acca study guide
TRANSCRIPT
study guide
professional schemeJUNE AND DECEMBER 2006
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: [email protected]
Additional information can be accessed on the ACCA website at:
www.accaglobal.com
The Association of Chartered Certified Accountants
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liability for inconvenience or loss caused by the publication of any out of date or inaccurate information.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
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.
PAGE 3
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
ACCA’s 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 – 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
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 ACCA’s student
accountant.
Any changes to the Syllabus, Study
Sessions and examination rules will be
published in ACCA’s 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-to-
face 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 self-
study.
PAGE 3
PAGE 4
Contents
Objectives
PART 1
1.1 Preparing Financial Statements (INT)
1.1 Preparing Financial Statements (GBR)
1.2 Financial Information for Management
1.3 Managing People
PART 2
2.1 Information Systems
2.2 Corporate and Business Law
2.3 Business Taxation (GBR)
2.4 Financial Management and Control
2.5 Financial Reporting (INT)
2.5 Financial Reporting (GBR)
2.6 Audit and Internal Review (INT)
2.6 Audit and Internal Review (GBR)
PART 3
3.1 Audit and Assurance Services (INT)
3.1 Audit and Assurance Services (GBR)
3.2 Advanced Taxation (GBR)
3.3 Performance Management
3.4 Business Information Management
3.5 Strategic Business Planning and Development
3.6 Advanced Corporate Reporting (INT)
3.6 Advanced Corporate Reporting (GBR)
3.7 Strategic Financial Management
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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.
Contents
PAGE 4
PAGE 5PAGE 5
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.
1
PAGE 7
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
Preparing Financial Statements (INT)
3.6 Advanced Corporate Reporting 3.1 Audit and Assurance Services
2.5 Financial Reporting
1.1 Preparing Financial Statements
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 half-
yearly 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 IASB’s 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 IASB’s
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
Paper 1.1
PAGE 8
(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.
Preparing Financial Statements (INT) (Continued)
PAGE 9
Preparing Financial Statements (INT) (Continued)
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) 50
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 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:
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
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
regular study of relevant articles in ACCA's
monthly magazine student accountant.
PAGE 10
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.
Preparing Financial Statements (INT) (Continued)
PAGE 11
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 micro-
computers.
(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 non-
current 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
Preparing Financial Statements (INT) (Continued)
PAGE 12
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 IASB’s ‘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.
Preparing Financial Statements (INT) (Continued)
PAGE 13
(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
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.
(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 non-
current 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
Preparing Financial Statements (INT) – (Continued)
PAGE 14
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 non-
adjusting.
(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
Preparing Financial Statements (INT) – (Continued)
PAGE 15
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 wholly-
owned 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.
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 investor’s
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
Preparing Financial Statements (INT) – (Continued)
PAGE 16
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
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 half-
yearly 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)
Preparing Financial Statements (GBR)
and Companies Act requirements to
the preparation and presentation of
financial statements.
(e) The ASB’s 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 ASB’s
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
Paper 1.1
3.6 Advanced Corporate Reporting 3.1 Audit and Assurance Services
2.5 Financial Reporting
1.1 Preparing Financial Statements
2.6 Audit and Internal Review
Paper 1.1
PAGE 17
(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
Preparing Financial Statements (GBR) (Continued)
PAGE 18
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) 50
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:
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.
Preparing Financial Statements (GBR) (Continued)
PAGE 19
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.
Preparing Financial Statements (GBR) (Continued)
PAGE 20
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 micro-
computers
(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
Preparing Financial Statements (GBR) (Continued)
PAGE 21
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 ASB’s ‘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
Preparing Financial Statements (GBR) (Continued)
PAGE 22
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.
Preparing Financial Statements (GBR) (Continued)
PAGE 23
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 non-
adjusting
(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:
Preparing Financial Statements (GBR) (Continued)
PAGE 24
(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 investor’s
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
Preparing Financial Statements (GBR) (Continued)
PAGE 25
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.
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 short-
term, 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
Financial Information for Management
Paper 1.2
3.3 Performance Management 3.7 Strategic Financial Management
2.4 Financial Management and Control
1.2 Financial Information for
Management
PAGE 26
Paper 1.2: 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.
Financial Information for Management (Continued)
PAGE 27
(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) 50
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:
Financial Information for Management (Continued)
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.
