario.
Requirement (iii) was generally poorly
done with few candidates indicating
clearly that the four terms relate more
to services than tangible products.
Some candidates understood the
meaning of the four terms but did not
clearly relate them to the situation at
LGHD. Candidates would score high
marks by giving examples of how each
term affects LGHDs situation and then
providing any problems to which this
would give rise.
QUESTION 4
Question 4 was set in a marine
engineering company which is
considering a change from traditional
costing to activity-based costing (ABC).
Overall, answers to this question were
mixed. The comparison of different
methods of costing and performance
measurement is a basic element of this
paper and surprisingly, many candidates
seem unprepared for Part (a) (i). Better
answers to this part focused on how
the two methods can produce different
answers by comparing their underlying
approaches. Again, candidates scored
more heavily if their answer used the
information in the scenario as illustrative
example of the general points made
about the different costing methods.
Most candidates realised that there
were price implications arising from the
two costs but few realised the internal
process implications for example in
designing products.
Requirement (a) (ii) requested
two problems associated with
implementation of an activity-based
costing system using state of the art IT
systems. Candidates who focused on the
implementation stage and considered
how it might be affected by such an IT
system scored well. A few candidates
cleverly took two subheadings and then
discussed issues within these in order to
ensure that they scored the two marks
available for each problem.
Requirement (b) related the ABC
system used earlier in the question to
the broader use of activity analysis in
management of the company. There
were effectively four parts to this
question the three topics itemised plus
the risks of using ABM. There was
a wide spread of marks to this part
with a few knowledgeable candidates
scoring close to full marks but a
number of weaker answers which failed
to relate the general definitions of
operational and strategic ABM to SFS.
Many candidates did not realise that
implicit value was the value which does
not immediately appear in traditional
performance measurement systems but
nevertheless, is important in long-term
management of a successful business.
QUESTION 5
The question was based around an
electrical appliance manufacturer which
is applying for a quality certification.
The candidates were supplied with three
years of forecast data to analyse.
Part (a) required an explanation of
cost targets and their relevance to the
application for platinum status (the
quality certification) and an analysis
of forecasts of those costs for the next
three years. There was some evidence
of misreading the question as being
about target costing rather than the
more basic use of target costs in
achieving this quality standard. However,
candidates who took this track made
relevant points and were given some
credit. Those candidates who scored
well did so by appreciating that these
were forecast numbers and so gave an
indication of the companys plans not
its history. Therefore, a good answer
commented on how the increased
quality costs of 2011 fed through to
improved quality in the later years
yielding lower costs. Many candidates
would have benefited from considering
the cost categories within each year
rather than across each category.
There was frequently little evidence of
understanding how spending in one
category affects the others especially,
the effect of conformance activity on
non-conformance activity.
Part (b) required an analysis of
general forecast performance under
three headings. Successful candidates
made clear how their points linked to
the specific headings demonstrating
their appreciation of the meaning of
that heading. They provided quantified
analysis of the data in the appendix and
linked it to business objectives under the
heading. Weaker candidates provided
trend analysis but did not demonstrate
an appreciation of how this then affected
the business within the headings, eg
by satisfying customers and so being
externally effective.
PAPER P6
ADVANCED TAXATION (UK)
There were many very good scripts and it
is pleasing to note that the vast majority
of candidates attempted all of the parts
of four questions. In addition, the majority
of answers were brief and to the point.
The most signifcant issue for weaker
candidates was a failure to identify all of
the tasks within each question such that
they failed to address all of the available
marks. Many candidates would beneft from
thinking more and writing less.
The exam was divided into Section A
and Section B. Section A consisted of
two compulsory questions worth a total
of 68 marks. In Section B candidates
were required to answer two of the three
questions worth 16 marks each.
ANSWERS TO PAPER P5 QUESTION 4 WERE MIXED. THE COMPARISON OF DIFFERENT
METHODS OF COSTING AND PERFORMANCE MEASUREMENT IS A BASIC ELEMENT
OF THIS PAPER AND SURPRISINGLY, MANY CANDIDATES SEEM UNPREPARED FOR THIS.
BETTER ANSWERS TO THIS PART FOCUSED ON HOW THE TWO METHODS CAN
PRODUCE DIFFERENT ANSWERS BY COMPARING THEIR UNDERLYING APPROACHES.
STUDENT ACCOUNTANT ESSENTIAL EXAM GUIDE 10/2010
51
In Section B, Questions 4 and 5 were
equally popular; Question 3 was the
most popular question.
Candidates should pay particular
attention to the following in order to
maximise their chances of success in
the exam in the future.
QUESTION 1
This question concerned a number of
issues relating to a group of companies.
Candidates were required to prepare
corporation tax computations and
to provide detailed explanations
of the rules regarding controlled
foreign companies and the capital
goods scheme.
Part (i) concerned the corporation
tax liabilities of the three subsidiary
companies and required knowledge
of the rules in relation to research
and development and the annual
investment allowance.
The corporation tax computations
were the straightforward marks in this
part of the question and were prepared
well. However, many candidates let
themselves down by failing to satisfy
the precise details of the requirement.
The question asked for a calculation of
the total of the liabilities of the three
subsidiaries before taking account of
the additional expenditure set out in
the email from the client, together with
an explanation of the effects of that
expenditure on the total of the liabilities.
Unfortunately, many candidates
simply calculated three corporation
tax liabilities.
The managers instructions required
candidates to take advantage of any
opportunities available to reduce the
total corporation tax liability. One of the
companies, Truffle Ltd, had a chargeable
gain. Candidates were expected to
propose that some of that gain should
be transferred to Fondant Ltd to take
advantage of that companys capital
loss. The remainder of the gain should
also be transferred (to Ganache Ltd or
Fondant Ltd) in order to take advantage
of lower tax rates. Many candidates did
not spot these opportunities and would
perhaps have benefited from pausing for
a moment in order to give themselves
a chance to think about the situation
presented to them.
Candidates demonstrated an excellent
knowledge of the relief available in
respect of expenditure on research and
development and the rules concerning
the annual investment allowance.
The second part of the question
required a detailed analysis of whether
or not a proposed acquisition would be
a controlled foreign company together
with the implications of it being
such a company. This was a chance
for candidates to present detailed
knowledge of this area in a structured
manner and many answers were very
good. Candidates who did not score
well either did not know this area of the
syllabus well enough or did not pick up
on the instructions to provide a detailed
analysis such that their answers
were too brief and superficial. Many
candidates would have benefited from
pausing and thinking before they started
writing in order to ensure that they
approached the question in a logical
manner and thus identified more of the
points that needed to be made.
Candidates need to ensure that
they identify all of the elements of
the requirements in each question.
In Part (ii) of this question the client
questioned the tax treatment of the
arrangement fees and interest relating
to the loan taken out to purchase the
overseas subsidiary. This was not a
difficult point but it was not addressed
by many candidates.
The final part of the question
concerned a partially exempt
company considering the purchase
of a building and the workings of
the capital good scheme. This was
reasonably straightforward and was
done reasonably well. A small minority
of candidates wasted time by providing
detailed descriptions of partial
exemption and other aspects of VAT
and many candidates were confused
about who was going to be charging
VAT to whom. However, having said
that, a good proportion of candidates
understood the operation of the capital
goods scheme and explained it well.
Only a minority of candidates addressed
the possible advantages of using the
companys partial exemption percentage
for the previous year.
QUESTION 2
Question 2 was a substantial question
in four parts. Although some of the
parts could be seen as easier or harder
than others, all of the parts had some
easily accessible marks and candidates
benefited from attempting all parts
rather than only attempting those that
appeared to be straightforward.
Part (i) concerned the implications
of a change to an employees location
of work. On the whole this part of the
question was done reasonably well.
However, in order to score a high mark
for this part it was necessary to focus
on the clients financial position and
calculate how much better or worse
off he was going to be as a result of
the change. This required candidates
to think in terms of income and costs
(with tax as a cost) and to recognise
that costs that are not tax deductible are
still costs and are therefore still relevant.
This aspect of the question was not
handled particularly well.
The calculation of the benefit in
respect of the flat provided by the
company was done well. However,
the majority of candidates failed to
recognise that the mileage allowance
related to travel to and from work and
was, therefore, taxable in full.
It was pleasing to note that fewer
candidates than in the past provided
lengthy explanations of what they were
going to do before getting on and doing
it. However, the question asked for an
explanation of the tax treatment of two
particular points; the receipt of the
mileage allowance and the receipt of the
rent. Many candidates failed to provide
these explanations. As noted above, in
respect of Question 1, candidates must
identify and carry out all of the tasks
in the question in order to maximise
their marks.
Part (ii) concerned the new rules
introduced in the Finance Act 2009
in relation to senior accounting
officers. These rules were a significant
development in the personal
responsibility of individuals for the
behaviour of their employing companies
and were covered in great detail in the
financial press at the time. However, the
majority of candidates were not aware
of them and, consequently, found it
difficult to score well on this part of
the question. Having said that, there
were also marks available for pointing
out that the clients error needed to
be communicated to HMRC and for
identifying the action necessary if
the client was unwilling to make such
disclosure. Accordingly, it was possible
to score reasonably well in this part of
the question without any knowledge of
the new rules.
Part (iii) of the question concerned
inheritance tax and the advantages
of lifetime giving. At first sight it was
a daunting question requiring the
consideration of three possible property
values, two dates of death and a lifetime
gift or gift via will; a total of 12 possible
situations. However, there was guidance
from the manager as to where to start
together with the reassurance that you
should find that the calculations do not
take too long.
It was very pleasing to find that the
52 EXAMS
majority of candidates had no problem
with this part of the question and that
their knowledge of the basic mechanics
of inheritance tax was sound.
Candidates benefited from thinking
rather than writing such that they were
then able to realise that, for example,
with a lifetime gift, the only difference
between the two possible dates of death
was the availability of taper relief. The
best answers were admirably short and
to the point.
The one area where candidates could
have done better was in identifying the
possible gift with reservation. The failure
by many candidates to do this indicates,
yet again, that some candidates do not
take enough care in identifying all that
has been asked of them.
The final part of the question
concerned the tax treatment of income
received from a trust. This was a test of
knowledge, as opposed to application
of knowledge, and candidates should
have scored well. However, the marks for
this part were not as high as expected
because candidates were not sufficiently
careful in their approach. As always,
the advice here is to stop and think. The
question made it clear that the nature
of the trust was not known and therefore
candidates were expected to consider
the income tax position of receipts
from both an interest in possession
trust and a discretionary trust. There
was also the need to be specific and
precise, as regards grossing up fractions
and tax rates, rather than superficial
and general in order to maximise the
marks obtained.
QUESTION 3
This question concerned the choice of
business vehicle for a new business that
was anticipating initial trading losses
and the implications of registering
voluntarily for VAT. It was in three parts.
Part (a) (i) required candidates to
calculate the taxable trading profit
or allowable trading loss depending
on whether the business vehicle was
a company or an unincorporated
business. The majority of candidates
scored high marks here although
some had difficulty calculating the
figure for the second tax year of an
unincorporated business based on the
first 12 months of trading. Those who
did not do so well simply did not know
the basic mechanical rules and either
missed out this part of the question or
tried to make it up. The opening and
closing years rules for unincorporated
traders are examined regularly and
candidates preparing for future sittings
are likely to benefit from being able to
handle them.
