ACCA Study Guide

study guide
professional scheme
JUNE AND DECEMBER 2006
Every effort has been made to ensure that the information in this booklet is accurate and up to date at the time of going to press. ACCA accepts no liability for inconvenience or loss caused by the publication of any out of date or inaccurate information. No part of this publication may be reproduced in any format, without prior written permission of ACCA. October 2005
If you have any queries concerning the new study guide, please direct them to: Education Department ACCA 29 Lincoln's Inn Fields London WC2A 3EE United Kingdom tel: +44 (0)20 7059 5833 fax: +44 (0)20 7059 5968 e-mail: education@accaglobal.com Additional information can be accessed on the ACCA website at: www.accaglobal.com The Association of Chartered Certified Accountants
ACCA is the largest and fastest-growing international accountancy body, with over 345,000 students and members in 170 countries. ACCA's reputation is grounded in 100 years of providing quality accounting and financial qualifications. With a predominantly young and dynamic membership, ACCA aims to create value for the profession and the business community.
Objectives of the Study Guide
This Study Guide is designed to help you plan your studies and to provide a more detailed interpretation of the syllabus for ACCAs professional examinations. It contains both the Syllabus and Study Sessions for each paper, which you can follow when preparing for the examination. The Syllabus outlines the content of the paper and how that content is examined. The Study Sessions take the syllabus content and expand it into study sessions of similar length. These sessions indicate what the examiner expects of candidates for each part of the syllabus, and therefore gives you guidance in the skills you are expected to demonstrate in the examinations. The time to complete each session will vary according to your individual capabilities and the time you have available to study. However, repeated coverage of the material is vital to ensure your understanding and recall of the subject. Be sure to practice questions from your textbook or past examination papers to consolidate your knowledge.
RELEVANT STUDY MATERIAL There are a number of sources from which you can obtain a series of materials written for the ACCA examinations. These are listed below: FTC Foulks Lynch ACCAs official publisher Contact number: +44 (0)118 989 0629 Website: www.financial-training.com/new/ foulkslynch Accountancy Tuition Centre (ATC) International Contact number: +44 (0)141 880 6469 Website: www.ptc-global.com BPP Contact number: +44 (0)20 8740 2222 Website: www.bpp.com Details of textbooks relevant to particular subjects are included in the syllabus for each paper. Wider reading is also desirable, especially regular study of relevant articles in ACCAs student accountant. Any changes to the Syllabus, Study Sessions and examination rules will be published in ACCAs student accountant.
LEARNING HOURS These are recommended hours and are for guidance only. Part 1 35 credits per paper (350 learning hours per paper) Part 2 40 credits per paper (400 learning hours per paper) Part 3 40 credits per paper (400 learning hours per paper) Each paper is divided into 28 study sessions. Tuition providers offering face-toface tuition are recommended to design courses with a minimum of 3 hours tuition per study session for ACCA Professional Scheme papers. Many tuition providers condense these hours for part-time and revision courses, in which case students should be offered clear guidance on the study session areas to be covered by selfstudy.
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Contents Contents
Please note that this book contains the 2005 examination syllabus. ACCA continually updates its syllabuses to reflect the rapidly changing accounting environment. If you are sitting exams in 2004, please refer to the ACCA website for the relevant syllabus details.
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Objectives
PAGE 50 PAGE 70 PAGE 16 PAGE 25 PAGE 32
PART 1 1.1 1.1 1.2 1.3 Preparing Financial Statements (INT) Preparing Financial Statements (GBR) Financial Information for Management Managing People
PAGE 39 PAGE 40 PAGE 48 PAGE 54 PAGE 62 PAGE 71 PAGE 79 PAGE 87 PAGE 95
PART 2 2.1 2.2 2.3 2.4 2.5 2.5 2.6 2.6 Information Systems Corporate and Business Law Business Taxation (GBR) Financial Management and Control Financial Reporting (INT) Financial Reporting (GBR) Audit and Internal Review (INT) Audit and Internal Review (GBR)
PAGE 103 PAGE 105 PAGE 117 PAGE 129 PAGE 138 PAGE 148 PAGE 155 PAGE 166 PAGE 173 PAGE 180
PART 3 3.1 3.1 3.2 3.3 3.4 3.5 3.6 3.6 3.7 Audit and Assurance Services (INT) Audit and Assurance Services (GBR) Advanced Taxation (GBR) Performance Management Business Information Management Strategic Business Planning and Development Advanced Corporate Reporting (INT) Advanced Corporate Reporting (GBR) Strategic Financial Management
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1
This section contains the syllabus and study sessions for each paper within Part 1 of the ACCA Professional Syllabus. 1.1 Preparing Financial Statements 1.2 Financial Information for Management 1.3 Managing People THE OBJECTIVE OF PART 1 This stage sets the scene for the accountancy profession. The examinations concentrate on basic knowledge and skills which form the platform from which professional competence can be developed. The knowledge and skills will be tested separately by subject and will be limited to straight-forward examples of application required as a prelude to more complex problems in Part 2. SKILLS TO BE TESTED IN PART 1 Candidates should be able to demonstrate the ability to: identify and retrieve information requested make basic judgements on the value of an item of information use and apply concepts and techniques in a straightforward practical context identify the components of a basic problem and provide a solution present information requested in a logical format and communicate information clearly and succinctly.
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Paper 1.1 Preparing Financial Statements (INT)
AIM To develop knowledge and understanding of the techniques used to prepare financial statements, including necessary underlying records, and the interpretation of financial statements for incorporated enterprises, partnerships and sole traders. OBJECTIVES On completion of this paper candidates should be able to: describe the role and function of external financial reports and identify their users explain the accounting concepts and conventions used in preparing financial statements record and summarise accounting data maintain records relating to non-current asset acquisition and disposal prepare basic financial statements for sole traders, partnerships, incorporated enterprises and simple groups appraise financial performance and the position of an organisation through the calculation and review of basic ratios demonstrate the skills expected in Part 1. POSITION OF THE PAPER IN THE OVERALL SYLLABUS No prior knowledge is required before commencing study for Paper 1.1. The basic financial accounting in Paper 1.1 is developed in Paper 2.5 Financial Reporting and Paper 3.6 Advanced Corporate Reporting. Knowledge from
3.6 Advanced Corporate Reporting
3.1 Audit and Assurance Services
2.5 Financial Reporting
2.6 Audit and Internal Review
1.1 Preparing Financial Statements
Paper 1.1 provides the background to Paper 2.6 Audit and Internal Review. SYLLABUS CONTENT Note: The extent to which accounting standards are examinable is indicated halfyearly in student accountant - in February for the June examination and in September for the December examination. 1 General framework (a) Types of business entity incorporated entities, partnerships and sole traders. (b) Forms of capital and capital structures in incorporated entities. (c) The roles of the International Accounting Standards Board (IASB), the Standards Advisory Council (SAC) and the International Financial Reporting Interpretations Committee (IFRIC). (d) Application of International Accounting Standards (IASs) and International Financial Reporting Standards (IFRSs) to the preparation and presentation of
financial statements. (e) The IASBs Framework for the Preparation and Presentation of Financial Statements (paragraphs 1 to 46 only). 2 Accounting concepts and principles (a) Basic accounting concepts and principles as stated in the IASBs Framework for the Preparation and Presentation of Financial Statements and relevant International Accounting Standards (b) Other accounting concepts (i) historical cost (ii) money measurement (iii) entity (iv) dual aspect 3 Double-entry bookkeeping and accounting systems (a) Double-entry bookkeeping and accounting systems
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Preparing Financial Statements (INT) (Continued)
(i) form and content of accounting records (manual and computerised) (ii) books of original entry, including journals (iii) accounts receivable and accounts payable ledgers (iv) cash book (v) general ledger (vi) trial balance (vii) accruals, prepayments and adjustments (viii) asset registers (ix) petty cash. (b) Confirming and correcting mechanisms (i) control accounts (ii) bank reconciliations (iii) suspense accounts and the correction of errors. (c) General principles of the operation of a sales tax. (d) Computerised accounting systems. 4 Accounting treatments (a) Non-current assets, tangible and intangible (i) distinction between capital and revenue expenditure (ii) accounting for acquisitions and disposals (iii) depreciation definition, reasons for and methods, including straight line, reducing balance and sum of digits (iv)research and development (v) elementary treatment of goodwill. (b) Current assets (i) inventory
(ii) accounts receivable, including accounting for irrecoverable debts and allowances for receivables (iii) cash. (c) Current liabilities and accruals. (d) Shareholders equity. (e) Events after the balance sheet date. (f) Contingencies. 5 Financial statements (a) Objectives of financial statements. (b) Users and their information needs. (c) Key features of financial statements (i) balance sheet (ii) income statement (iii) cash flow statement (iv) notes to the financial statements (examined to a limited extent see d (iii) below). (d) Preparation of financial statements for: (i) sole traders, including incomplete records techniques (ii) partnerships (iii) limited liability companies, including income statements and balance sheets for internal purposes and for external purposes and preparation of basic cash flow statements for limited liability companies (excluding group cash flow statements), all in accordance with International Accounting Standards. The following notes to the financial statements will be examinable: Statement of changes in equity Non-current assets
Events after the balance sheet date Contingent liabilities and contingent assets Research and development expenditure (iv) groups of companies preparation of a basic consolidated balance sheet for a company with one subsidiary. 6 Interpretation (a) Ratio analysis of accounting information and basic interpretation. EXCLUDED TOPICS The syllabus content outlines the areas for assessment. No questions will be asked on: clubs and societies, or goodwill arising on change of personnel in partnerships. KEY AREAS OF THE SYLLABUS The objective of Paper 1.1, Preparing Financial Statements, is to ensure that candidates have the necessary basic accounting knowledge and skill to progress to the more advanced work of Paper 2.5 Financial Reporting. The two main skills required are: The ability to prepare basic financial statements and the underlying accounting records on which they are based. An understanding of the principles on which accounting is based.
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The key topic areas are as follows: preparation of financial statements for limited liability companies for internal purposes or for publication preparation of financial statements for partnerships and sole traders (including incomplete records) basic group accounts consolidated balance sheet for a company with one subsidiary basic bookkeeping and accounting procedures accounting conventions and concepts interpretation of financial statements cash flow statements accounting standards (as listed in the exam notes) APPROACH TO EXAMINING THE SYLLABUS The paper based examination is a three hour paper constructed in two sections. Both sections will draw from all parts of the syllabus and will contain both computational and non-computational elements. Number of Marks Section A: 25 compulsory multiple choice questions (2 marks each) Section B: 5 compulsory questions (8 12 marks each) 50 100 Paper 1.1 can also be taken as a three hour computer based examination. 50
ADDITIONAL INFORMATION Candidates need to be aware that questions involving knowledge of new examinable regulations will not be set until at least six months after the last day of the month in which the regulation was issued. The Study Guide provides more detailed guidance on the syllabus. Examinable documents are listed in the Exam Notes section of the student accountant, in February for the June examination and in September for the December examination. RELEVANT TEXTS There are a number of sources from which you can obtain a series of materials written for the ACCA examinations. These are listed below:
These publications are based on international terminologies and accounting standards. Candidates may also find the following texts useful. However, these publications are based on UK terminology and accounting standards.
Texts covering the whole syllabus: F Wood and A Sangster Business Accounting 1 (9th Edition) Pitman ISBN 0273655523 (excluding chapters 21, 36, 37, 38, 40, 42, 43, 44, 45, 46, 48) plus chapters 3, 8, 10, 11, 12, 13, 14, 16, 17, 18, 27, 28, and 29 of Business Accounting 2 (10th Edition) Pitman ISBN 0273693107 Wider reading is also desirable, especially
FTC Foulks Lynch ACCA's official publisher Contact number: +44 (0)118 989 0629. Website: www.financial-training.com/new/ foulkslynch Accountancy Tuition Centre (ATC) International Contact number: +44 (0)141 880 6469. Website: www.ptc-global.com BPP Contact number: +44 (0)20 8740 2222 Website: www.bpp.com
regular study of relevant articles in ACCA's monthly magazine student accountant.
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STUDY SESSIONS 1 Introduction to Accounting (a) Define accounting recording, analysing and summarising transaction data. (b) Explain types of business entity (i) sole trader (ii) partnership (iii) limited liability company. (c) Explain users of financial statements and their information needs. (d) Explain the main elements of financial statements: (i) balance sheet (ii) income statement. (e) Explain the purpose of each of the main statements. (f) Explain the nature, principles and scope of accounting. (g) Explain the regulatory system: International Accounting Standards Board (IASB), the Standards Advisory Council (SAC) and the International Financial Reporting Interpretations Committee (IFRIC). (h) Explain the difference between capital and revenue items. 2 Basic balance sheet and income statement (a) Explain how the balance sheet equation and business entity convention underlie the balance sheet. (b) Define assets and liabilities. (c) Explain how and why assets and
liabilities are disclosed in the balance sheet. (d) Draft a simple balance sheet in vertical format. (e) Explain the matching convention and how it applies to revenue and expenses. (f) Explain how and why revenue and expenses are disclosed in the income statement. (g) Illustrate how the balance sheet and income statement are interrelated. (h) Draft a simple income statement in vertical format. (i) Explain the significance of gross profit and gross profit as a percentage of sales. 3 & 4 Bookkeeping Principles (a) Identify the main data sources and records in an accounting system. (b) Explain the functions of each data source and record. (c) Explain the concept of double entry and the duality concept. (d) Outline the form of accounting records in a typical manual system. (e) Outline the form of accounting records in a typical computerised system. (f) Explain debit and credit. (g) Distinguish between asset, liability, revenue and expense accounts. (h) Explain the meaning of the balance on each type of account. (i) Illustrate how to balance a ledger account. (j) Record cash transactions in ledger accounts.
(k) Record credit sale and purchase transactions in ledger accounts. (l) Explain the division of the ledger into sections. (m) Record credit sale and purchase transactions using day books. (n) Explain sales and purchases returns and demonstrate their recording. (o) Explain the general principles of the operation of a sales tax and prepare the consequent accounting entries. (p) Explain the need for a record of petty cash transactions. (q) Illustrate the typical format of the petty cash book. (r) Explain the importance of using the imprest system to control petty cash. (s) Extract the ledger balances into a trial balance. (t) Prepare a simple income statement and balance sheet from a trial balance. (u) Explain and illustrate the process of closing the ledger accounts in the accounting records when the financial statements have been completed.
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5 The journal; ledger control accounts; bank reconciliations (a) Explain the uses of the journal. (b) Illustrate the use of the journal and the posting of journal entries into ledger accounts. (c) Explain the types of error which may occur in bookkeeping systems, identifying those which can and those which cannot be detected by preparing a trial balance. (d) Illustrate the use of the journal in correcting errors, including the use of a suspense account. (e) Prepare statements correcting profit for errors discovered. (f) Explain the nature and purpose of control accounts for the accounts receivable and accounts payable ledgers. (g) Explain how control accounts relate to the double entry system. (h) Construct and agree a ledger control account from given information. (i) Explain and prepare bank reconciliation statements including the need for entries in the cash book when reconciling. 6 Computerised accounting systems (a) Compare manual and computerised accounting systems. (b) Identify the advantages and disadvantages of computerised systems. (c) Describe the main elements of a computerised accounting system.
(d) Describe typical data processing work. (e) Explain the use of integrated accounting packages. (f) Explain the nature and use of microcomputers. (g) Explain other business uses of computers. (h) Explain the nature and purpose of spreadsheets. (i) Explain the nature and purpose of database systems. 7 The financial statements of a sole trader 1: inventory, accruals and prepayments (a) Revise the format of the income statement and balance sheet from Sessions 1 and 2. (b) Explain the need for adjustments for inventory in preparing financial statements. (c) Illustrate income statements with opening and closing inventory. (d) Explain and demonstrate how opening and closing inventory are recorded in the inventory account. (e) Discuss alternative methods of valuing inventory. (f) Explain IASB requirements for inventories. (g) Explain the use of continuous and period end inventory records. (h) Explain the need for adjustments for accruals and prepayments in preparing financial statements. (i) Illustrate the process of adjusting for accruals and prepayments in preparing
financial statements. (j) Prepare financial statements for a sole trader including adjustments for inventory, accruals and prepayments. (k) Explain and demonstrate how to calculate the value of closing inventory from given movements in inventory levels, using FIFO (first in first out) and AVCO (average cost). 8 The financial statements of a sole trader 2: depreciation, irrecoverable debts and allowances for receivables (a) Revise the difference between noncurrent assets and current assets. (b) Define and explain the purpose of depreciation. (c) Explain the advantages and disadvantages of the straight line, reducing balance and sum of the digits methods of depreciation and make necessary calculations. (d) Explain the relevance of consistency and subjectivity in accounting for depreciation. (e) Explain and illustrate how depreciation is presented in the income statement and balance sheet. (f) Explain and illustrate how depreciation expense and accumulated depreciation are recorded in ledger accounts. (g) Explain the inevitability of irrecoverable debts in most businesses. (h) Illustrate the bookkeeping entries to
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write off an irrecoverable debt and the effect on the income statement and balance sheet. (i) Illustrate the bookkeeping entries to record irrecoverable debts recovered. (j) Explain the difference between writing off an irrecoverable debt and making an allowance for receivables. (k) Explain and illustrate the bookkeeping entries to create and adjust an allowance for receivables. (l) Illustrate how to include movements in the allowance for receivables in the income statement and how the closing balance of the allowance may appear in the balance sheet. (m) Prepare a set of financial statements for a sole trader from a trial balance, after allowing for accruals and prepayments, depreciation, irrecoverable debts and allowances for receivables. 9 & 10 Incomplete records (a) Explain techniques used in incomplete record situations: (i) Calculation of opening capital (ii) Use of ledger accounts to calculate missing figures (iii) Use of cash and/or bank summaries (iv)Use of given gross profit percentage to calculate missing figures. (b) Explain and illustrate the calculation of profit or loss as the difference between opening and closing net assets.
11 Revise all work to date 12 & 13 Partnership Accounts (a) Define the circumstances creating a partnership. (b) Explain the advantages and disadvantages of operating as a partnership, compared with operating as a sole trader or limited liability company. (c) Explain the typical contents of a partnership agreement, including profit-sharing terms. (d) Explain the accounting differences between partnerships and sole traders: (i) Capital accounts (ii) Current accounts (iii) Division of profits. (e) Explain and illustrate how to record partners shares of profits / losses and their drawings in the accounting records and financial statements. (f) Explain and illustrate how to account for guaranteed minimum profit share. (g) Explain and illustrate how to account for interest on drawings. (h) Draft the income statement, including division of profit, and balance sheet of a partnership from a given trial balance. Note: Goodwill arising on the admission and retirement of partners, amalgamation and dissolution are not
examinable. However, questions on partnership income statements may include the effect of the admission of new partners and the retirement of partners on the profit-sharing arrangements. 14 Accounting concepts and conventions; the IASBs Framework for the Preparation and Presentation of Financial Statements (the Framework) and the IASB standard on the presentation of financial statements (a) Explain the need for an agreed conceptual framework for financial accounting. (b) Explain the importance of the following accounting conventions (not mentioned in the Framework): (i) Business entity (ii) Money measurement (iii) Duality (iv) Historical cost (v) Realisation (vi)Time interval. (c) Revise the users of financial statements from Session 1. (d) Explain the qualitative characteristics of financial statements as described in paras. 24 to 46 of the Framework (Revision from Session 1). (e) Explain the IASB requirements relating to accounting policies.
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(f) Explain the advantages and disadvantages of historical cost accounting (HCA) in times of changing prices. (g) Explain in principle the main alternatives to HCA: (i) Current purchasing power accounting (CPP) (ii) Current cost accounting (CCA) Note: computational questions on CPP and CCA will not be set. (h) Explain the IASB requirements governing revenue recognition 15 Accounting for limited liability companies 1 basics Note: The inclusion of an introductory coverage of company accounts at this point is to enable students to practise the work so far on financial statements using questions on limited liability companies, and also to facilitate understanding of reserves referred to in the next Session. (a) Explain the differences between a sole trader and a limited liability company. (b) Explain the advantages and disadvantages of operating as a limited liability company rather than as a sole trader. (c) Explain the capital structure of a limited liability company including: (i) Authorised share capital (ii) Issued share capital (iii) Called up share capital
(iv) Paid up share capital (v) Ordinary shares (vi)Preference shares (vii) Loan notes. (d) Explain and illustrate the share premium account (e) Explain and illustrate the other reserves which may appear in a company balance sheet. (f) Explain why the heading retained earnings appears in a company balance sheet. (g) Explain and illustrate the recording of dividends (h) Explain the impact of income tax on company profits and illustrate the ledger account required to record it. (i) Record income tax in the income statement and balance sheet of a company. (j) Draft an income statement and balance sheet for a company for internal purposes. 16 Recording and presentation of
(c) Explain and record the revaluation of a non-current asset in ledger accounts and in the balance sheet. (d) Explain why, after an upward revaluation, depreciation must be based on the revised figure, and for revalued assets sold, the consequent transfer from revaluation reserve to retained earnings as revaluation surplus becomes realised. (e) Make the adjustments necessary if changes are made in the estimated useful life and/or residual value of a non-current asset. (f) Explain and illustrate how noncurrent asset balances and movements are disclosed in company financial statements. (g) Explain the distinction between current and non-current liabilities. (h) Explain the difference between liabilities and provisions. (i) Explain the requirements of International Accounting Standards as regards current assets and current liabilities. 17 Goodwill, Research and Development (a) Define goodwill. (b) Explain the factors leading to the creation of non-purchased goodwill. (c) Explain the difference between purchased and non-purchased
transactions in non-current assets; liabilities and provisions (a) Explain and illustrate the ledger entries to record the acquisition and disposal of non-current assets, using separate accounts for non-current asset cost and accumulated depreciation. (b) Explain and illustrate the inclusion of profits or losses on disposal in the income statement.
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goodwill. (d) Explain why non-purchased goodwill is not normally recognised in financial statements. (e) Explain how purchased goodwill arises and is reflected in financial statements. (f) Adjust the value of purchased goodwill to reflect impairment. (g) Define research and development. (h) Classify expenditure as research or development. (i) Calculate amounts to be capitalised as development expenditure from given information. (j) Disclose research and development expenditure in the financial statements. 18 Events after the Balance Sheet Date and Contingencies (a) Define an event after the balance sheet date. (b) Distinguish between adjusting and non-adjusting events and explain the methods of including them in financial statements. (c) Classify events as adjusting or nonadjusting. (d) Draft notes to company financial statements including requisite details of events after the balance sheet date. (e) Define contingent liability and contingent asset. (f) Explain the different ways of accounting for contingent liabilities and contingent assets according to their degree of probability.
(g) Draft notes to company financial statements including requisite details of contingent liabilities and contingent assets. 19, 20 & 21 Accounting for Limited Liability Companies 2 Advanced (a) Revise the work of Session 15 and the preparation of financial statements for limited liability companies for internal purposes including the treatment of income tax and dividends. (b) Revise the work of Session 15 on company capital structure, including equity shares, preference shares and loan notes. (c) Outline the advantages and disadvantages of raising finance by borrowing rather than by the issue of ordinary or preference shares. (d) Define and illustrate gearing (leverage). (e) Define a bonus (capitalisation) issue and its advantages and disadvantages. (f) Record a bonus (capitalisation) issue in ledger accounts and show the effect in the balance sheet. (g) Define a rights issue and its advantages and disadvantages. (h) Record a rights issue in ledger accounts and show the effect in the balance sheet. (i) Revise the definition of reserves and the different types of reserves. (j) Explain the need for regulation of companies in accounting standards. (k) Explain the requirements of International
Accounting Standards governing financial statements (excluding group aspects): (i) Presentation of Financial Statements (ii) Accounting policies, changes in accounting estimates and errors (iii) Non-current assets held for sale and discontinued operations (basic definitions and disclosure requirements only) (l) Explain and prepare the notes to financial statements required for the syllabus: (i) Statement of changes in equity (ii) Details of non-current assets (iii) Details of events after the balance sheet date (iv)Details of contingent liabilities and contingent assets (v) Details of research and development expenditure. (m) Prepare financial statements for publication complying with relevant accounting standards as detailed above. 22 Revise all work to date 23 Cash flow statements (a) Explain the differences between profit and cash flow. (b) Explain the need for management to control cash flow. (c) Explain the value to users of financial statements of a cash flow statement. (d) Explain the IASB requirements for cash flow statements (excluding
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group aspects). (e) Explain the inward and outward flows of cash in a typical company. (f) Calculate the figures needed for the cash flow statement including among others: (i) Cash flows from operating activities (indirect method) (ii) Cash flows from investing activities. (g) Calculate cash flow from operating activities using the direct method. (h) Review of information to be derived by users from the cash flow statement (see also Sessions 26 27). (i) Prepare cash flow statements from given balance sheets with or without an income statement. 24 & 25 Basic consolidated accounts (a) Define a parent company, subsidiary company and group. (b) Explain the IASB requirements defining which companies must be consolidated. (c) Prepare a consolidated balance sheet for a parent with one whollyowned subsidiary (no goodwill arising). (d) Explain how to calculate the retained earnings balance for the consolidated balance sheet. (e) Explain how other reserves (share premium account and revaluation reserve) are dealt with on consolidation.
(f) Introduce the concept of goodwill on acquisition and illustrate the effect on the consolidated balance sheet. (g) Adjust the value of goodwill on aquisition to reflect impairment. (h) Explain and illustrate a methodical approach to calculating the necessary figures for the consolidated balance sheet. (i) Introduce the concept of minority interests in subsidiaries and illustrate the effect on the consolidated balance sheet. (j) Explain and illustrate how the calculation of the minority interest is made.
(f) Explain the working capital cycle (or cash operating cycle) (g) Explain normal levels of certain ratios. (h) Formulate comments on movements in ratios between one period and another or on differences between ratios for different businesses. (i) Explain the factors which may distort ratios, leading to unreliable conclusions. (j) Prepare and comment on a comprehensive range of ratios for a business. 28 Revision
26 & 27 Interpretation of Financial Statements (a) Revise users of financial statements and their information needs. (b) Explain the advantages and disadvantages of interpretation based on financial statements. (c) Explain the factors forming the environment in which the business operates. (d) Explain the uses of ratio analysis. (e) Explain and calculate the main ratios to be used in interpreting financial statements to appraise: (i) Profitability (ii) Liquidity (iii) Working capital efficiency (iv) Financial risk (v) Performance from an investors point of view.
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Paper 1.1 Paper 1.1 Preparing Financial Statements (GBR)
AIM To develop knowledge and understanding of the techniques used to prepare financial statements, including necessary underlying records, and the interpretation of financial statements for incorporated enterprises, partnerships and sole traders. OBJECTIVES On completion of this paper candidates should be able to: describe the role and function of external financial reports and identify their users explain the accounting concepts and conventions used in preparing financial statements record and summarise accounting data maintain records relating to fixed asset acquisition and disposal prepare basic financial statements for sole traders, partnerships, incorporated enterprises and simple groups appraise financial performance and the position of an organisation through the calculation and review of basic ratios demonstrate the skills expected in Part 1. POSITION OF THE PAPER IN THE OVERALL SYLLABUS No prior knowledge is required before commencing study for Paper 1.1. The basic financial accounting in Paper 1.1 is developed in Paper 2.5 Financial Reporting and Paper 3.6 Advanced Corporate Reporting. Knowledge from
2.5 Financial Reporting
2.6 Audit and Internal Review
Paper 1.1 provides the background to Paper 2.6 Audit and Internal Review. SYLLABUS CONTENT Note: The extent to which accounting standards are examinable is indicated halfyearly in student accountant - in February for the June examination and in September for the December examination. 1 General framework (a) Types of business entity limited companies, partnerships and sole traders. (b) Forms of capital and capital structures in limited companies. (c) The roles of the Financial Reporting Council (FRC), the Financial Reporting Review Panel (FRRP), Accounting Standards Board (ASB) and the Urgent Issues Task Force (UITF). (d) Application of Financial Reporting Standards (FRSs), Statements of Standard Accounting Practice (SSAPs)
and Companies Act requirements to the preparation and presentation of financial statements. (e) The ASBs Statement of Principles for Financial Reporting (chapters 1, 2 and 3 only). 2 Accounting concepts and principles (a) Basic accounting concepts and principles as stated in the ASBs Statement of Principles for Financial Reporting. (b) Other accounting concepts (i) historical cost (ii) money measurement (iii) entity (iv) dual aspect 3 Double-entry bookkeeping and accounting systems (a) Double-entry bookkeeping and accounting systems
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Preparing Financial Statements (GBR) (Continued)
(i) form and content of accounting records (manual and computerised) (ii) books of original entry, including journals (iii) sales and purchases ledgers (iv) cash book (v) nominal ledger (vi) trial balance (vii) accruals, prepayments and adjustments (viii) asset registers (ix) petty cash. (b) Confirming and correcting mechanisms (i) control accounts (ii) bank reconciliations (iii) suspense accounts and the correction of errors. (c) General principles of the operation of value added tax. (d) Computerised accounting systems. 4 Accounting treatments (a) Fixed assets, tangible and intangible (i) distinction between capital and revenue expenditure (ii) accounting for acquisitions and disposals (iii) depreciation definition, reasons for and methods, including straight line, reducing balance and sum of digits (iv) research and development (v) elementary treatment of goodwill. (b) Current assets (i) stock (excluding long-term contracts)
(ii) debtors, including accounting for irrecoverable debts and allowances for debtors (iii) cash. (c) Current liabilities and accruals. (d) Shareholders equity. (e) Events after the balance sheet date. (f) Contingencies. 5 Financial statements (a) Objectives of financial statements. (b) Users and their information needs. (c) Key features of financial statements (i) balance sheet (ii) profit and loss account (iii) cash flow statement (iv) notes to the financial statements (examined to a limited extent see d (iii) below). (d) Preparation of financial statements for: (i) sole traders, including incomplete records techniques (ii) partnerships (iii) limited companies, including profit and loss accounts and balance sheets for internal purposes and for external purposes in accordance with Companies Act 1985 formats and preparation of basic cash flow statements for limited liability companies (excluding group cash flow statements). The following additional statements and notes to the financial statements are examinable: The ASB requirements
governing reporting financial performance including the analysed profit and loss account and the additional statements and notes required by standards. Statement of movements in reserves Fixed assets Exceptional and extraordinary items Events after the balance sheet date Contingent liabilities and contingent assets Research and development expenditure (iv)groups of companies preparation of a basic consolidated balance sheet for a company with one subsidiary. 6 Interpretation (a) Ratio analysis of accounting information and basic interpretation. EXCLUDED TOPICS The syllabus content outlines the areas for assessment. No questions will be asked on clubs and societies, or goodwill arising on change of personnel in partnerships. KEY AREAS OF THE SYLLABUS The objective of Paper 1.1, Preparing Financial Statements, is to ensure that candidates have the necessary basic accounting knowledge and skill to
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progress to the more advanced work of Paper 2.5 Financial Reporting. The two main skills required are: the ability to prepare basic financial statements and the underlying accounting records on which they are based an understanding of the principles on which accounting is based. The key topic areas are as follows: preparation of financial statements for limited companies for internal purposes or for publication preparation of financial statements for partnerships and sole traders (including incomplete records) basic group accounts consolidated balance sheet for a company with one subsidiary basic bookkeeping and accounting procedures accounting conventions and concepts interpretation of financial statements cash flow statements accounting standards (as listed in the exam notes). APPROACH TO EXAMINING THE SYLLABUS The paper based examination is a three hour paper constructed in two sections. Both sections will draw from all parts of the syllabus and will contain both computational and non-computational
elements. Number of Marks Section A: 25 compulsory multiple choice questions (2 marks each) Section B: 5 compulsory questions (8 12 marks each) 50 100 Paper 1.1 can also be taken as a three hour computer based examination. ADDITIONAL INFORMATION Candidates need to be aware that questions involving knowledge of new examinable regulations will not be set until at least six months after the last day of the month in which the regulation was issued. The Study Guide provides more detailed guidance on the syllabus. Examinable documents are listed in the Exam Notes section of student accountant, in February for the June examination and in September for the December examination. RELEVANT TEXTS There are a number of sources from which you can obtain a series of materials written for the ACCA examinations. These are listed below: 50
FTC Foulks Lynch ACCA's official publisher Contact number: +44 (0)118 989 0629. Website: www.financial-training.com/new/ foulkslynch Accountancy Tuition Centre (ATC) International Contact number: +44 (0)141 880 6469. Website: www.ptc-global.com BPP Contact number: +44(0)20 8740 2222. Website: www.bpp.com Candidates may also find the following texts useful: Texts covering the whole syllabus: F Wood and A Sangster Business Accounting 1 (9th Edition) Pitman ISBN 0273655523 (excluding chapters 21, 36, 37, 38, 40, 42, 43, 44, 45, 46, 48) plus chapters 3, 8, 10, 11, 12, 13, 14, 16, 17, 18, 27, 28, and 29 of Business Accounting 2 (10th Edition) Pitman ISBN 0273693107 Wider reading is also desirable, especially regular study of relevant articles in ACCA's monthly magazine student accountant.
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STUDY SESSIONS 1 Introduction to Accounting (a) Define accounting recording, analysing and summarising transaction data. (b) Explain types of business entity (i) sole trader (ii) partnership (iii) limited company (c) Explain users of financial statements and their information needs. (d) Explain the main elements of financial statements: (i) balance sheet (ii) profit and loss account (e) Explain the purpose of each of the main statements. (f) Explain the nature, principles and scope of accounting. (g) Explain the regulatory system: (i) Financial Reporting Council (FRC), Financial Reporting Review Panel (FRRP), Accounting Standards Board (ASB), Urgent Issues Task Force (UITF), Companies legislation. (h) Explain the difference between capital and revenue items. 2 Basic balance sheet and profit and loss account (a) Explain how the balance sheet equation and business entity convention underlie the balance sheet. (b) Define assets and liabilities.
(c) Explain how and why assets and liabilities are disclosed in the balance sheet. (d) Draft a simple balance sheet in vertical format. (e) Explain the matching convention and how it applies to revenue and expenses. (f) Explain how and why revenue and expenses are disclosed in the trading and profit and loss account. (g) Illustrate how the balance sheet and trading and profit and loss account are interrelated. (h) Draft a simple trading and profit and loss account in vertical format. (i) Explain the significance of gross profit and gross profit as a percentage of sales. 3 & 4 Bookkeeping Principles (a) Identify the main data sources and records in an accounting system (b) Explain the functions of each data source and record (c) Explain the concept of double entry and the duality concept (d) Outline the form of accounting records in a typical manual system (e) Outline the form of accounting records in a typical computerised system (f) Explain debit and credit (g) Distinguish between asset, liability, revenue and expense accounts (h) Explain the meaning of the balance on each type of account
(i) Illustrate how to balance a ledger account (j) Record cash transactions in ledger accounts (k) Record credit sale and purchase transactions in ledger accounts (l) Explain the division of the ledger into sections (m) Record credit sale and purchase transactions using day books (n) Explain sales and purchases returns and demonstrate their recording (o) Explain the general principles of the operation of value added tax and prepare the consequent accounting entries (p) Explain the need for a record of petty cash transactions (q) Illustrate the typical format of the petty cash book (r) Explain the importance of using the imprest system to control petty cash (s) Extract the ledger balances into a trial balance (t) Prepare a simple profit and loss account and balance sheet from a trial balance (u) Explain and illustrate the process of closing the ledger accounts in the accounting records when the financial statements have been completed.
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5 The journal; ledger control accounts; bank reconciliations (a) Explain the uses of the journal (b) Illustrate the use of the journal and the posting of journal entries into ledger accounts (c) Explain the types of error which may occur in bookkeeping systems, identifying those which can and those which cannot be detected by preparing a trial balance (d) Illustrate the use of the journal in correcting errors, including the use of a suspense account (e) Prepare statements correcting profit for errors discovered (f) Explain the nature and purpose of control accounts for the sales and purchases ledgers (g) Explain how control accounts relate to the double entry system (h) Construct and agree a ledger control account from given information (i) Explain and prepare bank reconciliation statements, including the need for entries in the cash book when reconciling. 6 Computerised accounting systems (a) Compare manual and computerised accounting systems (b) Identify the advantages and disadvantages of computerised systems (c) Describe the main elements of a computerised accounting system (d) Describe typical data processing work
accounting packages (e) Explain the use of integrated (f) Explain the nature and use of microcomputers (g) Explain other business uses of computers (h) Explain the nature and purpose of spreadsheets (i) Explain the nature and purpose of database systems. 7 The financial statements of a sole trader 1: stock, accruals and prepayments (a) Revise the format of the trading and profit and loss account and balance sheet from Sessions 1 and 2. (b) Explain the need for adjustments for stock in preparing financial statements (c) Illustrate trading accounts with opening and closing stock (d) Explain and demonstrate how opening and closing stock are recorded in the stock account (e) Discuss alternative methods of valuing stock (f) Explain the ASB requirements for stocks (g) Explain the use of continuous and period end stock records (h) Explain the need for adjustments for accruals and prepayments in preparing financial statements (i) Illustrate the process of adjusting for accruals and prepayments in preparing financial statements
(j) Prepare financial statements for a sole trader including adjustments for stock, accruals and prepayments (k) Explain and demonstrate how to calculate the value of closing stock from given movements in stock levels, using FIFO (first in first out), and AVCO (average cost). 8 The financial statements of a sole trader 2: depreciation, irrecoverable debts and allowances for debtors (a) Revise the difference between fixed assets and current assets (b) Define and explain the purpose of depreciation (c) Explain the advantages and disadvantages of the straight line, reducing balance and sum of the digits methods of depreciation and make necessary calculations (d) Explain the relevance of consistency and subjectivity in accounting for depreciation (e) Explain and illustrate how depreciation is presented in the profit and loss account and balance sheet (f) Explain and illustrate how depreciation expense and accumulated depreciation are recorded in ledger accounts (g) Explain the inevitability of irrecoverable debts in most businesses (h) Illustrate the bookkeeping entries to
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balance sheet (i) Illustrate the bookkeeping entries to record irrecoverable debts recovered (j) Explain the difference between writing off an irrecoverable debt and making an allowance for debtors (k) Explain and illustrate the bookkeeping entries to create and adjust an allowance for debtors (l) Illustrate how to include movements in the allowance for debtors in the profit and loss account and how the closing balance of the allowance may appear in the balance sheet (m) Prepare a set of financial statements for a sole trader from a trial balance, after allowing for accruals and prepayments, depreciation, irrecoverable debts and allowances for debtors 9 & 10 Incomplete records (a) Explain techniques used in incomplete record situations: (i) Calculation of opening capital (ii) Use of ledger total accounts to calculate missing figures (iii) Use of cash and/or bank summaries (iv)Use of given gross profit percentage to calculate missing figures. (b) Explain and illustrate the calculation of profit or loss as the difference between opening and closing net assets.
11 Revise all work to date 12 & 13 Partnership Accounts (a) Define the circumstances creating a partnership (b) Explain the advantages and disadvantages of operating as a partnership, compared with operating as a sole trader or limited company (c) Explain the typical contents of a partnership agreement, including profit-sharing terms (d) Explain the accounting differences between partnerships and sole traders: (i) Capital accounts (ii) Current accounts (iii) Division of profits. (e) Explain and illustrate how to record partners shares of profits / losses and their drawings in the accounting records and financial statements (f) Explain and illustrate how to account for guaranteed minimum profit share (g) Explain and illustrate how to account for interest on drawings (h) Draft the profit and loss account, including division of profit, and balance sheet of a partnership from a given trial balance. Note: Goodwill arising on the admission and retirement of partners, amalgamation and dissolution are not examinable. However, questions on partnership profit
and loss accounts may include the effect of the admission of new partners and the retirement of partners on the profit-sharing arrangements. 14 Accounting concepts and conventions; the ASBs Statement of Principles for Financial Reporting (the Statement) (a) Explain the need for an agreed conceptual framework for financial accounting. (b) Explain the importance of the following accounting conventions (not mentioned in the Statement): (i) Business entity (ii) Money measurement (iii) Duality (iv) Historical cost (v) Realisation (vi)Time interval. (c) Revise the users of financial statements from Session 1. (d) Explain the qualitative characteristics of financial statements as described in chapter 3 of the Statement (Revision from Session 1). (e) Explain the ASB requirements relating to accounting policies (f) Explain the advantages and disadvantages of historical cost accounting (HCA) in times of changing prices (g) Explain in principle the main
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accounting (CPP) (ii) Current cost accounting (CCA). Note: computational questions on CPP and CCA will not be set. (h) Explain the ASB requirements governing revenue recognition 15 Accounting for limited companies 1 basics Note: The inclusion of an introductory coverage of company accounts at this point is to enable students to practise the work so far on financial statements using questions on limited companies, and also to facilitate understanding of reserves referred to in the next Session. (a) Explain the legal and other differences between a sole trader and a limited company (b) Explain the advantages and disadvantages of operating as a limited company rather than as a sole trader (c) Explain the capital structure of a limited company including: (i) Authorised share capital (ii) Issued share capital (iii) Called up share capital (iv) Paid up share capital (v) Ordinary shares (vi) Preference shares (vii) Debentures (d) Explain and illustrate the share premium account (e) Explain and illustrate the other reserves which may appear in a company balance sheet
(f) Explain why the heading profit and loss account appears in a company balance sheet (g) Explain and illustrate the recording of dividends (h) Explain the impact of corporation tax on company profits and illustrate the ledger account required to record it. (i) Record corporation tax in the profit and loss account and balance sheet of a company (j) Draft a profit and loss account and balance sheet for a company for internal purposes. 16 Recording and presentation of transactions in fixed assets; liabilities and provisions (a) Explain and illustrate the ledger entries to record the acquisition and disposal of fixed assets, using separate accounts for fixed asset cost and accumulated depreciation (b) Explain and illustrate the inclusion of profits or losses on disposal in the profit and loss account (c) Explain and record the revaluation of a fixed asset in ledger accounts and in the balance sheet (d) Explain why, after an upward revaluation, depreciation must be based on the revised figure, and for revalued assets sold, the consequent transfer from revaluation reserve to profit and loss account reserve as revaluation surplus becomes realised (e) Make the adjustments necessary if
changes are made in the estimated useful life and/or residual value of a fixed asset (f) Explain and illustrate how fixed asset balances and movements are disclosed in company financial statements (g) Explain the distinction between current and long-term liabilities (h) Explain the difference between liabilities and provisions. 17 Goodwill, Research and Development (a) Define goodwill (b) Explain the factors leading to the creation of non-purchased goodwill (c) Explain the difference between purchased and non-purchased goodwill (d) Explain why non-purchased goodwill is not normally recognised in financial statements (e) Explain how purchased goodwill arises and is reflected in financial statements (f) Explain the need to amortise purchased goodwill (g) Define research and development (h) Classify expenditure as research or development (i) Calculate amounts to be capitalised as development expenditure from given information (j) Disclose research and development expenditure in the financial statements.
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18 Events after the Balance Sheet Date and Contingencies (a) Define an event after the balance sheet date (b) Distinguish between adjusting and non-adjusting events and explain the methods of including them in financial statements (c) Classify events as adjusting or nonadjusting (d) Draft notes to company financial statements including requisite details of events after the balance sheet date (e) Define contingent liability and contingent asset (f) Explain the different ways of accounting for contingent liabilities and contingent assets according to their degree of probability (g) Draft notes to company financial statements including requisite details of contingent liabilities and contingent assets. 19, 20 & 21 Accounting for Limited Companies 2 Advanced (a) Revise the work of Session 15 and the preparation of financial statements for limited companies for internal purposes including the treatment of corporation tax and dividends (b) Revise the work of Session 15 on company capital structure, including equity shares, preference shares and
debentures (c) Outline the advantages and disadvantages of raising finance by borrowing rather than by the issue of ordinary or preference shares (d) Define and illustrate gearing (leverage) (e) Define a bonus (capitalisation) issue and its advantages and disadvantages (f) Record a bonus (capitalisation) issue in ledger accounts and show the effect in the balance sheet (g) Define a rights issue and its advantages and disadvantages (h) Record a rights issue in ledger accounts and show the effect in the balance sheet. (i) Revise the definition of reserves and the different types of reserves (j) Explain the need for regulation of companies in legislation and accounting standards (k) Explain the provisions of legislation and accounting standards governing financial statements (excluding group aspects): (i) Companies Act 1985 including the standard formats for company financial statements (ii) The ASB standard on reporting financial performance, including requirements relating to the analysis of profit, the reporting of realised and unrealised profits and gains and of historical cost profits. (l) Explain and prepare the notes to financial statements required for the syllabus:
(i) Statement of movements in reserves (ii) Details of fixed assets (iii) Details of events after the balance sheet date (iv) Details of contingent liabilities and contingent assets (see session 18) (v) Details of research and development expenditure (m) Prepare financial statements for publication complying with relevant accounting standards and legislation as detailed above. 22 Revise all work to date 23 Cash flow statements (a) Explain the differences between profit and cash flow (b) Explain the need for management to control cash flow (c) Explain the value to users of financial statements of a cash flow statement (d) Explain ASB requirements relating to cash flow statements (excluding group aspects) (e) Explain the inward and outward flows of cash in a typical company (f) Calculate the figures needed for the cash flow statement including among others:
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(i) Cash flows from operating activities (indirect method) (ii) Cash flows from investing activities (g) Calculate cash flow from operating activities using the direct method (h) Review of information to be derived by users from the cash flow statement (see also Sessions 26 27) (i) Prepare cash flow statements from given balance sheets with or without a profit and loss account. 24 & 25 Basic consolidated accounts (a) Define a parent company, subsidiary company and group (b) Explain the ASB and Companies Acts requirements defining which companies must be consolidated (c) Prepare a consolidated balance sheet for a parent with one wholly-owned subsidiary (no goodwill arising) (d) Explain how to calculate the profit and loss reserve balance for the consolidated balance sheet (e) Explain how other reserves (share premium account and revaluation reserve) are dealt with on consolidation (f) Introduce the concept of goodwill on acquisition and illustrate the effect on the consolidated balance sheet (g) Explain the need to amortise goodwill and illustrate in the workings (h) Explain and illustrate a methodical approach to calculating the
necessary figures for the consolidated balance sheet (i) Introduce the concept of minority interests in subsidiaries and illustrate the effect on the consolidated balance sheet (j) Explain and illustrate how the calculation of the minority interest is made. 26 & 27 Interpretation of Financial Statements (a) Revise users of financial statements and their information needs (b) Explain the advantages and disadvantages of interpretation based on financial statements (c) Explain the factors forming the environment in which the business operates (d) Explain the uses of ratio analysis (e) Explain and calculate the main ratios to be used in interpreting financial statements to appraise: (i) Profitability (ii) Liquidity (iii) Working capital efficiency (iv) Financial risk (v) Performance from an investors point of view. (f) Explain the working capital cycle (or cash operating cycle) (g) Explain normal levels of certain ratios (h) Formulate comments on movements in ratios between one period and another or on differences between
ratios for different businesses (i) Explain the factors which may distort ratios, leading to unreliable conclusions (j) Prepare and comment on a comprehensive range of ratios for a business. 28 Revision
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Paper 1.2 Financial Information for Management
AIM To develop knowledge and understanding of the application of management accounting techniques to support the management processes of planning, control and decision making. OBJECTIVES On completion of this paper candidates should be able to: explain the role of management accounting within an organisation and the requirement for management information describe costs by classification and purpose identify appropriate material, labour and expense costs understand the principles of costing and apply them in straightforward scenarios understand and demonstrate the cost factors affecting production and pricing decisions understand the basic principles of performance management demonstrate the skills expected in Part 1. POSITION OF THE PAPER IN THE OVERALL SYLLABUS No prior knowledge is required before commencing study for Paper 1.2. Some understanding of the accounting principles and practices from Paper 1.1 Preparing Financial Statements and a basic competence in numeracy are assumed.
3.3 Performance Management
3.7 Strategic Financial Management
2.4 Financial Management and Control
1.2 Financial Information for Management
This paper provides the basic techniques required to enable the candidate to develop the various methods into more complex problems at later parts. Candidates will, therefore, need a sound understanding of the methods and techniques encountered in this paper to ensure that they can take them further in subsequent papers. The methods introduced in this paper are revisited and extended in Paper 2.4 Financial Management and Control and taken yet further in Papers 3.3 Performance Management and 3.7 Strategic Financial Management. SYLLABUS CONTENT 1 Accounting for management (a) The nature, purpose, scope and interrelations of functions carried out by management in relation to resources, costs, operations, performance (i) setting objectives (long and shortterm, strategic and operational,
corporate and personal) (ii) planning to meet objectives (iii) implementing objectives (iv)monitoring and controlling against objectives and plans (b) Nature of internal reporting (i) financial and non-financial information for managers (ii) cost centres, revenue centres, profit centres and investment centres and the impact of these on management information. (c) Management information requirements (i) importance and definition of good information (ii) presentation of information (iii) role of accountants and accounting information (iv)role of IT. (d) Maintaining and improving an appropriate system (i) cost units
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Paper 1.2: Financial Information for Management (Continued)
Financial Information for Management (Continued)
(ii) cost/profit/responsibility centres (iii) methods for recording relevant information (iv)sources of information and recording/processing information (v) computer based information, storage and processing (vi)analysis of output information and its dissemination to relevant individuals/departments. 2 Cost accounting (a) Cost accounting versus management accounting (i) purposes of cost and management accounting and financial accounting (ii) role of cost accounting in a management information system (iii) non-financial information. (b) Nature and purpose of cost classification and definitions. 3 Elements of cost (a) Materials (i) standard and actual costs for materials including the use of FIFO, LIFO and weighted average for material valuation and the pricing of material issues (ii) optimal purchase quantities to include discounts (iii) optimal batch quantities (iv)reorder levels (v) material losses. (b) Labour (i) direct and indirect labour
(ii) different remuneration methods (iii) labour efficiency (iv)labour turnover. (c) Overheads (i) direct and indirect expenses (ii) principles and processes of overhead cost analysis (iii) allocation and apportionment of overhead costs including reciprocal service centre situations (iv)absorption rates (v) under- and over -absorption (vi)fixed overhead expenditure and volume variances (vii) fixed overhead efficiency and capacity variances where appropriate (viii) changes in the cost structure of a business over time. 4 Costing systems (a) Job, batch and process costing (i) characteristics (ii) direct and indirect costs (including waste, scrap and rectification costs) (iii) valuation of process transfers and work-in-progress using equivalent units of production and based on FIFO and weighted average pricing methods (iv) process costing normal losses, abnormal losses and gains (v) joint and by-products in process costing (b) Operation/service costing
(i) scope of operation/service costing (ii) appropriate cost units (iii) collection, classification and ascertainment of costs. 5 Costing methods and techniques (a) Standard costing (i) establishment of standard costs (ii) variance analysis (iii) explanations of variances and control (iv) implications for management (v) operating statements. (b) Marginal and absorption costing (i) marginal and absorption costing profit and loss accounts (ii) reconciliation of the profits under the two methods (iii) contrast of absorption and marginal costing 6 Short-term decision making (a) Cost behaviour (i) fixed, variable and semi-variable costs (ii) cost behaviour using an appropriate graph (iii) high-low method (iv) regression analysis. (b) CVP analysis (i) break-even point and revenue (ii) margin of safety (iii) target profit (iv) contribution to sales ratio (v) break-even chart and profit/ volume graph.
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(c) Limiting factors (i) optimal production plan given a scarce resource (ii) linear programming techniques (iii) other methods for more than two variable problems. (d) Preparation of cost estimates for decision making (i) relevant costing techniques to include opportunity/sunk, avoidable/unavoidable, fixed/ variable applied to such situations as make or buy, shut down and one-off contracts. (e) Pricing of goods and services (i) price/demand relationships (ii) full cost plus pricing (iii) marginal costing. (f) Price skimming, penetration pricing, premium pricing and price discrimination. EXCLUDED TOPICS The syllabus content outlines the areas for assessment. No areas of knowledge are specifically excluded from the syllabus. KEY AREAS OF THE SYLLABUS The key topic areas are: cost classification and behaviour material, labour and overhead costs absorption and marginal costing process costing standard costing CVP analysis limiting factors
relevant costs for decision making pricing methods. APPROACH TO EXAMINING THE SYLLABUS The examination is a three hour paper constructed in two sections. Both sections will draw from all parts of the syllabus and will contain both computational and discursive elements. Number of Marks Section A: 25 compulsory multiple choice questions (2 marks each) Section B: 5 compulsory short form questions (8-12 marks each) 50 100 Paper 1.2 can also be taken as a three hour computer based examination. ADDITIONAL INFORMATION Formulae as required are included in the formulae sheet given in the examinantion. RELEVANT TEXTS There are a number of sources from which you can obtain a series of materials written for the ACCA examinations. These are listed below: 50
FTC Foulks Lynch ACCA's official publisher Contact number: +44 (0)118 989 0629. Website: www.financial-training.com/new/ foulkslynch Accountancy Tuition Centre (ATC) International Contact number: +44 (0)141 880 6469. Website: www.ptc-global.com BPP Contact number: +44 (0)20 8740 2222. Website: www.bpp.com The following text is also recommended as study material for this paper: C Drury Management and Cost Accounting (6th Edition) International Thomson Business Press ISBN 1-84480-028-8. Wider reading is also desirable, especially regular study of relevant articles in ACCA's student accountant.
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STUDY SESSIONS 1 Information for Management (a) Distinguish between data and information (b) Describe the sources of information (c) Identify and explain the attributes of good information (d) Describe the methods of recording and processing information (e) Describe the ways in which data could be presented to management. 2 Management Information Systems (a) Explain what is meant by a management information system (b) Explain the role of accountants and accounting information within a management information system (c) Describe the purpose and role of cost and management accounting within a management information system (d) Compare and contrast financial and cost and management accounting (e) Outline the managerial processes of planning, decision-making and control (f) Discuss the management of both financial and non-financial information requirements (g) Describe the various types of responsibility centres and the impact of these on management information.
3 Objectives, Strategy and Planning (a) Define the terms objectives and strategy (b) Describe the different objectives for different types of organisations (c) Illustrate the links between strategy and organisational structure (d) Explain how the objectives and strategy of an organisation impact upon its plans (e) Describe the planning process (f) Describe the main techniques used in the planning and decision making process for various types of organisation (g) Explain the difference between strategic, tactical and operational planning (h) Describe the basic elements of and purpose of a management control system (i) Illustrate the need for monitoring and evaluation (j) Describe methods for monitoring and controlling against objectives and plans. 4 The Role of Information Technology in Management Information (a) Identify the characteristics and different types of computer hardware and software (b) Evaluate the potential value of computer systems in handling and processing business data (c) Describe methods of capturing and processing data by computer
