PQ magazine, May 2019

PQ magazine May 2019

www.pqmagazine.com / www.pqjobs.co.uk

Patisserie Valerie: would internal audit have saved the high street chain? More on page 26

TIME TO SPLIT AUDIT FROM CONSULTANCY This time it’s for real, this time there appears to be sustained If an audit political pressure to change cannot spot a the UK audit profession £90m fraud in a forever. £110m-a-year cake In fact, the time may even have shop, you have to come to split the ‘Big 4’ audit ask questions function from consultancy services altogether, says the Business, about what use it is Energy and Industrial Strategy at all (BEIS) Select Committee.

– Rachel Reeves It’s ‘Future of Audit’ report endorses the Competiton and Markets Authority’s proposed operational split between audit and non-audit, but argues that going further with a complete structural break-up is the only way to tackle conflicts of interest and provide the professional scepticism needed to deliver high-quality audits.

Chair of the BEIS committee Rachel Reeves MP stressed: “If an audit cannot spot a £90m fraud in a £110m-athe Big 4 firms, who prefer to talk about an year cake shop, you have to ask questions about ‘expectation gap’, and who feel people are what use it is at all.” expecting too much of audit. Reeves said: “We She felt in many ways audit is a 19th century found not an expectation gap, but serious product trying to adjust to a 21st century global delivery gaps!” She pointed out that even the economy. “So, it’s perhaps not surprising that Financial Reporting Council says some 27% of the nature and quality of audit is not what we audits are below standard. What other industry, want or what we need today,” she explained. she asked, would survive with this level of Reeves took a swipe at senior management in quality? A school would have been put in special

“

measures straight away and a supermarket would see customers flocking somewhere else.

The report said that the Big 4 accounted for 97% of the FTSE 350 audits and 99% of the FTSE 100 audits in 2016-17. To improve resilience and choice, MPs are recommending a segmented market cap and the use of joint audits, on a pilot basis, for the most complex audits to enable the challenger firms to step up. Audit rotation also needs to move to seven-year non-renewable terms, with a cooling off period of three years in which non-audit services cannot be offered to a former audit client.

There is a worry that the Big 4 firms are consistently underbidding for audit work. Reeves said across the Big 4 some 37% of audits end up costing significantly more than originally budgeted. In 73% of these cases a higher fee for audit was negotiated. “No wonder it is very difficult for challenger firms to compete on price with the Big 4,” she said. Reeves feels that the Big 4 are both cross-subsidising audit and under-pricing in their tender bids. “This is anti-competitive and it must stop,” she said.

Continued on page 8

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comment PQ

CONTENTS News 06#CharteredStar You could be

an ICAEW ambassador on the world stage 08Ofsted report Kaplan ‘requires improvement’, says watchdog 09Going concern FRC getting tough on audit standards 10AAT pass rates Latest figures show more of the same Features, etc 04Mind your Ps&Qs OPBAS doesn’t know what it’s doing; ACCA lost my exam script; and my AAT exam software woes 12Tech news An update on what’s going on in the digital world 14Farewell FRC Audit, Reporting and Governance Authority set to replace tainted watchdog 15CIPFA SPF exam Top tips on how to get through this paper 16Money laundering Don’t ignore the regs, warns the FCA 17ACCA AA exam Our Lecturer of the Year offers expert advice on getting to grips with this topic 18CIMA spotlight Preparing PQs for the challenges ahead 21Management case What you need to focus on to get a pass 22ACCA SBL exam Good technique will see you through 24Study apps Our guide to apps that’ll help you study effectively

May 2019 26Analysis The lessons from the

Patisserie Valerie; and fixed overhead variance explained 28Artificial intelligence Will AI change your working life?

29Careers Life in the NHS; five top tips for boosting your career; and our book review 30Fun stuff – and our giveaways The columnists Robert Bruce The human touch will save the workplace 6 Prem Sikka The profession’s inertia has forced legislators to act 8 Zoe Robinson Resilience is a characteristic worth developing 10 Mike Day Getting the right skills is crucial for your career 12 Subscribe to PQ magazine It’s FREE – see page 25 or go to www.pqmagazine.com MAY 2019 ISSUE Total Distribution

30,555 Publisher’s statement: We send both a paper and digital issue to a controlled database each month.

The above figure is the combined total of issues sent out this month.

Free to subscribers who fulfil our terms of control Annual subscription: £35 (£50 overseas)

UK law is king!

Rachel Reeves recently gave a keynote speech on the BEIS select committee’s Future of Audit report at Chartered Accountants Hall. She has helped us write our front page story, and she told the great and the good that accountants and auditors adhere more to accounting standards than they do to UK law.

It should, she said, be the other way around. BEIS is recommending that the government and the regulator (the FRC at the moment) clarify the position this way as soon as possible. Reeves pointed out that one of the myths about audit is that they are not forward looking. But she felt they are, at least up to a point – as the ‘going concern’ assumption demands that auditors make an objective assessment of the short-run future of the company. But that’s enough of audit…

Apprenticeship and careers conference We have also joined forces with The College of Harringey, Enfield & North East London, AAT, Leadership Through Sport and Tottenham Hotspur football club to help with their accounting apprenticeship and careers conference. We believe a career in accountancy should be open to all. If you know someone who wants help getting on the career ladder then get them along on 1 May. I will be there to say hello (see page 9 for how to sign up).

Great giveaways We have some great giveaways this month, too. We have top tutor Sunil Bhandari offering to be a ‘tutor in your pocket’ (on page 11). A lucky ACCA AFM student will be given a real chance of passing one of those tough optional exams. We also have five sets of exam kits for the CIMA MCS up for grabs – see pages 21 & 22. It doesn’t end there – there’s also a chance to win a fabulous ‘I love tax’ t-shirt and Today programme puzzle book!

Graham Hambly, PQ magazine editor (graham@pqaccountant.com)

*DLQ 4XDOL FDWLRQV LQ YLD 2QOLQH 6WXG\ Combine the CIMA Advanced Diploma with a BSc Accounting Degree, and develop a solid grounding in both technical accounting and non-technical skills required for a successful professional career.

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PQ email graham@pqaccountant.com

HAVE YOUR SAY OPBAS isn’t helping Your online article about OPBAS was interesting (‘What money laundering?’, PQ website, 13 March). It’s true that some bodies aren’t doing enough – CIOT do not regulate their members at all, don’t do practice assurance reviews and largely hope for the best. But other accountancy bodies, particularly AAT and ICAEW, do a very good job – look at any AAT members’ magazine to see the action it has taken against members for their AML failings.

The comment that bodies don’t regulate for fear of their members leaving is untrue.

What they fear is

imposing huge and unnecessary costs for no tangible benefit, which will absolutely lead to members leaving the professional bodies.

OPBAS have been running for 15 months, and are so incompetent that they remain undecided how much to charge bodies for the privilege of falling under their remit. They have consulted on the issue three times, and recently decided to do so for a fourth time, causing further delay and uncertainty.

Pot, kettle, black…

Ted Cordener, by email The editor says: Very interesting comments, thank you. In light of your letter we have re-printed the article in this issue – see page 16.

Our star letter writer wins a fantastic PQ mug!

went back to the first two questions to double check my answers and found they had been lost. So I lost the first 20 minutes of the exam and did not have this added back.

This happened again, in February 2019, during my financial statements exam. Again, the screen froze after the first two questions with the clock still ticking. The invigilator claimed she did not know what to do and left me in the exam room on my own while seeking help from my tutor.

She had to pause the exam and then un-pause it – again my first two answers were lost, and I lost 15 minutes of the time.

I did submit a formal complaint with my college and this is now at stage 3. As I still have three more exams to sit and I do not want this happening a third time.

Name and address supplied The editor says: We took this matter up with the AAT after last month’s article. We got a response which we will publish in next month’s issue.

Most inconvenient

Ethiopian tragedy

I noted your article headlined ‘Inconvenient news’ (PQ, April ’19) about ACCA losing an exam script.