Part (a)(ii) required candidates
to provide a thorough and detailed
explanation of the manner in which the
losses could be used depending on the
choice of business vehicle. This part of
the question was done well by almost
all of the candidates who attempted
it. In order to maximise marks here it
was necessary to be precise in terms
of language used. For example, it was
not sufficient to state that losses can be
carried forward against future profits.
Instead, candidates needed to state
that losses could be carried forward
for offset against future profits of the
same trade.
There was also a requirement to state
which business structure would best
satisfy the clients objectives. The mark
available for this was missed by those
candidates who had stopped thinking
and were simply writing down everything
they knew about loss relief.
The other difficulty which candidates
had with this part of the question
was a failure to recognise that not all
possible loss reliefs were available due
to the particular facts of the question.
Candidates should ensure that they do
not write at length about matters which
are irrelevant.
The final part of the question
concerned the financial advantages and
disadvantages of registering voluntarily
for VAT. Many candidates let themselves
down by not reading the question
carefully such that they simply listed all
the advantages and disadvantages they
could think of without focusing on the
word financial or the particular facts
surrounding the client. This meant that
they missed the possibility of recovering
pre-registration VAT, which was often the
difference between an OK mark and a
good mark.
QUESTION 4
This question required candidates
to provide advice on pensions, the
enterprise management incentive
scheme and the tax implications of the
funding of school fees by a grandparent.
The question was in two parts.
The pension scheme element of
Part (a) was not done particularly well.
Candidates struggled in an attempt
to produce detailed calculations when
a few well-chosen sentences would
have been much more efficient. Many
candidates failed to consider national
insurance contributions and there
was particular confusion in relation
to the employers contributions to the
pension scheme with many candidates
deducting the contributions from the
employees salary.
The main problem here was an
inability to set down a clear explanation
of the rules. Before starting to write an
answer, candidates should be willing
to stop and think in order to plan what
they want to say. Also, as, part of their
preparation for the exam, candidates
should practise explaining the tax
implications of transactions in writing
in order to improve their ability to get to
the point in a clear and precise manner.
A small minority of candidates
failed to address the three additional
questions raised by the client in respect
of pension scheme benefits. This was
a shame as there were some relatively
straightforward marks available here.
The enterprise management
incentive scheme element of Part (a)
again required candidates to address
particular points as opposed to writing
generally. Although many candidates
were aware that there was a maximum
value to the options granted under such
a scheme, not all of them applied the
rule to the facts of the question in terms
of the restriction on the number of
share options granted by the company.
A significant number of candidates
confused the enterprise management
incentive scheme with the enterprise
investment scheme.
Part (b) concerned a grandmother
who wished to help finance the school
fees of her grandchildren. It was
done well by many candidates. Those
who did not do so well were often too
superficial in their explanations; the
question required candidates to explain
in detail. Also, weaker candidates
failed to consider the capital gains tax
implications of the gifts and/or the
possibility of the exemption in respect
of normal expenditure out of income
ANSWERING PAPER P6 QUESTION 4, MANY
CANDIDATES FAILED TO CONSIDER NATIONAL
INSURANCE CONTRIBUTIONS AND THERE
WAS CONFUSION IN RELATION TO THE EMPLOYERS
CONTRIBUTIONS TO THE PENSION SCHEME.
STUDENT ACCOUNTANT ESSENTIAL EXAM GUIDE 10/2010
53
being available in relation to inheritance
tax. Of those who did address capital
gains tax, many thought, incorrectly,
that gift relief would be available
in respect of the proposed gift of
quoted shares.
QUESTION 5
This question concerned the
incorporation of a business and the
provision of a number of employee
benefits. It was in three parts.
Part (a) concerned the capital
allowances implications of incorporating
the business and the allowances
available in respect of a false ceiling to
be installed in a supermarket. It was not
done particularly well. Many candidates
thought that on incorporation the assets
would be transferred to the company
at tax written down value whereas the
correct position is that a balancing
charge would arise unless a succession
election were entered into. A number
of candidates wrote that a balancing
charge or a balancing allowance would
arise when it was clear from the facts
that it would be a balancing charge.
Part (b) required candidates to prepare
calculations in order to determine the
base cost of the shares received on
incorporation and the subsequent gain
on the sale of some of the shares.
Common errors here included calculating
a capital loss on the equipment (not
available due to the availability of capital
allowances) and giving entrepreneurs
relief on the incorporation (not available
as the business had not been owned for
a year). The quality of the answers to
this part of the question depended on
the clarity of the candidates knowledge.
There were many candidates who
knew how to perform the necessary
calculations and whose only common
error was the failure to deduct the gain
relieved on incorporation from the base
cost of the shares. There was then
another group of candidates who had
no clear knowledge of the rules and
consequently did not score well.
Candidates were asked to suggest a
minor change in relation to the sale of
shares that would reduce the chargeable
gain. Suggestions needed to be sensible
and commercial and not, as put forward
by a number of candidates, reduce the
selling price of the shares.
The final part of the question
concerned the provision of bicycles and
other related benefits to employees.
Candidates were asked to outline the
tax implications for the company and
its employees of the various benefits.
There were three benefits, so all
answers should have consisted of six
brief elements. Unfortunately, most
answers were not that well organised
with candidates addressing the issues
in what was often a haphazard manner
such that they did not score as well as
they could have done.
PAPER P7
ADVANCED AUDIT AND
ASSURANCE
Despite covering some core syllabus
areas, this paper proved challenging for
many candidates. Overall performance
continues to be unsatisfactory. Many
candidates did not demonstrate awareness
of the International Audit and Assurance
Standards Boards (IAASB) Clarifed ISAs,
and generally the display of knowledge
and application of that knowledge to the
question scenarios provided was not at the
expected standard.
The exam comprised two compulsory
questions in Section A, and three
questions in Section B of which two
should be attempted. Both Section A
questions were based on a case study,
and contained several requirements
covering different syllabus areas.
Each optional 20-mark question in
Section B included a short scenario,
and several requirements. Of the
Section B questions, Question 4 was
the most popular, and roughly the same
proportion of candidates attempted
Question 3 and Question 5.
The vast majority of candidates
attempted the correct number
of questions, and there was less
evidence of time pressure than seen in
previous sessions.
The factors contributing to the poor
pass rate for this sitting include:
failing to answer the specific
question requirements
not applying knowledge to question
scenarios
making too few comments given the
mark allocation of a requirement
lack of knowledge on certain
syllabus areas
illegible handwriting.
The rest of this report contains a
discussion of each question, highlighting
the requirements that were answered well,
and the areas that need improvement.
QUESTION 1
This question was for 36 marks, and
focused on the planning of a group
audit engagement. Requirements related
to an evaluation of audit risk, reliance
on the work of a component auditor,
and audit procedures with respect
to investments in associates and a
grant received.
Overall performance on this question
varied considerably. Candidates
who answered the specific question
requirements scored well. However,
despite the requirements of (a) and (c)
covering familiar issues seen in many
previous papers, a significant proportion
of candidates did not answer the
specific question requirements, leading
to largely irrelevant answers scoring very
few marks.
Requirement (a) asked for an
evaluation of principal audit risks, for
18 marks. Two professional marks were
also available for the briefing notes
required. The scenario provided plenty
of indicators of potential audit risks,
and many candidates produced sound
answers which identified the risk and
explained it in sufficient detail. Most
candidates dealt well with the more
obvious risks such as a profit-related
bonus, a provision for decommissioning
costs and the realignment of a foreign
subsidiarys accounting policies. The
majority of candidates managed to
identify at least some of the audit risks
specific to a group which acquired
a foreign subsidiary during the year,
and it was pleasing to see so many
answers referring to goodwill, fair
values, retranslation to group currency
and alignment to group accounting
policies. However, some of the
explanations of audit risks identified
were weak, amounting to little more
than a statement of the correct
accounting treatment, and not the risk
to the auditor.
Many scripts contained the
following errors:
Discussion of business risk without
linking the business risk to financial
statement risk (eg there is a risk of
failing to comply with relevant laws
and regulations or there is a risk that
inventories are obsolete).
Including audit procedures (which
were not asked for).
DESPITE THE REQUIREMENTS OF PAPER P7, QUESTION 1
PARTS (A) AND (C) COVERING FAMILIAR ISSUES SEEN IN
PREVIOUS PAPERS, A PROPORTION OF CANDIDATES DID
NOT ANSWER THE SPECIFIC REQUIREMENTS.
54EXAMS
Long description of the components
of audit risk (inherent, control and
detection risks) with no application to
the scenario.
Explanations too vague to earn marks
(eg the risk is it is not accounted
for properly or the risk is that the
accounting standard is not followed).
Discussing reliance on the
component auditor (which the
requirement explicitly said should not
be considered).
Many candidates included the
inevitable references to going concern
problems, even though there was no
hint in the scenario that the group faced
operational or financial difficulties. Also,
some candidates misread the scenario,
leading to inappropriate comments.
The most commonly seen example of
this appeared in answers explaining
that a change in accounting policy had
occurred (the question stated changes
in accounting estimates). Candidates
must read the scenario carefully to avoid
this type of error.
Candidates who structured their
answers under three heading of inherent
risk, control risk and detection risk
tended not to score very well. Those
who worked through the scenario and
discussed the audit risks associated
with each of the group companies in
turn, and then the audit risk of the
consolidation process performed well.
A significant minority of candidates
did not attempt to earn the two
professional marks available for this
requirement. Candidates are reminded
that resources are available on ACCAs
website providing guidance on the
importance of professional marks.
The UK and Irish adapted papers
featured a different presentation of the
requirement for Question 1 Part (a),
the requirement being contained within
the question scenario in an email
from the audit engagement partner.
Candidates dealt well with this different
presentation of the requirement, which
had been the subject of an examiners
article, and which will be introduced
across all adaptations of Paper P7 from
June 2011.
Requirement (b) asked for an
explanation of factors that should be
considered and the procedures that
should be performed in deciding the
extent of reliance to the placed on
the work of the component auditor,
Sidle & Co. This was for eight marks,
and candidates were expected to
demonstrate knowledge of ISA 600,
Special Considerations Audits of Group
Financial Statements (Including the
Work of Component Auditors), which
was revised and redrafted by the
IAASB as part of the Clarity Project.
Unfortunately it appeared that many
candidates had very little, if any,
specific knowledge of ISA 600, and
produced answers which were vague
and seemed to be based on guesswork
rather than knowledge.
While most candidates could suggest
that the principal auditor needed to
gain some understanding of the level
of competence and objectivity of the
component auditor, few appreciated
that it is a requirement of ISA 600
that the principal auditor shall obtain
understanding of the regulatory
environment in which the component
auditor operates.
Procedures suggested tended to
be based mainly on discussion, and
many suggestions were impractical or
unprofessional (ie ask Sidle & Cos other
clients for a reference or ask Sidle & Co
to do a test to check their knowledge).
Overall performance on this
requirement was unsatisfactory.
Candidates are reminded that group
audit engagements are an important
part of the Paper P7 syllabus, and the
requirements and practical implications
of the Clarified ISA 600 should be
studied in detail.