(d) Describe how data is grouped, tabulated, stored and output (e) Explain the role and features of spreadsheet systems (f) Describe how output could be analysed and used within an organisation. 5 Cost Classification (a) Explain and illustrate classifications used in the analysis of product/ service costs including by function, direct and indirect, product and period, fixed and variable, avoidable and unavoidable, controllable and uncontrollable (b) Explain and illustrate the concept of cost objects, cost units, cost centres, revenue centres, profit centres and investment centres (c) Describe briefly the process of accounting for input costs and relating them to work done (d) Describe briefly the different methods of costing final outputs and their appropriateness to different types of business organisation/ situation (e) Describe the nature of control achieved through the comparison of actual costs against plan. 6 Cost Behaviour - 1 (a) Explain the importance of cost behaviour in relation to business decision-making
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(b) Describe factors which influence cost behaviour (c) Explain how the terms linear, curvilinear and step functions apply to costs (d) Identify, describe and illustrate graphically different types of cost behaviour (e) Explain the structure of linear functions and equations (f) Provide examples of costs which contain both fixed and variable elements (g) Use high/low analysis to separate the fixed and variable elements of such costs 7 Cost behaviour - 2 (a) Construct a scatter graph to establish whether a linear function would be appropriate (b) Establish a linear function using regression analysis and interpret the results (c) Calculate and explain the concepts of correlation and coefficient of determination. 8 Material Costs 1 (a) Describe the different procedures and documents necessary for ordering, receiving and issuing materials from stock (b) Describe the control procedures used to monitor physical and book stock and to minimise discrepancies and losses
(c) Calculate, explain and evaluate the value of closing stock and material issues using LIFO, FIFO and average methods (weighted and periodic) (d) Calculate the standard cost of stocks from given information (e) Prepare ledger entries to record material cost inputs and outputs (f) Interpret the entries and balances in the material stock account.
(d) Describe and illustrate different remuneration methods and incentive schemes (e) Calculate the level, and analyse the costs and causes of, labour turnover (f) Describe and illustrate measures of labour efficiency and utilisation (g) Interpret the entries and balances in the labour account. 11 Overheads 1
9 Material Costs 2 (a) Explain the reasons for holding stock (b) Identify and explain the costs of having stock (c) Calculate and interpret optimal reorder quantities (d) Calculate and interpret optimal reorder quantities when discounts apply (e) Produce and interpret calculations to minimise stock costs when stock is gradually replenished (f) Describe appropriate methods for establishing reorder levels. 10 Labour Costs (a) Explain the difference between, and calculate, direct and indirect labour costs (b) Explain the methods used to relate input labour costs to work done (c) Prepare journal and ledger entries to record labour cost inputs and outputs
(a) Explain the difference between the treatment of direct and indirect expenses (b) Describe and justify the process of apportioning manufacturing overhead costs incurred to production (c) Allocate and apportion factory overheads using an appropriate basis (d) Re-apportion service centre costs including the use of the reciprocal method (e) Comment on the use of blanket, department, actual and predetermined absorption rates (f) Identify, calculate and discuss the appropriate absorption rates using relevant bases. 12 Overheads 2 (a) Prepare journal and ledger entries for manufacturing overheads incurred and absorbed
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(b) Calculate, explain and account for under and over absorbed overheads (c) Calculate and explain fixed overhead expenditure, volume and, where appropriate, efficiency and capacity variances (d) Describe and evaluate methods of attributing non-manufacturing overhead costs to units of output (e) Perform process cost accounting transactions for selling, distribution and administration overhead in a given business context (f) Describe how the cost structure of a business has changed over time and the implication of this with regard to overhead analysis. 13 Revise all work to date 14 Marginal and Absorption Costing (a) Explain the concept of contribution (b) Demonstrate and discuss the impact of absorption and marginal costing on stock valuation and profit measurement (c) Establish the standard cost per unit from given data under absorption and marginal costing (d) Produce profit and loss accounts using absorption and marginal costing (e) Reconcile the profits reported under the two methods
(f) Discuss the advantages and disadvantages of absorption and marginal costing. 15 Job and Batch Costing (a) Describe the characteristics of job and batch costing (b) Describe the situations where the use of job or batch costing would be appropriate (c) Discuss, and illustrate, the treatment of direct, indirect and abnormal costs (d) Complete cost records and accounts in job and batch cost accounting situations (e) Estimate job costs from given information. 16 Process Costing 1 (a) Describe the characteristics of process costing (b) Describe situations where the use of process costing is appropriate (c) Describe the key areas of complexity in process costing (d) Define normal losses and abnormal gains and losses (e) State and justify the treatment of normal losses and abnormal gains and losses in process accounts (f) Account for process scrap (g) Calculate the cost per unit of process outputs, and prepare simple process accounts, in absorption and marginal costing systems.
17 Process Costing 2 (a) Calculate and explain the concept of equivalent units (b) Allocate process costs between work remaining in process and transfers out of a process using the weighted average cost and FIFO methods (c) Prepare process accounts in situations where work remains incomplete (d) Prepare process accounts in situations where losses and gains are identified at different stages of the process (e) Distinguish between by-products and joint products (f) Value by-products and joint products at the point of separation (g) Prepare process accounts in situations where by-products and/or joint products occur. 18 Operation/Service Costing (a) Describe situations where the use of operation/service costing is appropriate (b) Illustrate suitable unit cost measures that may be used in a variety of different operations and services (c) Carry out service cost analysis in internal service situations (d) Carry out service cost analysis in service industry situations. 19 Cost-Volume-Profit (CVP) Analysis - 1 (a) Explain the objective of CVP analysis
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(b) Explain the concept of break-even (c) Calculate and explain the break-even point and revenue, target profit, contribution to sales ratio and margin of safety. 20 Cost-Volume-Profit (CVP) Analysis - 2 (a) Construct break-even, contribution, and profit/volume charts from given data (b) Apply the CVP model in multiproduct situations. 21 Limiting Factors (a) Explain and recognise what causes optimisation problems (b) Identify, formulate and determine the optimal solution when there is a single limiting factor. 22 Linear programming (a) Formulate a linear programming problem involving two variables (b) Determine the optimal solution to a linear programming problem using a graph (c) Determine the optimal solution to a linear programming problem using equations (d) Explain the methods available for dealing with optimisation problems with more than two variables (e) Formulate, but do not solve, a linear programming problem involving more than two variables
(f) Explain shadow prices (calculations not examinable). 23 Relevant Costing - 1 (a) Explain the concept of relevant costing (b) Explain the relevance of such terms as opportunity and sunk costs, avoidable and unavoidable costs, fixed and variable costs, historical and replacement costs, controllable and uncontrollable costs, to decision making 24 Relevant Costing - 2 (a) Calculate the relevant costs for materials and labour (b) Calculate and explain the deprival value of an asset (c) Construct a relevant cost statement and explain the results for such situations as make or buy decisions, shut down decisions, one-off contracts and further processing decisions for joint products. 25 Pricing (a) Explain the factors that influence the price of a product (b) Establish the price/demand relationship of a product (c) Establish the optimum price/output level when considering profit maximisation and maximisation of revenue (d) Calculate prices using full cost and marginal cost as the pricing base
(e) discuss the advantages and disadvantages of these pricing bases (f) Discuss pricing policy in the context of price skimming, penetration pricing, premium pricing and price discrimination. 26 Standard Costing - 1 (a) Explain the purpose of standard costing (b) Establish the standard cost per unit from given data under absorption and marginal costing (c) Explain the purpose of the following variances: (i) Materials price and usage (ii) Labour rate, idle time and efficiency (iii) Variable overhead expenditure and efficiency (iv) Fixed overhead expenditure, volume and, where appropriate, efficiency and capacity (v) Sales volume and price. 27 Standard Costing - 2 (a) Calculate and interpret the above variances, using the appropriate costing method (b) Prepare operating statements to reconcile budgeted to actual profit (c) Discuss the implications of the results of variance analysis for management. 28 Revision
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Paper 1.3 Managing People
AIM To develop knowledge and understanding of the techniques, processes and procedures which are required to ensure the efficient and effective use and deployment of human resources, and to use the human resource to the greatest possible benefit of the organisation. OBJECTIVES On completion of this paper candidates should be able to: identify, understand and explain the complex interpersonal relationships that exist within organisations appreciate the relationship between theory and practice understand the nature, processes and procedures of people management explain the principles of successful team performance and the need to plan, monitor and evaluate team based work activities investigate future personnel requirements and describe recruitment and selection procedures understand and describe the principles of motivation understand and describe the role and process of employee development understand the need for clear and precise communication explain the principles of effective counselling describe the elements of disciplinary and grievance procedures. POSITION OF THE PAPER IN THE OVERALL SYLLABUS The paper is concerned with an understanding of people management and the techniques involved. The paper is constructed in such a way that it provides a broad introduction to the problems and opportunities involved in managing people. It is intended to cultivate an understanding of the importance of good practice in human resource management. The professional accountant is often in a management position and thus fulfils another role, that of the management of the human resource. It is important therefore that the professional accountant understands issues of management and human resources. Whilst there are no pre-requisites for this paper, candidates will be expected to demonstrate an understanding of the theory and issues involved in human resource management and to display appropriate writing skills in answering the examination paper. Managing People is a pre-requisite for paper 3.5 Strategic Business Planning and Development, where many of the ideas introduced are developed further. It should also be noted that although the course is divided into five topic areas, the nature of the syllabus means that there will often be overlap between the individual topics. SYLLABUS CONTENT 1 Management and team development (a) The organisation of work (i) the need for formal organisations (ii) organisational types and differences. (b) The role of management (i) modern management writers (ii) classical theories of management. (c) The role of the manager (i) the role of the manager in the organisation of work (ii) the responsibilities of the manager. 1.3 Managing People 3.5 Strategic Business Planning and Development
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Paper 1.3: Managing People (Continued)
Managing People (Continued)
(d) Individual and group behaviour (i) organisational culture (ii) groups and teams (iii) perception and role theory. (e) Team management (i) the need for teams (ii) team construction (iii) team and group differences. (f) Objective setting (i) the need for objectives (ii) profit and other objectives. (g) Authority, responsibility and delegation (i) organisational structure (ii) classical and modern approaches to structure (iii) authority, responsibility and delegation. (h) Standard setting and performance management (i) work standards and indicators (ii) performance related pay. 2 Recruitment and selection (a) The recruitment and selection process (i) process, roles and responsibilities (ii) assessment criteria. (b) Effective recruitment (i) recruitment and selection plan (ii) process of recruitment (iii) use of media. (c) The job description and personnel specification (i) job description (ii) personnel specification. (d) Job analysis (i) purpose of analysis (ii) methods of analysis.
(e) Selection methods (i) appropriate methods (ii) usefulness of methods. (f) The selection interview (i) purpose (ii) skills involved (iii) importance of the selection process. (g) Equal opportunities and the management of diversity (i) equal opportunity issues (ii) managing diversity. 3 Training and development (a) The learning process (i) the learning process (ii) the role of management. (b) Retention, training and development (i) duties of the training manager (ii) methods for individual development. (c) Effective training and development (i) benefits of training (ii) training needs analysis (iii) staff evaluation methods (iv) management development (v) in-house and external training. (d) Competence assessment (i) process and barriers (ii) staff appraisal (iii) measures of effectiveness. (e) Conducting the appraisal interview (i) management skills involved (ii) key communication skills. (f) Individual skills and development (i) appraisal process and employee development. (ii) the role of management
(iii) the skills development programme (iv) the mentoring process. (h) The management of health and safety (i) health and safety awareness (ii) the obligation of management. 4 Motivation and leadership (a) Motivation, concepts, models and practices (i) the key theories of motivation (ii) classical theories (iii) modern theories (iv) reward schemes. (b) Effective leadership (i) the nature and importance of leadership (ii) classical theories (iii) modern theories. 5 Effective communication practices (a) Working with people interpersonal skills (i) interpersonal skills (ii) effective management practice (iii) verbal and non verbal communication. (b) Communication (i) the need for communication (ii) communication patterns. (c) The role of counselling (i) the role of management (ii) skills of effective counselling. (d) Controlling conflict, grievance and discipline (i) causes of conflict (ii) managing conflict (iii) appropriate procedures
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(iv) process understanding (v) the role of management (vi) appeals. EXCLUDED TOPICS The syllabus content outlines the area for assessment. No areas of knowledge are specifically excluded from the syllabus. KEY AREAS OF THE SYLLABUS The key topic areas are as follows: an understanding of the theory, techniques, processes, procedures and practice of people management and team development rules, procedures and processes of people management training and development, the trained workforce, employee assessment the theories of motivation and leadership and their application effective communication practices. APPROACH TO THE EXAMINING THE SYLLABUS The examination is a three hour paper constructed in two sections. Section A consists of a brief scenario with a range of 5 to 10 mark requirements related to it, worth 40 marks in total. The scenario is generally devised to test the application and understanding of a particular topic, although candidates should be aware that more than one topic may form part of the scenario.
Section B consists of five essay type questions, with one question usually taken from each of the five topics in the syllabus. Each question carries 15 marks and candidates must attempt four questions. There are no calculations involved, and candidates should note that the answers in Section B must be presented in essay form. Candidates need to show an understanding of the detail of the topic. Candidates should be aware that although the course is made up of a number of discrete topics, individual examination questions may well require a knowledge of more than one of these topics. Number of Marks Section A: Compulsory scenario question Section B: Choice of 4 from 5 essay questions (15 marks each) 60 100 40
FTC Foulks Lynch ACCA's official publisher Contact number: +44 (0)118 989 0629. Website: www.financial-training.com/new/ foulkslynch Accountancy Tuition Centre (ATC) International Contact number: +44 (0)141 880 6469. Website: www.ptc-global.com BPP Contact number: +44 (0)20 8740 2222. Website: www.bpp.com Candidates may also find the following texts useful: Beardwell I, Holden L, Claydon T. Human Resource Management A Contemporary Perspective (4th Edition) Prentice Hall ISBN 0273622307 Bratton J and Gold J Human Resource
ADDITIONAL INFORMATION The Study Guide provides more detailed guidance on the syllabus. RELEVANT TEXTS There are a number of sources from which you can obtain a series of materials written for the ACCA examinations. These are listed below:
Management (3rd Edition) Palgrave Macmillan ISBN 0333 993268 Mullins L J Management and Organisational Behaviour (6th Edition) Pitman ISBN 0273 651471 Handy C Understanding Organisations (5th Edition) Penguin Wider reading is also desirable, especially regular study of relevant articles in ACCA's student accountant.
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STUDY SESSIONS MANAGEMENT AND TEAM DEVELOPMENT 1 The organisation of work (a) Explain the need for formal organisations (b) Identify organisational types and differences. 2 The role of management (a) Identify and explain the contribution made by modern writers on management: Drucker, Kanter, Mintzberg, Ouchi, Peters (b) Identify and explain the contribution made by classical writers on management: Fayol, Stewart, Taylor, Mayo, Weber (c) Identify the differences between classical and modern theories of management (d) Identify the difference between individual and group contribution to work performance: Schein (e) Outline areas of management authority and responsibility (f) List the systems of performance reward for individual and group contribution. 3 The role of the manager (a) Explain the role of the manager in the organisation of work (b) List the management tasks involved in organising the work of others (c) Illustrate the role of the manager in
achieving tasks (d) Identify the responsibilities of the supervisor. 4 Individual and group behaviour (a) Explain the concept of organisational culture: Anthony, Handy (b) Discuss the differences between individual and group behaviour (c) outline the contribution of individuals and teams to organisational success (d) Identify individual and team approaches to work (e) Understand perception and role theory. 5 Team management (a) Explain the role of the manager in building the team and developing individuals (b) Define the purpose of a team (c) Outline the composition of successful teams: Belbin, Peters and Waterman (d) Explain the development of a team: Tuckman (e) List team building tools (f) Examine ways of rewarding a team (g) Identify methods to evaluate team performance. 6 Objective setting (a) Explain the importance of objective setting (b) Compare and contrast profit and other objectives: Drucker, Cyert and
March, Marginalist Theories, Simon (c) Explain the behaviourial theories of objective setting (d) Explain the importance of understanding ethics and social responsibility (e) Compare and contrast the difference between corporate objectives and personal objectives (f) Illustrate the difference between quantitative and qualitative target setting (g) Outline the management role in identifying performance standards and accountability (h) Identify methods to measure achievement of objectives. 7 Authority, responsibility and delegation (a) Describe, recognise and understand the importance of organisational structure (b) Compare classical and modern approaches to organisational structure: Burns and Stalker, Contingency Theory, Fayol, Mintzberg, Trist and Bamforth, Urwick, Weber, Woodward (c) Define the terms authority, responsibility and delegation (d) Explain the term legitimized power: Weber (e) Describe the process of determining authority and responsibility (f) Examine the case of responsibility without authority.
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8 Standard setting and performance management (a) Define the term performance management (b) Identify a process for establishing work standards and performance management (c) Outline a method to establish performance indicators (d) Illustrate ways of applying performance management (e) Describe management contribution to personal development planning (f) Explain the term performance related pay. RECRUITMENT AND SELECTION 9 The recruitment and selection process (a) Explain the importance of effective recruitment and selection to the organisation (b) Define the recruitment and selection process (c) Outline the roles and responsibilities of those involved in the recruitment and selection process (d) List the most common reasons for ineffective recruitment and selection (e) List and describe criteria against which to assess successful recruitment and selection practices. 10 Effective recruitment (a) Outline a plan for an effective recruitment process (b) Identify the stages in the recruitment process
(c) Compare and contrast the choice of media for job advertising (d) Analyse the purpose and effectiveness of the job application form (e) Explain the purpose and usefulness of applicant references. 11 The job description and personnel specification (a) Outline the purpose and use of a job description and person specification (b) Explain how to devise a job description and personnel specification: Rodgers, Fraser (c) Compare and contrast the purpose of the job description and the person specification. 12 Job analysis (a) Define the purpose of job analysis (b) Identify methods of job analysis (c) Outline the skills involved in carrying out job analysis (d) Justify the use of job analysis. 13 Selection methods (a) List alternative methods of selection (b Evaluate the usefulness of selection methods (c) Identify those involved in the process of selection (d) Establish the skills involved in successful decision making (e) Explain the importance to the organisation of good selection decisions.
14 The selection interview (a) Outline the purpose of the selection interview (b) Identify who should be involved in selection interviewing (c) Identify the key skills required for selection interviewing (d) List the most common reasons for ineffective interviewing (e) Explain the importance of the selection interview in the selection process. 15 Equal opportunities and the management of diversity (a) Understanding equal opportunities (b) Measuring equal value (c) Appreciate the legal position (d) Explain the appropriateness of managing diversity in the workplace (e) Identify individual circumstances and differences. TRAINING AND DEVELOPMENT 16 The learning process (a) Explain the process of learning in the workplace (b) Describe the ways in which individuals learn: Honey and Mumford, Kolb (c) Explain the effect on learning of individual differences (d) Outline the barriers to learning (e) Describe the role of management and the organisation in the learning process.
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17 Retention, Training and development (a) Explain the importance of training and development to the organisation and the individual (b) Explain the roles and responsibilities of a training manager (c) Compare and contrast the various methods used in developing individuals in the workplace. 18 Effective training and development (a) List the benefits to the organisation and the individual of effective training and development (b) Explain the methods used to analyse training needs (c) Suggest ways in which training needs can be met (d) Describe methods of staff evaluation and follow-up (e) Describe the skills involved in developing staff (f) Explain the development methods available to management (g) Evaluate the effectiveness of in-house and external training courses. the 19 Competence assessment (a) Explain the process of competence assessment (b) Outline the purposes and benefits of staff appraisal in the process (c) Describe the barriers to effective staff appraisal
(d) Suggest ways to measure the effectiveness of staff appraisal and the process of assessment. 20 Conducting the appraisal process (a) Identify the benefits of the appraisal process (b) Identify the management skills involved in the appraisal process (c) Describe the process of preparation of an appraisal interview, including location of interview and pre interview correspondence (d) Identify the key communication skills required to conduct an effective appraisal interview (e) Explain the importance of feedback from the appraisal interview. 21 Individual skills and development (a) Explain the link between the appraisal process and effective employee development (b) Describe the role of the appraisee in the process (c) Suggest ways in which self-development can be part of process. (d) Describe the role of the manager in work based skills development (e) Identify the methods used to develop skills (f) Outline how to plan a skills development programme (g) Explain the role of mentoring in the process of skills development.
22 The management of health and safety (a) Identify preventative and protective measures (b) Describe safety awareness and training (c) Outline working conditions and hazards (d) Explain the legal context and the obligation of management. MOTIVATION AND LEADERSHIP 23 Motivation, concepts, models and practices (a) Outline the key theories of motivation (b) Outline classical and modern theories of motivation: Argyris, Equity Theory, Handy, Herzberg, Maslow, McClelland, McGregor, Vroom (c) Outline the difference between content and process theories of motivation (d) Describe ways in which management can motivate staff (e) Explain the importance of the reward system in the process of motivation (f) Explain the importance of constructive feedback in motivation. 24 Effective leadership (a) Define the term leadership (b) Describe the nature and importance of leadership (c) Outline classical and modern theories of leadership: Blake and Mouton, Contingency Theory,
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Fiedler, Handy, Hersey and Blanchard, Likert, Tannenbaum, Trait Theory, White and Lippit (d) Compare and contrast the terms leadership and management (e) Identify the skills of a leader. EFFECTIVE COMMUNICATION PRACTICES 25 Working with people interpersonal skills (a) Define the term interpersonal skills (b) Explain the importance of developing effective working relationships (c) Distinguish between verbal and non-verbal forms of communication (d) Compare and contrast the difference between aggressive and assertive behaviour (e) Illustrate the link between interpersonal skills and effective management practice. 26 Communication (a) Explain the importance of formal and informal communication in the workplace (b) Explain communication models (c) List and describe barriers to communication (d) Outline the importance to the manager of effective communication (e) Describe the effects of poor communication (f) List and describe the attributes of effective communication (g) List the main methods and patterns
of communication (h) Explain the importance of the process of consultation. 27 The role of counselling (a) Define counselling in the management context (b) Outline the role of the manager when counselling staff (c) Explain the importance of effective counselling (d) Identify the skills used in the process of effective counselling (e) Suggest reasons why the need to counsel a member of staff may arise. 28 Controlling conflict, grievance and discipline (a) Identify the main causes of conflict within an organisation (b) Outline procedures for managing conflict (c) Outline a suitable framework (both internal and external to the organisation) for dealing with grievance and disciplinary matters (d) Explain the need for effective organisational procedures (e) Explain the role of management in respect of disciplinary matters (f) Suggest ways in which the outcome of the disciplinary process should be communicated to the individual concerned (g) Outline the features of an appeals procedure.
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2
This section contains the syllabus and study sessions for each paper within Part 2 of the ACCA Professional Syllabus. 2.1 Information Systems 2.2 Corporate and Business Law 2.3 Business Taxation 2.4 Financial Management and Control 2.5 Financial Reporting 2.6 Audit and Internal Review THE OBJECTIVE OF PART 2 This stage continues the introduction of the new subject areas, develops candidates' analytical skills and introduces candidates to the problems and situations that they will meet at work. Part 2 tests the application of the theory in the context of recognisable problems and conceptual understanding. It will consolidate knowledge of current principles, practices and techniques and begin to develop candidates' ability to criticise current practices. Questions will present practical scenarios SKILLS TO BE TESTED IN PART 2 Candidates should be able to demonstrate the ability to: analyse and evaluate information apply concepts and principles flexibly in a variety of circumstances identify, define and rank problems interpret results and criticise proposed solutions or practices. requiring candidates to select the best answer from a range of available solutions in order to achieve the specified objective. The standard required of candidates completing Part 2 is that required in the final year of a UK degree.
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Paper 2.1 Information Systems
AIM To develop a knowledge and understanding of information systems development and delivery as required to take an informed and active role in information systems solutions. 2.1 Information Systems OBJECTIVES On completion of this paper candidates should be able to: explain how to effectively use information systems and information systems resources in an organisation identify and apply methods of organising and accounting for information systems delivery and information systems projects explain the principles of initiating, planning and controlling information systems projects participate in the definition and specification of user and system requirements describe how an appropriate solution might be defined to fulfil the specified user requirements participate in the implementation, monitoring and maintenance of an information systems solution participate in the quality assurance of an information systems project identify how computer software can assist effective information systems management, development and quality assurance. SYLLABUS CONTENT 1 Managing information systems (IS) (a) Business strategy and IS/IT alignment. (b) Delivering information systems organisational arrangements. (c) Delivering information systems accounting issues. POSITION OF THE PAPER IN THE OVERALL SYLLABUS The paper assumes a familiarity with the basic applications of information technology. The paper provides the knowledge and understanding of information systems required to enable the candidate to progress to the more strategic perspectives considered in Paper 3.4 Business Information Management. The ideas introduced in this paper are also drawn upon in Paper 2.6 Audit and Internal Review, Paper 3.1 Audit and Assurance Services and Paper 3.5 Strategic Planning and Development. (d) Organising information systems structural issues. (e) Feasibility study. (f) Project initiation. (g) Project planning. (h) Project monitoring and control. (i) Software support for project management. 2 Designing information systems (a) The information systems development process. (b) Investigating and recording user requirements. (c) Documenting and modelling user requirements processes. (d) Documenting and modelling user requirements static structures. (e) Documenting and modelling user requirements events. (f) External design. (g) Developing a solution to fulfil requirements. (h) Software package selection. 3.4 Business Information Management
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Information Systems (Continued)
(i) Software support for the systems development process. 3 Evaluating information systems (a) Technical information systems requirements. (b) Legal compliance in information systems. (c) Implementing security and legal requirements. (d) Quality assurance in the management and development process. (e) Systems and user acceptance testing. (f) Implementation issues and implementation methods. (g) Post-implementation issues. (h) Change control in systems development and maintenance. (i) Relationship of management, development process and quality. KEY AREAS OF THE SYLLABUS The syllabus has three key areas, managing information systems, designing information systems and evaluating information systems. APPROACH TO EXAMINING THE SYLLABUS The examination is a three hour paper constructed in two sections. Section A is based on a short narrative scenario. This section will have three compulsory questions from across the syllabus, linked to the narrative scenario. Each question will be worth 20 marks giving a total of 60 marks for this section.
Section B contains three independent questions, one question from each main area of the syllabus. Each question is worth 20 marks. The candidate must answer two questions giving a total of 40 marks for this section. Number of marks Section A: 3 compulsory questions (20 marks each) Section B: Choice of 2 from 3 questions (20 marks each) 40 100 ADDITIONAL INFORMATION The Study Guide and Exam Notes provide more detailed guidance on the syllabus, particularly with respect to acceptable approaches to modelling RELEVANT TEXTS There are a number of sources from which you can obtain a series of materials written for the ACCA examinations. These are listed below: FTC Foulks Lynch ACCA's official publisher Contact number: +44 (0)118 989 0629. Website: www.financial-training.com/new/ foulkslynch Accountancy Tuition Centre (ATC) International Contact number: +44 (0)141 880 6469. Website: www.ptc-global.com 60
BPP Contact number: +44 (0)20 8740 2222. Website: www.bpp.com Candidates may also find the following texts useful: Don Yeates and James Cadle Project Management for Information Systems (4th Edition) Prentice Hall, 2004 ISBN 0273620193 Steve Skidmore and Malcolm Eva Introducing Systems Development Palgrave Macmillan, 2003 ISBN 0333973690 Looking specifically at each area of the paper: MANAGING INFORMATION SYSTEMS Don Yeates and James Cadle Project Management for Information Systems Prentice Hall, 2004 ISBN 0273620193 Relevant chapters 2,3, 5-11 & 13 Steve Skidmore and Malcolm Eva Introducing Systems Development Palgrave Macmillan, 2003 ISBN 0333721411 Relevant chapters 1-4 & 10
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Supporting texts Colin Bentley Practical PRINCE2 The Stationary Office 2002 DESIGNING INFORMATION SYSTEMS Steve Skidmore and Malcolm Eva Introducing Systems Development Palgrave Macmillan 2003 ISBN 0333721411 Relevant chapters 5-9 Don Yeates and James Cadle Project Management for Information Systems Prentice Hall, 2004 Relevant chapters 2-3 Supporting texts Ken Lunn Software Development with UML Palgrave Macmillan 2002 Simon Bennett, Steve McRobb, Ray Farmer Object-Oriented Systems Analysis and Design McGraw-Hill 2002 EVALUATING INFORMATION SYSTEMS Steve Skidmore and Malcolm Eva Introducing Systems Development Palgrave Macmillan 2003 Relevant chapters 11-15
Supporting texts Ron Patton Software Testing SAMS Publishing 2001 Wider reading is also desirable, especially regular study of relevant articles in ACCA's student accountant.
STUDY SESSIONS PART 1: MANAGING INFORMATION SYSTEMS Overall This section provides the candidate with an insight into how information systems (IS) and information systems projects are organised and managed. The intention is to concentrate on the following areas: Information Systems strategy, organisation and financing Project Management. 1 Business strategy and IS/IT alignment (a) Explain an approach that an organisation may follow to formulate its strategic business objectives. (b) Discuss how information systems may be used to assist in achieving these objectives. (c) Identify current trends in information technology (IT) and the opportunities they offer to organisations. (d) Distinguish between a business strategy and an information systems strategy. (e) Identify responsibility for the ownership of the IS strategy. 2 Delivering information systems
Don Yeates and James Cadle Project Management for Information Systems Prentice Hall 2004 Relevant Chapter 12
organisational arrangements (a) Describe the traditional structure of a centralised Information Systems department and the roles and responsibilities of each function.
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(b) Explain the principles of a decentralised Information Systems function. (c) Discuss the advantages and disadvantages of centralising or decentralising the information systems function. (d) Explain the principles of outsourcing the information systems function. (e) Describe the advantages and disadvantages of outsourcing the information systems function. 3 Delivering information systems accounting issues (a) Briefly describe the types of cost incurred in delivering information systems. (b) Describe how the costs of the information systems function may be distributed between customer departments. (c) Explain the principles, benefits and drawbacks of cross-charging costs. (d) Discuss the issues raised by establishing the information systems function as a cost or profit centre. (e) Describe the advantages and disadvantages of establishing the information systems function as a separate company. (f) Explain the problems of accounting for shared infrastructure costs.
4 Organising information systems structural issues (a) Describe the typical hardware, software, data and communications infrastructures found within information systems functions. (b) Discuss the meaning and need for a disaster recovery plan. (c) Discuss the meaning and need for a risk management process. (d) Describe the meaning and implications of legacy systems. (e) Discuss the relationship of information systems with end-users and the implications of the expectations and skills of end-users. 5 Feasibility study (a) Explain the purpose and objectives of a feasibility study. (b) Evaluate the technical, operational, social and economic feasibility of the proposed project. (c) Describe and categorise the benefits and costs of the proposed project. (d) Apply appropriate investment appraisal techniques to determine the economic feasibility of a project. (e) Define the typical content and structure of a feasibility study report. 6 Project initiation (a) Define the content and structure of terms of reference. (b) Describe the typical contents of a Project Quality Plan and explain the
need for such a plan. (c) Identify the roles and responsibilities of staff who will manage and participate in the project. (d) Define in detail the role and responsibilities of the project manager. (e) Explain the concept of a flat management structure and its application to project-based systems development. 7 Project planning (a) Assist in splitting the project into its main phases. (b) Participate in the breakdown of work into lower-level tasks. (c) Assist in the estimation of the time taken to complete these lower-level tasks. (d) Define dependencies between lowerlevel tasks. (e) Construct and interpret a project network. (f) Construct and interpret a Gantt Chart. 8 Project monitoring and control (a) Describe methods of monitoring and reporting progress. (b) Define the reasons for slippage and how to deal with slippage when it occurs. (c) Discuss the reasons for changes during the project and the need for a project change procedure. (d) Identify the effects of progress, slippage and change requests on the project
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plan. (e) Discuss the particular problems of planning and controlling information systems projects. 9 Software support for project management (a) Define the meaning of a project management software package and give a brief list of representative products. (b) Describe a range of features and functions that a project management software package may provide. (c) Explain the advantages of using a project management software package in the project management process. PART 2: DESIGNING INFORMATION SYSTEMS Overall This section provides the candidate with an insight into how systems are defined and developed. The intention is to concentrate on the following areas: The definition and agreement of business requirements The external design of the system The selection of a software package solution. 10 The information systems development process (a) Define the participants in the systems development process managers, analysts, designers,
programmers and testers. (b) Describe the waterfall approach to systems development and identify its application in a representative systems development methodology. (c) Describe the spiral approach to systems development and identify its application in a representative systems development methodology. (d) Discuss the relative merits of the waterfall and spiral approaches, including an understanding of hybrid methodologies that include elements of both.
12 Documenting and modelling user requirements processes (a) Describe the need for building a business process model of user requirements. (b) Describe in detail the notation of either a data flow diagram or a flowchart. (c) Construct a business process model of narrative user requirements using a data flow diagram or a flowchart. (d) Explain the role of process models in the systems development process. 13 Documenting and modelling user
11 Investigating and recording user requirements (a) Define the tasks of planning, undertaking and documenting a user interview. (b) Identify the potential role of background research, questionnaires and special purpose surveys in the definition of requirements. (c) Describe the purpose, conduct and recording of a facilitated user workshop. (d) Explain the potential use of prototyping in requirements definition. (e) Explain how requirements can be collected from current computerised information systems. (f) Discuss the problems users have in defining, agreeing and prioritising requirements.
requirements static structures (a) Describe the need for building a business structure model of user requirements. (b) Describe in detail the notation of either an entity-relationship model (Logical Data Model) or a class model. (c) Construct a business structure model of narrative user requirements using an entity-relationship model (Logical Data Model) or a class model. (d) Explain the role of structure models in the systems development process. 14 Documenting and modelling user requirements events (a) Describe the need for building a business event model of user requirements. (b) Describe in detail the notation of either a statechart diagram (state
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transition diagram) or an entity life history. (c) Construct a business event model of narrative user requirements using a statechart diagram (state transition diagram) or an entity life history. (d) Explain the role of event models in the systems development process. 15 External design (a) Define the characteristics of a userfriendly system. (b) Describe the task of external design and distinguish it from internal design. (c) Design effective output documents and reports. (d) Select appropriate technology to support the output design. (e) Design effective inputs. (f) Select appropriate technology to support input design. (g) Describe how the user interface may be structured for ease of use (h) Explain how prototyping may be used in defining an external design. 16 Developing a solution to fulfil requirements (a) Define the bespoke software approach to fulfilling the users information systems requirements. (b) Briefly describe the tasks of design, programming and testing required in developing a bespoke systems solution. (c) Define the application software package approach to fulfilling the
users information systems requirements. (d) Briefly describe the tasks of package selection, evaluation and testing required in selecting an appropriate application software package. (e) Describe the relative merits of the bespoke systems development and application software package approaches to fulfilling an information systems requirement. 17 Software package selection (a) Describe the structure and contents of an Invitation to Tender (ITT). (b) Describe how to identify software packages and their suppliers that may potentially fulfil the information systems requirements. (c) Develop suitable procedures for distributing an ITT and dealing with subsequent enquiries and bids. (d) Describe a process for evaluating the application software package, the supplier of that package and the bid received from the supplier. (e) Describe risks of the application software package approach to systems development and how these might be reduced or removed. 18 Software support for the systems development process (a) Define a Computer Aided Software Engineering (CASE) tool and give a brief list of representative products. (b) Describe a range of features and
functions that a CASE tool may provide. (c) Explain the advantages of using a CASE tool in the systems development process. (d) Define a Fourth Generation Language and give a brief list of representative products. (e) Describe a range of features and functions that a Fourth Generation Language may provide. (f) Explain how a Fourth Generation Language contributes to the prototyping process. PART 3: EVALUATING INFORMATION SYSTEMS Overall This section provides the candidate with an insight into how systems are implemented and evaluated. The intention is to concentrate on the following areas: The definition and agreement of nonfunctional business requirements The quality assurance of the solution The implementation and maintenance of the solution. 19 Technical information systems requirements (a) Define and record performance and volume requirements of information systems. (b) Discuss the need for archiving, backup and restore, and other house-keeping functions. (c) Explain the need for a software audit
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trail and define the content of such a trail. (d) Examine the need to provide interfaces with other systems and discuss the implications of developing these interfaces. (e) Establish requirements for data conversion and data creation.
application of encryption techniques. (e) Discuss the implications of software viruses and malpractice. (f) Discuss how the requirements of the UK Data Protection and UK Computer Misuse legislation may be implemented. 22 Quality assurance in the management
table) to develop an appropriate test script for a representative system test. (d) Explain the scope and importance of performance testing and usability testing. (e) Define the scope and procedures of user acceptance testing. (f) Describe the potential use of automated tools to support system and user acceptance testing. 24 Implementation issues and implementation methods (a) Plan for data conversion and creation. (b) Discuss the need for training and suggest different methods of delivering such training. (c) Describe the type of documentation needed to support implementation and comment on ways of effectively organising and presenting this documentation. (d) Distinguish between parallel running and direct changeover and comment on the advantages and disadvantages of each. 25 Post-implementation issues (a) Describe the metrics required to measure the success of the system. (b) Discuss the procedures that have to be implemented to effectively collect the agreed metrics.
20 Legal compliance in information systems (a) Describe the principles, terms and coverage typified by the UK Data Protection Act. (b) Describe the principles, terms and coverage typified by the UK Computer Misuse Act. (c) Explain the implications of software licences and copyright law in computer systems development. (d) Discuss the legal implications of software supply with particular reference to ownership, liability and damages. 21 Implementing security and legal requirements (a) Describe methods to ensure the physical security of IT systems. (b) Discuss the role, implementation and maintenance of a password system. (c) Explain representative clerical and software controls that should assist in maintaining the integrity of a system. (d) Describe the principles and
and development process (a) Define the characteristics of a quality software product. (b) Define the terms, quality management, quality assurance and quality control. (c) Describe the V model and its application to quality assurance and testing. (d) Explain the limitations of software testing. (e) Participate in the quality assurance of deliverables in requirement specification using formal static testing methods. (f) Explain the role of standards and, in particular, their application in quality assurance. (g) Briefly describe the task of unit testing in bespoke systems development. 23 System and user acceptance testing (a) Define the scope of system testing. (b) Distinguish between dynamic and static testing. (c) Use a cause-effect chart (decision
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(c) Identify what procedures and personnel should be put in place to support the users of the system. (d) Explain the possible role of software monitors in measuring the success of the system. (e) Describe the purpose and conduct of an end-project review and a postimplementation review. (f) Describe the structure and content of written reports as compared with an end-project review and a postimplementation review. 26 Change control in systems development and maintenance (a) Describe the different types of maintenance that a system may require. (b) Explain the need for a change control process for dealing with these changes. (c) Describe a maintenance lifecycle. (d) Explain the meaning and problems of regression testing. (e) Discuss the role of user groups and their influence on system requirements. 27 Relationship of management, development process and quality (a) Describe the relationship between project management and the systems development process. (b) Describe the relationship between the systems development process and quality assurance. (c) Explain the time/cost/quality triangle
and its implications for information systems projects. (d) Discuss the need for automation to improve the efficiency and effectiveness of information systems management, delivery and quality assurance. (e) Explain the role of the accountant in information systems management, delivery and quality assurance. 28 Revision
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Paper 2.2 Corporate and Business Law
AIM To develop knowledge and understanding of the general legal framework within which an accountant operates. To develop an awareness of and an ability to understand both common law and statute in relation to specific legal areas of central importance to business. OBJECTIVES On completion of this paper students should be able to: analyse and evaluate situations from a legal perspective identify the essential elements of the English legal system including the main sources of law and explain its operation explain and demonstrate an ability to use the essential principles relating to the formation, content and remedies for the breach of contracts explain the rules of agency as they apply to sole traders, partnerships and companies explain the law relating to the partnership describe the different types of company and explain the rules relating to their financing, management, administration and regulation explain the law relating to employment relationships with particular regard to dismissal, redundancy and discrimination. POSITION OF THE PAPER IN THE OVERALL SYLLABUS There is no prerequisite knowledge for this paper although the generic skills developed in Part 1 will provide the basis for the substantive study undertaken.
Although all of the work done in other papers in Part 2 takes place within the legal framework, legal regulation is particularly relevant to Paper 2.1 Information Systems, Paper 2.3 Business Taxation (UK) and Paper 2.6 Audit and Internal Review. Questions in Paper 2.2 will neither assume, nor draw on, any knowledge from those papers. In Part 3, Paper 3.2 Advanced Taxation, will require an ability to understand and apply tax law. Paper 3.6 Advanced Corporate Reporting will address the issue of corporate insolvency. SYLLABUS CONTENT 1 The English legal system This section provides an introduction to some key features of the English legal system and will facilitate understanding of the sources of law, how law is administered and how legal rules emerge in the legal system. (a) Court structure and the administration of justice. (b) Case law and legislation: precedent, statutory instruments, statutory interpretation. (c) Arbitration. (d) The impact of European Community legislation. (e) Human Rights. 2 General principles of the law of contract This section deals with major features of the formation, content and discharge of a contract and will provide an
understanding of the basic nature of contractual agreements. (a) Formation: offer, acceptance, consideration, intention to create legal relations, privity. (b) Contents: terms, exclusion clauses and their control. (c) Contracts in restraint of trade. (d) Discharge of contract. (e) Breach of contract and remedies. 3 Agency and partnership This section will familiarise the student with those general rules of agency, which find specific application in relation to partnerships and companies. It also examines the legal rules governing the operation of partnerships. (a) Creation of agency. (b) Principal and agent: reciprocal rights and duties. (c) Authority of the agent. (d) Types of partnerships including limited liability partnerships. (e) Formation of Partnerships. (f) Internal regulation of Partnerships. (g) Partnerships and outsiders. 4 The company form This section deals with the nature of companies; both the private company; and the public limited company, in comparison to the sole trader or the partnership. (a) The limited company distinguished from partnership.
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Corporate and Business Law (Continued)
(b) The private company and public limited company. (c) The meaning and consequences of separate legal personality. 5 The formation and constitution of the company This section examines the legal requirements controlling the setting up of a company. (a) The formalities involved in registering a company. (b) The constitutional documents of the company: memorandum and articles of association. (c) The contractual capacity of a company. (d) Statutory books, records and returns.
(a) Directors: appointment, termination of office and disqualification; duties (especially duty of care); powers. (b) Company Secretary: appointment; duties; powers. (c) Auditors: appointment, removal, resignation; duties; powers. 8 Company meetings This section deals with the function and conduct of the company meeting. (a) Types of meetings: ordinary and extraordinary general meetings. (b) Types of resolutions: ordinary, extraordinary, special, elective and written.
(a) Contracts of service and contracts for services. (b) Unfair and wrongful dismissal. (c) Redundancy. (d) Discrimination. 12 Criminal Law (a) Insider dealing. (b) Money laundering. EXCLUDED TOPICS The syllabus does not attempt to cover every aspect of the various subject areas it deals with. For example, Contract does not cover misrepresentation or frustration. KEY AREAS OF THE SYLLABUS
9 Majority control and minority protection 6 Capital and financing of companies This section deals in outline with the capital and financing of companies, covering share and loan-capital. (a) Share capital: ordinary and preference shares. (b) Class rights and their alteration. (c) Loan capital: debentures and company charges (d) Capital maintenance and dividend law. 7 Management and administration of a company This section takes an overview of the legal obligations of the management in relation to the administration of the company. The role of key personnel is identified and the rights and obligations they have, are explored. 11 Employment This section focuses on the major legislative and common law principles which govern employment relationships. 10 Insolvency This section will introduce students to the ways in which insolvent companies may be dealt with. (a) Voluntary liquidation. (b) Compulsory liquidation. (c) Administration. This section examines the way in which potential abuse of majority power may be prevented or remedied. (a) Unfair prejudice. (b) Just and equitable winding up. (c) DTI investigations.
Company law, as set out in sections 410 above, is central to the syllabus and it will provide a possible 50% of the total marks allocated in any particular paper. APPROACH TO EXAMINING THE SYLLABUS The examination is a three hour paper divided into two sections. Section A will contain short, knowledge-based questions. Section B will be problem-based and will test communication skills and the ability to appraise and analyse information. Number of marks Section A: Choice of 6 from 8 questions (10 marks each) Section B: Choice of 2 from 4 questions (20 marks each) 40 100 60
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ADDITIONAL INFORMATION Knowledge of new legislation will not be expected until at least six months after the last day of the month in which the Royal Assent (or similar procedure in other countries) is given, or six months after the specific provision comes into effect, which ever is the later.
Candidates may also find the following texts useful:
STUDY SESSIONS 1 English legal system I
Kelly D & Holmes A Business Law (4th Edition) Cavendish ISBN 1859414699 - covers all aspects of the syllabus. Smith K & Keenan D Advanced Business
Court Structure and Administration of Justice (a) Understand how different types of cases are dealt with by different courts (b) Identify the major courts and their relationship of seniority (c) Explain how appeals go from one court to another. 2 English legal system II Case Law and Legislation (a) Explain what is meant by case law and precedent within the context of the hierarchy of the courts (b) Explain legislation and evaluate delegated legislation (c) Illustrate the rules and presumptions used by the courts in interpreting statutes (d) The impact of human rights law. 3 English legal system III
The Study Guide provides more detailed guidance on the syllabus. RELEVANT TEXTS There are a number of sources from which you can obtain a series of materials written for the ACCA examinations. These are listed below:
Law (11th Edition) Pitman - covers contract, employment, company and agency law. Smith K & Keenan D Company Law for Students (12th Edition) Pitman - covers the company law in more detail. Wider reading is also desirable, especially
FTC Foulks Lynch ACCA's official publisher Contact number: +44 (0)118 989 0629. Website: www.financial-training.com/new/ foulkslynch Accountancy Tuition Centre (ATC) International Contact number: +44 (0)141 880 6469. Website: www.ptc-global.com BPP Contact number: +44 (0)20 8740 2222. Website: www.bpp.com
regular study of relevant articles in ACCA's student accountant.
European Union as a source of Law (a) Evaluate the impact of the various institutions of the European Community on UK law (b) Provide examples of the impact of the EC on domestic law. Arbitration (a) Evaluate arbitration as an alternative to the court structure in business relationships.
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4 General principles of the law of contract I Formation (a) Analyse the nature of a simple contract (b) Distinguish the legal requirements for the creation of a contract (c) Explain the meaning of offer and distinguish it from invitations to treat (d) Explain the meaning and consequence of acceptance. 5 General principles of the law of contract II Formation (a) Explain the need for consideration (b) Consider the doctrine of privity (c) Distinguish the presumptions relating to intention to create legal relations. 6 General principles of the law of contract III Contents (a) Distinguish terms from mere representations (b) Define the various contractual terms (c) Explain the effect of exclusion clauses and evaluate their control (d) Explain the effect of contracts in restraint of trade and evaluate their control.
(b) Explain the meaning and effect of breach of contract (c) Explain the rules relating to the award of damages (d) Consider the equitable remedies for breach of contract. 8 Agency 1 (a) Define the role of the agent and give examples of such relationships (b) Explain how the agency relationship is established (c) Define the authority of the agent.
(c) Explain what is meant by partnership property. 12 Partnership III Partnerships and Outsiders (a) Explain the authority of partners in relation to partnership activity (b) Analyse the liability of various partners for partnership debts (c) Explain the way in which partnerships can be brought to an end. 13 Company Law I
9 Agency II (a) Analyse the reciprocal rights and duties between principal and agent (b) Detail the relationship between the agent and third parties. 10 Partnership I Formation of Partnership (a) Define and explain the role of the partnership form in the context of contemporary business organisation (b) Consider how partnerships come into being (c) Demonstrate a knowledge of the legislation governing the partnership, both unlimited and limited.
The Company Form (a) Distinguish between companies and partnerships (b) Analyse different types of companies, especially private and public companies (c) Explain the meaning and effect of limited liability. 14 Company Law II The Company Form (a) Illustrate the effect of separate personality (b) Cite instances where separate personality will be ignored. 15 Company Law III
11 Partnership II 7 General principles of the law of contract IV Breach of contract and remedies (a) Explain how contracts can be discharged Internal Regulation of Partnerships (a) Analyse the duties of partners to each other (b) Analyse the rights of partners to each other
The formation of the company (a) Describe the procedure for registering companies, both public and private (b) Detail the statutory books, records and returns that companies must
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keep or make (c) Explain the controls over the names that companies may or must use. 16 Company Law IV The constitution of the company (a) Detail the content and effect of the memorandum of association (b) Describe the contents of Table A articles of association (c) Analyse the effect of a companys constitutional documents (d) Explain how articles of association can be changed. 17 Company Law V Share capital (a) Examine the different meanings of capital (b) Illustrate the difference between various classes of shares (c) Explain the procedure for altering class rights.
19 Company Law VII Capital Maintenance and Dividend Law (a) Explain the doctrine of capital maintenance (b) Examine the effect of issuing shares at either discount, or premium (c) Explain the rules governing the distribution of dividends in both private and public companies.
22 Company Law X Other Company Officers (a) Detail the appointment procedure relating to, and the duties and powers of, a company secretary (b) Detail the appointment procedure relating to, and the duties and powers of, company auditors. 23 Company Law XI
20 Company Law VIII Directors 1 (a) Explain the role of directors in the operation of a company (b) Detail the ways in which directors are appointed, can lose their office or be subject to a disqualification order (c) Distinguish between the powers of the board of directors, the managing director and individual directors to bind their company.
Company meetings and resolutions (a) Distinguish between types of meetings: ordinary and extraordinary general meetings and class meetings (b) Explain the procedure for calling such meetings (c) Detail the procedure for conducting company meetings (d) Distinguish between types of resolutions: ordinary, extraordinary, special, elective and written. 24 Company Law - XII
21 Company Law IX 18 Company Law VI Loan capital (a) Define companies borrowing powers (b) Explain the meaning of debenture (c) Distinguish loan capital from share capital (d) Explain the concept of a company charge and distinguish between fixed and floating charges (e) Detail the need and the procedure for registering company charges. Directors 2 (a) Explain the duties that directors owe to their companies (b) Demonstrate an understanding of some of the way in which the companies legislation has attempted to control directors (c) Distinguish between fraudulent and wrongful trading.
Majority control and minority protection (a) Explain the normal rule of majority control as expressed in Foss v Harbottle (b) Consider the common law exceptions to Foss v Harbottle (c) Evaluate the just and equitable winding up procedure as a means of protecting minority rights (d) Discuss the statutory protection relating to unfairly prejudicial conduct under the companies legislation as an alternative to
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winding up (e) Consider Department of Trade and Industry investigations as a form of minority protection. 25 Company Insolvency XIII (a) Explain the meaning of and procedure involved in voluntary liquidation (b) Explain the meaning of and procedure involved in compulsory liquidation (c) Consider administration as an alternative to winding up. 26 Employment Law I Contracts of service and for services (a) Distinguish between employees and the self-employed (b) Explain why such a distinction is important (c) Explain the nature of the contract of employment and give examples of the main duties placed on the parties to such a contract. 27 Employment Law II Dismissal and Redundancy (a) Distinguish between wrongful and unfair dismissal including constructive dismissal (b) Explain what is meant by redundancy (c) Detail the remedies available to those who have been subject to unfair dismissal or redundancy.
28 Employment Law III Discrimination (a) Explain what is meant by discrimination in its various forms, including indirect as well as direct discrimination (b) Detail the legal provisions which seek to control discrimination (c) Detail the remedies available to those who have been subjected to discrimination. 29 Criminal Law Syllabus 12 a and b (a) Understand the nature and legal control over insider dealing (b) Understand the nature and legal control over money laundering.
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Paper 2.3 Business Taxation (United Kingdom)

