PQ magazine February 2015

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PQ magazine February 2015 www.pqmagazine.co.uk / www.pqjobs.co.uk How to read the papers We explain how you can use the press to maximise your chances of passing ACCA WINTER EXAM REVIEW In future, colleges who want to get on CIMA’s newly revamped accreditation scheme will actually have to run CIMA courses! It appears that under the old system in some regions (not the UK) colleges have been using CIMA as a listing directory, without any intention of running CIMA courses. Students who contacted these colleges were pushed into studying alternative accountancy qualifications (read ACCA here). A CIMA insider wanted to stress that this was “not a massive issue”, but was something that CIMA felt it had to discourage. As part of policing the system all learning partners will receive dated annual certificates and may be moved up or down the levels. The current Learning and Quality partner set-up has been in place since before online learning started and CIMA felt it needed to create a more flexible model of accreditation. The revised CIMA learning scheme now features three levels: CIMA Global Learning Partner; CIMA Global Learning Advanced Partner; and CIMA Global Learning Premium Partner. The old system also failed to recognise those who specialised or provided good online courses. Under the old set-up colleges had to offer the whole CIMA qualification to be get the best badges. Under the new scheme, online learning and those offering, say, just case study tuition will be able to become Premium Partners. Existing providers have been invited to transfer to the new scheme. The deadline for re-registering is 28 February 2015. CIMA SET TO CLOSE COURSE ‘LOOPHOLE’ Jumping for joy: Reed Business School students were invited to take part in a photo competiton – and they certainly made the most of it. PQ particularly enjoyed this entry! Colleges overseas advertising CIMA courses without running them SOCIAL MEDIA – GOOD, BAD & UGLY PAGE 14 SACHA TAKES TOP JOB AT GRANT THORNTON PAGE 10

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 February 2015

Page 1: PQ magazine February 2015

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

How to read the papersWe explain how you canuse the press to maximiseyour chances of passing

ACCAWINTEREXAM

REVIEW

In future, colleges who want to get on CIMA’snewly revamped accreditation scheme willactually have to run CIMA courses!

It appears that under the old system in some regions (notthe UK) colleges have been using CIMA as a listing directory,without any intention of running CIMA courses. Students whocontacted these colleges were pushed into studying alternativeaccountancy qualifications (read ACCA here). A CIMA insiderwanted to stress that this was “not a massive issue”, but wassomething that CIMA felt it had to discourage. As part ofpolicing the system all learning partners will receive datedannual certificates and may be moved up or down the levels.

The current Learning and Quality partner set-up has beenin place since before online learning started and CIMA felt itneeded to create a more flexible model of accreditation. Therevised CIMA learning scheme now features three levels:CIMA Global Learning Partner; CIMA Global LearningAdvanced Partner; and CIMA Global Learning PremiumPartner. The old system also failed to recognise those whospecialised or provided good online courses. Under the oldset-up colleges had to offer the whole CIMA qualification to beget the best badges. Under the new scheme, online learningand those offering, say, just case study tuition will be able tobecome Premium Partners.

Existing providers have been invited to transfer to the newscheme. The deadline for re-registering is 28 February 2015.

CIMA SET TO CLOSECOURSE ‘LOOPHOLE’

Jumping for joy: Reed Business School students were invited to take part in a photocompetiton – and they certainly made the most of it. PQ particularly enjoyed this entry!

Colleges overseas advertisingCIMA courses without running them

SOCIALMEDIA –

GOOD,BAD &

UGLYPAGE 14

SACHATAKES TOP

JOB ATGRANT

THORNTONPAGE 10

pq feb 15 p01_pq nov 11 p01,10 08/01/2015 11:18 Page 1

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comment PQ

News08ACCA changes Is the 10-yearrule about to be scrapped?10CIMA exams P2 stands out –for all the wrong reasons12Study resources New manualsdesigned for all ACCA studiers

Features, etc06Mind your Ps&Qs A CIMAPQ’s cry for help; our youngestreader; and social media updatesfrom LinkedIn and Twitter14ICAEW focus Accountantsshould bear professional ethics inmind when using social media

16ACCA exam feedback Ourexperts tell you exactly what theythought of the latest set of exams

18F7 update The FinancialReporting paper now hasmultiple choice at its heart20Let’s get technical So whatare performance indicators?Gareth John explains all

22F4 part two Time to test yourknowledge on the subjects thatarise in section B questions

24CIPFA spotlight Institute isrolling out training initiatives toimprove PFM across the globe26An ethical approach How youcan prove to the examiner thatyou know right from wrong29CIMA E3 paper Take oursample test to see if you are onthe right track

31Essential economics A backto basics look at the economictheory you should know about32How to study Why keeping up-to-date with what’s in thebusiness press will improve yourchances in the exam hall33Careers Life at EY in Sweden;planning your next career move;and our Book Club review38Fun time CIPFA cashes in onLondon HQ sale; picture perfectat Reed Business School; andmore great PQ giveaways

The columnistsRobert Bruce Changing CFO rolereflects new corporate thinking 8Prem Sikka Parliament shouldtake a legislative holiday 10Carl Lygo Tuition fees are set tobecome a hot topic once again 12

Subscribe to PQ magazineIt’s FREE – go to page 37 or see

www.pqmagazine.co.uk

ABC July 2013–June 2014

32,361

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

is sent to 9,623 requested readers

Time to read a magazineSo how are your New Year’s resolutions going? Hope you arehanging on in there. It came as a shock for many when Mr

Facebook, Mark Zuckerberg, declared 2015 ‘a year of books’. He isplanning to read a book every two weeks and is kicking it off with MoisesNaim’s ‘The End of Power’. Zuckerberg is quoted as saying books are“intellectually fulfiling” and “allow you to fully explore a topic... in a deeperway than most media today”. This news was swiftly followed by the newsthat sales of Kindles have “disappeared to all intents and purposes”.Waterstone’s CEO James Daunt has suggested that with 30% of the markete-books sales may be at their peak. I am not so sure. And this is where wecome in – a real magazine that you can read every month. We have alwaysbeen ahead of the curve at PQ. Our readers are given the choice of amagazine or e-mag and some 70% of PQs still opt for the hard copy. Wearen’t knocking online here – 80,000 people visited our website inNovember and December to read the news as it happens. But luckily forus there is still something special about a magazine.

Home Secretary Theresa May, in a show of goodwill (not), recently saidshe would force foreign students to leave the UK before they could re-applyfor a work visa. It now appears that Chancellor George Osborne hasblocked this idea. He has been joined by Boris Johnson, who praisedstudents for their indispensable role in the British economy. Sir JamesDyson said it as it was – a short-term vote winner that would lead to a braindrain from Britain and damage long-term economic prospects.

And what was 21-year-old Rayhan Qadar thinking? The stockbroker hasbeen fired after he tweeted that he knocked a cyclist off his bike on the wayto work. Too late, Qadar said that was just a joke – the problem is he wasthe only one who found it funny. The police got involved and Mr Qadar hassince made his twitter account private (see our feature on the perils ofsocial media on page 14). When will we all learn that saying the first thingthat comes into our heads and writing it down is not always a good idea?

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

CONTENTS February 2015

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Page 4: PQ magazine February 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]

Associate editor: Adam Riches | Art editor: Tim Parker | Subscriptions: [email protected] | Contributors: Robert Bruce, Prem Sikka, Carl Lygo, Tony Kelly, Phil Gammon, Jo Daley | Origination and print services by Classified Central Media

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

Published by PQ Publishing © PQ Publishing 2015

Dyslexia issuesI am a reader of your magazineeach month, but I feel that thereis something that the accountancybodies are not considering – andthis is to do with moving frompaper-based exams to computerbased ones, and how this willdeter some candidates fromentering the profession

I am a PQ with CIMA, andcannot complete my qualificationnow as I am dyslexic. CIMA hasimplemented computer based

assessments goingforward, and this meansI cannot progress anyfurther.

I noticed in a recent PQ articlethat CIPFA is also looking to godown the computer-basedassessment route, this againreally upsets me.

One case that the BritishDyslexic Association keepsreferring me to can be found athttp://www.accountancyage.com/aa/news/1755109/kpmg-forced-pay-gbp45-discrimination. Thearticle states that reasonableadjustments should be made,allowing extra time and a writtenpaper. I know that CIMA hasrefused to offer a written paperand sure that others will be doingthe same.

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

Hot & Tweet

email [email protected]

Youngest reader?Please see attached a photo of mydaughter Caitlin. As you can seeshe is reading a recent edition ofPQ Magazine. This photograph wastaken just before I put her to bed.She decided against having TheGruffalo read to her and opted tosit and read your magazine. Prettyimpressive stuff for someone notyet two! I’m not sure if she isshocked by the story “How to failF5” or if she is considering signingup for ACCA.

The latter would be highlycontroversial in our household. Mywife Julia is CIMA qualified and Isat TOPCIMA in November thisyear. Maybe this is the effect it hason children when both parentswork in finance. It’s accrual world!

Hope it makes you and yourreaders smile as much as it didme!David Airey, by email

LinkedIn is great for keeping up-to-date and in the newsloop. But you have to be careful about what discussionsyou join in! PQ magazine was the first to break the newsthat the ACCA was going for exams four times a year. Ata national conference it announced this would happenin 2014, so up the news went on quite a few discussion

boards. But then ACCA had a serious rethink and explained that 2015was when the first September sitting would be happening (and then onlyin 12 countries). Unfortunately, although we had highlighted the changeof launch date many PQs read the old comment and then became angrybecause it wasn’t happening! But that is the changing nature of news –and that’s why you need to keep reading your favourite magazine!

I think for a profession likeaccountancy, which does have ahigh percentage of dyslexicpeople within it, putting suchmeasures in place will forcepeople away from the profession,which is really sad. Given thenature of accountancy and itsproblem solving attributes,dyslexic people really thrive insuch an environment.Name and address suppliedThe editor says: We have spokento CIMA, who seem to have reallygood policies in place forstudents who need extra time inexams for medical reasons,including dyslexia.

Eagle-eyed readersmay have noticedwe tweeted twosets of CIMA results recently.First off, we sent out resultsthat included a November P2pass rate of 33%. But wedidn’t like the look of them socontacted CIMA to make surethey really were right. It wasonly then we discovered therehad been a hiccup and we hadreceived the global pass rates,not the UK ones. Naturally, wethen sent out the right passrates. Hey presto, P2 shot up to41% (still not good).

@PQmagazine also tweetedout the fact that 150 CIMAstudents had scheduled to sitone of the new exams by 5pmon 19 December. PQ was atCIMA’s Chapter Street HQ theday after the exam results totalk to a senior team memberabout the new accreditationscheme, and everyone waswatching who was scheduling atest.

PQ was also at Robert Streetto say goodbye to the old CIPFAHQ. We heard most employeesremembered to go to the newoffices in Mansell Street ontheir first day back after thebreak.

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007_PQ 0215_PQ 1209 000 05/01/2015 10:58 Page 7

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8 PQ Magazine February 2015

PQ news

AAT wins awardThe AAT recently picked up

the Successful Virtual Offeringaward at the Association Networkawards. The AAT won for itsblended eLearning supportmaterial; to date, one millionGreenlight tests have been takenand over 900,0000 hits have beenreceived on the e-learning material.