Requirement (c) was for eight marks
and asked for principal audit procedures
to be performed on the classification
of non-controlling investments, and
the condition attached to a grant
received. Some candidates performed
well here, providing procedures that
were specific to the requirement and to
the scenario. However there were three
common problems with answers to
this requirement:
Suggesting procedures not specific
to the requirement, ie procedures
not relevant to classification of
investments or specific to the
conditions attached to the grant
(eg suggesting that the auditor
should confirm the existence of
the investments by visiting their
head office).
Suggesting procedures too vague
to score credit, eg ensure the
investment is classified correctly,
or check the conditions of the grant
have been met.
Discussion of the relevant accounting
treatment not asked for in
this requirement.
Candidates are encouraged to read the
examiners article on exam technique
in answering questions on audit
procedures, published in September
2009 in Student Accountant and available
on ACCAs website.
QUESTION 2
This question was for 24 marks, and
featured a rapidly expanding private
company, Mac Co, looking to improve
its internal control environment through
the outsourcing of its internal audit
function, and potentially establishing
an audit committee. A fraud had been
recently discovered operating in the
purchase system. The majority of
candidates responded reasonably well
to this question, though many answers
did not reach their full potential by not
being applied to the question scenario.
Requirement (a) asked for the benefits
specific to Mac Co of outsourcing its
internal audit function. A number of
candidates performed well on this
requirement, some achieving the
maximum six marks. These candidates
identified the benefits and explained the
point with specific reference to Mac Co,
as required. The candidates who failed
to apply their comments to the question
scenario did not perform well.
A significant number of candidates
provided disadvantages of outsourcing
the internal audit function which was
not asked for, and earned no marks.
Candidates must read the requirement
carefully to avoid this kind of mistake.
Requirement (b), for four marks,
asked for the potential impacts on
the external audit if the internal audit
function were outsourced. Although
some answers were sound, covering
a range of potential impacts such as
potential change to audit strategy, the
ANSWERING PAPER P7 QUESTION 2, A SIGNIFICANT
NUMBER OF CANDIDATES PROVIDED DISADVANTAGES
OF OUTSOURCING THE INTERNAL AUDIT FUNCTION
WHICH WAS NOT ASKED FOR, AND EARNED NO
MARKS. CANDIDATES MUST READ THE REQUIREMENT
CAREFULLY TO AVOID THIS KIND OF MISTAKE.
STUDENT ACCOUNTANT ESSENTIALEXAMGUIDE10/2010
55
need to document changes to systems
and controls and the potential impact
on the efficiency and cost of the audit.
However, the majority of answers were
too brief and vague, simply saying that
the external auditor would be able to
place more reliance on internal controls,
but failing to develop the answer beyond
that observation.
Some candidates seemed very cynical
of the role of internal auditor, implying
that they may hide things or refuse to
cooperate. Other candidates misread
the question, and assumed that it
would be the same firm providing the
internal and external audit service,
leading to irrelevant discussions about
threats to independence and the need
for separate teams.
Requirement (c) asked for procedures
that could be used to quantify the
loss suffered by Mac Co as a result
of the fraud. On the whole, answers
were unsatisfactory. Many candidates
began their answer with an unnecessary
description of forensic audit, while
others wasted time suggesting controls
that should have been in place to
prevent the fraud from happening in the
first place.
Some answers provided specific
procedures, but few were good enough
to score more than half of the four
marks available. Some suggested
procedures were unfortunately not
practical and indicated that candidates
should stop and think about the
feasibility of a procedure before
suggesting it, an example being ask the
police how many invoices the fraudster
has signed. Very many candidates
assumed that the investigator would
have access to the fraudsters personal
bank account. As in Question 1 Part (c),
many procedures were just too vague
to earn credit, eg carry out an analysis
of relevant documents or use CAATs to
find the amount.
Requirement (d) asked for a report
which compared the responsibilities of
management and the external auditor in
relation to the prevention and detection
of fraud, and also for an assessment
of the benefits and drawbacks of Mac
Co establishing an audit committee.
Each section of the report was for four
marks, and two professional marks
were available.
The section dealing with
responsibilities in relation to fraud
was generally well dealt with. Most
candidates correctly identified that
management and those charged
with governance have the primary
responsibility for the prevention and
detection of fraud. It was pleasing to
see many answers refer to the auditor
needing to maintain an attitude of
professional scepticism as required by
ISA 240.
The section dealing with audit
committees was less well answered,
though most candidates managed to
at least explain a couple of benefits of
establishing a committee. Drawbacks
were often not provided or were just
one-word answers, eg costly or
bureaucratic. The main problem
with answers however was a lack of
application to the question scenario
candidates seemed to forget that
they were advising the directors of a
company that had recently suffered
a fraud and failed to point out that a
stronger control environment which
an audit committee would help to
create would deter further frauds
from occurring.
As in Question 1 Part (a), some
candidates did not attempt to earn the
professional marks available.
QUESTION 3
This question focused on going concern
issues and began with an eight-mark
discussion in requirement (a).
Candidates were first asked to discuss
whether auditors should accept some
of the blame when a company on which
they have expressed an unmodified
opinion subsequently fails, and second
whether auditors should do more to
highlight going concern problems. Very
few answers were worthy of more than
a few marks, most answers simply
listing the auditors responsibilities
from ISA 570, Going Concern, with
no discussion at all of the statement
provided in the question. Those who did
refer to the statement provided tended
to just state whether or not they agreed
with it but provided no discussion at
all. Answers were especially poor at
discussing whether auditors should
disclose more in relation to going
concern, with most just describing
the various ways that going concern
issues may affect the audit opinion. It is
inadequate that, at this level, candidates
seem simply unable to express an
opinion of their own or base a reasoned
discussion around a statement provided
to them, especially around such a
significant current issue facing the
profession.
Requirement (b) contained a scenario
describing an audit client, Juliet Co,
facing going concern difficulties and
attempting to overcome these difficulties
by restructuring the business. The
company had applied for a bank loan,
without which significant doubt would
arise over its ability to continue as a
going concern.
Candidates were first asked in
requirement (bi), for six marks, to
identify and explain the matters that
should be considered, and the principal
audit procedures that should be
performed in respect of the funding
being sought. The main problem with
answers were that they did not focus
as required on the additional funding
being sought, but instead discussed
more generally the plight of the
company. Some answers considered
the difficulty that the auditor might
face in attempting to gain evidence
from the bank as to whether the loan
would be forthcoming, and pointed
out that the financial statements and
forecasts carried high inherent risk of
management bias as the directors would
want to create as favourable a view as
possible of the financial position of
the company.
This requirement used standard
wording that is seen in most exams
(matters to be considered and audit
procedures), and an examiners article
on exam technique has explained the
best way to approach a requirement
worded in this way. Candidates
usually perform well on this type
of requirement, so it is puzzling
that this scenario failed to produce
better answers, especially as going
concern seems to be a popular topic
with students.
In requirement (bii) candidates were
asked to comment on the ethical and
other implications of the companys
request for your firm to provide advice
on forecasts and projections that had
been asked for by the bank, and to
attend a meeting with the bank at which
the forecasts and projections would be
discussed. This was for six marks, and
was the best answered requirement of
this question. Most candidates correctly
identified and went on to explain the
self-review, management and advocacy
threats created by the situation, and
many discussed the potential liability
issue caused by attending the meeting.
QUESTION 4
As usual, the ethics question was
the most popular of the optional
questions. This question contained four
brief ethical situations, from which
candidates were required to identify
and evaluate the ethical and other
professional issues raised. Answers were
mixed in quality some were sound,
56 EXAMS
but many did little more than identify
threats but provided no discussion or
evaluation of those threats identified.
Requirement (a), for six marks,
described an audit client company, for
which the audit firm had been asked to
provide a valuation service in respect
of a pension deficit recognised as a
liability. On the whole this was well
answered, with almost all candidates
able to identify and explain the
selfreview threat and to suggest
appropriate safeguards. Few candidates
however considered the key issues of
the materiality of the pension deficit to
the financial statements, and the highly
subjective nature of the valuation.
Requirement (b), for six marks, dealt
with a situation in which Kia, the niece
of an audit clients financial controller
had been specifically requested by the
client to be included in the audit team.
Again, most candidates could identify
the familiarity threat to objectivity,
though this was often not well explained,
and most suggested that the best
safeguard would be to exclude Kia
from the audit team. Inevitably, many
candidates wanted to see Kia disciplined
for her gross misconduct and reported
immediately to ACCA.
Requirement (c), for five marks,
described a custodial service that the
audit firm was considering offering to
audit clients. Most candidates identified
the potential selfinterest threat created
but few could go further to evaluate the
potential risk exposure to the firm or
additional costs that may be incurred if
such a service were offered.
Requirement (d), for three marks,
explained that the audit firm had
referred several clients to a third party
for technical training, and would receive
commission for the referrals. This
situation was dealt with well, with most
candidates able to identify and explain the
threats and to suggest that full disclosure
would be the best course of action.
On the whole this ethics question
produced better answers than ethics
questions in previous sessions. However,
candidates performance is hampered
by the fact that often only one ethical
issue or threat per requirement is dealt
with in their answers, which tend to be
too brief for the marks available. Many
candidates wrote the same amount for
each requirement, despite the fact that
requirements (a) and (b) were worth
twice the marks of requirement (d).
QUESTION 5
This question focused in part (a) on
the requirements of ISA 706, Emphasis
of Matter Paragraphs and Other Matter
Paragraphs in the Independent Auditors
Report. This is an ISA which was revised
and redrafted under the IAASBs
Clarity Project, and unfortunately many
candidates did not seem aware of the
new requirements. The requirement was
for candidates to define an Emphasis of
Matter (EOM) and an Other Matter (OM)
paragraph and to provide examples of
their use.
On the whole candidates dealt well
with the EOM paragraph, usually giving
a good definition and providing several
examples of its use, the most common
being in relation to going concern. Many
candidates scored the maximum six
marks for this part of the requirement.
OM paragraphs were not well
understood by most candidates. Many
incorrectly suggested that it should be
used to explain a qualification of the
auditors opinion, and often no examples
of its use were provided. Very few
candidates scored more than half of the
four marks available.
The UK and Irish adapted papers
contained a different Part (a), in which
candidates were provided with a scenario
describing an audit clients failure to
adhere to its stated accounting policy
regarding revenue recognition, and
also the audit teams failure to obtain
the evidence necessary in respect of
property developments. The requirement
was to explain and recommend further
actions that should be taken by the
audit partner, and to evaluate the
potential impact on the auditors report.
On the whole, these requirements
were dealt with reasonably well, with
most candidates recommending
appropriate actions such as discussion
with management and those charged
with governance, inspection of legal
documents relating to the property sales,
and alternative procedures to gather
evidence on the property developments.
The auditors report was less well
answered, with most candidates unable
to do more than state disagreement
(old terminology for audit reports now
not free from material misstatement is
used) or limitation in scope.
The second part of the question dealt
with auditors liability. Requirement
(bi), for four marks, asked candidates
to explain four methods that could be
used by an audit firm to reduce risk
exposure to litigation claims. On the
whole this was answered quite well with
a good proportion receiving maximum
marks. However, some candidates failed
to explain the methods, and just listed
them out in bullet points, restricting the
credit that could be awarded.