AIM To develop knowledge and understanding in the core areas of tax related to businesses and their employees. OBJECTIVES On completion of this paper candidates should be able to: explain the operation of the UK tax system prepare computations of the corporation tax liability for individual companies and groups of companies prepare computations of the income tax liability for employees, sole traders and partnerships prepare computations of the chargeable gains arising on incorporated and unincorporated businesses explain and apply the principles and scope of Value Added Tax explain the impact of National Insurance Contributions on employees, employers and the self-employed explain the use of exemptions and reliefs in deferring or minimising tax liabilities demonstrate the skills expected at Part 2. POSITION OF THE PAPER IN THE OVERALL SYLLABUS An understanding of the formats of accounts used for sole traders, partnerships and companies from Paper 1.1 Preparing Financial Statements is assumed. There is no substantial integration with other papers in Part 2. SYLLABUS CONTENT 1 Corporate businesses (a) Scope of corporation tax. (b) Residence. (c) Profits chargeable to corporation tax (i) Trading income (ii) capital allowances (iii) relief for trading losses (iv) Property income (v) Interest (vi)charges on income. (d) Chargeable gains (i) principles and scope (ii) the basis of calculation 2 Unincorporated businesses (a) Basic income tax computation. (b) Self assessment system. (c) Trading income (i) badges of trade (ii) computation of assessable profit (iii) basis of assessment (iv)change of accounting date (v) capital allowances (vi)relief for trading losses (vii) partnerships and limited liability partnerships Paper 3.2 develops the topics by applying the tax knowledge to problems encountered in practice, by giving more emphasis to planning to minimise or defer tax and by examining the interaction of taxes. The coverage in Paper 2.3 will provide the grounding for the study of the optional Paper 3.2 Advanced Taxation. (iii) the identification and application of relevant exemptions and reliefs. (e) Calculation of the corporation tax liability. (f) Overseas aspects (i) trading overseas via a subsidiary or a branch (ii) double taxation relief (iii) transfer pricing. (g) Groups of companies. (h) Self assessment system. (i) Value Added Tax. 2.3 Business Taxation 3.2 Advanced Taxation
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Business Taxation (United Kingdom)
(viii) personal pensions. (d) Capital gains tax (i) principles and scope (restricted to business assets) (ii) the basis of calculation (iii) the identification and application of relevant exemptions and reliefs. (e) Value Added Tax. (f) Class 2 and Class 4 NIC. 3 Employees (a) Employment Income (i) basis of assessment (ii) allowable deductions (iii) PAYE system (iv)benefits. (b) Occupational pension schemes. (c) Class 1 and Class 1A NIC. 4 Tax planning (a) Employment v self-employment. (b) Remuneration packages. (c) Choice of business medium. (d) Incorporation of a business. (e) Disposal of a business. (f) Directors and shareholders. EXCLUDED TOPICS The following topics are specifically excluded from Paper 2.3: 1 Corporate businesses (a) Scope of corporation tax (i) investment companies (ii) close companies (iii) companies in receivership and liquidation
(iv) anti-avoidance legislation (v) reorganisations (vi) purchase by a company of its own shares (vii) personal service companies. (c) Profits chargeable to corporation tax (i) research and development expenditure (ii) the 100% first-year allowance for information and communication technology equipment (iii) the 100% first-year allowance for expenditure on renovating business premises in disadvantaged areas (iv) the 100% first-year allowance for flats above shops (v) the 100% first-year allowance for water technologies (vi) capital allowances for agricultural buildings, patents, scientific research and know how (vii) in respect of industrial buildings allowance: enterprise zones, initial allowances, and the sale of an industrial building at less than original cost following a period of non-industrial use (note that sales for more than original cost are examinable) (viii) furnished holiday lettings (ix) non-trading deficits on loan relationships (x) trade charges on income (xi) relief for intangible assets (xii) the corporate venturing scheme. (d) Chargeable gains
(i) assets held at 31 March 1982 (ii) part disposals (iii) negligible value claims (iv) leases, chattels and wasting assets (v) a detailed question on the pooling provisions for shares (vi) the same day and nine day matching rules for shares and securities applicable to corporate businesses. (vii) substantial shareholdings (e) Calculation of the corporation tax liability (i) in relation to the minimum corporation tax rate of 19% where profits are paid out as a dividend, an accounting period spanning 31 March 2004, dividends paid to corporate shareholders, and groups of companies (f) Overseas aspects (i) controlled foreign companies (ii) foreign companies trading in the UK (iii) expense relief in respect of overseas tax (iv)the restriction of double taxation relief for underlying tax to the full rate of corporation tax (v) the carry back and carry forward of unrelieved foreign tax. (g) Groups of companies (i) consortia (ii) 51% groups and group income elections
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(iii) pre-entry gains and losses (iv) the anti-avoidance provisions where arrangements exist for a company to leave a group (v) the tax charge that applies where a company leaves a group within six years of receiving an asset by way of a no gain/no loss transfer. (h) Self assessment system (i) form CT61 and quarterly accounting for income tax. (i) Value Added Tax (i) group registration (ii) imports, exports and trading within the European Community (iii) partial exemption (iv)second-hand goods scheme (v) the capital goods scheme (vi)in respect of property and land: leases, do-it-yourself builders, and the landlord's option to tax (vii) penalties apart from the default surcharge, serious misdeclarations (but not repeated misdeclarations) and default interest (viii) special schemes for retailers. 2 Unincorporated businesses (a) Basic income tax computation (i) personal allowances other than the personal allowance for people aged under 65 (ii) tax credits (iii) non-trade charges on income (iv) joint property of husbands and wives, maintenance payments
and minor children (v) propery income (vi) interest and miscellaneous income (vii) individual savings accounts (viii) the enterprise investment scheme and venture capital trusts (ix) foreign income, non-residents and double taxation relief (x) income from trusts and settlements (xi)anti-avoidance legislation. (c) Trading income (i) as for corporate businesses (ii) farmers averaging of profits (iii) the averaging of profits for authors and creative artists (iv) loss relief for shares in unquoted trading companies (v) investment income and charges of a partnership (vi)the allocation of notional profits and losses for a partnership (vii) the simplification of pensions that is to take place from 6 April 2006. This topic will not be examinable until the June 2007 diet. (d) Capital gains tax (i) as for corporate businesses (ii) calculation of the indexation allowance (iii) reinvestment relief (iv)principal private residence (v) partnership capital gains (vi) overseas aspects (vii) losses in the year of death
(viii) the transfer of assets between a husband and wife (ix)the exemption of gilt edged securities and qualifying corporate bonds (x) the payment of CGT by annual instalments (xi)capital sums received in respect of the loss, destruction or damage of an asset (xii) relief for losses incurred on loans made to traders. (e) Value Added Tax (i) as for corporate businesses. (f) Class 2 and Class 4 NIC (i) the offset of trading losses against non-trading income (for Class 4 NIC). 3 Employees (a) Employment Income (i) the calculation of a car benefit where emission figures are not available (ii) share and share option incentive schemes for employees (iii) payments on the termination of employment, and other lump sums received by employees. (b) Occupational pension schemes (i) a detailed knowledge of the conditions that must be met to obtain HM Revenue & Customs' approval for an occupation pension scheme
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(ii) the option for certain occupational pension schemes to apply to be subject to the personal pension scheme rules. (c) Class 1 and Class 1A NIC (i) the calculation of directors NIC on a month by month basis. KEY AREAS OF THE SYLLABUS The key topic areas, taken directly from the syllabus content list, are as follows: 1 Corporate businesses (a) Scope of corporation tax. (b) Profits chargeable to corporation tax. (c) Calculation of the corporation tax liability. (d) Self assessment system. 2 Unincorporated businesses (a) Basic income tax computation. (b) Self assessment system. (c) Trading income. 3 Employees (a) Employment Income. APPROACH TO EXAMINING THE SYLLABUS The examination is a three hour paper divided into two sections. Only core topics will be examined in Section A. A non-core topic may form part of a question (such as a chargeable gain in a corporation tax computation), but this will account for a maximum of ten marks. At least 40 of the 55 available marks in
Section A will be of a computational nature. Question 1 will be on a corporate business (for approximately 30 marks). Question 2 will be on an unincorporated business and/or employees (for approximately 25 marks). The questions in Section B will be a mix of computational and written, and include the minimisation or deferral of tax liabilities by the identification and application of relevant exemptions and reliefs. Question 3 will be on VAT (either for an incorporated business or an unincorporated business). Question 4 will be on capital gains (either for an incorporated business or an unincorporated business). Questions 5, 6 and 7 will be on any area of the syllabus.
Royal Assent. The same rule applies to the effective date of the provisions of an Act introduced by Statutory Instrument. It would, however, be considered inappropriate to examine legislation it is proposed to repeal or substantially alter. Knowledge of section numbers will not be needed to understand questions in this paper, nor will students be expected to use them in their answers. If students wish to refer to section numbers in their answers they may do so and will not be penalised if old, or even incorrect, section numbers are used. Names of cases or a detailed knowledge of the judgement are not required but knowledge of the principles decided in leading cases is required.
The Study Guide provides more detailed Number of Marks Section A: 2 compulsory questions Section B: Choice of 3 from 5 questions (15 marks each) 45 100 Tax rates, allowances and benefits will be given in the examination paper. FTC Foulks Lynch ACCA's official ADDITIONAL INFORMATION The ACCA applies a six-month rule in that questions requiring an understanding of new legislation will not be set until at least six calendar months after the last day of the month in which the legislation received publisher Contact number: +44 (0)118 989 0629. Website: www.financial-training.com/new/ foulkslynch 55 RELEVANT TEXTS There are a number of sources from which you can obtain a series of materials written for the ACCA examinations. These are listed below: guidance on the syllabus.
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Accountancy Tuition Centre (ATC) International Contact number: +44 (0)141 880 6469. Website: www.ptc-global.com BPP Contact number: +44 (0)20 8740 2222. Website: www.bpp.com Candidates may also find the following texts useful: A Homer and R Burrows Tolleys Tax Guide Tolley Publishing ISBN 1860128319 A Melville Taxation Prentice Hall ISBN 0 273 6555221 Wider reading is also available especially regular study of the relevant articles in ACCA's student accountant.
STUDY SESSIONS 1 Corporate businesses (a) Scope of corporation tax (i) Define the terms period of account, accounting period, and financial year (ii) Explain when an accounting period starts and finishes (b) Residence (i) Explain how the residence of a company is determined (c) Profits chargeable to corporation tax (i) Trading income State the expenditure that is allowable in calculating the tax-adjusted trading profit Explain how relief can be obtained for pre-trading expenditure (ii) Capital allowances Define plant and machinery for capital allowances purposes Calculate writing down allowances and first year allowances Explain the treatment of motor cars Compute balancing allowances and charges Explain the treatment of short life assets and long life assets Define an industrial building for industrial buildings allowance purposes Calculate industrial buildings allowance for new and (v)
second-hand buildings Compute the balancing adjustment on the disposal of an industrial building (iii) Relief for trading losses Explain how trading losses can be carried forward Explain how trading losses can be claimed against income of the current or previous accounting periods State the factors that will influence the choice of loss relief claim (iv)Property income Compute the property business profit Explain the treatment of a premium received for the grant of a short lease Explain how relief for a property business loss is given Interest Explain how profits from loan relationships and interest received are assessed (vi)Charges on income Explain the treatment of charges on income (d) Chargeable gains (i) Principles and scope Prepare a basic capital gains computation State the allowable deductions
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Calculate the indexation allowance (ii) The basis of calculation Explain the treatment of capital losses Explain the identification rules for disposals of shares and securities Apply the pooling provisions for shares and securities Explain the treatment following a bonus issue, rights issue or takeover (as a result of the chargeable gain part disposal rules not being examinable, any question on the takeover of shares or securities will involve a paper for paper transaction. Reorganisations are not mentioned in the Study Guide. This is because all the relevant rules can be examined by way of a takeover (for example, where shareholders receive two different classes of share in exchange for their existing shareholding)) (iii) The identification and application of relevant exemptions and reliefs Explain and apply rollover relief (e) Calculation of the corporation tax liability (i) Prepare a basic corporation tax
computation (ii) Explain the implications of receiving franked investment income (iii) Calculate the corporation tax liability at the starting rate, small company rate and full rate, and apply tapering relief (iv) Explain how the payment of a dividend can impact upon the amount of corporation tax payable (f) Overseas aspects (i) Trading overseas via a subsidiary or a branch Compare the UK tax treatment of an overseas branch to an overseas subsidiary (ii) Double taxation relief Calculate double taxation relief for withholding tax and underlying tax (iii) Transfer pricing Explain and apply the transfer pricing rules (g) Groups of companies (i) Define an associated company (ii) Define a 75% group (iii) Explain and apply the reliefs available to members of a 75% group (iv)Define a 75% capital gains group (v) Explain and apply the reliefs available to members of a 75% capital gains group (h) Self assessment system (i) Describe the features of self-
assessment (ii) Explain how HM Revenue & Customs can enquire into a selfassessment return (iii) Calculate interest on overdue tax (iv) Explain how large companies are required to account for corporation tax on a quarterly basis (i) Value Added Tax (i) Describe the scope of VAT (ii) State the circumstances in which a person must register for VAT, and explain the advantages of voluntary VAT registration (iii) State the circumstances in which pre-registration input VAT can be recovered (iv) Explain how a person can deregister for VAT (v) Explain how VAT is accounted for and administered (vi) Explain how the tax point is determined (vii) List the information that must be given on a VAT invoice (viii) Describe the principles that apply to the valuation of supplies (ix)State the circumstances in which input VAT is non-deductible (x) Describe the relief that is available for impairment losses on trade debts (xi) List the principal zero-rated and exempt supplies (xii) Describe the cash accounting, the annual accounting and flat
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rate schemes (xiii) State the circumstances in which the default surcharge, a serious misdeclaration penalty, and default interest will be applied 2 Unincorporated businesses (a) Basic income tax computation (i) Prepare a basic income tax computation (ii) Explain the treatment of savings income and dividends (iii) Explain the treatment of trade charges on income (b) Self assessment system (i) Describe the features of selfassessment (ii) Calculate payments on account and balancing payments/ repayments (iii) Calculate interest on overdue tax and state the penalties that can be charged (iv) Explain how HM Revenue & Customs can enquire into a selfassessment return (c) Trading income (i) Badges of trade Describe and apply the badges of trade (ii) Computation of assessable profit As for corporate businesses (iii) Basis of assessment Explain the basis of assessment Compute the assessable
profits on commencement and cessation (iv)Change of accounting date State the factors that will influence the choice of accounting date State the conditions that must be met for a change of accounting date to be valid Compute the assessable profits on a change of accounting date (v) Capital allowances As for corporate businesses (vi)Relief for trading losses Explain how trading losses can be carried forward (although only trade charges are examinable, the impact of non-trade charges where trade charges are carried forward is examinable. In any examination question on this area, a figure for non-trade charges will simply be given. The carry forward of losses on incorporation is examinable) Explain how trading losses can be claimed against total income and chargeable gains Explain the relief for trading losses in the early years of a trade Explain terminal loss relief (vii) Partnerships and limited liability partnerships Explain how a partnership is
assessed to tax Allocate assessable profits between the partners following a change in the profit sharing ratio or a change in the members of the partnership Describe the alternative loss relief claims that are available to partners Explain the loss relief restriction that applies to the partners of a limited liability partnership (viii) Personal pensions Explain the relief given for contributions to a personal pension scheme (d) Capital gains tax (i) Principles and scope (restricted to business assets) As for corporate businesses Define a business asset for the purposes of taper relief Compute taper relief (including non-business assets) (ii) The basis of calculation As for corporate businesses (quoted shares and securities (including the valuation rules) are examinable since certain quoted shareholdings will qualify for business asset taper relief. The indexation allowance is not examinable
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for individual taxpayers. Therefore, any question involving shares and securities will simply give a figure for the value of the 1985 pool as at 5 April 1998) (iii) The identification and application of relevant exemptions and reliefs As for corporate businesses Explain and apply holdover relief for the gift of business assets Explain and apply the relief available when a business is transferred to a limited company (e) Value Added Tax (i) As for corporate businesses (f) Class 2 and Class 4 NIC (i) Calculate class 2 NIC (ii) Calculate class 4 NIC 3 Employees (a) Employment Income (i) Basis of assessment State the factors that determine whether an engagement is treated as employment or selfemployment Explain the basis of assessment Describe the income assessable (ii) Allowable deductions List the allowable deductions, including travelling expenses Explain the use of the statutory approved mileage
allowances (iii) PAYE system Explain the PAYE system (iv)Benefits Identify P11D employees Explain how benefits are assessed (b) Occupational pension schemes (i) State the main features of an occupational pension scheme (ii) Explain the significance of an occupational pension scheme being approved by HM Revenue & Customs (c) Class 1 and Class 1A NIC (i) Calculate class 1 NIC (ii) Calculate class 1A NIC 4 Tax planning (a) Employment v self-employment (i) Compare the tax implications of employment as compared to selfemployment (b) Remuneration packages (i) Compare alternative remuneration packages (c) Choice of business medium (i) Compare the tax position of a director/shareholder with that of a sole trader (d) Incorporation of a business (i) Explain the factors that must be considered when incorporating a business (e) Disposal of a business (i) Explain the tax implications arising on the disposal of a
business (f) Directors and shareholders (i) Compute whether remuneration or a dividend is the most tax efficient way to extract profit from a company
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Paper 2.4 Financial Management and Control
AIM To develop knowledge and understanding of financial management methods for analysing the benefits of various sources of finance and capital investment opportunities, and of the application of management accounting techniques for business planning and control. OBJECTIVES On completion of this paper candidates should be able to: explain the role and purpose of financial management evaluate the overall management of working capital evaluate appropriate sources of finance for particular situations appraise capital investment through the use of appropriate methods identify and discuss appropriate costing systems and techniques prepare budgets and use them to control and evaluate organisational performance understand the basic principles of performance measurement critically assess the tools and techniques of financial management and control demonstrate the knowledge, understanding, skills, abilities and critical evaluation expected in Part 2.
POSITION OF THE PAPER IN THE OVERALL SYLLABUS Students must have a thorough knowledge of the material in Paper 1.2 Financial Information for Management and a good knowledge of other Part 1 papers. Financial Management and Control is integrated with other Part 2 papers by providing a management decision framework within which some aspects of the Part 2 syllabus are developed. The effects of capital allowances and corporation tax on capital investment appraisal are examinable. Knowledge gained from Paper 2.3 Business Taxation (UK) will be useful in this respect. Financial Management and Control is developed in Part 3 into advanced study of Performance Management (Paper 3.3) and Strategic Financial Management (Paper 3.7).
SYLLABUS CONTENT 1 Financial management objectives (a) The nature, purpose and scope of financial management. (b) The relationship between financial management, management accounting and financial accounting. (c) The relationship of financial objectives and organisational strategy. (d) Problems of multiple stakeholders in financial management and the consequent multiple objectives. (e) Objectives (financial and otherwise) in not-for-profit organisations. 2 The financial management environment (a) Financial intermediation and credit creation. (b) Money and capital markets (i) Domestic and international (ii) Stock markets (both major markets and small firm markets).
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Financial Management and Control (Continued)
(c) The Efficient Markets Hypothesis. (d) Rates of interest and yield curves. (e) The impact of fiscal and monetary policy on business. (f) Regulation of business (for example, pricing restrictions, green policies and corporate governance). 3 Management of working capital (a) The nature and scope of working capital management. (b) Funding requirements for working capital. (c) Working capital needs of different types of business. (d) The relationship of working capital management to business solvency. (e) Management of stock, debtors, short term funds, cash, overdrafts and creditors. (f) Techniques of working capital management (including ratio analysis, EOQ, JIT, credit evaluation, terms of credit, cash discounts, factoring and invoice discounting, debtors cycles, efficient short-term fund investing, cash forecasting and budgets, Miller-Orr model, basic foreign exchange methods, probabilities and risk assessment, terms of trade with creditors).
4 Sources of finance (a) Sources and relative costs (including issue costs) of various types of finance and their suitability to different circumstances and organisations (large and small, listed and unlisted) including: (i) access to funds and the nature of business risk (ii) the nature and importance of internally generated funds (iii) capital markets (types of share capital, new issues, rights issues, loan capital, convertibles, warrants) (iv) the effect of dividend policy on financing needs (v) bank finance (short, medium and long term, including leasing) (vi) trade credit (vii) government sources: grants, regional and national aid schemes and tax incentives. (viii) problems of small company financing (collateral, maturity, funding gap, risk) (ix)problems of companies with low initial earnings (R&D, Internet, and other high-technology businesses) (x) venture capital and financial sources particularly suited to the small company (xi)international money and capital markets, including an introduction to international banking and the finance of foreign trade.
(b) Requirements of finance (for what purpose, how much and for how long) in relation to business operational and strategic objectives. (c) The importance of the choice of capital structure: equity versus debt and basic analysis of the term profile of funds. (d) Financial gearing and other key financial ratios and analysis of their significance to the organisation. (e) Appropriate sources of finance, taking into account: (i) cost of finance (ii) timing of cash payments (iii) business risk and financial risk (vi) effect on gearing and other ratios (v) effect on companys existing investors. 5 Capital investment appraisal (a) Discounted cash flow techniques (i) simple and compound interest (ii) net present value (iii) annuities and perpetuities (iv) internal rate of return (v) future value (vi) nominal interest. (b) Appraisal of domestic capital investment opportunities for profit making and not-for-profit organisations through the use of appropriate methods and techniques (i) the risk / return relationship (ii) return on capital employed (iii) payback (iv) internal rate of return
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Paper 2.4: Financial Management and Control (Continued)
(v) net present value (vi) single and multi-period capital rationing (vii) lease or buy decisions (viii) asset replacement using equivalent annual cost. Including (in categories (i)-(viii)) the effects of taxation, inflation, risk and uncertainty (probabilities, sensitivity analysis, simulation). 6 Costing systems and techniques (a) The purpose of costing as an aid to planning, monitoring and control of business activity (b) Different approaches to costing (c) Costing information requirements and limitations in not-for-profit organisations (d) Behavioural implications of different costing approaches including performance evaluation (e) Implications of costing approaches for profit reporting, the pricing of products and internal activities/ services. 7 Standard costing and variance analysis (a) Standard costing (i) determination of standards (ii) identification and calculation of sales variances (including quantity and mix), cost variances (including mix and yield); absorption and marginal approaches (iii) significance and relevance of
variances (iv) operating statements (v) interpretation and relevance of variance calculations to business performance (b) Planning and operational variances (c) Behavioural implications of standard costing and variance reporting. 8 Budgeting and budgetary control (a) Objectives of budgetary planning and control systems including aspects of behavioural implications (b) Evaluation of budgetary systems such as fixed and flexible, zero based and incremental, periodic, continuous and activity based (c) Development, implementation and coordination of budgeting systems: functional, subsidiary and master/ principal budgets (including cash budgeting); budget review (d) Calculation and cause of variances as aids to controlling performance (e) Quantitative aids to budgeting and the concepts of correlation, basic time series analysis (seasonality) and forecasting; use of computerbased models (f) Behavioural implications of budgeting and budgetary control.
9 Performance measurement (a) Measurement of productivity, activity, profitability and quality of service (b) Relationship of measure to type of entity and range of measures, both monetary and non-monetary (c) Indices to allow for price and performance changes through time (d) Evaluating performance against objectives and plans, and identifying areas of concern from the infomation produced (e) The impact of cost centres, revenue centres, profit centres and investment centres on management appraisal (f) Difference between business performance and management performance (g) Benchmarking. EXCLUDED TOPICS The following topics are specifically excluded from the syllabus: Calculations involving the derivation of cost of capital in discounting problems. Candidates will always be supplied with an appropriate discount rate. Calculations relating to Modigliani and Miller propositions. KEY AREAS OF THE SYLLABUS The core of the syllabus is aimed at developing the skills required in supporting managerial decision making. These reflect the core competencies needed for students to satisfy the aim of the paper identified above.
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The core areas are: financial management objectives management of working capital sources of finance capital investment appraisal costing systems standard costing and variance analysis budgeting and budgetary control performance measurement. APPROACH TO EXAMINING THE SYLLABUS The examination is a three hour paper in two sections. Financial management issues will always, but not exclusively, be examined in Section A. The Section A question will typically be a scenario-based question. Most of the Section B questions will contain a mix of computation and discursive elements although it is intended that at least one question will be entirely discursive. The balance between computation and discursive elements will remain largely constant from one examination to the next. Number of marks Section A: One compulsory scenario-based question Section B: Choice of 2 from 4 questions (25 marks each) 50 100 ADDITIONAL INFORMATION Present value and annuity tables, and a formula sheet, will be provided in the examination. The Study Guide provides more detailed guidance on the syllabus. 50
RELEVANT TEXTS There are a number of sources from which you can obtain a series of materials written for the ACCA examinations. These are listed below: FTC Foulks Lynch ACCA's official publisher Contact number: +44 (0)118 989 0629. Website: www.financial-training.com/new/ foulkslynch Accountancy Tuition Centre (ATC) International Contact number: +44 (0)141 880 6469. Website: www.ptc-global.com BPP Contact number: +44 (0)20 8740 2222. Website: www.bpp.com Candidates will also find the following texts useful: C Drury Management and Cost Accounting (5th Edition) International Thomson Business Press ISBN 1861525362 A Griffiths & D Wall Applied Economics (9th Edition) F T Prentice Hall ISBN 0273651528 D Watson, A Head Corporate Finance: Principles and Practice (3rd Edition) FT Prentice Hall ISBN 027368356x
Wider reading is also desirable, especially regular study of relevant articles in ACCA's student accountant. STUDY SESSIONS 1 The Economic Environment I Macroeconomic objectives (a) Identify and explain the main macroeconomic policy targets (b) Explain how government economic policy may affect planning and decision-making in business (c) Define and explain the role of fiscal, monetary, inflation and exchange rate policy Fiscal Policy (d) Identify the main tools of fiscal policy (e) Explain how public expenditure is financed and the meaning of PSBR (f) Explain how PSBR and taxation policy interact with other economic indicators (g) Identify the implications of fiscal policy for business 2 The Economic Environment II Monetary, inflation and exchange rate policy (a) Identify the main tools of monetary policy (b) Identify the factors which influence inflation and exchange rates, including the impact of interest rates (c) Identify the implications of monetary, inflation and exchange rate policy for business
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Aspects of government intervention and regulation (d) Explain the requirement for and the role of competition policy (e) Explain the requirement for and the role of official aid intervention (f) Explain the requirement for and the role of Green policies (g) Identify examples of government intervention and regulation 3 The nature and scope of financial management (a) Broadly describe the relationship between financial management, management accounting and financial accounting (b) Discuss the nature and scope of financial objectives for private sector companies in the context of organisational objectives (c) Discuss the role of social and nonfinancial objectives in private sector companies and identify their financial implications (d) Identify objectives (financial and otherwise) in not-for-profit organisations and identify the extent to which they differ from private sector companies (e) Discuss the problems of multiple stakeholders in financial management and the consequent multiple objectives and scope for conflict
4 The financial management framework (a) Identify the general role of financial intermediaries (b) Explain the role of commercial banks as providers of funds (including the creation of credit) (c) Discuss the risk/return trade-off (d) identify the international money and capital markets and outline their operation (e) Explain the functions of a stock market and corporate bond market (f) Explain the key features of different types of security in terms of the risk/ return trade-off (g) Outline the Efficient Markets Hypothesis and assess its broad implications for corporate policy and financial management (h) Explain the Separation Theorem (i) Explain the functions of, and identify the links between, the money and capital markets 5 Management of Working Capital I General issues (a) Explain the nature and scope of working capital management (b) Distinguish between cash flow and profits (c) Explain the requirement for effective working capital management (d) Explain the relationship between working capital management and business solvency
(e) Distinguish between the working capital needs of different types of business Management of stock (f) Calculate and interpret stock ratios (g) Explain the role of stock in the working capital cycle (h) Apply the tools and techniques of stock management including the EOQ model (i) Analyse and evaluate the results of stock management techniques 6 Management of Working Capital II Management of creditors (a) Explain the role of creditors in the working capital cycle (b) Explain the availability of credit (c) Identify the risks of taking increased credit and buying under extended credit terms (d) Explain how methods of paying suppliers may influence cash flows of both parties (e) Discuss the particular problems of managing overseas accounts payable (f) Calculate and interpret creditor ratios (g) Apply the tools and techniques of creditor management (h) Analyse and evaluate the results of creditor management techniques Management of debtors (i) Explain the role of debtors in the working capital cycle (j) Explain how the creditworthiness of customers may be assessed
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(k) Evaluate the balance of risks and costs of customer default against the profitability of marginal business (l) Explain the role of factoring and invoice discounting (m) Explain the role of early settlement discounts (n) Discuss the particular problems of managing overseas debtors (o) Calculate and interpret debtor ratios (p) Apply the tools and techniques of debtor management (q) Analyse and evaluate the results of debtor management techniques. 7 Management of Working Capital III Management of cash (a) Explain the role of cash in the working capital cycle (b) Calculate optimal cash balances (c) Describe the functions of, and evaluate the benefits from, centralised cash control and Treasury Management (d) Calculate and interpret cash ratios (e) Apply the tools and techniques of cash management, including the Baumol model and the Miller-Orr Model (f) Analyse and evaluate the results of cash management techniques.
8 Sources of finance I: small and medium sized enterprises (SMEs) (a) Explain financing in terms of the risk/return trade-off (b) Describe the requirements for finance of SMEs (purpose, how much, how long) (c) Describe the nature of the financing problem for small businesses in terms of the funding gap, the maturity gap and inadequate security (d) Identify the role of risk and the lack of information on small companies to help explain the problems of SME financing (e) Explain the role of information provision provided by financial statements (f) Describe the particular financing problems of low-earning/high growth companies (g) Describe the response of government agencies and financial institutions to the SME financing problem (h) Explain what other measures may be taken to ease the financial problems of SMEs such as trade creditors, factoring, leasing, hire purchase, AIM listing, business angels and venture capital (i) Describe how capital structure decisions in SMEs may differ from larger organisations (j) Describe appropriate sources of finance for SMEs (k) Calculate and interpret appropriate ratios.
9 Sources of finance II: equity financing (a) Describe ways in which a company may obtain a stock market listing (b) Describe how stock markets operate, including the AIM (c) Explain the requirements of stock market investors in terms of returns on investment (d) Calculate, analyse and evaluate appropriate financial ratios (e.g. EPS, PE ratio, dividend yield, etc.) (e) Outline and apply the dividend valuation model, including the growth adjustment (f) Explain the importance of internally generated funds (g) Describe the advantages and disadvantages of rights issues (h) Calculate the price of rights (i) Explain the purpose and impact of a bonus issue, scrip dividends and stock splits. 10 Sources of finance III: debt and neardebt financing (a) Explain the features of different types reasons of preference shares and the for their issue
(b) Explain the features of different types of long-term straight debt and the reasons for their issue (c) Explain the features of convertible debt and warrants and the reasons for their issue
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(d) Broadly describe the reasons for the choice of financing between preference shares, debt and neardebt instruments in terms of the risk/ return trade-off (e) Assess the effect on EPS of conversion and option rights (f) Broadly describe international debt markets and the financing of foreign trade (g) Calculate and interpret appropriate ratios 11 Sources of finance IV: the capital structure decision (a) Explain and calculate the level of financial gearing (b) Distinguish between operational and financial gearing, and business risk and financial risk (c) Outline the effects of gearing on the value of shares, company risk and required return (d) Explain how a company may determine its capital structure in terms of interest charges, dividends, risk and redemption requirements (e) Explain the role of short term financing in the capital structure decision (f) Explain the relationship between the management of working capital and the long term capital structure decision (g) Calculate and interpret appropriate ratios
12 Investment decisions (a) Define and distinguish between capital and revenue expenditure (b) Compare and contrast fixed asset investment and working capital investment (c) Describe the impact of investment projects on financial statements (d) Calculate payback and assess its usefulness as a measure of investment worth (e) Calculate ROCE and assess its usefulness as a measure of investment worth 13 Interest and discounting (a) Explain the difference between simple and compound interest (b) Explain the relationship between inflation and interest rates, distinguishing between nominal and real interest rates, and calculate nominal interest rates (c) Explain what is meant by future values and calculate future values, including application of the annuity formula (d) Explain what is meant by discounting and calculate present values, including the application of the annuity and perpetuity formula, and the use of present value and annuity tables (e) Explain the importance of the time value of money.
14 Investment appraisal using DCF methods (a) Explain the role of the cost of capital in appraising investments (b) Identify and evaluate relevant cash flows of potential investments (c) Calculate present values to derive the NPV and IRR measures of investment worth (d) Explain the superiority of DCF methods over payback and ROCE (e) Assess the merits of IRR and NPV (f) Apply DCF methods to asset replacement decisions (g) Explain the role of the cost of capital in appraising investments. 15 Project appraisal allowing for inflation and taxation Inflation (a) Distinguish general inflation from specific price increases and assess their impact on cash flows (b) Evaluate capital investment projects on a real terms basis (c) Evaluate capital investment projects on a nominal terms basis Taxation (d) Calculate the effect of capital allowances and Corporation Tax on project cash flows (e) Evaluate the profitability of capital investment projects on a post-tax basis
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16 Project appraisal allowing for risk (a) Distinguish between risk and uncertainty (b) Identify the sources of risk affecting project profitability (c) Evaluate the sensitivity of project NPV to changes in key variables (d) Apply the probability approach to calculating expected NPV of a project and the associated standard deviation (e) Explain the role of simulation in generating a probability distribution for the NPV of a project (f) identify risk reduction strategies for projects (g) Evaluate the usefulness of risk assessment methods 17 Capital rationing (a) Distinguish between hard and soft capital rationing (b) Apply profitability index techniques for single period divisible projects (c) Evaluate projects involving single and multi-period capital rationing 18 Leasing decisions (a) Distinguish between operating and finance leases (b) Apply DCF methods to projects involving buy or lease problems (c) Assess the relative advantages and disadvantages of different types of lease (d) Describe the impact of leasing on company gearing
19 Costing systems and techniques (a) Outline and distinguish between the nature and scope of management accounting and the role of costing in meeting the needs of management (b) Describe the purpose of costing as an aid to planning, monitoring and controlling business activity (c) Different approaches to costing (i) marginal costing and absorption costing (ii) service costing (iii) theory of constraints and throughput accounting (iv) activity based costing; use of cost drivers and activities (v) life cycle costing (vi) target costing (d) Describe the costing information requirements and limitations in notfor-profit organisations (e) Broadly outline the behavioural implications of different costing approaches including performance evaluation (f) Explain the potential for different costing approaches to influence profit reporting and the pricing of products and internal services (g) Explain the role of costing systems in decision making. 20 Standard costing I (a) Explain the uses of standard costs and the methods by which they are derived and subsequently reviewed
(b) Calculate and evaluate capacity limitations when setting standards (c) Describe the types of standard (ideal, attainable, current and basic) and their behavioural implications (d) Calculate basic labour, material, overhead (variable and fixed) and sales variances, including problems of labour idle time (e) Explain the reasons for variances (f) Assess appropriate management action arising from the variances identified. 21 Standard costing II (a) Prepare reconciliations using operating statements which (i) reconcile budgeted and actual profit figures, and/or (ii) reconcile the actual sales less the standard cost of sales with the actual profit (b) Calculate and explain operational and planning variances (c) Demonstrate how absorption and marginal approaches can be used in standard costing (d) Calculate mix and yield variances for materials (e) Calculate mix and quantity variances for sales (f) Demonstrate an understanding of the inter-relationships between variances (g) Explain the reasons for variances (h) Assess appropriate management action arising from the variances identified.
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Financial Management and Control
22 Budgetary planning and control I (a) Identify the purposes of budgetary planning and control systems (b) Describe the planning and control cycle, and the control process (c) Explain the implications of controllability for responsibility reporting (d) Prepare, review and explain a budget preparation timetable (e) Prepare and evaluate functional, subsidiary and master budgets, including cash budgets (f) Explain the processes involved with the development and implementation of budgets (g) Explain the process of participation in budget setting and how this can address motivational problems. 23 Budgetary planning and control II (a) Prepare and evaluate fixed and flexible budgets and evaluate the resulting variances (b) Prepare flexed budgets when standard fixed overhead absorption is employed (c) Assess the behavioural implications of budgetary control and performance evaluation, including participation in budget setting. 24 Budgetary planning and control III (a) Describe and evaluate the main features of zero based budgeting systems
(b) Describe the areas/organisations in which zero based budgeting may be applied (c) Describe and evaluate incremental budgeting and discuss the differences with zero based budgeting (d) Describe and evaluate periodic and continuous budgeting systems 25 Quantitative aids to budgeting (a) Describe and apply the techniques of (i) high-low method (ii) least squares regression (iii) scatter diagrams and correlation (iv) forecasting with least squares regression (v) time series to identify trends and seasonality (vi) forecasting with time series (b) Evaluate the results of quantitative aids. 26 Indices (a) Explain the purpose of index numbers, and calculate and interpret simple index numbers for one or more variables (b) Deflate time-related data using an index (c) Construct a chained index series (d) Explain the term 'average index', distinguishing between simple and weighted averages (e) Calculate Laspeyre and Paasche price and quantity indices (f) Describe the relative merits of Laspeyre and Paasche indices.
27 Performance measurement (a) Outline the essential features of responsibility accounting for various types of entiy (b) Describe the range of management performance measures available for various types of entity (c) Calculate and explain the concepts of return on investment and residual income (d) Explain and give examples of appropriate non-montary performance measures (e) Describe the various types of responsibility centre and the impact of these on management appraisal (f) Discuss the potential conflict in the use of a measure for both business and management performance (g) Analyse the application of financial performance measures including cost, profit and return on capital employed (h) Assess and illustrate the measurement of profitability, activity and productivity (i) Discuss the measurement of quality and service (j) Identify areas of concern from information supplied and performance measures calculated (k) Describe the features of benchmarking and its application to performance appraisal. 28 Revision
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Paper 2.5 Financial Reporting (INT)

