PQ magazine, April 2015•

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PQ magazine April 2015 www.pqmagazine.co.uk / www.pqjobs.co.uk Learning conference What do ACCA examiners want? We spill the beans on F1, F7, P1 and P2 BIG 4 STUDENT AUTHORS TAKE AIM The ICAEW is on the move. Record student numbers and plans for alternative papers and the phased move towards CBE assessment were all unveiled at the recent ACA tutors conference. Gavin Aspden, director, qualifications, and Shaun Robertson, head of qualifications, told conference delegates (on more than one occasion) that the changes being outlined were still subject to full governance and approval from ICAEW Council. But they amount to a radical move forward for the body that first introduced objective testing to its syllabus in 2002. Robertson revealed that in 2002 just over 3,000 students were signed up to ICAEW training agreements. Last year, a massive 7,326 students joined the ICAEW trainee ranks, beating the previous record set in 1988 when student numbers topped 7,000 for the first time in a single year. You can add to that another 3,115 PQs who signed up to the CFAB qualification, a first step on the road to the full qualification. These new records mean some 22,000 students are currently studying towards the various stages of the ICAEW qualification. Aspden revealed that, on top of bringing in CBE assessment to all levels, the institute is also looking to introduce alternative papers in two key areas – financial services and UK GAAP. The education department is working on phasing in computer exams from 2016. There will, however, be no change in the style or approach of the exams. Aspden said that the technology has to fit what the ICAEW wants to achieve, and not the other way around. The exams will also be marked by a real person rather than by a computer. First to get the CBE treatment will be the Tax Compliance exams, kicking off in March 2016. The ICAEW believes this phased approach will allow it to manage the risks and ensure the qualification isn’t compromised. Interestingly, the ICAEW is adding long-form questions to some of its OT papers at the first level (Certificate). It has already done this to the Accounting module and now plans to do the same for the Management Information and Principles of Taxation papers. • We spoke to the ICAEW’s executive director of learning and professional development, Mark Protherough, about the proposed changes – and much more. See page 14 BRIGHT FUTURE FOR ICAEW PQs Institute announces record student intake for 2014 and a move to CBE testing from 2016 Some 22,000 students are currently studying towards the various stages of the ICAEW qualification Agents of change: Shaun Robertson and Gavin Aspden

description

PQ is a free monthly magazine for student accountants, focusing on the ACCA, CIMA, CIPFA, ICAEW and AAT qualifications. It's packed full of study tips, advice and guidance on how to pass accountancy exams, plus careers advice from the experts. PQ is the UK's leading independent accountancy magazine.

Transcript of PQ magazine, April 2015•

Page 1: PQ magazine, April 2015•

PQmagazineApril 2015 www.pqmagazine.co.uk / www.pqjobs.co.uk

Learning conferenceWhat do ACCA examinerswant? We spill the beanson F1, F7, P1 and P2

BIG 4STUDENTAUTHORSTAKE AIM

The ICAEW is on the move. Recordstudent numbers and plans foralternative papers and the phasedmove towards CBE assessment wereall unveiled at the recent ACA tutorsconference.

Gavin Aspden, director, qualifications, andShaun Robertson, head of qualifications, toldconference delegates (on more than oneoccasion) that the changes being outlined werestill subject to full governance and approval from

ICAEW Council. But theyamount to a radical moveforward for the body thatfirst introduced objectivetesting to its syllabus in2002.

Robertson revealed thatin 2002 just over 3,000students were signed up toICAEW trainingagreements. Last year, a

massive 7,326 students joined the ICAEWtrainee ranks, beating the previous record set in1988 when student numbers topped 7,000 forthe first time in a single year. You can add tothat another 3,115 PQs who signed up to theCFAB qualification, a first step on the road to thefull qualification. These new records mean some22,000 students are currently studying towardsthe various stages of the ICAEW qualification.

Aspden revealed that, on top of bringing inCBE assessment to all levels, the institute is alsolooking to introduce alternative papers in two keyareas – financial services and UK GAAP.

The education department is working onphasing in computer exams from 2016. There

will, however, be no change in the style orapproach of the exams.

Aspden said that the technology has to fitwhat the ICAEW wants to achieve, and not theother way around. The exams will also bemarked by a real person rather than by acomputer.

First to get the CBE treatment will be the TaxCompliance exams, kicking off in March 2016.The ICAEW believes this phased approach willallow it to manage the risks and ensure the

qualification isn’t compromised.Interestingly, the ICAEW is adding long-form

questions to some of its OT papers at the firstlevel (Certificate). It has already done this to theAccounting module and now plans to do thesame for the Management Information andPrinciples of Taxation papers.• We spoke to the ICAEW’s executive director oflearning and professional development, MarkProtherough, about the proposed changes – andmuch more. See page 14

BRIGHT FUTUREFOR ICAEW PQs

Institute announces record student intake for 2014 and a move to CBE testing from 2016

“Some22,000

students arecurrently studyingtowards thevarious stages ofthe ICAEWqualification

Agents of change: ShaunRobertson and Gavin Aspden

PQ april 15 p01 CCM.qxp_pq nov 11 p01,10 11/03/2015 11:43 Page 1

Page 2: PQ magazine, April 2015•

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comment PQ

News08ACCA results Glitch see some

PQs get their marks upgraded10CIPFA exams Progression

rules dropped from this summer12Careers focus New Reed

survey outlines what’s going onin the world of work

Features, etc06Mind your Ps&Qs Exams ‘on

demand’ are nothing of the sort;and the best of social media

14Interview We speak to ICAEWchief Mark Protherough aboutthe institute’s plans for the future

16Let’s get technical We explainthe concept of accruals

18ACCA P6 Expert advice on howto pass this troublesome paper

20Essential economics OpenUniversity lecturer JonathanWinship looks at the concept ofeconomic and accounting profit

22Audit Three top De Montfortuni studentsexplain what’swrong withthe UK’saudit market

24Exam skills How keeping youranswers neat and tidy improvesyour chances of getting a pass

25ICAEW focus Improvingaccess to the qualification for allpart qualified students

26Throughput accounting Howto avoid the dreaded bottleneck

28ACCA learning providers’conference The first in ourseries of reports about what theACCA examiners really want

30CIPFA spotlight Apprenticescheme nutures young talent

31The disposal of assets Get togrips with this important concept

32Careers Life at StockportCollege; building your network;and our Book Club review

38Fun time The lighter side ofaccountancy plus our giveaways

The columnistsRobert Bruce The etiquette ofboard meetings explained 8Prem Sikka Corporate governancecode can’t stop the scandals 10Carl Lygo Students could hold keyto the general election 12

Subscribe to PQ magazineIt’s FREE – see page 35 or go to

www.pqmagazine.co.ukABC July 2013–June 2014

32,361

Publisher’s statement: We have adigital issue of the magazine which

is sent to 9,111 requested readers

Meet the examinersIs it me or are ACCA tutors getting softer? I can remember thedays when putting an examiner in a room full of lecturers was

the equivalent of throwing them into a bear pit. Perhaps in the pastthere was a lot of one-upmanship going on, but one wonders if passrates of 29% and 30% would have been tolerated as they are now. I canonly suppose that in those more confrontational days tutors felt that poorpass rates reflected on their ability to teach their subject. The ACCAlearning providers’ conference is still a fantastic opportunity to meet theexaminers every two years, and with so many changes going on it is avital communication forum. This year’s conference in London againshowed there is no substitute for meeting an examiner in the flesh. Itdefinitely makes them more human! We have two pages in this month’sissue on what the examiners want, with more to follow next month. Afterthe conference PQ spoke to the newly promoted Alan Hatfield – he’snow an executive director – and director of qualifications CatherineEdwards. Watch out for that interview in next month’s issue, too.

One thing we should say is that while the ACCA will be using PearsonVue software for its CBE exams it will be using its own network of examcentres. A student wrote to us concerned about exam capacity if ACCAand CIMA students were trying to book exams at Pearson Vue at thesame time (see our lead letter on page 6). Hopefully, we have put thatconcern to bed.

Sonny Sharma We were really saddened to hear that LCA’s SonnySharma passed away recently. There aren’t many bigcharacters around these days, but it is fair to say thisman was one big personality. He will be missed by everyone who knewhim. A lawyer by trade, Sharma always put his students first, and hissmile and jovial character livened up our world.

Graham Hambly, PQ magazine editor ([email protected])

CONTENTS April 2015

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PQ Magazine Fourth floor, Central House, 142 Central Street, London EC1V 8AR | Phone: 020 7216 6444 | Email: [email protected]: www.pqmagazine.co.uk | Editor/publisher: Graham Hambly [email protected] | Advertising manager: Polly Thrasivoulou [email protected]

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If you have any problems with delivery, or if you want to change your delivery address, please email [email protected] by PQ Publishing © PQ Publishing 2015

Not really on demandPQ magazine says that ACCA willbe using Pearson Vue centresfrom late 2016 (March 2015issue). This is bad news for bothACCA and CIMA PQs alike! I’m aCIMA student and today bookedmy OT under the new system.Available appointments are fewand far between at my three localcentres. The earliest one I couldbook was a month away.

Has anyone considered thecapacity of these centres when

they will be hosting bothsets of exams? My localcentre has 10 machinesand very little parking.

The exams are marketed as ‘ondemand’, but if I wanted to sit ata weekend I would have to waitfor more than six weeks from thetime I booked for a slot at any ofmy nearest three centres.

This could cause seriousproblems and will not lead to theeasy ‘on demand’ booking wewere promised.Name and address suppliedThe editor says: We’ve had itconfirmed by ACCA that they willbe using Pearson Vue software,but at the association’s ownnetwork of centres. But we thinkthere still could be issues here –watch this space.

The writer of the star letter each month wins a fantastic ‘I § PQ’ mug!

Hot & Tweet

email [email protected]

Pick the right optionI have just read your article onACCA pass rates, particularly for P4and P5 (PQ, March 2015). May Ijust say that all the options are setat a masters level – all as difficultas each other in their own way. P6and P7 tend to have higher passrates, in my opinion, as these aretaken mainly by students who workfor the accountancy firms. Inaddition, my educated guess is thatthese papers attract a lot of UK-based candidates, especially P6.

P4 and P5 are popular papersglobally. I can say that fromteaching many P4 students, both inthe UK and abroad, the global passrates do not reflect the level ofperformance that I have seen. Youcan see the pass rates I haveachieved via my twitter feed andthese are consistently more thandouble the global average.

Simply put, students must pickthe option that suits them best, butthis also includes picking a tutorwho knows that paper inside out.Sunil Bhandari, ACCA tutor, by email

Glitch in the systemI was one of those students whocould access their ACCA examresults on Saturday night (PQmagazine, March 2015). This is notthe first time I have been able toget my results ‘early’. There seemsto be a glitch in the ACCA’s systemthat happens every time they get

When PQ heard that some ACCA December exam resultshave been ‘amended’ we went straight onto LinkedIn tosee what people thought. One correspondent said:“Great, good on them”. Others quickly confirmed thatthey had benefited; some marks were put up by twopercentage points, turning fails into passes. This got us

into another discussion about pass rates. There seems to be a rise in thenumber of PQs receiving 49%, which was something we understoodbodies with a 50% pass rates try to avoid. We also asked what youthought of the ACCA’s new strapline – ‘Think Ahead’. You’ll have to waituntil next month’s issue to discover what came out of that. So if yourbody had a strapline what would it be? Tell us, but be nice please!

We’ve been busytweeting thismonth, with manyof our tweets alerting readers tostories that have been postedon our website but didn’t makeit into the magazine. We hadthe full story of HMRC’s courtof appeal win against theEclipse Film Partnership(no35), which ‘protects’ anestimated £635m in tax. Wealso covered the long-runningdebate on the discrepancy ofVAT rates between printedbooks and e-books that wentbefore the European Court. Andthere was a big piece oninnovating auditor reports fromthe FRC. You can find our takeon the story in the next issue ofNQ magazine, along with thestory of a new use for Facebook– collaring bankrupts!