Requirement (bii), for six marks,
asked candidates to assess the potential
implications for the profession of
audit firms signing a liability limitation
agreement with their audit clients.
Answers varied tremendously in quality
here some candidates discussed a
range of issues in a reasonable amount
of detail, while others produced only
list of bullet points (eg poor quality,
reputation suffers). Most candidates
could at least identify and briefly
explain the issues of reduced public
confidence and reduced quality of audit
service provided.
CONCLUSION
This sitting highlighted the importance
of application skills, as there was a
significant difference in performance
between those candidates who applied
their knowledge to the question
scenarios provided, and those who
simply stated rotelearned facts in
their answers in the belief that will be
enough to pass the exam. In addition,
as stated in previous examiners reports,
candidates must be willing to have an
opinion of their own and be confident to
tackle discussion questions.
A significant proportion of candidates
continue to produce answers that
are simply too vague or too brief,
do not actually answer the question
requirements, and display inadequate
technical knowledge of the Clarified
ISAs. These candidates are encouraged
to improve their examination technique
as well as knowledge of the syllabus by
practicing as many past exam questions
as possible, using uptodate study
materials, and by taking on board the
comments made in examiners articles
and reports.
A SIGNIFICANT PROPORTION OF CANDIDATES
CONTINUE TO PRODUCE ANSWERS FOR PAPER P7 THAT
ARE SIMPLY TOO VAGUE OR TOO BRIEF, DO NOT
ACTUALLY ANSWER THE QUESTION REQUIREMENTS,
AND DISPLAY INADEQUATE TECHNICAL KNOWLEDGE
OF THE CLARIFIED ISAS.
STUDENT ACCOUNTANT ESSENTIAL EXAM GUIDE 10/2010
57
ACCA is committed to providing
support to all its students. As part of
this support, a range of materials in
a variety of media to reach as many
students as possible is available
specifically to address the ACCA
Qualification exams. Information from
ACCAs examiners including examiner
reports, examiner interviews and a
wide variety of technical articles are
available in a range of different media
on the ACCA website.
The two sets of examiner interviews
are available on www.accaglobal.com
and are extremely valuable resources.
Each set of interviews can help you
prepare for your exams in different ways
and, when used in conjunction with
the paper resources available, they can
make a big difference to your studies.
EXAMINERS APPROACH INTERVIEWS
The examiners approach interviews
are very useful when you are
undertaking a particular paper for
the first time, giving you a real insight
into what examiners are looking for
in terms of exam performance. They
cover the main themes of each paper
and give information on the style of the
exams and how they are structured.
They also advise on exam technique,
with tips on how to succeed and
potential pitfalls to avoid.
The examiners approach interviews
complement the examiners approach
articles, which were written to give
guidance on how to tackle each exam
paper. These resources contain similar
information but the difference in delivery
method can be a useful advantage when
studying and may give you a better
chance of absorbing the examiners
advice. The examiners approach
interviews also contain useful links to
other relevant resources for your exam.
EXAMINERS ANALYSIS INTERVIEWS
The examiners analysis interviews build
on the examiners approach interviews
and cover student performance in
the December 2007, June 2008 and
December 2008 exam sessions. They
highlight where students are performing
well, where students are performing
less well, and give advice on how
students can improve performance in
problem areas.
Its never too soon to start listening
to the examiners analysis interviews,
but they would probably be most useful
once you have covered the syllabus and
are starting to think about the detail
of a paper and how to apply what you
have learned in the exam. They are
designed to give guidance around which
areas of the syllabus students have
been struggling with in recent exam
sittings and how students can tackle the
difficulties others have been having.
The analysis interviews are closely
related to the examiners reports,
which are published after each exam
session. They bring together the
examiners reports from the first three
sessions of the ACCA Qualification,
illustrating that some mistakes are
being repeated consistently and
highlighting critical areas of the
syllabus to focus on. Remember, this
does not mean one of those areas
will necessarily be examinable in
the next session. These interviews
were produced in February 2009 and
are valid until December 2010 areas
flagged as critical could, therefore,
be examined at any point during this
period of time.
It is still very important to make use
of the individual examiners reports
available in Student Accountant and on
the ACCA website, as well as listening to
the analysis interviews. After you have
worked through a practice question,
refer to the relevant examiners report
and you will find an analysis of that
question, what the examiner is looking
for in a good answer, typical answers
given by students, why they might not
be relevant and so on.
All of these resources and others
such as the Syllabus and Study Guide,
past papers, examinable documents
and technical articles can be accessed
at www.accaglobal.com/students/
acca/exams/. CAT students can access
resources relevant to all CAT papers
at www.accaglobal.com/students/cat/
exams/
EXAM
SUPPORT
EXAMINERS APPROACH AND EXAMINERS ANALYSIS INTERVIEWS
ACCA IS COMMITTED TO PROVIDING SUPPORT TO ALL
ITS STUDENTS. EXAMINER REPORTS, EXAMINER
INTERVIEWS AND A WIDE VARIETY OF TECHNICAL
ARTICLES ARE AVAILABLE IN A RANGE OF DIFFERENT
MEDIA ON THE ACCA WEBSITE AT
WWW.ACCAGLOBAL.COM/STUDENTS/ACCA/EXAMS
THE EXAMINABLE
DOCUMENTS SECTION OF
THE ACCA WEBSITE
(WWW.ACCAGLOBAL.
COM/STUDENTS/ACCA/
EXAMS) INCLUDES EXAM
NOTES WHICH PROVIDE
GUIDANCE ON
EXAMINABLE MATERIAL,
INCLUDING ANY RELEVANT
ACCOUNTING AND
AUDITING DOCUMENTS
FOR PAPERS F3, F7 AND P2.
58 EXAMINERS APPROACH
EXAMINABLE DOCUMENTS
Relevant to the December 2010
exam session
EXAM NOTES
Exam notes provide guidance on
ACCA examinable material,
including any relevant accounting
and auditing documents

ACCA QUALIFICATION
60 PAPERS F3, F7 AND P2 (INT)
61 PAPERS F8 AND P7 (INT)
63 PAPER F6 (UK)
64 PAPER P6 (UK)
CAT QUALIFICATION
66 PAPERS 3 AND 6 (INT)
66 PAPER 8 (INT)
67 PAPER 9 (UK)
CLARITY AUDITING STANDARDS
68 CAT QUALIFICATION PAPER 8, AND ACCA QUALIFICATION PAPERS
F8 AND P7
To access examinable documents
relevant to other papers not
shown above, visit the links below
FINANCIAL REPORTING
ACCA PAPERS F3, F7 AND P2
www.accaglobal.com/students/
acca/exams/f3/examinable
CAT PAPER 3
www.accaglobal.com/students/
cat/exams/t3/examinable_
documents
CAT PAPER 6
www.accaglobal.com/students/
cat/exams/t6/examinable_
documents
AUDIT
ACCA PAPERS F8 AND P7
www.accaglobal.com/students/
acca/exams/f8/examinable
CAT PAPER 8
www.accaglobal.com/students/
cat/exams/t8/examinable_
documents
TAX
ACCA PAPERS F6 AND P6
www.accaglobal.com/students/
acca/exams/f6/exam_docs/
CAT PAPER 9
www.accaglobal.com/students/
cat/exams/t9/exam_docs/
EXAM RESOURCES Available at www.accaglobal.com/students/
DECEMBER 2010
SESSION
FINANCIAL REPORTING
FINANCIAL REPORTING INTERNATIONAL
PAPER F3, FINANCIAL ACCOUNTING (INT)
PAPER F7, FINANCIAL REPORTING (INT)
PAPER P2, CORPORATE REPORTING (INT)
Knowledge of new examinable regulations issued by
30 September will be required in exam sessions being held in
the following calendar year. Documents may be examinable
even if the effective date is in the future. The documents listed
as being examinable are the latest that were issued prior to
30 September 2009 and will be examinable at the December
2010 exam session. The Study Guide offers more detailed
guidance on the depth and level at which the examinable
documents will be examined. The Study Guide should be read
in conjunction with the examinable documents list.
International Accounting Standards (IASs)/International Financial
Reporting Standards (IFRSs)
F3 F7 P2
IAS 1 Presentation of Financial
Statements
IAS 2 Inventories
IAS 7 Statement of Cash Flows
IAS 8 Accounting Policies, Changes in
Accounting Estimates and Errors
IAS 10 Events After the Reporting
Period
IAS 11 Construction Contracts
IAS 12 Income Taxes
IAS 16 Property, Plant and Equipment
IAS 17 Leases
IAS 18 Revenue
IAS 19 Employee Benefits
IAS 20 Accounting for Government Grants and
Disclosure of Government
Assistance
IAS 21 The Effects of Changes in Foreign
Exchange Rates
IAS 23 Borrowing Costs
IAS 24 Related Party Disclosures
IAS 27 Consolidated and Separate
Financial Statements
IAS 28 Investments in Associates
IAS 29 Financial Reporting in
Hyperinflationary Economies
IAS 31 Interests in Joint Ventures
IAS 32 Financial Instruments: Presentation
IAS 33 Earnings per Share
IAS 34 Interim Financial Reporting
IAS 36 Impairment of Assets
IAS 37 Provisions, Contingent Liabilities
and Contingent Assets
IAS 38 Intangible Assets
IAS 39 Financial Instruments: Recognition
and Measurement
IAS 40 Investment Property
IAS 41 Agriculture
F3 F7 P2
IFRS 1 First-time Adoption of International
Financial Reporting Standards
IFRS 2 Share-based Payment
IFRS 3 Business Combinations (Revised)
IFRS 5 Non-current Assets Held for Sale
and Discontinued Operations
IFRS 7 Financial Instruments: Disclosures
IFRS 8 Operating Segments
IFRS for Small and Medium-Sized Entities
Other Statements
F3 F7 P2
Framework for the Preparation
and Presentation of Financial
Statements
Interpretations of the International Financial Reporting
Interpretations Committee (IFRIC)
F3 F7 P2
SIC-12 Consolidation Special Purpose
Entities
SIC-13 Jointly-controlled Entities
Non-monetary Contributions by
Venturers
SIC-15 Operating Leases Incentives
SIC-21 Income Taxes Recovery of
Revalued Non-depreciable Assets
SIC-27 Evaluating the Substance of
Transactions in the Legal Form of
a Lease
SIC-32 Intangible Assets Website Costs
IFRIC 1 Changes in Existing
Decommissioning, Restoration
and Similar Liabilities
IFRIC 4 Determining Whether an
Arrangement Contains a Lease
IFRIC 5 Rights to Interests from
Decommissioning Restoration and
Environmental Rehabilitation Funds
IFRIC 7 Applying the Restatement
Approach Under IAS 29, Financial
Reporting in Hyperinflationary
Economies
IFRIC 9 Reassessment of Embedded
Derivatives
IFRIC 10 Interim Financial Reporting and
Impairment
IFRIC 12 Service Concession Arrangements
IFRIC 13 Customer Loyalty Programmes
IFRIC 16 Hedges of a Net Investment in a
Foreign Operation
IFRIC 17 Distribution of Non-cash Assets
to Owners
60 EXAM NOTES
DECEMBER 2010
SESSION
FINANCIAL REPORTING
Exposure Drafts and Discussion Papers
F3 F7 P2
ED SimplifyingEarningsperShare:
ProposedAmendmentstoIAS33
ED2009/11 ImprovementstoIFRS
ED2009/10 Discountrateforemployeebenefits:
ProposedamendmentstoIAS19
ED2009/9 Classificationof rightsissues:
ProposedamendmentstoIAS32
ED2009/8 Rateregulatedactivities
ED2009/7 FinancialInstruments:Classification
andmeasurements:Draftamendments
tootherIFRSsandguidance
ED2009/6 ManagementCommentary
ED2009/5 FairValueMeasurements
ED2009/3 Derecognition:Proposedamendments
toIAS39andIFRS7
ED2009/2 IncomeTax
ED AnimprovedConceptualFramework
forFinancialReporting
Chapters1and2
DP2009/2 Creditriskinliabilitymeasurement
DP2009/1 Leases
DP Revenuerecognitionincontracts
withcustomers
DP Preliminaryviewsonfinancial
statementpresentation

AUDIT INTERNATIONAL
Knowledgeof newexaminableregulationsissuedby
30Septemberwillbeexaminableinexamsessionsbeingheld
inthefollowingcalendaryear.Documentsmaybeexaminable
evenif theeffectivedateisinthefuture.Thismeansthatall
regulationsissuedby30September2009willbeexaminableat
theDecember2010session.