While my incident is not the same as the one described in the article, I too have received terrible service from the ACCA exam team.

I received an email from ACCA on 8 February 2019 headed ‘Important Information Regarding ACCA Exam Results’. In summary, this email outlined an issue that the ACCA had uncovered relating to the results I received for my F7 June 2018 exam session. Due to a technical issue, some of the exam content that I had completed was not presented for marking. The content was subsequently recovered and marked, and the mark I would have achieved was 55 (not the 46 originally stated). In the meantime, between ‘failing’ this exam and the email from ACCA I had sat and passed the exam (in the December 2018 exam session).

In terms of compensation, all I was offered was a refund of my resit fee. However, I do not feel this is acceptable, based on the additional time and expense I incurred to resit this exam. I currently have an ongoing complaint with the ACCA. Name and address supplied

Many of you will have seen the news about the Ethiopian Airlines crash on the 10 March, in which 157 people tragically lost their lives.

Sadly, we learned a few days afterwards that an ACCA member and an ACCA student were aboard the plane.

Mercy Ndivo Ngami was an ACCA member and a recent Masters in Professional Accountancy graduate. Mercy and her husband, Mwazo Jared Babu, had been in London to attend her Master’s graduation ceremony on 5 March, where we celebrated her success. Mercy became a member in 2016 and worked as an auditor with KPMG in Nairobi. Mercy and Mwazo leave behind a 15-monthold son.

Mulusew Alemu Abi was an ACCA student. Yodit Kassa, Head of ACCA Ethiopia, told us about Mulusew, saying that he had only recently visited the office to pay his subscription, and was on his way back to Kenya for his job with Catholic Relief Services. The Ethiopian team met with his family recently to offer their condolences at this very sad time.

Our thoughts are with their family and friends.

Robert Stenhouse, ACCA President

I need pqjobs.co.uk

AAT software woes I read your article headlined ‘AAT software issues’ (PQ, April ’19) and unfortunately I have been faced with these software issues during live exams on two occasions.

The first occasion was in August 2018, during my budgeting exam,

where the screen froze after the first two questions (20 minutes into the exam) and the invigilator had to pause my exam and then ‘unpause’ it to rectify the screen freezing. However, when the exam was paused the clock was in fact still ticking – when I started again I

PQ Magazine Unit 3a, Kingfisher Heights, 2 Bramwell Way, Royal Docks, London E16 2GQ | Phone: 020 7216 6444 | Email: graham@pqaccountant.com Website: www.pqmagazine.com | Editor/publisher: Graham Hambly graham@pqaccountant.com | Associate editor: Adam Riches | Art editor: Tim Parker | Contributors: Robert Bruce, Prem Sikka, Mike Day, Tony Kelly, Phil Gammon, Edward Netherton | Subscriptions: dom@pqaccountant.com | Origination and print services by Classified Central Media If you have any problems with delivery, or if you want to change your delivery address, please email dom@pqaccountant.com

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PQ news

ROBERT BRUCE Why the human touch will save the workplace Many a sports pundit will point out that predictions are nearly always wrong. But that doesn’t stop people trying. The latest, from the Royal Society of Arts, aims to look at scenarios for the world of work 15 years from now. It comes up with four, in its report called ‘The Four Futures of Work’. There is the ‘Big Tech’ future, with technology wiping out most jobs; a ‘Precision Economy’, where surveillance and algorithms wipe out freedoms; and an ‘Exodus Economy’, where jobs are driven downmarket to austerity and simple survival. Finally, there is an ‘Empathy Economy’, that is again driven by technology but runs hand-in-hand with stewardship.

All of these models are shown to have advantages and disadvantages.

That means thoughtful planning, not an acceptance of impotence in the face of technology. As RSA head Matthew Taylor says: “Whatever futurists may speculate about the singularity, right now and for the foreseeable future it is human beings, not algorithms, who will decide whether technology will make our lives better or worse.” One of the problems is that our MPs are, says an RSA survey carried out along with the report, “clueless” about the impact of technology, particularly in relation to women. By chance, as I read this report, I was also reading a profile of the female chief of a global fashion company. It was striking.

Observing how the almost entirely women-run business operated it was obvious that it was empathy and thought that powered the place. There is the way forward in work.

Robert Bruce is an award-winning writer on accountancy for The Times

Sniff a lemon!

If you want exam success then it may be time to put down the highlighter, stop burning the midnight oil – and start sniffing lemons instead!

A ‘Brain Can Do’ study programme suggests ‘positive triggers’ like smelling lemons or squeezing your ears could really help with exam stress.

Neuroscientists have been looking at how young people’s brains work to help them maximise learning. Working for five years with Queen Anne’s School, the scientists have come up with what they are calling the ultimate revision guide.

Top of the list is not studying too late, and revising at the same time of the day as your actual exam.

Easier said than done if you have a

Your chance to shine The ICAEW has launched its #CharteredStar competition to find five delegates to attend the One Young World Summit, which will take place in London from 22 October.

So, do you know a young ICAEW member or student who fits the bill? Then you need to enter them for this truly amazing experience.

The representatives will be an ICAEW member or ACA student

aged 18 to 35, have a passion for global issues and have the ability to inspire and motivate others. They must be able to

full-time job, but there are the weekends.

Highlighting and underlying reams of texts was dismissed as unhelpful. Instead, you are advised to use practice tests and write your own flash cards.

Visualisation of the exam room will also make the exam easier. A visit may help with that process, particularly if you are of a nervous disposition.

Other tactics for tackling nerves include deep breathing, shoulder rolling and head lifts. If this isn’t working then it may be time for the ‘Superman’ pose, the scientists say.

Avoiding negative people before the exam itself is also heavily advised – interestingly more for women than men.

demonstrate true leadership and have a vision of how they – and the chartered accountancy profession – can have a positive impact on society. Finally, the ICAEW is looking for someone who has a track record of making a significant impact in their communities, countries or organisations.

Closing date for applications is midnight (BST) on Sunday 19 May. Full details on how to enter (including Ts & Cs) can be found at www.icaew.com/charteredstar – and see page 24 for more.

Seeded questions to be scrapped Unmarked seeded content will no longer be included in the Applied Skills session CBE exams, the ACCA has announced.

It says as part of its ongoing exam development the unseeded questions have been taken out of the June 2019 exams.

ACCA explained: “We’re integrating additional quality

assurance production processes and systems for these exams, which means we’ll be able to continue to offer the same level of exam scheduling flexibility, fairness and results reliability, all without the need to include unmarked seeded questions.”

That means, as of June 2019, the exam duration for Applied Skills

session CBEs will change from three hours 20 minutes (plus 10 minutes instruction time) to three hours (plus 10 minutes instruction time).

ACCA went on to say that not only does this make the exam duration more efficient, it also gives students comfort that all their work will contribute to their final mark.

that their mental health is one of their top three concerns.

begun an internal investigation into essay-writing services.

Time to block cheats More pressure is being put on Paypal to block essay firm cheats by the education secretary Damian Hinds. He says such firms are unethical and profit from “a dishonest business model”. Hinds has also suggested that UK universities should introduce USstyle ‘honour codes’, where students have to promise not to cheat. Paypal has confirmed it has

Student jailed A University of Greenwich business and finance student caught with a stun gun in her car and class A drugs stuffed in her underwear has been jailed for five years. Sanura ‘Sunny’ Kiboma, 19, had wraps of crack cocaine and heroin secreted inside her bra and underwear when police pulled over her Ford Focus. The stun gun was disguised as a torch.

AAT signs MoU with MICPA AAT and the Myanmar Institute of Certified Public Accountants (MICPA) have signed a Memorandum of Understanding (MoU), affirming their commitment to work together to support the development of entry and intermediate level accountants and accounting technicians in Myanmar. The two organisations will work together to increase the numbers of accounting technicians in the country, to serve the fastgrowing economy.