We also use tweets to highlightthe great jobs on offer on ourjobs board – www.pqjobs.co.uk.There are hundreds of greatjobs aimed at PQs. Two wefeatured recently were for alegal credit controller inEdinburgh on a salary of up to£19,000, and a post for a PQmanagement accountant inLuton with a pay packet of upto £33,000 up for grabs.

Follow us @PQmagazine.

the results ready to release. Likethe students you talked to lastmonth I am a little worried aboutthe security of the ACCA system.However, I read somewhere, I thinkon the ACCA’s website, that theyare now ISO 22301 approved. Thismeans they can identify andmanage current threats to itsbusiness, and security of the examresults must be one of these. So wemust be safe!Name and address supplied

PQ apr 15 p6• ccm.qxp_pq aprl08 p04 11/03/2015 10:47 Page 1

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8 PQ Magazine April 2015

PQ news

Insolvency fees cappedThe government has said it

will impose a cap on fees chargedby administrators of collapsedcompanies. The move followsprotests from creditors overexcessive charges. Under rules laidbefore Parliament, administrators(and other practitioners) whooversee insolvencies will have toprovide upfront estimated costs.They will also have to providedetails of the work they propose tocarry out and say exactly how longthey expect it all to take.

Northern Ireland callingA call has gone out for

volunteers to help set up aNorthern Ireland AAT branch.Currently, both members andstudents in the province aremissing out on events as there isno point of contact. CIPFA has saidit would be prepared to provideassistance to anyone interested intaking on the role.

ACCA joins forces with US uniACCA and Pace University

have announced a landmark

partnership linking the ACCAqualification with graduate andundergraduate courses at theuniversity. Starting this autumn,both undergraduates andgraduates at Pace’s department ofaccounting will be able to qualifyfor specific exemptions from theACCA’s 14 exams. The exemptionswill include four for graduate andfive for undergraduate courses.

CIPFA signs Sri Lanka MoUCIPFA and the Institute of

Chartered Accountants of Sri Lanka

have signed a Memorandum ofUnderstanding (MoU) to strengthenthe country’s public financialmanagement. The MoU outlines aframework for co-operationbetween the two institutes toimprove governance of publicfinance within the country and helpimprove training and developmentin the accountancy profession. Thecollaboration will open the doors tomembership for members of bothinstitutes and professionaldevelopment opportunities formembers of CA Sri Lanka.

In brief

I was talking recently about the abilityof cartoons to jab the unexpectedagainst the expected and so producea laugh. And I remembered a cartoonin the New Yorker magazine. Itshowed three men on stage wearingsuits and ties. Above them was a sign:‘Accounting Night at the Improv’. Theyare saying: “Now is the part of theshow where we ask the audience toshout out some random numbers.”Cartoons shake up your assumptions,and this one crossed over the dividebetween work and fun. Accountantsup on stage? Perish the thought.

But it is important to apply whatyou would in your leisure life to thework environment. The consultantsIndependent Audit produce a regularnewsletter called The Effective Board,and a recent one dealt with thesimple practicalities of boardmeetings. The chairman shouldn’t sitin the middle of the long side of thetable. A free-for-all in the seatingshouldn’t be allowed. Break upgroups. Don’t let cabals develop. Don’tlet the company secretary sit at theother end to the chairman (the abilityto provide a subtle nudge will belost), and so on. The same rules applyat a dinner party. The person incommand of the cooking and servingshould be in subtle touch withwhoever is hosting. Don’t let all themen sit at one end of the table. Movepeople around. Don’t let the eveningbecome static.

Dinner parties don’t have to dealwith recalcitrant finance directors orrogue non-executives. But theunderlying principles, like much inlife, are strikingly similar.

ROBERTBRUCE

Making ameal ofboardmeetings

n Robert Bruce is an award-winning writer onaccountancy for The Times

ACCA amends exam scoresafter administrative reviewA small number of ACCA Decembersitters came in for a shock 11 daysafter they had received their exammarks – their pass marks wereincreased! For many it meant abetter pass percentage, but forothers the 2% rise turned a failureinto a welcomed pass. As one F5sitter explained: “My 48% has beenadjusted to 50% so no retake forme, thank goodness, so relieved.”

Interestingly, PQ magazine hasheard the ‘amendment’ applied inlots of papers – F5, F6, F9, P1, P2,and P6.

Sitters in Nottingham wondered ifit was a centre issue, but manytrainees agreed is was “all verystrange”. As one student said: “Icould maybe understand it if it wasjust happening in one exam, but it

seems very widespread.”Students believe December

sitters deserve a proper explanationof what actually happened.

The ACCA’s Director of Learning,

Alan Hatfield, said: “We want toreassure students that this was aone-off processing issue and allaffected students have beennotified.”

He added: “There are manyquality assurance procedures andsafeguards built into the markingprocedure and the processing ofexam results to ensure that the finalresults issued to candidates arecorrect.”

The notification emails alsoapologised for the error andpromised that the ACCA was takingany measures it can to ensure thatthis cannot happen again in thefuture.• For reports from the ACCA’slearning providers’ conference seepage 28

EY launches ‘earn as you learn’

Scaled scoresthe way ahead

EY has launched a new Assurance Scholarshipprogramme giving students the opportunity to study fora degree while receiving financial support and workexperience at the firm.

Building on an existing partnership with LancasterUniversity, EY is teaming up with the Bath and Warwickuniversities to offer the scholarship to 60 students.

Students studying certain degrees will be eligible toapply, with £5,000 a year on offer to help with theupfront costs of attending university. Students will alsobenefit from a paid summer work placement at one ofEY’s UK offices in their second year and a year-longindustrial placement in their third year of study.

The first-ever CIMA case study exam results will hitinboxes in early April. The operational results will be first– they will be released on Thursday 2 April, followed bythe management pass rates on Friday 10 April. Last outwill be the strategic results on 16 April.

Students (like PQ magazine) might be a littleconfused about what they are actually going to receive.Instead of percentages, candidates will be given ascaled score that will range from zero to 150.

As CIMA provides different versions of the exam overthe five-day exam window it believes scaled scores arenecessary so that scores reported are comparable nomatter what version a candidate sat. CIMA will bepublishing the five different exam questions set, sositters can judge which one was ‘easier’.

An institute insider explained that by converting rawscores it allows CIMA to eliminate differences indifficulty between forms and provides fair andcomparable results for candidates. Scaled scores alsomake it easier for candidates to compare theirperformances from one session to another.

Hatfield: ‘aone-off issue’

PQ Apr 15 p8 CCM.qxp_pq sept 12 p08 11/03/2015 11:45 Page 10

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009_PQ 0415.qxp_PQ 1209 000 05/03/2015 15:09 Page 7

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10 PQ Magazine April 2015

PQ news

The revelations that HSBC may havehelped its clients to evade taxes is thelatest corporate scandal. People areangry and the regulatory system hasfailed to check abuses. Internalcontrols at banks, utility companiesand big accountancy firms do notappear to be able to curb anti-socialpractices. No ethics committee, auditcommittee or external auditors havereported weaknesses or misconduct.

External regulation is based on avoluntaristic approach, typified by theCode of Corporate Governance. The‘comply-or-explain’ approach does notempower stakeholders to takedirectors to task. The interests ofconsumers, employees, taxpayers andsuppliers get virtually no mention inthe Code. And glossy words in annualreports are part of a cynicalimpression management exercise.

External regulators are ineffective.Some banks have been fined, but thisis now all part of the cost of trading,as executives rush to meet profittargets and maximise their bonuses.The usual predatory practices continueas the culprits are too big to shutdown and company directors are notheld personally liable. Externalregulators have little independence.They come from the very industry thatis to be regulated. Business executivesbecome regulators and then return tothe industry.

There is an urgent need to end thevoluntary approach to corporategovernance and make directorspersonally liable for corporatemisdemeanours.

PREMSIKKA

Corporategovernancecode can’tstop thescandals

n Prem Sikka is professor of accountancy at theUniversity of Essex

Progression rules droppedfrom CIPFA’s June sittingCIPFA has changed its progressionrules. In the past, students couldnot sit the exam of either strategicstage module before successfullycompleting all other modules.

This rule no longer applies,although CIPFA is saying that giventheir ‘nature’ it is still important thatPQs plan to sit the strategic stagemodules at the end of their studies.This all means that from the June2015 sitting students can sit anystrategic stage module as part oftheir last planned sitting ofProfessional Certificate orProfessional Diploma modules.

At the same time, the institutehas announced minor presentationchanges to the headers on the frontcover of the June 2015 exampapers. From this summer, therewill be no reference to the stage orthe title of the qualification andsome modules will be labelled ‘UKversion’ or ‘international version’,depending on your choice of paper.

Another change unveiled recentlyis the embedding of the formulae inthe Management Accounting exam,either in the relevant question or atthe back of the exam paper. So thatspells the end of the separate

formulae sheet document. Thatsaid, separate formulae sheets willcontinue to be provided for theFinancial Management andStrategic Financial Managementexams.

Finally, in the FinancialAccounting paper, the cash flowstatement pro forma will beincluded as the last page of thepaper rather than being providedseparately (from June 2015).Candidates will be able to tear thisoff and use the page as a templatefor their exam answers if requiredby the exam.

CIMA has updated its code ofethics to ensure it remains‘relevant’ and reflects the changingdynamics and pressures of theprofession. While no changes havebeen made to the CIMA syllabus,the institute is still recommendingthat students familiarise themselveswith the new-look 2015 code as itwill help PQs answer specific

questions in theexam hall.

PQs should alsonote that CIMA hasupdated its studentethics support e-learning tool. Thishas been reviewed

and new questions from the2015 practice exams have beenadded.

The ‘conflict of interest’ sectionin the newly updated code hasparticularly been beefed up – thesix paragraphs on this area havebecome 14.

Know your code – and pass the exam!

So what makes you happy at work?An AAT survey found having nicetoilets, music in theoffice and the abilityto take your shoes offare noticable plusses.Happiness can alsobe found in funcolleagues, a bit ofrespect and ‘havingyour ideas listenedto’. Interestingly, the first money-related option didn’t appear untilnumber 11 on the list. That washaving a pay review scheme.

Asked how their year had gone,those surveyed gave a mixed

reaction. Some 20% saidthe past 12 months hadgone badly from aprofessional point of view.In all, 55% of thosesurveyed said they didn’tfeel appreciated and one infive plan to change bosses.

Top 10 factors for work happiness1) Respect for employees2) Flexible hours/understandingwhen child sick

3) Hard working colleagues4) Fun colleagues5) Being acknowledged for yourachievements6) Having ideas listened to7) Free parking/close to publictransport8) Regular ‘thank you’s’9) Realistic deadlines10) Fast broadbandAlso on the list: nice toilets (number12); comfy chairs (20); music inoffice (28); freedom to take yourshoes off (33); and good stationery(35).

Top tax ideasA tax systemthat empowersregional citiesand encouragesbusinesses to

invest in people will boostemployment and drive the UKeconomy, according to the writersof the winning essays in a majorPwC student tax competition. Thetwo winning students, RichardCha and Jamie Parker, both fromthe University of Cambridge, eachwalked away with a £10,000 prize.Cha’s essay made the case for a

decentralised tax system, with thedevolution of tax and spendingpowers to cities. He argued that todrive the modern UK economy acompetitive country and not just asingle competitive city is essential.Parker’s essay put the case forgreater decentralisation of taxesand establishing a more explicitlink between businesses thatinvest in human capital and therates they pay in taxation.