TheStudy Guideoffersmoredetailedguidanceonthe
depthandlevelatwhichtheexaminabledocuments
willbeexamined.TheStudy Guideshouldthereforeberead
inconjunctionwiththeexaminabledocumentslist.For
informationabouttheexaminabilityof theclarityauditing
standards,seepage68.
PAPER F8, AUDIT AND ASSURANCE (INT)
TheaccountingknowledgethatisassumedforPaperF8,Audit
and AssuranceisthesameasthatexaminedinPaperF3,
Financial Accounting.Therefore,candidatesstudyingfor
PaperF8shouldrefertotheaccountingstandardslistedinthe
PaperF3sectiononpage60.
PAPER P7, ADVANCED AUDIT AND ASSURANCE (INT)
TheaccountingknowledgethatisassumedforPaperP7,
Advanced Audit and Assuranceisthesameasthatexaminedin
PaperP2,Corporate Reporting.
Therefore,candidatesstudyingforPaperP7shouldreferto
theaccountingstandardslistedunderPaperP2onpage60.
PaperP7willonlyexpectknowledgeof accountingstandards
andfinancialreportingstandardsfromPaperP2.
Knowledgeof ExposureDraftsandDiscussionPaperswill
notbeexpected.
International Standards on Auditing (ISAs)
F8 P7
Glossaryof Terms
InternationalFrameworkforAssurance
Assignments
PrefacetotheInternationalStandardson
QualityControl,Auditing,Review,Other
AssuranceandRelatedServices
ISA200 ObjectiveandGeneralPrinciples
GoverninganAuditof Financial
Statements
ISA210 Termsof AuditEngagements
ISA220 QualityControlforAuditsof Historical
FinancialInformation
ISA230 AuditDocumentation
ISA240 TheAuditorsResponsibilitiesRelatingto
FraudinanAuditof Financial
Statements
ISA250 Considerationof LawsandRegulations
inanAuditof FinancialStatements
ISA260 CommunicationwithThoseCharged
withGovernance
ISA265 CommunicatingDeficienciesin
InternalControltoThoseChargedwith
GovernanceandManagement
ISA300 PlanninganAuditof Financial
Statements
ISA315 IdentifyingandAssessingtheRisksof
MaterialMisstatementThrough
UnderstandingtheEntityand
itsEnvironment
ISA320 MaterialityinPlanningandPerforming
anAudit
ISA330 TheAuditorsResponsestoAssessed
Risks
ISA402 AuditConsiderationsRelatingtoan
EntityUsingaServiceOrganisation
ISA450 Evaluationof MisstatementsIdentified
DuringtheAudit
ISA500 AuditEvidence
ISA501 AuditEvidenceSpecificConsiderations
forSelectedItems
ISA505 ExternalConfirmations
ISA510 InitialAuditEngagements
OpeningBalances
ISA520 AnalyticalProcedures
ISA530 AuditSampling
ISA540 AuditingAccountingEstimates,Including
FairValueAccountingEstimatesand
RelatedDisclosures
AUDIT
STUDENT ACCOUNTANT ESSENTIAL EXAM GUIDE 10/2010
61
F8 P7
ISA550 RelatedParties
ISA560 SubsequentEvents
ISA570 GoingConcern
ISA580 WrittenRepresentation
ISA600 SpecialConsiderationsAuditsof Group
FinancialStatements(IncludingtheWorkof
ComponentAuditors)
ISA610 UsingtheWorkof InternalAuditors
ISA620 UsingtheWorkof anAuditorsExpert
ISA700 ForminganOpinionandReportingon
FinancialStatements
ISA705 ModificationstotheOpinioninthe
IndependentAuditorsReport
ISA706 Emphasisof MatterParagraphsand
OtherMatterParagraphsinthe
IndependentAuditorsReport
ISA710 ComparativeInformationCorresponding
FiguresandComparative
FinancialStatements
ISA720 TheAuditorsResponsibilitiesRelatingto
OtherInformationinDocuments
ContainedinAuditedFinancial
Statements
ISA800 SpecialConsiderationsAuditsof
FinancialStatementsPreparedin
AccordancewithSpecialPurpose
Frameworks
International Auditing Practice Statements (IAPSs)
F8 P7
IAPS1000 Inter-bankConfirmationProcedures
IAPS1010 TheConsiderationof Environmental
MattersintheAuditof Financial
Statements
IAPS1013 ElectronicCommerce:Effectonthe
Auditof FinancialStatements
IAPS1014 ReportingbyAuditorsonCompliance
withInternationalFinancialReporting
Standards
International Standards on Assurance Engagements
(ISAEs)
F8 P7
ISAE3000 AssuranceEngagementsOtherThan
AuditsorReviewsof Historical
FinancialInformation
ISAE3400 TheExaminationof Prospective
FinancialInformation
International Standards on Quality Control (ISQCs)
F8 P7
ISQC1 QualityControlforFirmsthatPerform
AuditsandReviewsof Historical
FinancialStatementsandOther
AssuranceandRelatedServices
Engagements
International Standards on Related Services (ISRSs)
F8 P7
ISR4400 EngagementstoPerformAgreed-upon
ProceduresRegardingFinancial
Information
ISR4410 EngagementstoCompileFinancial
Information
International Standards on Review Engagements (ISREs)
F8 P7
ISRE2400 EngagementstoReviewFinancial
Statements
ISRE2410 Reviewof InterimFinancialInformation
PerformedbytheIndependentAuditor
of theEntity
Other Documents
F8 P7
ACCAsCodeof EthicsandConduct
IFACsCodeof EthicsforProfessional
Accountants(RevisedJuly2009)
FFEIntegrityinProfessionalEthics:
ADiscussionPaper
ACCAsTechnicalFactsheet94Anti-money
Laundering(Proceedsof Crimeand
Terrorism)
TheCombinedCode(of theCommittee
onCorporateGovernance)asanexample
of acodeof bestpractice
IAASBClarityProjectUpdate
(October2008)
IAASBPracticeAlert,ChallengesinAuditing
FairValueAccountingEstimatesinthe
CurrentMarketEnvironment
(October2008)
IAASBPracticeAlert,AuditConsiderationsin
Respectof GoingConcernintheCurrent
EconomicClimate(January2009)
IAASBApplyingISAsProportionatelywiththe
SizeandComplexityof anEntity
62 EXAM NOTES
TAX
PAPER F6, TAXATION (UK)
The following notes refer to Paper F6 (UK) only. Guidance
for other variant papers where available is published on the
ACCA website.
EXAMINABLE LEGISLATION
Legislation which received Royal Assent on or before
30 September annually, will be assessed in the following
year. Therefore, exams in December 2010 will be assessed
on legislation which received Royal Assent on or before
30 September 2009.
FINANCE ACT
The latest Finance Act which will be examined in Paper F6
(UK) at the December 2010 session is the Finance Act 2009.
With regard to prospective legislation when, for example,
provisions included in the Finance Act will only take effect
at some date in the future, such legislation will not normally
be examined until such time as it actually takes effect.
The same rule applies to the effective date of the provisions
of an Act introduced by statutory instrument.
The following relevant articles have been published
in Student Accountant and are also available on the
ACCA website:
Finance Act 2009 September 2009
Adjustment of profit questions November 2009
Examiners approach to Paper F6 (UK) January 2007.
SUPPLEMENTARY INSTRUCTIONS
The following supplementary instructions will be included in
the December 2010 exam:
calculations and workings need only be made to the
nearest
all apportionments should be made to the nearest month
all workings should be shown.
TAX RATES AND ALLOWANCES
The following tax rates and allowances will be reproduced in
the exam paper for Paper F6 (UK). In addition, other specific
information necessary for candidates to answer individual
questions will be given as part of the question. For example,
in the case of corporate chargeable gains, the relevant retail
prices index for particular dates will be given at the end of
the relevant question.
Income Tax
%
Basic rate 137,400 20
Higher rate 37,401 and above 40
A starting rate of 10% applies to savings income where it falls
within the first 2,440 of taxable income.
Personal Allowances
Standard 6,475
6574 9,490
75 and over 9,640
Income limit for age-related allowances 22,900
Car Beneft Percentage
The base level of CO
2
emissions is 135 grams per kilometre.
A lower rate of 10% applies to cars with CO
2
emissions
of 120 grams per kilometre or less.
Car Fuel Beneft
The base figure for calculating the car fuel benefit is 16,900.
Pension Scheme Limits
Annual allowance 245,000
The maximum contribution that can qualify for tax relief
without evidence of earnings is 3,600.
Authorised Mileage Allowances: Cars
Up to 10,000 miles 40p
Over 10,000 miles 25p
Capital Allowances:
Plant and Machinery
%
General pool first-year allowance 40
writing-down allowance 20
Special rate pool 10
The first-year allowance of 40% applies to expenditure during
the period 6 April 2009 to 5 April 2010 (1 April 2009 to
31 March 2010 for limited companies).
Motor cars
CO
2
emissions up to 110 grams per kilometre 100
CO
2
emissions between 111 and 160 grams per kilometre 20
CO
2
emissions over 160 grams per kilometre 10
Annual investment allowance
First 50,000 of expenditure 100
Industrial Buildings Allowance
Writing-down allowance 2
Corporation Tax
FinancialYear 2007 2008 2009
Small companies rate 20% 21% 21%
Full rate 30% 28% 28%
Lower limit () 300,000 300,000 300,000
Upper limit () 1,500,000 1,500,000 1,500,000
Marginal relief fraction 1/40 7/400 7/400
TAX
STUDENT ACCOUNTANT ESSENTIAL EXAM GUIDE 10/2010
63
FINANCE ACT
The latest Finance Act which will be examined in Paper P6
(UK) at the December 2010 session is the Finance Act 2009.