In brief Lonely students A worrying one in six students (17%) say they have no ‘true friends’ among their university peers, according to research published by Wonkhe. This rises to 20% for international students. The study discovered a third of students feel lonely at least once a week, and 16% feel that way every single day of term time. Not surprisingly, loneliness, friendship and concern over mental health are all linked in the data. Almost half of all students (45.5%) say 6

PQ Magazine May 2019

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PQ news

PREM SIKKA Profession’s inertia has forced legislators to act A report by the House of Commons Business, Energy and Industrial Strategy (BEIS) Committee contains the latest proposals for reforming the auditing industry. It calls for a structural break-up of the Big 4 firms – the splitting of audit and non-audit parts of the business into two separate and independent legal entities. This should encourage audit firms to focus solely on audits, avoid the temptation to use audit as a stall for selling other services and reduce the conflict of interests that impair auditor independence and audit quality.

In common with the Competition and Markets Authority report, the Committee calls for joint audits for FTSE350 firms. This will reduce the Big 4 domination of the audit market and encourage mid-tier firms.

The big firms and the ICAEW oppose the proposals, but they may receive little sympathy. They had plenty of time to reform but did little.

Their failures risked undermining confidence in businesses and forced the legislators to intervene.

Further interventions are likely as auditor silence at Patisserie Valerie, London Capital & Finance and 3aaa continues to amplify concerns about audit quality previously raised by the collapse of BHS, Carillion and the 2007-08 banking crash. The BEIS Committee also suggests that big firms may have lowballed audits to secure audit and non-audit business.

Public opinion has been highly sensitised to allegations of audit failures and reforms are likely to be imposed, despite the opposition.

Prem Sikka is Emeritus Professor of Accounting at the University of Essex

Kaplan ‘needs improvement’ Kaplan Financial has been hit with a downgrading of its apprenticeship and adult learning provisions.

PQ magazine has discovered that an Ofsted full inspection last year moved the provider down from ‘good’ to ‘requires improvement’.

The inspection covered the apprenticeship provision up to Level 5. Ofsted said Kaplan managers did not act quickly enough to ensure that all apprentices receive good-quality

training from every subcontractor.

They also did not have sufficient information about apprentices’ progress so that they could act quickly when they fell behind.

Interestingly, Ofsted went on to say most adult learners and apprentices do not have a good understanding of British values and “the risks of extremism because tutors and talent coaches are not skilful enough to make these topics relevant to them”.

Take time to read the case ACCA SBL exam sitters need to set aside 40 minutes to read the case study and requirements and plan their answers, says the examiner. The other 200 minutes needs to be allocated to preparing and answering the individual requirements. That’s two minutes to earn each mark.

In the most recent Examiner Approach Article students are told this exam will both look and feel very different to anything they have ‘experienced’ before. The promise is there will be no more than 12-18 pages of information and exhibits for each exam.

When the exam starts candidates are advised not to skim through the paper – remember there’s no choice of question.

• Read our full summary of the SBL examiner’s advice on www.pqmagazine.com

The proportion of adult learners who successfully completed their courses was also low.

A Kaplan spokesman told PQ magazine: “We welcome the inspection and accept Ofsted’s findings.

“Their report recognised that our teaching is good; their critical observations were, in main, about programmes we no longer offer. We look forward to a re-inspection in the near future.”

Ding ding! ATT celebrated its 30 birthday in style recently at the London Transport Museum. The museum was chosen as the venue because the current President Tracy Easman’s father worked for London Transport for more than 34 years.

It was a double celebration, with the ATT announcing it now has a record 9,200 members, and is edging closer to that magical 10,000 figure. Tracy is pictured with CIOT President Ray McCann

Time to split audit and consultancy Continued from page 1 Reeves concluded: “Change in the audit market is long overdue. The reviews from the CMA and Kingman highlight the failings; now we need action. The Big 4’s dominance has fostered a precarious market which shuts out challengers and delivers audits

which investors and the public cannot rely on.”

She went on: “For the big firms, audits seem too often to be the route to milking the cash-cow of consultancy business…The Big 4 may not like it, they may seek to undermine the case for reform, but vested interests should not be

freelancers and university lecturers. More than 1,100 tutors from 85 countries registered in early April for the twoday online conference, which will run on 24 and 25 April. The conference will kick off at 8.30am and has a great programme throughout the two days. Make sure your tutor is signed up!

Boosting internal audit CIPFA is calling on the public sector to provide more recognition, support and encouragement for the heads of internal audit and their teams. In a new statement, CEO Rob Whiteman said: “Heads of internal audit across the whole public sector are working in increasingly high pressure environments, contending with restricted and growing levels of financial risk.”

• Check out how BDO believes internal auditors could have helped

allowed to get in the way of positive change.”

Some firms appear to be trying to get ahead of the curve. It is being reported that both KPMG and BDO are exploring how they could spin off their audit arms. KPMG ‘s audit practice currently has 200 partners and about 5,000 staff. This could become the standalone entity or a subsidiary of KPMG if the plans go ahead.

In brief PQ winner gets award He couldn’t make it to our awards, but we now have proof that James McDowell has his Distance Learning Student of the Year award!

McDowell, who is from Brighouse in West Yorkshire, studies with Premier Training.

Well done James!

GLPC goes virtual The Global Learning Providers Conference has gone virtual, and opened up to all approved tutors, 8

troubled high street chain Patisserie Valerie (page 26).

New CIMA/ACCA provision Open Study College, the highly successful AAT and ICB distance learning provider, has launched ACCA and CIMA accredited accountancy courses.

They will be available to students at any level who wants to build on their existing qualifications. For more information check out the Open Study College website at www.openstudycollege.com PQ Magazine May 2019

news PQ

‘Going concern’ audit worry Strategic level CBEs ACCA is gearing up for the next phase of its move to comprehensive CBE exams. Pilot (or Wave One) markets will begin to offer the Strategic papers from March 2020.

The UK, Ireland and the Czech Republic will be allowed to provide CBE sittings at selected centres.

These exams will run in parallel to paper-based exams.

The introduction of CBEs for the Applied Skills exams has been a resounding success. The June sitting will be the first time all PQs sitting the Applied Knowledge and Applied Skills papers will sit only CBE exams. There will be no paper exams, except in countries where are ‘extenuating’ circumstance.

Auditors need to show they have robustly challenged management’s assessment of going concern, say new proposals from the Financial Reporting Council (FRC).

The watchdog is proposing to increase the work required of auditors when assessing whether an entity is a going concern. The consultation on important revisions to International Standard on Auditing (ISA) (UK) 570 ‘Going Concern’ follows worries about the quality and rigour of audit. In recent years there has been a

number of well-publicised corporate failures where the auditor’s report failed to highlight concerns about the prospects of entities that collapse shortly after; a situation reinforced by the findings of recent FRC enforcement cases.

The FRC said it needed: “Auditors to make a greater effort to robustly challenge management’s assessment of going concern, thoroughly test the adequacy of the support evidence, evaluate the risk of management bias, and make greater use of the viability

statement.”

In addition, it wants to see an improved transparency with a new reporting requirement for the auditor to provide a conclusion on whether management’s assessment is appropriate, and set out the work they have done in this respect.

Finally, the FRC is introducing a ‘stand back’ requirement to consider all of the evidence obtained, whether corroborative or contradictory, when the auditor draws their conclusions on going concern.

New FM code for local authorities CIPFA is proposing a new code that will drive improvement in financial management for all local authorities in the UK. The CIPFA Financial Management Code has been designed to help local authorities to demonstrate financial sustainability and support good practice. It builds on the underlying principles of leadership, accountability,

transparency, professional standards, assurance and sustainability.

It will be the first time many areas of local government financial management has been codified.

Essex County Council’s Margaret Lee said: “Local government has faced funding reduction since 2010 and growing pressures on public

services, both of which are challenging the financial sustainability of local authorities.

“Stronger financial management is essential within the sector, particularly where budgets show a consistent use of unplanned reserves, a growth in overspending, and a lack of medium and long-term planning.”