Salaries not so importantA large salary is no longer the toppriority for graduates when looking

for their first job, according to thelatest EY poll. When asked to rankthe most important considerationswhen choosing a future employeronly 11% of students said the sizeof the wage packet would be thekey factor. Salary and benefits fellto fifth place in the ranking overall,down from joint top position lastyear. Access to training anddevelopment opportunities toppedthe poll with 35% of the vote – a15% percentage point hike on lastyear. EY’s Julie Stanbridge said:“Money clearly isn’t king fortoday’s graduates.”

Female CEO for Deloitte in the USDeloitte has chosen CathyEngelbert as its new chiefexecutive. This is a first among theBig 4 firms in the US. Engelbertreplaces Frank Friedman theinterim CEO. She has anaccounting degree from LehighUnivesity and joined Deloitte in1986. Engelbert is both chair andchief executive of Deloitte &Touche for the next four years.Meanwhile, in the UK, partners re-elected David Sproul as theirCEO. He begins his second termon 1 June 2015.

So are you happy at work?

pq apr 15 p10 CCM_pq sept 12 p08 10/03/2015 11:15 Page 10

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Read our full Study InterActive Terms and Conditions at studyinteractive.org/terms-and-conditions

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12 PQ Magazine April 2015

PQ news

The student vote could be the key todeciding the 2015 general election ifthe vote is as close as it is predictedto be. At the 2010 election the LiberalDemocrats were the top choice amongstudents but the opinion polls suggesttheir support has fallen away giventhe ‘broken promise’ that led to atripling of tuition fees forundergraduate students. Labour haveput tuition fees at the centre of theirelection manifesto, promising toreduce fees to £6,000 a year, makingup the lost income for universities byincreasing taxation on more wealthypensioners.

Undergraduate students were askedhow they would vote in the Mayelection: the result was Labour 33%,Green 28%, Conservative 23%,Liberal Democrat 7%, SNP 4% andUKIP 2%. Research by the HigherEducation Policy Institute (Spring2015, Report 73) suggests there are10 swing seats where students couldimpact the result. This researchpredicts Labour may gain six seatsfrom the Conservatives and two fromthe Liberal Democrats, while theConservatives could gain two from theLiberal Democrats. All of this assumesstudents register to vote (the newvoter registration system haschanged) and turn out to vote.

What has been interesting for mehas been the student reaction toLabour’s proposed tuition fees cut.While the cut has been welcomedstudents have complained that notenough is being done to lend studentsenough money to cover maintenancecosts. Maintenance loans are meanstested and the maximum householdincome must be under £25,000 ayear to qualify for a full maintenanceloan.

CARLLYGO

Studentscould holdthe balanceof power

n Professor Carl Lygo ischief executive of BPP

THE CAREER CAROUSEL

CFO NOT SO SUPERAT SUPERGROUP

Councils takes controlof £6bn health budget

ACCA is thinking aheadThe need for ACCA PQs to

‘think ahead’ has now beenincorporated in the ACCA’s newstrapline. The director of strategyand brands, David Grint, tolddelegates at the global learningproviders’ conference that theACCA’s new brand positioning aimsto reinforce its strategy to be “theworld’s most forward thinking

professional accountancy body”.He explained for students thebrand has to tell a story. “It meanssupporting them so they realisethose early dreams and hopes,” hesaid. And he added that as theircareers evolve they know that theACCA will be constantly relevant towhatever they do. Grint has alsorefreshed the brand identity. Youcan expect to see the ACCA logo in

orange and green boxes, as well asthe traditional red one.

Even Einstein failed an examThe UK College of Business

and Computing took a novel andeye-catching approach in a recentonline advert. It explained that in1895 Einstein failed his exams, sofailure can happen even to a somevery clever people. For those who

don’t know, a young Albert Einsteinfailed the entrance exam to aprestigious Polytechnic inSwitzerland. He passed the exam12 months later after studying for ayear at a local high school.

In brief

How many times do you expect tochange your employer during yourworking life? Well,the latest ReedAccountancy &Finance salaryguide found 27%of respondents had had seven or moreemployers. That said, accountancy and finance staffseem very happy bunnies. Awhopping 90% of those surveyedsaid they were ‘satisfied’ with theircurrent role. This is perhaps

reflected in the fact that just overone in 10 (11%) said they will be

looking for a newjob in the next 12months.

With newvacancies startingto outstrip thenumber of activecandidates salary

expectations are starting to rise.The research also shows that

what accountants want mostchanges over their career. Betweenthe ages of 18 and 24, salary and

benefits is the priority (39%). Thischanges for those aged 25 to 34,when job satisfaction becomes thekey to a happy working life. From35 to 45 work-life balance is all-important. Finally, from 45 to 54salary and benefits again becomethe most important aspect of anaccountant’s working life – thuscompleting the circle!• Find out what you are worth byrequesting the Reed Accountancy& Finance 2015 Salary and MarketInsight report – go towww.reedglobal.com/salaryguide

The CFO of SuperGroup (readSuperdry here), Shaun Wills,has been forced to quit afterbeing declared bankrupt.Accountant Wills was thesubject of a personalbankruptcy order on 10February after a petition fromHMRC. It is, of course, anoffence to be a director if youare an ‘undischarged bankrupt'unless you have a leave ofcourt (Company DirectorsDisqualification Act 1986).

Eyebrows have been raisedover the two weeks it tookWills to inform the board. In astatement the firm said: “This isa personal matter, on whichSuperGroup will not comment

further, and is wholly unrelatedto the financial position of thecompany.”

Meanwhile, Paul Coyle, theformer group treasurer andhead of tax at Morrisons, hasbeen sentenced to a year inprison for insider trading. Thecase was brought by theFinancial Conduct Authorityafter it was discovered Coylehad bought and sold shares inOcado when it was in talks withMorrisons over a joint venture(worth £216m). Ex-KPMGemployee Coyle pleaded guiltyon both counts and on top ofhis time in prison has beenordered to pay £15,000 costs.He made £80,000 on the trade.

Well done to the Institute of Certified Bookeepers, named Best International Association at the Association Excellence Awards 2015

In what’s been seen as a surprise move bysome commentators, 10 Manchester councilshave been given control of over £6bn of NHSspending.

CIPFA’s CEO, Rob Whiteman, said hewelcomed any move that brings decisionmaking over health spending closer to localpeople, but added that “we must make surethat all areas of the UK can benefit from anydevolution dividend”.

Whiteman stressed that CIPFA will work tomake sure that any deal works for the peopleof Manchester and that the right governance,financial management and delivery systemsare in place.

Local government academic Tony Traversemphasised that this devolution was one ofthe most radical changes in healthcare sincethe NHS was created. He expected there tonow to be a queue of every city region in thecountry, including London, wanting to “get inon this”.

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Last year was a record one forstudents signing up with theICAEW, so PQ magazine went

along to speak to executive director oflearning and professional development,Mark Protherough, about what sparkedthis rise. We also wanted to talk to himabout the proposed changes to theICAEW assessment process, unveiled atthe ACA tutor conference.

Protherough happily confirmed thatthe total number of students joiningICAEW training programme last year was7,326, a new high. You can also add afurther 3,115 to this, those starting theCFAB qualification. He was particularlypleased that the growth comes acrossthe board – from the Big 4,internationally, in industry and the publicsector. The numbers signing up withsmaller and medium sized practices isalso the highest in 20 years.

Protherough believes that, to a certaindegree, the ICAEW is also taking marketshare from its competitors. Interestingly,the numbers were not impacted at all bythe Scottish referendum. “However, ifthere had been a ‘yes’ vote it might havebeen interesting to see what would havehappened,” he ventured.

Along with the UK, the ICAEW isparticularly strong in Cyprus, the MiddleEast and Malaysia. It is also workingclosely with other professional bodies.Protherough cited the work the ICAEW iscurrently doing in Greece, Indonesia andBotswana as the way forward. It won’tmean hundreds of new students but itcould lead to more small rises in studentnumbers.

Women on the up .The ICAEW doesn’t directly recruit itsown students, but in recent years thereappears to have been a problem withrecruitment female trainees. At 41%, theICAEW attracts the lowest female intakeof any of the accountancy bodies.Protherough explained that traditionallythe ACA qualification attracted studentswith science degrees and male studentsdominate these courses. He felt manyfirms are making huge efforts withdiversity and with more school leaversbeing recruited this may help adjust the

balance. He pointed out that the ICAEWwould soon be unveiling its 2014 traineefemale intake, up 1% to 42% – a movein the right direction.

Next on the agenda was the trainingcontract – now called the trainingagreement. Protherough looked surprisedat our suggestion that it seemed oldfashioned. He sees it as unique – atripartite agreement that protected boththe employer and student. He stressedthat the agreement says to employersthey have a duty of care for theirtrainees, but also outlines to PQs whatthey are expected to do in return. “Weare saying that you are not just joiningKPMG or Deloitte, you are joining aprofession with ethical standards andindependence.” So from the start, PQsunderstand this is not just about doingyour day job. And if a student oremployer has a problem they can go tothe ICAEW to get it resolved.

The future is CBEs .Turning to the move to CBE assessment,Protherough felt that technology seems tofinally be at a place where the ICAEWdoes not have to compromise itsstandards and rigour. That wasn’t thecase even two years ago. The institutewill be announcing who has won thetender process to run the exams this

14 PQ Magazine April 2015

PQ interview

“Along withthe UK,

the ICAEW isparticularly strongin Cyprus, theMiddle East andMalaysia

April, but Protherough stressed it wouldhave to be the right testing package atthe right price that wins. He is also veryaware that he must get this right firsttime.

To this end, the ICAEW has opted for aphased approach. First up will be TaxCompliance, which will switch to a CBEformat in March 2016. He is reallyexcited about how the move couldtransform the exams. Instead of writingabout the theory of spreadsheets ICAEWswill be working on them! It will make theexams so much more real, he stressed.

Another major proposal is the offeringof alternative papers in two areas. Thefirst is financial services (banking andinsurance). Employers have told theICAEW their ACAs need these technicalskills. This module will be an alternativeto the existing Business Planning Taxmodule, be fully open-book, and run fortwo-and-a-half hours.

UK GAAP modules are also beingintroduced as an alternative on papersthat concentrate of IFRSs. With the vastmajority of PQs (90%) working on UKGAAP rather than IFRS this makespractical sense, say employers.

We asked Protherough if there mightbe more variants and he said yes.However, he also said he didn’t want tocannibalise the market. Although he isnot looking at anything specific he didmention the public and charity sectors,but felt, ultimately, it will be the marketthat decides where the demand will be.Whatever happens there will be just onedesignation – the ICAEW charteredaccountant ACA.

He also revealed that he has alreadytalked to the Student Council about someof these proposals. On balance, he feltthey gave him a green to amber light.There was still some concern about thespeed of typing needed and howspecialist modules might affect futurecareers, but the general consensus waspositive. Protherough promised to talk tostudents again at the end of April.

He and his team certainly have a busytime ahead! PQ

ICAEW PHASING TIMETABLE

A RECORD YEARPQ has a coffee and a chatwith the ICAEW’s executivedirector of learning andprofessional development,Mark Protherough

January 2016: Accounting style long-form questions forManagement Information and Principles of Taxation

March 2016: Implement CBE for Tax Compliance

March 2017: Roll out CBE for Audit & Assurance,Financial Accounting & Reporting & Financial Management

2018: Implement CBE for Business Strategy, BusinessPlanning Taxation, Corporate Reporting, Strategic BusinessManagement & Case Study

Protherough: talking with PQsabout taking theinstitute forward

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Iwas flicking through an old photoalbum with my wife at the weekendand she spotted a picture of me

with an ex-girlfriend. “Why are you on ayacht with Julia Roberts?” she asked.“You don’t need to worry, darling, it wasbefore I met you” I tried to reassure her.“I don’t care… you can sleep in thespare room tonight” was her response.“That’s a bit cruel,” I thought!