With regard to prospective legislation when, for example,
provisions included in the Finance Act will only take effect
at some date in the future, such legislation will not normally
be examined until such time as it actually takes effect. The
same rule applies to the effective date of the provisions of
an Act introduced by statutory instrument.
The following relevant articles have been published
in Student Accountant and are also available on the
ACCA website:
Finance Act 2009 September 2009
Examiners approach to Paper P6 (UK) June/July 2007
Trusts and tax for P6 (UK) February 2010
Corporation tax for P6 (UK) January 2010
Capital gains tax and inheritance tax for P6 (UK)
March 2010
International travellers for P6 (UK) February 2010
Corporation tax for groups for P6 (UK) January 2010.
SUPPLEMENTARY INSTRUCTIONS
The following supplementary instructions will be included in
the December 2010 exams:
you should assume that the tax rates and allowances
for the tax year 2009/10, and for the financial year to
31 March 2010, will continue to apply for the foreseeable
future, unless you are instructed otherwise
calculations and workings need only be made to the
nearest
all apportionments should be made to the nearest month
all workings should be shown.
TAX RATES AND ALLOWANCES
The following tax rates and allowances will be reproduced in
the exam paper for Paper P6 (UK). In addition, other specific
information necessary for candidates to answer individual
questions will be given as part of the question.
Income Tax
%
Basic rate 137,400 20
Higher rate 37,401 and above 40
A starting rate of 10% applies to savings income where it falls
within the first 2,440 of taxable income.

Personal Allowances
Standard 6,475
6574 9,490
75 and over 9,640
Income limit for age-related allowances 22,900
Car Beneft Percentage
The base level of CO
2
emissions is 135 grams per kilometre.
A lower rate of 10% applies to cars with CO
2
emissions
of 120 grams per kilometre or less.
Marginal Relief
(M - P) x I/P x Marginal relief fraction
Extended loss relief
Extended loss relief is capped at a maximum of 50,000. For
limited companies it applies to loss making accounting periods
ending between 24 November 2008 and 23 November 2010.
Value Added Tax
Standard rate up to 31 December 2009 15%
Standard rate from 1 January 2010 onwards 17.5%

Registration limit 68,000
Deregistration limit 66,000
Capital Gains Tax
Rate of tax 18%
Annual exemption 10,100
Entrepreneurs relief
Lifetime factor 1,000,000
Relief factor 4/9ths
National Insurance Contributions (not contracted out rates)
%
Class 1 Employee 15,715 per year Nil
5,71643,875 per year 11.0
43,876 and above per year 1.0
Class 1 Employer 15,715 per year Nil
5,716 and above per year 12.8
Class 1A 12.8
Class 2 2.40 per week
Class 4 15,715 per year Nil
5,71643,875 per year 8.0
43,876 and above per year 1.0
Rates of Interest (assumed)
Official rate of interest 4.75%
Rate of interest on underpaid tax 2.5%
Rate of interest on overpaid tax 0.0%
PAPERP6,ADVANCEDTAXATION(UK)
The following notes refer to Paper P6 (UK) only. Guidance for
other variant papers where available are published on the
ACCA website.
EXAMINABLE LEGISLATION
Legislation which received Royal Assent on or before
30 September annually, will be assessed in the following
year. Therefore, exams in December 2010 will be assessed
on legislation which received Royal Assent on or before
30 September 2009.
64EXAM NOTES
Car Fuel Beneft
The base figure for calculating the car fuel benefit is 16,900.
Pension Scheme Limits
Annual allowance 245,000
Lifetime allowance 1,750,000
The maximum contribution that can qualify for tax relief
without evidence of earnings is 3,600.
Authorised Mileage Allowances: Cars
Up to 10,000 miles 40p
Over 10,000 miles 25p
Capital Allowances:
Plant and Machinery
%
First-year allowance 40
Writing-down allowance general pool 20
special rate pool 10
The first-year allowance of 40% applies to expenditure during
the period 6 April 2009 to 5 April 2010 (1 April 2009 to
31 March 2010 for limited companies).
Motor cars
CO
2
emissions up to 110 grams per kilometre 100
CO
2
emissions between 111 and 160 grams per kilometre 20
CO
2
emissions over 160 grams per kilometre 10
Annual investment allowance
First 50,000 of expenditure 100
Industrial Buildings Allowance
Writing-down allowance 2
Corporation Tax
FinancialYear 2007 2008 2009
Small companies rate 20% 21% 21%
Full rate 30% 28% 28%
Lower limit () 300,000 300,000 300,000
Upper limit () 1,500,000 1,500,000 1,500,000
Marginal relief fraction 1/40 7/400 7/400
Marginal Relief
(M - P) x I/P x Marginal relief fraction
Extended loss relief
Extended loss relief is capped at a maximum of 50,000.
For limited companies it applies to loss making accounting
periods ending between 24 November 2008 and
23 November 2010.
Value Added Tax
Standard rate up to 31 December 2009 15%
Standard rate from 1 January 2010 onwards 17.5%
Registration limit 68,000
Deregistration limit 66,000
Inheritance Tax
1325,000 Nil
Excess 40%
Capital Gains Tax
Rate of tax 18%
Annual exemption 10,100
Entrepreneurs relief
Lifetime factor 1,000,000
Relief factor 4/9ths
National Insurance Contributions (not contracted out rates)
%
Class 1 Employee 15,715 per year Nil
5,71643,875 per year 11.0
43,876 and above per year 1.0
Class 1 Employer 15,715 per year Nil
5,716 and above per year 12.8
%
Class 1A 12.8
Class 2 Small earnings exception limit
5,075
2.40 per week
Class 4 15,715 per year Nil
5,71643,875 per year 8.0
43,876 and above per year 1.0
Rates of Interest (assumed)
Official rate of interest 4.75%
Rate of interest on underpaid tax 2.5%
Rate of interest on overpaid tax 0.0%
Stamp Duty Land Tax
Rate
150,000 or less
1
Nil
150,001250,000 1%
250,001500,000 3%
500,001 or more 4%
1
For residential property, the nil rate band was increased
to 175,000 until 31 December 2009 after which it will
be restricted to 125,000.
Stamp duty
Shares 0.5%
STUDENT ACCOUNTANT ESSENTIAL EXAM GUIDE 10/2010
65
FINANCIAL REPORTING
PAPER 3, MAINTAINING FINANCIAL RECORDS (INT)
PAPER 6, DRAFTING FINANCIAL STATEMENTS (INT)
Knowledge of new examinable regulations issued by
30 September will be required in exam sessions being held in
the following calendar year. Documents may be examinable
even if the effective date is in the future.
The documents listed as being examinable are the latest
that were issued prior to 30 September 2009 and will be
examinable at the December 2010 session.
The Study Guide offers more detailed guidance on the
depth and level at which the examinable documents will
be examined. The Study Guide should be read in conjunction
with the examinable documents list.
International Accounting Standards (IASs)/International Financial
Reporting Standards (IFRSs)
3 6
IAS 1 Presentation of Financial Statements
IAS 2 Inventories
IAS 7 Statement of Cash Flows
IAS 8 Accounting Policies, Changes in
Accounting
Estimates and Errors
IAS 10 Events after the Reporting Period
IAS 16 Property, Plant and Equipment
IAS 18 Revenue
IAS 27 Consolidated and Separate Financial
Statements
IAS 37 Provisions, Contingent Liabilities
and Contingent Assets
IAS 38 Intangible Assets
IFRS 3 Business Combinations
Other Statements
3 6
Framework for the Preparation and
Presentation of Financial Statements
AUDIT
PAPER 8, IMPLEMENTING AUDIT PROCEDURES (INT)
Knowledge of new examinable regulations issued by
30 September will be examinable in exam sessions being held
in the following calendar year.
Documents may be examinable even if the effective date is
in the future.
This means that all regulations issued by
30 September 2009 will be examinable at the December
2010 session.
The Study Guide offers more detailed guidance on the
depth and level at which the examinable documents will
be examined. The Study Guide should therefore be read in
conjunction with the examinable documents list.
The accounting knowledge that is assumed for Paper 8,
Implementing Audit Procedures is the same as that examined
in Paper 1, Recording Financial Transactions and Paper 3,
Maintaining Financial Records. Therefore, candidates studying
for Paper 8 should refer to the accounting standards listed
under Paper 3. Candidates will also be expected to be
familiar with Paper 6, Drafting Financial Statements.
International Standards on Auditing (ISAs)
8
Glossary of Terms
Preface to International Standards on
Quality Control, Auditing, Review, Other
Assurance and Related Services
ISA 200 Overall Objectives of the Independent Auditor
and the Conduct of an Audit in Accordance
with ISAs
ISA 210 Agreeing the Terms of Audit
Engagements
ISA 220 Quality Control for an Audit of
Financial Statements
ISA 230 Audit Documentation
ISA 240 The Auditors Responsibilities Relating
to Fraud in an Audit of Financial Statements
ISA 260 Communication to Those Charged with
Governance
ISA 265 Communicating Deficiencies in Internal
Control to Those Charged with Governance
and Management
ISA 300 Planning an Audit of Financial
Statements
ISA 315 Identifying and Assessing the Risks of
Material Misstatement through Understanding
the Entity and Its Environment
ISA 320 Materiality in Planning and Performing
an Audit
ISA 330 The Auditors Responses to Assessed Risks
ISA 450 Evaluation of Misstatements Identified
During the Audit
ISA 500 Audit Evidence
ISA 501 Audit Evidence Specific Considerations
for Selected Items
ISA 505 External Confirmations
ISA 520 Analytical Procedures
ISA 530 Audit Sampling
ISA 540 Auditing Accounting Estimates, Including
Fair Value Accounting Estimates and
Related Disclosures
ISA 560 Subsequent Events
ISA 570 Going Concern
ISA 580 Written Representations
ISA 610 Using the Work of Internal Auditors
ISA 620 Using the Work of an Auditors Expert
ISA 700 Forming an Opinion and Reporting on
Financial Statements
ISA 705 Modifications to the Opinion in the
Independent Auditors Report
CAT: FINANCIAL
REPORTING AND AUDIT
66 EXAM NOTES
UK dividends will be taxed at 10% when they fall within the
basic rate band and 32.5% thereafter.

Personal Allowance 6,475
Car Beneft Percentage
The base level of CO
2
emissions is 135 grams per kilometre.
A lower rate of 10% applies to cars with CO
2
emissions
of 120 grams per kilometre or less.
Car Fuel Beneft
The base figure for calculating the car fuel benefit is 16,900.
Authorised Mileage Allowances: Cars
Up to 10,000 miles 40p
Over 10,000 miles 25p
Pension Scheme Limits
The maximum contribution that can qualify for tax relief
without evidence of earnings is 3,600.