PAGE 28
Financial Information for Management (Continued)
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
PAGE 29
Financial Information for Management (Continued)
(b) Describe factors which influence cost
behaviour
(c) Explain how the terms linear, curvi-
linear 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.
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
(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
(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 pre-
determined 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
PAGE 30
Financial Information for Management (Continued)
(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
PAGE 31
Financial Information for Management (Continued)
(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 multi-
product 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
PAGE 32
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.
Managing People
Paper 1.3
3.5 Strategic Business Planning and Development
1.3 Managing People
PAGE 33
Paper 1.3: 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
Managing People (Continued)
PAGE 34
(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 40
Section B: Choice of 4 from 5
essay questions (15 marks each) 60
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
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
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.
Managing People (Continued)
PAGE 35
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.
Managing People (Continued)
PAGE 36
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.
Managing People (Continued)
PAGE 37
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.
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
the 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,
Managing People (Continued)
PAGE 38PAGE 38
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.
Managing People (Continued)
PAGE 39
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
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.
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.
2
PAGE 40
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.
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.
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.
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.
(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.
Information Systems
Paper 2.1
3.4 Business Information Management
2.1 Information Systems
PAGE 41
(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) 60
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
Information Systems (Continued)
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
PAGE 42
Information Systems (Continued)
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 –
organisational arrangements
(a) Describe the traditional structure of
a centralised Information Systems
department and the roles and
responsibilities of each function.
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
Don Yeates and James Cadle Project
Management for Information Systems
Prentice Hall 2004
Relevant Chapter 12
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.
PAGE 43
(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 lower-
level 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
Information Systems (Continued)
PAGE 44
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.
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.
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
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
Information Systems (Continued)
PAGE 45
used in defining an external
design.
16 Developing a solution to fulfil
requirements
(a) Define the bespoke software
approach to fulfilling the user’s
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
user’s 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 non-
functional 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
Information Systems (Continued)
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 “user-
friendly” 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
PAGE 46
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.
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
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
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
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.
Information Systems (Continued)
PAGE 47
(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 post-
implementation review.
(f) Describe the structure and content of
written reports as compared with an
end-project review and a post-
implementation 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
Information Systems (Continued)
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
PAGE 48
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.
Paper 2.2
Corporate and Business Law
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.
PAGE 49
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.
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.
(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.
9 Majority control and minority protection
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.
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.
11 Employment
This section focuses on the major
legislative and common law principles
which govern employment relationships.
(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
Company law, as set out in sections 4–10
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) 60
Section B: Choice of 2 from 4
questions (20 marks each) 40
100
PAGE 50
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.
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:
Kelly D & Holmes A Business Law
(4th Edition) Cavendish
ISBN 1859414699
- covers all aspects of the syllabus.
Smith K & Keenan D Advanced Business
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
regular study of relevant articles in ACCA's
student accountant.
Corporate and Business Law (Continued)
STUDY SESSIONS
1 English legal system – I
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
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.
PAGE 51
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.
7 General principles of the law of
contract – IV
Breach of contract and remedies
(a) Explain how contracts can be
discharged
(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.
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.
11 Partnership – II
Internal Regulation of Partnerships
(a) Analyse the duties of partners to
each other
(b) Analyse the rights of partners to
each other
Corporate and Business Law (Continued)
(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
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
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
PAGE 52
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 company’s
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.
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.
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.
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.
21 Company Law – IX
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.
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
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
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
Corporate and Business Law (Continued)
PAGE 53
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.
Corporate and Business Law (Continued)
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.
PAGE 54
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.
Paper 2.3
Business Taxation(United Kingdom)
The coverage in Paper 2.3 will provide the
grounding for the study of the optional
Paper 3.2 Advanced Taxation.
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.
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
(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 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
3.2 Advanced Taxation
2.3 Business Taxation
PAGE 55
(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
Business Taxation (United Kingdom)
PAGE 56
(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
Business Taxation (United Kingdom)
PAGE 57
(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.
Number
of Marks
Section A: 2 compulsory questions 55
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.
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
Business Taxation (United Kingdom)
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
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
PAGE 58
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
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
(v) 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
Business Taxation (United Kingdom)
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 Tolley’s Tax
Guide Tolley Publishing ISBN 1860128319
A Melville Taxation Prentice Hall
ISBN 0 273 655522–1
Wider reading is also available especially
regular study of the relevant articles in
ACCA's student accountant.