And that got me to thinking about the‘accruals concept’, one of the keyunderlying principles in preparingaccounts.

The accruals concept is also called the‘matching concept’ because it involvesmaking sure that you ‘match’transactions to the period that they relateto. For example, if I make a sale inDecember but don’t actually get paiduntil January, I will account for therevenue when the sale was actuallymade… in December. When I get paidfor the sale is irrelevant to when Irecognise the income.

Applying the accruals concept to expensesWhen working out the expenses figure tobe recognised in the profit and lossaccount, the key thing is to ensure thatyou are recognising the correct numberof months of expense. In a three-monthaccounting period we need to recognisethree months of expense. In a 12-monthaccounting period we need to recognise12 months of expense.

Setting up an accrualLet’s say a business started on the 1 January 2015 and has a year-end of31 December. The first accountingperiod is therefore 12 months long. Let’ssay that during this year the businessreceived three £300 telephone bills, eachcovering a three-month period (so £100per month). By 31 December 2015 theywould have recognised 3 x £300 = £900of telephone expense (this would be adebit in the telephone expense account).This is only nine months of expense sowe are not ‘matching’ enough expense tothe 12-month accounting period. We areshort by three months! The way werecognise the extra expense that isrequired is with an accrual. An accrual isa liability you owe to someone buthaven’t actually been invoiced for yet.

The reason this often happens is thatbills for many utilities are received ‘inarrears’, ie after the end of the periodthey relate to.

Let’s say that the final £300 telephonebill of the year (covering October to

December) is actually received inJanuary 2016. Even though the bill isreceived in the following year we need to‘match’ this cost to the period that itrelates to, which is the year ended 31stDecember 2015 as this is when thetelephone was being used.

To set up the accrual the double entryis:Debit – telephone expense £300, beingadded to the £900 already recognised.Credit – accrual £300, which is theliability owed to the telephone company.

This means the telephone expense forthe year ended 31 December 2015 isnow £900 + £300 = £1,200, which is afull and correct 12 months of expense.

Dealing with the accrual in the nextaccounting periodAs the accrual account is a balancesheet item (it is a liability) it will becarried down at the start of the followingperiod as a credit balance in the accrualsledger account. Since the invoice that weaccrued for is now going to be actuallyreceived we need to ‘reverse’ the accrualback out of the accounts. We do this byposting exactly the reverse double entryused to set it up:Debit – accrual £300 to get rid of it, aswe will now receive and pay the bill.Credit – telephone expense £300, as thebill being paid actually relates to the prior

16 PQ Magazine April 2015

PQ accruals

Gareth John explains the accruals concept, also called the ‘matching concept’ – and sets you a little exercise

LET’S GET TECHNICAL

year not this one. We are thereforecancelling the debit entry that would beposted to the telephone expense accountfor the bill being paid.

Why don’t you have a go at this example.When you have finished you can see metalk through my solution atwww.firstintuition.co.uk/category/aatFollowing on from the explanations abovethe business receives the followingtelephone bills in the year ended 31 December 2016:

In January – £300 for the periodOctober to December 2015

In April – £600 for the period Januaryto March 2016

In July – £600 for the period April toJune 2016

In October – £600 for the period Julyto September 2016

They then receive a £600 telephonebill for the period October to December2016 in January 2017.

Show the telephone expense andaccrual ledger accounts for the yearended 31st December 2016. • Gareth John is a tutor/director withFirst Intuition and helps to managetheir AAT distancelearning programme. He was PQ MagazineAccountancy Lecturer of the Year in 2011

PQ

Are you thinking about accruals?

No dear,we are aperfectmatch!

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Quality, Affordability, Employability

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ACCA Revision Course | Timetable May 2015

Lecture Timing 9.30am to 4.30pm

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• Pass rate: 38% (December 2014)• Technical difficulty: 9/10• Weighting of calculations: 40-50%• Weighting of discursive elements:

60-50%• Exam technique: 9/10

The syllabus .The P6 Advanced Taxation exam builds on F6and requires more in-depth study of areas seenpreviously. There is a strong emphasis onapplication of knowledge to real life scenarios, onthe interaction of taxes and tax planning.Communication of advice is also very important.

The P6 syllabus is broken down into four keyareas:

AApply further knowledge and understandingof the UK tax system through the study of

more advanced topics within the taxes studiedpreviously and the study of stamp taxes: Althoughthere are some new topics introduced at P6, itwould be very hard to pass the exam based onthese alone. A thorough knowledge of the F6content is also vital. Students must have a soundunderstanding of the basics of income tax,corporation tax, capital gains tax, inheritance tax,VAT and national insurance. Questions ofteninvolve almost entirely F6 knowledge, but testedin a more advanced way.

Stamp taxes are the only new taxes introducedat the P6 level, but represent a very minor area.

There is no guidance provided by the ACCAon the weighting of different topics in the exam,except that every exam will include an ethicalcomponent for approximately five marks insection A. Breadth of study is, therefore, veryimportant.

BIdentify and evaluate the impact of relevanttaxes on various situations and courses of

action, including the interaction of taxes: Mostquestions in the P6 exam involve more than onetax, often applied to the same transaction ortransactions. For example, the gift of an assetduring an individual’s lifetime may haveimplications for both capital gains tax andinheritance tax. It is important that students candistinguish between the different taxes,particularly in relation to the reliefs andexemptions available.

Questions may also require comparison ofdifferent options, for example: employed versusself-employed; setting up as a sole trader or acompany; taking a company car or a cashalternative.

CProvide advice on minimising and/ordeferring tax liabilities by the use of

standard tax planning measures: Tax planning isa key part of the P6 exam. Many questions willinvolve some sort of tax planning, especially thescenario questions in section A of the exam.

Popular tax planning areas include: planningfor groups of companies involving both lossesand gains; loss relief planning for sole traders;tax planning for married couples; inheritance taxplanning. Advice on tax efficient investmentssuch as the Enterprise Investment Scheme,Seed Enterprise Investment Scheme, venturecapital trusts and pensions is often required inthe exam.

DCommunicate with clients, HM Revenue andCustoms and other professionals in an

appropriate manner: As well as the practicalapplication of tax rules to client scenarios,students are expected to produce professionaldocuments incorporating helpful, clear advice.Question 1 in section A will require the answer tobe presented in a particular format such as areport, memorandum or letter and will have fourmarks available in respect of professional skills.The use of headings and a clear, logical formatwill help to obtain those marks.

Sitting the P6 exam .The P6 exam requires a sound knowledge of thekey rules and principles of all of the taxes as well

as an ability to apply these rules to sometimesunfamiliar scenarios. Question practice is vital,as the application of the rules is a skill that isbest obtained by experiencing as manyscenarios as possible.

Good exam technique is essential .Generally, the technical content of thecompulsory questions in section A is morestraightforward than that of the section Bquestions. Although students may prefer to startwith the shorter section B questions, they mustensure that they leave enough time to fullyanswer section A, as this is often where theeasiest marks are to be found.

The P6 examiner has noted that students tendto spend longer on the first question and seemto lack a sense of urgency, often resulting inpoorer performance in later questions. Studentsshould try to maintain their level of effortthroughout the exam.

It is very important to read the requirementcarefully, and answer only the question set.Revisit the requirement often to make sure thatall parts have been attempted and nothing hasbeen left out.

Finally, although the P6 syllabus may seemdaunting, remember that only 50% is needed toobtain a pass. • Helen Forster is a tax content specialist atKaplan Financial

PQ

18

PQ ACCA P6 paper

PQ Magazine April 2015

Helen Forster offers expert advice on passing P6 – a tough nut to crack

TECHNIQUE IS CRUCIAL

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20 PQ Magazine April 2015

PQ back to basics

Last month we learnt the importance ofknowing what is meant by economiccosts (also known as relevant costs) and

what is meant by accounting costs. Accountantsuse economic costs for decision makingpurposes – such as whether to buy a machine togenerate income – but use accounting costs forthe bookkeeping records that underlie thepublished financial statements.

Accountants should also know the differencebetween economic profit and accounting profit.Even if we ignore purely accounting costs suchas depreciation, economic profit does not equalaccounting profit because, like economic cost,its calculation includes opportunity costs. Theeasiest way to understand economic profit, againignoring purely accounting costs such asdepreciation, is that it broadly equals accountingprofit less opportunity costs.

The next activity will help you understand thedifference between accounting profit andeconomic profit.

Activity Pat gives up her job and an annual salary of£45,000 to start a new business in a verycompetitive industry. She draws £60,000 fromher savings account, giving up the opportunity toearn 3% annual interest, to start and operate thebusiness over its first year.

In the course of the first year the businessgenerates income of £85,000 and incursexpenses of £55,000.a) What is the accounting profit for Pat’sbusiness for the first year?b) What is the accounting rate of return for thefirst year on Pat’s outlay of £60,000?c) Why is the accounting rate of return verymisleading?d) What is the economic profit for Pat’s businessfor the first year?

Solution and feedbacka) The accounting profit is simply the income of£85,000 – expenses of £55,000 = £30,000.b) The accounting rate of return for the first yearis the profit of £30,000 as a percentage of theoutlay of £60,000 = 50% c) This high rate of return is very misleading asit ignores the opportunity costs involved in Patgiving up her job and the interest on her money.d) The economic profit is the accounting profitof £30,000 less all the opportunity costs involvedin generating such a profit. The opportunitycosts are the £45,000 salary and the £1,800interest (£60,000 x 3%) given up. Economicprofit is thus £30,000 – £45,000 – £1,800 = -

£16,800 i.e. a loss of £16,800.Pat’s accounting profit of £30,000 is actually

an economic loss of £16,800. This loss gives anindication of the real result of Pat giving up herjob and her savings to invest in the business. Itis only an indication because we need to takeinto account such factors as relevant taxes andfuture earnings and costs of the businessbeyond the first year. Nevertheless, the exampleabove shows the importance of includingopportunity cost in the real and relevant profit ofan investment.

The important final thing to remember is thatmainstream economics divides economic profitinto two types: normal profit and abnormal profit.Normal profits are the minimum profits thatcompetitive firms, such as Pat’s in our example,need to make to stay in their present line ofbusiness; namely, to cover their opportunitycosts, while abnormal profits are any profitsgreater than normal profits.

The idea in economic theory is that abnormalprofits should only be temporary, as anyabnormal profits in a perfectly competitiveindustry would soon attract new entrants. Newbusinesses would soon be attracted until pricesfell to the point at which no abnormal profits areleft.

Although the real world often does not behavelike economic theory all PQ accountants need toknow core economic concepts such asopportunity cost. When you are asked for the‘cost’ or ‘profit’ of anything (be it an investment,project, activity or accounting period) alwaysremember if you need to supply the accountingcost or profit, or the economic one. It’s notalways obvious! • Jonathan Winship is a lecturer at The OpenUniversity Business School and one of theauthors of The Open University ProfessionalCertificate in Accounting

PQ

Essential economicsIn part two of his guide to essential economics, OU lecturer Jonathan Winship looks at economic profit andaccounting profit. Part one on accounting cost and economic cost was in February’s issue of PQ magazine

Joseph Stiglitz, the American economist andprofessor at Columbia University. He is a recipient of the Nobel Prize in EconomicSciences (2001)

Ask yourself the followingquestions: How confident areyou? Are you sure about thetreatment of supplies,standard, exempt and zero-rated? Do not fall into the trapof thinking that a businessmaking wholly exemptsupplies can voluntarilyregister – it can’t. A businessmaking a mixture of suppliescan register, but may bepartially exempt, which affectsthe recovery of input tax.