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PQ Magazine May 2019

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PQ news

ZOE ROBINSON Resilience will stand you in good stead in your career In the current political climate it is hard to find anything people agree upon, but maybe there is one.

Whatever you think of Theresa May's leadership, beliefs or policies, few would deny she is incredibly resilient.

Time and time again she has experienced significant setbacks, but she has managed to come back with the same level of determination.

Resilience is the ability to take whatever is thrown at you and return to the status quo, quickly. People who are resilient appear to draw on an inner mental reservoir that carries them though a crisis. Failing an exam is a good example of a setback, failing an exam twice or even three times is a series of setbacks, but what is it that gives some people the mental strength to carry on? Research into this area shows that people who are resilient have several identifiable mental qualities: a positive attitude, remaining optimistic, an ability to regulate their emotions – failure is not seen as such, it’s simply feedback.

Let’s unpack just one of these. A positive attitude is often misunderstood, being thought of as a naive belief that everything will work out for the best. In fact it's a state of mind that can be developed, where you look towards solutions, rather than feeling the situation is unsolvable and all is lost.

There is a lot written about this area but one resource I would recommend is CABA (ICAEW also has some excellent advice that can really help). Take a look at CABA’s: it’s at http://tinyurl.com/y65nn4um Zoe Robinson is Learning and Programmes Director at Kaplan Financial

A distinctive approach The latest AAT pass rates are out, and again they come with a breakdown of the number of PQs who manage to gain a distinction, merit or just a plain old pass at the various levels of the qualification.

It’s still pretty impossible to gain a distinction for the Professional Diploma in Accounting. Just 3% of those passing the final level managed this, with another 46% achieving a merit, and the rest

AAT QUALIFICATION AND GRADES Foundation Certificate in Accounting Foundation Diploma in A&B Advanced Diploma in Accounting Professional Diploma in Accounting

Pass 4% 10% 26% 51%

Merit 43% 71% 54% 46%

Distinction 52% 17% 20% 3%

CIMA’s on the case Vitimins, pre-fabricated houses and private healthcare are the subjects of May’s CIMA case studies.

For the Operation case you will find yourself working as the finance officer of VitaMine, supporting the finance manager. VitaMine is in the business of vitamin, minerals and supplements. Among the 23 pages is an article on whether the Internet is the best place to shop for our health and nutritional needs.

The Management case centres on Jord Homes, which manufactures and assembles highquality prefabricated houses – see page 21 for more on this, and our great giveaway with HTFT! Finally there’s Denby Healthcare, the 28-page Strategic case study.

Sitters will play the role of senior manager in the finance function of a private hospital group. Looks like ‘Keeland’ has an NHS, or KHS too!

Splashing out on entertainment The Big 4 accountancy firms spent £700,000 on wining and dining clients, despite new rules effectively banning the practice. The Financial Reporting Council (FRC) introduced new ethical standards in 2016 which stated firms must not give or receive gifts, favours or hospitality “unless trivial or inconsequential”. As part of an inquiry into the sector Deloitte, EY, KPMG and PwC were asked to disclose their annual hospitality spending for both existing and prospective clients by the Business, Energy & Industrial Strategy Select Committee. The Big 4 have disclosed budgets per head for current clients.

10

(51%) having to be content with a pass.

However, there has been a slight jump in the awarding of distinctions for the Foundation and Advanced Diplomas. Both have seen a 2% increase in the number of AAT students receiving a distinction.

The AAT has also released the overall CBA pass rates. At Foundation they stand at 84.9%, and then move down to 71.8% for

the Advanced papers. The Professional CBA pass rate for the 12 months to 31 December 2018 was 62%.

The stand-out ‘toughie’ individual papers continue to be IBLW, CTRM and PDSY. They are joined this time around by MDCL and CDMT. At 52.5% Management Accounting: Decision & Control has the distinction of having the lowest pass rate for the 12 months to the end of the year.

Access to Bookkeeping, with a 95.4% pass rate, and BPLS at 95.1% are the assessments with the best pass rates.

• See next month’s issue for those pass rates in full

Keep on running: our Private Sector Tutor of the Year can do anything!

She is now running the London Marathon, of course. Watch out for LSBF’s Brigita Petrova on 28 April.

Read her Article on Audit & Assurance on page 17

Taking the leadership challenge Pearson College London has launched an MSc in Financial Leadership for tomorrow’s CFOs. The business school certainly does things differently, and it puts industry engagement at the core of everything they do.

The programme incorporates the

PwC’s is £20, Deloitte’s £150, EY’s £175 and KPMG’s is the highest at £200 a head.

However, Deloitte’s entertainment bill for prospective clients was £120,000 in the past two years. EY forked out an average of £61,000 a year; PwC spent £43,000 a year between 2014 and 2018; and KPMG’s spent on average £27,000 a year.

Controversial review The FRC has come under attack for creating a ‘clear conflict of interest’ by appointing former KPMG manager Sally Dewar (pictured) to review the Big 4’s audit division. Dewar is currently head of consulting at law firm Allen & Overy, but she trained with KPMG as a chartered accountant

whole of the ACCA professional stage exams. On top of providing tuition for each of the professional stage modules students receive 11 CIMA exam exemptions.

For more details email exemptions.postgraduate@pearson collegelondon.ac.uk

and worked there for six years. The Commons’ Business Select Committee has written to FRC CEO Stephen Hadrill, asking him to explain the decision and to outline how it will protect against conflicts during the review.

PwC is top of the tree PwC has retaken its FTSE 100 client crown from KPMG. Figures from Adviser Rankings also show that, along with Hikma Pharmaceuticals and Hiscox, PwC has 29 FTSE 100 clients, one more than KPMG. Rival KPMG lost 12 clients between November 2018 and February this year, while PwC added three clients to its list. That means PwC now audits 363 FTSE-listed companies, compared with KPMG’s 358.

PQ Magazine May 2019

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PQ tech news

MIKE DAY The right skills for future prosperity

If you have read my last two columns you will see the theme building here.

We are seeing the fastest pace of technological change I have ever seen; and I’ve been in this game for a while now. These changes have already enabled the shift in roles and responsibilities I have written about before; less keying in and coding (machine learning is good at that), more business applications and so more business process skills.

A recent Xero survey of accounting practices made it very clear that socalled ‘soft skills’ are already vital.

The feedback about the skills accountants now need, in order of importance, was: 1. Advanced skills in technology.

2. Data analytics and interpreting data (no surprise there).

3. How to present to new and existing clients.

4. Communication skills.

5. Understanding how business works.

6. Digital marketing.

7. Leadership and management.

8. Sales skills.

9. Presentation skills.

10. Change management.

Any surprises in there for you? I anticipate that ‘understanding how business works’ will creep up the table in the next year, as more companies adopt more of the wider ecosystem of integrated apps. After all, how can you implement systems that make a business more effective and efficient – as well as financially robust – if you don’t understand that business in the first place?

This is an exciting time to be a part qualified accountant!

Mike Day, Director, UK Education Sector, Xero

Jobs at risk from AI More than one in three (39.4%) of accounting and legal jobs in England are currently under threat from automation, according to the latest stats from the Office for National Statistics (ONS).

The new research has identified 325,000 jobs in the accountancy and the legal profession that are at risk from the robots.

However, some of these jobs are at a much higher risk than others.

ONS has estimated just 5,000 accounting and legal jobs (1.5%) are currently at a high risk to be handed over to the machines.

In the middle (medium risk) are 201,000 jobs. The low risk numbers are 119,000 roles, or 36.6% of the total employed in both professions.

ONS has also produced a table of the probability of automation for certain sectors within accountancy.

Here’s what it thinks: • Chartered & certified accountants – 25.98%.

• Financial & accounting technicians – 38.29%.

• Taxation experts – 34.66%.

• Bookkeepers, payroll managers and wage clerks – 56.41%.

• Finance Officers – 48.11%.