Annual allowance 245,000
Rate of Interest
Official rate of interest (assumed) 4.75%
Capital Allowances:
Plant and Machinery
%
General pool first-year allowance 40
writing-down allowance 20
Special rate pool 10
The first-year allowance of 40% applies to expenditure during
the period 6 April 2009 to 5 April 2010 (1 April 2009 to
31 March 2010 for limited companies).
Motor cars
CO
2
emissions up to 110 grams per kilometre 100
CO
2
emissions between 111 and 160 grams per kilometre 20
CO
2
emissions over 160 grams per kilometre 10
Annual investment allowance
First 50,000 of expenditure 100
Industrial Buildings Allowance
Writing-down allowance 2
Corporation Tax
FinancialYear 2007 2008 2009
Small companies rate 20% 21% 21%
Full rate 30% 28% 28%
Lower limit () 300,000 300,000 300,000
Upper limit () 1,500,000 1,500,000 1,500,000
Marginal relief fraction 1/40 7/400 7/400
CAT:
TAX
ISA 706 Emphasis of Matter Paragraphs and Other
Matter Paragraphs in the Independent
Auditors Report

Other Documents
8
ACCAs Code of Ethics and Conduct
TAX
PAPER 9, PREPARING TAXATION COMPUTATIONS (UK)
The following notes refer to Paper 9 (UK) only. Guidance for
other variant papers where available is published on the
ACCA website.
EXAMINABLE LEGISLATION
Legislation which received Royal Assent on or before
30 September annually, will be assessed in the
following year.
Therefore, exams in December 2010 will be assessed
on legislation which received Royal Assent on or before
30 September 2009.
FINANCE ACT
The latest Finance Act which will be examined in Paper 9 (UK)
at the December 2010 session is the Finance Act 2009.
With regard to prospective legislation when, for example,
provisions included in the Finance Act will only take effect
at some date in the future, such legislation will not normally
be examined until such time as it actually takes effect. The
same rule applies to the effective date of the provisions of
an Act introduced by statutory instrument.
The following relevant article has been published in Student
Accountant and is also available on the ACCA website:
Finance Act 2009 September 2009.
SUPPLEMENTARY INSTRUCTIONS
The following supplementary instructions will be included in
the December 2010 exam:
calculations and workings need only be made to the
nearest
all apportionments should be made to the nearest month
all workings should be shown.
TAX RATES AND ALLOWANCES
The following tax rates and allowances are to be used in
answering the questions.
Income Tax %
Basic rate 137,400 20
Higher rate 37,401 and above 40
Note:
A starting rate of 10% applies to the first 2,440 of savings
income where such income falls within the first 2,440 of
taxable income.
STUDENT ACCOUNTANT ESSENTIAL EXAM GUIDE 10/2010
67
Marginal Relief
(M - P) x I/P x Marginal relief fraction
Value Added Tax
Standard rate up to 31 December 2009 15%
Standard rate from 1 January 2010 onwards 17.5%
Registration limit 68,000
Deregistration limit 66,000
Capital Gains Tax
Rate of tax 18%
Annual exemption 10,100
Entrepreneurs relief
Lifetime factor 1,000,000
Relief factor 4/9ths
National Insurance Contributions (not contracted-out rates)
%
Class 1 Employee 15,715 per year Nil
5,71643,875 per year 11.0
43,876 and above per year 1.0
Class 1 Employer 15,715 per year Nil
5,716 and above per year 12.8
Class 1A 12.8
Class 2 2.40 per week
Class 4 15,715 per year Nil
%
5,71643,875 per year 8.0
43,876 and above per year 1.0

CLARITY AUDITING
STANDARDS
CANDIDATES SHOULD PAY ATTENTION
TO THE EXAMINABLE DOCUMENTS
LISTED FOR THE AUDIT PAPERS TO ENSURE
STUDY OF THE CORRECT MATERIALS.
Where weekly or monthly calculations are required, the
Class 1 limits shown above should be divided by 52 (weekly)
or 12 (monthly) as applicable.
EXAMINABILITY OF THE CLARITY
AUDITING STANDARDS
RELEVANT TO CAT PAPER 8 (UK) AND (INT), AND
ACCA QUALIFICATION PAPERS F8 (UK) AND (INT), AND P7 (UK)
AND (INT)
The International Auditing and Assurance Standards
Board (IAASB) has completed its comprehensive project
to enhance the clarity of all of its International Standards
on Auditing (ISAs), known as the Clarity Project. As a result
of this, all the new clarity standards will be examinable
in the International and UK auditing exam papers from the
June 2010 exam session.
Candidates should pay careful attention to the examinable
documents listed for the audit papers, and ensure that they
are studying the correct materials for their paper. For more
details on the Clarity Project please see the article written
by the Paper P7 examiner available at www.accaglobal.com/
students/student_accountant/archive/2009/98/3243390
STUDYING PAPERS F5, F7 OR F8?
Student Accountant is pleased to be able to offer you exclusive access to
paper-specifc resources for Papers F5, F7 and F8.
If youre studying any of these papers in December 2010, sign-up to
receive study alerts for the performance management, fnancial reporting
and auditing papers to help support your studies.
To receive the alerts, subscribe at www.accaglobal.com/students/student_
accountant/direct and well send you further information.
TECHNICAL ARCHIVE ON THE ACCA WEBSITE
Access the Student Accountant technical article archive at
www.accaglobal.com/students/student_accountant/archive/. Online study
resources are available at www.accaglobal.com/students
68 EXAM NOTES
The Resources section contains
all the information you need to
enter for your December exams,
and also includes answers to your
frequentlyasked questions and
contact details for ACCA Connect
RESOURCES
70 ACCA CONNECT
For all enquiries, contact
ACCA Connect, our global
customer service centre
70 FEES
Exam fees for ACCA and CAT
Qualifcation papers and ways
to pay
71 EXAM TIMETABLES
Detailed exam timetable for the
December 2010 exam session,
and dates for June 2011 to help
with your diary planning
72 EXAM
ENTRY
Find out how to apply for your
exams online via myACCA
72 EXAM RULES
Essential advice and rules that you
should be aware of before you
take your December 2010 exams
73 FREQUENTLY-ASKED
QUESTIONS: EXAMS
Answers to your frequentlyasked
questions about exams
and exam entry
ACCA
CONNECT
FEES
ANNUAL SUBSCRIPTION 2010
Please note as a student you are required to pay an annual
subscription for each year you are registered with ACCA. This
is a separate fee to your initial registration fee. Your annual
subscription is due on 1 January irrespective of the month
you registered. For example, if you registered in December,
you will still be required to pay an annual subscription by
1 January. The payment enables ACCA to provide you with
services and support to assist you with your studies and
training as you work towards gaining your qualification.
Students who fail to pay fees when due (including exam/
exemption fees), will have their names removed from the
ACCA register. Students wishing to re-register are required
to submit any amounts unpaid at the time of their removal
in addition to the re-registration fee. No penalty fee will be
charged. Confirmation of your unpaid fees can be obtained
from your national ACCA office or ACCA Connect.
The following fees and subscriptions apply:
CAT students
Initial subscription 60
Re-registration *60
Annual subscription 60
Introductory Level exam 38
Intermediate Level exam 38
Advanced Level exam/exemption 49
ACCA Qualification and MSER students
Initial subscription 69
Re-registration *69
Annual subscription 69
Knowledge exam/exemption 55
Skills exam/exemption 69
Professional exam 81
*plus unpaid fee(s)
Affiliates
Annual subscription 99
Permanent subscription 189
Dont forget to pay your fees on time. Dates by which fees and
subscriptions must be paid and arrangements for payment
are included in your ACCA welcome pack.
CHANGE OF ADDRESS
Update your contact details online through myACCA, or let
us know your new details by writing to ACCA Connect, or
e-mail students@accaglobal.com with your change of contact
details. The change of details process can take four weeks.
For all enquiries, simply contact ACCA Connect our global
customer service centre. However you want to contact us,
by phone, fax, email or post, one of our expert advisers will
be happy to assist you.
MONDAY TO THURSDAY
Open 21 hours (closed 20.00 to 23.00)
FRIDAY
Open 20 hours (closed 20.00 to midnight)
SATURDAY
Closed
SUNDAY
Open 09.00 to 17.00 and 23.00 to midnight (all times
based on GMT/BST as appropriate)
ACCA Connect
2 Central Quay 89 Hydepark Street Glasgow
G3 8BW United Kingdom
tel: +44 (0)141 582 2000 fax: +44 (0)141 582 2222
email: students@accaglobal.com
website: www.accaglobal.com
students@
accaglobal.com
+44 (0)141
582 2000
NEW STUDENTS
Applications are normally processed
within four to six weeks of receipt in
the Glasgow office. Forms handed
in to national ACCA offices or Joint
Scheme offices will be forwarded to
Glasgow. Students who apply to register
online can track the progress of their
application on the e-business website at
https://www.acca-business.org
New students should allow adequate
time for processing and receiving official
confirmation of their registration.
Carefully read the information that you
receive with your post-registration pack
to ensure all details have been recorded
correctly. You should expect to receive:
a student registration card, a welcome
to ACCA letter, a profile letter detailing a
summary of your data held by ACCA, and
an exemption notification if applicable.
70 RESOURCES
Are your contact details up to date?
https://www.acca-business.org
E
X
A
M

T
I
M
E
T
A
B
L
E
The following dates have been
confirmed for the next two
exam sessions:
December 2010
Week 1 6 to 10 December
Week 2 13 to 15 December
June 2011
Week 1 6 to 10 June
Week 2 13 to 15 June
Exams will take place over
an eight-day period with one
session of exams each day.
The exams will be held
concurrently in five different
time zones. The base starting
times in each of these time
zones will be:
Zone 1 (Caribbean)
08.00hrs
Zone 2 (UK) 10.00hrs
Zone 3 (Pakistan and South
Asia) 14.00hrs
Zone 4 (Asia Pacific)
15.00hrs
Zone 5 (Australasia)
17.00hrs.
Local starting times will be
set falling out from these base
start times for every centre.
Details of local start times can
be found against each centre
on the Examination Centre List
accompanying your Examination
Entry Form.
Papers F1 to F3 are two-hour
exams, and Papers F4 to F9 and
P1 to P7 are three-hour exams.
Monday 6 December
1* Recording Financial
Transactions
6* Drafting Financial
Statements
F6 Taxation
P6 Advanced Taxation
Tuesday 7 December
2* Information for
Management
Control
7* Planning, Control
and Performance
Management
F4 Corporate and
Business Law
P7 Advanced Audit
and Assurance
Wednesday 8 December
3* Maintaining
Financial Records
F3 Financial Accounting
MFA Financial Accounting
F8 Audit and Assurance
Thursday 9 December
4* Accounting
for Costs
F9 Financial Management
P4 Advanced Financial
Management
Friday 10 December
5* Managing People
and Systems
F2 Management Accounting
MMA Management Accounting
P5 Advanced Performance
Management
Monday 13 December
8* Implementing Audit
Procedures
F5 Performance Management
P1 Professional Accountant
Tuesday 14 December
9* Preparing Taxation
Computations
F7 Financial Reporting
P2 Corporate Reporting
Wednesday 15 December
10* Managing Finances
F1 Accountant in Business
P3 Business Analysis
*CAT Scheme exams
LOCAL START TIMES
CAN BE FOUND BY
EACH CENTRE OF
THE EXAMINATION
CENTRE LIST.
DECEMBER 2010
AND JUNE 2011
EXAM SESSIONS
The quickest and simplest way to
register for your exams is to register
online at myACCA (https://portal.
accaglobal.com/). Registering for your
exams online means:
you get immediate confirmation of
receipt and processing of your entry
you get immediate validation of exam
entry information
you can change the exam centre
youve selected
you can change your law/tax variant
and standards or stream
should you change your mind
about which exams you feel ready
to take then you can amend your
exam selection.