Are you looking backwardsor forwards? There are two tests forcompulsory registration. The current VATregistration limit is £81,000, but applied in

two different ways. Don’t think of£81,000 as an annual limit but athreshold to be applied in twosituations. When looking at a growingbusiness, the taxable supplies of theprevious 12 months need to becompared with the VAT limit of£81,000. This is not an annual test,but looks at a rolling total of taxablesupplies at the end of each month.When taxable supplies for the previous12 months exceed the limit of£81,000, registration is compulsory.However, if the anticipated value oftaxable supplies for a business is

expected to exceed £81,000 in just the next30 days, then registration is compulsory. So£81,000 is applied in two different ways.

When can a business charge VAT? Only aVAT registered business can charge VAT.However, that means output tax is charged onsales and on capital transactions. Thinkabout this if you are dealing withincorporation, although that might constitutea transfer of a going concern which is outsidethe scope of VAT.

When should a business stop chargingVAT? If anticipated supplies for the next 12months are less than £79,000, a businessmay deregister. On cessation of trading, abusiness must deregister.• Cath Hall is an AIA Achieve e-tutor. The AIAAchieve team is producing a series of ‘A QuickLook at…’ articles throughout 2015. Morearticles can be found on the AIA website:www.aiaworldwide.com/a-quick-look-at

A QUICK LOOK AT... VAT REGISTRATION

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PQ De Montfort challenge

PQ Magazine April 2015

Lisa Wakefield, a senior accountancy lecturer at De Montfort University, challenged her students to write anarticle ‘suitable for publication in PQ magazine’. Here we publish an edited version of the winning entry byAhmed Dhada, Farhan Chohan and Amanveer Dhesi, who focused on problems within the world of audit

BE AUDIT YOU CAAs far as professions go, auditing has a

relatively simple purpose. Auditors actas independent examiners on behalf of

the shareholders and objectively assess whethera company’s financial statements and accountshave been properly prepared. Audits serve afundamental purpose in “promoting confidenceand reinforcing trust in financial information[and capital markets],” according to the ICAEW’s‘Agency Theory And The Role Of Audit’ report(2005), which is essential in a developedeconomy.

Recently, the auditing profession has comeunder much scrutiny. The financial crash of2007/08 raised questions on why the auditingprofession did not anticipate the possibility ofcollapse. None of the world’s recent largeaccounting scandals, like Tesco, Let’s Gowexand Olympus, were uncovered by the auditorsdespite these scandals taking place overmultiple years and slipping past multiple audits.Let’s Gowex was unique in that the fraud was

uncovered by Gotham City Research, anindependent analyst firm. So the question is:why have auditors become so inept?

One element of the profession criticised forleading it to its current state is the dominance ofthe Big 4 accounting firms and the oligopolythey hold. The firms are, in order of size,Deloitte, PricewaterhouseCoopers, Ernst &Young and KPMG. The Big 4 audits 99 of theFTSE-100 and 240 of the FTSE-250. BritishFirms on average stay with the same auditors for48 years. And some banks will only lend to firmsaudited by one of the Big 4. This has resulted ina lack of competition in the industry for the bigfirms, no incentive to improve services, a lack ofchoice and competitive pricing for thecustomers, and no opportunity for growth for anyaspiring audit firms offering services of highquality.

This has led to a decrease in the value of anaudit, “increased audit costs and a cosyrelationship between big company boards and

the senior partners of major audit firms”,according to Alan Millichamp and John Taylor’s2012 book ‘Auditing’, which might impede onthe objectivity and independence needed toproperly perform an audit.

The cosy relationship that hinders theauditor’s effectiveness is only amplified by theaudit firm’s ability to perform non-audit services.This only makes firms more familiar with theirclients, further impedes objectivity andindependence, creates a conflict of interest andleads to a neglect of audit duties. Whilecombined audit revenues have fallen by $5bnover the past five years, advisory fees havejumped by $16.1bn, with audit firmsincreasingly relying on consulting services fortheir bottom line. If an audit firm wanted to wina profitable, long-term consulting contract itwould become more hesitant to expose fraud ordo anything that would paint its client in anegative light, especially if they rely on thoseaudit fees. The Enron scandal highlighted this

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PQ Magazine April 2015 23

De Montfort challenge PQ

AN BE!issue. Enron paid its auditors $52m a year, overhalf of which was for non-audit services.

Many pieces of legislation have been enactedor proposed to strengthen the independence ofauditors. In response to the Enron crisis, theSarbanes-Oxley Act overhauled the US auditinglandscape, disallowing non-audit services toaudit clients and forcing the mandatory rotationof audit partners every five years. In Britain, theFinancial Reporting Council encouraged firms toput their audits out to tender every 10 years orexplain why they did not. This regulatorypressure has had a moderately positive effect;33 FTSE-350 companies have put their auditsout to tender since the recommendation, and 50more are expected this year. The EuropeanCommission is currently drafting a law thatwould make EU companies change auditors atleast every 10 years, or 20 if the audit was put totender directly, “after some auditors wereaccused of being asleep at the switch in thelead-up to the bank collapses of 2007-09” (‘EUdeal marks big step in auditor rotation reforms’,Sam Fleming, 2013). While this extracompetition is good for the industry andincreases confidence in audits, it is not enoughthat firms simply rotate between the Big 4. ThePublic Company Accounting Oversight Board, aUS non-profit body dedicated to the oversight ofauditing, found deficiencies in 32% of Big 4audits in 2011, and 36% in 2012. This isespecially concerning considering that the Big 4audited companies that made up 97% of thevalue on the US stock market.

Stricter regulation .The current European proposals are quite weakin comparison to those originally mooted, whichwere to break up the Big 4, disallowsimultaneous audit and non-audit services, forcerotations more frequently and promote jointaudits. These were severely watered down afterthe Big 4 lobbied the European parliament. TheBig 4 seem to be using their dominance andinfluence to maintain control of the auditindustry. It must be wrested from them.

Regulators should be far stricter. For a start,they should disallow audit firms from providingnon-audit services to an audit client, this goeswithout saying. The rotation rules are a lottrickier. The rules we would propose would befocused on levelling the playing field andcreating real competition in the industry. Wesuggest that it should be made mandatory torotate audit firms after a much shorter period oftime, say four years, and not allow firms to revertto a previously appointed auditor until a fixedperiod of time expires since their last auditengagement (say 25 years). This will stop largecompanies from rotating between the Big 4 adinfinitum, force the larger firms to eventually usenon-Big 4 auditors, break the oligopoly andintroduce real competition into the industry.

The only concern with this approach is the

fact that in the short term the quality of auditsprovided by non-Big 4 firms to largecorporations might be inadequate and of poorquality due to the fact that they might not beproperly equipped nor have the experience toaudit larger more complex companies. Tomitigate this worry, joint audits between Big 4and non-Big 4 audit firms should be heavilypromoted and incentivised by regulators byallowing joint audit engagements to last longerthan the standard four years. This will greatlyhelp prepare non-Big 4 auditors to audit largecompanies.

The Big 4 have also argued that a closerelationship only increases the value of the auditbecause of the familiarity the audit team willhave with the client firm, but the evidence forthis is scant. There is also a case to make forthe idea that making audits non-mandatorywould increase their reliability and quality. Ifstakeholders begin to see audits no longer asunnecessary red tape and as a genuine valueadding activity that attracts shareholders andcreditors, companies may take their selection ofauditors and the quality of services they areproviding more seriously, while auditors will workharder to provide genuine value, knowing theirindustry is no longer government guaranteed.

The Big 4 will be the most opposed to theseproposals since they have the most to lose. Butthey are necessary to improve the quality of andtrust in the audit, and abate the criticisms thatare currently levied against the profession. Hadthe auditing industry been properly reformedearlier it is likely that some of the larger recentaccounting scandals would have been caughtearly or even prevented. The economicrecession, on the other hand, could not havebeen foreseen or prevented by the auditorssimply because it was not their duty to. Anauditor’s duty is to assure the shareholders that

the accounts have been prepared properly inaccordance to the relevant accountingstandards. This has caused much discussionabout expanding the auditor’s duties to increasethe value they offer, not just the shareholders,but to society at large.

The most discussed expansion would be toinclude a duty to detect fraud. As it stands,external auditors were only responsible for 4.6%of fraud detection in 2010 and 3.3% in 2012.The argument stands that auditors would morediligently look for fraud, and find it, whilepotential fraudsters would be encouraged toreconsider their folly, knowing they were morelikely to get caught. Another idea, put forward bythe ACCA, called for a widening of the “scope ofthe audit [so that it includes] engaging withclients on issues such as risk management,corporate governance… an organisation’sbusiness model and its likely sustainability”.

Consultancy role .While this would further serve the interests ofstakeholders at large, it would also push auditorsinto more of a consultancy role and lead to theaforesaid neglect of audit duties and destructionof independence that we are attempting tostrengthen and preserve. The Institute ofChartered Accountants of Scotland have gone inthe opposite direction. They recommend that theduty of the external audit should be vastlydiminished and outsourced to internal auditors.There seems to be no consensus on where theindustry should be going.

Whatever regulators choose to do, reformsmust be made. The fundamental purpose of anaudit is to provide independent assurance, andit currently is failing to do so. The reliability ofand trust in the audit must be improved,otherwise people will begin to ask: what’s thepoint? PQ

Big 4 concerns: top De Montfort students Ahmed Dhada, Amanveer Dhesi and Farhan Chohan

Redpix P

hotography

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PQ exam skills

PQ Magazine April 2015

Improve your answer bookletCurrently, most accountancy exams –

apart from computer-based ones –have to be answered in booklets

which are then scanned and marked byhumans on a computer. Examiners andmarkers alike constantly criticise the layoutand quality of students’ scripts.

Accountancy exams are professional andtherefore answers need to look professional,but with time pressure in exam conditionsthis key requirement is often lost.

It is essential to follow a few easy ruleswhich will help the marker when markingyour script:• Always use a black ballpoint pen. This isbecause all scripts are scanned and the bestcolour to show up is black. A number ofstudents insist on using gel pens but oncescanned the marks made by them cansmudge and even go through pages,affecting what’s underneath.• Never write in the margins. One side is cutoff by the scanning machine and the otherside is where the marker annotates theallocation of marks awarded.• Abbreviations are totally acceptable inworkings, but workings themselves need tobe followed, so a little narrative is required tomake them logical. Ensure you space themout sufficiently, and all workings should be

numbered and answers crossed referenced tothem.• If for some reason you have not left enoughspace for something, then help the marker bycross referencing to the page where you havecompleted the rest of the answer• All questions should start on a new page andyou should aim to start each part of a questionor each issue (if applicable to the question) ona new page.• Make use of subheadings. This makes youranswers automatically more logical and mucheasier to mark. If the requirement or thequestion numbers different parts, eg a), b) or(i), (ii) then use the same numbering in youranswer• If your handwriting is small you need to aim towrite as large as you can. When your script isscanned it is reduced in size to accommodatethe marking package which takes up a third ofthe marking screen. Yes, the marker can zoomin, but then they are unable to view a completeline of text.• If you know you have untidy handwriting thenwrite using double spacing (that is write onalternative lines).

The key to success in exams is to haveanswers that look professional – that is includestructure, space and subheadings. • Jenny Winstanley, Reed Business School

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ICAEW focus PQ

Like all assessment bodies, ICAEW isrequired to make reasonable adjustmentsfor students under the Equality Act 2010;

we call these ‘access arrangements’ and they arechanges to the way we deliver the exam or to theexam environment. Access arrangements ensureall students can demonstrate their knowledge,skills and experience on a level playing field.Access arrangements arise from “physical ormental impairment that has a ‘substantial’ and‘long-term’ negative effect on your ability to donormal daily activities’’. This includes specificlearning difficulties such as dyslexia, and physicalimpairments that directly impact the ability towrite, for example. However, many people I talk toare surprised by the range of differentcircumstances and adjustments that come underaccess arrangements; I would encourage anyonewho thinks they might be eligible to get in touchwith us.