Overall, ONS believes 1.5m of all jobs in England are at high risk of being given to the robots. It also claimed that younger people and women are more likely to be impacted, with those aged between 35 and 39 being the least likely to face competition from a robot in their careers.

Apple credit card, anyone?

Along with its new TV steaming platform, Apple TV+, Apple has unveiled its new credit card. It will launch in the US this summer, and there will be both an iPhone and physical version of the card, with a cashback incentive for every purchase.

There will also be no late fees, annual fees or international fees!

The titanium-etched card has been

created with the help of Goldman Sachs and MasterCard.

It will be adorned with only the

Your digital assistant UK universities are introducing their own digital assistants for students.

Lancaster University has opted for a custom version of Alexa, which tells students where and when their

next lecture is. It can also guide them to a free computer and washing machine on campus!

Students just need to be in the range of a mobile phone or tablet

Apple logo, the user’s name and the card’s chip. There is a downside though. Contactless payments have not fully taken off in the US, so this won’t be an option for the new card here. The card is expected to have low rates – experts are saying expect rates between 13.2% and 24.4%. The average card charges in the UK are 23%. with the iLancaster app.

Staffordshire University introduced its digital assistant earlier this year. The ‘Beacon’ assistant is also used as a digitised coach. That means it is more proactive, with the aim of reducing student drop-out rates.

In brief UK gets the bronze The UK is ranked third in KPMG’s 2019 Technology Innovation Hubs report, rising one place on 2018. The latest report sees the UK trailing slightly behind the US and China in a ranking of countries expected to produce the most disruptive technologies.

Behind the UK are Japan, Singapore and India, which dropped from third to sixth.

Online sales on the rise The European Union has 12

scrapped plans for a digital tax on tech giants after opposition from several member states. The EU will now wait for the OECD’s overhaul of global tax laws. Some states, such as France and UK, plan to push ahead with new national digital tax regimes.

Google hit with £1.3bn fine Google has been hit with a £1.3bn fine from the EU for blocking rival online search advertisers and abusing its dominant position. That’s the third

EU fine for the tech giant in the past two years (a total of £7.6bn).

Many are asking whether the fines are changing what Google does, or does it just see it as a tax on doing business in Europe?

Invoice scams on the rise Savvy fraudsters are targeting UK SMEs with fake invoices, resulting in significant losses for businesses. Research from Barclays reveals one in seven (14%) of SMEs have fallen victim to an invoice scam in the past 12 months. Data also shows that a quarter (28%) of reported invoice scams resulted in losses of more than £5,000. Hotspots for scams include the West Midlands, the South West, the East of England and London.

PQ Magazine May 2019

tech news PQ Over a fifth (22%) of finance bosses admit they are working with out-of-date accounting software, while 16% said their current systems do not allow them to use early payment discounts.

Research by Opinium for Baclaycard also found that twofifths of business (40%) have not upgraded their accounting software in the past five years, citing ‘resistance to change’ as one of the main reasons.

Many suppliers now provide preagreed discounts for paying before the standard terms, a model that

Time for an upgrade? saves companies £14.4bn a year, says Barclaycard modelling. That means these outdated accounting systems could be preventing UK firms from taking advantage of early payment discounts – costing them £6.7bn a year.

When asked how existing systems could be improved, more than four in 10 (44%) would like more automation, and nearly a third said they would like to add

NatWest to trial fingerprint payments of more than £30 Bank customers could soon be able to go over the £30 contactless card limit by using fingerprint technology.

A trial by NatWest, the first of its kind in the UK, will allow debit cardholders to pay with a wave of their card. You won’t even need to remember a pin. The new cards contain an electronic copy of the customer’s fingerprint in one corner. They then place their finger

over their card and simply wave it over the terminal – wave and pay.

The pilot is limited to just 200 customers, but if successful it is being heralded as the next step in the contactless spending revolution.

The added advantage of the new system is the fact that the card is useless without the users fingerprint! However, collecting fingerprints and storing this data remotely could be a problem.

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functionality that automatically matches supplier invoices against purchase orders. One way for a business to achieve this is to integrate their payment solution directly into their procurement platform. This could save finance teams significant time and efforts, helping them pay suppliers more quickly, and ultimately capitalise on early payment discounts more often.

Beware ‘big tech’ The rise of ‘big tech’ is a threat to economic growth globally if its power is not curtailed by competition, regulation and better taxing regimes, warns the International Monetary Fund (IMF).

A worry is the ‘winner takes most’ firms such as Google, Amazon, Apple and Facebook, could stifle innovation, deter investment and drive up income inequality if they are left to

their own devices. The IMF stopped short of recommending a break-up of the largest companies, but feels competition policy needs to change and wants to see a slashing of domestic barriers to market entry.

There is also a real concern that the market power of these companies could make it harder for central banks to handle a recession.

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13

PQ corporate governance

Goodbye FRC, hello ARGA PQ editor Graham Hambly reports on major changes in UK regulation new ‘enhanced’ regulator to transform the audit and accounting sector has been unveiled by the UK Business Secretary Greg Clark.

The Financial Reporting Council is being replaced with a new watchdog – the Audit, Reporting and Governance Authority (ARGA).

The UK government, in the guise of the Department for Business, Energy & Industry Strategy, said it now wants a new regulator with a new mandate, new leadership and stronger statutory powers. It has published a consultation for implementing these reforms and intends to move swiftly to implement the reforms and overhaul the sector. Recruitment for the new chair and deputy chair has been launched immediately.

In the interim period until the new regulator is in place, the government will be working with the FRC taking forward 48 of the independent review’s recommendations. It hopes these will address the shortcomings identified by Sir John Kingman, such as the lack of transparency and to reinforce work to enhance enforcement activity. Specifically, the new regulator will for the first time: • Be a statutory body with powers to make direct

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Sir Win Bischoff changes to accounts, rather than apply to the court to do so, and be able to conduct more comprehensive, visible reviews for greater transparency.

• Have strategic direction and duties to protect the interests of customers and the public by setting high standards of statutory audit, corporate reporting and corporate governance, and by holding companies and professional advisors to account.

• Regulate the biggest audit firms directly, rather than those being delegated.

• Have a new, diverse board, and strong

leadership to change the culture and rebuild respect of those it regulates.

The government has also promised greater sanctions in cases of corporate failure, including new powers to require rapid explanations from companies, and in the most serious cases publish a report about the company’s conduct and management.

The current FRC chair, Sir Win Bischoff said he welcomed the consultation and believed the speedy implementation of the recommendations will help increase public confidence in audit in the UK. “We will move forward to implement the agreed proposals as soon as possible,” he said.

Consultation will now run until 11 June.

Meanwhile, the Institute of Directors has criticised the plans to include oversight of corporate governance in the remit of the new audit regulator. The IoD believes such a move could create confusion and even lead to a harsher ‘US-style’ regulation of businesses. In a letter to the business secretary, Greg Clark, it said what is needed is a new commission (similar to the one in Germany) to monitor corporate governance. The letter said: “Our fear is that the audit market regulation could have the unintended consequence of pushing the broader UK corporate governance framework towards a more legalistic, US-style regulatory approach with limited scope for flexibility.” PQ

Go further.

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14

PQ Magazine May 2019

CIPFA exams PQ

Matthew Pinnock proffers some top tips on how to pass CIPFA’s Strategic Public Finance exam

C

IPFA’s Strategic Public Finance module (SPF) is a challenge. It is designed to determine if you are ready to be not only a qualified accountant – but also a financial manager. To pass you will need to do more than simply recall material – you will need to demonstrate strategic thinking and application of knowledge.

Fear not! We have some tips to help you.

SPF covers a broad range of topics.

Indeed, to some extent, it can be considered a ‘capstone’ module, bringing together many principles from other modules such as Management Accounting, Financial Management, Strategy & Policy Development and Business & Change Management.