More Tesco investigationsThe Financial Reporting

Council (FRC) has launched aninvestigation under the

Accountancy Scheme intomembers and a member firm(PwC) in relation to thepreparation, approval and audit ofthe financial statements of Tescoplc for the financial years ended25 February 2012, 23 February2013 and 22 February 2014.

CIPFA/ICMAB sign MoUCIPFA and the Institute of

Cost and ManagementAccountants of Bangladesh(ICMAB) have signed aMemorandum of Understanding.

The MoU will help continue thedelivery of strong public financialmanagement in Bangladesh andpaves the way for the developmentof public sector membership in thecountry.

Use your time wiselyAccountancy exams are

tough, but have you ever workedout how much time you have tostudy each week? BeckerProfessional Education recentlyworked out that after you take intoaccount sleeping, work, travel and

those mundane things such aseating, cooking and keeping clean,then you are left with just 36hours. That gives you just over fivehours a day to get that pass.

IFA to mergeMembers of the IFA have

voted to merge with Australia’sInstitute of Public Accountants(IPA). Some 96% of the votes castby IFA members were in favour ofthe proposal. The IFA brand willcontinue to operate as part of theIPA Group, PQ has been told.

In brief

Immediate results for CIMA OTsDespite some confusion, PQ magazine can confirm CIMAstudents will leave the assessment centres with their OTtest results. However, these will be provisional results, theinstitute has confirmed.

The result will then be officially confirmed by CIMA onyour My CIMA personal account. This is when you will beprovided with the breakdown of the areas you did well inand areas that need improvement. This confirmationfrom CIMA will be within 48 hours of you sitting the OTtest.

PQ magazine was also told that the results for the four

case study exams will be posted after five weeks (in factit is four weeks and five days to be precise). CIMA will bekeenly watching to see how popular certain days are. Forthe first time students can even sit a test on a Saturday.

There are now 13 weeks between case study sittingsand the pre-seen will not be released until after theresults from the previous sitting are out. That meansthere will be seven weeks before the opening schedule tobook your next test.

Students will be pleased to hear they can alsoschedule a test up to two weeks before the exam week.

FDs, or CFOs, have changed. Theyused to be the people who kept theflapping tarpaulin of the figurespinned firmly to the ground. Now theyare the people who want to explainwhat makes up the value of thecompany and let outsiders see whatthat means in terms of stability, itslong-term future what makes it tick.

It has been a spectacular change.Across one generation of accountantsthe culture has changed from one ofalmost nerd-like devotion to therectitude of the figures to anexpansive view of what the figuresare keeping secure and drivingforward. Recent figures released bythe Prince of Wales’ Accounting forSustainability Project show thisclearly. They found that well over halfof CFOs believed that it was importantfor sustainability programmes to bepart of a CFO’s agenda. Importantly,they found that 73% of CFOs felt therewas a strong link betweensustainability programmes andbusiness performance. This is whereit fits with the change in the role ofthe CFO in recent years. The wholelandscape has been tilting away fromthe naked figures and towardsproviding a wider understanding.Companies in the UK now have toproduce strategic reports. They findthat the use of narrative reportinggives investors and outsiders aclearer view of what is going on.Auditors are working harder to explainwhat is happening within companiesand advances in integrated reportingare changing everything. The CFO hasbecome a strategist and explainer. Amuch more interesting role.

ROBERTBRUCE

CFO rolereflectschangingcompanyattitudes

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

End of 10-yearrule in sight?The ACCA looks set to announcewhat it plans to do with its infamous‘10-year rule’. ACCA students wereasked last year for their opinions,but silence followed. There was atthe time, however, talk of reducingthe time before a student is time-barred to seven years.

PQ magazine contacted theACCA for clarification. In a shortstatement the ACCA said: “ACCA’s10-year rule will not beimplemented in its current format,which is that if a student does not

complete all ACCA examinationswithin a 10-year timeframe they willbe removed from the register.”

But the ACCA was quick to stressthat it is important that there is a‘currency rule’ in place, as thefaster a student progresses throughthe exams, the more likely they areto succeed as learning fromprevious exams is fresh.Furthermore, employers have toldthe association that they valuecurrency of knowledge.

So while a change to the rule will

shortly be announced, the ACCAwanted to reassure PQs that it will“no longer deny students theopportunity to complete the examsif they fail to complete within atimeframe”. That points to an endof the 10-year rule altogether.

East Midland firm PKF Cooper Parry is on the look outfor AAT recruits, with the firm unveiling bold plans toexpand into the West Midlands.

It has already recruited two audit managers, fourqualified audit associates, an audit pensions managerand two AAT PQs. Now the firm is looking to recruit 10more AAT students and several 12-month placementstudents to start work in August. It is also recruitingstaff to fill positions in their facilities, IT solutions, taxand payroll teams.

Interested? Then go to pkfcooperparry.com/careersor email [email protected]

AAT recruits wanted now!

PQ feb 15 p8_pq sept 12 p08 06/01/2015 14:30 Page 10

Page 9: PQ magazine February 2015

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10 PQ Magazine February 2015

PQ news

P2 was the stand out paper yet

again for CIMA November exam

sitters, with a UK pass rate of just

41% (33% globally).

Our expert tutors had predicted a

low pass rate with “questions 2, 5,

6 and 7 causing very serious

problems for many students”.

The questions on zero based

budgeting and variances could

have caused problems as they were

based on brought-forward P1

knowledge, said another top tutor.

Students admitted they struggled

with Q6 and Q7, which they found

ambiguous. One felt it was the

hardest exam they had ever taken.

With this in mind, there was a

suggestion that the pass mark may

need to be lowered. It seems that

didn’t happen!

The time-challenged T4 paper

also saw a dip in the pass rate –

just 49% of UK sitters passed this

one. It was also suggested that

there might have been an error in

the paper. Candidates were asked

to write a report to the board, but

were then told that “your email

should include…” So were students

meant to write a report or an email?

• More than 150 students had

scheduled exams under the 2015

syllabus by 5pm on 19 December.

That is across more than 20

counties (Australia to Zimbabwe

and all points in between).

UK results (global in brackets)P1 – 52% (45%); E1 – 65% (56%);

F1 – 60% (59%); P2 – 41% (33%);

E2 – 61% (53%); F2 – 66% (62%);

P3 – 60% (51%); E3 – 54% (40%);

F3 – 54% (47%); T4 – 49% (46%)

P2 PAPER STANDS OUT– FOR THE LAST TIME?

December feedback on ‘problem’ areas

WOMAN ON TOP

Christmas may be well and truly

over but one provider just can’t stop

giving – Becker Professional

Education. Every ACCA student

around the world is now being

invited to use Becker’s ACCA

Interactive Study System free of

charge for two months (worth £99).

Becker’s ACCA study festival is

designed to allow students to get a

head start for the June exam

session by receiving free access to

Becker’s advanced online learning

materials and expert advice.

Becker’s Matt Kinnich said: “The

2015 ACCA study festival will

provide students free access for two

months to the paper of their choice,

with the opportunity for them to

then purchase full access for the

remainder of their studies towards

the June 2015 exams at the

discounted price of £33 each.”

• Free materials for the ACCA study

festival will be available until 25

March. Register at https://becker-

atc.com/free-acca-study-festival/

Festival ofACCA study

As the UK heads towards the generalelection there is little legislativeactivity in parliament. No doubt thenext government will return with amandate for more laws. Sometimes Iwonder whether parliament shouldspend less time on new legislationand instead scrutinise implementationof existing legislation.

The UK has legislation that canhold directors personally liable forreckless trading, fraudulent trading ortrading while insolvent. Banks haveindulged in money laundering, riggingof interest rates and other abuses.Who is responsible to prosecutingthem? One such agency is the SeriousFraud Office. In 2008, its annualbudget was £52m; now it’s £35.2m,not enough to police globalcorporations. Inevitably, the bankingcrash has led to few prosecutions.

The government has promised anew Diverted Profits Tax, known as the‘Google Tax’. Securing tax complianceis labour intensive. Since 2010,HMRC has lost 34,000 jobs and morecuts are on the way, so the chances ofsuccessful implementation of theGoogle Tax must be low. Largeswathes of public policymaking, likeaccounting, have been handed toprivate interest organisations dancingto the tune of big business. The FRC isone such example. There is plenty ofrhetoric about codes of ethics, butthere has been no investigation orfines into why auditors issued duffaudit reports to distressed banks.

Parliament should consider why UKlaws deliver so little.

PREMSIKKAParliamentshould takea legislativeholiday

■ Prem Sikka is professor of accountancy at theUniversity of Essex

Sacha Romanovitch has

been confirmed as CEO elect

of Grant Thornton UK LLP.

An advocate for increased

social mobility within both the

profession and wider

business, she is chair of the

Patron Group for Access

Accountancy, the profession-

wide initiative to increase

diversity.

Romanovitch, pictured,

said: “Embedding a strong

brand and an empowered

culture is critical to our

ongoing success. I firmly

believe our firm, our clients and the wider success of the UK economy will

depend on our ability to unleash talent and ideas from every section of

society. From my experience, one needs to do that intentionally – and

when you do it makes a big difference.”

Romanovitch takes over from Scott Barnes in June 2015.

Despite the fact that the ICAEW has

the least number of female PQs,

they still managed to dominate the

latest Advance Stage list of prize-

winners. Over three quarters (77%)

who topped the class in the

ICAEW’s November exams were

women. In the same exams the

previous year women and men were

on a more equal footing, with

women making up 47% of top

scores. The ICAEW says it is

pleased that pass rates have

remained ‘consistently high’ with

88% of candidates passing

Strategic Business Management.

ADVANCED 2014 PASS RATESNovember July

Business Reporting 79% 83.8%Business Change 76.6% 85%Case Study 74.8% 74.4%Corporate Reporting 66.7% 37.8%Strategic Business Man’ 85.1% 67.3%

December’s ACCA corporate reporting paper (P2)

would have been the problem paper for many PQs,

according to tutors on the PQ magazine

Exam Review Board. “This was a hard

exam even by the challenging standards

of P2,” said one commentator. Another

said it was “a tough overall test with one

or two fringe topics included”, while yet

another expert said it was “demanding in

the extreme”. This all reflects what PQs thought; many

said the December test was just “too hard”.

Our board also agreed that P4 was “more

computational and time pressured than recent exams”.

They did not, however, feel you needed to be super-

human to pass (see PQ magazine, January 2015, page

10). Lecturers did say that candidates were forced to

make some major assumptions due to a lack of

clarity in the scenarios.

It was also felt that F9 has become a tougher

challenge under the new set-up. The MCQs were

‘tricky’ and “there were few areas of the paper

that led to easy mark accumulation”, according to

our tutors. Again, this reflects what PQs thought.

As one posted: “Anyone thinking MCQs are going to be

easier was caught out.” Another called for a return of

the four long questions.

• See page 16 for our extensive review of the papers

by the experts.

ICAEW: thepass rates

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Page 11: PQ magazine February 2015

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12 PQ Magazine February 2015

PQ news

The 2015 general election is badgedas the election that no party can win.Labour says you can’t trust the Torieson the NHS and the Conservatives sayyou can’t trust Labour with theeconomy. Beyond this Punch and Judypolitics, will professional educationbe an issue in this election?