All the information you might need as astudent in relation to access arrangementrequirements is on our website; the guidanceand forms are available with embedded text-to-speech PDF functionality, and we have a teamwho can answer all your questions onarrangements – [email protected]. We can alsooffer adjustments for some circumstances thatfall outside the Equality Act 2010; we do this tohelp students who have short-term issues thatmight otherwise stop them being able tocomplete their exams.

Case-by-case basis .At ICAEW we are proud of our inclusiveapproach and we deal with access arrangementson a case-by-case basis, so if you think you needarrangements it will be your specificcircumstances we’ll consider, and we won’taward you something that’s inappropriate justbecause it worked for another student. We mightlook at what your employer provides for you inyour job, because what’s effective in supportingyou in the workplace is often the best approachfor an exam environment. Where thearrangements we’ve agreed are complex we’llarrange to speak with you – and your employeror tuition provider if needed – to talk throughexactly how things will work on exam day.

The arrangements we’ll agree to provide canvary according to the type of exam you’re sitting;for example, some students might need acomputer when sitting the essay-basedexaminations, but don’t need any adjustmentsfor the Certificate Level. The arrangements alsoneed to be reasonable and we need to ensurethat they are fair and that no student might havean advantage; our application process has roomfor dialogue to ensure we’ve fully understood

your circumstances, and this means that wetreat your application individually while ensuringany arrangements we agree will be in line withother students with comparable circumstances.

We’re always striving to improve our offer tostudents who need access arrangements. Forexample, some students are now takingadvantage of our ability to support computerswith text-to-speech software enabled in essay-based exams. Unlike some other bodies, we’realso able to offer paper versions of our electronictests where this is reasonable, and we’reintending to continue to do this in future whenwe put more exams onto computer.

Moving forward, we’ll continue to ensure that

students’ needs are met through reasonableadjustments to our examinations.

In our guidance document we give more detailon questions such as those below:• Who can apply for access arrangements?• What access arrangements are available?• Are access arrangements available at all

venues?• How do I apply for access arrangements?• How and when do I apply, and what

information do I need to include?• How long will the process take?

For more visit icaew.com/aaguidance • Richard Eckersley, Senior AssessmentManager, ICAEW

PQ

ICAEW’s Richard Eckersley describes the institute’s access arrangements

ACCESS ALLAREAS

For the latest issue see issuu.comNQ magazine is an e-mag for newly qualifieds who want to get aheadAll the back issues are available too – type NQ magazine into www.issuu.com

Sign up today via the PQ magazine website – www.pqmagazine.co.uk

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The emphasis of this article is to provide relevant information aboutthroughput accounting (TA) to F5 students, explaining whatconcepts are involved in TA and how these can be applied to

exam questions.TA is a very popular F5 exam question generally covered in section A,

but it also gets addressed in section B at times. TA is a decision-makingaccounting model applied by management accountants when theorganisation is facing certain limitations of its resources. When suchconstraints arise – due to lack of supply of materials, limited availability ofskilled workforce or limited capacity of plant and machinery – TAemphasises resource allocation to products on a priority basis.

Therefore, the primary aim of TA is to utilise organisational resourcesmost efficiently and to maximise profitability. In the profit-making sectorthis preference is developed on the basis of the profitability of eachproduct, whereas in non-profit organisations the preference may be basedon organisational aims, the nature of the job, urgency to deliver or eventhe legal aspects involved.

First off, here are some important definitions/formulae involved in TA,which would lead us to apply TA in the larger interest so as to maximiseprofitability and efficient resource utilisation.

Theory of constraints (TOC) .As per TOC, an organisation must identify its system bottlenecks andexploit these bottlenecks in the short run. In the long run, it must findways to eliminate such bottlenecks, in order to improve performance. Thefollowing basic concepts play a vital role in TA questions.Throughput = Sales revenue – material cost

Return per bottleneck hour = Throughput per unit Hours on bottleneckThroughput accounting ratio (TPAR) = Throughput Return per bottleneck hour Factory costs per bottleneck hour

COMPARISON TO MARGINAL COSTING

Marginal Costing Throughput AccountingFocus on...... Contribution ‘Throughput return’Contribution = Selling Price – Variable Cost Selling Price – Material costVariable costs = Materials, labour, variable Materials

overheads

With the exception of materials, all other costs are treated as fixed inthroughput accounting.

Bottleneck resource: This is a resource (quantity of materials, or labourhours or machine capacity) which has the most shortage in the short runcompared to other resources, which then limits the production process toachieve its maximum output. In other words, it is a resource with lowestcapacity (availability) as compared to other resources at present whichrestricts maximum utilisation of other resources.

As I mentioned earlier, the primary aim of TA is to efficiently utilise thesystem bottleneck in order to improve performance. There are a series ofsteps that need to be to be applied in order to achieve this aim. These areas follows – remember that due to reduced marks in the current examstructure, all steps may not be examined from one question, but you mustbe well prepared to get a good grip on the topic:1. Identify the bottleneck resource (if not indicated in the question).2. Calculate the throughput return/unit for each product.3. Calculate the throughput return/bottleneck hour for each product.4. Rank the products based on throughput return/bottleneck hour (thehighest ranking product will be the one with the greatest return/factoryhour). 5. Calculate the optimal production plan. Allocate the bottleneck resourceto each product based on the ranking established. Production of a productshould not exceed the maximum demand for that product.

Remember, the examiner may specifically ask you to calculate thethroughput accounting ratio (TPAR), and then on the basis of throughput

accounting ratio she may require you to develop the ranking order. Thesimilar principle of higher the TPAR, better the product is, applies.

IllustrationAlphaBeta Ltd makes two products, the Alpha and the Beta. The factory isopen five days a week for 50 weeks of the year. AlphaBeta’s machines canonly work on one product at a time. The two products pass through twodepartments, using some skilled and some semi-skilled workers. Thelabour times needed in the departments are:

Minutes per unit of product Alpha BetaMachine 1 12 15Machine 2 18 12

It is difficult to recruit staff to AlphaBeta and so they can only utilisecurrent staff, who are available for a maximum of 1,440 minutes onMachine 1 and 972 minutes on Machine 2 per day. Total factory costs forthe year are $250,000 as per budget.

The current selling prices and costs for the two products at AlphaBetaare:

Alpha Beta$ per unit $ per unit

Selling price 45.00 50.00Direct materials 8.00 17.50Direct labour 6.00 6.60Variable overheads 3.10 7.50Fixed overheads 8.33 10.42Profit per unit 19.57 7.98

From this illustration a number of questions can be set up by the F5examiner. First of all we are not told which machine is the bottleneck,therefore we can aim to determine the bottleneck resource first. This canbe determined by calculating maximum capacity of each machine.

Machine 1Alpha volume per day = 1,440 minutes per day

12 minutes per unit= 120 units per day

Beta volume per day = 1,440 minutes per day15 minutes per unit

= 96 units per day

Machine 1 can either process 120 units of Alpha or 96 units of Beta perday.

Machine 2Alpha volume per day = 972 minutes per day

18 minutes per unit= 54 units per day

Beta volume per day = 972 minutes per day12 minutes per unit

= 81 units per day

Machine 2 can either produce 54 units of Alpha or 81 units of Beta perday.

For both products, machine 2 has lower capacity than machine 1, whichmeans that if machine 2 can finish any daily production target, machine 1can easily finish that job; therefore machine 2 would be described as thebottleneck.

Remember! Once bottleneck resource has been identified, all decisionsmust be subject to the bottleneck in the question.

From the information provided, the examiner can ask to determineranking order of each product.

26

PQ throughput accounting

PQ Magazine April 2015

Hafeez Qazi explains how you can cope with throughput accounting questions, which frequently occur in F5

AVOID THE BOTTLENECK

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throughput accounting PQ

Alpha BetaThroughput return per unit (SP – DM cost) $45 – $8 = $37 $50 – $17.50 = $32.50

÷ Bottleneck (machine 2)time per unit 18 minutes 12 minutes

Throughput return per minute $2.06 $2.71

RANKING ORDER 2nd 1st

Another short question for section A or a requirement for section B can beto determine optimum product mix. Always remember to calculateoptimum (profitable) product mix by allocating the bottleneck resourceusing ranking order.

Time available per day on Machine 2 972 minutesBeta (1st ranking product first) (12 minutes x 81 units) 972 minutes

Another question to be asked can be to calculate throughput return ormaximum profit from the optimum production plan.

Throughput from Beta per unit is $32.50; therefore 81 units per daywould make up $2,632.50 per day.

Total factory costs are $250,000 per annum, and there are 250 days peryear (50 weeks x 5 days/week); therefore factory costs will be $1,000 perday. So maximum profit will be $1,632.50 ($2,632.50 – $1,000) per day.

From the information provided, TPAR of each product can becalculated, which then can also be used to rank the products.

Throughput Accounting Ratio = throughput return per minutefactory costs per minute*

* remember TPAR can be calculated either per minute, per hour or evenper day.

TPAR = $2.71 per minute = 2.63$1.03 per minute

* Factory costs $1,000 per day/972 minutes bottleneck time per day

Note: all the above can be examined in section A or can easily be mergedin various requirements of section B longer question.

• Hafeez Qazi is an accountancy lecturer at LSBF. In 2014, he wasnamed Accountant of the Year by the Association of InternationalAccountants

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PQ ACCA learning conference

PQ Magazine April 2015

WHAT DO ACCA EXThe examiner started his presentation bylaying out the new format of F7.

Section A has 20 two-mark MCQs, whichare computer marked. Section B, whichcontains the ‘core’ part of the previousformat, consists of two 15-mark questionsand one 30-mark question which areprofessionally marked.

He stressed that the MCQs in section A willcontain a mix of both narrative andcomputational questions. His only specificguidance is that the 30-mark question will beconsolidation or preparation of a single entityfinancial statement from a trial balance.

Looking at candidates’ performance inDecember 2014, he felt the pass rate (43%)was in line with recent diets and the long-term average. Most candidates are answeringall the questions and he said there was agood correlation between section A and B –so those who scored well in section A alsoscored well in section B.

Section A problem areas The examiner wants candidates to read theMCQs very carefully, particularly therequirement. There is also some evidence ofpoor time allocation in this section.

Specific topics that candidates struggledwith this time around were Q3 (NCA historiccost versus current cost) and Q19 (financeand operating leases).

He wants PQs to avoid thinking that theMCQs are easy. The new format also meansit becomes even more critical to learn thewhole syllabus. Candidates must alsounderstand the mark allocation – you get twomarks or nothing! There are no marks for

getting things partly right here. So read eachof the choices carefully before you opt for theanswer. Oh, and you can guess if you can’twork it out!

Section B problem areasHere the examiner pointed out the usualproblems such as repetition, poor workings,candidates not interpreting ratios and illegiblehandwriting.

When it came to Q1, students had tocalculate ratios and interpret them.Candidates made elementary mistakes in theadjustments. They also calculated additionalratios not asked for and as always

interpretation was poor, with many not usingadjusted ratios.

Q2 was on single entity financialstatements. Answers often had no scheduleof adjustments (just workings). The statementof financial position was, however, answeredwell.

Q3 (a) covered consolidation of statementof comprehensive income and financialposition. Part (b) was on recognition ofintangibles. Part (a) was done well, but acommon mistake was on determination ofpre-acquisition profit. In (b), manycandidates did not recognise the ‘list ofcustomers’.