The module focuses on financial issues at the strategic level. It builds on earlier principles and applies them to medium- to long-term scenarios and decision-making. It considers specific strategic issues affecting public sector organisations at all levels, such as funding, excess demand, collaboration and performance. So, what tips can we provide you to help you tackle this challenge?

Wider reading It is expected that students will be capable of applying strategic financial thinking to a situation, and recognising some of the factors that might impact on decision-making outside their area.

It is strongly recommended you research around the subject. Having a wider range of experience and knowledge will enrich your answers and show how the theory operates in the real world.

Make sure you read publications such as Public Finance, keep up-to-date with current affairs (locally, nationally and internationally) and discuss subjects with your fellow students, colleagues, bosses – indeed, anyone who works in the public sector! This will help you demonstrate your ability to think broadly, apply knowledge to a new scenario and provide you examples you can draw on to help emphasise your arguments within your exam answers.

Students who are unable to demonstrate understanding of the issues will struggle. Poor scripts consist of memorised text and lists from workbooks, with no application to the scenario in question, and no evidence of an awareness of the wider contemporary issues or long-term strategy.

Time management Poorer scripts all demonstrate a lack of time management. When the exam starts, you have the potential to score PQ Magazine May 2019

WIDEN YOUR KNOWLEDGE

100 marks in 180 minutes, an average 1.8 minutes per mark.

However, to pass you only need 50 marks (3.6 minutes per mark). Perhaps, then, time doesn’t seem so daunting, although to be safe it is perhaps best to work to scoring 60 marks (three minutes a mark).

In any event, use your time well.

Consider splitting the paper into thirds: an hour on each 30-marker and then an hour on the 10-markers. Work on them in the order you wish, but move on when the hour is up and whatever you leave to last make sure you are starting it when you have one hour left.

Planning Stronger scripts all have a logical structure to their answers and demonstrate a degree of planning.

While there is no formal reading time, you should not be typing as soon as the exam starts. You need to read the questions and digest what it is you need to do. Therefore, set aside time to read the question before you start typing away at the keyboard. Allow yourself time to: 1. Read the requirement: find out what you need to be doing before reading any text in the question. This will allow you to know what key information to look for.

2. Read the question: don’t skim through it, actually read it. Look at the mark allocation and the CIPFA verbs to determine how much work is needed –

the fewer the marks, the less work is needed.

3. Plan your answer: use the question as a guide – split it up into smaller, more manageable questions. Lay out the bones of your answer. What examples from your research will you use?

4. Answer the question: it’s not until now that you start properly typing. Restrain yourself from going off on tangents – don’t waffle. Be concise and stay on topic. The poorer scripts all include responses (rather than answers) to questions – i.e. lots of lovely writing but very little that relates to answering the question. Don’t waste time giving disadvantages of shared services if the question states it wants just advantages.

Planning pays dividends These tips, combined with knowledge of the workbooks, will get you well on the way to getting that all-important pass.

Time spent reading and researching issues, and planning during the exam, will pay dividends overall.

I hope the tips above provide you with simple yet effective guidance that will enable you to pass this exam and support you in your journey into the accountancy profession. Keep calm, follow the tips and good luck! PQ • Matthew Pinnock is a Principal Trainer at CIPFA’s Education and Training Centre and is Module Leader for SPF 15

PQ money laundering

Money trouble The AML supervisors still seem in denial about money laundering, says the Financial Conduct Authority’s Alison Barker he accountancy sector and many smaller professional bodies are too focused on representing their members rather than looking after money laundering supervising standards, says Alison Barker, the director of specialist supervision at the Financial Conduct Authority.

Barker revealed the recent comprehensive review of the Office for Professional Body AntiMoney Laundering Supervision (OPBAS) found that many bodies still don’t want to believe that there is any money laundering in their sector!

And she is concerned that the blind belief that there isn’t any money laundering in their sector means intelligence isn’t being shared.

There is also a worry among the supervisors that “their membership will walk if they come under scrutiny”, and this could have a real effect on membership fees.

The OPBAS review found some supervisors did

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not fully understand their role, with 23% having no form of supervision and 18% having no idea who they needed to supervise. Worryingly, 90% of organisations hadn’t fully developed a riskbased approach, and had not collected all the data they needed to form a view about their riskiest members and their services.

The review discovered supervision is often under-resourced – and in some cases there were no resources. That said, Baker emphasised the larger professional body supervisors have wellestablished supervision functions, including the use of data analytics to inform their risk-based approach.

OPBAS said that for many supervision wasn’t important. This means it often wasn’t on the agenda, and for around half there was insufficient senior management focus. For 20% of the supervisors, money laundering regulations were not even overseen by the governing body.

Another frustration was the fact that some of the professional bodies, where supervision had been outsourced to another provider, there was only minimal oversight of the work being done.

Where’s the enforcement?

For OPBAS there also isn’t enough enforcement action taking place. Last year, for instance, only 50% of professional bodies issued fines for AML failings. It was

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16

even less the year before (27%).

This, said Barker, was hard to believe, given the highrisk activities of lawyers and accountants. OPBAS was told, particularly by the accountancy sector, that professional bodies believed their members would leave if they took robust enforcement action. However, she said without enforcement how could a professional body show it ‘means business’? How can a professional body show its members that meeting standards is a serious requirement? And, how can clients and consumers be confident in the credibility and integrity of their professional advisers?

Lack of intelligence sharing Because many professional bodies have been slow to accept that their members could be used to launder money there has not been enough intelligence sharing.

Barker stressed that criminals are covert and that supervisors and agencies are all responsible for doing their part to pool intelligence and put the picture together, As of February 2018 just 40% of professional body supervisors were members of the main intelligence sharing networks. That has risen to 48% over the year.

But, Barker wants it to be 100%! The problem is some of the bodies have no resources allocated to intelligence sharing.

OPBAS also found that all but two professional bodies, processes for handling whistleblowing were inadequate. Over half (56%) of professional body supervisors had no whistleblowing policy in place at the time of the review. Whistleblowing is often an important source of intelligence, Barker pointed out. PQ

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PQ Magazine May 2019

ACCA AA exam PQ

Your favourite topic Need tips on the analytical procedures you need to follow when tackling audit risk questions?

Then you’ve come to the right place! Brigita Petrova explains all

inconsistently. So just think about what each ratio means and what potential mistakes in FS its changes show.

S

ome of you might have heard already my opening line on the toughest subject within the ACCA Applied Skills level: ‘Audit and Assurance – your favourite subject’.

But why is there always such low pass rates when the exam is so predictable, featuring the same key topics? And what is the secret of the handful of students that breeze through it, wondering what the fuss was about? Very simple: they don’t do rote learning. They have a basic (but solid!) accounting knowledge and think about what the audit process must achieve. They use logic instead of memorising tons of knowledge and tests. And, most importantly, they practise expressing themselves.

A LOT. So they learn to not misread requirements and to not get confused while explaining themselves under pressure.

Audit and Assurance (AA), contrary to common belief, is incredibly practical, and not a theory paper. To succeed you need to understand the audit process, think logically (you probably can but might have forgotten, being so used to memorising rules and pro formas) and learn how to write well (clearly, to the point, not too little/too much!)

One of the three key topics that always come up in the exam is the practical application of audit risk and response. It sometimes includes analytical procedures (ratio calculation and interpretation in the risk explanations), and while it should be something students love in the exam, most struggle to make the most out of the marks available. Analytical procedures sometimes come up in section A too, so you need to understand their meaning at the audit planning stage.

Here is my mark maximising technique focusing on analytical procedures, which has proven very effective – if you practise enough.

One of the question requirements will ask you to calculate a number of ratios for two years (last year’s = actual, using final FS figures and this

year’s = draft as figures are likely to change during the audit). You will be given marks (up to 6 in total, 0.5m per ratio) purely for calculation.

These should be incredibly easy and quick to score, so always do them carefully before anything else (even reading the story). The most helpful ratios are gross and net profit margins; receivables, payables and inventory days; and quick and current ratios.