Please note that you can amend your
exam selection at no extra cost up
EXAM ENTRY
until the standard exam entry closing
date of 15 October 2010 for the
December exams. If you complete
the paper-based Examination Entry Form
sent to you in August, this must be
received at ACCAs exam department in
the UK by 15 October 2010. Please note
that due to the volume of entries, you
should confirm whether your exam entry
has been received by viewing your status
on myACCA or contacting ACCA Connect.
DECEMBER 2010
S M
T W
T
F
S
28 29 30
1
2
3
4
5
6
7
8
9 10 11
12 13 14 15 16 17 18
19 20 21 22 23 24 25
26 27 28 29 30 31
1
JUNE 2011
S M
T W
T
F
S 29 30 31
1
2
3
4 5
6
7
8
9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30
1
2
STUDENT ACCOUNTANT ESSENTIAL EXAM GUIDE 10/2010
71
1 You are required to comply in all
respects with any instructions issued
by the registrar, exam supervisor,
and invigilators before and during
an exam.
2 You may not attempt to deceive the
registrar or the exam supervisor by
giving false or misleading information.
3 You are not allowed to take to your
exam desk, possess, use, or intend
to use while at that desk, any books,
notes or other materials except
those authorised by the registrar. If
you are found to have taken to your
desk, or possessed while at that
desk, unauthorised materials which
are relevant to the syllabus being
examined, it will be assumed that
you intended to use them to gain an
unfair advantage in the exam. In any
subsequent disciplinary proceedings,
it shall be for you to prove that you
did not intend to use the materials to
gain an unfair advantage in the exam.
4 You may not assist, attempt to
assist, obtain, or attempt to obtain
assistance by improper means from
any other person during your exams.
5 You are required to adhere at all times
to the Instructions to Candidates,
which you receive with your
Examination Attendance Docket.
6 You are required to comply with the
exam supervisors ruling. Supervisors
are obliged to report any cases of
irregularity or improper conduct to the
registrar. The supervisor is empowered
to discontinue your exam if you are
suspected of misconduct and to
exclude you from the exam hall.
7 You may not engage in any other
unprofessional conduct designed to
assist you in your exam attempt.
8 You are not permitted to remove
either your script booklet or your
question paper from the exam hall.
All exam scripts remain the property
of ACCA.
9 Once the exam has started, you
are not allowed to leave the exam
hall permanently until the end of
the session, and then only when
instructed by the supervisor.
These regulations are reproduced on
your Examination Attendance Docket
you should take time to familiarise
yourself with them. In order to be eligible
to sit your exams, you must sign your
docket confirming your agreement to
comply with these regulations.
Important examination rules
Mobile phones and pagers should
be switched off at all times in the
exam hall, and are not permitted
to be taken to your desk under any
circumstances. Mobile phones are not
permitted on your desk even if they
remain switched off.
Calculators taken into the exam
must comply with the regulations
stated on your Examination
Attendance Docket, ie they should
be noiseless, pocket-sized, and they
must not have a print-out facility
or graphic word display facility in
any language.
For security reasons, the exams are
held concurrently in five different
time zones. Students are therefore
not permitted to leave the hall
permanently until the end of the
exam session. Any student in breach
of this regulation will be reported.
In the exam hall
Every effort is made to ensure that you
sit your exams in the best conditions.
However, if you have a complaint
regarding the centre operation, you
should make this known to the exam
supervisor in the first instance. The
supervisor will do everything within
their power to resolve the matter
to your satisfaction there and then.
If the complaint is of a fundamental
nature, ACCA will take whatever further
remedial action it considers appropriate
in the circumstances.
EXAM RULES
THESE RULES ARE REPRODUCED ON YOUR
EXAMINATION ATTENDANCE DOCKET TAKE TIME TO
FAMILIARISE YOURSELF WITH THEM. TO BE ELIGIBLE
TO SIT YOUR EXAMS YOU MUST SIGN YOUR DOCKET
CONFIRMING YOUR AGREEMENT TO COMPLY WITH
THESE RULES.
Important information for students intending to
take exams at the December 2010 exam session
Students completing certain papers of the ACCA Qualification are eligible to apply for a BSc (Hons) in Applied Accounting
from Oxford Brookes University.
The degree must be completed within 10 years of your initial registration on to ACCAs professional qualification;
otherwise, your eligibility will be withdrawn. Check your eligibility status at www.accaglobal.com/students/bsc/.
The dates tabled below outline the forthcoming deadlines for completing the qualifying exams and the last opportunity
to submit your Research and Analysis Project (RAP):
First session (1) Final session for completing the qualifying exams (2) Final date for submission of RAP
December 2000 June 2010 November 2010
June 2001 December 2011 May 2011
Notes
1 First applicable exam session as confirmed at the time of your initial registration with ACCA.
2 Completion of Fundamentals Level exams.
Professional Ethics module
Students wishing to submit their Research and Analysis Project (RAP) must complete the Professional Ethics module.
For more information visit www.accaglobal.com/students/bsc/
OXFORD BROOKES BSc(HONS)
72RESOURCES
EXAM RULES
Can I take the ACCA Qualifcation exams in
any order?
You can attempt up to a maximum of
four papers per exam cycle. Papers must
be taken in line with the following module
order, however you can attempt the
papers within each module in any order:
There are two exam cycles per year:
1 February 31 July and 1 August
30 January.
Knowledge (F1F3) available by
computer-based exam (CBE) or
paper-based format
Skills (F4F9) available by
paper-based format
Essentials (P1P3) available by
paper-based format
Options (P4P7) available by
paper-based format
If your status allows you to enter
for papers across modules, please
remember that you must complete
the papers in order and enter for
outstanding papers in your current
module if you wish to enter to sit papers
in the next module.
How will I know when to enter for exams?
ACCA exams are held twice a year
in June and December. Providing you keep
your annual subscription up to date, we
will automatically send you an exam entry
form for the next exam session, along
with any exam results you may be waiting
for from the previous exam session, and a
status report. We will usually send these
mid-February for the June exams and
mid-August for the December exams and
you have until 15 April for June exams
and 15 October for December exams to
register for the exams.
What are the closing dates for submitting
exam entry forms each session?
The closing dates are 15 April for June
exams and 15 October for December
exams and the quickest and easiest
way to register for exams is online at
myACCA. If you are sending a postal
exam entry, please submit this as early
as possible as ACCA cannot accept
responsibility for delays caused by postal
delivery services. Your Exam Entry Form
needs to be received by ACCA by the
closing dates. Please check with your
local postal delivery service for delivery
times in the first instance or check the
ACCA website for guidance.
I wish to submit a paper exam entry form
but I cannot fnd the original. How can I get
a replacement or can I send my entry in a
letter or by email?
If you wish to submit a paper exam
FREQUENTLY-ASKED
QUESTIONS: EXAMS
entry form but cannot find the original
you will need to make a request to
ACCA Connect in writing, either by
post or email, marked request for
duplicate exam entry form. Students
should allow enough time to receive
the duplicate exam entry form and
return it to ACCA before the exam entry
closing date.
Only standard entry forms can
be accepted for processing. Due to the
complexity of the information that must
be collected, the risk of error and the
volume of entries received each session,
it isnt possible for ACCA to manually
process exam entries from letters,
emails, faxes or print outs from myACCA
screens. Please do not write credit card
details on any correspondence being
sent to ACCA other than on the official
paper exam entry form, otherwise
these details cannot be stored securely.
Can I still sit my exams if I miss the exam
entry closing date?
If you are a registered student and
have missed the regular exam entry
closing date, you have up to three weeks
to submit your exam entry through
the online late exam entry process at
myACCA. There is an extra charge to use
this service. Please note that this is only
an online service, we cannot process late
paper exam entry forms during this time.
The deadlines for this service are 8 May
for the June exams and 8 November for
the December exams.
How do I know if I am entered for the exams?
An email is sent at the end of the online
exam entry process. If you do not
receive this, please check your myACCA
account to see if your exam entry has
been successful and retry if funds have
not been collected and your exam entry
does not show. If you send in a postal
exam entry form and have opted for an
email acknowledgement, you should
receive this as soon as your exam entry
is processed. If you do not receive this
and have confirmation of your exam
entry, please check that ACCA has your
correct email address. If you have
opted not to receive an email version of
your acknowledgement, a postal version
will be sent to you. In addition, once
you have been entered for the exams,
you can login and view your details on
your myACCA account by accessing the
exam entry section.
If I am not sure if you have received my
exam entry, should I submit another one?
You should only submit one exam entry
form per exam session. If you have
submitted an online exam entry form
then you should not also submit a postal
exam entry form. Similarly, if you have
submitted a paper form, then there is no
need to also submit an online exam entry.
Duplicate submissions may invalidate
your exam entry. To check to see if your
exam entry has been processed, please
visit myACCA in the first instance and
visit the exam entry section. If your exam
entry details are not recorded, please
contact ACCA Connect.
How do I fnd out where to go on exam day?
You will receive an Exam Attendance
Docket by post which will confirm the
details of your exam entry. This will
include the address of the venue for
the centre you have been allocated,
the papers you have entered and the
desk number you should be directed
to at the venue. The exam attendance
dockets are issued approximately four
weeks prior to the start of the exam
session. If you do not receive your
postal version, you can also log on to
your myACCA account two weeks before
the exams to download a duplicate
docket if required.
Will I be able to sit my exams at the centre
that I have requested?
In the vast majority of cases, you will be
allocated to the centre of your choice.
On very rare occasions, when demand
exceeds capacity ACCA may have to
allocate you to the nearest alternative
centre. Clear notification of this will be
provided with your exam attendance
docket. In some cities, where demand is
very high, students may be allocated to
one of a number of different halls which
make up a centre. As these halls can be
in different locations, it is very important
that you read the venue details on your
attendance docket very carefully.
I would like to change my exam entry on
myACCA, is this possible?
Yes. Via myACCA you can:
go back and change the exam centre
youve selected
change your law/tax variant and
standards/stream
add or remove exam selections you
may have previously made
get immediate confirmation of receipt
and processing of your exam entry
get immediate validation of exam
entry information.
You can make these changes up to the
exam entry closing date, irrespective of
whether you entered for exams online or
submitted a paper exam entry form.
STUDENT ACCOUNTANT ESSENTIALEXAMGUIDE10/2010
73
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London College
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W www.londoncollege.org
T +44 (0)20 7407 1119
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200 Great Dover Street, London SE1 4YB
For more inFormAtion
W www.londoncollege.org
t +44 (0)20 7407 1119
F +44 (0)20 7407 1004
e info@londoncollege.org
200 Great Dover Street, London Se1 4YB
For more inFormAtion
The best thing about LCA is the lecturers.
Each of my lecturers plays a prominent
role in helping me to pass my exams
ACCA Student Malaysia
1
neW LonDon CAmPUS
19 Charterhouse Street, London eC1
This prestigious building has been
extensively refurbished to provide a
state of the art classroom environment
with more space for group and private
study outside of the classroom and
equipped with extensive modern
audio/visual and computer facilities.
It is centrally located within walking
distance of Farringdon and Chancery
Lane train stations.
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