Changes for September 2015IFRS 15 Revenue replaces IAS 18 Revenueand IAS 11 Construction Contracts:• There is some new terminology here, butno real change to underlying treatment(construction contracts). • F7 will not examine variable consideration. • Learning outcome B10 has been re-writtenin accordance with IFRS 15.• Look out for the IFRS 15 technical articlesproduced by the examining team.New version of IFRS 9: • Business model and contractual cash flowsapproach to classification.• New classification for (some) debt.• Fair value through other comprehensiveincome. • With the exception of an impairment ontrade receivables, the calculation ofimpairment losses will not be examined.However, the accounting treatment of animpairment loss is examinable.

With a pass rate of 83% lasttime out it is hardly surprisingthe examiner believes studentsfind this a prettystraightforward paper. He seesit as a ‘gateway’ paper, openingthe door to new concepts forACCA PQs.

Candidates’ strengthsGenerally, candidates are goodat syllabus areas A, B and C; itis in D, E and F they do not doso well.

Trainees seem to cope well

with the easier theories –Maslow, Blake, stakeholders,Porter and Fayol.

Ethical threats and corporatecodes are new areas where theyalso excelled.

Candidates’ weaknessesGenerally, candidates don’t doso well in part B topics such ascorporate governance andsustainability.

They struggle with ethicalprinciples such as publicinterest. But, perhaps more

worringly, they don’t seem toknow what GAAPs and IFRSsare!

Candidates also find someHR topics difficult, particularlythe more complex theories andthe whole area of appraisal.

The examiner’s advice is toattempt all the questions(seems pretty obvious). But hepleaded that students don’t tryto choose answers that simplydo not exist! Some are actuallymaking up their own answerrather than choosing one of the

ones provided. Some put Dwhen the options are A, B or C.

Too many are also using thedefault sequences, putting A,B, C and D.

A candidate’s knowledgeneeds to be broad but shallow;they have to know ‘something’about all the topics. Thismakes question spottingimpossible.

The examiner also stressedthere are no trick questionsand that your first instinct isoften right.

PQ magazine recently attended both days of the ACCA Global learning providers’ conference in London,giving you a unique insight into what you need to do to get a pass straight from the horse’s mouth – theexaminer. This month we cover four sessions – F1, F7, P1 and P2. We have more insight next month

F7 Financial Reporting

F1 Accountant in Business

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ACCA learning conference PQ

XAMINERS WANT?The P2 examiner is clearly worried about an‘expectation gap’ between what heexamines and what tutors think he willexamine. However, he stressed that this wasnot a closed area and he wanted to gaugeviews, promising he is never upset byconstructive criticism!

Section A of his exam is the compulsory50 marker. He felt there was no patternhere, but it will always cover groupaccounting. He told the packed seminarthat foreign currency may be in section B(see June 2014) and that if group cash flowis in section A then he ‘may’ test theprinciples of group accounting in part b. Soyou have been warned. Candidates can alsoexpect to see ethics in question 1b.

The examiner pointed out that how well acandidate does in section A normallydetermines if they get a pass or a fail. So ifyou can achieve 25–30 marks in thissection you will normally achieve a pass.

For section B, candidates have to answertwo out of three questions, worth 25 markseach. Again, he felt there was no pattern tothis section, although he revealed he usesmostly real scenarios. Questions here willalso cover a variety of IFRSs. He advisedsitters to read professional pronouncementsand regulators’ reports and take a look atspecific industry issues and companyreporting.

The examiner said that candidates seemto be taught by standard, and consequently

find it difficult to apply principles. Hewondered then if the solution is to teach byprinciple!

As a guide, he also said that, generally,there is one mark per valid point availablein his paper. The examiner said that it isprobably the most important thing he wouldsay that day. During the discussion wediscovered that the F7 examiner goes downto 0.5 marks.

Another concern is candidates’ mathsskills, which he has found to be generallyquite poor. Some base knowledge appearsto be lacking here.

The examiner emphasised that althoughhis paper is perceived to be difficult theactual pass rates are stable; it was 50%last time around.

Changes for September 2015• Updates to examinable documents.• IFRS 15 replaces IAS 18 and IAS 11.• Construction contracts no longer excludedfrom P2.• IFRS 9 fully examinable.• List of EDs updated.• Current issues outcome (H3 9a)) re-written.

This examiner has been the sameone since the start of thissyllabus, being appointed inJanuary 2006. He started hispresentation by showing the passrates since December 2007,revealing a mean pass rate of50.9%. One eagle-eyed tutorquickly pointed out his December2014 pass rate was 52% ratherthan the 53% he used to get tothat mean.

He stressed there are four‘musts’ for this exam: • Must revise the whole syllabus –question spotters are usuallywrong.• Must work through previousexams and study model answers.• Must obey the verb.• Must study the case if required by therequirement (and it usually is).

A typical ‘issue’ for candidates in the P1

exam is the failureto revise the wholesyllabus, said theexaminer. Thereare also problemswith not locatingthe answer interms of the case(which is a usualrequirement in P1exams). Many PQsprovide ‘trigger’answers. They seea word and thenwrite about thisregardless of whatthe question says.

Time budgetingis always crucialfor this test and

the examiner feels that students shouldanswer their strongest question first.Planning the answer before answering is

another key to success. And get yourgrammar sorted. “If it says explain itdoesn’t mean define,” he said.

Interestingly, in the Q&A session thatfollowed some tutors felt the move toshorter questions in F5 to F9 may have animpact on this paper’s big 50-marker. “TheACCA has got to be aware that this paperbecomes a big step up in the future,” saidone top tutor.

The discussion then went on to look atwhat makes a good answer. He revealedthat one marker received 17 additionalanswer booklets from one candidate! Yetthe examiner pointed out that you don’thave to write a lot to get a pass – youranswer just needs to be focused. If thereare four marks available for discussing theadvantages of having non-executivedirectors then the examiner said you shouldstop when you have made four points.That’s basic exam technique, which shouldhave been mastered by P1.

P2 Corporate Reporting

P1 Governance, Risk and Ethics

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Apprentice schemes are proving anattractive option for young people andquite often providing an alternative to

the university route, as they allow young peopleto earn while they learn instead of getting intodebt. They offer the opportunity to move into theworld of work, to learn on the job as well as inthe classroom, and take home a salary whilethey are doing it. Apprentices can be confidentthat they will save money while they train andthat, once they have completed theirprogramme, they will be equipped with skillsthat are highly applicable to the workplace andmatched with vital on-the-job experience.

Not only are apprenticeships appealing tothose young people looking for an alternative toroutes such as university, they offer greatbenefits to employers too. Government figuresshow that, in the 2013/14 academic year, therewere 440,000 apprenticeship starts in England,proving there’s a large appetite for the schemesamongst employers and young people. Takingon an apprentice can really benefit organisationsin all sectors and of all shapes and sizes, as itfacilities a cost-efficient increase in head count,

whilst ensuring apprentices’ skills are developedto meet specific organisational requirements.

The public sector finds itself in an era ofincreased austerity and transparency and acadre of well-trained finance employees are

more important than ever for business success.Having a team with the right skills is vital forallowing organisations to meet the challengesthey face today. Apprenticeship schemesprovide a cost-effective way of allowing publicsector employers to extend their workforce andincrease their efficiency, whilst also trainingsomeone to suit their organisational needs andallowing them to plan for the businesschallenges of the future.

CIPFA is in its second year of providing afinance apprenticeship scheme. The one-yearprogramme helps public sector organisationsrecruit level 3 AAT qualified or equivalentapprentices, pre-screened by CIPFA’srecruitment team. The apprenticeship scheme isnot only limited to young ‘career starters’, it’salso open to more mature applicants who maybe looking for a new opportunity or change indirection, and who can demonstrate the rightentry criteria. CIPFA not only handles therecruitment process, it also manages payroll andtraining, allowing employers to focus onnurturing new talent within their organisationsand the apprentices on gaining valuable workexperience while studying for the AAT Level 4qualification.

CIPFA are holding information sessions foremployers and prospective apprentices inBirmingham, London and Manchester duringMarch and April. • For more information on the events and thescheme, visit: www.cipfa.org/apprenticeships,email [email protected] or call theEmployer Relations team on 020 7543 5757

PQ

30

PQ CIPFA spotlight

PQ Magazine April 2015

The CIPFA’s Finance ApprenticeshipScheme has many advantages overtraditional paths into the profession

NUTURING TALENT

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31

disposal of assets PQ

PQ Magazine April 2015

A matter of recordAccounting for the disposal of assets is a competence that needs to

be developed by both AAT and ICB students. The topic isincluded in AAT’s Level 3 Diploma in Accounting, Accounts

Preparation 1 and ICB’s Certificate in Bookkeeping and Accounts (Manual)at Level 3. More complex tasks on this topic are likely to be included atLevel 4.

When recording transactions in the general ledger for an asset disposalthere are a number of factors to consider:• The original cost of the asset disposed.• The accumulated depreciation associated with the asset to-date.• The proceeds from the sale of the asset (remember that this can beeither funds received or a part exchange value).• The profit or loss on disposal.

The case study that follows illustrates various aspects of accounting forfixed (non-current) assets, their accounting treatment over time and theprocedure in handling a disposal of an asset.

Ernie Heyes is an agricultural contractor operating in North Yorkshire.He commenced in business on 1 January 2011, at which time he invested£120,000 in plant and equipment.

He has adopted a policy of depreciating his plant and equipment at arate of 20% straight line and he depreciates his assets in the year ofpurchase but not in the year of sale.

At the 1 January 2014 his general ledger showed:

Plant and Equipment at Cost

Provision for Depreciation Plant and Equipment

namely: £120,000 x 20% for three years. = £72,000

On 1 December 2014 he disposes of an item of plant, purchased on 1January 2011 that had cost £12,000 and receives a cheque for £6,000 onits disposal.

We now need to record this transaction and to determine whether thereis a profit or loss on the disposal of the asset.

We need to open a disposal account and debit it with the original cost ofthe asset and show this asset being transferred from the Plant andEquipment Account at Cost.

Disposal Account

Plant and Equipment

Then we need to take account of the depreciation written off the asset tothe point of disposal. This will be, considering his policy, three years at20% per annum on £12,000 = £7,200; and therefore the net book valueof the asset at the point of disposal is £4,800 (£12000-£7200).

We would then Debit the Provision for Depreciation Account on Plantand Equipment and Credit the Disposal Account with the cumulativedepreciation to date.

Disposal Account

1 Dec Plant & Equipment 12,000 1 Dec Depreciation Provision 7,200at cost Plant & Equipment

Provision for Depreciation on Plant and Equipment1 Dec Disposal a/c 7,200 1 Jan Balance b/d 72,000

Finally, the proceeds need to be recorded as: Debit the Bank and Creditthe Disposal account. At that point we can then balance off the DisposalAccount to determine the profit or loss on disposal of the asset.

Disposal Account1 Dec Plant & Equipment 12,000 1 Dec Depreciation Provision 7,200

at cost Plant & Equipment 31 Dec *Profit & Loss 1,200 1 Dec Bank 6,000

account£13,200 £13,200

* This represents a profit on the disposal of the asset as:

Proceeds £6,000 less the Net Book Value of the asset £4,800 = £1,200.This would be transferred at the end of the accounting period to the profitand loss account/Income Statement.

The above example assumes that there were no other disposals in theyear. Please also note that the Depreciation charge for the year would bebased on (£120,000-£12,000)* 20% = £21,600 and would be dealt within the year end procedures. • Dr Philip Dunn is an education and training consultant

PQ

Philip Dunn explains the principles behind the disposalof assets, a subject students must get to know well

1 Jan Balance b/d 120,000

1 Jan Balance b/d 72,000

1 Jan Balance b/d 120,000 1 Dec Disposal a/c 12,000

1 Dec Plant & Equipment 12,000at cost

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PQ Magazine April 2015

PQ careers

The workplace: building your networkKaren Young offers advice onhow to build your personalbrand online and in person

Networking can be a useful tool for those looking for achange of job or to advance their careers. Meetingpeople through events is one of the most beneficialforms of networking if done effectively, although it is, ofcourse, possible these days to utilisesocial networking sitesand other onlinechannels, too.