The next thing is to remember the meaning of audit risk: the risk of giving the wrong opinion on the FS, because there is a risk that they are misstated (due to inherent and control risk) and a risk that the auditor fails to detect these mistakes (detection risk). Now look at how the ratios in the question have changed; it is guaranteed they would have deteriorated, and the profit margins might have changed

Example: inventory days have increased This shows that the company is holding on to its stock for longer, suggesting that some of it could be obsolete. Fine, but don’t stop here, this is not an audit risk – it is a business risk to the company, struggling to sell its stock. To make it an audit risk think about what mistake could exist in the accounts and explain that if obsolete, goods are likely to have Net Realisable Value (NRV) below cost, but the company might have valued it at cost, hence inventory is at risk of being overstated (IAS2).

Use similar logic to interpret all ratios calculated and after identifying some audit risks based on them, read the scenario looking for facts that back them up. Then answer it as any audit risk question: not all risks need to refer to a ratio and not all ratios need discussing, but link at least some of them to some audit risk explanations. And if you are struggling with the typical audit risk questions have a look at some more tips set out in the box below. PQ • Brigita Petrova is a tutor at LSBF and the current PQ Lecturer of the Year (private sector) – see picture, above!

DON’TS

DO’S

Mix up balances (e.g. finished goods and WIP inventory, intangible and tangible assets)

Revise your basic FA (F3) knowledge

Just describe a business risk to the company

Think about audit risk meaning; use detection risk where possible (new/specialist client, no evidence, time pressure)

Be vague regarding the potential problem

Be specific and clear about potential issues: say WHAT could be wrong in the FS (usually a balance or disclosure), HOW it could be wrong and WHY

Suggest the auditor should make or ask for corrections

Describe specific tests/planning procedures as the auditor’s response

Say “check” as the auditor’s response

Have reasonable explanations of HOW to check if there is a mistake

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PQ CIMA spotlight

Preparing you for an automated future

Stephen Flatman explains how the Institute is preparing its PQs for the workplace of the future ccording to recent news reports, about 1.5 million people in the UK are at risk of parts of their jobs being automated in the next few years. This is according to recent estimates from the Office for National Statistics (ONS), which analysed the jobs of 20 million people in England in 2017, and found that 7.4% of UK workers are at high risk of automation. At the Association of International Certified Professional Accountants, the unified voice of CIMA and the AICPA, we have been looking into how this change will impact finance professionals and management accountants.

Over 18 months, we hosted roundtables and interviews and also undertook

A

a global survey, speaking to 5,500 finance professionals from over 2,000 public and private organisations in over 150 countries. We grounded our conversations in a framework based on understanding the digital challenges that threaten business success, how finance functions need to perform for success, and the skills and competencies they need from individual accounting professionals to meet these challenges.

For our students and other part qualified finance professionals we know changes from automation can, in some part, be felt now – but the changes ahead will be vast. With this in mind we updated our professional qualification to enable our finance professionals of the future to learn how to embrace the digital world we live and work in. And also so they acquire the skills they need to make connections between seemingly disparate things to provide insights into complex, global patterns of behaviour and importantly, spot opportunities and risks

where others might not.

The new CIMA syllabus went live in January and is due for examination for the first time in November; it now covers digital costing and digital strategy, blockchain, artificial intelligence and data analytics. The changes also flow through our competency framework, which our syllabus is based on and our exams. To help guide our students through the updated exams syllabus we developed exam blueprints, a first for the profession.

The blueprints are a tool, designed for tuition providers and students, to understand our expectations. You can use them to gain insight into what you’ll be assessed on and employers can use them to see all the skills you’ve acquired.

The blueprints will guide you through the core activities at your level and show how the skills and competencies you’ll develop are linked to your assessment outcomes. They also include ‘I Can’ statements that reflect all the knowledge and understanding you have acquired.

So, for example, after having completed the Operational level you’ll be able to make a number of statements including ‘I can understand how the finance function can leverage novel technologies and the associated data to improve information used by decision makers’; or ‘I can understand how a digital mind-set can transform finance functions, processes and measurement of performance’.

A sustainable career We have done all this so our students develop into professionals with a sustainable career, and we provide employers with professionals that can strategically support the finance function’s move away from cost to value centre.

Anyone thinking of studying the new syllabus with us can access the blueprints at https://tinyurl.com/yxbn5jl2.

Find out more information on the changes at www.cimaglobal.com/future.

For students part way through their studies, you can also use our transition tool www.cimaglobal.com/transition and create a personal guide and pathway to help you with your future studies. PQ • Stephen Flatman, Vice President, Examinations, Management Accounting, The Association of International Certified Professional Accountants

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PQ Magazine May 2019

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CIMA case PQ

A solid foundation James Taylor walks you through the Management case study exam, which focuses on a construction firm’s loss of sensitive customer data

GIVEAWAY! We’re giving away five HTFT MCS exam kits – each worth £50 each. See page 22 for details

opefully you have booked your MCS exam slot and are now ramping up for the Jord Homes case. I would say after the pressures of sitting the Management level OT exams (E2, F2 and P2) you may actually find you enjoy the preparation for case study. First step is to get very familiar with the pre-seen and with your ‘part’ in this experience.

For three hours you will be a Finance Manager in Jord Home’s head office, reporting to the Finance Director. You work within a small finance team and your primary responsibilities are associated with management accounting.

This often requires you to liaise with colleagues from other functional areas, including production, sales and marketing, and human resources. The Finance Director is responsible for financial reporting and strategic management, but she delegates some responsibility to you.

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The exam The case study exam is a computer-based exam of three hours – there is no reading time added.

The exam aims to integrate and apply the knowledge tested in the objective test exams.

The exam is based on: • Pre-seen material, which is already published on CIMAConnect.

• Additional unseen material given to you in the exam room.

The answers you give will be long form and typed into the exam system, this will consist of all forms of modern communication, including emails, reports and briefing notes as examples.

A significant amount of the Management case study is based on knowledge of the F2 and P2 Learning outcomes plus the assumed knowledge brought forward from F1 and P1, so you need to make sure you bring technical knowledge to the MCS party.

PQ Magazine May 2019

Writing skills For some, this will be the first time you will get to display to CIMA your ability to ‘write’ long form answers at managerial standard. You will need to be able to combine the competencies from the CIMA framework with an ability to structure an answer with a ‘logical flow’. Practising answering long-form questions based on Jord Homes is going to be key. If your tutor offers to mark homework take them up on the offer, as getting as much feedback as possible is very important.

Focus The most important skill on the day is not mentioned in the competency framework but basically is this: have you answered the tasks set with sufficient application to Jord Homes? Some calculations are included where they give context, but the focus needs to be on the written parts of these questions.

You need to be aware that P2 is the lead paper on MCS and therefore being prepared for technical questions on Advanced Management Accounting is key.

Jord Homes You are going to get one of the five variants.

Each variant has four sections. You get 45 minutes to answer the task within the section.

The task will have more than one part and answering all parts of the task, before the system moves you on after 45 minutes, is key.

The elements of the task can be pulled from the P pillar, the F pillar and the E pillar. The variants are built around a major theme. Being familiar with the Jord Homes pre-seen, in this case the manufacture and assembly of pre-fabricated houses, can help you to feel comfortable with the subject matter on the day. But you must answer the question as set on the day, not ‘one you did earlier’! You need to be prepared for a

‘curve ball’ variant. Often one variant is rogue and it would be impossible for anybody to have seen the angle coming. It is positive to get the rogue variant as the more difficult the variant the easier it can be for you as an individual to shine.

An easy paper may seem like a ‘gift’ but you have to outperform other candidates. It can be hard to believe, but a tough paper is often easier to pass for a competent student who thinks on their feet, generates ideas and answers all parts of all tasks.

Here is an example of a question that we have written for our Jord Homes Case Exam Kit: Exhibit Details of telephone conversation with journalist: Journalist: I understand that there has been a breach of security at your head office?

Raif Berg: I am sorry you will have to elaborate.