Before the last election the LibDems promised never to introduceuniversity tuition fees. Nick Clegg,leader of the Lib Dems, then famouslysaid ‘sorry’ for tripling tuition feeswhen in government. Former PM TonyBlair revealed that the closest hecame to losing a vote of confidencewas when his government firstintroduced tuition fees. The topic waseven more toxic than the Iraq war.

The signs are that tuition fees aregoing to be an issue in this campaign.The coalition has announced theuncapping of university places andthe extension of the loan scheme tocover postgraduate courses, whileLabour says more emphasis needs tobe placed on apprenticeships and isconsidering reducing tuition fees forundergraduates to £6k per year (downfrom the current £9k per year.).Meanwhile, the influential PublicAccounts Committee is to investigatethe lack of controls over the growingstudent loan book.

The NUS claims that students coulddetermine the outcome of the nextgeneral election and their number oneissue is tuition fees. It has alwayssurprised me that the UK is practicallythe only EU country that does notallow training costs as a deductibleexpense for employees. While thatpolicy is hardly headline grabbing, itwould help a lot of people becomehigher rate tax-payers and help fundthe policies of the new government.

CARLLYGO

Tuition feesset to cometo the foreonce more

■ Professor Carl Lygo ischief executive of BPP

New manuals forACCA students

Ground-breaking degreedesigned for ACCA PQsACCA and University of Londonhave joined forces to offer whatthey are saying is the first everworld-class Mastersprogramme integratedwith an accountancyprofessionalqualification.

The ground-breaking Mastersprogramme is nowbeing made availableto both students andmembers around theworld.

The ACCA said thiswas the first time an accountancybody has joined with a university toenable students across the globe togain a Master’s degree and aprofessional accountancy

qualification at the same time.ACCA CEO Helen Brand said that

the new programme means that theassociation nowdirectly offerschoice from acomplete suite ofprofessional andacademicqualifications.

The Mastersprogramme will beavailable from early2016 and will bedelivered throughonline and local

institutional support, in associationwith UCL. Further details about theroutes for ACCA students andmembers will be available in March2015.

KPMG resultsKPMG unveileda 5% increase inrevenues to£1,909m for thefinancial year

ended 30 September 2014. Thatmeant an employee bonus pool of£80m, up 10%. The averagepartner’s pay rose marginally by0.3% from £713,000 to£715,000. Chairman Simon

Collins was rewarded with a salaryof £2.5m. Overall profits, beforetax, were down 9% (to £414m) asthe firm invested in new businesslines and offices. KPMG plans torecruit 1,120 graduates andschool leavers in 2015.

EY a ‘Star Performer’EY has been named one ofStonewall’s Star Performers,recognising the firm’s consistent

ranking as a leading gay-friendlyworkplace in the annualWorkplace Equity Index. The firmis one of eight organisations, andthe only Big 4 firm, to be giventhis recognition. The others areAccenture, Barclays, Gentoo,Goldman Sachs, the Home Office,IBM and Simmons & Simmons.

CFOs still positive, says DeloitteThe UK general election, euro

zone weakness and a UKreferendum on EU membershiptop the list of CFO concerns for2015, says Deloitte’s latest survey(like the rest of us!). The CFOs seean end to the consumer squeezeand forecast wages in theircompanies will rise by 2.9% in2015. They also feel businessinvestment in the UK will rise by9% – that’s higher than othermajor industrialised nations.

A trainee accountant who calledhimself ‘Rodney Trotter’ was sparedjail recently after admitting 19offences under the Trademarks Act.

Ryan Flood, 25, created his fakealter ego to sell counterfeit goodsvia Facebook. ProsecutorJustin Davies told thecourt that if the 32items found atFlood’s homehad beengenuine theywould have beenworth £151,146.95.

Judge Richard Twomlow jailedFlood for eight months, suspendedfor 12 months. He now faces aProceeds of Crime Act hearing andwill have to pay a £100 victimsurcharge.

‘Rodney Trotter’spared jail aftercounterfeit scam

Looking tothe futureThe main issue businesses willface in 10 years’ time will be thedecline of natural resources,tomorrow’s finance professionalsare predicting. The ACCAsurveyed more than 4,500 ACCAPQs and some 81% said thedeterioration of natural resourceswas their main concern.

The rise in the global populationis another environmental worrycome 2024 (for 70%). Then cameinstability in financial markets.

ACCA director of policy EwanWillars said that the sustainabilityagenda has accelerated in thepast decade. He felt a realconcern must be that only 35%of PQs said they believed theworld in 10 years’ time will be abetter place to live. However,Willars felt it was positive thatmany more believe thatsustainability issues will becomemore central to their work.

LSBF has launched brand newACCA study manuals for all papers,at just £30 a pop. PublishingDirector Clive Bullen explained thenew-look manuals have beendesigned with today’s PQ in mind.The LSBF manual is not A4 size, forexample. It is more iPad size, andwill fit easier in your hands and workbag!

Bullen also wanted to stress themanuals really try to tune into howthe brain works so that studying ismore effective and efficient. At thebeginning of each study manualthere is an ‘Overview’ of what toexpect, tied into the chapters. At thestart of each chapter there is a‘Context’ paragraph(s), as puttingthe reading into context helpsstudents understand where it all fitsinto the syllabus. Readers are thengiven ‘Three questions’, which helpsthem think more as they progress

through the material. Bullen saidthat it was important that PQs arekept engaged throughout theprocess.

The layout also tries to reflect howstudents are taught in theclassroom, with key facts andprinciples emphasised as they wouldbe in class by the experienced tutorsthat helped produce the books.

Finally, at the end of eachchapter, is ‘What’s the story’, whichencourages the student to reflect onwhat they have learnt and how it allcomes together.

Along with the manual studentswill also gain access to LSBF’sinteractive products. Each purchasecomes with a 15 to 20-minute videoexplaining what to expect for thepaper and how to get the best out ofyour studies and an ebook version ofthe Study Manual. Students will alsoget one Live Online lecture.

Helen Brand

PQ feb 15 p12• CCM_pq sept 12 p08 08/01/2015 11:51 Page 8

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Page 14: PQ magazine February 2015

Social media is a fantastic way toconnect with colleagues and keepup-to-date with your friends, as

well as the latest news. But it’s importantto be careful and make sure you don’tjoin the pile of professionals guilty ofscandalous online blunders.

When someone says ‘social media’ youimmediately think Twitter, Facebook andLinkedIn – right? But any publiclyaccessible written piece of work can beclassified as social media. That includescomments you post on articles or anycontribution you make to online forums.

The ICAEW Code of Ethics states thatall students and members should actwith integrity; only accepting work theyhave the appropriate skills to do. Theyare required to maintain strictconfidentiality and conduct themselves ina professional manner at all times.

Yet social media lulls us all into a falsesense of security, particularly as we oftenuse it to talk to friends. But what wemight say to a friend in a quiet one-to-one conversation, or in a heateddiscussion, is completely different whenposted online. Remember, whenever youput something in writing it can be usedas evidence. Even if you remove a postor comment at a later date, a screen shotcan still be used to implicate you anddeleted content can still be retrieved.

Even though behavioural expectationsdo generally relate to ‘professional andbusiness activities’ it is possible for astudent to bring ‘discredit to theprofession’ through their private actions.We’ve all heard stories of individuals whohave lost their jobs through the indiscreetuse of social media. Consider the studentwho, while in a training agreement,posted a scathing criticism of theiremployer on an online forum. Needlessto say they weren’t in a trainingagreement for much longer!

Even an anonymous blog on aprofessional website may not be asanonymous as you think – especially ifthe ownership can be traced back to you.What’s more, employers are increasinglyusing social media to find out more aboutemployees – so if you’re hoping for apromotion, you should think carefullyabout what your online profile says aboutyou. Also watch out for the following:

Inappropriate language While the channel you use tocommunicate might be taken intoaccount, it’s rare that any abusive or foullanguage will pass the professionalbehaviour test. Trolls don’t have to swearfor their behaviour to be consideredunacceptable; other online behavioursuch as bullying could also fall foul of thecode of conduct.

Misrepresenting oneselfYou may have passed all of your ACAexams, but if you haven’t yet completedyour 450 days of practical workexperience, then sorry, but you’re not yetan ICAEW chartered accountant. Youshouldn’t be using the letters ACA afteryour name on any of your onlinenetworking profiles until you havereceived confirmation of yourmembership from ICAEW.

Implicating oneself in improper conductDeclaring or admitting to flouting the lawor deliberate non-compliance willinevitably result in the authorities orICAEW’s professional conductdepartment taking an interest and couldresult in a fine or exclusion. Inadvertently

14 PQ Magazine February 2015

PQ ICAEW focus

BEWARE SOCIAL MEDIA

Accountants should keep professional ethicsin mind at all times when using social media,says the ICAEW’s David Stevens

admitting to doing something you shouldnot be doing, even if unknowingly, couldattract a disciplinary interest.

Beware! Posting or being tagged inphotos or videos showing last Fridaynight’s antics might not be such a goodidea after all. Think carefully about whatyou choose to share with your onlinenetwork. A photo that you might think isa bit of a laugh may be consideredinappropriate by your peers, clients oreven your employer. Not only might youremployer take action, but you couldattract ICAEW disciplinary interest in theprocess.

Broadcasting client confidentialinformation If in doubt, always assume all clientinformation is confidential. If not, thenthink carefully about whether it’s yourplace to be broadcasting anything. • David Stevens is the ICAEW’sintegrity and law manager and achartered accountant

PQ

Trust in the governments of 10 Europeancountries to manage public finances is low,according to research by the ICAEW and PwC. Inthe UK, only a quarter of those surveyed believein the government’s ability to oversee publicmoney, with women expressing more distrustthan men. In the run-up to the General Electionnext year, the running of public finances isexpected to dominate the agenda.

ICAEW Chief Executive Michael Izza said: “Thefinancial crisis has drawn attention to the needfor better financial management, reporting andgovernance within the public sector. There needsto be greater transparency and comparability offinancial information as the general public doesnot realise the full extent of the debt, and whatcuts are yet to come. Honesty from politicians onthe current deficit would be a start.”

GOVERNMENTS FAIL TO WIN TRUST

Twit-ter: RussellBrand recently gotinto hot waterwhen he posted ajournalist’s phonenumber on Twitter,contrary to its rules

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Page 15: PQ magazine February 2015

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16 PQ Magazine February 2015

PQ ACCA exam feedback

Our top teams run theirexpert eye over theDecember sitting

Kaplan FinancialF4 was a much-anticipated paper as it isthe first in the new format. It wasn’t asstraightforward as expected and therewere some challenging OT questions.

F5 was a very fair exam indeed. Therewas no difficult question to struggle withand the topics were some of the most‘popular’.

Although there were few difficulttechnical areas in F6 the presentation ofa number of the questions was verychallenging and would have createdadditional time pressure. Students wouldonly expect one such question in F6based on recent sittings. It is likely fewerstudents will pass compared with recentsittings, and many students may nothave performed to the best of their abilitydue to the question style.