There are now moreevents available than everbefore for financeprofessionals so you needto pick and choosecarefully. Try connectingwith your local institutebranch network, as you willfind there are events goingon in your region throughoutthe year. The ICAEWregularly hosts regional business updates with guestspeakers from banks and economists, in addition toquiz nights, bowling, annual awards and dinners, whereyou can broaden your professional network. The ACCA,CIMA, ICAS and AAT host similar events.

When you attend a networking event it is important topresent yourself professionally; people you meet will beyour peers, recruiters, potential clients or employers soalways remain professional. It is important to introduceyourself to new people when networking; if somethinglike this makes you nervous, practice conversationstarters about the theme of the event, recent industrynews, or use easy conversations starters such as: wheredo you work? Did you attend last year’s awards?

If there are specific people that you are looking tomake contact with at an event, checking the table planfor their name to introduce yourself is a great way to put

names to faces. So you can follow up and maintainyour network, keep business cards handy andexchange these so you have all contact information too.

After networking offline, keeping in contact after theevent by phone, email or social media shows peopleyou have remembered them but are also interested inkeeping in touch. Developing your online network maynot be your priority when you’re busy studying for

exams, but there are simple stepsyou can take to make sure you aremaximising your online networkingpotential.

Firstly, set up a professionalnetworking profile on a site suchas LinkedIn with a clearbiography using key wordssuitable to your accounting field.After this, be sure to connectwith your network followingmeetings to maintain therelationships that you have justforged. Find LinkedIn groups

to join where you will besurrounded with like-minded professionals.

Once you are online and start to network, there areno geographical boundaries to hold you back. In thedigital age, where everyone is on the go and schedulesare tight, it can be difficult to attend all the events youwould like in person. Online networking can be theperfect back up and sometimes a successful way to pinpeople down.

It’s important to consider that whilst establishingyourself within the accounting profession, making face-to-face contact cannot be underestimated and facescan be far more memorable than names. Using onlinenetworking to compliment this and maintainrelationships can offer you the best of both worlds.

For more information and access to job opportunitiesvisit www.hays.co.uk/accountancy• Karen Young, Director, Hays Accountancy &Finance

32

The PQ Book ClubEVERY MONTH WE REVIEW THEBOOKS YOU SHOULD BE READING

Winners and how they succeedby Alastair Campbell (HutchinsonRandom House, £20)As a former spin doctor for one Tony

Blair, and akey architectof NewLabour’s threesuccessivegeneralelection wins,Campbellknows a greatdeal about thewinning‘mindset’. Inthis book he

sets out to discover others’ secrets ofsuccess; his interviewees includeFloyd Mayweather, Anna Wintour,José Mourinho and Albanian PM EdiRama among others. With them hediscusses his three planks of winning– objective, strategy and tactics, orOST, as he calls them. Key tosuccess, says Campbell, is identifyingyour objective, then devising astrategy to achieve that goal, anddevising tactics to help drive thestrategy. Too many people – evenhigh-powered business and politicalfigures – confuse the strategy withthe tactics, says the author. Toexplain it, Campbell uses theexample of dieting: “It’s not difficultto turn a vague ‘I want to lose weight’into a campaign with a clear O, S anda credible set of T. Objective: lose 10kilos. Strategy: diet (eat less, exercisemore). Tactics: record calorie intakeand exercise output; visualise thinnerme, possibly with photos on fridge;use stairs not lift; join up with otherdieters. Expressed like this, a realsense of purpose is injected into whatis being planned.”

There are some surprises here, too.Campbell is astonished at how manyof the top people he spoke to weredriven more by a fear of failure. Topcycling coach Dave Brailsfordsummed it up: “I hate losing morethan I love winning,” he said. It’s atheme that constantly recurs.

One criticism of this book is thatwinning is defined in materialistic andstatus terms, a Thatcherite conceitthat’s somewhat ironic givenCampbell’s left-of-centre credentials.There are, after all, other ways ofachieving – and defining – success.What price happiness?

On the plus side, this book is verywell writen, and divided into easilydigestible chunks, and it’s chock-fullof fascinating insights.PQ rating: 4/5 The big lesson here isthat you devise your own OST.

Stephen Field is the college’s AAT Course Coordinator. AAT and ACCA qualified, he hasworked at the college for eight years, having started his career in banking. Stephen wasnamed PQ magazine’s public sector Lecturer of the Year at our recent awards night

Life at Stockport College

What time does your alarmgo off on a work day? 6.15am.What’s the first thing you dowhen you get to your desk? Check my emails.What’s on your desk? PC andan in-tray with my ‘to do’ list.What’s the best thing aboutwhere you work? The students– such a variety of characters.Where’s your favourite placeto go for lunch? I’m married to agreat cook, so lunch is alwaysbrought from home.What can you see when yousit at your desk? The Penninesin one direction, and ManchesterAirport in the other.Which websites are yourfavourites and why? No realfavourites, just what takes myinterest at the time.Which websites do you use

for work? AAT, PQ Magazine(study zone), ACCA/CIMA.How many hours a week doyou spend in meetings? Asfew as at all possible,unless they directlyaffect what I do Iavoid them like theplague. What time do youleave the office? Iteach in the evenings,so often it is 9pm, and then I havea one-hour journey to get home. How do you relax? Going to thepub with my wife Amanda, andgoing out with friends.What’s your favourite tipple?Real ale – I attend as many beerfestivals as I can.How often do you take workhome with you? Every day – Itravel by train, so I get preparation

work done. I’m always working ona way to explain something to astudent in a clear manner.Anybody who teaches will knowthat to be successful 37 hours is

merely the start point.What is your favourite TVshow? History and comedyprogrammes – a sense ofhumour is essential in my job.Summer or winter? Summer.Pub or club? Pub, as anybody

who knows me will testify. Somany good beers to try!Who’s your hero? John Lennon.If you had a time machine,where would you go? To thefuture to see how my sons havedone for themselves, and to seehow the world has changed. If you hadn’t chosen teachingaccountancy, where mightyou be ? A sports statistician.

pq apr 15 p32 CCM.qxp_pq oct07-p31 11/03/2015 11:47 Page 31

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033_PQ 0415.qxp_PQ 1209 000 05/03/2015 11:04 Page 7

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I need to findpqjobs.co.uk now!

PQ jobs pqjobs.co.uk

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WE’RE BIG IN FINANCE YOU CAN BE TOO

© Copyright Hays Specialist Recruitment Limited 2014. HAYS, the Corporate and Sector H devices, Recruiting experts worldwide, the HAYS Recruiting experts worldwide logo and Powering the World of Work are trade marks of Hays plc. The Corporate and Sector H devices are original designs protected by registration in many countries. All rights are reserved.

hays.co.uk/pq

Hays specialises in part-qualified recruitment, working with leading organisations

to ofer you access to a wide range of jobs across the UK. With many years’

experience of recruiting for accountancy and finance jobs, we currently have

over 700 vacancies for part qualified accountants in the commercial and public

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• Be the first to hear about PQ jobs

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Resources, hints and tips for Part-Qualified Accountants

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WHAT HAPPENEDTO YOURS?PQ magazinegiveaways and quizprizes are always abig hit with ourreaders. NickFarmer was one ofour recent annualquiz winners. Theheadphonescaused greatexcitement in hishouse, with theprize donated to his teenage son – luckyboy. There is a benefit to this generousgift, explained Farmer: “I won’t have toask him to turn his music down when I’mstudying,” he told us. Of course, our mostpopular competition to date was… acalculator giveaway! Jeremy Davies,pictured above, provided us with theproof that he received his limited editionCanon calculator. Let’s hope he has takenit out of the plastic now.

PQ Magazine April 2015

PQ got a story, funny or serious, you want to share? Email [email protected]

W E V E G O T T H E L O T’

Terms and conditions: One entry per giveaway please. You must send your name and address to be entered for the draw. All giveaway entries must bereceived by Friday 17 April. The main draw will take place on Monday 20 April 2015.

TO ENTER THESE GIVEAWAYS EMAIL [email protected]

SHOW US YOURS?A couple of years ago we asked to see yourtattoos and were surprised by the response.We thought it was time to see if you hadadded any more. Many people don’tassociate tattoos with accountants but hereat PQ magazine we like to challengestereotypes. We discovered last time thatmany tattoos have a story to tell. One AATtold us hers says ‘Believe you can andyou’re half way there’ and she got it tomotivate herself while studying as she waslacking confidence in the exam hall. We hada smile about one of our favourites – Peter’s‘wolf’. He explained it was his secondfavourite animal, but a penguin tattoo was‘too girly’. So send your tattoos pix [email protected] and we willfeature them in next month’s issue.

MEMORABLE

SNAPS PQ magazine’s editorGraham Hambly isn’t onefor selfies – or any sort ofphotograph for that matter– but then he heard thatthe ACCA had a

photobooth at the evening social event for delegates at theglobal learning providers conference. So who best to have yourpicture taken with? When CEO Helen Brand began her welcomespeech he thought, shall I? The editor wandered over to Helenfor a chat and casually asked if she would like her picture takenwith him. To everyone’s surprise she welcomed the idea. Helenmay have regretted her response as a queue quickly formed ofdelegates eager to get their picture taken with the head honcho.PQ was fine though – we already had our picture!

PWC GETS ONFRONT PAGE OF THE SUNPwC hit the front page of the Sunfor its ‘cosy relationship’ with theLabour Party. The ElectoralCommission showed that the firmcompleted work worth £386,605for Labour in the last three

months of 2014.Labour wasaccused ofhypocrisy forletting PwC workso closely with itwhile advocating aclampdown on taxavoidance. TheSun pointed outLabour’s MargaretHodge had allegedthat PwC was guiltyof promoting taxavoidance on an

“industrial scale”.

Becker F4 study materialWe bumped into Becker at the ACCAglobal learning providers’ conferencerecently. They kindly gave us two sets oftheir F4 study system, along with astudy question bank and revisionquestion bank. These manuals coverthe June exams and, remember,Becker is an approved content provider.

To enter this giveaway all we need is your name and addressemailed to [email protected]. Head up your email‘Becker F4’ and we will do the rest.

Bumper packWe are giving our readers the chance to win not onebut four books that have been reviewed recently inthe PQ Book Club. So we are giving away ‘HMRC:Her Majesty’s Roller Coaster’, ‘The Small Big’,‘Dance with the Enemy’ and, finally, this month’sbook ‘Winners, and how they succeed’. A great mixof serious and fun! All you need to do to be in with a chance of beingsent this great collection is to send your name andaddress to [email protected] – headingup your email ’PQ Book Club’.

ACCOUNTANT BANNED FROM CARRYING MIRRORS!Pervert accountant Barry Dyson of Horwich, Greater Manchester, has beenjailed for 16 weeks for using mirrors to peep up the skirts of shoppers inHarvey Nichols. He has also been banned from carrying reflective items inpublic. Dyson, who admitted outraging public decency, lost his job at aSalford accountancy firm as a result of the case.

Using your iPad beforebedtime makes it harder toget to sleep, reducesalertness the next morningand can lead to seriousillness. Those glowingscreens need to be banishedfrom the bedroom becausethey are putting your bodyclock back an hour-and-a-half, adding to a long-term

lack of sleep. Believe it ornot, these conclusions comefrom the first-ever in-depthstudy on the effects of iPadson sleep. The HarvardUniversity researchers foundthat volunteers who read inbed took 10 minutes longerto fall to sleep and producedlower levels of melatonin –the hormone that aids sleep.

TURN IT OFF

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