PAGE 59
– 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 self-
assessment 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
Business Taxation (United Kingdom)
PAGE 60
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 self-
assessment
(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 self-
assessment 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
Business Taxation (United Kingdom)
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
PAGE 61
Business Taxation (United Kingdom)
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 self-
employment
– 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 self-
employment
(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
PAGE 62
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).
3.3 Performance Management 3.7 Strategic Financial Management
2.4 Financial Management and Control
1.2 Financial Information for Management
Paper 2.4
Financial Management and Control
Paper 2.4
PAGE 63
(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 company’s 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
Financial Management and Control (Continued)
PAGE 64
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 computer-
based 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.
Financial Management and Control (Continued)
PAGE 65
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 50
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.
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
Financial Management and Control (Continued)
STUDY SESSIONS
1 The Economic Environment I
Macroeconomic objectives
(a) Identify and explain the main macro-
economic 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
Wider reading is also desirable, especially
regular study of relevant articles in ACCA's
student accountant.
PAGE 66
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 non-
financial 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
Financial Management and Control (Continued)
PAGE 67
(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 near-
debt financing
(a) Explain the features of different
types of preference shares and the
reasons 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
Financial Management and Control (Continued)
PAGE 68
(d) Broadly describe the reasons for the
choice of financing between
preference shares, debt and near-
debt 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
Financial Management and Control (Continued)
PAGE 69
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 not-
for-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.
Financial Management and Control (Continued)
PAGE 70
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
Financial Management and Control
PAGE 71
Paper 2.5
Financial Reporting(INT)
3.6 Advanced Corporate Reporting 3.1 Audit and Assurance Services
2.5 Financial Reporting
1.1 Preparing Financial Statements
2.6 Audit and Internal Review
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
• demonstrate the skills expected in Part 2.
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.
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.
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
discounting techniques which candidates
will have acquired at Paper 2.4 Financial
Management and Control.
SYLLABUS CONTENT
1 Accounting principles, concepts and
theory
(a) The IASB’s Framework for the
Preparation and Presentation of
Financial Statements.
(b) Agency theory.
(c) Price level changes, capital
maintenance.
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 IASB’s relationship with the
PAGE 72
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:
PAGE 73
Financial Reporting (INT) (Continued)
• 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.
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 management’s
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 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 25
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.
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.
PAGE 74
Financial Reporting (INT) (Continued)
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 IASB’s ‘balance sheet
approach’ to revenue recognition
within its Framework and compare
this to the requirements of relevant
accounting standards.
4 The structure of the IASB’s 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
PAGE 75
Financial Reporting (INT) (Continued)
(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 non-
current 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 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
PAGE 76
Financial Reporting (INT) (Continued)
(c) Describe what is meant by a cash-
generating 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 company’s 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
PAGE 77
Financial Reporting (INT) (Continued)
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 subsidiary’s 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
subsidiary’s 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 company’s
performance in comparison with:
(i) a company’s previous period's
financial statements
(ii) another similar company for the
PAGE 78
Financial Reporting (INT) (Continued)
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
company’s 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.
PAGE 79
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.
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.
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.
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
discounting techniques which candidates
will have acquired at Paper 2.4 Financial
Management and Control.
SYLLABUS CONTENT
1 Accounting principles, concepts and
theory
(a) The ASB’s Statement of Principles
for Financial Reporting.
(b) Agency theory.
(c) Price level changes, capital
maintenance.
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).
3.6 Advanced Corporate Reporting 3.1 Audit and Assurance Services
2.5 Financial Reporting
1.1 Preparing Financial Statements
2.6 Audit and Internal Review
Paper 2.5
Financial Reporting(GBR)
PAGE 80
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.
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 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 ASB’s Financial Reporting Exposure
Drafts and Discussion Drafts / Papers.
KEY AREAS OF THE SYLLABUS
The key topic areas are as follows:
Accounting principles and concepts,
accounting theory
• Statement of Principles.
• Revenue recognition.
• Substance over form.
Preparation of financial statements of
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.
Financial Reporting (GBR) (Continued)
PAGE 81
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.
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
management’s 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
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 25
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
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.
Financial Reporting (GBR) (Continued)
PAGE 82
Financial Reporting (GBR) (Continued)
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 ASB’s '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
PAGE 83
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
Financial Reporting (GBR) (Continued)
PAGE 84
(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 company’s 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
Financial Reporting (GBR) (Continued)
PAGE 85
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 subsidiary’s 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 fixed assets
(ii) stock
(iii) monetary liabilities (basic
discounting techniques may be
required)
(iv)assets and liabilities (including
contingencies) not included in the
subsidiary’s 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
Financial Reporting (GBR) (Continued)
PAGE 86
(b) Analyse and interpret ratios to give
an assessment of a company’s
performance in comparison with:
(i) a company’s 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
company’s 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.