AIM To build on the basic techniques in Paper 1.1 Preparing Financial Statements and to develop knowledge and understanding of more advanced financial accounting concepts and principles. Candidates will be required to apply this understanding by preparing and interpreting financial reports in a practical context. OBJECTIVES On completion of this paper candidates should be able to: appraise and apply specified accounting concepts and theories to practical work place situations appraise and apply the International regulatory framework of financial reporting prepare financial statements for different entities to comply with specified International Accounting Standards, International Financial Reporting Standards and other related pronouncements prepare group financial statements (excluding group cash flow statements) to include a single subsidiary. An associate or joint venture may also be included analyse, interpret and report on financial statements (including cash flow statements) and related information to a variety of user groups discuss and apply the requirements of other specified International Accounting Standards / International Financial Reporting Standards Prerequisite knowledge for Paper 2.5 is largely the basic knowledge and skills demonstrated at Paper 1.1, but many Paper 2.5 also provides essential financial accounting knowledge and principles that need to be fully understood by auditors, thus it forms some of the prerequisite knowledge of Paper 2.6 Audit and Internal Review, and the option Paper 3.1 Audit and Assurance services. 2 Regulatory framework (a) The structure of the International Accounting Standards Board (IASB). (b) The standard setting process. (c) The role of the International Financial Reporting Interpretations Committee (IFRIC). (d) The IASBs relationship with the POSITION OF THE PAPER IN THE OVERALL SYLLABUS Paper 2.5 builds on the techniques developed at Paper 1.1 Preparing Financial Statements and tests the conceptual and technical financial accounting knowledge that candidates will require in order to progress to the higher level analytical, judgmental and communication skills of Paper 3.6 Advanced Corporate Reporting. SYLLABUS CONTENT 1 Accounting principles, concepts and theory (a) The IASBs Framework for the Preparation and Presentation of Financial Statements. (b) Agency theory. (c) Price level changes, capital maintenance. demonstrate the skills expected in Part 2. accounting standards require the use of discounting techniques which candidates will have acquired at Paper 2.4 Financial Management and Control. 1.1 Preparing Financial Statements 2.5 Financial Reporting 2.6 Audit and Internal Review
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Financial Reporting (INT) (Continued)
International Organisation of Security Commission (IOSCO). 3 Preparation and presentation of financial statements for companies limited by liability and other entities (a) Accounting for share capital and reserves (i) issue and redemption of shares (ii) the principle of maintenance of capital (iii) the principle of distributable profits. (b) Tangible and intangible non-current assets. (c) Net current assets. (d) Earnings per share. (e) Tax in company accounts including: (i) current tax (ii) deferred tax. (f) IASs, IFRSs and SIC / IFRIC pronouncements as specified in the examinable documents. 4 Preparation of consolidated financial statements (a) Definition of subsidiary companies. (b) Exclusions from consolidations. (c) Preparation of consolidated income statements and balance sheets including: (i) elimination of intra-group transactions (ii) fair value adjustments. (d) Associates and joint ventures. 5 Analysis and interpretation of financial statements and related
information (a) Analysis of corporate information. (b) Preparation of reports on financial performance for various user groups. (c) Preparation and analysis of cash flow statements of a single company. (d) Related party transactions. (e) Segmental information. EXCLUDED TOPICS The following topics are specifically excluded from the syllabus: partnership and branch financial statements preparing group financial statements involving more than one subsidiary piecemeal acquisitions, disposal of subsidiaries and group reconstructions foreign currency translation/ consolidations, hedging, hyperinflationary economies financial statements of banks and similar financial institutions group cash flows schemes of reorganisation/ reconstruction company/share valuation derivative financial instruments accounting for retirement benefit costs/ plans share-based payments International Exposure Drafts and Discussion Drafts/Papers.
KEY AREAS OF THE SYLLABUS The key topic areas are as follows: Accounting principles and concepts, accounting theory Framework for the Preparation and Presentation of Financial Statements. Revenue recognition. Substance over form. Preparation of financial statements of companies limited by liability Presentation of financial statements. Accounting and disclosure requirements of International Accounting Standards/ International Financial Reporting Standards. Preparation of consolidated financial statements Definitions of subsidiaries: exclusions from consolidation. Simple groups. Analysis and interpretation of financial statements Preparation of reports for various user groups. Preparation and analysis of cash flow statements. Other topic areas Note these may be examined as part of a question within the above key areas or as a substantial part of a separate optional question:
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accounting for leases construction contracts earnings per share impairment of assets, provisions non-current assets held for sale and discontinued operations goodwill and other intangible assets. APPROACH TO EXAMINING THE SYLLABUS The examination is a three hour paper in two sections. It will contain both computational and discursive elements. Some questions will adopt a scenario/case study approach.
on circumstances described in the question. Questions on topic areas that are also included in Paper 1.1 will be examined at an appropriately greater depth in Paper 2.5. Some International Accounting Standards are very detailed and complex. At Paper 2.5 candidates need to be aware of the principles and key elements of these Standards. Candidates will also be expected to have an appreciation of the need for accounting standards and why they have been introduced. Number of Marks Section A: One compulsory question Section B: Choice of 3 from 4 questions (25 marks each) 75 100 ADDITIONAL INFORMATION Candidates need to be aware that questions involving knowledge of new examinable regulations will not be set until at least six months after the last day of the month in which the regulation was issued. The Study Guide provides more detailed guidance on the syllabus. Examinable documents are listed in the Exam Notes section of student accountant. 25
RELEVANT TEXTS There are a number of sources from which you can obtain a series of materials written for the ACCA examinations. These are listed below: FTC Foulks Lynch ACCA's official publisher Contact number: +44 (0)118 989 0629. Website: www.financial-training.com/new/ foulkslynch Accountancy Tuititon Centre (ATC) International Contact number: +44 (0)141 880 6469. Website: www.ptc-global.com BPP Contact number: +44 (0)20 8740 2222. Website: www.bpp.com Candidates may also find the following text useful: Abbas Ali Mirza, Graham Holt, Magnus Orrell, Liesel Knorr International Financial Reporting Standards (IFRS) Workbook: Standard Outlines, Multiple-Choice Questions and Case Studies with Solutions (2005) John Wiley & Sons Inc, UK (ISBN: 0-4716-9742-7) Wider reading is also desirable, especially regular study of relevant articles in ACCA's student accountant.
The Section A compulsory question will be the preparation of group financial statements and/or extracts thereof, and may include a small related discussion element. Computations will be designed to test an understanding of principles. At least one of the optional questions in Section B will be a conceptual/discursive question that may include illustrative numerical calculations. An individual question may often involve elements that relate to different areas of the syllabus. For example a question on the preparation of financial statements for public issue could include elements relating to several accounting standards. In scenario questions candidates may be expected to comment on managements chosen accounting treatment and determine a more appropriate one, based
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STUDY SESSIONS 1 Review of basic concepts and the Framework for the Preparation and Presentation of Financial Statements (a) Discuss what is meant by a conceptual framework and GAAP (b) Describe the objectives of financial statements and the qualitative characteristics of financial information (c) Define the elements of financial statements (d) Apply the above definitions to practical situations (e) Revision of Paper 1.1 prepare the final accounts of a company from a trial balance. 2 Accounting concepts and accounting theory (a) Outline the concept of comprehensive income (b) Explain the principle of fair value (c) Discuss and apply accounting policies. (d) Describe the deficiencies of historic cost accounts (HCA) during periods of rising prices and explain in principle alternatives to HCA. 3 Revenue recognition (a) Outline the principles of the timing of revenue recognition (b) Explain the concept of substance over form in relation to recognising sales revenue (c) Explain the principle of realised
profits (d) Discuss the various points in the production and sales cycle where it may, depending on circumstances, be appropriate to recognise gains and losses give examples of this (e) Describe the IASBs balance sheet approach to revenue recognition within its Framework and compare this to the requirements of relevant accounting standards. 4 The structure of the IASBs regulatory framework (a) Describe the constitution of the IASB and its objectives (b) Describe the influence of national standard setters and the International Organisation of Security Commissions (IOSCO) on IASs and IFRSs (c) Outline the International Accounting Standard setting process and the role of the International Financial Reporting Interpretations Committee (IFRIC). 5 Preparation of financial statements for companies (a) State the objectives of accounting standards on Presentation of Financial Statements (b) Describe the structure and content of financial statements (c) Discuss fair presentation and the accounting concepts/principles in relevant accounting standards
(d) Prepare the financial statements of companies in accordance with International Accounting Standard / International Financial Reporting Standards (e) Describe the main issues involved when a comapany adopts International Financial Reporting Standards(IFRSs) for the first time (f) Apply the requirements of the IASB to the preparation of financial statements for a first time adopter of International Financial Reporting Standards. 6&7 Accounting Policies, Changes in Accounting Estimates and Errors; Non-current Assets Held for Sale and Discontinued Operations (a) Explain the need for accounting standards in the above areas (b) Discuss the importance of identifying and reporting the results of a discontinued operation; define discontinued operations (c) Describe the circumstances where assets meet the criteria of 'held for sale' (d) Discuss the accounting treatment of non-current assets held for sale (e) Prepare financial statements in accordance with requirements of the relevant accounting standards in the above areas (f) Describe the circumstances where a change in accounting policy is permitted
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(g) Define and account for errors, changes in accounting estimates and changes in accounting policies (h) Explain and illustrate the contents and purpose of the statement of changes in equity. 8 Share Capital and Reserves (a) Explain the need for an accounting standard on Financial Instruments (b) Distinguish between debt and equity capital (c) Apply the requirements of relevant accounting standards to the issuing and finance costs of: (i) equity and preference shares (ii) debt instruments with no conversion rights, and (iii) convertible debt (compound financial instruments) (d) Explain and apply general principles relating to the purchase or redemption of shares (e) Discuss the advantages of companies being able to redeem/ purchase their own shares (f) Discuss the principles relating to profits available for distribution. 9 Non-current assets tangible (a) Define the initial cost of a noncurrent asset (including a selfconstructed asset) and apply this to various examples of expenditure distinguishing between capital and revenue items (b) Describe, and be able to identify,
subsequent expenditure that may be capitalised (c) State and appraise the effects of accounting standards on the revaluation of property, plant and equipment (d) Account for gains and losses on the disposal of revalued assets (e) Calculate depreciation on: (i) revalued assets, and (ii) assets that have two or more major components (f) Apply the provisions of accounting standards on Accounting for Government Grants and Disclosure of Government Assistance (g) Discuss the way in which the treatment of investment properties differs from other properties (h) Apply the requirements of accounting standard on investment properties. 10 Leases (a) Define the essential characteristics of a lease (b) Describe and apply the method of determining a lease type (i.e. an operating or finance lease) (c) Explain the effect on the financial statements of a finance lease being incorrectly treated as an operating lease (d) Account for operating leases in financial statements (e) Account for finance leases in the financial statements of lessors and lessees
(f) Outline the principles of the accounting standard on leasing and its main disclosure requirements Note: the net cash investment method will not be examined. 11 Intangible assets (a) Discuss the nature and possible accounting treatments of both internally generated and purchased goodwill (b) Distinguish between goodwill and other intangible assets (c) Describe the criteria for the initial recognition and measurement of intangible assets (d) Describe the subsequent accounting treatment, including the principle of impairment tests in relation to purchased goodwill (e) Describe the circumstances in which the goodwill calculation results in a negative amount, and its subsequent accounting treatment (f) Describe and apply the requirements of accounting standards on internally generated assets other than goodwill (e.g. research and development). 12 Impairment of assets (a) Define the recoverable amount of an asset; define impairment losses (b) Give examples of, and be able to identify circumstances that may indicate that an impairment of an asset has occurred
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(c) Describe what is meant by a cashgenerating unit (d) State the basis on which impairment losses should be allocated, and allocate a given impairment loss to the assets of a cash-generating unit. 13 Liabilities provisions, contingent liabilities and contingent assets (a) Explain why an accounting standard on provisions is necessary give examples of previous abuses in this area (b) Define provisions, legal and constructive obligations, past events and the transfer of economic benefits (c) State when provisions may and may not be made, and how they should be accounted for (d) Explain how provisions should be measured (e) Define contingent assets and liabilities give examples and describe their accounting treatment (f) Be able to identify and account for: (i) warranties/guarantees (ii) onerous contracts (iii) environmental and similar provisions (g) Discuss the validity of making provisions for future repairs or refurbishments. 14 Inventory and construction contracts (a) Review the principles of inventory valuation covered in Paper 1.1 (b) Define a construction contract and
describe why recognising profit before completion is generally considered to be desirable and the circumstances where it may not be; discuss if this may be profit smoothing (c) Describe the ways in which contract revenue and contract cost may be recognised (d) Calculate and disclose the amounts to be shown in the financial statements for construction contracts. 15 Earnings per share (a) Explain the importance of comparability in relation to the calculation of earnings per share (eps) and its importance as a stock market indicator (b) Explain why the trend of eps may be a more accurate indicator of performance than a companys profit trend (c) Define earnings and the basic number of shares (d) Calculate the eps in accordance with relevant accounting standards in the following circumstances: (i) basic eps (ii) where there has been a bonus issue of shares/stock split during the year, and (iii) where there has been a rights issue of shares during the year (e) Explain the relevance to existing shareholders of the diluted eps, and describe the circumstances that will
give rise to a future dilution of the eps (f) Calculate the diluted eps in the following circumstances: (i) where convertible debt or preference shares are in issue; and (ii) where share options and warrants exist. 16 Taxation in financial statements (a) Account for current tax liabilities and assets in accordance with relevant accounting standards (b) Describe the general principles of government sales taxes (e.g. VAT or GST) (c) Explain the effect of taxable temporary differences on accounting and taxable profits (d) Outline the principles of accounting for deferred tax (e) Outline the requirements of relevant accounting standards relating to deferred tax assets and liabilities (f) Calculate and record deferred tax amounts in the financial statements. 17 Accounting for the substance of transactions (a) Explain the importance of recording the substance rather than the legal form of transactions give examples of previous abuses in this area (b) Describe the features which may indicate that the substance of transactions may differ from their legal form (c) Explain and apply the principles of
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recognition and derecognition of assets and liabilities (d) Be able to recognise the substance of transactions in general, and specifically account for the following types of transaction: (i) goods sold on sale or return/ consignment goods (ii) sale and repurchase/leaseback agreements (iii) factoring of accounts receivable. 18 & 19 Business combinations introduction (a) Describe the concept of a group and the objective and usefulness of consolidated financial statements (b) Explain the different methods which could be used to prepare consolidated financial statements (c) Explain and apply the definition of subsidiary companies (d) Describe the circumstances and reasoning for subsidiaries to be excluded from consolidated financial statements in accordance with relevant accounting standards (e) Prepare a consolidated balance sheet for a simple group dealing with pre and post acquisition profits, minority interests and consolidated goodwill (f) Explain the need for using coterminous year ends and uniform accounting polices when preparing consolidated financial statements (g) Describe how the above is achieved
in practice (h) Prepare a consolidated Income Statement for a simple group, including an example where an acquisition occurs during the year and there is a minority interest. 20 Business combinations intra-group adjustments (a) Explain why intra-group transactions should be eliminated on consolidation (b) Explain the nature of a dividend paid out of pre-acquisition profits (c) Account for the effects (in the income statement and balance sheet) of intra-group trading and other transactions including: (i) unrealised profits in inventory and non-current assets (ii) intra-group loans and interest and other intra-group charges, and (iii) intra-group dividends including those paid out of pre-acquisition profits. 21 Business combinations fair value adjustments (a) Explain why it is necessary for both the consideration paid for a subsidiary and the subsidiarys identifiable assets and liabilities to be accounted for at their fair values when preparing consolidated financial statements (b) Prepare consolidated financial statements dealing with fair value adjustments (including their effect on
consolidated goodwill) in respect of: (i) depreciating and non-depreciating non-current assets (ii) inventory (iii) monetary liabilities (basic discounting techniques may be required) (iv) assets and liabilities (including contingencies), not included in the subsidiarys own balance sheet. 22 & 23 Business combinations - associates and joint ventures (a) Define associates and joint ventures (i.e. jointly controlled operations, assets and entities) (b) Distinguish between equity accounting and proportional consolidation (c) Describe the two formats of proportional consolidation (d) Prepare consolidated financial statements to include a single subsidiary and an associate or a joint venture. 24 Analysis and interpretation of financial statements (a) Calculate useful financial ratios for a single company or for group financial statements (b) Analyse and interpret ratios to give an assessment of a companys performance in comparison with: (i) a companys previous period's financial statements (ii) another similar company for the
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same period (iii) industry average ratios (c) Discuss the effect that changes in accounting policies or the use of different accounting polices between companies can have on the ability to interpret performance (d) Discuss how the interpretation of current value information would differ from that of historical cost information (e) Discuss the limitations in the use of ratio analysis for assessing corporate performance, outlining other information that may be of relevance. Note: the content of reports should draw upon knowledge acquired in other sessions. These sessions concentrate on the preparation of reports and report writing skills. 25 & 26 Cash flow statements (a) Prepare a cash flow statement, including relevant notes, for an individual company in accordance with relevant accounting standards Note: questions may specify the use of the direct or the indirect method (b) Appraise the usefulness of, and interpret the information in, a cash flow statement. 27 Related party disclosures (a) Define and apply the definition of related parties in accordance with
relevant accounting standards (b) Describe the potential to mislead users when related party transactions are included in a companys financial statements (c) Adjust financial statements (for comparative purposes) for the effects of non-commercial related party transactions (d) Describe the disclosure requirements for related party transactions. 28 Segment reporting (a) Discuss the usefulness and problems associated with the provision of segment information (b) Define a reportable segment and the information that is to be reported (primary and secondary formats) (c) Prepare segment reports in accordance with relevant accounting standards (d) Assess the performance of a company based on the information contained in its segment report.
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Paper 2.5 Financial Reporting (GBR)

AIM To build on the basic techniques in Paper 1.1 Preparing Financial Statements and to develop knowledge and understanding of more advanced financial accounting concepts and principles. Candidates will be required to apply this understanding by preparing and interpreting financial reports in a practical context. OBJECTIVES On completion of this paper candidates should be able to: appraise and apply specified accounting concepts and theories to practical work place situations appraise and apply the regulatory framework of financial reporting prepare financial statements for different entities to comply with the Companies Acts and specified Accounting Standards and other related pronouncements prepare group financial statements (excluding group cash flow statements) to include a single subsidiary. An associate or joint venture may also be included analyse, interpret and report on financial statements (including cash flow statements) and related information to a variety of user groups discuss and apply the requirements of specified Accounting Standards. demonstrate the skills expected in Part 2. Prerequisite knowledge for Paper 2.5 is largely the basic knowledge and skills demonstrated at Paper 1.1, but many accounting standards require the use of Paper 2.5 also provides essential financial accounting knowledge and principles that need to be fully understood by auditors, thus it forms some of the prerequisite knowledge of Paper 2.6 Audit and Internal Review, and the option Paper 3.1 Audit and Assurance services. 2 Regulatory framework (a) Structure of the UK regulatory framework (i) EC directives (ii) Companies Acts. (b) Standard setting process: the Financial Reporting Council (FRC) and its subsidiary bodies; the role of the International Accounting Standards Board (IASB). POSITION OF THE PAPER IN THE OVERALL SYLLABUS Paper 2.5 builds on the techniques developed at Paper 1.1 Preparing Financial Statements and tests the conceptual and technical financial accounting knowledge that candidates will require in order to progress to the higher level analytical, judgmental and communication skills of Paper 3.6 Advanced Corporate Reporting. SYLLABUS CONTENT 1 Accounting principles, concepts and theory (a) The ASBs Statement of Principles for Financial Reporting. (b) Agency theory. (c) Price level changes, capital maintenance. discounting techniques which candidates will have acquired at Paper 2.4 Financial Management and Control. 1.1 Preparing Financial Statements 2.5 Financial Reporting 2.6 Audit and Internal Review
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Financial Reporting (GBR) (Continued)
3 Preparation and presentation of financial statements for limited liability companies and other entities (a) Accounting for share capital and reserves (i) issue and redemption of shares (ii) distributable profits. (b) Tangible and intangible fixed assets. (c) Net current assets. (d) Earnings per share. (e) Tax in company accounts including (i) current tax (ii) deferred tax. (f) SSAPs, FRSs, UITF abstracts and IFRSs as specified in the examinable documents. 4 Preparation of consolidated financial statements (a) Definition of subsidiary companies. (b) Exclusions from consolidations. (c) Preparation of consolidated profit and loss accounts and balance sheets including: (i) elimination of intra-group transactions (ii) fair value adjustments. (d) Associates and joint ventures.
(e) Segmental information. EXCLUDED TOPICS The following topics are specifically excluded from the syllabus: partnership and branch financial statements preparing group financial statements involving more than one subsidiary piecemeal acquisitions, disposal of subsidiaries and group reconstructions foreign currency translation/ consolidations, hedging, hyperinflationary economics financial statements of banks and similar financial institutions group cash flows schemes of reorganisation/reconstruction company/share valuation derivative transactions accounting for pension costs share based payments the ASBs Financial Reporting Exposure Drafts and Discussion Drafts / Papers. KEY AREAS OF THE SYLLABUS The key topic areas are as follows: Accounting principles and concepts,
limited companies Form and content of published financial statements. Accounting and disclosure requirements of the Companies Acts and Accounting Standards. Preparation of consolidated financial statements Definitions of subsidiaries: exclusions from consolidation. Simple groups. Analysis and interpretation of financial statements Preparation of reports for various user groups. Preparation and analysis of cash flow statements. Other topic areas Note these may be examined as part of a question within the above key areas or as a substantial part of a separate optional question: hire purchase and leasing long-term contracts earnings per share impairment of fixed assets, provisions discontinued operations goodwill and other intangibles.
5 Analysis and interpretation of financial statements and related information (a) Analysis of corporate information. (b) Preparation of reports on financial performance for various user groups. (c) Preparation and analysis of cash flow statements of a single company. (d) Related party transactions.
accounting theory Statement of Principles. Revenue recognition. Substance over form. Preparation of financial statements of
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APPROACH TO EXAMINING THE SYLLABUS The examination is a three hour paper in two sections. It will contain both computational and discursive elements. Some questions will adopt a scenario/case study approach.
of the principles and key elements of these Standards. Candidates will also be expected to have an appreciation of the need for an accounting standard and why it has been introduced. Number of Marks Section A: One compulsory question Section B: Choice of 3 from 4 questions (25 marks each) 75 100 ADDITIONAL INFORMATION Candidates need to be aware that questions involving knowledge of new examinable regulations will not be set until at least six months after the last day of the month in which the regulation was issued. 25
Accountancy Tuition Centre (ATC) International Contact number: +44 (0)141 880 6469. Website: www.ptc-global.com BPP Contact number: +44 (0)20 8740 2222. Website: www.bpp.com Wider reading is also desirable, especially regular study of relevant articles in ACCA's student accountant.
The Section A compulsory question will be the preparation of group financial statements and/or extracts thereof, and may include a small related discussion element. Computations will be designed to test an understanding of principles. At least one of the optional questions in Section B will be a conceptual/discursive question that may include illustrative numerical calculations. An individual question may often involve elements that relate to different areas of the syllabus. For example a published financial statements question could include elements relating to several accounting standards. In scenario questions candidates may be expected to comment on managements chosen accounting treatment and determine a more appropriate one, based on circumstances described in the question. Questions on topic areas that are also included in Paper 1.1 will be examined at an appropriately greater depth in Paper 2.5. Some Accounting Standards are very detailed and complex. At Paper 2.5 candidates need to be aware
The Study Guide provides more detailed guidance on the syllabus. Examinable documents are listed in the Exam Notes section of student accountant RELEVANT TEXTS There are a number of sources from which you can obtain a series of materials written for the ACCA examinations. These are listed below: FTC Foulks Lynch ACCA's official publisher Contact number: +44 (0)118 989 0629. Website: www.financial-training.com/new/ foulkslynch
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STUDY SESSIONS 1 Review of basic concepts and the Statement of Principles for Financial Reporting (a) Discuss what is meant by a conceptual framework and GAAP (b) Describe the objectives of financial statements and the qualitative characteristics of financial information (c) Define the elements of financial statements (d) Apply the above definitions to practical situations (e) Revision of Paper 1.1 prepare the final accounts of a company from a trial balance 2 Accounting concepts and accounting theory (a) Outline the concept of comprehensive income (b) Explain the principle of fair value (c) Discuss and apply accounting policies (d) Describe the deficiencies of historic cost accounts (HCA) during periods of rising prices and explain in principle alternatives to HCA. 3 Revenue recognition (a) Outline the principles of the timing of revenue recognition (b) Explain the role of the concept of substance over form in relation to recognising sales revenue (c) Explain and define realised profits
(d) Discuss the various points in the production and sales cycle where it may, depending on circumstances, be appropriate to recognise gains and losses give examples of this (e) Describe the ASBs 'balance sheet approach' to revenue recognition within its Statement of Principles and compare this to requirements of relevant accounting standards. 4 The structure of the UK regulatory framework (a) Describe the influence of EC directives (b) Explain the role of the Companies Acts (c) Outline the Standard setting process and the role of the: (i) Financial Reporting Council (FRC) (ii) Accounting Standards Board (ASB) (iii) Urgent Issues Task Force (UITF) (iv) Financial Reporting Review Panel (FRRP) (d) Explain the relationship between UK and International Accounting Standards (IASs)/International Financial Reporting Standards (IFRSs). 5 Preparation of financial statements for limited companies (a) State the requirements of the Companies Act regarding the form and content of the prescribed
formats (b) Prepare the financial statements of limited companies in accordance with the prescribed formats and relevant accounting standards (c) Describe the main issues involved when a company adopts International Financial Reporting Standards (IFRSs) for the first time (d) Apply the requirements of the IASB to the preparation of financial statements of a first time adopter of International Financial Reporting Standards 6 Reporting financial performance I (a) Explain the need for an accounting standard in this area (b) Discuss the importance of identifying and reporting the results of discontinued operations; define discontinued operations (c) Distinguish between extraordinary and exceptional items, including their accounting treatment and required disclosures 7 Reporting financial performance II (a) Explain the contents and purpose of the statement of total recognised gains and losses, linking it to the Statement of Principles and the concept of comprehensive income (b) Describe and prepare, a: (i) note of historical cost profits and losses (ii) reconciliation of movements in
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shareholders funds (iii) statement of movements in reserves (c) Define prior period adjustments and account for the correction of fundamental errors and changes in accounting policies. (d) Prepare a profit and loss account in accordance with the requirements of the relevant Financial Reporting Standard. 8 Share capital and reserves (a) Explain the need for an accounting standard on Financial Instruments (b) Distinguish between debt and share capital (c) Apply the requirements of relevant accounting standards to the issue and finance costs of: (i) equity and preference shares (ii) debt instruments with no conversion rights, and (iii) convertible debt (d) Explain and apply the general requirements to purchase or redemption of shares (e) Apply the requirements that allow private companies to redeem shares out of capital (f) Discuss the advantages of companies being able to redeem shares (g) Define and discuss the Companies Acts rules relating to profits available for distribution 9 Fixed assets tangible (a) Define the initial cost of a fixed asset
(including a self-constructed asset) and apply this to various examples of expenditure distinguishing between capital and revenue items (b) Describe, and be able to identify, subsequent expenditure that may be capitalised (c) State and appraise the effects of accounting standards on the revaluation of fixed assets (d) Account for gains and losses on the disposal of revalued assets (e) Calculate depreciation on: (i) revalued assets, and (ii) assets that have two or more major components (f) Apply the provisions of accounting standards on Government Grants (g) Discuss why the treatment of investment properties should differ from other properties (h) Apply the requirements of accounting standard on Accounting for Investment Properties. 10 Hire purchase and leasing (a) Distinguish between a hire purchase contract and a lease (b) Describe and apply the method of determining a lease type (i.e. an operating or finance lease) (c) Explain the effect on the financial statements of a finance lease being incorrectly treated as an operating lease (d) Account for operating leases in financial statements
(e) Account for finance leases in the financial statements of lessors and lessees (f) Outline the principles of the accounting standard on leasing and its main disclosure requirements Note: the net cash investment method will not be examined. 11 Fixed assets goodwill and intangible assets (a) Discuss the nature and possible accounting treatments of both internally generated and purchased goodwill (b) Distinguish between goodwill and other intangible assets (c) Describe the criteria for the initial recognition and measurement of intangible assets (d) Describe the subsequent accounting treatment, including amortisation and the principle of impairment testing in relation to purchased goodwill (e) Describe the circumstances in which negative goodwill arises, and its subsequent accounting treatment and disclosure (f) Describe and apply the requirements of accounting standards on Research and Development. 12 Fixed assets impairment of fixed assets and goodwill
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(a) Define the recoverable amount of an asset; define impairment losses (b) Give examples of, and be able to identify circumstances that may indicate that an impairment of fixed assets has occurred (c) Describe what is meant by an income generating unit (d) State the basis on which impairment losses should be allocated, and allocate a given impairment loss to the assets of an income generating unit. 13 Liabilities provisions, contingent liabilities and contingent assets (a) Explain why an accounting standard on provisions is necessary give examples of previous abuses in this area (b) Define provisions, legal and constructive obligations, past events and the transfer of economic benefits (c) State when provisions may and may not be made, and how they should be accounted for (d) Explain how provisions should be measured (e) Define contingent assets and liabilities give examples and describe their accounting treatment (f) Be able to identify and account for: (i) warranties/guarantees (ii) onerous contracts (iii) environmental and similar provisions (g) Discuss the validity of making provisions for future repairs or
refurbishments. 14 Stock and long-term contracts (a) Review the principles of stock valuation covered in Paper 1.1 (b) Define a long-term contract and describe why recognising profit before completion is generally considered to be desirable and the circumstances where it may not be; discuss if this may be profit smoothing (c) Describe the ways in which attributable profit may be measured (d) Calculate and disclose the amounts to be shown in the financial statements for long-term contracts. 15 Earnings per share (a) Explain the importance of comparability in relation to the calculation of earnings per share (eps) and its importance as a stock market indicator (b) Explain why the trend of eps may be a more accurate indicator of performance than a companys profit trend (c) Define earnings and the basic number of shares (d) Calculate the eps in accordance with relevant accounting standards in the following circumstances: (i) basic eps (ii) where there has been a bonus issue of shares during the year, and (iii) where there has been a rights
issue of shares during the year (e) Explain the relevance to existing shareholders of the diluted eps and describe the circumstances that will give rise to a future dilution of the eps (f) Calculate the diluted eps in the following circumstances: (i) where convertible debt or preference shares are in issue; and (ii) where share options and warrants exist. 16 Taxation in financial statements (a) Account for current taxation in accordance with relevant accounting standards (b) Record entries relating to corporation tax in the accounting records (c) Apply requirements of accounting standard on VAT (d) Explain the effect of timing differences on accounting and taxable profits (e) Outline the principles of accounting for deferred tax (f) Outline the requirements of accounting standards on Deferred tax (g) Calculate and record deferred tax amounts in the financial statements. 17 Accounting for the substance of transactions (a) Explain the importance of recording the substance rather than the legal form of transactions give examples of previous abuses in this area (b) Describe the features which may
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indicate that the substance of transactions may differ from their legal form (c) Explain and apply the principles in accounting standards for the recognition and derecognition of assets and liabilities (d) Be able to recognise the substance of transactions in general, and specifically account for the following types of transaction: (i) stock sold on sale or return/ consignment stock (ii) sale and repurchase/leaseback agreements (iii) factoring of debtors. 18 & 19 Group accounting introduction (a) Describe the concept of a group and the objective and usefulness of consolidated financial statements (b) Explain the different methods which could be used to prepare group accounts (c) Explain and apply the definition of subsidiary companies in the Companies Acts and accounting standards (d) Describe the circumstances and reasoning for subsidiaries to be excluded from consolidated financial statements (e) Prepare a consolidated balance sheet for a simple group dealing with pre and post acquisition profits, minority interests and consolidated goodwill
(f) Explain the need for using coterminous year ends and uniform accounting polices when preparing consolidated financial statements (g) Describe how the above is achieved in practice (h) Prepare a consolidated profit and loss account for a simple group, including an example where an acquisition occurs during the year and there is a minority interest. 20 Group accounting intra group adjustments (a) Explain why intra-group transactions should be eliminated on consolidation (b) Explain the nature of a dividend paid out of pre-acquisition profits (c) Account for the effects (in the profit and loss account and balance sheet) of intra-group trading and other transactions including: (i) unrealised profits in stock and fixed assets (ii) intra-group loans and interest and other intra-group charges, and (iii) intra-group dividends including those paid out of pre-acquisition profits. 21 Group accounting fair value adjustments (a) Explain why it is necessary for both the consideration paid for a subsidiary and the subsidiarys identifiable assets and liabilities to be accounted for at
their fair values when preparing consolidated financial statements (b) Prepare consolidated financial statements dealing with fair value adjustments (including their effect on consolidated goodwill) in respect of: (i) depreciating and nondepreciating fixed assets (ii) stock (iii) monetary liabilities (basic discounting techniques may be required) (iv)assets and liabilities (including contingencies) not included in the subsidiarys own balance sheet. 22 & 23 Group accounting associates and joint ventures (a) Define associates and joint ventures, including an arrangement that is not an entity (b) Distinguish between equity accounting and proportional consolidation (c) Describe the equity and gross equity methods (d) Prepare consolidated financial statements to include a single subsidiary and an associate or a joint venture. 24 Analysis and interpretation of financial statements (a) Calculate useful financial ratios for a single company or for group financial statements
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(b) Analyse and interpret ratios to give an assessment of a companys performance in comparison with: (i) a companys previous period's financial statements (ii) another similar company for the same period (iii) industry average ratios (c) Discuss the effect that changes in accounting policies or the use of different accounting polices between companies can have on the ability to interpret performance (d) Discuss how the interpretation of current value information would differ from that of historical cost information (e) Discuss the limitations in the use of ratio analysis for assessing corporate performance, outlining other information that may be of relevance. Note: the content of reports should draw upon knowledge acquired in other sessions. These sessions concentrate on the preparation of reports and report writing skills. 25 & 26 Cash flow statements (a) Prepare a cash flow statement, including relevant notes, for an individual company in accordance with relevant accounting standards Note: questions may specify the use of the direct or the indirect method
(b) Appraise the usefulness of, and interpret the information in, a cash flow statement. 27 Related parties (a) Define and apply the definition of related parties in accordance with relevant accounting standards (b) Describe the potential to mislead users when related party transactions are included in a companys financial statements (c) Adjust financial statements (for comparative purposes) for the effects of non-commercial related party transactions (d) Describe the disclosure requirements for related party transactions. 28 Segmental reporting (a) Discuss the usefulness and problems associated with the provision of segmental information (b) Define a reportable segment and the information that is to be reported (c) Prepare segmental reports in accordance with relevant accounting standards (d) Assess the performance of a company based on the information contained in its segmental report.
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Paper 2.6 Audit and Internal Review (INT)

AIM To develop knowledge and understanding of the audit process and its application in the context of the external regulatory framework and for business control and development. OBJECTIVES On completion of this paper, candidates should be able to: understand the nature, purpose and scope of auditing and internal review, including the role of external audit and its regulatory framework, and the role of internal audit in providing assurance on risk management and on the control framework of an organisation identify risks, describe the procedures undertaken in the planning process, plan work to meet the objectives of the audit or review assignment and draft the content of plans describe and evaluate accounting and internal control systems and identify and communicate control risks, potential consequences and recommendations explain and evaluate sources of evidence, describe the nature, timing and extent of tests on transactions and account balances (including sampling and analytical procedures) and design programs for audit and review assignments evaluate findings, investigate inconsistencies, modify the work program as necessary, review subsequent events, and justify and Candidates will be expected to be familiar with Paper 2.5 Financial Reporting, including the requirements of the accounting standards examined within it. They will also be expected to be familiar with Paper 2.1 Information Systems. POSITION OF THE PAPER IN THE OVERALL SYLLABUS Paper 2.6 builds on the knowledge and understanding developed by Paper 1.1 Preparing Financial Statements and to a limited extent Paper 1.2 Financial Information for Management. 2 Internal audit and internal review (a) The role of internal audit and internal review and their relationship with: (i) corporate governance (ii) risk management (iii) organisational control (iv) corporate objectives. prepare appropriate reports for users within and external to the organisation, including recommendations to enhance business performance discuss and apply the requirements of relevant International Standards on Auditing demonstrate the skills expected in Part 2. SYLLABUS CONTENT 1 Audit framework (a) The development and changing nature of audit. (b) Statutory audits, accountability, stewardship and agency. (c) Professional ethics and codes of conduct, their application to external audit and internal audit, responsibility for fraud and error. Paper 2.6 provides the knowledge and understanding of the audit process which is then developed in Paper 3.1 Audit and Assurance Services. 1.1 Preparing Financial Statements 2.5 Financial Reporting 2.6 Audit and Internal Review
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Audit and Internal Review (INT) (Continued)
(b) Scope and functions of internal audit, the nature and extent of internal audit assignments. (c) Outsourced internal audit functions. (d) The nature and extent of internal review assignments including operational, systems, value for money and financial reviews. 3 Regulation (a) International Standards on Auditing: (i) their development and role (ii) their relationship with national standards. (b) Auditors: (i) regulation and supervision (ii) their relationship with governments (iii) the role of IFAC. 4 Planning and risk (a) Objectives of audit and review assignments, the relevance of stakeholder dialogue. (b) Communicating the objectives of audit and review assignments. (c) Analytical procedures. (d) Risk assessment. (e) Materiality, tolerable error, and sample sizes. (f) Design and documentation of the plan and work program. (g) Co-ordination of the work of others. (h) Information technology in planning and risk assessment.
5 Internal control (a) Objectives of internal control systems. (b) Inherent weaknesses in internal control systems. (c) The use of internal control systems by auditors. (d) Transaction cycles (revenue, purchases, payroll, inventory, capital expenditure). (e) The evaluation of internal control systems by auditors including internal control checklists and tests of control. (f) Communication with management. 6 Other audit and internal review evidence (a) Financial statement assertions: assets, liabilities, income and expenditure, including accounting estimates. (b) Assertions reported on and opinions provided in review assignments. (c) Analytical procedures as substantive evidence. (d) Balance and transaction testing. (e) Computer-assisted audit techniques, their uses and limitations. (f) Management representations. (g) Audit sampling and other selective testing procedures. (h) Subsequent events reviews. (i) Going concern reviews. (j) The overall review of evidence obtained. (k) Modifications to the plan and work program in the light of findings.
7 Reporting (a) Format and content of unmodified and modified external audit reports on financial statements. (b) Format and content of review reports and other reports on assignment objectives. (c) Recommendations for the enhancement of business performance. EXCLUDED TOPICS The audit of groups is not examinable at this level. Candidates should be aware of the content, wording and meaning of external audit reports and they may be asked to prepare the explanatory paragraphs for inclusion in a modified audit report. However, candidates are not expected to draft full external audit reports. Exposure Drafts (EDs) are not examinable for Paper 2.6. KEY AREAS OF THE SYLLABUS The key topic areas are as follows: professional ethics as they apply to accountants working in public practice and in business risk assessment and the response to assessed risks for external auditors the role of internal audit in risk management and corporate governance internal controls substantive audit evidence.
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APPROACH TO EXAMINING THE SYLLABUS The examination is a three hour paper constructed in two sections. The bulk of the questions will be discursive but some questions involving computational elements will be set from time to time. Section A is compulsory. The questions will cover the key elements of the syllabus relevant to both internal and external audit assignments. Section B requires candidates to answer two out of three questions. The questions will cover all areas of the syllabus. Number of marks Section A: 3 compulsory questions (which may be scenario based) (no single question will exceed 25 marks) Section B: Choice of 2 from 3 questions (20 marks each) 40 100 ADDITIONAL INFORMATION This paper encompasses: 1 Internal review, which may be provided either by internal auditors or may be outsourced to external auditors. 2 External audit 60
Candidates need to be aware that questions involving knowledge of new examinable regulations will not be set until at least six months after the last day of the month in which the regulation was issued.
These articles and other communications from the Examiner can be downloaded via the student section of www.accaglobal.com.
STUDY GUIDE The Study Guide provides more detailed guidance on the syllabus. Examinable documents are listed in the Exam Notes section of student accountant. RELEVANT TEXTS There are a number of sources from which you can obtain a series of materials written for the ACCA examinations. These are listed below: FTC Foulks Lynch ACCA's official publisher Contact number: +44 (0)118 989 0629. Website: www.financial-training.com/new/ foulkslynch Accountancy Tuition Centre (ATC) International Contact number: +44 (0)141 880 6469. Website: www.ptc-global.com BPP Contact number: +44 (0)20 8740 2222 Website: www.bpp.com Wider reading is also desirable, especially 1 The Nature, Purpose and Scope of Audit and Review Explain the: (a) Nature and development of audit and review (b) Concepts of accountability, stewardship and agency (c) Concepts of materiality, true and fair presentation and reasonable assurance (d) Reporting as a means of communication to different stakeholders (e) Need for auditors to communicate with those charged with governance (f) High level of assurance provided by audit assignments; the moderate level of assurance provided by review assignments; assignments in which no assurance is provided. NB: Students are expected to be aware of the nature and purpose of nonfinancial review services as described in Session 6. Internal review questions may deal with these subjects, as well as financial and systems reviews in the context of companies and small not-forprofit organisations regular study of relevant articles in ACCA's student accountant.
References to audit and auditors mean both internal and external audit and auditors, except where otherwise indicated.
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2 Statutory Audits Describe the: (a) Regulatory framework in which statutory audits take place (b) Development and status of International Standards on Auditing and their relationship with national standards (c) Reasons for, and mechanisms for, the regulation of auditors by governments and other regulatory agencies (d) Types of opinion provided in statutory audit assignments (e) Explain the objectives and principal characteristics of statutory audit and discuss its value (e.g. in assisting management to reduce risk and improve performance) (f) Limitations of statutory audits 3 Internal Audit and Review I Explain the: (a) Development and role of internal audit in achieving corporate objectives and as part of good corporate governance practice (b) Relative merits of out-sourcing internal audit and internal review services to external auditors and others, and the associated problems (c) Difference between the role of external audit and internal audit 4 Regulatory environment (a) Corporate governance (i) explain the objective, relevance
and importance of corporate governance (ii) discuss the relative merits and disadvantages of voluntary codes and legislation (b) Code of best practice (i) outline the provisions of international codes of Corporate Governance (such as OECD) that are most relevant to auditors (ii) outline good Corporate Governance requirements relating to directors' responsibilities (e.g. for risk management and internal control) and the reporting responsibilities of auditors (c) Audit committees (i) explain the structure and roles of audit committees and discuss their benefits and drawbacks (ii) discuss the relative merits and disadvantages of regulation by a voluntary code of practice rather than law (d) Internal financial control effectiveness (i) outline the importance of internal control and risk management (ii) compare the responsibilities of management and auditors (internal and external) for the design and operation of systems and controls, and the reliability of management information (financial and non-financial) (iii) describe the factors to be taken into account when assessing the
need for an internal audit function 5 Internal Audit and Review III Describe the: (a) Elements of best practice in the structure and operations of an internal audit function (b) Scope of internal audit work and the limitations of the internal audit function (c) Types of report provided in internal audit and internal review assignments 6 Internal Audit and Internal Review IV Describe and illustrate the: (a) Nature and purpose of internal review assignments including: (i) value for money (ii) best value (iii) IT (iv) financial (b) Nature and purpose of operational internal review assignments including: (i) procurement (ii) marketing (iii) treasury (iv) HR 7 Professional Ethics and Professional Codes of Conduct I (a) Describe the sources of, and enforcement mechanisms associated with, professional ethics and professional codes of conduct
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(b) Define the fundamental concepts of professional ethics (c) Define the detailed requirements of, and illustrate and analyse the application of, professional ethics in the context of independence, objectivity and integrity (d) Distinguish between the elements of professional ethics applicable to internal auditors and those applicable to external auditors (e) Describe the responsibilities of internal and external auditors for the prevention and detection of fraud and error and in relation to laws and regulations 8 Professional Ethics and Professional Codes of Conduct II (a) Describe the requirements of professional ethics and other requirements in relation to the acceptance of audit and review assignments, including situations in which there is an imposed limitation in audit scope (b) Define the detailed requirements of, and illustrate and analyse the application of, professional ethics in the context of confidentiality and conflicts of interest (c) Describe the importance of engagement letters and describe their contents 9 Preliminary Planning Procedures (a) Distinguish between risk-based,
procedural and other approaches to audit and review work (b) Describe the sources and nature of information gathered in planning audit and review assignments (c) Describe the understanding of the entity required by auditors (d) Describe the purpose of analytical procedures in planning and illustrate the application of such procedures (e) Describe the components of risk and the use of information technology in risk analysis (f) Illustrate and explain the importance of the application of risk analysis (g) Define and illustrate the concepts of materiality and tolerable error (h) Evaluate misstatements 10 The Work Plan, the Work Program and Documentation (a) Describe and illustrate the contents of work plans, work programs and working papers (b) Describe the nature of documentation required for different types of assignment (c) Explain the importance of documentation (d) Illustrate the use of information technology in the audit 11 The Work of Others Describe the: (a) Extent to which external auditors are able to rely on the work of: (i) internal audit
(ii) experts (iii) service organisations and recognise where reliance is needed (b) Extent to which internal auditors are able to rely on the work of: (i) experts (ii) service organisations (c) Conditions that must be met before reliance can be placed on the work of others and the planning considerations in co-ordinating the work of others (d) Division of responsibilities between auditors and others (e) Extent to which reference to the work of others can be made in audit and review reports 12 Internal Control I (a) Describe the objectives of internal control systems and the responsibility for internal control systems in the context of organisational objectives (b) Describe the importance of internal control to auditors (c) Describe and illustrate the limitations of internal control systems in the context of fraud and error (d) Explain the need to modify the audit plan in the light of the results of tests of control (e) Distinguish between tests of controls and substantive tests
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13 Internal Control II Revenue, Purchases and inventory (a) Describe, illustrate and analyse how internal control systems over revenue, purchases and inventory cycles operate in both large and small entities (b) Describe and illustrate the use by auditors of internal control checklists for revenue, purchases and inventory transaction cycles (c) Describe and tabulate tests of control of revenue, purchases and inventory for inclusion in a work program (d) Explain and illustrate how structural and operational weaknesses in revenue, purchases and inventory systems should be reported to management and how recommendations should be made 14 Internal Control III Revenue Expenditure and Capital Expenditure (a) Describe, illustrate and analyse how internal control systems over revenue and capital expenditure transaction cycles operate in both large and small entities (b) Describe and illustrate the use by auditors of internal control checklists for revenue and capital expenditure transaction cycles (c) Describe and tabulate tests of control of revenue and capital expenditure for inclusion in a work program
(d) Explain and illustrate how structural and operational weaknesses in revenue and capital expenditure systems should be reported to management and how recommendations should be made
(d) Explain and illustrate how structural and operational weaknesses in bank and cash systems should be reported to management and how recommendations should be made NB: For items 1316, an
15 Internal Control IV Payroll (a) Describe, illustrate and analyse how internal control systems over the payroll transaction cycle operate in both large and small entities (b) Describe and illustrate the use by auditors of internal control checklists for the payroll transaction cycle (c) Describe and tabulate tests of control of payroll for inclusion in a work program (d) Explain and illustrate how structural and operational weaknesses in payroll systems should be reported to management and how recommendations should be made 16 Internal Control V Bank and Cash (a) Describe, illustrate and analyse how internal control systems over the bank and cash transaction cycle operate in both large and small entities (b) Describe and illustrate the use by auditors of internal control checklists for the bank and cash transaction cycle (c) Describe and tabulate tests of control of bank and cash for inclusion in a work program
understanding of IT issues and computer controls is required 17 Other Audit and Review Evidence I (a) Describe the sources and relative merits of different types of evidence available (b) Describe the financial statement assertions commonly reported on and the principles and objectives of balance and transaction testing (c) Distinguish between the interim and the final audit (d) Describe and illustrate how analytical procedures are used as substantive procedures (e) Explain the problems associated with the audit and review of accounting estimates (f) Describe the types of evidence available in smaller entities (g) Evaluate the quality of evidence collected 18 Other Audit and Review Evidence II Receivables and Prepayments (a) Describe and tabulate for inclusion in a work program the substantive procedures, including direct confirmation of accounts receivable,
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used in obtaining evidence in relation to receivables and prepayments, and the related income statement entries (b) Explain the purpose of substantive procedures in relation to financial statement assertions concerning receivables and prepayments 19 Other Audit and Review Evidence III Inventory (a) Explain the importance of inventory (b) Describe inventory counting procedures (c) Explain cut-off (d) Describe and tabulate for inclusion in a work program the substantive procedures used in obtaining evidence in relation to inventory, including the auditor's attendance at inventory counting (e) Explain the purpose of substantive procedures, including direct confirmation of inventory held by third parties, in relation to financial statement assertions concerning inventory 20 Other Audit and Review Evidence IV Current Liabilities and accruals (a) Describe and tabulate for inclusion in a work program the substantive procedures used in obtaining evidence in relation to current liabilities and accruals, and the
related income statement entries (b) Explain the purpose of substantive procedures, including supplier statement reconciliations and direct confirmation of accounts payable, in relation to financial statement assertions concerning current liabilities and accruals 21 Other Audit and Review Evidence V Bank and cash (a) Describe and tabulate for inclusion in a work program the substantive procedures including bank confirmation reports used in obtaining evidence in relation to bank and cash, and the related income statement entries (b) Explain the purpose of substantive procedures in relation to financial statement assertions concerning bank and cash 22 Other Audit and Review Evidence VI non-current assets and long-term liabilities (a) Describe and tabulate for inclusion in a work program the substantive procedures used in obtaining evidence in relation to non-current assets and non-current liabilities and the related income statement entries (b) Explain the purpose of substantive procedures in relation to financial statement assertions concerning
non-current assets and non-current liabilities 23 Other Audit and Review Evidence VII (a) Explain the need for sampling (b) Distinguish between statistical and non-statistical sampling (c) Describe and illustrate the application of the basic principles of statistical sampling and other selective testing procedures (d) Describe and illustrate the use of computer assisted techniques in obtaining evidence (Note: candidates will not be required to perform detailed sampling calculations) 24 Going Concern Reviews (a) Explain the importance of going concern reviews (b) Describe the procedures to be applied in performing going concern reviews (c) Describe the disclosure requirements in relation to going concern issues (d) Describe the reporting implications of the findings of going concern reviews 25 Audit Finalisation and the final review Describe and explain the: (a) Quality of management representations as audit evidence
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(b) Circumstances in which obtaining management representations is necessary and the matters on which representations are commonly obtained (c) Purpose of the subsequent events review (d) Procedures to be undertaken in performing a subsequent events review (e) Importance of the overall review of evidence obtained (f) Problems associated with the application of accounting treatments (g) Significance of unadjusted differences 26 Reporting I (a) Describe, illustrate and analyse the format and content of unmodified and modified statutory audit reports (b) Identify and report systems weaknesses and their potential effects and make appropriate recommendations to management (e.g. accounting procedures and financial controls) 27 Reporting II Describe, illustrate and analyse the format and content of: (a) Internal review reports and other reports dealing with recommendations for the enhancement of business performance
28 Not-For-Profit Organisations (a) Apply audit and review techniques to small not-for-profit organisations (b) Explain how the audit and review of small not-for-profit organisations differs from the audit and review of for-profit organisations
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Paper 2.6 Audit and Internal Review (GBR)