F7 was one of the tougher papers inrecent times. Section A was difficult asexpected, but no more difficult than thesample paper. Q1 and Q2a would havethrown some, but Q2b and Q3 were gifts.

F8 didn’t have too many trickyquestions and plenty of them were onpast papers, which should meanstudents could score well on this paper.

Overall, F9 was fair. It was timepressured but not excessively so.

A well constructed P1 this time drewon the new syllabus areas. It would havebeen challenging from a timemanagement perspective.

For P2, PQs with a strong knowledgeof consolidation as well as good overallexam technique will get the pass markthey deserve. It is a shame, however, thatso many requirements across the P2exam tested non-core knowledge that isburied deeply within the accountingstandards. Students will have beenfrustrated they were tested on such detailand niche areas.

P3 focused on the key areas, whilethere were some tough questions on P4and time pressure would have beenintense.

P5 a fair paper with no surprises, andP6 was quite straightforward with lots of‘tipped’ areas being tested. No bigcorporation tax groups question wouldhave suited some. There was more biastowards IHT and CGT, little income tax.

P7 was very straightforward.

Becker Professional EducationThe F4 (ENG/GLO) exams were inkeeping with the specimen exams for thenew exam format and well-prepared PQsshould have performed very well.

F5 made a good transition to the newformat where the level of difficulty wasconsistent with previous exams. The newMCQ part was similar in standard to thespecimen exam and section B containedfew surprises.

F6 (UK) was again a fair and balancedexam which a well-prepared studentshould have been able to comfortablypass. Q2 was not entirely straightforward,but the style of it was not withoutprecedent and made it a more interestingexam than the norm.

F7 provided a good test of much of thesyllabus in the MCQ section. Candidatesshould have had little difficult withsection B, which appeared to be watereddown compared with previous exams.This is disappointing as the gulf betweenF7 and P2 is even greater than before.

F8 (INT) was mainly straight forwardalthough some bias crept in. Section AMCQs were slanted towards part A of thesyllabus and the sales cycle featured tooprominently in section B. However,candidates who had worked through pastexam questions should have been happy.

F9 was more challenging and timepressured than the specimen examsuggested (e.g. only 5 marks allocated toa detailed three-month cash flowforecast). Some MCQs were moresubjective than objective, resulting inmore than one correct answer (which willbe taken account of in the marking).Good syllabus coverage, however.

P1 was again a very unbalanced paper– this time heavily weighted towardssyllabus section A (Governance andResponsibility). Candidates who had readthe examiner’s latest articles on publicsector governance (new to the syllabusfor December 14) should, however, havebeen very pleased.

P2 (INT) was demanding in theextreme after the big improvement in theJune 2014 exam and on the December2013 exam. There were far fewer obvious‘easy’ mark-earning opportunities. Toomuch emphasis on businesscombinations and financial instruments(again) made it unbalanced. Many of thespecific issues were peripheral and Q4 isno longer the ‘topical question’ butwhatever the examiner wants to examine.

P3 was very much as predicted by the

Thrown to the

tipsters, with the possible exception of Q4on trend analysis. The case study wasvery full of information so timemanagement would have been aparticularly big challenge for the lesswell-prepared candidate.

P4 was more computational and timepressured than recent exams. Well-prepared candidates were forced to makesome major assumptions due to lack ofclarity in the scenarios (e.g. the mode ofpayment for the acquisition in Q1);whereas less well-prepared candidatesmay not have noticed that an assumptionwas needed.

P5 was much more straightforwardthan the June 2014 exam. Overall, it wasreasonable, consistent with recent pastexams in terms of difficulty, and coveredsome familiar topics. The last question oncorporate failure was probably bestavoided unless candidates had a goodappreciation of the pros and cons of theZ-score model.

P7 (INT) yet again this exam failed torise to the level of being seriouslyintellectually challenging. Workingthrough past examination questions withthe examiner’s reports is key to obtaininga pass mark.

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PQ Magazine February 2015 17

ACCA exam feedback PQ

First IntuitionF5 was a fair test of the syllabus overall,but perhaps the objective test questionswere a little more numerical than thepilot paper and consequently studentsmay have suffered from time pressure.

F6 was a good test of students’understanding of the core taxes. Therewas lots of information to digest andstudents would have needed to not betoo distracted by a few of therequirements on more fringe areas (likeISAs and some aspects of employmenttaxes in Q1).

The introduction of OT questions in F7will probably have been met with a mixedresponse, but it did allow for a wider testof the syllabus. In the long questionsstudents would have found plenty ofmarks for applying their knowledge ofcore accounting and consolidation, sooverall would have been considered fair.

F8 was as usual a well-constructedexam with nothing to faze a student whohad reviewed past papers.

F9 was a very fair exam with goodsyllabus coverage. Students may nothave expected to redraft a projectappraisal calculation in Q4, but this wasa clever way of testing the topic.

P1 contained a good mix of factualapplication and communication styles.Students who hope to be able to repeatnotes parrot-fashion would continue tonot like this style but they should beused to it by now.

We know what we are going to getfrom the P2 examiner – a tough overalltest with one or two fringe topicsincluded. Provided students took theadvice of just giving the tough bits a goodtry, stating their approach clearly andputting in a solid effort in the core partsof the exam then it is a very passablepaper.

A high volume of information providedin Q1 may have caused some P3students to panic, although therequirements themselves were very fair.Q4 would not have been a popular optionwith some regression analysis beingrequired, but overall it was a fair exam.

Q1 would have provided a goodchallenge to P4 students, but the rest ofthe exam would have been easier todigest and so, overall, it was a tough butreasonable exam.

P5 was consistent with the style ofrecent exams with lots of evaluation offrameworks and systems. Students whohave learnt the lessons about what theexaminer is looking for with his questionstyles should not have had a problemwith this exam.

P6 was a big paper covering a widerange of tax areas due to the size of thesyllabus. Students’ performances willreally depend on how broadly they havecovered the material but the content,overall, was fair and not misleading.

P7 was a very consistent and fairpaper, well written as usual.

LSBFThe move to CBE for F4 has changedthe challenge of the task fundamentally.The issue has transferred frominterpretation of the question and craftingan answer to a more direct, objectivetesting style. Judging by the pass ratesbeing achieved by our students it wouldbe fair to say that the change hasbenefitted the average student and wehave students regularly scoring over70%. So from a student perspective I seeF4 as less of a challenge than previouslyand critically, for those with English as asecond language, the hurdle of having towrite coherently is now not needed.

Regarding the other papers, thegeneral feedback I have received is that

he sharks?the papers have become morefragmented as a result of the move topartial objective testing. The multiplechoice questions are requiring studentsto have a wider knowledge of the syllabusand negate the opportunity to questionspot. All papers have questions on whatour tutors regard as ‘the edges of thesyllabus’. This was to be expected. Theother issue is that questions havebecome smaller, with lower markallocations. This immediately puts muchmore emphasis on exam technique as itis all too easy to run out of time. This isbecause most questions are requiring asmuch time to assimilate and understandas before, in spite of having a slightlylower requirement difficulty andconsequently lower marks.

F5 has proven ripe for the new formatand the general view of the tutor team isthat it presents a similar test of difficultyto that previously. The multiple choicequestions were a mixed bunch with manyof the discursive questions very simple,while the computations could be timeconsuming. The longer questions areconsistent with what has been examinedpreviously and will, in the immortalphrase, be “within the capability of thewell prepared student”.

F7 is very much the same issue withthe discursive MCQs on standards beingrelatively straightforward, providinglanguage is not an issue. Thecomputations really stretched thesyllabus to its edges, including a highlightof current cost accounting. A feature ofthe exam that was apparent is that only55% of the overall paper was on ‘coretopics’ and as such a broad syllabusknowledge is a now pre-requisite forexam success if it wasn’t before.

F8 has by all accounts become slightlyeasier as a result of the objective testing,reducing any time limitation issues. Themultiple choice questions were a broadmix of topics covering the syllabus asdiscussed previously. Interesting points ofnote were the introduction of elements ofcorporate governance beyond factualknowledge. This meant perversely an F8candidate would have benefittedsubstantially in this sitting from havingstudied P1 at the same sitting.

F9 has become an increasedchallenge. The comments discussedbefore are very much repeated for F9 butthe issue of time management hasincreased the challenge for students. Themultiple choice questions were tricky andthere were few areas of the papers thatwould lead to easy mark accumulation.The single saving grace will be therestriction of only certain core areas forthe largest (15 mark) questions. Thisallows for students to more easily preparefor the exam and clearly signals thepriorities of the paper. • There’s more great feedback on theseexams on our website – go to the ACCAStudy Zone at www.pqmagazine.co.uk

PQ

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PQ Magazine February 201518

PQ ACCA F7 exam

The F7 ACCA exam – FinancialReporting – has a new examformat. It now contains 20

compulsory multiple choice questionsfrom across the syllabus, each for twomarks. Let’s get practising then – hereare five to be getting on with. You will findthe answers at the bottom of this page –no peeking!

Question 1 .IAS 37 Provisions, Contingent Liabilitiesand Contingent Assets regulates thetiming and measurement of provisions.Rio is being sued for $50m by a formercustomer for breach of contract. Rio hasbeen advised by its legal advisors thatthere is an 80% chance that it will lose.The breach of contract arose becauseRio was let down by a supplier. Legaladvice is that Rio has a claim for $50magainst the supplier and the legal adviceis that this claim will probably alsosucceed.

How much should be provided for?A. Provide for $50m and recognise anasset for $50m.B. Provide for $40m and disclose in thenotes a contingent asset of $50m.C. Provide for $50m and disclose in thenotes a contingent asset of $50m.D. Provide for $40m and recognise anasset for $50m.

Question 2 .IAS 17 Leases sets out the accountingtreatment for leases. Marina Bay enteredinto a two-year operating lease on 1 July20x5. Under the terms of the leaseannual rentals are $24,000 and arepayable in advance. The reporting date is30 September 20x5.

In accordance with IAS 17 Leases, whatis the charge in the profit or loss for theyear-end 30 September 20x5 and thebalance on the statement of financialposition at 30 September 20x5?

Question 3 .March had at the start of the accountingperiod retained earnings of $900. Duringthe year, March reported a profit for theyear of $600. During the year, Marchdisposed of a revalued item of PPE andas a result in the statement of changes inequity made a transfer of $60 from othercomponents of equity into retainedearnings. At the reporting date thebalance on retained earnings was $650.

How much was the equity dividendpaid?A. $910B. $970C. $850D. Some other figure

Question 4 .Which of the following statements are

an application of the fundamentalcharacteristic of useful informationfaithful representation?(i) Recognising an asset subject to afinance lease in the financial statementsof a lessee.(ii) Accounting for the sale proceeds on asale and repurchase agreement as aloan.(iii) Accounting for the sale proceeds of adebt factoring without recourse for baddebts as a loan.(iv) The preparation of the consolidatedfinancial statements of a group.A. All of themB. (i) and (iii) onlyC. (i) (ii) and (iv) onlyD. (ii) and (iv) only

Question 5 .IAS 18 Revenue sets out the regulation

for the timing and measurement of goodsand services. Hanoi trades as a businessselling motor vehicles.