Financial Reporting (GBR) (Continued)
PAGE 87
Paper 2.6
Audit and Internal Review(INT)
3.6 Advanced Corporate Reporting 3.1 Audit and Assurance Services
2.5 Financial Reporting
1.1 Preparing Financial Statements
2.6 Audit and Internal Review
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,
including recommendations to enhance
business performance
• discuss and apply the requirements of
relevant International Standards on
Auditing
• demonstrate the skills expected in Part 2.
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.
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.
Paper 2.6 provides the knowledge and
understanding of the audit process which is
then developed in Paper 3.1 Audit and
Assurance Services.
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.
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.
PAGE 88
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.
PAGE 89
Audit and Internal Review (INT) (Continued)
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) 60
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.
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.
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.
STUDY GUIDE
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 non-
financial 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-for-
profit organisations
These articles and other communications
from the Examiner can be downloaded via
the student section of
www.accaglobal.com.
PAGE 90
Audit and Internal Review (INT) (Continued)
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
PAGE 91
Audit and Internal Review (INT) (Continued)
(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
PAGE 92
Audit and Internal Review (INT) (Continued)
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
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
(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 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,
PAGE 93
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
Audit and Internal Review (INT) (Continued)
PAGE 94
(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
Audit and Internal Review (INT) (Continued)
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
PAGE 95
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,
Paper 2.6
Audit and Internal Review(GBR)
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.
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.
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.
Paper 2.6 provides the knowledge and
understanding of the audit process which is
then developed in Paper 3.1 Audit and
Assurance Services.
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.
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.
3.6 Advanced Corporate Reporting 3.1 Audit and Assurance Services
2.5 Financial Reporting
1.1 Preparing Financial Statements
2.6 Audit and Internal Review
PAGE 96
(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 standard-
setting 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.
Audit and Internal Review (GBR) (Continued)
PAGE 97
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) 60
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.
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.
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.
Audit and Internal Review (GBR) (Continued)
STUDY SESSIONS
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 non-
financial 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-for-
profit organisations
These articles and other communications
from the Examiner can be downloaded via
the student section of
www.accaglobal.com.
PAGE 98
Audit and Internal Review (GBR) (Continued)
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
PAGE 99
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
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
(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
(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
Audit and Internal Review (GBR) (Continued)
PAGE 100
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
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
(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
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
Audit and Internal Review (GBR) (Continued)
PAGE 101
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
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
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
Audit and Internal Review (GBR) (Continued)
PAGE 102
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
Audit and Internal Review (GBR) (Continued)
PAGE 103
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
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.
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
accountant. Examinations at this
stage will be set at a level
equivalent to a UK Masters degree.
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
3
PAGE 104
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.
PAGE 105
Paper 3.1
Audit and Assurance Services(INT)
3.6 Advanced Corporate Reporting 3.1 Audit and Assurance Services
2.5 Financial Reporting
1.1 Preparing Financial Statements
2.6 Audit and Internal Review
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 auditor’s
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 non-
audit 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.
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.
Paper 3.1 develops the knowledge gained
in Paper 2.5 Financial reporting by
introducing the audit implications of
accounting treatments.
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
audits, audit-related services and non-
audit assignments
• critically evaluating procedures and
reports
• introducing current issues and
developments.
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.
PAGE 106
(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) Auditor’s 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
• auditor’s reports
• current issues and developments.
Audit and Assurance Services (INT) (Continued)
PAGE 107
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
‘auditor’s 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 70
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.
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 examination can be downloaded via
the Students section of www.accaglobal.com.