AIM To develop knowledge and understanding of the audit process and its application in the context of the external regulatory framework and for business control and development. OBJECTIVES On completion of this paper, candidates should be able to: understand the nature, purpose and scope of auditing and internal review, including the role of external audit and its regulatory framework, and the role of internal audit in providing assurance on risk management and on the control framework of an organisation identify risks, describe the procedures undertaken in the planning process, plan work to meet the objectives of the audit or review assignment and draft the content of plans describe and evaluate accounting and internal control systems and identify and communicate control risks, potential consequences and recommendations explain and evaluate sources of evidence, describe the nature, timing and extent of tests on transactions and account balances (including sampling and analytical procedures) and design programs for audit and review assignments evaluate findings, investigate inconsistencies, modify the work program as necessary, review subsequent events, and justify and prepare appropriate reports for users within and external to the organisation, Candidates will be expected to be familiar with Paper 2.5 Financial Reporting, including the requirements of the accounting standards examined within it. They will also be expected to be familiar with Paper 2.1 Information Systems. 2 Internal audit and internal review (a) The role of internal audit and internal review and their relationship with: (i) corporate governance (ii) risk management (iii) organisational control (iv)corporate objectives. POSITION OF THE PAPER IN THE OVERALL SYLLABUS Paper 2.6 builds on the knowledge and understanding developed by Paper 1.1 Preparing Financial Statements and to a limited extent Paper 1.2 Financial Information for Management. including recommendations to enhance business performance discuss and apply the requirements of relevant Statements of Auditing Standards (International Standards on Auditing from December 2005) demonstrate the skills expected in Part 2. SYLLABUS CONTENT 1 Audit framework (a) The development and changing nature of audit. (b) Statutory audits, accountability, stewardship and agency. (c) Professional ethics and codes of conduct, their application to external audit and internal audit, responsibility for fraud and error. Paper 2.6 provides the knowledge and understanding of the audit process which is then developed in Paper 3.1 Audit and Assurance Services. 2.5 Financial Reporting 2.6 Audit and Internal Review
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Audit and Internal Review (GBR) (Continued)
(b) Scope and functions of internal audit, the nature and extent of internal audit assignments. (c) Outsourced internal audit functions. (d) The nature and extent of internal review assignments including operational, systems, value for money and financial reviews. 3 Regulation (a) Statements of Auditing Standards: (i) their development and role (ii) their relationship with International Standards on Auditing. (b) Auditors: (i) regulation and supervision (ii) their relationship with Government (iii) the role of the Auditing Practices Board and other UK standardsetting bodies. 4 Planning and risk (a) Objectives of audit and review assignments, the relevance of stakeholder dialogue. (b) Communicating the objectives of audit and review assignments. (c) Analytical procedures. (d) Risk assessment. (e) Materiality, tolerable error, and sample sizes. (f) Design and documentation of the plan and work program. (g) Co-ordination of the work of others. (h) Information technology in planning and risk assessment.
5 Internal control (a) Objectives of internal control systems. (b) Inherent weaknesses in internal control systems. (c) The use of internal control systems by auditors. (d) Transaction cycles (revenue, purchases, payroll, stock, capital expenditure). (e) The evaluation of internal control systems by auditors including internal control checklists and tests of control. (f) Communication with management. 6 Other audit and internal review evidence (a) Financial statement assertions: assets, liabilities, income and expenditure, including accounting estimates. (b) Assertions reported on and opinions provided in review assignments. (c) Analytical procedures as substantive evidence. (d) Balance and transaction testing. (e) Computer-assisted audit techniques, their uses and limitations. (f) Management representations. (g) Audit sampling and other selective testing procedures. (h) Subsequent events reviews. (i) Going concern reviews. (j) The overall review of evidence obtained. (k) Modifications to the plan and work program in the light of findings.
7 Reporting (a) Format and content of unqualified and qualified external audit reports on financial statements. (b) Format and content of review reports and other reports on assignment objectives. (c) Recommendations for the enhancement of business performance. EXCLUDED TOPICS The audit of groups is not examinable at this level. Candidates should be aware of the content, wording and meaning of external audit reports and they may be asked to prepare the explanatory paragraphs for inclusion in a qualified audit report. However, candidates are not expected to draft full external audit reports. Exposure Drafts (EDs) are not examinable for Paper 2.6. KEY AREAS OF THE SYLLABUS The key topic areas are as follows: professional ethics as they apply to accountants working in public practice and in business risk assessment and the response to assessed risks for external auditors the role of internal audit in risk management and corporate governance internal controls substantive audit evidence.
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APPROACH TO EXAMINING THE SYLLABUS The examination is a three hour paper constructed in two sections. The bulk of the questions will be discursive but some questions involving computational elements will be set from time to time. Section A is compulsory. The questions will cover the key elements of the syllabus relevant to both internal and external audit assignments. Section B requires candidates to answer two out of three questions. The questions will cover all areas of the syllabus. Number of marks Section A: 3 compulsory questions (which may be scenario based) (no single question will exceed 25 marks) Section B: Choice of 2 from 3 questions (20 marks each) 40 100 ADDITIONAL INFORMATION This paper encompasses: 1 Internal review, which may be provided either by internal auditors or may be outsourced to external auditors. 2 External audit. References to audit and auditors mean both internal and external audit and auditors, except where otherwise indicated. 60
Candidates need to be aware that questions involving knowledge of new examinable regulations will not be set until at least six months after the last day of the month in which the regulation was issued.
These articles and other communications from the Examiner can be downloaded via the student section of www.accaglobal.com.
STUDY SESSIONS The Study Guide provides more detailed guidance on the syllabus. Examinable documents are listed in the Exam Notes section of student accountant. RELEVANT TEXTS There are a number of sources from which you can obtain a series of materials written for the ACCA examinations. These are listed below: FTC Foulks Lynch ACCA's official publisher Contact number: +44 (0)118 989 0629. Website: www.financial-training.com/new/ foulkslynch Accountancy Tuition Centre (ATC) International Contact number: +44 (0)141 880 6469. Website: www.ptc-global.com BPP Contact number: +44 (0)20 8740 2222 Website: www.bpp.com Wider reading is also desirable, especially regular study of relevant articles in ACCA's student accountant. 1 The Nature, Purpose and Scope of Audit and Review Explain the: (a) Nature and development of audit and review (b) Concepts of accountability, stewardship and agency (c) Concepts of materiality, true and fair presentation and reasonable assurance (d) Reporting as a means of communication to different stakeholders (e) Need for auditors to communicate with those charged with governance (f) High level of assurance provided by audit assignments; the moderate level of assurance provided by review assignments; assignments in which no assurance is provided NB: Students are expected to be aware of the nature and purpose of nonfinancial review services as described in Session 6. Internal review questions may deal with these subjects, as well as financial and systems reviews in the context of companies and small not-forprofit organisations
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2 Statutory Audits Describe the: (a) UK regulatory framework in which statutory audits take place (b) Development and status of the Auditing Practices Board Auditing Standards and their relationship with International Standards on Auditing (c) Reasons for, and mechanisms for, the regulation of auditors by Government and other regulatory agencies including other UK standard-setters (d) Types of opinion provided in statutory audit assignments (e) Explain the objectives and principal characteristics of statutory audit and discuss its value (e.g. in assisting management to reduce risk and improve performance) (f) Limitations of statutory audits 3 Internal Audit and Review I Explain the: (a) Development and role of internal audit in achieving corporate objectives and as part of good corporate governance practice (b) Relative merits of out-sourcing internal audit and internal review services to external auditors and others, and the associated problems (c) Difference between the role of external audit and internal audit 4 Regulatory environment (a) Corporate governance
(i) explain the objective, relevance and importance of corporate governance (ii) discuss the relative merits and disadvantages of voluntary codes and legislation (b) Code of best practice (i) outline the provisions of the Code of Best Practice (based on the Cadbury Report) that are most relevant to auditors (ii) outline the requirements of the Combined Code (of the Committee on Corporate Governance) relating to directors responsibilities (e.g. for risk management and internal control) and the reporting responsibilities of auditors (c) Audit committees (i) explain the structure and roles of audit committees and discuss their benefits and drawbacks (ii) discuss the relative merits and disadvantages of regulation by a voluntary code of practice rather than law (d) Internal financial control effectiveness (i) outline the importance of internal control and risk management (ii) compare the responsibilities of management and auditors (internal and external) for the design and operation of systems and controls, and the reliability of management information
(financial and non-financial) (iii) describe the factors to be taken into account when assessing the need for an internal audit function 5 Internal Audit and Review III Describe the: (a) Elements of best practice in the structure and operations of an internal audit function (b) Scope of internal audit work and the limitations of the internal audit function (c) Types of report provided in internal audit and internal review assignments 6 Internal Audit and Review IV Describe and illustrate the: (a) Nature and purpose of internal review assignments including: (i) value for money (ii) best value (iii) IT (iv) financial (b) Nature and purpose of operational internal review assignments including: (i) procurement (ii) marketing (iii) treasury (iv) HR 7 Professional Ethics and Professional Codes of Conduct I (a) Describe the sources of, and enforcement mechanisms associated
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with, professional ethics and professional codes of conduct (b) Define the fundamental concepts of professional ethics (c) Define the detailed requirements of, and illustrate and analyse the application of, professional ethics in the context of independence, objectivity and integrity (d) Distinguish between the elements of professional ethics applicable to internal auditors and those applicable to external auditors (e) Describe the responsibilities of internal and external auditors for the prevention and detection of fraud and error and in relation to laws and regulations 8 Professional Ethics and Professional Codes of Conduct II (a) Describe the requirements of professional ethics and other requirements in relation to the acceptance of audit and review assignments, including situations in which there is an imposed limitation in audit scope (b) Define the detailed requirements of, and illustrate and analyse the application of, professional ethics in the context of confidentiality and conflicts of interest (c) Describe the importance of engagement letters and describe their contents
9 Preliminary Planning Procedures (a) Distinguish between risk-based, procedural and other approaches to audit and review work (b) Describe the sources and nature of information gathered in planning audit and review assignments (c) Describe the understanding of the entity required by auditors (d) Describe the purpose of analytical procedures in planning and illustrate the application of such procedures (e) Describe the components of risk and the use of information technology in risk analysis (f) Illustrate and explain the importance of the application of risk analysis (g) Define and illustrate the concepts of materiality and tolerable error (h) Evaluate misstatements
able to rely on the work of: (i) internal audit (ii) experts (ii) service organisations and recognise where reliance is needed (b) Extent to which internal auditors are able to rely on the work of: (i) experts (ii) service organisations (c) Conditions that must be met before reliance can be placed on the work of others and the planning considerations in co-ordinating the work of others (d) Division of responsibilities between auditors and others (e) Extent to which reference to the work of others can be made in audit and review reports 12 Internal Control I
10 The Work Plan, the Work Program and Documentation (a) Describe and illustrate the contents of work plans, work programs and working papers (b) Describe the nature of documentation required for different types of assignment (c) Explain the importance of documentation (d) Illustrate the use of information technology in the audit 11 The Work of Others Describe the: (a) Extent to which external auditors are
(a) Describe the objectives of internal control systems and the responsibility for internal control systems in the context of organisational objectives (b) Describe the importance of internal control to auditors (c) Describe and illustrate the limitations of internal control systems in the context of fraud and error (d) Explain the need to modify the audit plan in the light of the results of
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tests of control (e) Distinguish between tests of controls and substantive tests 13 Internal Control II Sales, Purchases and stock (a) Describe, illustrate and analyse how internal control systems over sales, purchases and stock cycles operate in both large and small entities (b) Describe and illustrate the use by auditors of internal control checklists for sales, purchases and stock cycles (c) Describe and tabulate tests of control of sales, purchases and stock for inclusion in a work program (d) Explain and illustrate how structural and operational weaknesses in sales, purchases and stock systems should be reported to management and how recommendations should be made 14 Internal Control III Revenue Expenditure and Capital Expenditure (a) Describe, illustrate and analyse how internal control systems over revenue and capital expenditure transaction cycles operate in both large and small entities (b) Describe and illustrate the use by auditors of internal control checklists for revenue and capital expenditure transaction cycles (c) Describe and tabulate tests of control of revenue and capital expenditure for inclusion in a work program
(d) Explain and illustrate how structural and operational weaknesses in revenue and capital expenditure systems should be reported to management and how recommendations should be made
(d) Explain and illustrate how structural and operational weaknesses in bank and cash systems should be reported to management and how recommendations should be made NB For items 13 16 an understanding of
15 Internal Control IV Payroll (a) Describe, illustrate and analyse how internal control systems over the payroll transaction cycle operate in both large and small entities (b) Describe and illustrate the use by auditors of internal control checklists for the payroll transaction cycle (c) Describe and tabulate tests of control of payroll for inclusion in a work program (d) Explain and illustrate how structural and operational weaknesses in payroll systems should be reported to management and how recommendations should be made 16 Internal Control V Bank and Cash (a) Describe, illustrate and analyse how internal control systems over the bank and cash transaction cycle operate in both large and small entities (b) Describe and illustrate the use by auditors of internal control checklists for the bank and cash transaction cycle (c) Describe and tabulate tests of control of bank and cash for inclusion in a work program
IT issues and computer controls is required 17 Other Audit and Review Evidence I (a) Describe the sources and relative merits of different types of evidence available (b) Describe the financial statement assertions commonly reported on and the principles and objectives of balance and transaction testing (c) Distinguish between the interim and the final audit (d) Describe and illustrate how analytical procedures are used as substantive procedures (e) Explain the problems associated with the audit and review of accounting estimates (f) Describe the types of evidence available in smaller entities (g) Evaluate the quality of evidence collected 18 Other Audit and Review Evidence II Debtors and prepayments (a) Describe and tabulate for inclusion in a work program the substantive procedures, including debtors circularisations, used in obtaining evidence in relation to debtors and prepayments, and the related
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income statement entries (b) Explain the purpose of substantive procedures in relation to financial statement assertions concerning debtors and prepayments 19 Other Audit and Review Evidence III Stock (a) Explain the importance of stock (b) Describe stock counting procedures (c) Explain cut-off (d) Describe and tabulate for inclusion in a work program the substantive procedures used in obtaining evidence in relation to stock, including the auditors' attendance at stocktaking (e) Explain the purpose of substantive procedures including direct confirmation of stock held by third parties, in relation to financial statement assertions concerning stock 20 Other Audit and Review Evidence IV Current liabilities and accruals (a) Describe and tabulate for inclusion in a work program the substantive procedures used in obtaining evidence in relation to current liabilities and accruals, and the related income statement entries (b) Explain the purpose of substantive procedures including supplier statement reconciliations and direct confirmation of creditors, in relation to financial statement assertions concerning current liabilities and
accruals 21 Other Audit and Review Evidence V bank and cash (a) Describe and tabulate for inclusion in a work program the substantive procedures including bank confirmation reports used in
statistical sampling and other selective testing procedures (d) Describe and illustrate the use of computer assisted techniques in obtaining evidence (Note: candidates will not be required to perform detailed sampling calculations) 24 Going Concern Reviews (a) Explain the importance of going concern reviews (b) Describe the procedures to be applied in performing going concern reviews (c) Describe the disclosure requirements relating to going concern issues (d) Describe the reporting implications of the findings of going concern reviews 25 Audit Finalisation and the final review Describe and explain the: (a) Quality of management representations as audit evidence (b) Circumstances in which obtaining management representations is necessary and the matters on which representations are commonly obtained (c) Purpose of the subsequent events review (d) Procedures to be undertaken in
obtaining evidence in relation to

bank and cash, and the related income statement entries (b) Explain the purpose of substantive procedures in relation to financial statement assertions concerning bank and cash 22 Other Audit and Review Evidence VI fixed assets and long-term liabilities (a) Describe and tabulate for inclusion in a work program the substantive procedures used in obtaining evidence in relation to fixed assets and long-term liabilities and the related income statement entries (b) Explain the purpose of substantive procedures in relation to financial statement assertions concerning fixed assets and long-term liabilities 23 Other Audit and Review Evidence VII (a) Explain the need for sampling (b) Distinguish between statistical and non-statistical sampling (c) Describe and illustrate the application of the basic principles of
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performing a subsequent events review (e) Importance of the overall review of evidence obtained (f) Problems associated with the application of accounting treatments (g) Significance of unadjusted differences 26 Reporting I (a) Describe, illustrate and analyse the format and content of unqualified and qualified statutory audit reports (b) Identify and report systems weaknesses and their potential effects and make appropriate recommendations to management (e.g. accounting procedures and financial controls) 27 Reporting II Describe, illustrate and analyse the format and content of: (a) Internal review reports and other reports dealing with recommendations for the enhancement of business performance 28 Not-For-Profit Organisations (a) Apply audit and review techniques to small not-for-profit organisations (b) Explain how the audit and review of small not-for-profit organisations differs from the audit and review of for-profit organisations
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3
This section contains the syllabus and study sessions for each paper within Part 3 of the ACCA Professional Syllabus. Option papers: 3.1 Audit and Assurance Services 3.2 Advanced Taxation 3.3 Performance Management 3.4 Business Information Management Core papers: 3.5 Strategic Business Planning and Development 3.6 Advanced Corporate Reporting 3.7 Strategic Financial Management Candidates must sit two option papers and the three core papers. THE OBJECTIVE OF PART 3 The main aim of Part 3 is to establish evidence of competence to practise as a professional accountant in public practice, public sector or in industry and commerce. This requires candidates to demonstrate not By this stage, knowledge has to be fully integrated in the way it is used by professionals with a recognition of how the different subjects contribute to dealing with problems. This stage will present candidates with problems which test their skills and sensitivity in dealing with new contexts and unforseen circumstances. In dealing with such situations, candidates will be expected to tailor solutions to problems appropriately and in a way which demonstrates their grasp of managerial skills. Although emphasis will be given to practical issues, candidates will also be expected to criticise current practice and express views on developments in accounting. They will also be expected to show evidence of the necessary personal qualities and interpersonal skills required of the professional only that they have mastered the range of required knowledge, skills and techniques, but also that they are able to apply them in a managerial context. SKILLS TO BE TESTED IN PART 3 Candidates should be able to demonstrate the ability to: draw on knowledge across all earlier papers studied integrate that knowledge effectively and use it creatively in applying concepts and techniques analyse and interpret data and information and present reasoned conclusions diagnose and formulate appropriate solutions to problems which indicate commercial awareness exercise judgement drawing on technical, political and commercial awareness in developing and evaluating alternatives and in proposing solutions adapt to new systems and circumstances and communicate analyses and conclusions effectively and with accountant. Examinations at this stage will be set at a level equivalent to a UK Masters degree.
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sensitivity for different purposes and to contrasting audiences with due emphasis on social expectations. While the skills identified above will be tested directly by the questions set, in assessing the answers weight will be given to candidates' ability to demonstrate a grasp of the following personal skills and attributes: strategic awareness identifying the strategic needs of the organisation and contributing to strategic planning and management interpersonal skills tact, sensitivity to political tensions and cultural differences, awareness of social, economic and political pressure, ability to influence management skills resource management: people, material, time and money, management of the client, management of change, in particular, in technology and contingency planning and
personal qualities persistence in pursuing inquiries and probing responses, integrity, objectivity, independence and public responsibility.
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Paper 3.1 Audit and Assurance Services (INT)

AIM To ensure that candidates can exercise judgement and apply techniques in the analysis of matters relating to the provision of audit and assurance services, and can evaluate and comment on current practices and developments. OBJECTIVES On completion of this paper candidates should be able to: demonstrate their ability to work within a professional and ethical framework understand current issues and developments relating to auditing and the provision of audit-related and assurance services explain and evaluate the auditors position in relation to the acceptance and retention of professional appointments evaluate and recommend quality control policies and procedures identify and describe the work required to meet the objectives of audit and nonaudit assignments apply and evaluate the requirements of relevant International Standards on Auditing evaluate findings and the results of work performed and draft suitable reports on assignments demonstrate the skills expected in Part 3. Paper 3.1 develops the knowledge gained in Paper 2.6 Audit and Internal Review by: extending the basic awareness of professional codes and fundamental principles to a detailed understanding of rules of professional conduct introducing practice management Paper 3.1 develops the knowledge gained in Paper 2.5 Financial reporting by introducing the audit implications of accounting treatments. POSITION OF THE PAPER IN THE OVERALL SYLLABUS Candidates need a thorough understanding of Paper 2.6 Audit and Internal Review and knowledge of Paper 2.5 Financial Reporting concerning the preparation and presentation of financial statements. Paper 3.1 may draw on aspects of information technology, covered in Paper 2.1 Information Systems, by considering its impact on assignments. SYLLABUS CONTENT 1 Professional and ethical considerations (a) Rules of professional conduct (i) integrity, objectivity and independence (ii) professional duty of confidence (iii) changes in professional appointments (iv) books, documents and papers (v) corporate financial advice (vi) conflicts of interest. extending the application of procedures involved in planning, conducting and reporting on audit assignments to group audits, audit-related services and nonaudit assignments critically evaluating procedures and reports introducing current issues and developments. 1.1 Preparing Financial Statements 2.5 Financial Reporting 2.6 Audit and Internal Review
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Audit and Assurance Services (INT) (Continued)
(b) Professional responsibility and liability (i) fraud and error (ii) professional liability (including negligence) (iii) misconduct (iv) expectation gap (v) professional indemnity insurance (vi)insider dealing. (c) Regulatory environment (i) corporate governance (ii) Code of Best Practice (iii) audit committees (iv) internal financial control effectiveness (v) laws and regulations in an audit of financial statements (vi) money laundering. 2 Practice management (a) Quality control practices and procedures. (b) Advertising, publicity and obtaining professional work. (c) Fees. (d) Tendering. (e) Terms of engagement. 3 Audit process (a) Audit strategy including (i) risk-based auditing (ii) systems audits (iii) balance sheet approach (iv) revenue, expenditure and other cycles (v) directional testing
(vi) analytical procedures. (b) Planning including (i) materiality (ii) risk assessments. (c) Evidence including (i) documentation (ii) related parties (iii) management representations (iv) using the work of others. (d) Evaluation and review including (i) opening balances and comparatives (ii) other information (iii) subsequent events (iv) going concern. 4 Assignments (a) Audit of financial statements. (b) Group audits. (c) Audit-related services including: (i) reviews (ii) agreed-upon procedures (iii) compilations. (d) Assurance services including: (i) risk assessment (ii) performance measurement (iii) systems reliability (iv) electronic commerce. (e) Prospective financial information. (f) Internal audit. (g) Outsourced finance and accounting functions. (h) Social and environmental audits.
5 Reporting (a) Auditors reports. (b) Conclusions and reporting for agreed-upon procedures and assurance services. (c) Reports to management. 6 Current issues and developments (a) Professional ethics. (b) Corporate governance. (c) Fraud. (d) Environmental issues. (e) Information technology. (f) Multinational accountancy firms. (g) SMEs and audit exemption. EXCLUDED TOPICS The following topics are specifically excluded from the syllabus: Stock Exchange Listing Requirements International Accounting Standards Exposure Drafts effects on a company of insolvency law and of employment and social security law (e.g. wrongful trading and national insurance contributions). KEY AREAS OF THE SYLLABUS The key topic areas are as follows: rules of professional conduct quality control practices and procedures audit strategy assignments auditors reports current issues and developments.
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APPROACH TO EXAMINING THE SYLLABUS The examination is a three hour paper constructed in two sections. Questions in both sections will be almost entirely discursive. However, candidates will be expected, for example, to be able to assess materiality and calculate relevant ratios where applicable. Section A questions will be based on case study type scenarios. That is not to say that they will be particularly long, rather that they will provide a setting within which a range of topics, issues and requirements can be addressed. Different types of question will be encountered in Section B and will tend to be more focussed on specific topics, for example auditors reports, quality control and topics of ISAs which are not examinable in Paper 2.6 Audit and Internal Review. (This does not preclude these topics from featuring in Section A.) These questions will have less scenario than in Section A and one will be a discussion question. Number of marks Section A: 3 compulsory questions Section B: Choice of 2 from 3 questions (15 marks each) 30 100 ADDITIONAL INFORMATION Candidates need to be aware that questions involving knowledge of new examinable regulations will not be set until 70
at least six months after the last day of the month in which the regulation was issued. The Study Guide provides more detailed guidance on the syllabus. Examinable documents are listed in the Exam Notes section of student accountant. RELEVANT TEXTS There are a number of sources from which you can obtain a series of materials written for the ACCA examinations. These are listed below: FTC Foulks Lynch ACCA's official publisher Contact number: +44 (0)118 989 0629. Website: www.financial-training.com/new/ foulkslynch Accountancy Tuition Centre (ATC) International Contact number: +44 (0)141 880 6469. Website: www.ptc-global.com BPP Contact number: +44 (0)20 8740 2222. Website: www.bpp.com
STUDY SESSIONS 1 Rules of professional conduct I Candidates should be able to interpret, apply and appraise specified statements of professional ethics which govern the auditors conduct and are included in ACCAs Rules of Professional Conduct and IFACs Code of Ethics for Professional Accountants. (a) Integrity, objectivity and independence (i) revise the purpose of a professional ethical code from Paper 2.6 (ii) compare and contrast the Fundamental Principles of ACCAs Rules of Professional Conduct with those of IFACs Code of Ethics for Professional Accountants (iii) outline the contents of ACCAs and IFACs codes of ethics (iv) identify and explain common threats to independence and explain how the risks may be minimised or resolved (v) discuss and evaluate the effectiveness of available safeguards (vi) outline the practical implications for an audit practice in relation to quality control procedures
Wider reading is also desirable, especially regular study of relevant articles in ACCA's student accountant. These articles and other communications from the examination can be downloaded via the Students section of www.accaglobal.com.
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(vii) discuss the benefits of providing other services (including internal audit) to audit clients and whether the drawbacks (eg objectivity impairment) can be overcome (viii) define specialist valuations and discuss how the objectivity of the audit may be threatened (ix)explain how and why an auditor should respond to a request to provide a second opinion (b) Professional duty of confidence (i) explain the importance of the role of confidentiality to the auditorclient relationship (ii) distinguish between disclosure and use of information (iii) identify circumstances in which disclosure is permitted or required (iv)describe how a clients information should be protected when the auditor also acts for a competitor company 2 Rules of professional conduct II (a) Changes in professional appointments (i) discuss the reasons why entities change their auditors (ii) explain the matters to be considered and the procedures which an audit firm/professional accountant should carry out before accepting new clients and new engagements (iii) describe the procedures for agreeing the terms of an engagement
(iv) outline the procedures for the transfer of books, papers and information following a new appointment (b) Books, documents and papers (i) explain the general principles governing the ownership of, and rights of access to, documents and papers (ii) explain the legal right of lien and describe the circumstances in which it may be exercised (iii) discuss the extent to which clients and third parties may have access to documents and papers (c) Corporate financial advice and conflicts of interest (i) outline the role of auditors in advising clients involved in takeover bids and share issues and explain how conflicts can arise (ii) distinguish conflicts between members and clients interests from those between the interests of different clients (iii) describe how conflicts may be avoided or managed with safeguards 3 Professional responsibility and liability (a) Fraud and error (i) define and distinguish between the terms error, irregularity, fraud and misstatement (ii) compare and contrast the respective responsibilities of
management and auditors for fraud and error (iii) describe the matters to be considered and procedures to be carried out to investigate actual and/or potential misstatements (iv) explain how, why, when and to whom fraud and error should be reported and the circumstances in which an auditor should withdraw from an engagement (v) discuss the current and possible future role of auditors in preventing, detecting and reporting error and fraud (b) Professional Liability (i) identify the circumstances in which auditors may have legal liability (ii) describe the factors to determine whether or not an auditor is negligent in given situations (iii) explain the other criteria for legal liability to be recognised (including due professional care and proximity) (iv) distinguish between liability to client and liability to third parties (v) comment on precedents of case law (vi) identify and evaluate the practicability and effectiveness of ways in which liability may be restricted (vii) discuss how the audit and other opinions may be affected by limiting audit liability (viii) discuss the advantages and
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disadvantages of audit liability claims being settled out of court (c) Misconduct (i) explain and illustrate what is meant by professional misconduct (ii) outline the penalties and sanctions which may be imposed by disciplinary bodies (d) Expectation gap (i) identify and discuss the factors which contribute to the expectation gap (e.g. responsibilities for fraud and error, litigation) (ii) suggest ways in which the gap might be bridged (e) Professional indemnity insurance (i) explain the terms professional indemnity insurance (PII) and fidelity guarantee insurance (FGI) (ii) discuss arguments for and against mandatory cover (f) Insider dealing (i) explain the term insider dealing and why it is damaging (ii) relate the Fundamental Principles to insider dealing (iii) suggest measures to reduce the exposure of partners and staff to the risks arising 4 Regulatory environment (a) Revise the Regulatory Framework from Paper 2.6 including: (i) the objective, relevance and importance of corporate governance
(ii) the relative merits and disadvantages of voluntary codes and legislation for corporate governance (iii) the provisions of the Code of Best Practice (based on the Cadbury Report) that are most relevant to auditors (iv) the requirements of the Combined Code (of the Committee on Corporate Governance) relating to directors and auditors' responsibilities (v) the role of management and auditors (internal and external) in internal financial control effectiveness (b) Audit Committees (i) revise the structure and roles of audit committees, their benefits and drawbacks (ii) discuss the relative merits and disadvantages of regulation by a voluntary code of practice rather than law (iii) discuss independence in respect of non-executive directors (c) Laws and Regulations in an Audit of Financial Statements (i) compare and contrast the respective responsibilities of management and auditors concerning compliance with laws and regulations (ii) describe the auditors considerations of compliance and
audit procedures when possible non-compliance is discovered (d) Money laundering (i) Define 'money laundering' (ii) Outline the scope of criminal offences of money laundering and how professional accountants may be protected from criminal and civil liability (iii) Describe how accountants meet their obligations to help prevent and detect money laundering including record keeping and reporting of suspicion to a financial intelligence unit (FIU) (iv) Understand the importance of customer due diligence (CDD) (v) Understand the need for ethical guidance in this area (vi) Appreciate the international efforts to combat money laundering (vii) Describe the basic elements of an anti-money laundering program 5 Practice management I (a) General (i) describe the risks to which practices are exposed and the steps which can be taken to manage them (b) Quality control practices and procedures (i) outline the regulatory framework for ensuring quality services (ii) outline the organization of international accountancy
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practices (iii) specify the objectives of quality control policies (iv) identify the factors which affect the nature, timing and extent of an audit firms quality control policies and procedures (v) recommend policies and procedures which can be exercised internally at the level of the audit firm and on individual audits (vi) describe review procedures including second partner reviews (vii) discuss the matters particularly relevant to smaller firms relating to quality control 6 Practice management II (a) Advertising, Publicity, Obtaining Professional Work and Fees (i) explain the need for guidance in these areas (ii) illustrate the circumstances in which advertising is acceptable (iii) discuss the restrictions on practice descriptions, the use of the ACCA logo and the names of practising firms (iv)discuss the extent to which fees may be referred to in promotional material (v) outline the determinants of feesetting and describe the bases on which fees and commissions may and may not be charged for
services (vi)discuss the problems involved in establishing and negotiating fees, etc (b) Tendering (i) describe the matters to be considered when a firm is invited to submit a proposal or fee quote for an audit (ii) identify the information required for the proposal (iii) outline the content of an engagement proposal document (for both continuing and new clients) (iv) suggest the criteria which might be used to evaluate tenders received from audit firms (v) suggest reasons why audit fees may be lowered from the previous years fees (vi) describe lowballing and discuss whether or not it impairs independence (c) Terms of engagement (i) explain the key issues which underlie the agreement of the scope and terms of an audit engagement with a client 7 Audit process I (a) General (approaches to auditing) (i) select and justify an appropriate approach to a given assignment (ii) explain the circumstances in which a specified approach is not appropriate
(b) Risk-based auditing (i) describe the business risk approach to auditing and its relationship to the audit risk model (ii) outline the reasons why it is adopted in preference to other methodologies (iii) describe the consequences of such a top down approach to evidence gathering procedures (e.g. tests of controls, analytical procedures and test of detail) (c) Systems audits (i) describe the components of an effective system of internal controls (ii) identify the factors which contribute to a strong control environment (iii) revise control objectives, control procedures, walk-through tests and tests of control (compliance tests) 8 Audit process II (a) Balance sheet approach (i) explain the importance of the balance sheet as a primary statement (ii) discuss why this approach may be more appropriate for the audit of small businesses than a business risk approach (iii) discuss the limitations of this approach (b) Revenue, expenditure and other cycles (i) illustrate how accounting
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transactions can be analysed into cycles which correspond to line items in the balance sheet and income statement (ii) identify cycles relevant to a given situation (e.g. the conversion cycle for a manufacturing enterprise) (iii) describe the approach to each cycle (c) Directional testing (i) explain the concept of directional testing as a methodology (ii) describe how this approach helps to detect misstatements and determines the populations from which samples are drawn (iii) illustrate the use of directional testing within cycles (iv) discuss the advantages and limitations of this approach (d) Analytical procedures (i) explain the nature and role of analytical procedures in the conduct of an assignment (ii) recognise situations in which analytical procedures may be used extensively (iii) describe the criteria for assessing the extent to which reliance can be placed on substantive analytical procedures 9 Planning (a) General (i) identify and illustrate the matters to be considered in planning an assignment including:
logistics (e.g. staff and client management, multiple locations, deadlines) use of IT in administration time budgets assignment objectives and reports required preliminary materiality financial statement or other assertions components of audit risk audit strategy (b) Materiality (i) define materiality and describe how it is applied in financial reporting and auditing (ii) explain the criteria which determine whether or not a matter is material (iii) discuss the use and limitations of prescriptive rules in making decisions about materiality (c) Risk Assessments (i) identify and distinguish between assignment (eg audit) and business risks (ii) describe the factors which influence the assessment of a specified risk (e.g. inherent risk) for a given assignment (iii) explain how and why the assessments of risks and materiality affect the nature, timing and extent of auditing procedures (iv) critically appraise the audit risk model
(v) recognise and assess the implications of a specified computer system (e.g. network) on an assignment 10 & 11 Evidence (a) General (i) critically appraise the appropriateness and sufficiency of different sources of audit evidence and the procedures by which evidence may be obtained including: management representations the work of others (including internal auditors and experts ) sampling techniques and selection methods direct confirmation audit automation tools (ii) identify and illustrate suitable investigative methods (eg audit procedures such as enquiry and observation) to obtain sufficient evidence from identified sources (iii) select and explain substantive analytical procedures appropriate to given financial and other data (iv) identify and evaluate the audit evidence expected to be available to: verify specific assets, liabilities, transactions and events; and support financial statement
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assertions and accounting treatments (including fair values) (b) Documentation (i) explain the reasons for preparing and keeping working papers and the importance of reviewing them (c) Related parties (i) explain the specific audit problems and procedures concerning related parties and related party transactions (ii) recognise circumstances that may indicate the existence of unidentified related parties (d) Management representations (i) illustrate the use of written management representations as the primary source of audit evidence and as complementary audit evidence (ii) discuss the implications of contradictory evidence being discovered (e) Using the work of others (i) explain when it is justifiable to place reliance on the work of an expert (e.g. a surveyor employed by the audit client) (ii) assess the appropriateness and sufficiency of the work of internal auditors 12 Evaluation and review I (a) General (i) explain review procedures (including the use of analytical
procedures and checklists) (ii) evaluate findings quantitatively and qualitatively, e.g. the results of audit tests and procedures the effect of actual and potential misstatements (b) Opening balances and comparatives (i) describe how the auditors responsibilities for corresponding figures and comparative financial statements are discharged (ii) describe the further considerations and audit procedures relevant to initial engagements (c) Other information (i) explain the auditors responsibilities for other information (ii) discuss the courses of action available to an auditor if a material inconsistency exists (d) Subsequent events (i) specify the nature and timing of audit procedures designed to identify subsequent events that may require adjustment to, or disclosure in, the financial statements 13 Evaluation and review II (a) Going concern (i) give examples of indicators that the going concern basis may be in doubt and recognise mitigating factors (ii) evaluate the evidence which
might be expected to be available and assess the appropriateness of the going concern basis in given situations (iii) describe the disclosures in financial statements relating to going concern (iv) understand the implications for the auditors report where doubts about the going concern basis have been resolved remain unresolved (v) comment on the auditor's responsibilities in respect of going concern statements 14 & 15 Audit of financial statements (a) Revise the statutory audit from Paper 2.6 including: (i) objectives, principal characteristics and value (ii) respective responsibilities of auditors and management (iii) limitations of assurance (b) Evaluate the matters (e.g. materiality, risk, relevant accounting standards, audit evidence) relating to: (i) inventory (ii) standard costing systems (iii) cash flow statements (iv) construction contracts (v) deferred taxation (vi) segmental information (vii) fair value (viii) leases (ix) revenue recognition
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(x) government grants and assistance (xi) borrowing costs (xii) related party transactions (xiii) investments (xiv) earnings per share (xv) discontinued operations (xvi) held for sale non-current assets (xvii) impairment (xviii) provisions, contingent liabilities and contingent assets (xix) goodwill (xx) brand valuations (xxi) research and development (xxii) other intangible assets (This list is not exhaustive, in particular, the audit of transactions, balances and other events examined in Paper 2.6 is now assumed knowledge.) 16 Group Audits (a) Identify the specific matters to be considered before accepting appointment as principal auditor to a group (b) Explain the organization, planning, management and administration issues specific to group and joint audits (c) Identify the specific audit problems and describe audit procedures in relation to: (i) the correct classification of investments (ii) acquisitions and disposals (iii) related party transactions (iv) inter-company balances,
transactions and profits (v) goodwill on consolidation (vi) enterprises in developing countries (vii) discuss support letters as audit evidence (viii) describe the matters to be considered and the procedures to be performed when a principal auditor uses the work of another auditor (ix) explain the implications for the auditors report on the financial statements of an entity where the opinion on a component is qualified or otherwise modified 17 Audit-related services (a) General (i) distinguish between audit and audit-related services and the comparative levels of assurance provided by the auditor (b) Reviews (i) distinguish between an attestation engagement and a direct reporting engagement (ii) describe, for example: a review of interim financial information due diligence (when acquiring a company, business or other assets) (iii) explain and illustrate the importance of enquiry and analytical procedures (iv) Discuss the effectiveness of the current negative assurance form of reporting
(c) Agreed-upon procedures (i) explain why these and compilation engagements do not (usually) meet the requirements for an assurance engagement (ii) illustrate the form and content of a report of factual findings (d) Compilations (i) describe the general principles and procedures relating to a compilation engagement (e.g. to prepare financial statements) (ii) illustrate the form and content of a compilation report 18 & 19 Assurance services (a) General (i) explain the need for a range of assurance services and discuss to what extent these can be provided by auditors (ii) explain the effects of assurance services being provided by the external auditor (iii) describe how the level of assurance (high or moderate) provided by an engagement depends on the subject matter evaluated, the criteria used, the procedures applied and the quality and quantity of evidence obtained (iv) describe the form and content of the professional accountants report for an assurance engagement (v) discuss the situations in which it
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would be appropriate to express a reservation or deny a conclusion (b) Risk assessment (i) revise from Paper 2.6 including: - the distinction between management risk assessment and auditor risk assessment - risk thresholds - types of risk - ways in which risks may be identified and analysed - how management can respond to risk (ii) discuss the relative advantages and disadvantages of qualitative and quantitative risk assessment methods (c) Performance measurement (i) describe the benefits of providing assurance on business performance measures (ii) discuss the relevance of traditional financial accounting performance measures and operational measures (iii) describe how the reliability of performance information systems is assessed (including benchmarking) (iv)describe the elements of a value for money audit (i.e. economy, efficiency and effectiveness) and give examples of its use (d) Revise systems reliability from Paper 2.6 including: (i) the need for information
integrity and controls (ii) the demand for reliable and more timely reporting and the benefits of providing assurance to management and external users (iii) procedures for assessing internal control effectiveness (e) Electronic commerce (i) describe and illustrate the ways in which organizations are using core technologies (e.g. EDI, Email, Internet, World Wide Web) (ii) explain how e-commerce affects the business risk of an entity (iii) describe the issues of privacy and security of information for transactions and communications (iv) outline and illustrate the principles and criteria which underlie web assurance 20 Prospective financial information (a) Define prospective financial information and distinguish between a forecast and a projection (b) Describe the matters to be considered before accepting an engagement to report on prospective financial information (c) Discuss the level of assurance which the auditor may provide and explain the other factors to be considered in determining the nature, timing and extent of examination procedures (d) Describe examination procedures to verify forecasts and projections
relating to: (i) capital expenditure (ii) profits (iii) cash flows (e) Discuss the basis on which auditors should form an opinion on prospective financial information 21 Internal Audit: (a) Revise internal audit and (i) its role in corporate governance (ii) its relationships (e.g. with audit committees, external auditors) (iii) the factors which determine the extent to which reliance can be placed on its work (b) Compare the objectives and principal characteristics of internal audit with other assurance engagements (c) Compare and contrast operational and compliance audits (d) Describe possible approaches to multi-site operations (e.g. cyclical compliance audits) (e) Discuss the provision of outsourced internal auditing services 22 Outsourced finance and accounting functions (a) Explain the different approaches to outsourcing and compare with insourcing (b) Discuss the advantages and disadvantages of outsourcing finance
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and accounting functions including: (i) data (transaction) processing (ii) pensions (iii) information technology (IT) (iv)internal auditing (v) due diligence work (vi)taxes (c) Explain the impact of outsourced functions on the conduct of an audit 23 Social and environmental audits (a) Discuss the increasing importance of policies which govern the relationship of an organization to its employees, society and the environment (b) Describe the difficulties in measuring social and environmental performance and give examples of targets and sustainability indicators (c) Explain the auditors main considerations with respect to social and environmental matters and give examples of how they impact on companies and their financial statements (e.g. impairment of assets, provisions and contingent liabilities) (d) Discuss how control over social and environmental risks may be exercised by management and evaluated by the auditor (e) Describe substantive procedures to detect potential misstatements in respect of socio-environmental matters (f) Explain what action may be taken by
the auditor in situations of noncompliance with relevant laws and regulations (e.g. environmental acts and health and safety regulations) (g) Discuss the form and content of an independent verification statement (e.g. on an environmental management system (EMS) and a report to society) 24 Auditors reports (a) Explain and critically appraise the form and content of a standard unqualified auditors report (b) Describe the factors to be taken into account when forming an audit opinion (c) Make judgements and form audit opinions which are consistent with the results of audit procedures relating to the sufficiency of audit evidence and/or compliance with accounting standards (including the going concern basis) (d) Discuss the implications for the auditor's report on financial statements which report compliance with IFRSs (e) Critically evaluate a proposed audit opinion (f) Discuss a true and fair view (g) Describe and illustrate special purpose auditors' reports (e.g. on summarized financial statements) 25 Reports to Management (a) Revise from Paper 2.6 reporting
systems weaknesses, their potential effects and making appropriate recommendations to management (b) Describe the criteria for evaluating the effectiveness of a management letter (c) Outline the content of a report to an audit committee (d) Explain the need for timely communication, clearance, feedback and follow up (e) Discuss communication methods 26 Current Issues and Developments I Candidates will be expected to demonstrate the ability to discuss the relative merits and the consequences of different standpoints taken in current debates and express opinions supported by reasoned arguments. (a) Professional ethics (i) discuss the relative advantages of an ethical framework and a rulebook (ii) comment on the adequacy of existing ways in which objectivity may be safeguarded and suggest additional measures to improve independence (iii) suggest advantages and identify the problems and safeguards associated with ethical issues (b) IFAC (IAASB) developments (i) discuss the implementation and adoption of International Standards on Auditing (ISAs) (ii) comment on IFAC's risk, fraud and quality control standards as
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the foundation for all other ISAs (c) Corporate governance 27 Current issues and developments II (a) Multinational accountancy firms (i) describe the different ways in which the auditing profession and audit markets are regulated (ii) discuss the advantages and disadvantages of partnership status, limited liability partnerships and incorporation of audit firms (iii) describe current developments in the limitation of auditors liability and the practical ways in which the risk of litigation and liability can be reduced (iv) distinguish, for example, between global auditing firms and second tier firms (v) discuss the impact of globalisation on audit firms and their clients (vi) explain the advantages and problems of current trends (e.g. to merge, to divest consultancy services) (b) Information technology (i) Describe recent trends in IT and their current and potential impact on auditors (e.g. identify and discuss the audit implications of financial reporting on the Internet) (ii) Explain how IT may be used to
assist auditors and discuss the problems which may be encountered in automating the audit process (c) SMEs (i) state the case for and against audit exemption for small businesses (ii) discuss how the potential problems associated with the audit of small enterprises may be overcome (iii) explain how ISAs affect smaller firms 28 Revision
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Paper 3.1 Audit and Assurance Services (GBR)