Assuming the other recognitionconditions have been met, whichstatement is the correct accounting policyin accordance with IAS 18 Revenue?A. Revenue should be recognised on thedate the customer pays for the vehicle.B. Revenue should be recognised on thedate the legal title of the vehicle and itsregistration passes to the customer.C. Revenue should be recognised on thedate the customer places the order forthe vehicle and the invoice is drawn up.D. Revenue should be recognised on thedate that the car is delivered to thecustomer.

• Tom Clendon, former PQ Lecturer ofthe Year, now works for FTMS inSingapore. He is the author of ‘A student’s guide to group accounts’,published by Kaplan Publishing, nowin its second edition.

ANSWERS

PQ

IN WITH THE NEW…The Financial Reporting paper now has multiple choice at its heart, so here Tom Clendon puts you to the test

Profit or loss expense Statement of financial position

A. $6,000 $18,000 assetB. $18,000 $6,000 liabilityC. $6,000 NilD. $24,000 Nil

1) C. Once a provision is probable thenrecognise it in full. Probable contingentassets cannot be recognised.2) A. There is a payment of $24,000 for awhole year and only three months of anexpense. 3/12 x $24,000 = $6,000expense. $24,000 less $18,000 = assetof pre-paid expense.3)A. The opening balance of RE 900 +600 + 60 = a closing balance 1,560 if nodividend paid, less 650 = 910 asdividend paid4) C. When a receivable is factoredwithout recourse the risks have passedand so the asset is derecognised.5)D. It is about when the risks andrewards pass – so physical delivery isnormally the key trigger.

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If I was the manager of a companyand the owners asked me how wellit was doing (as they would be very

likely to do if they own the company) Icould tell them that we had some lovelychairs in the meeting room, an enormouscar park, and three members of staffcalled Colin. I suspect, however, that theymay find this information of limited value;they would be far more likely to beinterested in the financial performance ofthe business. To shed light on this thereare a variety of financial performanceindicators that we can calculate. Theseare often known as ratios and can bebroken down into a few key categories.

Profitability ratios .The owners of a business are likely to bevery interested in how much money theircompany is making. ‘Profit’ is the amountof profit generated in pounds. ‘Profitability’looks at how this profit in poundscompares with some other value in theaccounts. The higher the profitability ratiosthe better.

Margins on salesMargins compare the profit in £’s to thesales revenue generated on the P&L.Since ‘margin’ is short for ‘margin onsales’ they are literally calculated as theprofit figure divided by the sales revenue,showing the result as a percentage.There are two margins that you cancalculate depending upon which profitfigure is used:1. Gross profit margin is calculated asgross profit/sales revenue x 100. Thisshows the profitability of the businessafter taking account of cost of sales.2. Net profit margin is calculated as netprofit/sales revenue x 100. This showsthe profitability of the business aftertaking account of all operating costs. Thenet profit figure is also known as ‘profitfrom operations’, ‘operating profit’ or‘profit before interest and tax’.

Returns on investmentRunning a business to generate profit willnormally involve some investment by theowners in assets (shops, machinery,vehicles, etc). We can calculate ratios tocompare the profit in £’s to a value of theassets from the balance sheet. There aretwo measures we can use dependingupon which asset value is used:1. Return on capital employed (ROCE) iscalculated as net profit/TALCL x 100. Inthis case TALCL stands for Total AssetsLess Current Liabilities.2. Return on net assets (RONA) is

calculated as net profit/net assets x 100.Net assets will be Total Assets Less TotalLiabilities (a different way of valuing thebalance sheet to TALCL).

Liquidity ratios .As well as looking at the profits currentlybeing made, the owners of the businessare likely to be keen to ensure that thebusiness is likely to continue makingthese profits in the future. The liquidityratios focus on the ability of the businessto generate cashflow.

Current ratio and quick ratioThe current ratio examines whether thevalue of liquid (or current) assets coversthe value of short-term (or current)liabilities. It is calculated as currentassets/current liabilities. A figure greaterthan 1 implies that the business shouldbe able to cover short-term liabilities.

The quick ratio does a similar job butignores the value of inventory. This isbecause inventory could potentially takequite a long time to convert into cash.The quick ratio is calculated as (currentassets – inventory)/current liabilities.

Period calculationsAnother way to examine liquidity is tolook at the length of time that eachelement of working capital exists for,namely how long it takes to collectmoney from credit customers, how longwe hold inventory for, and how long wetake to pay credit suppliers:1. Receivables collection period in days= trade receivables/credit sales x 3652. Inventory holding period in days =inventory/cost of sales x 3653. Payables payment period in days =trade payables/credit purchases (or COS)x 365

Gearing ratios .Gearing examines the way in which thebusiness is financed. The two sources offinance considered are equity (fundsraised from shareholders through issuingordinary shares) and debt (amountsborrowed from banks and other financialinstitutions). There are two ways ofcalculating the gearing of a businessalthough they are both ways ofcomparing the levels of equity and debt.1. Total Debt/Total Equity or D/E.2. Total Debt/Total Debt plus Total Equityor D/(D + E).

If a business has very high levels ofgearing it means it has a lot of borrowing,which can cause problems with coveringhigh interest rates.

20 PQ Magazine February 2015

PQ AAT exams

Gareth John explains what performance indicators are and howthey work, and sets you a test to see if you paid attention!

LET’S GET TECHNICAL

Why don’t you have a go at this exampletask? When you have finished you can seeme talk through my solution atwww.firstintuition.co.uk/blog/aat-blog.html

You have been provided with thefollowing information for two scenariosinvolving a company which operates anabsorption costing system:

Calculate the following performanceindicators for scenario 1 and 2. Give youranswers to TWO decimal places.

• Gareth John is a tutor/director withFirst Intuition and helps to managetheir AAT distance learning programme.He was PQ Magazine AccountancyLecturer of the Year in 2011

SCENARIO 1 SCENARIO 2Sales volume (units) 10,000 15,000

£ £Revenue 500,000 630,000Gross profit 220,500 255,000Profit from operations 72,000 98,700Net assets 1,250,000 1,570,000Total Equity 1,250,000 1,570,000Total Debt 650,000 1,230,000Receivables 50,685 36,250Inventory 32,150 28,750

SCENARIO 1 SCENARIO 2

Gross profit margin

Net profit margin

Return on net assets

Sales price per unitReceivables collection period in daysInventory holding period in days

Gearing (as D/(D+E))

Full production cost per unit

PQ Feb 15 p20_Layout 1 08/01/2015 10:30 Page 23

Page 21: PQ magazine February 2015

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22 PQ Magazine February 2015

PQ ACCA exams

In the second part of her article on F4 (ENG), Debbie Crossman’s test focuses on the issues arising in section B

RETURN OF F4

ANSWERS

We now have a whole new F4 exam.Hopefully, if you plan to sit F4 youalready know that the five questions

in section B will always have a scenario. Thesewill usually have three tasks (sometimes there willbe more) which in some way relate to thescenario. Each scenarion question will be for sixmarks. In this section of your exam the format ofthe tasks differs in the CBE (computer-basedexam) from those in the paper-based exam. Thusyour answer will have a different format (yourthought processes, though, are the same). Inessence, the CBE exam requires you to selectfrom various OT (objective test) tasks vaguelyrelating to the scenario, whereas the paper-basedexam requires you to write simple, short answersdirectly relating to the given scenario.

So can you answer both the tasks/requirements below? It is the same scenario asoutlined in last month’s PQ (which carriedquestions one to 10), but the taskingrequirement is adapted for the two formats ofthe exam that you are at liberty to elect for. Havea go!

Multi-task scenario – Adit, Bomb, Caring & DashiEarlier this year, Adit (an ACCA qualified auditor)audited the accounts of Bomb plc. The accountswere published with an unqualified audit report byAdit in February.

In March, Bomb plc required additional capitalfor the business to expand. The directors decidedto approach Caring Bank for a further loan as theyhad always had a successful relationship withthem in the past. The bank was reluctant at first tomake a further advance to Bomb plc, but afterlooking at the audited accounts there seemed noreason not to make the extra funds available. Theloan went ahead at the end of March.

In April, Dashi saw the audited accounts andthought that she would like to invest in Bombplc. Prior to buying shares, as she is a cautiousinvestor, she contacted Adit asking if theaccounts and auditor’s report were correct as shewas thinking of investing in Bomb plc. Aditreplied saying that he ‘stood by’ the accounts. Onthe strength of his reply, Dashi bought shares inBomb plc.

Bomb plc has now gone into liquidation and it isnow clear the accounts did not show the accuratefinancial position of the company. Adit, at the timeof the audit, did not investigate the company’saccounts properly and so failed to spot the errors.Bomb plc has a large deficiency in funds andCaring Bank will not be able to recover the wholeof the additional loan made to Bomb plc in March.Dashi’s investment is worthless.

Question 11 – CBE type .Task 1: Does Adit owe Caring Bank a duty ofcare in respect of Adit’s audit report?

A: Yes, because it is reasonably foreseeablethat a bank such as Caring would rely on thepublished accounts and reports of a company.

B: Yes, because the audit report is withinAdit’s sphere of professional expertise.

C: No, because there is lack of proximitybetween Caring Bank and Adit.

(2 marks)

Task 2: Does Adit owe Dashi a duty of care inrespect of Adit’s audit report?

A: Yes, because it is reasonably foreseeablethat an investor such as Dashi would rely on thepublished accounts and reports of a company.

B: Yes, because the audit report is withinAdit’s sphere of professional expertise.

C: No, because there is lack of proximitybetween Dashi and Adit.

(1 mark)

Task 3: Does Adit owe Dashi a duty of care inrespect of Adit’s statement that he ‘stood by’the accounts?

A: No, because it is not reasonablyforeseeable that an investor such as Dashi wouldrely on what Adit said.

B: No, because Adit’s statement should nothave been made.

C: Yes, because there is proximity betweenDashi and Adit.

(1 mark)

Task 4: Are the following statements TRUE orFALSE in respect of Adit’s audit report?

A: Adit is in breach of his duty of care solelybecause the accounts were wrong and he failedto spot the errors in them. TRUE / FALSE

B: The duty of care of a professional such asAdit is that of a reasonably competent memberof his profession. TRUE / FALSE

(2 marks)(Total 6 marks)

Question 12 – paper-based type .RequiredIn relation to the tort of negligence(a) explain whether or not Adit owes a duty ofcare to:

(i) Caring Bank (2 marks)(ii) Dashi (2 marks)(b) explain whether or not Adit is in breach of

its duty of care. (2 marks)(Total 6 marks)

• Debbie Crossman is Worldwide Team Leaderfor F4 at the London School of Business &Finance

PQ

11: Task 1: C. Task 2: C. Task 3: C. Task 4: A –FALSE. B – FALSE (but would be true if the word“duty” was replaced with “standard”).12: (a) (i) NO. Although it is reasonablyforeseeable that Caring Bank will rely on Adit’saudit statement since it was made within Adit’ssphere of professional expertise, there is lack ofproximity because the purpose of the auditedaccounts is not to enable bankers to makelending decisions – the purpose of the auditedaccounts is to enable the company to assess theperformance of the directors.(a) (ii) NO, regarding the audit report – again,lack of proximity in that the purpose of theaudited accounts is not to enable investors tomake investment decisions. YES, regarding Adit’sstatement that he ‘stood by’ the accounts – herethere is proximity. He made it knowing that Dashiwould use it for the purpose of making herinvestment decision.(b) Adit will be in breach of his duty of care if hehas failed to attain the required standard of care,namely, that of a reasonably competent auditor.The facts state that he did not investigate theaccounts PROPERLY – therefore he is in breach ofhis duty of care.