Audit and Assurance Services (INT) (Continued)
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
auditor’s conduct and are included in
ACCA’s ‘Rules of Professional Conduct’
and IFAC’s ‘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 ACCA’s
‘Rules of Professional Conduct’
with those of IFAC’s ‘Code of Ethics
for Professional Accountants’
(iii) outline the contents of ACCA’s
and IFAC’s 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
PAGE 108
Audit and Assurance Services (INT) (Continued)
(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 auditor-
client relationship
(ii) distinguish between disclosure
and use of information
(iii) identify circumstances in which
disclosure is permitted or required
(iv)describe how a client’s
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 take-
over 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
PAGE 109
Audit and Assurance Services (INT) (Continued)
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
PAGE 110
Audit and Assurance Services (INT) (Continued)
practices
(iii) specify the objectives of quality
control policies
(iv) identify the factors which affect
the nature, timing and extent of
an audit firm’s 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 fee-
setting 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 year’s 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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Audit and Assurance Services (INT) (Continued)
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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Audit and Assurance Services (INT) (Continued)
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 auditor’s
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 auditor’s
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, 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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Audit and Assurance Services (INT) (Continued)
(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
auditor’s 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 accountant’s
report for an assurance
engagement
(v) discuss the situations in which it
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Audit and Assurance Services (INT) (Continued)
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, E-
mail, 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
PAGE 115
Audit and Assurance Services (INT) (Continued)
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 auditor’s 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 non-
compliance 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 Auditor’s 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
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
PAGE 116
Audit and Assurance Services (INT) (Continued)
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
PAGE 117
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 auditor’s 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 non-
audit 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
Audit and Assurance Services(GBR)
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.
Paper 3.1 develops the knowledge gained
in Paper 2.5 Financial Reporting by
introducing the audit implications of
accounting treatments.
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
audits, audit-related services and non-
audit assignments
• critically evaluating procedures and
reports
• introducing current issues and
developments.
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
3.6 Advanced Corporate Reporting 3.1 Audit and Assurance Services
2.5 Financial Reporting
1.1 Preparing Financial Statements
2.6 Audit and Internal Review
PAGE 118
(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.
Audit and Assurance Services (GBR) (Continued)
PAGE 119
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 70
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.
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.
Audit and Assurance Services (GBR) (Continued)
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
auditor’s conduct and are included in
ACCA’s ‘Rules of Professional Conduct’
and IFAC’s ‘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 ACCA’s
‘Rules of Professional Conduct’ with
those of IFAC’s ‘Code of Ethics
for Professional Accountants’
(iii) outline the contents of ACCA’s
and IFAC’s 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
PAGE 120
(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 auditor-
client relationship
(ii) distinguish between disclosure
and use of information
(iii) identify circumstances in which
disclosure is permitted or required
(iv)describe how a client’s
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 take-
over 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
Audit and Assurance Services (GBR) (Continued)
PAGE 121
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
Audit and Assurance Services (GBR) (Continued)
PAGE 122
an audit firm’s 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 fee-
setting 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 year’s 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)
Audit and Assurance Services (GBR) (Continued)
PAGE 123
(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 (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
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
Audit and Assurance Services (GBR) (Continued)
PAGE 124
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 auditor’s
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 auditor’s 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
Audit and Assurance Services (GBR) (Continued)
PAGE 125
(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 accountant’s
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
Audit and Assurance Services (GBR) (Continued)
PAGE 126
(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, E-
mail, 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
Audit and Assurance Services (GBR) (Continued)
PAGE 127
(b) Describe the difficulties in measuring
social and environmental
performance and give examples of
targets and sustainability indicators
(c) Explain the auditor’s 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 non-
compliance 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
Audit and Assurance Services (GBR) (Continued)
PAGE 128
Audit and Assurance Services (GBR) (Continued)
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
PAGE 129
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.
Paper 3.2
Advanced Taxation(United Kingdom)
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.
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.
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
employment
(e) Income tax on income from self-
employment
(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 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
3.2 Advanced Taxation
2.3 Business Taxation
PAGE 130
(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 anti-
avoidance 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 self-
employment
(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
Ax C
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 anti-
avoidance provisions (with the
exception of those detailed in the
Advanced Taxation (United Kingdom) (Continued)
PAGE 131
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 non-
business aspects).
• Questions involving mainly financial
planning will not feature in Section A.
Note, however, that questions may
Advanced Taxation (United Kingdom) (Continued)
PAGE 132
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 50–60%.
• 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 50
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.
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.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
textbooks useful:
A Homer, R Burrows Tolleys Tax Guide
Tolley Publishing ISBN 1860128319
Sonia Gable Taxbriefs Tax Guide
ISBN 1902824938
Advanced Taxation (United Kingdom) (Continued)
PAGE 133
(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
Advanced Taxation (United Kingdom) (Continued)
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
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
(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
schemes (approved and
unapproved schemes)
(iii) lump sum receipts
(iv)exempt benefits
(v) personal service companies
(e) Income tax on income from self-
employment
(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
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 [email protected].