AIM To ensure that candidates can exercise judgement and apply techniques in the analysis of matters relating to the provision of audit and assurance services, and can evaluate and comment on current practices and developments. OBJECTIVES On completion of this paper candidates should be able to: demonstrate their ability to work within a professional and ethical framework understand current issues and developments relating to auditing and the provision of audit-related and assurance services explain and evaluate the auditors position in relation to the acceptance and retention of professional appointments evaluate and recommend quality control policies and procedures identify and describe the work required to meet the objectives of audit and nonaudit assignments apply and evaluate the requirements of relevant Statements of Auditing Standards (International Standards on Auditing from December 2005) evaluate findings and the results of work performed and draft suitable reports on assignments demonstrate the skills expected in Part 3. POSITION OF THE PAPER IN THE OVERALL SYLLABUS Candidates need a thorough understanding Paper 3.1 develops the knowledge gained in Paper 2.6 Audit and Internal Review by: extending the basic awareness of professional codes and fundamental principles to a detailed understanding of rules of professional conduct introducing practice management extending the application of procedures involved in planning, conducting and reporting on audit assignments to group Paper 3.1 develops the knowledge gained in Paper 2.5 Financial Reporting by introducing the audit implications of accounting treatments. of Paper 2.6 Audit and Internal Review and knowledge of Paper 2.5 Financial Reporting concerning the preparation and presentation of financial statements. Paper 3.1 may draw on aspects of information technology, covered in Paper 2.1 Information Systems, by considering its impact on assignments. SYLLABUS CONTENT 1 Professional and ethical considerations (a) Rules of professional conduct (i) integrity, objectivity and independence (ii) professional duty of confidence (iii) changes in professional appointments (iv)books, documents and papers (v) corporate financial advice (vi) conflicts of interest. (b) Professional responsibility and liability (i) fraud and error (ii) professional liability (including negligence) (iii) misconduct (iv) expectation gap audits, audit-related services and nonaudit assignments critically evaluating procedures and reports introducing current issues and developments. 1.1 Preparing Financial Statements 2.5 Financial Reporting 2.6 Audit and Internal Review
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Audit and Assurance Services (GBR) (Continued)
(v) professional indemnity insurance (vi)insider dealing. (c) Regulatory environment (i) corporate governance (ii) Code of Best Practice (iii) audit committees (iv) internal financial control effectiveness (v) laws and regulations in an audit of financial statements (vi) money laundering. 2 Practice management (a) Quality control practices and procedures. (b) Advertising, publicity and obtaining professional work. (c) Fees. (d) Tendering. (e) Terms of engagement. 3 Audit process (a) Audit strategy including: (i) risk-based auditing (ii) systems audits (iii) balance sheet approach (iv)revenue, expenditure and other cycles (v) directional testing (vi) analytical procedures. (b) Planning including: (i) materiality (ii) risk assessments. (c) Evidence including: (i) documentation (ii) related parties
(iii) management representations (iv) using the work of others. (d) Evaluation and review including: (i) opening balances and comparatives (ii) other information (iii) subsequent events (iv) going concern. 4 Assignments (a) Audit of financial statements. (b) Group audits. (c) Audit-related services including: (i) reviews (ii) agreed-upon procedures (iii) compilations. (d) Assurance services including: (i) risk assessment (ii) performance measurement (iii) systems reliability (iv) electronic commerce. (e) Prospective financial information. (f) Internal audit. (g) Outsourced finance and accounting functions. (h) Social and environmental audits. 5 Reporting (a) Auditors reports. (b) Conclusions and reporting for agreed-upon procedures and assurance services. (c) Reports to management. 6 Current issues and developments (a) Professional ethics. (b) Corporate governance. (c) Fraud and litigation.
(d) Environmental issues. (e) Information technology. (f) Multinational accountancy firms. (g) SMEs and audit exemption. EXCLUDED TOPICS The following topics are specifically excluded from the syllabus: Stock Exchange Listing Requirements Financial Reporting Exposure Drafts Effects on a company of insolvency law and of employment and social security law (e.g. wrongful trading and national insurance contributions) Joint Money Laundering Steering Group (JMLSG) Guidance Notes Financial Services Authority's (FSA) Money Laundering Sourcebook. KEY AREAS OF THE SYLLABUS The key topic areas are as follows: rules of professional conduct quality control practices and procedures audit strategy assignments auditors reports current issues and developments. APPROACH TO EXAMINING THE SYLLABUS The examination is a three hour paper constructed in two sections. Questions in both sections will be almost entirely discursive. However, candidates will be expected, for example, to be able to assess materiality and calculate relevant ratios where applicable.
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Section A will be based on case study type scenarios. That is not to say that they will be particularly long, rather that they will provide a setting within which a range of topics, issues and requirements can be addressed. Different types of question will be encountered in Section B and will tend to be more focussed on specific topics, for example auditors reports, quality control and topics of SASs (ISAs from December 2005) from which are not examinable in Paper 2.6 Audit and Internal Review. (This does not preclude these topics from featuring in Section A.) These questions will have less scenario than in Section A and one will be a discussion question. Number of marks Section A: 3 compulsory questions Section B: Choice of 2 from 3 questions (15 marks each) 30 100 ADDITIONAL INFORMATION Candidates need to be aware that questions involving knowledge of new examinable regulations will not be set until at least six months after the last day of the month in which the regulation was issued. The Study Guide provides more detailed guidance on the syllabus. Examinable documents are listed in the Exam Notes section of student accountant. 70
RELEVANT TEXTS There are a number of sources from which you can obtain a series of materials written for the ACCA examinations. These are listed below: FTC Foulks Lynch ACCA's official publisher Contact number: +44 (0)118 989 0629. Website: www.financial-training.com/new/ foulkslynch Accountancy Tuition Centre (ATC) International Contact number: +44 (0)141 880 6469. Website: www.ptc-global.com BPP Contact number: +44 (0)20 8740 2222. Website: www.bpp.com Wider reading is also desirable, especially regular study of relevant articles in ACCA's student accountant. These articles and other communications from the Examiner can be downloaded via the Students section of www.accaglobal.com.
STUDY SESSIONS 1 Rules of professional conduct I Candidates should be able to interpret, apply and appraise specified statements of professional ethics which govern the auditors conduct and are included in ACCAs Rules of Professional Conduct and IFACs Code of Ethics for Professional Accountants. (a) Integrity, objectivity and independence (i) revise the purpose of a professional ethical code from Paper 2.6 (ii) compare and contrast the Fundamental Principles of ACCAs Rules of Professional Conduct with those of IFACs Code of Ethics for Professional Accountants (iii) outline the contents of ACCAs and IFACs codes of ethics (iv) identify and explain common threats to independence and explain how the risks may be minimised or resolved (v) discuss and evaluate the effectiveness of available safeguards (vi) outline the practical implications for an audit practice in relation to quality control procedures (vii) discuss the benefits of providing other services (including internal audit) to audit clients and whether the drawbacks (eg objectivity impairment) can be overcome
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(viii) define specialist valuations and discuss how the objectivity of the audit may be threatened (ix)explain how and why an auditor should respond to a request to provide a second opinion (b) Professional duty of confidence (i) explain the importance of the role of confidentiality to the auditorclient relationship (ii) distinguish between disclosure and use of information (iii) identify circumstances in which disclosure is permitted or required (iv)describe how a clients information should be protected when the auditor also acts for a competitor company 2 Rules of professional conduct II (a) Changes in professional appointments (i) discuss the reasons why entities change their auditors (ii) explain the matters to be considered and the procedures which an audit firm/professional accountant should carry out before accepting new clients and new engagements (iii) describe the procedures for agreeing the terms of an engagement (iv)outline the procedures for the transfer of books, papers and information following a new appointment (b) Books, documents and papers
(i) explain the general principles governing the ownership of, and rights of access to, documents and papers (ii) explain the legal right of lien and describe the circumstances in which it may be exercised (iii) discuss the extent to which clients and third parties may have access to documents and papers (c) Corporate financial advice and conflicts of interest (i) outline the role of auditors in advising clients involved in takeover bids and share issues and explain how conflicts can arise (ii) distinguish conflicts between members and clients interests from those between the interests of different clients (iii) describe how conflicts may be avoided or managed with safeguards 3 Professional responsibility and liability (a) Fraud and error (i) define and distinguish between the terms error, irregularity, fraud and misstatement (ii) compare and contrast the respective responsibilities of management and auditors for fraud and error (iii) describe the matters to be considered and procedures to be carried out to investigate actual
and/or potential misstatements (iv) explain how, why, when and to whom fraud and error should be reported and the circumstances in which an auditor should withdraw from an engagement (v) discuss the current and possible future role of auditors in preventing, detecting and reporting error and fraud (b) Professional liability (i) identify the circumstances in which auditors may have legal liability (ii) describe the factors to determine whether or not an auditor is negligent in given situations (iii) explain the other criteria for legal liability to be recognised (including due professional care and proximity) (iv) distinguish between liability to client and liability to third parties (v) comment on precedents of case law (vi) identify and evaluate the practicability and effectiveness of ways in which liability may be restricted (vii) discuss how the audit and other opinions may be affected by limiting audit liability (viii) discuss the advantages and disadvantages of audit liability claims being settled out of court (c) Misconduct (i) explain and illustrate what is
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meant by professional misconduct (ii) outline the penalties and sanctions which may be imposed by disciplinary bodies (d) Expectation gap (i) identify and discuss the factors which contribute to the expectation gap (e.g. responsibilities for fraud and error, litigation) (ii) suggest ways in which the gap might be bridged (e) Professional indemnity insurance (i) explain the terms professional indemnity insurance (PII) and fidelity guarantee insurance (FGI) (ii) discuss arguments for and against mandatory cover (f) Insider dealing (i) explain the term insider dealing and why it is damaging (ii) relate the Fundamental Principles to insider dealing (iii) suggest measures to reduce the exposure of partners and staff to the risks arising 4 Regulatory environment (a) Revise the Regulatory Framework from Paper 2.6 including: (i) the objective, relevance and importance of corporate governance (ii) the relative merits and disadvantages of voluntary codes and legislation for corporate
governance (iii) the provisions of the Code of Best Practice (based on the Cadbury Report) that are most relevant to auditors (iv) the requirements of the Combined Code (of the Committee on Corporate Governance), relating to directors and auditors' responsibilities (v) the role of management and auditors (internal and external) in internal financial control effectiveness (b) Audit Committees (i) revise the structure and roles of audit committees, their benefits and drawbacks (ii) discuss the relative merits and disadvantages of regulation by a voluntary code of practice rather than law (iii) discuss independence in respect of non-executive directors (c) Laws and Regulations in an Audit of Financial Statements (i) compare and contrast the respective responsibilities of management and auditors concerning compliance with laws and regulations (ii) describe the auditors considerations of compliance and audit procedures when possible non-compliance is discovered (d) Money laundering (i) Define 'money laundering'
(ii) Outline the principal offences under relevant anti-laundering legislation and the main defences to money laundering charges (iii) Describe how accountants meet their obligations to help prevent and detect money laundering including the role of money laundering reporting officer and reporting of suspicion (iv) Understand the importance of client identification (v) Understand the need for ethical guidance in this area (vi) Appreciate the international efforts to combat money laundering (vii) Describe the basic elements of an anti-money laundering program 5 Practice management I (a) General (i) Describe the risks to which practices are exposed and the steps which can be taken to manage them (b) Quality control practices and procedures (i) outline the regulatory framework for ensuring quality services (ii) outline the organisation of international accountancy practices (iii) specify the objectives of quality control policies (iv) identify the factors which affect the nature, timing and extent of
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an audit firms quality control policies and procedures (v) recommend policies and procedures which can be exercised internally at the level of the audit firm and on individual audits (vi)describe review procedures including second partner reviews (vii) discuss the matters particularly relevant to smaller firms relating to quality control 6 Practice management II (a) Advertising, publicity, obtaining professional work and fees (i) explain the need for guidance in these areas (ii) illustrate the circumstances in which advertising is acceptable (iii) discuss the restrictions on practice descriptions, the use of the ACCA logo and the names of practising firms (iv) discuss the extent to which fees may be referred to in promotional material (v) outline the determinants of feesetting and describe the bases on which fees and commissions may and may not be charged for services (vi)discuss the problems involved in establishing and negotiating fees, etc (b) Tendering (i) describe the matters to be
considered when a firm is invited to submit a proposal or fee quote for an audit (ii) identify the information required for the proposal (iii) outline the content of an engagement proposal document (for both continuing and new clients) (iv) suggest the criteria which might be used to evaluate tenders received from audit firms (v) suggest reasons why audit fees may be lowered from the previous years fees (vi) describe lowballing and discuss whether or not it impairs independence (c) Terms of engagement (i) explain the key issues which underlie the agreement of the scope and terms of an audit engagement with a client 7 Audit process I (a) General (approaches to auditing) (i) select and justify an appropriate approach to a given assignment (ii) explain the circumstances in which a specified approach is not appropriate (b) Risk-based auditing (i) describe the business risk approach to auditing and its relationship to the audit risk model (ii) outline the reasons why it is adopted in preference to other
methodologies (iii) describe the consequences of such a top down approach to evidence gathering procedures (e.g. tests of controls, analytical procedures and test of detail) (c) Systems audits (i) describe the components of an effective system of internal controls (ii) identify the factors which contribute to a strong control environment (iii) revise control objectives, control procedures, walk-through tests and tests of control (compliance tests) 8 Audit process II (a) Balance sheet approach (i) explain the importance of the balance sheet as a primary statement (ii) discuss why this approach may be more appropriate for the audit of small businesses than a business risk approach (iii) discuss the limitations of this approach (b) Revenue, expenditure and other cycles (i) illustrate how accounting transactions can be analysed into cycles which correspond to line items in the balance sheet and profit and loss account (ii) identify cycles relevant to a given situation (e.g. the conversion cycle for a manufacturing enterprise)
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(iii) describe the approach to each cycle (c) Directional testing (i) explain the concept of directional testing as a methodology (ii) describe how this approach helps to detect misstatements and determines the populations from which samples are drawn (iii) illustrate the use of directional testing within cycles (iv) discuss the advantages and limitations of this approach (d) Analytical procedures (i) explain the nature and role of analytical procedures in the conduct of an assignment (ii) recognise situations in which analytical procedures may be used extensively (iii) describe the criteria for assessing the extent to which reliance can be placed on substantive analytical procedures 9 Planning (a) General (i) identify and illustrate the matters to be considered in planning an assignment including: logistics (e.g. staff and client management, multiple locations, deadlines) use of IT in administration time budgets assignment objectives and reports required
preliminary materiality financial statement or other assertions components of audit risk audit strategy
10 & 11 Evidence (a) General (i) critically appraise the appropriateness and sufficiency of different sources of audit evidence and the procedures by which evidence may be obtained including: management representations the work of others (including internal auditors and specialists) sampling techniques and selection methods direct communication audit automation tools (ii) identify and illustrate suitable investigative methods (e.g. audit procedures such as enquiry and observation) to obtain sufficient evidence from identified sources (iii) select and explain substantive analytical procedures appropriate to given financial and other data (iv) identify and evaluate the audit evidence expected to be available to: verify specific assets, liabilities, transactions and events; and support financial statement assertions and accounting treatments (including fair values) (b) Documentation (i) explain the reasons for preparing and keeping working papers and the importance of reviewing them (c) Related parties (i) explain the specific audit problems and procedures concerning related parties and
(b) Materiality (i) define materiality and describe how it is applied in financial reporting and auditing (ii) explain the criteria which determine whether or not a matter is material (iii) discuss the use and limitations of prescriptive rules in making decisions about materiality (c) Risk assessments (i) identify and distinguish between assignment (e.g. audit) and business risks (ii) describe the factors which influence the assessment of a specified risk (e.g. inherent risk) for a given assignment (iii) explain how and why the assessments of risks and materiality affect the nature, timing and extent of auditing procedures (iv) critically appraise the audit risk model (v) recognise and assess the implications of a specified computer system (e.g. network) on an assignment
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related party transactions (ii) recognise circumstances that may indicate the existence of unidentified related parties (d) Management representations (i) illustrate the use of written management representations as the primary source of audit evidence and as complementary audit evidence (ii) discuss the implications of contradictory evidence being discovered (e) Using the work of others (i) explain when it is justifiable to place reliance on the work of a specialist (e.g. a surveyor employed by the audit client) (ii) assess the appropriateness and sufficiency of the work of internal auditors 12 Evaluation and review I (a) General (i) explain review procedures (including the use of analytical procedures and checklists) (ii) evaluate findings quantitatively and qualitatively, e.g. the results of audit tests and procedures the effect of actual and potential misstatements (b) Opening balances and comparatives (i) describe how the auditors responsibilities for corresponding figures and comparative financial
statements are discharged (ii) describe the further considerations and audit procedures relevant to initial engagements (c) Other information (i) explain the auditors responsibilities for other information (ii) discuss the courses of action available to an auditor if a material inconsistency exists (d) Subsequent events (i) specify the nature and timing of audit procedures designed to identify subsequent events that may require adjustment to, or disclosure in, the financial statements 13 Evaluation and review II (a) Going concern (i) give examples of indicators that the going concern basis may be in doubt and recognise mitigating factors (ii) evaluate the evidence which might be expected to be available and assess the appropriateness of the going concern basis in given situations (iii) describe the disclosures in financial statements relating to going concern (iv) understand the implications for the auditor's report where doubts about the going concern basis have been resolved remain unresolved
(v) comment on the auditor's responsibilities in respect of going concern statements 14 & 15 Audit of financial statements (a) Revise the statutory audit from Paper 2.6 including: (i) objectives, principle characteristics and value (ii) respective responsibilities of auditors and management (iii) limitations of assurance (b) Evaluate the matters (e.g. materiality, risk, relevant accounting standards, audit evidence) relating to: (i) inventory (ii) standard costing systems (iii) cash flow statements (iv) construction contracts (v) deferred taxation (vi) segmental information (vii) fair value (viii) leases (ix) revenue recognition (x) government grants and assistance (xi) borrowing costs (xii) related party transactions (xiii) investments (xiv) earnings per share (xv) discontinued operations (xvi) held for sale non-current assets (xvii) impairment (xviii) provisions, contingent liabilities and contingent assets (xix) goodwill
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(xx) brand valuations (xxi) research and development (xxii) other intangible assets (This list is not exhaustive, in particular, the audit of transactions, balances and other events examined in Paper 2.6 is now assumed knowledge.) 16 Group audits (a) Identify the specific matters to be considered before accepting appointment as principal auditor to a group (b) Explain the organisation, planning, management and administration issues specific to group and joint audits (c) Identify the specific audit problems and describe audit procedures in relation to: (i) the correct classification of investments (ii) acquisitions and disposals (iii) related party transactions (iv) inter-company balances, transactions and profits (v) goodwill on consolidation (vi) enterprises in developing countries (d) Discuss support letters as audit evidence (e) Describe the matters to be considered and the procedures to be performed when a principal auditor uses the work of another auditor (f) Explain the implications for the auditor's report on the financial statements of an entity where the opinion on a component is qualified
17 Audit-related services (a) General (i) distinguish between audit and audit-related services and the comparative levels of assurance provided by the auditor (b) Reviews (i) distinguish between an attestation engagement and a direct reporting engagement (ii) describe, for example: a review of interim financial information due diligence (when acquiring a company, business or other assets) (iii) explain and illustrate the importance of enquiry and analytical procedures (iv) discuss the effectiveness of the current negative assurance form of reporting (c) Agreed-upon procedures (i) explain why these and compilation engagements do not (usually) meet the requirements for an assurance engagement (ii) illustrate the form and content of a report of factual findings (d) Compilations (i) describe the general principles and procedures relating to a compilation engagement (e.g. to prepare financial statements) (ii) illustrate the form and content of a compilation report
18 & 19 Assurance services (a) General (i) explain the need for a range of assurance services and discuss to what extent these can be provided by auditors (ii) explain the effects of assurance services being provided by the external auditor (iii) describe how the level of assurance (high or moderate) provided by an engagement depends on the subject matter evaluated, the criteria used, the procedures applied and the quality and quantity of evidence obtained (iv) describe the form and content of the professional accountants report for an assurance engagement (v) discuss the situations in which it would be appropriate to express a reservation or deny a conclusion (b) Risk assessment (i) revise from Paper 2.6 including: - the distinction between management risk assessment and auditor risk assessment - risk thresholds - types of risk - ways in which risks may be identified and analysed - how management can respond to risk
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(ii) discuss the relative advantages and disadvantages of qualitative and quantitative risk assessment methods (c) Performance measurement (i) describe the benefits of providing assurance on business performance measures (ii) discuss the relevance of traditional financial accounting performance measures and operational measures (iii) describe how the reliability of performance information systems is assessed (including benchmarking) (iv)describe the elements of a value for money audit (i.e. economy, efficiency and effectiveness) and give examples of its use (d) Revise systems reliability from Paper 2.6 including: (i) the need for information integrity and controls (ii) the demand for reliable and more timely reporting and the benefits of providing assurance to management and external users (iii) procedures for assessing internal control effectiveness (e) Electronic commerce (i) describe and illustrate the ways in which organizations are using core technologies (e.g. EDI, Email, Internet, World Wide Web) (ii) explain how e-commerce affects
the business risk of an entity (iii) describe the issues of privacy and security of information for transactions and communications (iv) outline and illustrate the principles and criteria which underlie web assurance 20 Prospective financial information (a) Define prospective financial information and distinguish between a forecast and a projection (b) Describe the matters to be considered before accepting an engagement to report on prospective financial information (c) Discuss the level of assurance which the auditor may provide and explain the other factors to be considered in determining the nature, timing and extent of examination procedures (d) Describe examination procedures to verify forecasts and projections relating to: (i) capital expenditure (ii) profits (iii) cash flows (e) discuss the basis on which auditors should form an opinion on prospective financial information 21 Internal audit (a) Revise internal audit and: (i) its role in corporate governance (ii) its relationships (e.g. with audit committees, external auditors)
(iii) the factors which determine the extent to which reliance can be placed on its work (b) Compare the objectives and principal characteristics of internal audit with other assurance engagements (c) Compare and contrast operational and compliance audits (d) Describe possible approaches to multi-site operations (e.g. cyclical compliance audits) (e) Discuss the provision of outsourced internal auditing services 22 Outsourced finance and accounting functions (a) Explain the different approaches to outsourcing and compare with insourcing (b) Discuss the advantages and disadvantages of outsourcing finance and accounting functions including: (i) data (transaction) processing (ii) pensions (iii) information technology (IT) (iv) internal auditing (v) due diligence work (vi) taxes (c) Explain the impact of outsourced functions on the conduct of an audit 23 Social and environmental audits (a) Discuss the increasing importance of policies which govern the relationship of an organisation to its employees, society and the environment
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(b) Describe the difficulties in measuring social and environmental performance and give examples of targets and sustainability indicators (c) Explain the auditors main considerations with respect to social and environmental matters and give examples of how they impact on companies and their financial statements (e.g. impairment of assets, provisions and contingent liabilities) (d) Discuss how control over social and environmental risks may be exercised by management and evaluated by the auditor (e) Describe substantive procedures to detect potential misstatements in respect of socio-environmental matters (f) Explain what action may be taken by the auditor in situations of noncompliance with relevant laws and regulations (e.g. environmental acts and health and safety regulations) (g) Discuss the form and content of an independent verification statement (e.g. on an environmental management system (EMS) and a report to society) 24 Auditors reports (a) Explain and critically appraise the form and content of a standard unqualified auditor's report (b) Describe the factors to be taken into account when forming an audit
opinion (c) Make judgements and form audit opinions which are consistent with the results of audit procedures relating to the sufficiency of audit evidence and/or compliance with accounting standards (including the going concern basis) (d) Discuss the implications for the auditor's report on financial statements which report compliance with IFRSs (e) Critically evaluate a proposed audit opinion (f) Discuss a true and fair view (g) Describe and illustrate special purpose auditors reports (e.g. on summarised financial statements) 25 Reports to Management (a) Revise from Paper 2.6 reporting systems weaknesses, their potential effects and making appropriate recommendations to management (b) Describe the criteria for evaluating the effectiveness of a management letter (c) Outline the content of a report to an audit committee (d) Explain the need for timely communication, clearance, feedback and follow up (e) Discuss communication methods 26 Current Issues and Developments I Candidates will be expected to demonstrate the ability to discuss the relative merits and the consequences of
different standpoints taken in current debates and express opinions supported by reasoned arguments. (a) Professional ethics (i) discuss the relative advantages of an ethical framework and a rulebook (ii) comment on the adequacy of existing ways in which objectivity may be safeguarded and suggest additional measures to improve independence (iii) suggest advantages and identify the problems and safeguards associated with ethical issues (b) IFAC (IAASB) developments (i) discuss the implementation and adoption of International Standards on Auditing (ISAs) (ii) comment on IFAC's risk, fraud and quality control standards as the foundation for all other ISAs (c) Corporate governance 27 Current issues and developments II (a) Multinational accountancy firms (i) describe the different ways in which the auditing profession and audit markets are regulated (ii) discuss the advantages and disadvantages of partnership status, limited liability partnerships and incorporation of audit firms (iii) describe current developments in the limitation of auditors liability and the practical ways in
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which the risk of litigation and liability can be reduced (iv) distinguish, for example, between global auditing firms and second tier firms (v) discuss the impact of globalisation on audit firms and their clients (vi) explain the advantages and problems of current trends (e.g. to merge, to divest consultancy services) (b) Information technology (i) Describe recent trends in IT and their current and potential impact on auditors (e.g. identify and discuss the audit implications of financial reporting on the Internet) (ii) Explain how IT may be used to assist auditors and discuss the problems which may be encountered in automating the audit process (c) SMEs (i) state the case for and against audit exemption for small businesses (ii) discuss how the potential problems associated with the audit of small enterprises may be overcome (iii) explain how auditing standards affect smaller firms 28 Revision
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Paper 3.2 Advanced Taxation (United Kingdom)

AIM To ensure candidates can apply judgement and technique in the provision of a range of taxation services. In particular to equip candidates with the ability to resolve problems involving the computation of tax liabilities, basic tax and financial planning and which draw upon the interaction of a wide range of taxes. The primary focus of the paper will be based around taxation issues. OBJECTIVES On completion of this paper candidates should be able to: prepare computations for and advise clients on issues relating to the tax liabilities of individuals arising from income receipts, capital disposals and transfers of value prepare computations for and advise clients on issues relating to the tax liabilities of corporations arising from income generation and capital disposals provide advice on minimising or deferring tax liabilities for individuals or corporations by using exemptions and/or reliefs evaluate a corporation's and individual's financial position with particular regard to the importance of taxation in decision making and to recommend appropriate personal financial plans and demonstrate the skills expected in Part 3. SYLLABUS CONTENT 1 Taxation of individuals (a) Principles of income tax (b) Income tax on property income (c) Income tax on savings and investment (d) Income tax on income from Candidates also need to understand formats of accounts used for sole traders, partnerships and companies from Paper 1.1 and also the need to have an understanding of some of the financial reporting standards from Paper 2.5. There is no substantial integration with other papers in Part 3. 2 Taxation of corporate businesses (a) Corporation tax on income and chargeable gains of single companies and groups of companies and consortia trading in the UK and overseas (b) Value added tax (c) National insurance contributions POSITION OF THE PAPER IN THE OVERALL SYLLABUS This is the final tax paper and builds upon the knowledge acquired in Paper 2.3 Business Taxation concerning the taxation of businesses and employees. A thorough understanding of the Paper 2.3 syllabus is therefore considered requisite for Paper 3.2. employment (e) Income tax on income from selfemployment (f) Capital gains tax (g) Trusts (h) Administration of income tax and CGT (i) Inheritance tax (j) Overseas aspects of income tax, capital gains tax, inheritance tax and value added tax (k) Value added tax (l) National insurance contributions (m) Stamp duty and stamp duty reserve tax. 2.3 Business Taxation 3.2 Advanced Taxation
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Advanced Taxation (United Kingdom) (Continued)
(d) Stamp duty and stamp duty reserve tax. 3 Financial planning (a) Sources of finance (b) Personal financial planning (c) Financial services products (d) The regulatory framework. EXCLUDED TOPICS Note that the labelling of excluded topics relates to the relevant section of the syllabus 1 Taxation of individuals (c) Income tax on savings and investment income (i) detailed knowledge of antiavoidance procedures (d) Income tax on income from employment (i) PAYE system (ii) an employee share ownership plan (ESOP) will not be examined in its own right (e) Income tax on income from selfemployment (i) averaging of farmers profits (ii) averaging of profits for authors and creative artists (iii) the allocation of notional profits and losses for a partnership (iv)research and development expenditure (v) capital allowances for agricultural buildings, patents, flats above shops, scientific research and know-how
(vi)in respect of industrial buildings allowance: enterprise zones, initial allowances and the sale of an industrial building at less than original cost following a period of non industrial use (note that sales for more than original cost are examinable) (vii) detailed anti-avoidance legislation. (f) Capital gains tax (i) assets held at 31 March 1982 (ii) the grant of a lease or sub-lease out of either a freehold, long lease or short lease (iii) a detailed knowledge of the statements of practice on partnership capital gains (iv) retirement relief (v) relief for losses on loans made to traders. (g) Trusts (i) overseas aspects (i) Inheritance Tax (i) double grossing up on death (ii) pre 18 March 1986 lifetime transfers (iii) woodlands relief (iv)conditional exemption for heritage property (v) relief on relevant business property and agricultural property given as exempt legacies (vi) valuation of an annuity or an interest in possession where the trust interest is subject to an annuity (v) detailed knowledge of the double
charges legislation (vi)an accumulation and maintenance trust ceasing to qualify (vii) double taxation relief calculation involving the formula A A+B (viii) IHT aspects of discretionary trusts prior to 27 March 1974. (k) Value added tax (i) capital goods scheme (ii) in respect of property and land leases and do it yourself builders (iii) flat rate scheme for farmers (iv) special schemes for retailers. (l) National insurance contributions (i) detailed calculation of director's NIC on a month by month basis a knowledge of the annual earnings period rules (including where a person becomes a director part way through a tax year is, however, required) (ii) offset of trading losses against non-trading income (for Class 4 purposes). 2 Taxation of corporate businesses (a) Corporation tax on income and chargeable gains of single companies and groups of companies and consortia trading in the UK and overseas (i) a detailed knowledge of antiavoidance provisions (with the exception of those detailed in the xC
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Study Guide) (ii) corporation tax rates on companies in the process of winding up (iii) 51% groups and group income elections (iv) quarterly accounting for income tax (v) anti-avoidance provisions where arrangements exist for a company to leave a group (vi)detailed knowledge of double taxation agreements (vii) migration of a UK resident company (viii) mixer companies (ix)expense relief in respect of overseas tax (x) detailed computational questions on the carry back and carry forward of unrelieved foreign tax (xi)an awareness of these provisions is required (xii) detailed computational questions on the 'onshore pooling' provisions (xiii) again an awareness of these provisions is all that is required. (b) Value added tax (i) as for individuals. (c) National insurance contributions (i) detailed calculations of director's NIC on a month by month basis a knowledge of the annual earnings period rules (including where a person becomes a director part way through a tax year is, however, required.)
3 Financial planning (a) Sources of finance (i) the mortgage code. (c) Financial services products (i) detailed knowledge of the conditions which must be met to obtain Inland Revenue approval for an occupational pension scheme (ii) personal pension rules applicable prior to 6 April 2001 (iii) knowledge of the different maximum benefit regimes in occupational schemes (iv) calculation of maximum or actual benefits available on early or late retirement (v) calculation of a pension cash equivalent transfer value. KEY AREAS OF THE SYLLABUS All areas of the syllabus may be regarded as important. APPROACH TO EXAMINING THE SYLLABUS The examination is a three hour paper divided into two sections. Section A: Two compulsory scenario based questions worth a total of 50 marks set in the following areas: Non business income tax (although including employment income) Capital gains tax Inheritance tax Overseas aspects of income tax, inheritance tax and capital gains tax Taxation of trusts
The detailed syllabus areas that will feature are those set out in italics within the Study Guide. It is to be noted that these are primarily the syllabus areas new to 3.2. Section B: Four 25 mark scenario based questions from which candidates will be required to select and answer two. One of these questions, at least, will focus upon business taxation. One of the questions in Section B will have as its main focus personal financial planning. The other question will be set on other areas of the syllabus. The following further guidance should be noted: Section A To assist in the transition from paper 2.3 to paper 3.2 the compulsory questions, whilst being set within a scenario involving some elements of planning and tax interaction, the emphasis will be on computation (as an approximate guide around 50%). A mainly discursive question is therefore unlikely in Section A. As a general guide Section A questions will primarily focus upon (non-business) income tax, Inheritance tax and capital gains tax (both business and nonbusiness aspects). Questions involving mainly financial planning will not feature in Section A. Note, however, that questions may
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involve the taxation elements of, for example, investment or pension products (for example calculating an individual's maximum permissible pension contributions). Whilst no detailed questions will be set involving income tax aspects of businesses this will not preclude the inclusion within questions of, for example, a Schedule D Case I figure (or possibly even series of figures). Candidates will, however, not be required to calculate those figures as part of Section A questions. A question will not be set that exclusively examines the taxation of trusts, stamp duty or overseas taxation aspects although these may feature as part of a question. Section B The 25 mark format adopted in Section B will allow more developed optional questions. Questions can be set in any area of the syllabus but within the broad overall guidelines mentioned above. The question focusing upon financial planning is likely to be scenario based, including some taxation elements, with candidates required to analyse a particular set of circumstances and make sensible financial planning recommendations going forward. As a guide it is likely that the pure financial planning elements of this question will not exceed 5060%. As a general rule it is likely that Section B questions will examine letter or
report-writing skills to a greater extent than Section A. Two marks will always be allocated within one of the Section B questions covering these skills. The format of the paper is as follows: Number of marks Section A: 2 compulsory questions Section B: Choice of 2 from 4 (25 marks each) 50 100 Tax rates, allowances and relevant benefits will be given in the examination paper. ADDITIONAL INFORMATION ACCA adopts a six month rule in that questions requiring an understanding of new legislation will not be set until at least six calendar months after the last day of the month in which the legislation received Royal Assent. The same rule applies to the effective date of the provisions of an Act introduced by Statutory Instrument. It would however be considered inappropriate to examine legislation it is proposed to repeal or substantially alter. Knowledge of section numbers will not be needed to understand questions in this paper, nor will students be expected to use them in their answers. If students wish to refer to section numbers they may do so and will not be penalised if old, or even incorrect, section numbers are used. 50
Names of cases or a detailed knowledge of judgements are not required but knowledge of the principles decided in leading cases is required. The Study Guide provides more detailed guidance on the syllabus. RELEVANT TEXTS There are a number of sources from which you can obtain a series of materials written for the ACCA examinations. These are listed below: FTC Foulks Lynch ACCA's official publisher Contact number: +44 (0)118 989 0629. Website: www.financialtraining.com/new/foulkslynch Accountancy Tuition Centre (ATC) International Contact number: +44 (0)141 880 6469. Website: www.ptc-global.com BPP Contact number: +44 (0)20 8740 2222. Website: www.bpp.com Candidates may also find the following textbooks useful: A Homer, R Burrows Tolleys Tax Guide Tolley Publishing ISBN 1860128319 Sonia Gable Taxbriefs Tax Guide ISBN 1902824938
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This book can be purchased by registered students at a 50% discount of 24.50 (RRP 49), plus 6 postage and packing. to UK addresses. Overseas postage will be charged at cost. To order, quote your student registration number and phone +44 (0)20 7250 9067 or fax +44 (0)20 7251 8867 or e-mail info@taxbriefs.co.uk.
implications (vi)rent a room relief (c) Savings and investment income (i) tax free investments (ii) interest (iii) taxation of savings and investment income (iv) accrued income scheme (v) miscellaneous income (vi)double taxation relief
(iv)timing of disposal (particularly in the context of conditional contracts) (v) losses in the year of death (vi)variations/disclaimers arising on death (vii) connected persons (viii) payment of tax by instalments (ix)part disposals (x) principal private residence relief (xi)matching rules for shares and securities (xii) basic reorganisations and takeovers (particularly s135 TGGA 1992, the conditions, including for bona fide commercial purposes, and the advance clearance procedure) (xiii) leases, chattels and wasting assets (xiv) compensation and insurance receipts (xv) EIS/VCT reinvestment relief (xvi) appropriations to and from trading stock (xvii) gift relief where there is an immediate charge to IHT (s260 CGTA 1992) (g) Trusts (i) define a trust (ii) distinguish between interest in possession trusts and discretionary trusts (iii) explain how income tax applies to: interest in possession trusts
Wider reading is also desirable, especially regular study of relevant articles in ACCA's student accountant.
(d) Income tax on income from employment (i) paper 2.3 syllabus sections 3a(i), (ii) and (iv) plus (ii) share and share option incentive
STUDY SESSIONS Items in italics refer to syllabus areas that can be examined within Section A. 1 Taxation of individuals (a) Principles of income tax (i) paper 2.3 syllabus section 2a plus (ii) schedular system (iii) concept of independent taxation and jointly held assets (iv) personal allowances and reliefs (v) non business charges on income and Gift Aid (b) Property income (i) income liable (ii) basis of assessment and computation of property business profits and loss (iii) reverse premiums (iv)premiums received on the grant of a short lease (v) furnished holiday lettings and
schemes (approved and unapproved schemes) (iii) lump sum receipts (iv)exempt benefits (v) personal service companies (e) Income tax on income from selfemployment (i) paper 2.3 syllabus sections 2c(i) (vii) (ii) losses on shares in qualifying companies (section 574 ICTA 1988) (f) Capital gains tax (i) paper 2.3 section 2d (have scope now for both business and non business assets including shares and securities) plus (ii) exempt assets and disposals (particularly on disposals arising at death) (iii) concept of independent taxation and transfers between spouses
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discretionary trusts (iv)explain how inheritance tax applies to transfers of property into trusts transfers of property out of an interest in possession trust upon the termination of the life tenant's interest discretionary trusts ten year charges and exit charge (v) define accumulation and maintenance trusts and explain their advantages (vi)explain how capital gains tax applies to: transfers of property into trust disposals made by trustees of settled property within trusts to third properties disposals made by trustees of settled property within trusts to beneficiaries (vii) explain how trusts can be used in tax and financial planning. (h) Administration of income tax and capital gains tax (i) paper 2.3 syllabus Section 2b (i) Inheritance tax (i) basic principles explain the terms transfer of value, chargeable transfer, potentially exempt transfer, excluded property and persons chargeable loss of donor principle (ii) principle chargeable occasions for IHT
chargeable lifetime transfers potentially exempt transfers becoming chargeable death (iii)seven year cumulation principle (iv)concept of grossing up (v) how IHT is calculated on chargeable lifetime transfers, potentially exempt transfers becoming chargeable and upon death (vi)exemptions available covering lifetime gifts (vii)concept of independent taxation particularly in the context of transfers between spouses (viii) other exempt transfers (gifts to charities, political parties, for national purposes and to housing associations) (ix)tax treatment of transfers of value by close companies (x) principles of valuation: general open market valuation rule specific rules related party rules (xi)business property and agricultural property relief and the relevant conditions applying (xii) quick succession relief (xiii) tapering relief (xiv) determine the value of an individual's estate at death including the liabilities and other deductions that may be taken into account
(xv) relief available for the fall in value of assets the subject of a chargeable lifetime transfer (xvi) adjustments to the value of the death state in respect of the sale of assets following death and the effect of reinvestment (xvii) allocation of the estate at death where: the entire estate is chargeable and specific gifts of UK property are made there are exempt specific gifts with a chargeable residue and vice versa (xviii) explain how wills can be varied after death and the conditions applying (xix) explain the rules governing gifts with reservation of benefit (xx) (xxi) explain the rules relating to associated operations explain the rules relating to pre-owned assets (xxii) administration of inheritance tax who is responsible for payment? instalment option property due dates (j) Overseas aspects of income tax, capital gains tax, inheritance tax and value added tax (i) explain the concepts of residence,
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ordinary residence and domicile (ii) application of the rules at (i) above to income tax (iii) detailed rules in circumstances where an individual comes to the UK or leaves the UK (iv)basis of assessment arising or remittance (v) overseas trades travelling expenses (vi)employment income - overseas aspects (vii) employees travelling and subsistence expenses (viii) double taxation relief (ix)application of the rules at (i) above to CGT (x) temporary absence rules (xi)overseas aspects of inheritance tax: extended definition of domicile for inheritance tax purposes rules governing location of assets calculate double taxation relief (xii) explain how VAT is applied to imports and exports and to acquisitions within the EU (k) Value added tax (i) paper 2.3 syllabus section 1j and 2e plus (ii) explain the application of the disaggregation rules (iii) group registration and divisional registration (iv)second hand goods (v) explain the consequences for
being partially exempt and calculate the input tax recovery for a partially exempt trader (vi)explain in broad terms the principal rules governing the supply of land and buildings in the UK (l) National insurance contributions (i) paper 2.3 syllabus section 2f and 3c (m) Stamp duty , stamp duty land tax and stamp duty reserve tax (i) basic principles (ii) chargeable occasions (iii) exemptions (iv)fixed duty. 2 Taxation of Corporate Businesses (a) Corporation tax on income and chargeable gains of single companies and groups of companies and consortia trading in the UK and overseas (i) paper 2.3 syllabus sections 2.3 1a i plus (ii) determination of accounting periods when a company is being wound up (iii) explain the treatment of returns of capital to shareholders after a company has commenced winding up (iv)treatment of a company's non trading deficits on loan relationships (v) restrictions on the use of trading loss reliefs (particularly upon a change in ownership of an entity)
(vi)corporate venturing scheme (vii) Rules governing the transfer of a company's trade and assets within a group situation (viii) exemption for disposal of substantial shareholdings (ix)explain how intangible assets and goodwill are treated within a corporation tax environment including the reinvestment relief introduced by FA2002 (x) explain the rules governing the treatment of controlled foreign companies, including reporting requirements (xi)explain the terms consortium owned company and consortium member; operation of consortium relief (xii) explain the concept of permanent establishment (xiii) explain how profits chargeable to corporation tax are determined for an investment company (xiv) explain the consequences of being a close company and close investment holding company (xv) explain the taxation consequences from a company purchasing its own shares and the conditions applying to satisfy treatment as a capital distribution (b) Value added tax (i) as for individuals (c) National insurance contributions (i) paper 2.3 syllabus section 3c
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(d) Stamp duty, stamp duty land tax and stamp duty reserve tax (i) as for individuals. 3 Financial Planning (a) Sources of finance (i) describe the sources of finance available to: individuals companies (ii) distinguish between the tax implications of raising equity finance and of raising loan finance (iii) explain the tax implications involved in the decision whether to lease, use hire purchase or to purchase outright (iv)evaluation of the impact of taxation on a business' cash flows (v) describe the mortgage products available to individuals involved in purchasing their own home (vi)identify circumstances in which it is appropriate to repay/replace borrowings (b) Personal financial planning (i) evaluating an individual's financial position calculating an individual's net worth having regard to future capital taxation liabilities calculating an individual's net of tax disposable income identify potential disaster scenarios for both individuals and businesses determining sensible
strategies to protect wealth and income levels (c) Financial services products (i) protection products awareness of the basic structure, types, risk that is being covered, the form in which proceeds are paid upon a valid claim being made and the tax treatment of the premiums and proceeds of the following classes of product: life assurance health insurance provision for long-term care redundancy insurance (ii) investment products awareness of the basic structure, types and tax treatment of the following investments deposit based investments (including cash mini ISAs) fixed interest securities packaged investments collective investments (including ISAs) equities enterprise investment scheme venture capital trusts property Note for section A purposes only the tax treatment of the above is examinable (iii) constructing investment portfolios having regard to such factors as risk, accessibility, liquidity, marketability, flexibility and volatility
(iv)pension products awareness of the main features and tax treatment of premiums payable (where applicable by both individuals and employers) and eventual benefits in making provision for retirement through the following: occupational pension schemes explain the difference between defined benefits and defined contribution schemes explain the difference between approved and unapproved schemes explain the operation of self-administered occupational schemes describe the options upon changing employment personal pension (including stakeholder) schemes explain the operation of self-invested personal pensions describe the options available on reaching retirement state pension schemes Note for Section A only the tax treatment of the items in italics is examinable (v) explain the options available as regards pension rights on divorce
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(d) The regulatory framework (i) describe the regulatory framework in place (ii) explain the meaning of investment and investment business (iii) explain the regulations and 'best practice' affecting investment advice laid down by the FSA and ACCA (iv)explain the compensation and redress available.
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Paper 3.3 Performance Management
AIM To ensure candidates can apply judgement and technique in the analysis of relevant data to provide management with the information required to contribute to a range of strategic planning, control and decision-making situations. OBJECTIVES On completion of this paper candidates should be able to: understand the objectives of preparing management information and the need to adapt techniques in a changing commercial environment identify the information needs of management and contribute to the development of appropriate systems evaluate the strategic performance of a business and recommend appropriate performance measures understand the significance of the relationship between financial and nonfinancial indicators of business performance apply techniques to evaluate management decisions in relation to costing, pricing, product range and marketing strategy identify and apply appropriate budgeting techniques to enable management to control the business demonstrate the skills expected in Part 3.
POSITION OF THE PAPER IN THE OVERALL SYLLABUS Candidates will require a thorough understanding of the management accounting section of Paper 2.4 Financial Management and Control. Candidates will also be required to apply the principles and techniques covered in Paper 1.2 Financial Information for Management. An understanding of how to interpret accounting information, as addressed in Paper 1.1 Preparing Financial Statements and Paper 2.5 Financial Reporting, is assumed. SYLLABUS CONTENT 1 Developments in management accounting (a) Objectives of management accounting information in relation to: (i) short-term planning and strategic planning (ii) control and decision making (iii) effective use of management accounting techniques
(b) The conceptual framework for changes in management accounting (i) contingency theory (ii) institutional theory (c) Trends and developments in management accounting techniques and methods (i) evaluation and promotion of change in techniques and methods used (ii) evaluation of the effect of the rate of change in technology and products on management accounting (iii) current issues in management accounting principles and their relevance and application (iv) activity-based management. (d) Impact of changes in business structures (i) appraisal of continued use of management accounting techniques (e.g. standard costing)
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Performance Management (Continued)
(ii) impact on management accounting of changes in business processes and management techniques (iii) changes in business structure and management accounting (e.g. team/project focus). 2 Design of management accounting systems (a) System objectives and the uses of information in relation to: (i) short-term and strategic planning (ii) control and decision making (iii) effective use of management accounting techniques. (b) Sources of information (i) from within the organisation (ii) from suppliers and customers (iii) by comparison with competitors (iv)from government and other statistical sources. (c) Recording and processing methods (i) collection and recording of monetary and non-monetary information (ii) identification of requirements for different purposes (iii) influence of management accounting principles and techniques (iv) influence of IT systems (v) effect of type of business entity. (d) Format of reports (i) analysis and dissemination to relevant individuals/groups (ii) effect of management structure and style
(iii) frequency, timing and degree of accuracy (iv) influence of trend, materiality and controllability issues. 3 Performance measurement (a) Performance hierarchy (i) mission statement and the fulfilment of a vision (ii) corporate planning and the achievement of strategic objectives (iii) the accomplishment of operational plans (iv) the attainment of specific departmental targets. (b) The scope of performance measurement (i) financial performance profitability, liquidity, activity and gearing (ii) non-financial business indicators (iii) performance measurement for non-profit seeking organisations (iv) performance measurement for public sector service provision (v) long and short run performance (vi) performance measurement models such as the balanced scorecard (to improve the range and linkage between performance measures) and the performance pyramid (to relate strategy and operations). (c) External considerations (i) economic/market conditions (ii) financial, environmental and service quality regulation from
government agencies. (d) Management impact on performance measurement (i) accountability issues (ii) benefits and problems of performance measurement (iii) reward schemes and performance measurement (iv) management style and performance measurement. 4 Planning and control (a) Strategic management accounting (i) corporate v operational strategy (ii) life cycle issues (iii) SWOT analysis (iv) benchmarking (v) consideration of risk and uncertainty. (vi) strategic management accounting in the context of multinational companies (b) Budgeting and budgetary control (i) the appraisal of alternative approaches to budgeting incremental, rolling, ABB etc (ii) budgeting as a planning and control device (iii) quantitative aids and risk analysis (iv) behavioural aspects (v) current developments in budgeting. 5 Decision making (a) Pricing strategies and the evaluation of pricing decisions (i) price/demand relationships (ii) relevant costs and pricing decisions
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(iii) pricing and product life cycles (iv) target costing and pricing (v) transfer pricing and decision making. (vi) transfer pricing in the context of multinational companies (b) Information for decision making (i) relevant costs analysis (ii) CVP analysis and profit maximisation (iii) product profitability and limiting factor analysis (iv) customer profitability analysis, including activity-based (v) theory of constraints and throughput accounting (vi) accounting for uncertainty (vii) DCF techniques. EXCLUDED TOPICS The syllabus content outlines the areas for assessment. No areas of knowledge are specifically excluded from the syllabus. KEY AREAS OF THE SYLLABUS The key topic areas are as follows: the contribution of management accounting systems towards the achievement of corporate objectives identifying appropriate performance indicators for particular business situations abstracting relevant information from financial reports to assess performance identifying and processing costs as an aid to decision making.
APPROACH TO EXAMINING THE SYLLABUS The examination is a three hour paper constructed in two sections. The Section A questions will contain a mix of computational and discursive elements. Section B questions will comprise at least one question that is purely discursive and other(s) will incorporate both computational and discursive components. Number of Marks Section A: Two compulsory questions (no single question will exceed 45 marks) Section B: Choice of 2 from 3 questions (20 marks each) 40 100 ADDITIONAL INFORMATION The Study Guide provides more detailed guidance on the syllabus. RELEVANT TEXTS There are a number of sources from which you can obtain a series of materials written for the ACCA examinations. These are listed below: FTC Foulks Lynch ACCA's official publisher Contact number: +44 (0)118 989 0629. Website: www.financialtraining.com/new/foulkslynch 60
Accountancy Tuition Centre (ATC) International Contact number: +44 (0)141 880 6469. Website: www.ptc-global.com BPP Contact number: +44 (0)20 8740 2222. Website: www.bpp.com Candidates may also find the following texts useful: D Ashton, T Hopper and R W Scapens Issues in Management Accounting (2nd Edition) Prentice Hall ISBN 0131892509 C Drury Management and Cost Accounting (5th Edition) International Thomson Business Press ISBN 1861525362 C Emmanuel, D Otley Accounting for Management Control Chapman and Hall ISBN 1861522118 J Hope, R Fraser Beyond Budgeting (Ist Edition) Harvard Business School Press ISBN 1578518660 M W E Glautier and B Underdown Accounting Theory and Practice Pitman ISBN 027362444X Wider reading is also desirable, especially regular study of relevant articles in ACCA's student accountant.
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STUDY SESSIONS 1 Strategic Planning and Decision Making (a) Identify the characteristics of strategic planning and decision making (b) Contrast strategic planning with short term /operational planning (c) Identify the areas of management accounting information which are of importance in strategic management (d) Evaluate the relevance of discounted cash flow principles in information for strategic decision making (e) Select and analyse costs and revenues relevant to strategic planning and decision making in a range of situations 2 Short Run Decision Making and Control (a) Explain the significance of endogenous information sources in relation to short run decision making and control (b) Identify the characteristics of short term non-strategic activities (c) Identify the areas of management accounting information appropriate for short term decision making (d) Explain the differences between management control and operational control in the context of short run decision making and control
3 Changes in management accounting (a) Explain the contingency theory of management accounting: Otley (b) Explain how institutional theory presents a framework for understanding changes in, and the implications for, management accounting: Powell and Di Maggio 4 Trends in Management Accounting Techniques and Methods (a) Discuss the expansion in the scope of management accounting in the last 40 years (b) Identify and discuss some recently adopted management accounting techniques (c) Explain how new techniques may be evaluated (d) Discuss the ways in which management accounting practitioners are made aware of new techniques (e) Illustrate how an organisations structure, culture and strategy will influence the adoption of new methods and techniques (f) Assess the continuing effectiveness of traditional techniques within a rapidly changing business environment (g) Explain and demonstrate activity based management
5 Technological Change and Management Accounting (a) Discuss the changing accounting information needs of modern service orientated business compared with the needs of traditional manufacturing industry (b) Discuss how modern IT systems provide the opportunity for instant access to management accounting data throughout an organisation (c) Discuss how modern IT systems facilitate the remote input of management accounting data in an acceptable format by non-finance specialists (d) Explain how modern information systems provide instant access to previously unavailable data that can be used for benchmarking and control purposes (e) Discuss the need for businesses to continually refine and develop their management accounting systems if they are to prosper in an increasingly competitive and global market 6 Changes in Business Structure and Management Accounting (a) Identify the particular information needs of organisations adopting a team /project focus (b) Discuss the concept of business integration and the linkage between people, operations, strategy and technology
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(c) Explain the influence of Business Process Re-engineering on systems development (d) Identify and discuss the required changes in management accounting systems as a consequence of empowering staff to manage sectors of a business 7 System Design and System Objectives (a) Identify the accounting information requirements for strategic planning, management control and operational control and decision making (b) Describe, with reference to management accounting, ways in which the information requirements of a management structure are affected by the features of the structure (c) Evaluate the objectives of management accounting and management accounting information (d) List and explain the attributes and principles of management accounting information (e) Explain the integration of management accounting information within an overall information system (f) Define and discuss the merits of, and potential problems with, open and closed systems (g) Suggest the ways in which contingent (internal and external) factors influence management accounting and its use
(h) Illustrate how anticipated human behaviour will influence the design of a management accounting system (i) Explain and discuss the impact of responsibility accounting on information requirements 8 Internal Sources of Information (a) Identify the principal internal sources of management accounting information (b) Illustrate how these principal sources of information might be used for control purposes (c) Identify the direct data capture and process costs of internally generated management accounting information (d) Identify the indirect costs of producing internal information (e) Explain the principal controls required in generating and distributing internal information (f) Discuss the factors that need to be considered when determining the capacity and development potential of a system (g) Explain the procedures that may be necessary to ensure security of highly confidential information that is not for external consumption 9 External Sources of Information (a) Identify common external sources of information e.g. suppliers, government, trade associations, customers, database suppliers
(b) Identify the costs associated with these external sources (c) Discuss the limitations of using externally generated information (d) Identify the categories of external information that are likely to be a useful addition to an organisations management accounting system (e) Illustrate how the information might be used in planning and control activities e.g. benchmarking against similar organisations 10 Recording and Processing Information (a) Identify the stages in the information processing cycle in the context of accounting information (b) Identify how the collection and analysis of information is influenced by management accounting principles and techniques being used by the organisation (c) Describe the systems involved in the collection and recording of monetary and non-monetary information (d) Illustrate how the type of business entity will influence the recording and processing methods (e) Explain how IT developments e.g. spreadsheets, accountancy software packages and electronic mail may influence recording and processing systems (f) Discuss the difficulties associated with recording and processing data of a qualitative nature
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11 Performance hierarchy (a) Discuss the purpose of a mission statement and the pursuit of a vision (b) Discuss the structure and content of a mission statement (c) Explain how high level corporate objectives are developed (d) Identify strategic objectives and how they may be incorporated into the corporate plan (e) Explain how strategic objectives are cascaded down the organisation via the formulation of subsidiary objectives (f) Identify any relevant social and ethical obligations that should be considered in the pursuit of corporate objectives (g) Discuss the concept of the planning gap and alternative strategies to fill the gap (h) Identify the characteristics of operational performance (i) Contrast the relative significance of planning as against controlling activities at different levels in the performance hierarchy 12 Financial Performance in the Private Sector (a) Explain why the primary objective of financial performance should be concerned with the benefits of the shareholders (b) Discuss the crucial objectives of survival and business growth (c) Discuss the appropriateness of differing measures of profitability
e.g. ROCE, EPS, ROI, sales margin, EBITDA, Residual Income, NPV, IRR (d) Explain why indicators of liquidity and gearing need to be considered alongside profitability (e) Compare and contrast short and long run financial performance and the resulting management issues (f) Contrast the traditional relationship between profits and share value with the long term profit expectations of the stock market and recent financial performance of new technology/ communication companies 13 Non-Financial Performance Indicators for Business (a) Discuss the interaction of NFPIs with financial performance indicators (b) Discuss the implications of the growing emphasis on NFPIs (c) Identify and comment on the significance of NFPIs in relation to employees e.g. staff turnover, sickness rates (d) Identify and comment on the significance of NFPIs in relation to product/service quality e.g. customer satisfaction reports, repeat business ratings, customer loyalty, access and availability (e) Discuss the difficulties in interpreting data on qualitative issues (f) Discuss the significance of brand awareness and company profile
14 Performance Measurement For NonProfit Seeking Organisations (a) Discuss the potential for diversity in objectives depending on organisation type (b) Comment on the need to achieve objectives with limited funds that may not be controllable (c) Identify and explain ways in which performance may be judged in nonprofit seeking organisations (d) Comment on the difficulty in measuring outputs when performance is not judged in terms of money or an easily quantifiable objective (e) Explain how the combination of politics and the desire to measure public sector performance may result in undesirable service outcomes (f) Comment on value for money service as a not-for-profit sector goal 15 Performance A Broad Perspective (a) Comment on the need to consider the environment in which an organisation is operating when assessing its performance e.g. What are the prevailing market conditions? Is funding relatively easy or difficult to secure? Does the strength of the national currency impact on the organisation's performance? Is the prevailing political climate particularly favourable or unfavourable towards the organisation currently? How have
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these issues changed over time? (b) Consider the impact of governmental regulation on the performance measurement techniques used and the performance levels achieved (for example, in the case of utility services and former state monopolies) 16 Alternative Views of Performance Measurement (a) Discuss the balanced scorecard as a way in which to improve the range and linkage of performance measures (b) Discuss the performance pyramid as a way in which to link strategy and operations (c) Discuss the work of Fitzgerald and Moon that considers performance measurement in business services using building blocks for dimensions, standards and rewards 17 Management Behaviour and Performance (a) Explain the relationship between performance measurement systems and behaviour (b) Discuss how performance measurement systems can influence behaviour (c) Consider the accountability issues arising from performance measurement systems (d) Identify the ways in which performance measurement systems may send the wrong signals and result in undesirable business
consequences (e) Comment on the potential beneficial and adverse consequences of linking reward schemes to performance measurement (f) Explain how management style needs to be considered when designing an effective performance measurement system 18 Strategic Planning and Control (a) Compare strategic with operational planning and control (b) Explain how organisational survival in the long term necessitates consideration of life cycle issues (c) Identify the role of corporate planning in clarifying corporate objectives, making strategic decisions and checking progress towards the objectives (d) Explain the structure of corporate planning (e) Discuss the combining of strategic planning with freewheeling opportunism in a fast changing business environment (f) Comment on the potential conflict between strategic plans and short term localised decisions (g) Explain the principles of SWOT analysis (h) Explain how SWOT analysis may assist in the planning process (i) Explain the principles of the following strategic analysis models and how they may assist in the
strategic planning process: (i) Ansoff's growth vector matrix (ii) Boston Consulting Group matrix (iii) Porter's Five Forces model (j) Comment on the benefits and difficulties of benchmarking performance with best practice organisations (k) Explain how risk and uncertainty play an especially important role in long term strategic planning that relies upon forecasts of exogenous variables (l) Explain aspects of strategic management accounting in the context of multinational companies 19 Budgeting and Budgetary Control I (a) Describe the internal and external sources of planning information for an organisation (b) List the information used in the preparation of the master budget and in its functional components (c) Contrast the information used in the operation of zero based budgeting and incremental budgeting (d) Explain and illustrate the use of budgeting as a planning aid in the coordination of business activity (e) Explain and illustrate the relevance of budgeting in the coordination of business activities (f) Explain and quantify the application of positive and negative feedback in the operation of budgetary control (g) Explain and quantify the application
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of feed-forward control in the operation of budgeting 20 Budgeting and Budgetary Control II (a) Identify quantitative aids which may be used in budgetary planning and control (b) Discuss and evaluate methods for the analysis of costs into fixed and variable components (c) Give examples to demonstrate the use of forecasting techniques in the budgetary planning process (d) Explain the use of forecasting techniques in the budgetary planning process (e) Describe the use of learning curve theory in budgetary planning and control (f) Implement learning curve theory (g) Identify factors which may cause uncertainty in the setting of budgets and in the budgetary control process (h) Identify the effects of flexible budgeting in reducing uncertainty in budgeting (i) Illustrate the use of probabilities in budgetary planning and comment on the relevance of the information thus obtained (j) Explain the use of computer based models in accommodating uncertainty in budgeting and in promoting what-if analysis
21 Budgeting and Budgetary Control III (a) Identify the factors which affect human behaviour in budgetary planning and control (b) Compare and contrast ways in which alternative management styles may affect the operation of budgetary planning and control systems (c) Explain budgeting as a bargaining process between people (d) Explain the conflict between personal and corporate aspiration and its impact on budgeting (e) Explain the application of contingency theory to the budgeting process (f) Discuss the impact of political, social, economic and technological change on budgeting (g) Critically review the use of budgetary planning and control (h) Enumerate and evaluate the strengths and weaknesses of alternative budget models such as fixed and flexible, rolling, activity based, zero based and incremental (i) Identify the effects on staff and management of the operation of budgetary planning and control (j) Identify and appraise current developments in budgeting 22 Short Run Decisions I (a) Distinguish between relevant and irrelevant information using appropriate criteria (b) Identify cost classification(s) in
decision making (c) Explain how quantitative and qualitative information is used in decision making (d) Evaluate and assess the frequency, timing, format, and degree of accuracy in the provision of decision making information (e) Describe the basic decision making cycle for business decisions (f) Classify problems for the purpose of modelling into simple, complex and dynamic problems (g) Explain the relevance of endogenous and exogenous variables, policies and controls, performance measures and intermediate variables in model building (h) Explain the nature of CVP analysis and name planning and decision making situations in which it may be used (i) Compare the accounting and economic models of CVP analysis (j) Explain the assumptions of linearity and the principle of relevant range in the CVP model (k) Prepare breakeven charts and profitvolume charts and interpret the information contained within each, including multi-product situations (l) Comment on the limitations of CVP analysis for planning and decision making including multi-product situations
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23 Short Run Decisions II (a) Explain the use of avoidable cost, incremental cost, marginal cost and variable cost in decision making (b) Describe the relationship between fixed cost and the time horizon used in a decision situation (c) Explain how opportunity cost is used in making decisions (d) Identify and calculate relevant costs for specific decision situations from given data (e) Explain the meaning of throughput accounting and its use in decision making (f) Explain and illustrate the impact of limiting factors in decision making (g) Solve problems involving changes in product mix, discontinuance of products or departments (h) Explain and demonstrate activitybased customer profitability analysis (i) Make decisions as to whether to further process a product before sale using relevant costs and revenues (j) Use relevant costs and revenues in decisions relating to the operation of internal service departments or the use of external services 24 Pricing I (a) Identify and discuss market situations which influence the pricing policy adopted by an organisation (b) Explain and discuss the variables (including price) which influence
demand for a product or service (c) Explain the price elasticity of demand (d) Manipulate data in order to determine an optimum price/output level (e) Calculate prices using full cost and marginal cost as the pricing base (f) Compare the use of full cost pricing and marginal cost pricing as planning and decision-making aids 25 Pricing II (a) Calculate prices using activity based costing in the estimation of the cost element (b) Contrast and discuss the implications of prices using the activity based costing technique with those using volume related methods in assigning costs to products (c) Take informed pricing decisions in the context of special orders and new products (d) Discuss pricing policy in the context of skimming, penetration and differential pricing (e) Explain the problems of pricing in the context of short life products (f) Explain the operation of target pricing in achieving a desired market share 26 Risk and Uncertainty (a) Define and distinguish between uncertainty and risk preference (b) Explain ways in which uncertainty
may be allowed for by using conservatism and worst/most likely/ best outcome estimates (c) Explain the use of sensitivity analysis in decision situations (d) Explain the use of probability estimates and the calculation of expected value (e) Explain and illustrate the use of maximin, maximax and minimax regrets techniques in decision making (f) Describe the structure and use of decision trees (g) Apply joint probabilities in decision tree analysis (h) Illustrate the use of decision tree analysis in assessing the range of outcomes and the cumulative probabilities of each outcome 27 Transfer Pricing I (a) Describe the organisation structure in which transfer pricing may be required (b) Explain divisional autonomy, divisional performance measurement and corporate profit maximisation and their link with transfer pricing (c) Formulate the general rule for transfer pricing and explain its application (d) Describe, illustrate and evaluate the use of market price as the transfer price
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(e) Assess where an adjusted market price will be appropriate for transfer business (f) Assess the impact of market price methods on divisional autonomy, performance measurement and corporate profit maximisation (g) Calculate an appropriate transfer price from given data 28 Transfer Pricing II (a) Describe the alternative cost based approaches to transfer pricing (b) Identify the circumstances in which marginal cost should be used as the transfer price and determine its impact on divisional autonomy, performance measurement and corporate profit maximisation (c) Illustrate methods by which a share of fixed costs may be included in the transfer price (d) Comment on these methods and their impact on divisional autonomy, performance measurement and corporate profit maximisation (e) Discuss the advantages which may be claimed for the use of standard cost rather than actual cost when setting transfer prices (f) Explain the relevance of opportunity cost in transfer pricing (g) List the information which must be centrally available in order that the profit maximising transfer policy may be implemented between divisions
where intermediate products are in short supply (h) Illustrate the formulation of the quantitative model for a range of limiting factors from which the corporate profit maximising transfer policy may be calculated (i) Analyse the concept of shadow price in setting transfer prices for intermediate products that are in short supply (j) Illustrate the corporate maximising transfer policy where a single intermediate resource is in short supply and a limited external source is available and explain the information which must be available centrally in order that the transfer policy may be formulated (k) Explain and demonstrate the issues that require consideration when setting transfer prices in multinational companies 29 Long Term Decisions (a) Define and illustrate the concepts of net present value and internal rate of return (b) Calculate the net present value and internal rate of return in the evaluation of an investment opportunity (c) Explain the use of DCF techniques for decisions involving cash outlays over long periods (d) Explain the relationship between net
present value and residual income where annuity depreciation is used in the residual income calculations (e) Compare and contrast net present value with payback and accounting rate of return in the evaluation of investment opportunities.
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Paper 3.4 Business Information Management
AIM This paper aims to ensure that students can exercise judgement and technique in identifying, implementing and managing information systems as part of the strategic management of the organisation. 2.1 Information Systems OBJECTIVES On completion of this paper candidates should be able to: identify the information requirements of different levels of management and understand how information is used to support the objectives of the organisation apply a coherent approach to business analysis including the identification of the current business situation and the gap between that and the required business objectives identify and implement desirable and feasible changes resulting from business analysis prepare a detailed business case to support system changes and use the appropriate tools to support business analysis identify opportunities to use information systems to improve the competitive position of an organisation identify the impact of the development of information systems on the organisation and its environment. SYLLABUS CONTENT 1 Organisational information (a) From a business perspective an information system is an organisational and management solution, based on information technology, to any challenge posed by the environment. (b) Levels of management and types of information/system required. (c) The tasks of the manager. The requirements for effective information management. (d) Types of information system (i) strategic information systems (ii) management information systems (iii) transaction processing systems 3 IS and the strategic planning process (a) The organisation and information management (i) the business context POSITION OF THE PAPER IN THE OVERALL SYLLABUS This paper assumes the knowledge and understanding of the underpinning principles of Paper 2.1 Information Systems. 2 Knowledge management and information systems (a) Data workers and knowledge workers (i) distribute knowledge: office automation systems (ii) share knowledge: group collaboration systems (iii) create knowledge: knowledge work systems (iv) capture and codify knowledge: artificial intelligence systems. (b) Data management (i) principles of database management systems (ii) principles of datamining and data warehousing. (iv) automation and support systems (v) batch processing. 3.4 Business Information Management
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Business Information Management (Continued)
(ii) new organisational structures and information (iii) information and organisational strategy. (b) PEST analysis. (c) Strategic information systems (i) alignment (ii) using IS to create focus, support linkages and develop information leadership. (d) Porter's value chain. 4 Business systems, systems thinking and systems analysis (a) Hard systems approach (i) structured systems life-cycle (ii) deliverables from each stage. (b) Soft systems approach (i) Checklands soft systems methodology. (c) Business process engineering (i) Analysis, simplification and redesign of business processes. Radical business strategy.
(v) justification. (c) Applications portfolio / IT investment decisions: (i) portfolio analysis; risks and benefits. An analysis of the portfolio of potential applications within a firm to determine the risks and benefits and select from alternatives for IS. Scoring model (ii) determining the best fit with the current system. 6 IS and competitive position (a) SWOT analysis (i) identify drivers for change (ii) agree fundamental guiding principles governing design of change. (b) IS/IT management partnership internal/outsourcing (in all its forms), facilities management. (c) Links between business strategy and information systems strategy. 7 Electronic commerce, internet as a
integration with existing systems. 8 Implementing change (a) Implementing new systems (i) strategies for implementation (ii) managing risk at implementation. (b) Structuring the information systems function (i) managing the IT function (ii) management of change. (c) Project management. (d) Commitment, coordination and communication in change management. 9 Impact of IT on work practices (a) Using IT to manage individuals' information requirements (i) design of critical success factors (ii) identification of sources of data capture (iii) measurement of performance. (b) Impact of IS/IT on employee/ employer relations (i) shorter chain of command, flatter structures (ii) wider span of control (iii) de-skilling of operatives (iv)socio-technical design. (c) Ethical issues in Information Management. EXCLUDED TOPICS The following topics are specifically excluded from the syllabus: program design, flowcharting, object oriented design specific hardware platforms.
5 Gap analysis and business case development (a) General framework: (i) where we are (iii) going to get there WR
2
strategic business tool (a) Globalisation (i) the virtual company (ii) the Internet, intranet and extranet (iii) security issues. (b) The Internet (i) the changing world of the Internet (ii) good practice requirements, infrastructure required, change of business functions/strategy (iii) the Internet as a system,
(ii) where we want to be W32B (GT) .