A cautionary note for those of youstudying for F4 variants other thanF4 (ENG) – this article relates to

F4 (ENG) only. Other variants of F4are examined differently. See the

ACCA’s website for more

pq feb 15 p22_Layout 1 06/01/2015 13:50 Page 26

Page 23: PQ magazine February 2015

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Page 24: PQ magazine February 2015

24 PQ Magazine February 2015

PQ CIPFA focus

I n 2013, the InternationalFederation of Accountants (IFAC)and 12 donor organisations signed

the Memorandum of Understanding tostrengthen accountancy and improvecollaboration (MOSAIC). In theProfessional Accountancy Organisation’sGlobal Development Report, published in2013, the MOSIAC Steering Committeeidentified 10 key areas of focus for PAOdevelopment activities. These included“support PAO orientation to the publicsector”, pointing out that “many PAOsstruggle to identify how they can supportthe public sector” and recommendedtargeting of development assistance tostrengthen PAO’s capacity in this area.

By way of response to this challenge,the Department for InternationalDevelopment announced, in April 2014,a £4.5m package of financial support toIFAC to help up to 10 partner countriesin Africa and Asia strengthen thecapacity of PAOs in their own country,responding to the issues raised in theMOSAIC Steering Committee report.

Essential component .Against the background of these twomajor developments, CIPFA has for sometime now recognised the need to put inplace schemes of education and trainingfor public sector finance staff, as anessential component of theprofessionalisation of public financialmanagement (PFM). While other traininginitiatives can play a part, there can beno substitute for programmes designedaccording to the requirements ofInternational Accounting EducationStandards and delivered by training staffqualified and experienced to do so.

In Bangladesh, for example, CIPFAsupports the Strengthening PublicExpenditure Management Programme(SPEMP) of the World Bank byincreasing the capacity of the FinancialManagement Academy (FIMA) of theOffice of the Comptroller and AuditorGeneral of Bangladesh, to train studentson CIPFA courses. An alliance with theDhaka-based training college LCBSDhaka has been put in place to helpensure the sustainability of theprogramme in the longer term.

Elsewhere, in a novel initiative toidentify the competencies required ofPFM staff working in the Philippinesgovernment, CIPFA, with the support ofWYG International (WYGI), developed aPFM Competency Model for finance staffworking in government as part of thegovernment’s PFM Reform Roadmap.Like many other governments around the

world, the government of the Philippinesand its ministries, departments andagencies has in the past engaged inpiecemeal and largely uncoordinatedtraining initiatives. Implementing thePFM Reform Roadmap demonstrated aneed to rise above day-to-day pressuresof task and project-specific training totake a more holistic view ofcompetencies required of finance staff.The Competency Model that CIPFA andWYGI designed covers five core PFMdisciplines: budgeting, procurement,accounting, auditing and cashmanagement, and work to implement themodel has now begun

Since 2010, CIPFA has beensupporting the ‘modernisation’ of theFederal Treasury Academy (FTA) atOrozo in Nigeria. The FTA is the financetraining arm of the federal government,and had previously offered its ownqualification to provide governmentfinance staff with the knowledge andskills needed to operate effectively. Afundamental basis of the supportprovided by CIPFA was its suite ofInternational Public FinancialManagement (IPFM) qualifications, andthe support programme concentrated onequipping staff at the FTA with the

CIPFA is rolling out its training initiatives across the globe in a bid to raise PFM standards, writes Gordon Ferrier

technical and other skills needed toprovide tuition to students enrolled on theprogramme. The CIPFA IPFMqualifications have a distinct public sectororientation that made it attractive to theAccountant General, whose staff were themajority being trained.

A consistent thread through all theseexamples of CIPFA’s work is the need tooffer distinctively public sector solutionsto long-term PFM capacity developmentneeds.

Alternatives involving staff takingcourses that develop commercial skills, orcourses that are focused on task-specifictechnical skills, have been tried andfound wanting. While it is important thatgovernments are business-like in itsoperations and financial management,government is not business.

Providing services to citizens,communities and the state often involvestransactions that do not result in inflowsof economic resources to government.For those elements of the business ofgovernment that are ‘proudly publicsector’ there is no substitute for PFMeducation and training that recognisesthose essential differences. • Gordon Ferrier, Head of GlobalMembership, CIPFA

PQ

TRAINING MATTERS

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PQ Magazine February 201526

PQ AAT ethics

With a lot of accountingsubjects you learn thetechniques to produce

certain end results – a statement offinancial position, cash-flow, break-even,VAT calculations included on a VAT form.Ethics is different! Not only have you gotto understand what, as a professionalaccountant, is required of you, but youalso have to consider how you are goingto ensure that the marker (of your exam)can see that you understand. That’s notas simple as just completing a flexiblebudget and so for a lot of students it isseen as almost ‘alien’.

To step back a little, why do you studyethics? That’s easy – you want to be anaccountant. You therefore have tounderstand what is expected of you andwhat you shouldn’t be doing; thefundamental principles of ethics. Likeunderstanding the rules of the roadbefore being given a driving licence, youhave to pass a test to show that once youare let loose on the public you willbehave in the correct manner – notspeeding past a school or driving whileon your mobile phone, for example.Likewise, understanding the penalties if

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©2014 PwC. All rights reserved This publication has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You should not act upon the information contained in this publication with-out obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication, and, to the extent

permitted by law, PricewaterhouseCoopers does not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, in reliance on theinformation contained in this publication or for any decision based on it.

CPD.” The answer would simply be“Professional competence and due care”.All you have to do to answer is to statethe subject or in this case the ethicalprinciple. The question may not ‘label’itself as ‘state’, but you can normallyidentify it easily, for example: “With whatcrime could Leonardo be charged if heretains Alana’s money without notifyingthe authorities?” So, with what = state,the answer is simply money laundering.

Another tip here is to carefully look atthe marks allocated to a task. Task 3 ofthe sample paper is worth a total of fivemarks and there are five questions, eachanswer being therefore a ‘state’. If youare at all unsure, add an explanation.

The letter E here is for Explain = stateand explain. This is the start of ‘commonerrors’. To ‘explain’ something you needto state the relevant fact and then give abrief reason(s) for why that fact is theright answer. To ‘explain the difference’between two things you should describethe two things in a way which contraststhem. When answering, you have toremember that to explain something youwill normally first of all have to prove thatyou know the ‘area’ – so first state the

you do breach the requirements will(hopefully) give you some incentive not todo so (although how many of us canhonestly say we have never driven slightlyover 30 in a built-up area?). Then thereare the safeguards – the seatbelt law,introduced because sometimes eventhough we know something may bedangerous, we just go and do it anyway.At least if we have completed our CDDwe have some protection against some ofthe potential hazards along the way.

So, how are you going to prove to amarker that you understand and canapply the fundamental principles; howcan you prove that you are ethical? Thefundamental principles are simple – don’tjust understand the rules, and what youshould be doing, also understand how tostate, explain and describe that. The keyis good exam prep, and… S.E.X!

Here, S = state. This is a very basic‘one-word’ answer. To ‘state’ somethingyou need to answer with a fact.Thequestion may say, “professionalaccountants are required to undertakecontinuing professional development(CPD). State which ONE of the fivefundamental principles is safeguarded by

THREE LITTLE LETTERSLecturer FionaWilliams has

some topadvice on

how you canprove to the

examiner thatyou knowyour ethics

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PQ Magazine February 2015 27

AAT ethics PQ

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subject – then you can explain. Now thequestion could be, “Explain whether aprofessional accountant has an obligation touphold the values of sustainability.” The statehere is a simple YES! You have to let the markerknow that you know a professional accountanthas such an obligation. You then need to explainwhy, which could include statements like theyhave a responsibility to act in the public interestand that this includes supporting sustainabilityand sustainable development and consider therisks to society as a whole of not actingsustainably (or statements to that effect!).

It is worth noting here that when you readthrough the specimen answers to ethics theseare exactly what they say – specimen. Theremay be other areas that you could consider andif these are applied correctly to the situation/question/scenario a marker can still awardmarks for your answer.

Another example of explain could be: “X is aprofessional accountant with her own small

practice. She prepares sets of accounts and taxreturns for a wide range of sole traders. In light ofher client base, explain ONE area of technicalknowledge in which X must keep up-to-date.”State = you have to identify an ‘accounting’ area– for example, accounting regulations; taxlegislation/ compliance; money launderingregulation; or accounting/reporting standards.That is stating which subject you are going toexplain and don’t forget, it states ONE in thequestion, so you only have to consider ONE (thefirst one is the only one marked). If it states TWO,do two! Then explain why… that she deals withsole traders and as such must comply with therequirements for accurate accounts preparationand tax returns, or she needs to protect herselfwith regard to potential money laundering, asapplicable to your selected area.

Lastly ‘deXcribe’ (ok, so I cheated a bit on theX here!). To ‘describe’ something you should setout what is involved without further explanation.Again, start at the beginning – state the subject.

A question here may be within a mini-scenario.The scenario (in this question) gives details ofissues with sustainability. The question wouldthen be on the lines of, “Describe FOUR ways inwhich the accountants can seek to supportsustainability and sustainable developmentwithin ABC Co itself.” Remember to state, thendescribe: State (1): the ‘triple bottom line’deXcribe (1): Accountants should take social,environmental and financial factors into accountwhen measuring position and performance, andwhen assisting with decision-making, so thatsustainable development is encouraged, thiswould help performance, which would in turnassist the sustainability of the organisation. State(2): with regard the staff “deXribe (2)” theyshould be promoting sustainable practicesthrough the organisation, for example bettertraining/CPD practices. A quote I often use is“train people well enough so that they can leave,treat them well enough so that they don’t wantto”, and then bring in the example from thescenario and show how this would assist, forexample by stating: “If you look after your staff,they'll look after your customers.” There isnothing stopping you using ‘set’ statements butremember to link them to the scenario. Then do(3) and (4).

Once you think you have completed, go backto the beginning and ‘mark’ your work. Try tobecome the marker – think to yourself, have I‘stated’, ‘explained’ and ‘described’ in enoughdetail that the marker can see that I really doknow what I should be doing? With an explain(or describe) question, have I gone back to thebeginning and stated the subject (or maybe justgiven a yes/no answer), then explained ordescribed using key words/phrases and linked tothe scenario? If it has asked for three, have Igiven three examples? Remember, the only wayyou can pass this subject is for the marker toread from your answers that you know aboutethical principles and can apply them to the(accounting) workplace. If it isn’t there (or if it iswritten in gobbledygook) you won’t get themarks, even if you knew what you wanted to say.Make your answer clear, use line spacing to‘highlight’ different parts of your answer (forexample between each of the FOUR areas).Remember, the only way (to prove) ethics isS.E.X. • Dr Fiona Williams is a lecturer in accountingat Birmingham Metropolitan College

PQ

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Page 28: PQ magazine February 2015

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PQ Magazine February 2015 29

CIMA 2015 PQ

TICK THE RIGHT BOXStudying E3? Then put yourself to the test with our sample questions. The answers are below – no cheating!