Wider reading is also desirable, especially
regular study of relevant articles in ACCA's
student accountant.
PAGE 134
– 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
Advanced Taxation (United Kingdom) (Continued)
(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) explain the rules relating to
associated operations
(xxi) 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,
PAGE 135
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
Advanced Taxation (United Kingdom) (Continued)
PAGE 136
(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
Advanced Taxation (United Kingdom) (Continued)
PAGE 137
(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.
Advanced Taxation (United Kingdom) (Continued)
PAGE 138
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 non-
financial 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.
Paper 3.3
Performance Management
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)
3.3 Performance Management 3.7 Strategic Financial Management
2.4 Financial Management and Control
1.2 Financial Information for Management
PAGE 139
(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
(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
Performance Management (Continued)
(ii) effect of management structure
and style
PAGE 140
(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) 60
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
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.
Performance Management (Continued)
PAGE 141
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 organisation’s
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
Performance Management (Continued)
PAGE 142
(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 organisation’s
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
Performance Management (Continued)
PAGE 143
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 NFPI’s
with financial performance indicators
(b) Discuss the implications of the
growing emphasis on NFPI’s
(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 Non-
Profit 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 non-
profit 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
Performance Management (Continued)
PAGE 144
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
Performance Management (Continued)
PAGE 145
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 profit-
volume 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
Performance Management (Continued)
PAGE 146
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 activity-
based 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
Performance Management (Continued)
PAGE 147
(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
Performance Management (Continued)
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.
PAGE 148
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.
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.
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.
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
(iv) automation and support systems
(v) batch processing.
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.
3 IS and the strategic planning process
(a) The organisation and information
management
(i) the business context
3.4 Business Information Management
2.1 Information Systems
PAGE 149
(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.
5 Gap analysis and business case
development
(a) General framework:
(i) where we are W2R
(ii) where we want to be W32B
(iii) going to get there (GT)2.
(b) Business case development
(i) rationale, cost estimation and
timescales
(ii) estimating benefits
(iii) benefit realisation dependencies
(iv) sensitivity analysis
(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
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,
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.
Business Information Management (Continued)
PAGE 150
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 60
question will exceed 25 marks)
Section B: Choice of 2 from 3
questions (20 marks each) 40
100
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.
Business Information Management (Continued)
PAGE 151
Business Information Management (Continued)
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.
PAGE 152
Business Information Management (Continued)
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 life-
cycle 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
Checkland’s soft systems
methodology.
(b) Apply the major tools employed in
Checkland’s 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 W2R
Where we want to be W32B
Going to get there (GT)2
(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.
PAGE 153
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.
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
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
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
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
Business Information Management (Continued)
PAGE 154
Business Information Management (Continued)
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 Socio-
Technical 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
PAGE 155
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 organisation’s
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
Strategic Business Planningand Development
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.
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.
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 develops parts of the knowledge
obtained in Paper 2.1 by
• reinforcing the knowledge of managing
information systems at a strategic level.
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.
In Paper 3.1 Audit and Assurance Services
there will be links with professional and
ethical considerations.
In Paper 3.3 Performance Management
there will be strong relationships with areas
on performance measurement and
decision-making.
In Paper 3.4 Business Information
Management there will be related material
on information resource management and
information systems and competition.
PAGE 156
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) Porter’s 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 e-
marketing
(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
Strategic Business Planning and Development (Continued)
PAGE 157
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
Strategic Business Planning and Development (Continued)
PAGE 158
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 60
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
Strategic Business Planning and Development (Continued)
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
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) Butterworth-
Heinemann 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
PAGE 159
Strategic Business Planning and Development (Continued)
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) Porter’s 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
PAGE 160
(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 e-
marketing
– 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
Strategic Business Planning and Development (Continued)
PAGE 161
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
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 organisation’s
policy
(ix) understand marginalist theories
of organisational objectives
(x) explain the accounting concept of
profit
(xi) explain the economist concept of
profit
(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
Strategic Business Planning and Development (Continued)
PAGE 162
15 Methods of strategy development
(a) Ccompare level one and level two
strategies
(b) Evaluate internal development
(c) Evaluate organic growth:
Greiner’s 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
Strategic Business Planning and Development (Continued)
PAGE 163
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 re-
engineering
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
Strategic Business Planning and Development (Continued)
PAGE 164
(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
Strategic Business Planning and Development (Continued)
PAGE 165
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
Strategic Business Planning and Development (Continued)
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
PAGE 166
Paper 3.6
Advanced Corporate Reporting(INT)
3.6 Advanced Corporate Reporting 3.1 Audit and Assurance Services
2.5 Financial Reporting
1.1 Preparing Financial Statements
2.6 Audit and Internal Review
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.