2
(b) Business case development (i) rationale, cost estimation and timescales (ii) estimating benefits (iii) benefit realisation dependencies (iv) sensitivity analysis
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KEY AREAS OF THE SYLLABUS The key topic areas are as follows: information resource management business analysis information systems and competitive position information systems and the organisation. APPROACH TO EXAMINING THE SYLLABUS The examination is a three hour written paper in two sections. Section A is based on a case study. This section will have three compulsory questions from across the syllabus, which relate to the scenario. Each question will be worth between 10 to 25 marks giving a total of 60 for this section. Section B contains three independent questions, drawn from across the syllabus. Each question is worth 20 marks. The candidate must answer two questions giving a total of 40 marks for this section. Number of marks Section A: 3 compulsory scenario based questions (no single question will exceed 25 marks) Section B: Choice of 2 from 3 questions (20 marks each) 40 100 60
ADDITIONAL INFORMATION The examination will assume the use of specific and general modelling and analysis tools and techniques: PEST analysis, SWOT analysis, Porter's value chain, Checklands soft systems methodology; conceptual models, rich pictures and CATWOE. Other models which are assessable are identified in the study guide. Some answers may draw on candidates' own experience or an interpretation of a topic, within the context of their own organisation or an organisation that they are familiar with. The Study Guide provides more detailed guidance on the syllabus. RELEVANT TEXTS There are a number of sources from which you can obtain a series of materials written for the ACCA examinations. These are listed below: FTC Foulks Lynch ACCA's official publisher Contact number: +44 (0)118 989 0629. Website: www.financial-training.com/new/ foulkslynch Accountancy Tuition Centre (ATC) International Contact number: +44 (0)141 880 6469. Website: www.ptc-global.com
BPP Contact number: +44 (0)20 8740 2222. Website: www.bpp.com Candidates may also find the following texts useful: Kenneth Laudon and Jane Laudon Management Information Systems (6th Edition) Prentice Hall ISBN 0130156825 Micheal J Earl (Ed) Information Management: The Organisational Dimension, Oxford University Press Kenneth Laudon and Jane Laudon Essentials of Management Information Systems (4th Edition) Prentice Hall, 2000 ISBN 0130115061 Wider reading is also desirable, especially regular study of relevant articles in ACCA's student accountant.
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STUDY SESSIONS ORGANISATIONAL INFORMATION REQUIREMENTS 1 Levels of management (a) Distinguish between strategic, tactical and operational management and their corresponding information requirements. (b) Describe the importance of making information accessible. (c) Discuss ways of ensuring the reliability and accuracy of information, creating secure information systems and making information available at an appropriate cost. 2 Categories of information systems (a) Discuss the seven major types of Information Systems: Executive Support Systems (ESS), Management Information Systems (MIS), Decision Support Systems (DSS), Expert Systems, Knowledge Work Systems (KWS), Office Automation Systems (OAS) and Transaction Processing Systems (TPS). (b) Describe examples of each of the above in terms of an organisation's strategic business position. 3 & 4 Strategic role of information systems (a) Explain the strategic role of information systems. (b) Identify the major management challenges to building and using
information systems in organisations. (c) Describe the central and crucial role that information systems have within an organisation. (d) Evaluate information systems and the strategic planning process. (e) Identify opportunities for use in forecasting, analysing competition, scenario planning, generic strategies/ business positioning, improving performance, measuring performance, cost reduction, service improvement, sales performance, evaluating proposals. (f) Explain Earl's IS, IT and IM Strategies. 5 Ethical issues (a) Analyse the relationship among ethical, social and political issues raised by the impact of information systems. (b) Identify the major moral dimensions of an information society. (c) Apply an ethical analysis to scenarios. (d) Discuss the design of organisational policies for ethical conduct. KNOWLEDGE MANAGEMENT AND INFORMATION SYSTEMS 6 & 7 Knowledge management (a) Describe the differences between data workers and knowledge workers and the appropriate types of applications used by each. e.g. (i) Distribute knowledge: Office
automation systems (ii) Share knowledge: Group collaboration systems (iii) Create knowledge: Knowledge work systems (iv) Capture and codify knowledge: Artificial intelligence systems. 7 & 8 Data Management (a) Explain the principles of Database Management Systems (DBMS). (b) Describe the major characteristics of Integrity, Independence and Integration. (c) Discuss the difference between logical and physical data requirements. Describe Logical models; hierarchical and relational. (d) Explain the principles of Datamining and Data Warehousing. (e) Discuss Datamining as the ability to analyse large pools of data to find patterns and rules that can be used by an organisation to guide decision making and predict future behaviour. (f) Discuss Data warehousing as a database with reporting and query tools, that stores current and historical data extracted from various operational systems and consolidated for management reporting and analysis.
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IS AND THE STRATEGIC PLANNING PROCESS 9 Organisational requirements (a) Discuss the establishment of organisational information requirements. (b) Link information systems to the business plan. (c) Discuss the requirement to understand the business value of information systems. 10 Strategic Analysis (a) Evaluate the importance of Political, Economic, Social and Technological influences on organisations. PEST analysis as a tool for information systems strategic planning (b) Apply PEST analysis to scenarios (c) Explain and apply Parson's six IS strategies. (d) Apply Porter's Five Forces Model to scenarios. 11 Strategic information systems (a) Discuss the role of Strategic Information Systems, as computer systems within an organisation that enables changes to goals, processes, products, services or environmental relationships. (b) Discuss the alignment with business strategy and apply Earl's 'Three Leg Analysis'. (c) Identify ways of using IS to create Focus, support Linkages and develop Information Leadership.
(d) Identify Rockart's Critical Success Factors and describe their design. (e) Identify sources of data. (f) Identify key performance indicators and how to measure performance. 12 Strategic impact of information systems (a) Evaluate Porter's value chain. (b) Apply Porter's value chain to scenarios. BUSINESS SYSTEMS, SYSTEMS THINKING AND SYSTEMS ANALYSIS 13 Business strategy (a) Describe the stages in the development of business systems and strategies. (b) Explain the concept of business automation. (c) Explain the concept of business rationalisation. (d) Evaluate and discuss the principles of business process engineering. 14 Hard Systems approach (a) Evaluate the structured systems lifecycle emphasising the deliverables from each stage, clarifying the importance of these from a management perspective. 15 & 16 Soft Systems approach (a) Evaluate the principles of Checklands soft systems methodology. (b) Apply the major tools employed in Checklands soft systems methodology: Root definitions,
CATWOE, rich pictures, conceptual models. (c) Differenciate between Hard Systems and Soft Systems approaches. GAP ANALYSIS AND BUSINESS CASE DEVELOPMENT 17 Business analysis (a) Discuss the need for a general framework in the development of a business case: Where we are Going to get there W2R (GT)2 Where we want to be W32B (b) Discuss Business Analysis vs. Systems Analysis in terms of: A framework for business analysis, exploring and expressing problem situations, understanding what people do and why they do it, modelling the current situation, introduce the notion of Gap Analysis, modelling the required situation. Apply Earl's Systems Audit Grid and Peppard's Strategic Grid. 18 Business case development (a) Discuss the major elements of a business case development concentrating on the strategic issues of: estimating costs and timescales, estimating benefits, benefit realisation dependencies, sensitivity analysis, and business justification.
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19 Gap analysis (a) Discuss applications portfolio/IT investment decisions. (b) Evaluate Portfolio analysis; Risks and benefits. Analyse the portfolio of potential applications within a firm to determine the risks and benefits and select among alternatives for IS. Scoring model. (c) Describe determining the best fit with the current system.
change, agree guiding principles, infrastructure standards and planning. (b) Discuss the potential advantages and disadvantages of IS/IT management partnership - internal/ outsourcing (in all its forms), facilities management. (c) Evaluate advantages of package solutions versus bespoke solutions. ELECTRONIC COMMERCE, INTERNET AS
markets, global work groups, and global delivery systems. (c) Explain the Virtual Supply Chain (VSC). (d) Discuss Electronic Marketing. IMPLEMENTING CHANGE 24 Success and failure (a) Identify major problem areas when implementing information systems. (b) Apply organisational impact analysis. (c) Identify the criteria needed to assess whether a system is successful. (d) Describe the principle causes of information system failure and how to overcome them. (e) Discuss problems of implementation: people-oriented theory, system oriented theory, and interaction theory. (f) Describe the relationship between the implementation process and the system outcome (g) Explain and apply Lewin's Three Stage change process. 25 Managing change (a) Discuss the appropriate strategies to manage the implementation process. (b) Discuss formal planning control framework and tools. (c) Evaluate the impact of alternative system building techniques and tools. (d) Explain how to manage risk. (e) Understand the importance of having a process to manage change in an
IS AND COMPETITIVE POSITION 20 Competitive position analysis (a) Evaluate Strengths, Weaknesses, Opportunities and Threats (SWOT analysis) as a technique for identifying opportunities for information systems development. (b) Apply SWOT analysis to scenarios (c) Apply Mclaughlin et al's possible SWOT responses to scenarios. (d) Relate McFarlane's model to the BCG matrix (e) Describe and explain Nolan's Stage Hypothesis and Zuboff's Automate, Informate, Transformate model. 21 Linking business strategy and information systems strategy (a) Identify and discuss the links between Business Strategy and Information Systems Strategy using IS/IT as an enabler: analysis of external (competitive) environment, SWOT output, identify drivers for
A STRATEGIC BUSINESS TOOL 22 Web based technology (a) Discuss the business impact of the Internet. (b) Identify good practice requirements, infrastructure requirements, and changes of business functions/ strategy. (c) Understand the Internet as a system. (d) Explain how to integrate with existing systems. (e) Discuss and describe the uses of an extranet and an intranet. (f) Evaluate the problems associated with using web based technology and the issue of security. 23 Electronic commerce (a) Discuss the impact of globalisation on business strategy. (b) Describe the implications of globalisation in terms of: management and control in a global marketplace, competition in world
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organisation. Boehm's Spiral Model. (f) Explain the importance of commitment, coordination and communication in the change process. IMPACT OF IT ON WORK PRACTICES 26 Individuals information requirements (a) Discuss the use of IT to manage individuals information requirements. (b) Identify how information systems can support the tasks of the manager. 27 Employee/employer relations (a) Discuss the impact of IS/IT on employee/employer relations in terms of: Shorter chain of command, flatter organisational structures, wider span of control, de-skilling of operatives (b) Describe the concept of SocioTechnical design in respect to employee/employer relations. (c) Discuss the organisational development issues resulting from the need to develop and implement information systems. 28 Revision
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Paper 3.5 Strategic Business Planning and Development

AIM To ensure that candidates can exercise judgement and technique in strategic business management to enable them to contribute to the formulation of business strategy, the development of products and services and the maintenance of quality throughout the organisation. OBJECTIVES On completion of this paper candidates should be able to: identify and apply the principal concepts and ideas in the theory and practice of strategic management understand the internal and external factors affecting an organisation and apply this knowledge to evaluate its strategic position identify appropriate strategies based on the evaluation of the organisations objectives and position identify the appropriate methods of implementing chosen strategies and evaluate their impact on organisational structures and operations understand the impact of globalisation on strategic business planning integrate knowledge effectively and use it creatively in applying concepts and techniques analyse, interpret and apply data and information and present reasoned conclusions communicate analyses and conclusions effectively for different purposes and Paper 3.5 develops parts of the knowledge gained in Paper 1.1 and 1.2 by applying and interpreting financial information for strategy evaluation and strategy recommendation giving more emphasis on pricing policies and procedures examining performance measurement criteria. Paper 3.5 builds upon the knowledge obtained in Paper 1.3 by reinforcing the importance of recruitment and selection processes and procedures examining the importance of training and development and motivation within a strategic context providing a more strategic view of human resource issues extending the coverage of work organisations. In Paper 3.4 Business Information Management there will be related material on information resource management and information systems and competition. In Paper 3.3 Performance Management there will be strong relationships with areas on performance measurement and decision-making. contrasting audiences with due emphasis on social expectations. POSITION OF THE PAPER IN THE OVERALL SYLLABUS Candidates should have a sound understanding of Paper 1.1 Preparing Financial Statements and 1.2 Financial Information for Management, Paper 1.3 Managing People and Paper 2.1 Information Systems. The information in these papers will provide some of the basic material for strategy analysis and development. In Paper 3.1 Audit and Assurance Services there will be links with professional and ethical considerations. Although much of the knowledge gained in Part 3 will be specific to the individual papers, Paper 3.5 will, by its very nature, provide integration with most of the other papers at this level. Paper 3.5 develops parts of the knowledge obtained in Paper 2.1 by reinforcing the knowledge of managing information systems at a strategic level.
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Strategic Business Planning and Development (Continued)
In Paper3.7 Strategic Financial Management there will be relationships with objectives and corporate governance, strategy formulation and the global economic environment. SYLLABUS CONTENT 1 Models of strategic management (a) What is strategic management? (i) corporate strategy (ii) business strategy. (b) Why is strategic management important? (c) The process, content and context of strategic management. (d) Process of strategy development (i) deliberate or prescriptive strategies (ii) emergent and incremental strategies. (e) Strategic content (i) strategic analysis (ii) strategic choice (iii) strategic implementation. (f) Strategic management in different contexts (i) configuration (ii) culture. 2 External environmental scanning (a) Analysis of the general environment (i) PESTEL analysis (ii) Porters diamond (iii) forecasting and scenarios. (b) Analysis of the customers and markets marketing research. (c) Analysis of the competitive environment
(i) five forces model (ii) competition and collaboration (iii) competitor intelligence for business advantage (iv)sustainable competitive advantage and critical success factors. 3 Internal assessment (a) Resource audit. (b) Analysis of capabilities and core competences. (c) Adding competitive value value chain and value system (d) Analysis of human resources (e) Analysis of financial resources (f) Analysis of operations resources. 4 The nature of strategy analysis and choice (a) The purpose of the organisation (i) stakeholder expectations (ii) cultural context (iii) mission, objectives and strategic intent. (b) Developing the strategy (i) alternative directions for strategy development resource based market based finance based (ii) methods of strategy development internal development strategic alliances mergers and acquisitions. (c) Strategy evaluation and selection (i) analysis of suitability, feasibility and acceptability
(ii) corporate/ business strategy selection. 5 The nature of strategy implementation (a) Marketing issues (i) segmentation, targeting and positioning (ii) strategies for market leaders, followers, challengers and nichers (iii) development and application of marketing mix strategies. (iv) e-business, e-commerce and emarketing (b) Finance issues (i) performance evaluation (ii) funding the implementation and the resource allocation. (c) Research and Development issues (i) management of innovation (ii) management and control of quality. (d) IS/ IT issues (i) IT/ IS as a strategic resource (ii) the strategic management of information systems in business development. (e) Strategic HR issues (i) recruitment and selection (ii) motivation and discipline (iii) appraisal and performance evaluation (iv) staff training and development. (f) Project management issues (i) the project life cycle (ii) objectives of project management (iii) estimation of resource requirements (iv) tools and techniques of project
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management. (g) Management of change issues (i) understanding the types of strategic change and their causes (ii) development of a strategic change programme power influence culture influence (iii) management roles in the strategy change process (iv) managing the strategic change process. 6 Matching structures with strategy (a) Types of organisation structures (i) simple (ii) functional (iii) divisional (iv) matrix (v) multinational (vi) global (vii) strategic business unit. (b) Centralisation versus decentralisation. (c) Organisational configurations. 7 The nature of global competition (a) The role of traditional international marketing. (b) The development of the global business (i) market convergence (ii) cost advantages (iii) government pressures (iv) currency volatility and trade barriers (v) the emergence of global competition. (c) Global strategies
(i) standardisation versus customisation (ii) product positioning (iii) channel management (iv) the development of global brands. (d) Managing a global company (i) ethnocentric, polycentric or geocentric orientation (ii) cross cultural management and leadership. (e) Reaching global customers (i) international marketing research (ii) international market segmentation. 8 Outcomes of the strategic management process (a) Corporate versus business performance (b) Sustainable competitive advantage (c) A learning organisation (d) Alternative performance measures: (i) financial (ii) non financial (iii) strategic. 9 Ethical considerations (a) The importance of social responsibility. (b) Corporate governance. (c) The attitude towards ethics on national and global scales. EXCLUDED TOPICS The syllabus content outlines the areas for
assessment. No areas of knowledge are specifically excluded from the syllabus. KEY AREAS OF THE SYLLABUS Although all the syllabus will be examined in some form, the core areas will be focused on the strategy formulation process. This comprises the identification of corporate objectives, strategic analysis, including internal and external reviews, strategy development, evaluation and implementation. APPROACH TO EXAMINING THE SYLLABUS Primarily the subject Strategic Business Planning and Business Development will be considered at the strategic level. All aspects will be considered in terms of practical application. Wherever possible the subject will be integrated and not considered as a collection of isolated topics. Operational activities will only be introduced where they impinge upon strategic considerations, such as IT and human resource management. The examination is a three hour paper in two sections. Section A will be in the format of one major case study, usually with four question parts. This will be compulsory and will focus on the core material, previously described, although other aspects of the syllabus could be introduced here. Questions will be mainly
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discursive but there will usually be some financial or other quantitative data included here to be analysed. Candidates are expected to closely relate all their answers to the case scenario. Section B will consist of a choice of two questions, each of two parts, from a total of three available. They will not be linked to the compulsory case scenario, but may include short scenarios to be discussed in context. Number of Marks Section A: One compulsory question Section B: Choice of 2 from 3 questions (20 marks each) 40 100 ADDITIONAL INFORMATION The Study Guide provides more detailed guidance on the syllabus. RELEVANT TEXTS There are a number of sources from which you can obtain a series of materials written for the ACCA examinations. These are listed below: FTC Foulks Lynch ACCA's official publisher Contact number: +44 (0)118 989 0629. Website: www.financial-training.com/new/ foulkslynch 60
Accountancy Tuition Centre (ATC) International Contact number: +44 (0)141 880 6469. Website: www.ptc-global.com BPP Contact number: +44 (0)20 8740 2222. Website: www.bpp.com Candidates may also find the following texts useful: Johnson and Scholes Exploring Corporate Strategy (7th edition) Prentice Hall Europe ISBN 0273687344 Grant Contemporary Strategy Analysis: Concepts, Techniques, Applications (4th Edition) Brackwell Publisher ISBN 0631231366 Other texts which may be useful to candidates: Joyce and Woods Strategic Management Kogan Page ISBN 0749435836 Wilson and Gilligan Strategic Marketing Planning (2nd edition) ButterworthHeinemann ISBN 0750622466 Wider reading is also desirable, especially regular study of relevant articles in ACCA's student accountant. Additional student support at www.booksites.net/ecs
STUDY SESSIONS OVERVIEW OF STRATEGIC MANAGEMENT 1 Introduction to strategic management (a) Strategic managment defined (i) corporate strategy understand the strategic perspective evaluate the overall purpose and scope describe the expectations of owners describe the expectations of stakeholders explain the concept of added value (ii) business strategy be aware of the role of business units identify market competition (b) The importance of strategic management (i) define strategy and strategic thinking (ii) differentiate between policy, strategy, tactics (iii) understand the need for a long term view (iv) define long term objectives (v) explain controlling the future (vi) understand long term efficiency (c) The process, content and context of strategic management (i) describe the present position of
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the organisation (ii) understand the external environment (iii) understand the organisation at present (iv)evaluate where does the organisation want to be (v) demonstrate how is the organisation going to get there (d) The process of strategy development (i) identify deliberate strategies (ii) identify prescriptive strategies (iii) identify emergent and incremental strategies (iv) understand strategic planning and strategic management 2 The rational model (a) strategic analysis (i) assess the strategic position (ii) evaluate expectations and influence of stakeholders (b) strategic choice (i) define underlying influences which guide strategy (ii) evaluate strategic options (iii)understand evaluation and selection procedures (c) strategic implementation (i) define resource planning (ii) define corporate strategy (iii) define business strategy (iv) define operational and financial strategy
3 Strategic management in context (a) Strategic configuration (i) understand logical incremental model (ii) understand rational command model (iii) understand cultural political influences (iv) understand political choice 4 Culture (a) Define the meaning of culture (b) Understand the determinants of culture: Schein (c) Describe the cultural web: Johnson and Scholes (d) Link culture with structure (e) Discuss models of culture: Handy, Miles and Snow, Peters and Waterman, Mintzberg (f) Understand changing organisational culture: Kanter, Lewin (g) Evaluate the link between culture and strategic leadership (h) Identify regional and national culture 5 External environmental scanning (a) Analysis of the general environment (i) PESTEL analysis be aware of the social impact on the organisation be aware of the legal issues and implications be aware of the role and influence of the economy be aware of the political environment
be aware of the impact of technology be aware of complexity, dynamism and uncertainty understand systems thinking analyse the organisation as an open system understand the focal zone analysis (ii) Porters diamond explain firm strategy, structure and rivalry explain demand conditions explain factor conditions explain related and supporting industries (iii) forecasting and scenarios understand strategic life cycles understand statistical forecasting techniques understand the delphi technique understand scenario planning 6 Analysis of customers, markets and marketing research (a) Explain aggregate and sectoral concentration (b) Understand customer behaviour (c) Understand the principles of marketing research (d) Explain market research as a component of marketing research (e) Discuss social change and social trends (f) Discuss demographic factors (g) Discuss population size (h) Discuss demographic change (i) Discuss social structure
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(j) Discuss economic change (k) Analysis of the competitive environment (i) the five forces model understand the general model discuss intensity of rivalry among existing competitors discuss bargaining power of suppliers discuss bargaining power of buyers discuss the threat of new entrants discuss the threat of substitutes evaluate the weaknesses of the model explain the threat of potential entrants understand the connection with market structure discuss the role of government and regulation (ii) competition and collaboration review government regulation discuss the competition commission compare different market environments discuss cartels, oligopolies (iii) e-business, e-commerce and emarketing environmental change strategic capability e-marketing mix
7 Competitor intelligence for business advantage (a) Understand the portfolio analysis approach (b) Describe the Boston Consulting Group model (c) Describe the Shell directional policy matrix/nine cell grid (d) Understand the importance of understanding portfolio analysis (e) Understand the product life cycle (f) Explain competitor benchmarking (g) Explain competitive positioning grid (h) Sustainable competitive advantage (i) define competitive advantage (ii) explain competitive advantage (iii) discuss generic strategies (Porter) (iv)understand different approaches by management (v) evaluate branding, patents, copyrights and trademarks (vi) identify national advantage (Porter) (vii) evaluate the strategic role of the marketing mix (i) Critical success factors (i) define how to measure success (ii) compare actual and relative success factors (iii) compare efficiency and effectiveness (iv) evaluate financial measures (v) contrast the expectations of stock holders and shareholders (vi)discuss quality issues
(vii) evaluate success measurement for non profit making organisations 8 Internal assessment (a) Resource audit (i) identify the quality, nature and extent of available resources (ii) identify physical, human and financial resources (iii) identify intangible resources (iv) understand unique resources and competitive advantage (v) evaluate internal control systems (vi) analyse departmental organisation (b) Analysis of capabilities and core competencies (i) formulate a SWOT analysis (ii) interpret a SWOT analysis (iii) describe the product life cycle (iv) understand the seven S approach (v) demonstrate threshold competencies (vi) demonstrate core competencies (vii) identify appropriate markets (viii) review quality and reliability (ix) explain product attributes 9 Adding competitive value (a) Understand the value chain (i) link the value chain with organisational structure (ii) explain the value system (iii) discuss product and market
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differentiation (iv) identify sources of differentiation (v) assess innovation (vi) understand technical development (vii) identify new target markets (viii) identify new distribution channels (ix) identify new market segments (x) be aware of sudden environmental shocks 10 Human resource management (a) Analysis of human resources (i) understand skills and competencies (ii) discuss workforce adaptability (iii) assess innovative capability (b) Analysis of operations resources (i) evaluate the availability of resources (ii) understand management information and control systems (iii) understand production control systems (iv) understand process control (v) describe resource utilisation and costs 11 Finance resource management (a) Analysis of financial resources (i) understand financial control systems (ii) understand capital structure (iii) understand liquidity and gearing (iv)define the balanced scorecard":
Kaplan and Norton
profit (xi) explain the economist concept of profit
PURPOSE OF ORGANISATIONS 12 The nature of strategy analysis and choice (a) Stakeholder expectations (i) understand stakeholder power and influence (ii) be able to carry out stakeholder mapping: Mendelow (b) The cultural context (i) identify national and local culture (ii) understand organisational culture and objectives 13 Corporate mission and strategic objectives (a) Mission, objectives and strategic intent (i) define policy, strategy and tactics (ii) define strategic vision (iii) define the mission statement (iv) define strategic intent: Hamel and Prahalad (v) define strategic scope (vi) state implicit and explicit objectives (vii) evaluate the prime organisational objective (viii) evaluate the organisations policy (ix) understand marginalist theories of organisational objectives (x) explain the accounting concept of
(xii) explain behaviourist theories of organisational (xiii) identify the expectations of the owners (xiv) evaluate the role of stakeholders 14 Developing the strategy (a) Alternative directions for strategy development evaluate PIMS analysis (i) understand resource based (ii) understand product value and development (iii) explain withdrawal strategy (iv)explain consolidation strategy (v) explain market based strategy (vi) explain market development and extension strategy (vii) explain market penetration strategy (viii) explain market positioning strategy (ix) understand growth vector analysis: Ansoff (x) define the planning gap (xi) define finance based strategies (xii) understand the role of the budgetary process
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15 Methods of strategy development (a) Ccompare level one and level two strategies (b) Evaluate internal development (c) Evaluate organic growth: Greiners growth model (d) Analyse joint ventures and strategic alliances (e) Review mergers and acquisitions (f) Define concentric and conglomerate diversification (g) Define forward and backward integration (h) Be aware of the problems of diversification and acquisition 16 Strategy evaluation and selection Analysis of Suitability, feasibility and acceptability. (a) Suitability (i) understand life cycle analysis (ii) understand life cycle/portfolio matrix (iii) assess resources and competencies (iv) discuss business profile analysis (v) understand strategy screening (vi) be aware of decision trees (b) Feasibility (i) explain funds flow analysis (ii) explain break even analysis (iii) explain resource deployment analysis (c) Acceptability (i) identify and justify expected
performance outcomes (ii) review profitability analysis (iii) review cost-benefit analysis (iv) review risk analysis (v) evaluate shareholder value (vi) assess expectation of stakeholders (d) Corporate and business strategy selection (i) formulate the role of planning (ii) carry out a formal evaluation (iii) analyse enforced choice (iv) differentiate learning from experience (v) be aware of dominant stakeholder selection 17 The nature of strategy implementation (a) Marketing issues (i) segmentation, targeting and positioning (ii) understand strategic group analysis (iii) define strategic groups and strategic space (iv) describe market segmentation analysis (v) explain segmentation by factor, market or organisation (vi) describe targeting (vii) distinguish between product and market positioning (b) Strategies for market leaders, followers, challengers and nichers (i) understand the strategic clock:
Bowman (ii) understand the market options matrix (iii) understand price based strategies (iv) understand added value and differentiation strategies (v) explain hybrid strategy (vi) define focused differentiation 18 Development and application of marketing mix strategies (a) Discuss product strategy (b) Discuss price strategy (c) Discuss place strategy (d) Discuss promotion strategy 19 Strategic support functions (a) Finance issues (i) performance evaluation explain ratio analysis be aware of financial measures understand ROCE, ROI, profitability apply balanced scorecard (ii) funding the implementation and allocation resources explain financial sources explain capital allocation explain shareholders' funds (b) Research and Development issues (i) management of innovation assess the role of research and development in strategy evaluate acquisition of new
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technologies discuss exploitation of existing technologies discuss innovation and existing products discuss innovation and new products explain innovation and intrapreneurship (ii) management and control of quality discuss the role of quality in strategy describe quality procedures explain quality assurance explain total quality management (c) IS/IT issues (i) IS/IT as a strategic resource understand organisation and control of the information strategy define usefulness and application of information technology assess monitoring advances and changes in information technology describe current good practice describe costs and benefits discuss information and organisational structure 20 Human Resource management (a) Recruitment and selection (i) define the strategic role of human resources
(ii) formulate the strategic human resource plan identify and evaluate appropriate recruitment strategies (iii) advise on succession planning (b) Motivation and discipline (i) understand the appropriate motivational and supportive policies (ii) describe the links between organisational objectives, appraisal, reward and motivation (c) Appraisal and performance evaluation (i) assess organisational and individual objectives (ii) assess appraisal methods (iii) discuss appraisal and competence assessment (iv) staff training and development strategies (v) understand the importance of the management of change (vi) describe the management of diversity (vii) evaluate the role of teamworking and empowerment in pursuit of business objectives 21 Project management (a) Define the project life cycle (i) understand the objectives of project management (ii) make an estimation of resource requirements (iii) assess the efficient use of resources (iv) understand operational research
procedures (b) Tools and techniques of project management (i) understand statistical approaches (ii) describe statistical process control (c) Operations management (i) assess the strategic significance of operations (ii) link operations management and strategy (iii) understand purchasing and inbound logistics (iv) evaluate the manufacturing processes (v) understand distribution and outbound logistics (vi) describe quality and quality regimes (vii) have knowledge of just-in-time supply management (viii) discuss business process reengineering 22 Management of change (a) Assess the motivation to change (b) Evaluate attitudes to change (c) Link together culture and change (d) Understand the managing of change: Lewin, System Intervention Strategy (e) Process of understanding types of strategic change and their causes (i) identify external environmental change and shocks (ii) identify internal environmental change
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(iii) understand business relationships (iv) understand transformational change (v) discuss enforced change (vi) identify technological change (vii) evaluate people issues (f) Development of a strategic change programme (i) describe the Gemini 4Rs framework (ii) describe force field analysis (iii) describe power influence (iv) understand culture influence (g) Management roles in the strategy change process (i) understand the importance of communication and education (ii) evaluate collaboration (iii) evaluate intervention (iv) assess the importance of direction (v) describe routine change (h) Managing the strategic change process (i) evaluate changing identity of the organisation (ii) understand co-ordination and transition (iii) appreciate the need for control (iv)describe the role of change strategists (v) describe the role of change implementers (vi) describe the role of change recipients
ORGANISATIONAL STRUCTURE 23 Matching structures with strategy (a) Types of organisation structures (i) understand the determinants of structure (ii) evaluate the meaning of structure (iii) describe the simple organisation (iv) describe the entrepreneurial organisation (v) describe the functional organisation (vi) describe the divisional organisation (vii) describe the matrix organisation (viii) describe the multinational (ix) describe the global (x) understand the holding company (xi) evaluate the role of the strategic business unit (xii) assess intermediate and variations in structure (xiii) discuss advantages and appropriateness of different structures (xiv) understand the process stage towards globalisation Kenichi Ohmai, Keegan (b) Centralisation versus decentralisation (i) evaluate issues in organisational structural change (ii) understand organic and mechanistic structures: Burns and Stalker (iii) describe contingency theory (iv) describe the virtual organisation (c) Organisational configurations
(i) compare structural configurations: Mintzberg (ii) make a comparison of organisational types INTERNATIONAL BUSINESS 24 The nature of global competition (a) The internationalisation of business (i) understand the motivations behind internationalisation (ii) be aware of the concept of globalisation as distinct from international marketing (iii) discuss the competitive advantage of nations: Porter (iv) understand absolute advantage and comparative advantage (v) evaluate implications for organisational success (vi) explain internationalisation strategies (vii) understand single markets and trading blocks (viii) explain multinational organisations: Bartlett and Ghoshal (b) The development of the global business (i) discuss market convergence (ii) explain cost advantages (iii) explain government pressures (iv) understand currency volatility and trade barriers (v) understand purchasing power parity (vi) understand the emergence of
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global competition 25 Global strategies (a) Evaluate market entry strategies (i) Compare standardisation versus customisation (ii) Understand product positioning (iii) Discuss international channel management (iv) Analyse the development of global brands (b) Managing a global company (i) describe the international planning process (ii) assess ethnocentric, polycentric and geocentric orientation (iii) explain cross cultural management and leadership (c) Reaching global customers (i) international marketing research be able to assess value of published statistics discuss comparability and reliability of data assess national and local information sources evaluate field sales force (ii) international market segmentation understand the following: geographic ethnic economic technological capability
26 Outcomes of the strategic process (a) Corporate and business performance (i) discuss sustainable competitive advantage (ii) evaluate critical success factors (b) A learning organisation (i) assess shared purpose and vision (ii) understand challenging experiences (iii) explain the holistic view (c) Alternative performance measures (i) understand performance standards (ii) utilise financial indicators (iii) utilise non financial indicators (iv) formulate strategic success measurements; Peters and Waterman's excellence attributes (d) Strategic failure (i) assess strategic drift: the Icarus Paradox (ii) understand indicators of failure (iii) analyse weak or inappropriate strategic leadership (iv) discuss Z scores: Altman 27 Ethical considerations (a) The importance of social responsibility (i) evaluate the meaning of social responsibility (ii) discuss corporate social responsibility (iii) review business ethics (iv)review ethical dilemmas (b) Corporate governance
(i) assess corporate conduct (ii) assess the governance framework (iii) discuss governance change (iv)distinguish between rights, duties and expectations of stakeholders (v) understand the role of executive and non-executive directors (vi)differentiate between functions of a chairman and those of a chief executive officer or managing director (c) The attitude towards ethics on national and global scales (i) the ethical stance (ii) discuss at the national and international level (iii) explain at the corporate level (iv) explain at the the manager level (v) evaluate the cultural context
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Paper 3.6 Advanced Corporate Reporting (INT)