Question 1 – section A .Question type: drop down listThe management accountant and director ofoperations of Company A are in disagreementabout a profit forecast for expansion into a newmarket. The director of operations said that theduty of a management accountant was to helpmanagement, not obstruct it. The director ofoperations said he knew far better than themanagement accountant and that themanagement accountant should do as he is toldwhen instructed by a director of the board.

The director of operations also added that ifthe management accountant wanted to keep hisjob he should give the director of operations hissupport and not argue about technicalities. Headded: “The last time I had a fall-out with amanagement accountant she was asked toleave. I hope you won’t fall into the same trap.”

The situation above contains a possibleconflict with the fundamental principle of:

Confidentiality

Objectivity

Professional Competence

Professional Behaviour

Integrity

Question 2 – section A .Question type: single responseWhich of the following is NOT a benefit of e-procurement for a company that bases itscompetitive advantage on differentiation?

A. Reduction in the transactions costs ofdealing with suppliers

B. Organisations can afford for orders to beplaced more frequently and can therefore holdlower levels of inventory

C. Ability to shop around a range of suppliersto buy inputs more cheaply

D. Higher reliance on technology reducesoperational errors

Question 3 – section B .Question type: single response ‘P plc’ is based in the UK and is a highlysuccessful distributor of plumbing, heating andbuilding materials. It is the market leader in itshome country, but in the past three years itsmarket share has fallen due to increased pricecompetition from its two nearest rivals in the UK.As a result, in the past eight months P hasexpanded its operations into other Europeancountries through the acquisition of anestablished small chain of plumbing andbuilding outlets.

Which form of overseas expansion strategyhas Q undertaken through the acquisition of thesmall chain of plumbing and building outlets?

A licensing strategy

A transnational strategy

A foreign direct investment strategy

An exporting strategy

Question 4 – section B .Question type: multiple response ‘R’ is an airline company and has been advisedthat it is “stuck in the middle”, according to

Porter’s Generic Strategy model. Managementhas decided to adopt a cost focus strategy andbecome a cost leader in just a single narrowsegment of the broader industry it alreadyserves.

Select THREE statements below that are truein relation to this decision:

R will need to reduce its product rangeR will benefit from economies of scale by

serving a narrow marketR will be more exposed to risk from a

decline in this segmentR will be able to reduce investment in

marketing operations compared to competingacross the whole market

R will gain higher profits from its exclusiveposition and higher prices

Question 5 – section C .Question type: single response‘T Company’ has announced major changes tothe way the company structure will operate. T currently has four divisions:

• Consumer Products and Services (CPS)• Digital Imaging• Gaming• Mobile technologiesThe changes will mean that the CPS Division

will cease to exist and be realigned into theDigital Imaging Division with immediate effect inorder to drive revitalisation and growth.

Which of the following types of change is Tmost likely to experience?

A. AdaptationB. EvolutionC. ReconstructionD. Revolution

• Jenny Hughes, HTFT. Next month she willcover sections C to E in E3

PQ

Question 1 answer: ObjectivityRationale: The director of operations stated: “The last time I had a fall-out with a managementaccountant she was asked to leave. I hope you won’t fall into the same trap.” With this lastcomment, the director of operations has moved into an area defined by CIMA as ‘Intimidation’.Intimidation threats “may occur when a professional accountant may be deterred from actingobjectively by threats, actual or perceived”.

Question 2 answer: CRationale: For a competitive advantage based on differentiation this would not be a benefit; anycompany should consider value for money which all of the other options are.

Question 3 answer: A foreign direct investment strategy

Question 4 answer: R will need to reduce product range. R will be more exposed to risk from adecline in this segment (now only serving a narrow segment)Rationale: R will be able to reduce investment in marketing operations compared to competingacross the whole market (smaller number of customers who need to be persuaded to buy).

Question 5 answer: C – ReconstructionRationale: Types of change can be classified in a matrix according to their nature (speed) andscope (extent). This is a realignment in terms of the extent of change but is immediate so wouldbe considered a ‘big bang’ approach in terms of speed. This would classify the change asReconstruction.

ANSWERS

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Page 30: PQ magazine February 2015

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Page 31: PQ magazine February 2015

31PQ Magazine February 2015

back to basics PQ

OU lecturer JonathanWinship has written a guideto essential economics forPQs – part two next month

Accounting students need toknow more economics than theymight think. Although covered

formally at the first stage of all thechartered accounting qualifications in theUK, a good understanding of coreeconomics is still expected by examinersat the final stage. So if you are not surewhether you know your opportunity costfrom your accounting cost – as well aswhat is really meant by ‘profit’ – thefollowing is for you.

This month’s article, with a shortactivity to test what you know, is on thekey difference between accounting andeconomic costs. Next month’s is all aboutgrasping the critical difference betweenaccounting profit and economic profit.

Accounting/economic costs.Accounting costs are simply themonetary value of resources spent or‘used up’ by the organisation during anaccounting period. You should alwaysremember that the special accountingcost depreciation is the estimatedmeasure of how certain resources, suchas buildings or machines, are ‘used up’over a set period.

Depreciation in accounting is onlyconcerned with matching the cost ofresources with the income earned fromtheir use.

The matching principle is one of thecornerstones of accounting. Under thisprinciple, when you record income youalso record at the same time anyexpenses related to that income.

The term ‘depreciation’ in economics,however, has a much wider meaning.Depreciation in economics means anyloss of value of a capital good (whateconomists call non-current or fixedassets in accounting) through any formof obsolescence or fall in demand, aswell as natural deterioration or use. Thevalue of a property, for example, may fallbecause of an obstructed view, noise ornearby temporary pollution, to mentionjust a few potential causes.

Remember, by contrast, thataccounting depreciation, because it isneeded for matching purposes, focusesonly on how the cost of the property isspread over its expected lifetime.

The cost that accountants don’t tendto record, at least not in publishedfinancial statements, are opportunitycosts. For economists, opportunity costs

– the costs of giving up the bestalternative in any decision – are the mostimportant costs.

A general rule to remember .As a general rule, economic costsinclude accounting costs as well asopportunity costs. This is only a generalrule, however, because economic costs,as we have learnt, do not includeaccounting costs such as depreciation.

The following activity will help youunderstand the important distinctionbetween accounting costs and economiccosts.

ActivityTo build a lock-up garage, a companyhas to use a vacant yard that cost£4,000 but which it could now sell for£5,000, and material that it bought at asubstantial discount for £900 but whichit can now sell for £1,200 (the material issuddenly in demand because of asudden national shortage). Theremaining cost to build the garage is theuse of labour and machinery of £1,700.

Ignoring the effect of any depreciation,what is the accounting cost of buildingthe garage?

Ignoring the effect of any depreciation,what is the economic cost of building thegarage?

Solution and feedback .The accounting cost of building thegarage is the cost of the vacant yard(£4,000) plus the cost of the material(£900) plus the cost of the labour andmachinery (£1,700). The total cost is

Essential economics

thus £4,000 + £900 + £1,700 = £6,600.The economic cost of building the

garage is the opportunity cost of thevacant yard (£5,000) plus the opportunitycost of the material (£1,200) plus theaccounting cost of the labour andmachinery (£1,700). The total economiccost is thus £5,000 + £1,200 + £1,700 =£7,900.

Did you get both questions correct?You should have noticed that when thereis both an accounting and an opportunitycost of something – such as the vacantyard (accounting cost of £4,000 andopportunity cost of £5,000) and thematerial (£900 and £1,200), theeconomic cost always includes theopportunity cost rather than theaccounting cost. In the example given,only the accounting cost of the labourand machinery is known (£1,700), so thisis the cost included in the economic costas well as the accounting cost.

It is important to realise thataccountants use economic costs fordecision making, but accounting costs forthe bookkeeping records that underliepublished financial statements. Becauseeconomic costs are used for decisionmaking – such as whether to buy amachine or a car – they have come toalso be known as ‘relevant costs’.

In next month’s article we will look atthe crucial difference between economicprofit and accounting profit. • Jonathan Winship is a lecturer at TheOpen University Business School andone of the authors of The OpenUniversity Professional Certificate inAccounting

PQ

Karl Marx, one of thefounding fathers ofmodern economic theory

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PQ Magazine February 201532

PQ how to study

I always find it interesting the looks Iget from a classroom of studentswhen I tell them that they should

keep themselves abreast of the financialand business news. As tutors, when wegive out advice such as use headings, sub-headings, write legibly, etc, it’s not becausethis is how we think it should be done, it’sbecause this is what the examiners havetold us to communicate to students whenwe have met them at educationalconferences.

The same goes for the advice: ‘take aninterest in the financial press – it will adddepth and relevance to your answer’.Examination answers in subjects involvingbusiness and financial strategy, casestudies, etc, will be enhanced by a generalappreciation of what is happening in worldeconomics, business and finance.

The other thing to appreciate is that itwill enhance a student’s understanding oftheir everyday work environment as well.And it’s actually quite interesting!

Such an appreciation will help bring yourexam answers to life. Commercialawareness, enriched by an appreciation ofthe outside business environment, willalways help a student produce an answerthat is useful to the ‘client’ in the question.

Therefore to be useful, a candidateneeds to be informed. This comes,obviously, through experience, but alsothrough a desire to read, listen anddiscuss.

So what’s happening today that could be ofrelevance to a business or financial strategy orcase study style exam?Upcoming General Election: Who will be inpower after the election on 7 May? How will theyapproach the deficit problem? History wouldsuggest that a Labour victory would lead to anincrease in government spending – majorinvestment projects will begin again, creating

opportunities for the construction industry, forexample.Interest rates: We know they have got toincrease but when? The very low inflation rateswe are experiencing right now have forced MarkCarney, Governor of the Bank of England, to saythat an interest rate rise won’t be any time earlyin 2015. This keeps cost of capital low for awhile longer.Exchange rates: Low interest rates do mean,

however, that there is an expectedweakening of sterling as potential investorsdon’t move into UK investments asexpected. This is good news for exporters –remember, weak sterling means exportsare relatively cheap.Oil prices: The price of oil is relatively low.Prices at the pumps have been fallinggradually all year. Oil drives the economyand so, if oil falls in price, then a lot ofother commodities will follow (adding tothe low inflation we are experiencing). Italso means company costs will fall andprofits will increase, so will this lead to areal rise in wages?Change of strategy: BT wants to buy backO2 (formerly BT Cellnet). O2 was spun offby BT back in 2002 to great success,leading to an increase in shareholderwealth as shareholders could see thatspecific management would be in chargeof running the individual companies. Nowthey want to bring it back in house – itgoes against logic and market fashions forme – but what do you think? What doother commentators say?Economic growth: The UK economy isgrowing, and has done for a couple ofyears, yet David Cameron warned us aboutthe ‘red lights flashing’ in a slowing worldeconomy and, specifically for us, Europe.We export mainly to Europe and theireconomy is flatlining, so how might thisimpede our continued recovery? It’s not

limited to Europe, though. The BRIC economies– Brazil, Russia, India and China – are alsoslowing. Personally, I don’t see a need to panic.Commodity prices will fall as less is being‘sucked in’ by the BRIC economies. This canonly help lower UK business cost base andincrease profits.