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.
The paper complements the skills acquired
in studying the other core papers in Part 3
of the ACCA examination structure.
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
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.
PAGE 167
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
Advanced Corporate Reporting (INT) (Continued)
PAGE 168
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 25
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.
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
Advanced Corporate Reporting (INT) (Continued)
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
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
Accounting Standards Board is a useful
source of information (www.iasb.org).
PAGE 169
Advanced Corporate Reporting (INT) (Continued)
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 re-
organisation 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/non-
monetary 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
PAGE 170
Advanced Corporate Reporting (INT) (Continued)
(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
PAGE 171
Advanced Corporate Reporting (INT) (Continued)
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 non-
financial 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
PAGE 172
Advanced Corporate Reporting (INT) (Continued)
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
PAGE 173
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.
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.
The paper complements the skills acquired
in studying the other core papers in Part 3
of the ACCA examination structure.
SYLLABUS CONTENT
1 The UK regulatory framework
(a) Financial Reporting Standards,
Financial Reporting Exposure Drafts,
Discussion Papers, Urgent Issues
Task Force pronouncements
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.
3.6 Advanced Corporate Reporting 3.1 Audit and Assurance Services
2.5 Financial Reporting
1.1 Preparing Financial Statements
2.6 Audit and Internal Review
Paper 3.6
Advanced Corporate Reporting(GBR)
PAGE 174
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
Advanced Corporate Reporting (GBR) (Continued)
PAGE 175
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 25
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
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.
The websites of the Accounting Standards
Board (www.asb.org.uk) and the
International Accounting Standards Board
Advanced Corporate Reporting (GBR) (Continued)
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
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
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
(www.iasb.org.uk) are also useful sources
of information.
PAGE 176
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 re-
organisation and restructuring
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
(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/non-
monetary 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
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,
joint arrangements and foreign
currencies
9 Fixed assets I
(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
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
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
12 Financial Instruments II
(a) Discuss the measurement issues
relating to financial instruments
(b) Explain and apply the recognition
and measurement criteria for
Advanced Corporate Reporting (GBR) (Continued)
PAGE 177
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
Advanced Corporate Reporting (GBR) (Continued)
PAGE 178
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 non-
financial 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
Advanced Corporate Reporting (GBR) (Continued)
PAGE 179
Advanced Corporate Reporting (GBR) (Continued)
(iv) estimates
(v) adoption dates
(vi) disclosure
28 Revision
PAGE 180
Paper 3.7
Strategic Financial Management
3.3 Performance Management 3.7 Strategic Financial Management
2.4 Financial Management and Control
1.2 Financial Information for 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.
PAGE 181
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
PAGE 182
Strategic Financial Management (Continued)
(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 70
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
PAGE 183
Strategic Financial Management (Continued)
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
general texts useful:
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:
STUDY SESSIONS
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, customers,
suppliers and the
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
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.
(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,
J Stern, D Chew (eds) The Revolution in
Corporate Finance Blackwell
ISBN 0631185542.
Wider reading is also desirable, especially
regular study of relevant articles in ACCA's
student accountant and journals such as
the Journal of Applied Corporate Finance.
PAGE 184
Strategic Financial Management (Continued)
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 long-
term financial planning, and the
potential conflict between short-
term 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 mean-
variance 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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Strategic Financial Management (Continued)
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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Strategic Financial Management (Continued)
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 post-
audit and monitoring of post-
acquisition success.
13 & 14 Corporate reorganisation
(a) Divestments
(i) describe the nature of, and
reasons for, divestments.
(ii) describe ‘unbundling’and ‘de-
merging’ 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 buy-
outs, and understand the issues
that a management team should
address when preparing a buy-
out 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 risk-
transaction, 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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Strategic Financial Management (Continued)
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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Strategic Financial Management (Continued)
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 (the European
Union, ASEAN,
North American Free Trade Area
etc.)
(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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Strategic Financial Management (Continued)
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 multi-
option 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.
PAGE 190
Strategic Financial Management (Continued)
(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.