AIM To ensure that candidates can exercise judgement and technique in corporate reporting matters encountered by accountants and can react to current developments or new practice. OBJECTIVES On completion of this paper candidates should be able to: explain and evaluate the implications of an accounting standard or proposed accounting standard for the content of published financial information explain and evaluate the impact on the financial statements of business decisions explain the legitimacy and acceptability of an accounting practice proposed by a company prepare financial statements for complex business situations analyse financial statements and prepare a report suitable for presentation to a variety of users evaluate current practice in the context of the needs of users and the objectives of financial reporting evaluate current developments in corporate reporting in the context of their practical application, implications for corporate reporting, and the underlying conceptual issues and demonstrate the skills expected in Part 3. SYLLABUS CONTENT 1 The International Accounting Standard Board's (IASB) regulatory framework (a) International Financial Reporting Standards, International Accounting Standards, Exposure Drafts, Discussion Papers, Standard Interpretations Committee and International Financial Reporting The paper complements the skills acquired in studying the other core papers in Part 3 of the ACCA examination structure. POSITION OF THE PAPER IN THE OVERALL SYLLABUS This paper is the final assessment of the candidates' skills in the area of corporate reporting. The paper builds on the technical skills studied in Paper 1.1 Preparing Financial Statements and Paper 2.5 Financial Reporting by requiring candidates to demonstrate the high level technical and evaluatory skills expected of an accountant. Interpretations Committee pronouncements, including accounting for equity and liabilities, assets, provisions and contingencies, segments, related parties, financial instruments, taxes, leases, retirement benefit costs. (b) The content of the IASB's regulatory framework in a given range of practical situations. (c) The problems associated with the IASB's regulatory framework including measurement and recognition issues. (d) The impact of current and proposed regulations on the financial statements of an entity. (e) The effect of business decisions and proposed changes in accounting practice by the entity on the financial statements. (f) The legitimacy of current accounting practice and its relevance to users of corporate financial statements. 1.1 Preparing Financial Statements 2.5 Financial Reporting 2.6 Audit and Internal Review
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Advanced Corporate Reporting (INT) (Continued)
2 Preparation of the financial statements of complex business entities (a) The financial statements of complex groups including vertical and mixed groups. (b) Group cash flow statements. (c) Accounting for group reorganisations and restructuring including demergers, take-overs and group schemes. (d) Accounting for foreign currency transactions and entities. 3 Preparation of reports for external and internal users (a) Appraisal of financial and related information, the purchase of a business entity, the valuation of shares and the reorganisation of an entity. (b) Appraisal of the impact of changes in accounting policies and the regulatory framework on shareholder value. (c) Appraisal of the business performance of the entity including quantitative and qualitative measures of performance and the potential for corporate failure. (d) The assessment of the impact of price level changes and available methods of valuation on business decisions and performance. (e) The effectiveness of corporate governance within an entity. 4 Current issues and developments (a) The accounting impact of environmental, cultural and social factors on the entity.
(b) The impact of the content of financial statements on users including changes in design and content of interim and year-end financial statements and alternate ways of communicating results to users. (c) Proposed changes in the structure of national and international regulation and the impact on global harmonisation and standardisation. (d) The applicability of the IASB's regulatory framework to small and medium sized entities. (e) Current developments in corporate reporting. 5 Ethical considerations (a) Ethics and business conduct. EXCLUDED TOPICS The syllabus content outlines the areas of assessment. No areas of knowledge are specifically excluded from the syllabus. Please refer to the list of examinable documents set out in the exam notes. KEY AREAS OF THE SYLLABUS Key topic areas are as follows: group accounting, group cash flow statements and foreign currency translation discussion papers, exposure drafts, International Accounting Standards and International Financial Reporting
Standards problems with current International Accounting Standards and International Financial Reporting Standards and the impact of changes therein on the entity preparation of reports in an advisory capacity including share valuation, and purchase of a business changes in organisational structure, reconstructions, demergers, etc. problems with the business including financial analysis and measurement of corporate performance environmental and social accounting and the impact of culture statements in financial reports concerning operating performance (management discussion and analysis) the move to the use of International Financial Reporting Standards current issues. The main thrust of the syllabus will be the preparation of a set of group financial statements, advising clients on current standards and changes therein, reporting business performance including environmental and social reporting and appraising current issues. It is important to realise that other areas of the syllabus will be also examined. APPROACH TO EXAMINING THE SYLLABUS The examination is a three hour paper
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divided into two sections. Section A will normally comprise one compulsory question on group financial statements including group cash flows and foreign currency translation. This question will be technically demanding and could have a discursive element in it. Section B will comprise four questions out of which candidates should select three questions. These questions will involve advising, discussing and reporting on issues and topics in corporate financial reporting. The questions will view the subject matter from the perspective of the preparer of financial statements and from the perspective of the accountant as an advisor. Invariably a technical understanding of the subject matter will be required and candidates will have to apply their knowledge to given cases and scenarios. Advice as to current and future reporting requirements and their impact on reported corporate performance will be an important element of these questions. Additionally current issues and developments in financial reporting will be examined on a discursive basis. Number of marks Section A: One compulsory question Section B: Choice of 3 from 4 questions (25 marks each) 75 100 25
ADDITIONAL INFORMATION Candidates need to be aware that questions involving knowledge of new examinable regulations will not be set until at least six months after the last day of the month in which the regulation was issued. The Study Guide provides more detailed guidance on the syllabus. Examinable documents are listed in the Exam Notes section of student accountant.
Reporting Standards (IFRS) Workbook: Standard Outlines, Multiple-Choice Questions and Case Studies with Solutions (2005) John Wiley & Sons Inc, UK (ISBN: 0-4716-9742-7) Wider reading is also desirable, especially regular study of relevant articles in ACCA's student accountant. The web site of the International
RELEVANT TEXTS There are a number of sources from which you can obtain a series of materials written for the ACCA examinations. These are listed below: FTC Foulks Lynch ACCA's official publisher Contact number: +44 (0)118 989 0629. Website: www.financial-training.com/new/ foulkslynch Accountancy Tuition Centre (ATC) International Contact number: +44 (0)141 880 6469. Website: www.ptc-global.com BPP Contact number: +44 (0)20 8740 2222 Website: www.bpp.com Candidates may also find the following text useful: Abbas Ali Mirza, Graham Holt, Magnus Orrell, Liesel Knorr International Financial
Accounting Standards Board is a useful source of information (www.iasb.org).
STUDY SESSIONS 1 Overview of the role of the International Accounting Standards Board (IASB) (a) Discuss the nature of the changing role of the IASB (b) Describe the applicability of International Accounting Standards and International Financial Reporting Standards for small companies (c) Discuss the solutions to differential financial reporting both nationally and internationally 2 Management Discussion and Analysis (a) Prepare reports relating to corporate performance for external shareholders
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3 Group financial statements I (a) Review the basic principles of acquisition accounting (b) Explain and illustrate the principles of measurement relating to the fair value of the consideration and the net assets acquired (c) Discuss the nature of acquisitions achieved in stages (d) Prepare consolidated financial statements where control is established by an acquisition in stages (e) Account for complex group structures 4 Group financial statements II (a) Explain and illustrate the basic principles relating to the disposal of group companies (b) Discuss and illustrate the treatment of goodwill (c) Apply the principles of accounting for partial and deemed disposals 5 Group re-organisations and restructuring (a) Discuss the creation of a new holding company (b) Explain changes in the ownership of companies within a group (c) Discuss the nature of demergers and divisionalisation (d) Prepare group financial statements after re-organisation and reconstruction (e) Appraise the benefits of reorganisation and restructuring
6 Associates and joint ventures (a) Account for associates and joint ventures (b) Apply the equity and proportionate consolidation methods of accounting (c) Prepare group financial statements including accounting for associates and joint ventures (d) Evaluate current standards for reporting interests in joint ventures and similar arrangements 7 Foreign currency (a) Discuss the recording of transactions and retranslation of monetary/nonmonetary items at the balance sheet date for individual entities (b) Account for the treatment of exchange differences re the above (c) Discuss the nature of the accounting for foreign entities (d) Account for a net investment in a foreign entity (e) Prepare group financial statements incorporating a foreign subsidiary/ associate (f) Discuss problem areas in foreign currency transactions for individual and group companies (g) Discuss the nature of financial reporting in hyperinflationary economics 8 Group cash flow statements (a) Discuss the usefulness of cash flow information (b) Prepare group cash flow statements
classifying cash flows by standard headings and including acquisition and disposal of subsidiaries (c) Deal with associates, joint ventures and foreign currencies 9 Non current assets I (a) Discuss the nature of impairment and the impairment review (b) Apply the impairment review and deal with losses on assets (c) Discuss and apply the principle of 'held for sale' non-current assets and 'disposal groups' 10 Non current assets II (a) Account for revaluation gains and losses and the depreciation of revalued assets (b) Account for the disposal of revalued assets (c) Discuss the effect of revaluations on realised profits (d) Account for investment properties including fair value and cost models, and definitional issues 11 Financial instruments I (a) Account for debt instruments, equity instruments and the allocation of finance costs (b) Account for fixed interest rate and convertible bonds (c) Discuss the definition and classification of a financial instrument 12 Financial instruments II
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(a) Discuss the measurement issues relating to financial instruments (b) Explain and the recognition and measurement rules for financial instruments including the use of current values, hedging, the treatment of gains and losses and derivatives (c) Describe the nature of the disclosure requirements relating to financial instruments (d) Discuss the key areas where consensus is required on the accounting treatment of financial instruments 13 Off balance sheet transactions (a) Explain the nature of the off balance sheet problem and the principle of substance over form (b) Discuss common forms of off balance sheet finance and current regulation in the area (c) Discuss the perceived problems of current requirements including measurement and recognition issues 14 Leases (a) Discuss problem areas in lease accounting including classification, termination and tax variation clauses (b) Account for sale and leaseback transactions and recognition of income by lessors (c) Discuss and account for proposed changes in lease accounting and its impact on corporate financial
statements 15 Segmental Reporting (a) Discuss the problem areas in segmental reporting including definition of segments, common costs, inter segment sales etc (b) Discuss the different approaches used to disclose segmental information (c) Discuss the importance of segmental information to users of financial statements 16 Accounting for retirement benefit costs (a) Describe the nature of defined contribution, multi-employer and defined benefit schemes (b) Explain the recognition of defined benefit schemes (c) Discuss the measurement issues relating to defined benefit schemes (d) Account for defined benefit schemes including the amounts shown in the balance sheet, income statement and notes to the financial statements (e) Discuss perceived problems relating to accounting for retirement benefit costs 17 Agriculture (a) Demonstrate knowledge of the scope of the current standard (b) Discuss the recognition and measurement criteria including
treatment of gains and losses, and the inability to measure fair value reliably (c) Demonstrate knowledge of the treatment of government grants, and the presentation and disclosure of information relating to agriculture (d) Account for biological assets, agricultural produce at the point of harvest and government grants 18 Taxation (a) Discuss the different approaches to accounting for deferred taxation (b) Discuss the recognition of deferred taxation in the balance sheet and performance statements including revaluations, unremitted earnings of group companies and deferred tax assets (c) Explain the nature of the measurement of deferred taxation including tax rates and discounting (d) Calculate deferred tax amounts in financial statements 19 Reporting financial performance and earnings per share (a) Discuss proposed changes to reporting financial performance (b) Explain the rationale behind the proposed changes in reporting financial performance (c) Calculate diluted earnings per share
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by reference to dilutive potential ordinary shares, loss per share and particular types of dilutive instruments including partly paid shares, employee incentive schemes and contingently issuable shares 20 Events after the balance sheet date, provisions and contingencies (a) Discuss the problems of accounting for events after the balance sheet date including reclassification, window dressing etc (b) Discuss the issues relating to recognition and measurement of provisions including best estimates, discounting, future events (c) Explain the use of restructuring provisions and other practical uses of provisioning (d) Discuss the problems with current standards on provisions and contingencies including definitional and discounting problems 21 Related parties and share based payment (a) Discuss the related party issue (b) Identify related parties (including deemed and presumed) and the disclosure of related party transactions (c) Discuss the effectiveness of current regulations on disclosure of related party transactions (d) Describe and apply the current standard for the recognition and
measurement of share-based payment (e) Show the impact of the share-based payment standard on the performance statements of the entity and discuss the problems of applying the standard 22 Preparation of reports I (a) Calculate and appraise a range of acceptable values for shares in an unquoted company (b) Advise a client on the purchase of a business entity (c) Analyse the impact of accounting policy changes on the value and performance on an entity 23 Preparation of reports II (a) Discuss the financial and nonfinancial measures of performance (b) Describe the procedures in designing an accounting based performance measurement system (c) Appraise the different performance measures including return on investment, residual income and economic value added (d) Compare target levels of performance with actual performance 24 Preparation of reports III (a) Discuss alternative definitions of capital employed and measurement bases for assets (b) Discuss the impact of price level
changes on business performance 25 The impact of environmental, social and cultural factors on corporate reporting (a) Appraise the impact of environmental, social and ethical factors on performance measurement (b) Describe current reporting requirements and guidelines for environmental reporting (c) Discuss the effect of culture on accounting and the cultural relativity of accounting (d) Discuss why entities might include socially orientated disclosures in performance statements (e) Evaluate ethical conduct in the context of corporate reporting 26 International issues (a) Evaluate the developments and the impact on companies of global harmonisation and standardisation (b) Assess proposed changes to international regulation (c) Identify the reasons for major differences in accounting practices (d) Restate overseas financial statements in line with International Accounting Standards and International Financial Reporting Standards 27 Current issues and developments (a) Identify ways of improving
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communication of corporate performance, current proposals relating to year end financial reports and business reporting on the internet (b) Identify problem areas in interim reporting (c) Discuss current issues in corporate reporting (d) Discuss current proposals to amend International Accounting Standards / International Financial Reporting Standards e) Discuss the standard on accounting for insurance contracts (f) Outline the current standard on 'Exploration for and Evaluation of Mineral Resources' 28 First-time adoption (a) Apply the accounting standard on first-time adoption of IFRSs, including: (i) definitions (ii) adjustments (iii) exceptions (iv) estimates (v) adoption dates (vi) disclosure
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Paper 3.6 Advanced Corporate Reporting (GBR)

AIM To ensure that candidates can exercise judgement and technique in corporate reporting matters encountered by accountants and can react to current developments or new practice. OBJECTIVES On completion of this paper candidates should be able to: explain and evaluate the implications of an accounting standard or proposed accounting standard for the content of published financial information explain and evaluate the impact on the financial statements of business decisions explain the legitimacy and acceptability of an accounting practice proposed by a company prepare financial statements for complex business situations analyse financial statements and prepare a report suitable for presentation to a variety of users evaluate current practice in the context of the needs of users and the objectives of financial reporting evaluate current developments in corporate reporting in the context of their practical application, implications for corporate reporting, and the underlying conceptual issues and demonstrate the skills expected in Part 3. SYLLABUS CONTENT 1 The UK regulatory framework (a) Financial Reporting Standards, Financial Reporting Exposure Drafts, Discussion Papers, Urgent Issues Task Force pronouncements The paper complements the skills acquired in studying the other core papers in Part 3 of the ACCA examination structure. POSITION OF THE PAPER IN THE OVERALL SYLLABUS This paper is the final assessment of the candidates' skills in the area of corporate reporting. The paper builds on the technical skills studied in Paper 1.1 Preparing Financial Statements and Paper 2.5 Financial Reporting by requiring candidates to demonstrate the high level technical and evaluatory skills expected of an accountant. including accounting for equity and liabilities, assets, provisions and contingencies, segments, related parties, financial instruments, taxes, leases, retirement benefits. (b) The content of the UK regulatory framework in a given range of practical situations. (c) The problems with the current and proposed changes to the UK regulatory framework including measurement and recognition issues. (d) The impact of current and proposed regulations on the financial statements of an entity. (e) The effect of business decisions and proposed changes in accounting practice by the entity on the financial statements. (f) The legitimacy of current accounting practice and its relevance to users of corporate financial statements. 1.1 Preparing Financial Statements 2.5 Financial Reporting 2.6 Audit and Internal Review
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Advanced Corporate Reporting (GBR) (Continued)
2 Preparation of the financial statements of complex business entities (a) The financial statements of complex groups including vertical and mixed groups. (b) Group cash flow statements. (c) Accounting for group reorganisations and restructuring including demergers, take-overs and group schemes. (d) Accounting for foreign currency transactions and entities. 3 Preparation of reports for external and internal users (a) Appraisal of financial and related information, the purchase of a business entity, the valuation of shares and the reorganisation of an entity. (b) Appraisal of the impact of changes in accounting policies and the regulatory framework on shareholder value. (c) Appraisal of the business performance of the entity including quantitative and qualitative measures of performance and the potential for corporate failure. (d) The assessment of the impact of price level changes and available methods of valuation on business decisions and performance. (e) The effectiveness of corporate governance within an entity. 4 Current issues and developments (a) The accounting impact of environmental, cultural and social factors on the entity.
(b) The impact of the content of financial statements on users including changes in design and content of interim and year-end financial statements and alternate ways of communicating results to users. (c) Proposed changes in the structure of national and international regulation and the impact on global harmonisation and standardisation. (d) The applicability of the regulatory framework to small and medium sized entities. (e) Current developments in corporate reporting. 5 Ethical considerations (a) Ethics and business conduct. EXCLUDED TOPICS The syllabus content outlines the areas for assessment. No areas of knowledge are specifically excluded from the syllabus. Please refer to the list of examinable documents set out in the exam notes. KEY AREAS OF THE SYLLABUS Key topic areas are as follows: group accounting, group cash flow statements and foreign currency translation discussion papers, financial reporting exposure drafts and recent financial reporting standards problems with current accounting standards and the impact of changes
therein on the entity preparation of reports in an advisory capacity including share valuation, and purchase of a business changes in organisational structure, reconstructions, demergers, etc problems with the business including financial analysis and measurement of corporate performance environmental and social accounting and the impact of culture the Operating and Financial Review the move to the use of International Financial Reporting Standards current issues. The main thrust of the syllabus will be the preparation of a set of group financial statements, advising clients on current standards and changes therein, reporting business performance including environmental and social reporting and appraising current issues. It is important to realise that other areas of the syllabus will be also examined. APPROACH TO EXAMINING THE SYLLABUS The examination is a three hour paper divided into two sections. Section A will normally comprise one compulsory question on group financial statements including group cash flows and foreign currency translation. This question will be technically demanding and could
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have a discursive element in it. Section B will comprise four questions out of which candidates should select three questions. These questions will involve advising, discussing and reporting on issues and topics in corporate financial reporting. The questions will view the subject matter from the perspective of the preparer of financial statements and from the perspective of the accountant as an advisor. Invariably a technical understanding of the subject matter will be required and candidates will have to apply their knowledge to given cases and scenarios.
examinable regulations will not be set until at least six months after the last day of the month in which the regulation was issued. The Study Guide provides more detailed guidance on the syllabus. Examinable documents are listed in the Exam Notes section of student accountant. RELEVANT TEXTS There are a number of sources from which you can obtain a series of materials written for the ACCA examinations. These are listed below: FTC Foulks Lynch ACCA's official
(www.iasb.org.uk) are also useful sources of information.
STUDY SESSIONS 1 Overview of UK GAAP (a) Discuss the nature of UK GAAP (b) Describe the applicability of UK GAAP for small companies (c) Describe the issues relating to the Financial Reporting Standard for Smaller Entities (FRSSE) (d) Discuss the solutions to differential financial reporting 2 Operating and Financial Review (a) Describe the nature and content of the Operating and Financial Review (OFR) (b) Produce reports using the OFR
Advice as to current and future reporting requirements and their impact on reported corporate performance will be an important element of these questions. Additionally current issues and developments in financial reporting will be examined on a discursive basis. Number of marks Section A: One compulsory question Section B: Choice of 3 from 4 questions (25 marks each) 75 100 25
publisher Contact number: +44 (0)118 989 0629. Website: www.financial-training.com/new/ foulkslynch Accountancy Tuition Centre (ATC) International Contact number: +44 (0)141 880 6469. Website: www.ptc-global.com BPP Contact number: +44 (0)20 8740 2222. Website: www.bpp.com Wider reading is also desirable, especially regular study of relevant articles in ACCA's student accountant. The websites of the Accounting Standards Board (www.asb.org.uk) and the International Accounting Standards Board
3 Group financial statements I (a) Review the basic principles of acquisition accounting (b) Explain and illustrate the principles of measurement relating to the fair value of the consideration and the net assets acquired (c) Discuss the nature of step by step acquisitions (d) Prepare consolidated financial statements where control is
ADDITIONAL INFORMATION Candidates need to be aware that questions involving knowledge of new
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9 Fixed assets I established by a step by step acquisition (e) Account for complex group structures 4 Group financial statements II (a) Explain and illustrate the basic principles relating to the disposal of group companies (b) Discuss and illustrate the treatment of goodwill on disposal (c) Apply the principles of accounting for partial and deemed disposals 5 Group re-organisations and restructuring (a) Discuss of the creation of a new holding company (b) Explain changes in the ownership of companies within a group (c) Discuss the nature of demergers and divisionalisation (d) Prepare group financial statements after re-organisation and reconstruction (e) Appraise the benefits of reorganisation and restructuring 8 Group cash flow statements 6 Associates, joint ventures and joint arrangements that are not entities (JANE) (a) Account for associates, joint ventures and JANEs (b) Apply the equity and gross equity methods of accounting (c) Prepare group financial statements including accounting for associates, joint ventures and JANEs (a) Discuss the usefulness of cash flow information (b) Prepare group cash flow statements classifying cash flows by standard headings and including acquisition and disposal of subsidiaries (c) Deal with associates, joint ventures, joint arrangements and foreign currencies (b) Explain and apply the recognition and measurement criteria for 12 Financial Instruments II (a) Discuss the measurement issues relating to financial instruments 7 Foreign Currency (a) Discuss the recording of transactions and retranslation of monetary/nonmonetary items at the balance sheet date for individual entities (b) Account for the treatment of exchange differences re the above (c) Discuss the nature of the accounting for foreign entities (d) Account for foreign equity investments (e) Prepare group financial statements incorporating a foreign subsidiary/ associate (f) Discuss problem areas in foreign currency transactions for individual and group companies (g) Discuss the nature of financial reporting in hyperinflationary economies 11Financial Instruments I (a) Account for debt instruments, share capital and the allocation of finance costs (b) Account for fixed interest rate and convertible bonds (c) Discuss the definition and classification of a financial instrument 10 Fixed assets II (a) Account for revaluation gains and losses and the depreciation of revalued assets (b) Account for the disposal of revalued assets (c) Discuss the effect of revaluations on distributable profits (d) Discuss and apply the principle of 'held for sale' non-current assets and 'disposal groups' (e) Account for investment propoerties (d) Evaluate current standards for reporting interests in joint ventures and similar arrangements (a) Discuss the nature of impairment and the impairment review (b) Apply the impairment review and deal with losses on assets (c) Account for the amortisation of goodwill and intangible assets including impairment
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financial instruments including the use of current values, hedging, the treatment of gains and losses and derivatives (c) Describe the nature of the disclosure requirements relating to financial instruments (d) Discuss the key areas where consensus is required on the accounting treatment of financial instruments 13 Off balance sheet transactions (a) Explain the nature of the off balance sheet problem and the principle of substance over form (b) Discuss common forms of off balance sheet finance and current regulatory requirements (c) Discuss the perceived problems of current regulatory requirements including measurement and recognition issues 14 Leases (a) Discuss problem areas in lease accounting including classification, termination and tax variation clauses (b) Account for sale and leaseback transactions and recognition of income by lessors (c) Discuss and account for proposed changes in lease accounting and its impact on corporate financial statements
15 Segmental reporting (a) Discuss the problem areas in segmental reporting including definition of segments, common costs, inter segment sales etc (b) Discuss the different approaches used to disclose segmental information (c) Discuss the importance of segmental information to users of financial statements 16 Accounting for Retirement Benefits (a) Describe the nature of defined contribution, multi-employer and defined benefit schemes (b) Explain the recognition of defined benefit schemes (c) Discuss the measurement issues relating to defined benefit schemes (d) Account for defined benefit schemes including the amounts shown in the balance sheet, statement of total recognised gains and losses, profit and loss account and notes to the financial statements (e) Discuss perceived problems relating to accounting for retirement benefits 17 Taxation (a) Discuss the different approaches to accounting for deferred taxation (b) Discuss the recognition of deferred taxation in the balance sheet and performance statements including revaluations, unremitted earnings of group companies and deferred tax
assets (c) Explain the nature of the measurement of deferred taxation including tax rates and discounting (d) Calculate deferred tax amounts in financial statements 18 Reporting financial performance and earnings per share (a) Discuss proposed changes to reporting financial performance (b) Explain the rationale behind the proposed changes in reporting financial performance (c) Calculate diluted earnings per share by reference to dilutive potential ordinary shares, loss per share and particular types of dilutive instruments including partly paid shares, employee incentive schemes and contingently issuable shares 19 Events after the balance sheet date, provisions and contingencies (a) Discuss the problems of accounting for events after the balance sheet date including reclassification, window dressing etc (b) Discuss the issues relating to recognition and measurement of provisions including best estimates, discounting, future
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events (c) Explain the use of restructuring provisions and other practical uses of provisioning (d) Discuss the problems with current standards on provisions and contingencies including definitional and discounting problems 20 Related parties and share based payment (a) Discuss the related party issue (b) Identify related parties (including deemed and presumed) and the disclosure of related party transactions (c) Discuss the effectiveness of current regulations on disclosure of related party transactions (d) Describe and apply the accounting standard for the recognition and measurement of share-based payment (e) Show the impact of the share-based payment standard on the performance statements of the entity and discuss the problems of applying the standard 21 Preparation of reports I (a) Calculate and appraise a range of acceptable values for shares in an unquoted company (b) Advise a client on the purchase of a business entity (c) Analyse the impact of accounting policy changes on the value and performance on an entity
22 Preparation of reports II (a) Discuss the financial and nonfinancial measures of performance (b) Describe the procedures in designing an accounting based performance measurement system (c) Appraise the different performance measures including return on investment, residual income and economic value added (d) Compare target levels of performance with actual performance 23 Preparation of reports III (a) Discuss alternative definitions of capital employed and measurement bases for assets (b) Discuss the impact of price level changes on business performance 24 The impact of environmental, social and cultural factors on corporate reporting (a) Appraise the impact of environmental, social and ethical factors on performance measurement (b) Describe current reporting requirements and guidelines for environmental reporting (c) Discuss the effect of culture on accounting and the cultural relativity of accounting (d) Discuss why entities might include socially orientated disclosures in performance statements
(e) Evaluate ethical conduct in the context of corporate reporting 25 International issues (a) Evaluate the developments and the impact on companies of moves towards global and regional harmonisation and standardisation (b) Assess proposed changes to national and international regulation (c) Identify the reasons for major differences in accounting practices (d) Restate overseas financial statements in line with UK accounting policies and UK statements in line with given information on IFRS 26 Current issues and developments (a) Identify ways of improving communication of corporate performance, current proposals relating to year end financial reports and business reporting on the internet (b) Identify problem areas in interim reporting (c) Discuss current issues in corporate reporting 27 First-time adoption (a) Apply the accounting standard on first-time adoption of IFRSs, including: (i) definitions (ii) adjustments (iii) exceptions
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(iv) estimates (v) adoption dates (vi) disclosure 28 Revision
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Paper 3.7 Strategic Financial Management
AIM To ensure that candidates can exercise judgement and technique to make commercial value added decisions in strategic financial management and are able to adapt to factors affecting those decisions. OBJECTIVES On completion of this paper candidates should be able to: prepare reports for management explaining and evaluating the financial consequences of strategic decisions identify and evaluate appropriate sources of finance, their risks and costs assess potential investment decisions and strategies understand the impact of the global business environment on national and multinational organisations explain, demonstrate and recommend suitable risk management techniques understand the significance of cash management and the treasury function in the commercial environment select the techniques most appropriate to optimise the employment of financial resources and critically evaluate such techniques analyse and evaluate financial information relating to past and future business performance demonstrate the skills expected in Part 3.
POSITION OF THE PAPER IN THE OVERALL SYLLABUS Candidates will require a thorough understanding of the financial management section of Paper 2.4 Financial Management and Control. Candidates will also be required to apply quantitative techniques covered in earlier papers. Paper 3.7 develops the financial management elements of Paper 2.4 by: providing a more critical analysis of corporate governance examining the strategic implications of short-term and long-term financial planning in-depth analysis of risk management in both domestic and international contexts more rigorous analysis of investment decisions and the cost of capital, including CAPM and other models analysis of corporate growth and restructuring through mergers, acquisitions and other means
introducing international dimensions of the treasury function considering the global economic environment and other influences on financial management decisions analysis of global financial management decisions introducing ethical considerations. Paper 3.7 will draw upon strategic management and business planning issues covered in Paper 3.5 Strategic Business Planning and Development in the context of financial planning. Paper 3.7 covers mergers, acquisitions and corporate restructuring from a financial perspective, areas covered from an accounting perspective in Paper 3.6 Advanced Corporate Reporting.
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Strategic Financial Management (Continued)
SYLLABUS CONTENT 1 Objectives and corporate governance (a) The aims and objectives of an organisation and their impact on business planning. (b) Key stakeholders of an organisation: shareholders, lenders, directors, employees, customers, suppliers and the government. (c) Environmental issues and their impact on corporate objectives and governance. (d) The concept of goal congruence and how it might be achieved. (e) Key aspects of governance in the UK and internationally. (f) The implications of corporate governance for organisations. 2 Strategy formulation (a) The strategic planning process and its link with investment decisions (i) the development and analysis of financial plans to meet agreed objectives (ii) seeking, clarifying and confirming information (e.g. on the current or past business position through ratios or other forms of analysis) relevant to the achievement of business objectives (iii) advising clients on the strategies that a company might use to expand or maintain its current market position, and on exit strategies
(iv)long term financial planning including measures of value, profit, optimisation and utility (v) the use of free cash flow in financial planning (vi)techniques for valuing individual shares and other securities and for valuing a business, including EVA and SVA. (b) Strategic planning for multinationals (i) entry and exit barriers (ii) competitive advantage. 3 Risk analysis (a) Cost of capital (i) the cost of equity (CAPM and dividend growth model) (ii) the cost of debt (iii) the weighted average cost of capital (WACC) (iv) the impact of varying capital structures on the cost of capital. (b) Interest rate and foreign exchange risk (i) the identification of interest rate and foreign exchange exposure (ii) yield curves and their significance to financial managers (iii) hedging risk using forwards, futures, options, swaps, FRAs and other products (iv) the scope and benefit of financial engineering. 4 Investment decisions (a) Decision making techniques (i) detailed knowledge of discounted cash flow(NPV)
(ii) adjusted NPV (APV) (iii) portfolio theory and CAPM and their value to managers (iv) options embedded in investments (basic knowledge only). (b) Expansion strategies (i) organic growth, mergers and acquisitions (ii) valuations for mergers and acquisitions (iii) takeover and defence strategies (iv) planning for post-merger success and audit. (c) Corporate reorganisation (i) divestments (ii) buy-outs and buy-ins (iii) corporate restructuring (iv) going private (v) share repurchases. 5 Treasury management and financial forecasting (a) Methods of financing short and long term investment, including mergers and acquisitions. (b) The role of cash flow forecasting in business planning (i) development and analysis of short-term financial plans. (c) Role of treasury function (i) activities of treasury managers (ii) centralised versus decentralised treasury functions. (d) Dividend policy (i) influences on dividend policy
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(ii) the effect of dividends on company value. 6 The global economic environment (a) International factors affecting business developments (i) trends in global competition (ii) the role of multinational companies in the world economy (iii) free trade, protectionism, trade agreements, common markets (iv) role of World Bank and International Monetary Fund(IMF) and other international organisations (v) economic relations between developed and developing countries including problems of debt and development (vi)introduction of a single currency. (b) Exchange rate determination (i) influences on exchange rates (ii) models of exchange rate determination (iii) different forms of exchange rate system. 7 Global financial management (a) Appraisal of overseas investment decisions (i) alternative forms of foreign investment (ii) the impact of overseas taxation (basic principles only) (iii) overseas cost of capital and capital structure
(iv)forecasting future exchange rates (v) political risk. (b) Raising capital overseas (i) international capital markets including the Euromarkets (ii) overseas domestic capital markets (iii) international banking. (c) Managing financial resources within a multinational group (i) financial control within a group of companies (ii) international cash management (iii) international transfer pricing (iv) performance measurement and evaluation. (d) Management of international trade (i) the management of the risks of international trade (ii) the finance of international trade. 8 Ethical considerations (a) Ethics and business conduct, including international ethical considerations. EXCLUDED TOPICS The syllabus content outlines the areas for assessment. No areas of knowledge are specifically excluded from the syllabus. KEY AREAS OF THE SYLLABUS The key topic areas are as follows: investment decisions risk analysis global financial management treasury management financial forecasting.
APPROACH TO EXAMINING THE SYLLABUS The examination is a three hour paper comprising a mix of computational and discursive elements. The core questions will normally be in the form of a case study or case scenario. Key areas of the syllabus will always be tested in the compulsory questions, and may be tested in the elective questions. Number of marks Section A: 2 compulsory questions Section B: Choice of 2 from 4 questions (15 marks each) 30 100 ADDITIONAL INFORMATION The Study Guide provides more detailed guidance on the syllabus. RELEVANT TEXTS There are a number of sources from which you can obtain a series of materials written for the ACCA examinations. These are listed below: FTC Foulks Lynch ACCA's official publisher Contact number: +44 (0)118 989 0629. Website: www.financial-training.com/new/ foulkslynch 70
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Accountancy Tuition Centre (ATC) International Contact number: +44 (0)141 880 6469. Website: www.ptc-global.com
J Stern, D Chew (eds) The Revolution in Corporate Finance Blackwell ISBN 0631185542. Wider reading is also desirable, especially
interest groups. (ii) identify directors powers and behaviour, including the significance of creative accounting, off-balance sheet finance and the influence of the threat of take-over. (iii) understand the principles of agency theory and their contribution to the debate on governance.
BPP Contact number: +44 (0)20 8740 2222. Website: www.bpp.com Candidates may also find the following general texts useful:
regular study of relevant articles in ACCA's student accountant and journals such as the Journal of Applied Corporate Finance.
STUDY SESSIONS R H Pike, C W Neale Corporate Finance and Investment FT/Prentice Hall ISBN 0273651382 Richard Brealey, Stewart Myers Principles of Corporate Finance McGraw Hill ISBN 007115144-3 Glen Arnold Corporate Financial Management FT/Prentice Hall ISBN 0273687263 For international aspects of the syllabus: I Demirag, S Goddard Financial Management for International Business McGraw Hill ISBN 0077078691 or D. Eiteman, A. Stonehill, M. Moffett Multinational Business Finance ISBN 032120470-0 Students wishing to broaden their understanding of Paper 3.7 are recommended to consider: 1 & 2 Objectives and Corporate Governance (a) Objectives of organisations (i) identify the possible aims and objectives of organisations, both profit seeking and non-profit seeking. (ii) discuss the impact of alternative objectives for business planning. (iii) identify key stakeholders of organisations including shareholders, lenders, directors, employees, suppliers government and the importance of each group of stakeholders to organisations. (iv)be aware of different environmental issues that may influence corporate objectives and governance. (b) Conflicts of interest and their resolution (i) describe the goals of different customers, and the (iv) understand the potential for conflict between owners, directors, managers and other interest groups. (v) discuss the meaning of goal congruence, and understand how it might be achieved through the use of alternative reward systems including share option schemes and profit related pay. (c) Corporate Governance (i) understand the significance of changing share ownership patterns for the company. (ii) define the meaning of corporate governance from a UK perspective and briefly contrast between UK practices and those of other countries especially the USA, Continental Europe and the Far East. (iii) understand the debate regarding corporate governance, including developments from the Cadbury,
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Greenbury and Hampel reports. (d) The implications of corporate governance for organisations (i) identify the role of auditors, audit committees, remuneration committees, non-executive directors etc. in corporate governance. (ii) discuss the role of non-executive directors, administrators etc. with respect to the organisation. (iii) discuss the possible effects of corporate governance on corporate financial strategy. 3 & 4 Strategies (a) Strategy formulation (i) understand how business plans are developed and analysed to meet specified objectives. (ii) analyse past, current and expected future performance of the organisation through ratios and other techniques to provide relevant information for business planning. (iii) compare actual and expected performance, highlighting areas for further investigation. (iv) understand the relationship between short-term and longterm financial planning, and the potential conflict between shortterm and long-term objectives.
(b) Expansion and market maintenance strategies (i) describe alternative strategies for long-term growth, organic growth versus external growth, and the key dimensions of strategy that need to be addressed if a business is considering organic growth and/or the maintenance of market share. (ii) describe top down versus bottom up planning systems. (iii) understand the use of budgets to influence the success of financial planning. (iv) discuss the relationship of investment decisions to long-term planning. (v) review the nature of financial control. The three levels of control: strategic, tactical and operational. 5 & 6 The valuation of securities (a) Understand models for the valuation of shares, including dividend growth models, earnings growth models, Shareholder Value Added (SVA), Economic Value Added (EVA), and Market Value Added (MVA) and use such models to estimate value from given information. (b) Be aware of the theoretical and practical limitations of such models. (c) Discuss the relevance of accounting (d) Information to share valuation. (e) Be aware of practical influences on
share price, including reasons why share prices differ from their theoretical values, including the evidence for market efficiency. (f) Understand and apply models for the valuation of debt and other securities. (g) Understand the meaning of free cash flow and estimate the relevant free cash flow for use in financial planning and valuing companies. 7 & 8 Investment decisions (a) Net present value (i) revise NPV analysis, including the identification of relevant cash flows, and the impact of price level changes and taxation. (ii) understand the significance of market efficiency to financial decision-making based upon NPV. (b) Portfolio theory (i) understand the benefits of portfolio diversification. (ii) estimate the risk and return of portfolios. (iii) understand the meaning of meanvariance efficiency for two asset portfolios and portfolios of many assets, efficient portfolios and the efficient frontier. (iv) understand the concept of utility and its importance to portfolio selection. (v) explain portfolio selection when
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both risky and risk free assets are available. (vi) discuss the nature and significance of the Capital Market Line. (vii) discuss the relevance of portfolio theory to practical financial management. (viii) discuss the limitations of portfolio theory. 9 The Capital Asset Pricing Model (a) Understand the meaning and significance of systematic and unsystematic risk. (b) Discuss the Security Market Line. (c) Understand what is meant by alpha and beta factors, their interpretation and how they are calculated. (d) Discuss the problems of using historic data as the basis for future decision-making, and evidence of the stability of beta over time. (e) Describe the assumptions of CAPM. (f) Understand the uses of the model in financial management. (g) Discuss the limitations of the model, including some of the instances when it does not perform as expected, (e.g. low beta investments, low PE investments, day of week effects etc.) 10 The cost of capital (a) Estimate the cost of equity, using the CAPM and dividend valuation models.
(b) Estimate the cost of debt, for both redeemable and irredeemable debt. (c) Understand the weighted average cost of capital of a company, and how it is estimated. (d) Discuss the theories of Modigliani and Miller including their assumptions, and the value and limitations of their theories. (e) Discuss alternative theories of capital structure including the State Trade off. Pecking Order and Behavioural theories. (f) Evaluate the impact of varying capital structures on the cost of capital. (g) Estimate the cost of capital for individual investments and divisions, including use of the pure play method with ungearing and regearing beta. (h) Discuss the relevance of the cost of capital for unlisted companies and public sector organisations. (i) Explain the practical problems of estimating an appropriate discount rate, and understand the margin of error that is involved in cost of capital estimates. 11 Adjusted present value and options (a) Adjusted present value (i) understand the interaction of investment and financing decisions (ii) understand the adjusted present
value technique of investment appraisal including how to estimate the base case NPV and the financing side effects of an investment. (iii) discuss the practical problems of using the APV technique. (iv) discuss alternatives to the capital asset pricing model, including the Arbitrage Pricing Theory. (N.B. detailed knowledge is not required) (b) Options embedded in investments (i) understand the types of option that might be embedded in a capital investment decision, and the limitations of NPV analysis in valuing such options. 12 Mergers and acquisitions (a) Understand the arguments for and against mergers and acquisitions. (b) Contrast merger and acquisition activity in the UK and USA with activity in continental Europe and Japan, and discuss the implications of the differences that exist. (c) Describe the alternative strategies and tactics of mergers and acquisitions. (d) Discuss how possible acquisition targets may be identified using financial or other information. (e) Estimate the value of potential target companies. (f) Distinguish between the various methods of financing mergers and
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acquisitions cash, debt, equity and hybrids and assess the attractiveness of different financing alternatives to vendors. (g) Evaluate the various defences against take-overs, and be aware of any restrictions on their use as specified by the City Code. (h) Identify key issues that influence the success of acquisitions, and recommend appropriate actions for a given situation. (i) Understand the importance of postaudit and monitoring of postacquisition success. 13 & 14 Corporate reorganisation (a) Divestments (i) describe the nature of, and reasons for, divestments. (ii) describe unbundlingand demerging of quoted companies. (iii) evaluate, using given information, whether or not divestment is likely to be beneficial. (b) Management buy-outs and buy-ins (i) discuss the advantages of buyouts, and understand the issues that a management team should address when preparing a buyout proposal. (ii) identify situations in which a management buy-out is likely to offer the best value for a disposer.
(iii) evaluate alternative sources of finance for buy-outs. (iv) assess the viability of buy-outs from the viewpoint of both the buy-out team and the financial backers. (v) identify the advantages and disadvantages of management buy-ins. (c) Capital reconstruction schemes (i) identify and justify when a capital reconstruction may be required or appropriate. (ii) be aware of the importance of taking into account the interests of the various suppliers of capital in a reconstruction situation. (iii) formulate a feasible reconstruction from given information. (d) Going private (i) understand the arguments for and against a quoted company going private (e) Share repurchases (i) be aware of the regulations regarding share repurchases (ii) understand the possible effect of share repurchases on share price (iii) practise a detailed investment appraisal question or mini-case. 15 Interest rate and foreign exchange risk (a) Be aware of recent international volatility of interest rates and exchange rates.
(b) Describe the main instruments that are available to help manage the volatility of such rates. (c) Identify the interest rate and foreign exchange exposure faced by an organisation. (d) Explain the meaning of the term structure of interest rates, including the forms of the yield curve and the expectations, liquidity preference and market segmentation theories. (e) Understand the significance of yield curves to financial managers. (f) Explain the workings of the foreign exchange markets, types of quotation, spot and forward rates. (g) Discuss the types of currency risktransaction, translation and economic exposure, and their importance to companies. 16, 17 & 18 Hedging risk (a) Hedging Strategies (i) evaluate alternative strategies that companies might adopt with respect to interest rate and currency exposure. (ii) discuss and evaluate traditional methods of currency risk management, including currency of invoice, leading and lagging, netting, matching, and internal asset and liability management. (iii) evaluate hedging strategies using forward foreign exchange
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contracts. (b) Futures markets and contracts (i) explain the nature of futures contracts. (ii) discuss the use of margin requirements and the functions of futures Clearing Houses. (iii) explain how price movements are recognised within futures markets. (iv) describe the major interest rate futures (short-term and long term) and currency futures contracts. (v) understand and estimate basis and basis risk. (vi)evaluate hedging strategies with both interest rate and currency futures using given information. (vii) contrast the use of futures with forward contracts, FRAs etc. (c) Options (i) describe the main features of options including puts and calls, the exercise price, American and European options, in and out of the money. (ii) differentiate between traded options and over-the-counter (OTC) options. (iii) discuss the determinants of option prices, including the Black-Scholes model and its limitations. (iv) use the Black-Scholes model to price basic call and put options,
including put-call parity. (v) explain the nature of the Greeks: delta, gamma, vega, theta and rho and their significance to hedging using options. (vi)undertake a basic delta hedge. (vii) explain the advantages and disadvantages of options compared to futures. (viii) describe the various types of interest rate options, including short-term options, caps, collars and floors, and the nature of currency options. (ix)be aware of the nature and benefits of low cost or zero cost options. (x) evaluate alternative hedging scenarios using interest rate and currency options. (d) SWAPS (i) describe nature of interest rate and currency swaps. (ii) understand the value of swaps to the corporate treasurer. (iii) understand the role of banks in swap activity. (iv) describe the various types of risk that are associated with swaps. (v) evaluate hedging scenarios using swaps and swaptions. (e) Forward rate agreements (FRAs) (i) understand the nature of FRAs and how their prices are quoted. (ii) evaluate an interest hedge using FRAs (f) Financial Engineering
(i) understand how various derivative products may be combined to financially engineer products suitable for risk management (basic knowledge only). (ii) describe hybrid forms of instruments such as swaptions. 19 Treasury management and financial forecasting -Short-term financial planning (a) Understand the information needs of short-term financial planning and how short-term financial plans might be developed. (b) Generate a short-term financial plan from given information. (c) Explain how budgeting, monitoring and controlling cash flows, including pricing, repaying debt etc. may be used to meet short and medium term financial objectives. (d) Discuss the methods of financing short-term and long-term investment including temporary financing for mergers and acquisitions 5a. 20 The treasury function (a) Role of Treasury Function (i) understand the key activities undertaken by treasury managers (ii) understand the arguments for and against centralised treasury management (b) Corporate dividend policy (i) describe the practical influences
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on dividend policy, including the possible effects of both corporate and personal taxation. (ii) discuss the role of dividends as signals of future prospects. (iii) discuss the alternative arguments with respect to the effect of dividend policy on share prices. 21 International Trade (a) The Global Economic Environment: Multinational companies and trends in global competition. (i) Understand the nature, size and significance of multinational companies in the world economy. (ii) discuss the influence of exchange rates, international capital markets and changes in global competition patterns on the strategies of multinational companies, with particular reference to the EU, USA and other major countries. (b) International trade and protectionism (i) understand the theory and practice of free trade, and the problems of protectionism, through tariff and non-tariff barriers. (ii) describe the major trade agreements and common markets Union, ASEAN, North American Free Trade Area etc.) (the European
(iii) understand the nature and significance of the balance of payments and the possible effects of national balance of payments problems on the financial decisions of companies. (iv) explain the objectives and function of the World Trade Organisation (WTO). Self study Most of these items, especially where descriptions of the institutional framework is concerned, could be undertaken by self-study. 22 International finance (a) The international financial system (i) understand the role of the major international financial institutions, including the IMF, The Bank for International Settlements and the International Bank for Reconstruction and Development (The World Bank) (ii) understand economic relations between developed and developing countries, including the nature of the Global Debt problem and its effects on relations between developed and developing countries. (iii) be aware of the role of international financial markets and institutions in the global debt
problem, and the effect of the problem on multinational companies and international banks. (iv) be aware of the methods that have been suggested for dealing with the problem. (b) Exchange rate determination (i) be aware of the major influences, economic and otherwise, on exchange rates. (ii) discuss the relationship between foreign exchange rates and interest rates in different countries. (iii) explain the meaning and significance of the purchasing power parity theory. (iv) discuss whether exchange rates may be successfully forecast using modelling or other techniques. (v) describe the major developments in exchange rate systems since Bretton Woods, including the introduction of a single currency in the European Union (vi) be aware of the different types of exchange rate system that exist (e.g. fixed, floating, crawling peg, currency bloc, currency board) and the influence of different exchange rate systems on exchange rates. (vii) understand the meaning and significance of financial contagion with respect to exchange rate movements.
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23 & 24 Appraisal of overseas investment decisions (a) International operations (i) describe the forms of entity that are available for international operations, including the relative merits of branch, subsidiary, joint venture, and licensing. (ii) describe the factors that might influence the strategic plans of multinational companies. (iii) be aware of the barriers to market entry and exit. (iv) understand how multinationals might achieve and maintain competitive advantage. (b) Foreign direct investment (i) discuss the additional complexities of foreign direct investment. (c) International capital budgeting (i) estimate the international cost of capital for an organisation, using the CAPM. (ii) discuss how adjusted present value (APV) might be used in international investment appraisal. (iii) discuss the impact of blocked funds and restrictions on the remittance of funds to the parent company, and the use of royalties, management charges etc. to avoid restrictions on remittances
(iv) illustrate the effect of taxation on international investment, including the possibility of double taxation. (v) discuss the nature and possible use of tax havens in international tax planning (d) The international capital structure decision. (i) discuss the factors that influence the type of finance used in international operations. (ii) describe the strategic implications of international financing, with respect both to the type of finance used, and the currency in which the financing is denominated. (iii) undertake a detailed appraisal of an international capital investment proposal using given information. This could be either by organic growth or acquisition. (e) Political risk (i) discuss the possible forms and implications of political risk and its importance to the investment decision process. (ii) discuss how a company might forecast and attempt to manage political risk. 25 Raising capital overseas (a) International capital markets (i) describe the nature and development of the Euromarkets, including the Eurocurrency,
Eurobond and Euroequity markets. (ii) explain the types of financing instruments that are available to corporate treasurers on the Euromarkets, for both borrowing and financial investment. (iii) understand the role of domestic capital markets, especially stock exchanges, in financing the activities of multinational companies. (b) International banking (i) understand the workings of international money markets. (ii) outline the major factors affecting thedevelopment of international banking. (iii) understand the role of international banks in international finance, including international bank lending through syndication and multioption facilities and other means. 26 Financial control within a multinational group of companies (a) The treasury function (i) discuss the merits of defining the treasury as a cost centre or profit centre. (ii) discuss the arguments for the centralisation versus decentralisation of international treasury activities.
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(b) International cash management (i) describe the main forms of international cash transfer mechanisms. (ii) describe the short-term investment opportunities that exist in international money markets and in international marketable securities. (iii) discuss the benefits of centralised depositories and international holding companies. (iv) discuss and evaluate how multilateral netting might be of benefit to multinationals. (c) International transfer pricing (i) explain the importance of transfer pricing to multinational companies. (ii) understand the legal regulations affecting transfer pricing, particularly with respect to the attitude of tax authorities. (iii) discuss the use of tax havens to try to maximise the benefits of transfer pricing. (iv) explain the potential adverse motivational effects of transfer pricing on individual subsidiaries or divisions. (d) Performance measurement (i) describe the guidelines appropriate to the regular financial reports required from overseas operations. (ii) evaluate the performance of all
or part of an international group of companies using ratio and other forms of analysis. 27 & 28 International trade and ethics (a) The management of international trade (i) advise clients on the alternative methods of exporting and importing. (ii) understand the risks of foreign trade, currency, credit / commercial, political, physical and cultural. (iii) explain the advantages and disadvantages of using documentary letters of credit, bills of exchange, acceptances etc. in foreign trade. (iv) describe the insurance that is available to protect against the risks of foreign trade. (v) describe and evaluate the sources of finance for foreign trade, including forfeiting and international factoring. (f) Describe the main features of countertrade, and various alternatives that exist for foreign trade deals other than for monetary payments. (b) Ethics and business conduct (i) Be aware of the major ethical issues affecting the conduct of business both domestically and internationally.
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Objectives of the Study Guide

PAGE 50 PAGE 70 PAGE 16 PAGE 25 PAGE 32

PAGE 39 PAGE 40 PAGE 48 PAGE 54 PAGE 62 PAGE 71 PAGE 79 PAGE 87 PAGE 95

Paper 1.1 Preparing Financial Statements (INT)

3.6 Advanced Corporate Reporting

3.1 Audit and Assurance Services

2.5 Financial Reporting

2.6 Audit and Internal Review

1.1 Preparing Financial Statements

Preparing Financial Statements (INT) (Continued)

Preparing Financial Statements (INT) (Continued)

regular study of relevant articles in ACCA's monthly magazine student accountant.

Preparing Financial Statements (INT) (Continued)

Preparing Financial Statements (INT) (Continued)

Preparing Financial Statements (INT) (Continued)

Preparing Financial Statements (INT) (Continued)

Preparing Financial Statements (INT) (Continued)

Preparing Financial Statements (INT) (Continued)

Paper 1.1 Paper 1.1 Preparing Financial Statements (GBR)

3.6 Advanced Corporate Reporting

3.1 Audit and Assurance Services

2.5 Financial Reporting

2.6 Audit and Internal Review

1.1 Preparing Financial Statements

Preparing Financial Statements (GBR) (Continued)

Preparing Financial Statements (GBR) (Continued)

Preparing Financial Statements (GBR) (Continued)

Preparing Financial Statements (GBR) (Continued)

Preparing Financial Statements (GBR) (Continued)

Preparing Financial Statements (GBR) (Continued)

Preparing Financial Statements (GBR) (Continued)

Preparing Financial Statements (GBR) (Continued)

Paper 1.2 Financial Information for Management

3.3 Performance Management

3.7 Strategic Financial Management

2.4 Financial Management and Control

1.2 Financial Information for Management

Paper 1.2: Financial Information for Management (Continued)

Financial Information for Management (Continued)

Financial Information for Management (Continued)

Financial Information for Management (Continued)

Financial Information for Management (Continued)

Financial Information for Management (Continued)

Financial Information for Management (Continued)

Paper 1.3 Managing People

Paper 1.3: Managing People (Continued)

Managing People (Continued)

Managing People (Continued)

Managing People (Continued)

Managing People (Continued)

Managing People (Continued)

Managing People (Continued)

Paper 2.1 Information Systems

Information Systems (Continued)

Information Systems (Continued)

Information Systems (Continued)

Information Systems (Continued)

Information Systems (Continued)

Information Systems (Continued)

Information Systems (Continued)

Paper 2.2 Corporate and Business Law

Corporate and Business Law (Continued)