But don’t take my word for it, get involved! It’sa fascinating world out there. • Matt Holden, Reed Business School

PQ

Read the FT for profit

Sorted, thanks topqjobs.co.uk

Matt Holden explains why it’s important thatyou keep up-to-date with the business press –

and that includes PQ magazine!

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PQ Magazine February 2015

careers PQ

The workplace: planning your next moveKaren Young, Director at HaysAccountancy & Finance offers adviceon career planning for PQs

Many of you may have just taken your exams and bewaiting for the results. Some of you will no doubt bethinking about your career options as we enter a newyear. As a PQ you are at an exciting and veryimportant period of your working life, and having aplan in place will ensure you are prepared for thenext step, whatever your results. Decisions made atthis stage can affect the rest of your career, so planahead now to set the foundation for a successfulfuture ahead.

Our recentsurvey of over1,250accountancyand financeemployersshowedemployers andemployees aremore confidentthan they havebeen for severalyears. The goodnews is thatthis meansthere are morejob openings for PQs and NQs, but also a greaternumber of candidates applying for these jobs.Considering your career path and addressing anygaps in your skills and experience will give you anadvantage when competing for the best of these newopportunities.

Plan for the future Whether you are planning to move jobs or progressin your current role, you need to dedicate time tomanage your own career. Think about your skills,what you enjoy doing and where you want to be.Whether you measure success by promotionopportunities, contribution to society or addressingyour work-life balance, the first step is to identifyyour personal and career goals and motivations.

Bridge any gapsOnce you know where you want to be, it’s mucheasier to figure out how to get there. Breaking yourlong-term aspirations down into short- to medium-term goals makes them more manageable, andenables you to take those first steps towardsreaching them. You might realise you need to take atraining course to learn new skills or fresh old ones,or develop your IT or language skills through onlinelearning.

Ask for adviceWhile nobody will care more about your careerplanning than you, seeking the support of experts

can help you inyour current roleand job search.Managers andcolleagues will giveguidance, while amentor can oftenhelp provide avaluable externalperspective onyour career path.Talking to anexpert recruitercan help highlightthe skills andexperience thatyou might be

missing – even if you’re not planning to move rightaway. A recruiter can help give your career planscontext and highlight what employers are looking for.

Keep positive If your exam results were not what you had hopedfor, think carefully about why you failed beforerushing to retake them, and figure out what you cando to increase your chances of success next time.Keeping focused on your career plan will helpmotivate you for the next set of exams.

For more information and accessto job opportunities visitwww.hays.co.uk/accountancy• Karen Young is a Director at HaysAccountancy & Finance

33

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

The Small Big by Steve Martin, NoahGoldstein and Robert Cialdini (ProfileBooks, £11.99)So it’s finally been proved – the littlethings really do matter. In their bookThe Small Big, intellectual heavy-weights Martin, Goldstein andCialdini argue that making even tinyadjustments to strategies orprocesses can glean the greatest ofrewards. But this is far fromacademic thesis; it is an invaluable

handbook for thosewanting to progessboth the fortunes oftheir firm and theirown careerprospects. This bookis broken down into52 bite-sizedchapters, eachtackling a specifictheme or conundrum– for example,

chapters are entitled ‘What small bigcan ensure your influence attemptsdon’t backfire?’, and ‘What small bigcan help you keep your customershooked?’. Each deals with thepsychology behind the decisions weall make and there are somesurprising revelations; in the formerchapter mentioned above,experiments showed that whererecycling facilities are provided,office workers actually waste moreresources than where there are none(in other words, the law ofunintended consequences). For morethis and countless fascinatingscenarios, you are going to have tobut this book.PQ rating: 5/5: Gripping stuff

Gautam Agarwal, 33, is a senior associate based in Kopmangatan, Sweden. He hasworked for the firm for three years. Gautam has masters degree in accountancy andfinance from Umeå University. The AIA Student of the Year, he speaks four languages

Life at EY, Sweden

What time does your alarmclock go off on a workingday? 7:15am.What’s the first thing you dowhen you get to your desk?Read my emails.What’s on yourdesk? My laptop.What’s the bestthing about whereyou work? The people.Where’s yourfavourite place to gofor lunch? Home.What (or who) can yousee when you sit at

your desk? My boss.Which websites are yourfavourites and why? None.Which websites do you usefor work? Anything from the

client’s website to thecentral banks’websites.How many hours aweek do you spendin meetings? Twoto three hours. What time do youleave the office?8pm.

How do you relax? Running

What’s your favourite tipple?Orange juice.How often do you take workhome with you? Often.What is your favourite TVshow? Any news programme.Summer or winter? Winter.Pub or club? Pub.Who is your hero? My mom.If you had a time machine,where would you go? To thekingdom of Kublai Khan.If you hadn’t chosenaccountancy, where mightyou be right now? I’d be acowboy in Calgary, Canada.

Social media rulesEvery accountant aged under 30

is engaged in social media, accordingto research from Wolters Kluwer. Thiscompares with 55% of accountantsover 60. Perhaps more revealing is thefact that the majority of accountantssurveyed say they are listeners (76%),not contributors (24%).

Bonuses on the upUK accountants are expecting to

receive their biggest bonuses in fouryears (as a percentage of their basicsalary), says new research. Theaverage bonus for 2014/15 is thoughtto be 19% – up from 17.5% a yearago. If their hopes are fulfilled thatmeans accountants will take home£12,691 on average during bonusseason (Christmas 2014 to Q1 2015).

In brief

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Resources, hints and tips for

Part-Qualified Accountants

reedpqhub.com

NEW YEAR’ S RESOLUTION

FIND MY DREAM JOB

reedglobal.com/accountancyjobs

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Farnham office: 01252 718777

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Weybridge office: 01932 901900

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aim your career sights higher

www.howett-thorpe.co.uk

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CAREER PLANNINGALL WRAPPED UP

© 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

After a long hard year and with the holiday season now behind us, now’s the

perfect time to start planning your career for the next 12 months. Don’t leave

it to chance by wishing for an opportunity to come along, talk to the experts.

At Hays we specialise in recruiting part-qualified accountants, meaning we

can help plan your career around you. From managing your online profile and

showcasing your skills and experience, to networking, updating your CV or

just having a confidential chat, we have all the resources to make your career

resolutions come true.

And as a leading recruiter in accountancy and finance, working with leading

organisations across the UK, we already have some of the best opportunities

waiting for you.

To find out more about planning your career for the new year, or to see our latest

jobs, contact Shahid Nawaz on 020 3465 0017 or email [email protected].

Alternatively visit hays.co.uk/ofces to find our nearest Hays ofce.

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1A Please indicate accountancy body you belong to and tick the box of the next set of exams

you are hoping to sit

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PQ Magazine February 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 Wednesday 11 February 2015. The main draw will take place on Friday 13 February 2015

TO ENTER THESE GIVEAWAYS EMAIL [email protected]

Sporting LegendsWe have three BBC ‘Sporting Legends: Intheir own words’ audio books to give away(worth £60). This six-CD box set includesover five hours of interviews with five of thegreatest sportsmen of all time, taken fromBBC radio and TV archives. The five areMuhammad Ali, George Best, Fred Perry,Brian Clough and Stirling Moss. For a chance of winning this collection send your name and addressto [email protected], heading up your email ‘Legends’.

Fighting corporate abuseWe have three copies of ‘Fighting Corporate Abuse:Beyond Predatory Capitalism’ to give away this month.This book offers a dynamic account of how to fightcorporate sector abuse using new regulatory and legalreforms. It offers practical proposals, outlining how eachof these abuses could be curtailed and how moreacceptable and accountable form of corporate capitalismcan be developed through international action.To enter this giveaway all we need is your name andaddress emailed to [email protected]. Headup your email ‘Corporate abuse’.

HOW MUCH?CIPFA recently bid farewell to its Robert Street HQ in centralLondon. Over the Christmas breakit moved to swanky new premisesnear Tower Bridge. CIPFA believesthat the City is moving east. Itpicked up a good price for theCETC office in Borough HighStreet and Robert Street – wethink around £20m. However, theinstitute sold two car parkingspaces for a more impressive£900,000. If only it had a beachhut or garage to throw in too!

EXAMHALL TORTUREACCA PQs have towait until June tosit the exams allover again. Somemay need thebreak more thanothers. It appearsone PQ is far fromhappy with aninvigilator at Excelin London inDecember, whoseemed to havebathed inaftershave. His‘strong’ and ‘notnice smelling’presence gave ourPQ a headache!Meanwhile,another PQ wantedto complain aboutbadly behavedsitters in her hall.One guy just kepthitting the desk,while anothercontinually madegrunting sounds!They sent hercrazy.

JUST TAKE OUTANOTHER LOAN The Chancellor mademuch of paying off ourFirst World War debt inthe Autumn Statement.But was that what wasreally happening? Well,no. The Treasury is payingoff £1.9bn of debt on120,000 bonds. But it isdoing it by taking out, youguessed it, another loan –albeit below the 3.5%interest it is currentlypaying. The best tweet on#AS2014 came from MPStella Creasy. She said:“Hmmm… never heardthat phrase before‘aggressive tax planning’,

images of accountantsdressed as gladiatorsusing spears.” Really? Google must also beproud. It has managed tohave a tax named after it!The Diverted Profits Taxwas quickly dubbed the‘Google tax’, thanks to itsefforts in squirrellingprofits overseas.

DUTY-FREESHOPPINGNot one but seven Gambian diplomatshave been found guilty of cheating theUK taxpayer out of almost £4.8m. Theyused the London embassy as a front tosell pouches of tax-free tobacco – butonly the small matter of 500,000pouches, or 29 tonnes of rolling tobaccoto you and me. At times there werequeues outside the embassy waiting toget hold of their cheap packets of GoldenVirginia. The main man behind the scamwas recently sentenced to seven years atHer Majesty’s pleasure.

FROM PQMAGAZINE TOTHE DAILY MAILReaders of the Daily Mailgot a full dose of our veryown Professor Prem Sikkarecently, via its MondayView column. Prem hadthe Big 4 in his sights andpointed out that of their£75bn income around£25bn comes from taxadvice. Why, he asked,had they escapedretribution for their role intax avoidance and duffaudits of banks? Are theyseen as ‘too big to close’,he wondered.

PICTURE PERFECTHow much do you love your college? Well,it is going to be hard to beat ReedBusiness School’s alumi. The collegeoffered a £100 prize for the best studentphoto, and there was some great, inventiveentries. We loved the fine fellows whospelled out Reed in the leaves, but ourfavourite was this jump for joy – nice work!

NO BENDING THE RULESPilates – is it ‘a recreation’ or ‘an educational activity’? Itmatters, because one has 20% VAT attached to it!Former dancer Christine Hocking insisted that pilatesrequires “an intellectual understanding of the living,moving body”. So for her that makes it VAT exempt inthe same way as private educationaltuition. Unfortunately, Judge RogerBerner and his fellowtribunal membersruled it to berecreational.

Two parking spaces? Yours for £900k!

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