Journalist: A member of the public has found an electronic file containing detailed billing information for customers. The billing information contains details of credit and debit card payments for each customer, too.

Obviously, I have had to alert the authorities at Corvola-Data Protection Agency, but I wondered if I could ask you for a comment?

Raif Berg: Sorry no comment at this time (hangs up).

Trigger/Task Today is 1 May 2019 and you receive the following email from Carla Holm, Finance Director: From: Carla Holm To: Financial Manager Sent: 1st May 2019 Subject: Data Security Hi FM, A worrying issue has been brought to light.

Raif Berg, Chief Information Officer, received a call last week, claiming that there has been a breach of data security. Head office hold customer data using an information system, but I’m not sure this has been updated for a long time and may need reinvestment.

I attach notes from a conversation between Raif and a journalist last week.

Please can you prepare a briefing document for the board to review that explains the risks involved in storing customer data using our information system and how we could possibly minimise these?

Regards, Carla Finance Director, Jord Homes • Assume you have 22.5 minutes to complete this task LO P2 – D2(a) Email james.taylor@htftpartnership.co.uk for a the full model answer to this question. PQ • James Taylor, Commercial Director, HTFT Partnership 21

PQ ACCA SBL exam

Exam technique marks: 3 things you must do et’s get down to the nitty-gritty – to pass this test you have know how to analyse questions, and also avoid the common mistakes that students frequently make.

The ACCA has produced enormous amounts of material to support candidates for the SBL examination. They answer pretty much any question that you could have; from explaining professional skills to examiner guidance and feedback. Despite this, fewer than half of all candidates pass the SBL exam!

At the time of writing, we have access to two sets of results; September and December 2018.

Their pass rates were 45% and 48% respectively. I do not expect these figures to change dramatically over time; just look at the pass rates of other subjects for indicators of this.

How do we make sure that you are on the right side of that statistic?

There are many elements to ensuring success in this exam, which I will divide under the headings of ‘technical’ and ‘technique’. As you might imagine, ‘technical’ means a thorough understanding of the syllabus. This is necessary but not sufficient to pass the exam; the missing piece is to get the technique right.

Typically, a student who has scored in the mid-late 40s fails to achieve the magic 50% due to ineffective technique, not because they don’t know the syllabus.

So what technique should we apply?

There are many aspects to consider here, including time discipline, question analysis and, planning and structure of answer, among others.

Additionally, candidates need to understand how to demonstrate the Professional Skills required, which carry 20% of the total marks In this article, we have space to address only one key technique; that of how to use the mark allocation as a tool to maximise your performance. Examiners use the mark allocation to communicate three things:

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1. The depth required in your answer: as a rule of thumb I recommend that my students work on the basis of two marks per point made. This is not a definitive rule and will vary between

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Ashim Kumar holds your hand and walks you through the tricky Strategic Business Leader exam questions; however, in the absence of a detailed marking guide in the exam it is a reasonable assumption to make. To earn those marks; candidates are expected to: • Make the point.

• Explain the point.

• Answer the ‘so what?’ question.

A lot of knowledgeable students do the first two and ignore the third. At most, these students will earn one of the two marks available for that point.

What is the ‘so what?’ question about? This is really about your mindset in the exam. The ACCA’s intention is to place candidates in a ‘live’ situation. That is, to demonstrate what they would say or do when faced with this challenge in the real world. The SBL is not an academic test of knowledge.

So, after explaining the point you have made, it is vital to explain the implications of that point to the audience to whom you are addressing your answer.

Illustration: December 2018 exam An organisation with a strong culture of the fair and ethical treatment of its employees is considering buying a company (in another country) that has not demonstrated similar values in its operations.

As a result, the acquiring company is facing accusations that it will maximise profits by continuing to exploit employees in the target company, thereby acting in a way contrary to its stated principles.

The candidate is asked to produce a press release to address this accusation.

One possible approach to answering this question follows: • The point: We are a company which has deeply rooted values on the fair and ethical treatment of all employees.

• Explanation: We do not discriminate on any

grounds, other than the ability to do the job. We invest heavily in the training and development of our staff. Our commitment to staff satisfaction is a strategic KPI, against which we measure our performance, and so on.

• So what? We are committed to replicating this approach in the acquired company. This is to be achieved by relocating managers from the home country as mentors and investing heavily in training and development of those staff.

Recruitment and promotions will be based on skill and ability criteria only; as they are in the home country. We expect that raising standards in this way, will result in staff satisfaction (and retention), far above that which is experienced currently. It is the ‘so what’ that illustrates our thinking and planning in this area and demonstrates a real-world response to the accusations.

This is not a natural skill possessed by most candidates and I spend a great deal of time with online and face-to-face students in developing and perfecting it.

2. The amount of time, you are expected to spend on your answer: It is a common misconception among students that answering a one or two-mark question should take no longer than a few seconds. A simple sentence or two, should be enough. A few seconds of thought shows that this cannot be true.

As well as the depth of answer required (see previous point), which requires more than a sentence or two, there is a time component which we must consider.

I recommend that you allocate 1.8 minutes per mark to write your answers in the exam, excluding reading and planning time. So, to make a point that earns two marks should take about 3.6 minutes. That is quite a lot of time, and further suggests the need to explain in detail what you are trying to say.

Remember, this exam is not a simple Q&A exercise. You are required to: • Absorb large amounts of data.

• Identify its relevance to each question, noting that data relevant to a single question may

PQ Magazine May 2019

ACCA SBL exam PQ

derive from more than one source.

• Apply your knowledge and experience to the relevant data.

• Combine the above to generate a real-world solution to the challenge faced in the question.

This is not easy to do; it takes agility of thought, planning and communication, under exam conditions. It is vital to be able to do this almost instinctively in the exam; a habit that can only be developed through rigorous and continuous practice, with regular objective feedback.

Even candidates who are ‘expert’ at this technique need every second of the 3.6 minutes available to make a two-mark point.

3. Earning your Professional Skills marks: 20% of the marks available are for Professional Skills (PS).

For the purpose of this article I shall assume that you are familiar with the skills and what they mean. (I explain and illustrate each skill in my online and face-to-face programmes, and it is the subject of a webinar I delivered for the ACCA in Poland and the Baltic states.)

The challenge that most candidates face with earning these marks is two-fold: • How do we demonstrate each skill in our answer?

• How much detail do we need to display for the marks available?

Demonstrating the skill It is difficult (and time consuming) to keep checking compliance with the skill while writing out our answers. When do we check whether we are being (say) sceptical enough? Before, during or after the writing of each sentence?

A haphazard approach like that produces an equally haphazard answer; there is no ‘thread’ of scepticism running through your answer and you probably won’t finish it on time.

So, what to do?

The technique my students practise is to PQ Magazine May 2019

integrate the PS into the plan for their answers.

Essentially, this means that having completed a plan, students take a step-back from the points included therein and check whether there is enough of the PS reflected. This may mean giving the point a sceptical slant (for example, through the structure of the sentence), or adding/amending points to reflect scepticism more clearly.

This approach incorporates: • A thorough understanding of the skill required.

• The ability to objectively assess and amend your plan.

• Thinking on how to best present your point to demonstrate that skill.

Again, this is not a natural skill for most candidates, and I work hard to hone it during sessions with students, especially during the revision phase.

How much detail do we need to display?

Knowing how much to say to earn the PS marks available requires a more subtle skill; however, it is closely related to Point 1, above.

Generally, if we follow the ‘so what?’ approach, we stand a good chance of collecting all the available PS marks.

Remember, that the marker will take an overview of your answer to determine the standard of PS demonstrated. Having allocated the marks for the points you make, s/he will step back and assess whether you have sufficiently met the PS requirement overall. This may be translated to mean: has your answer displayed a theme of (say) scepticism throughout? Have you challenged, questioned and probed sufficient to get a reliable understanding of the ‘big picture’?

That is, have you simply made points in your answer, without explaining their implications (‘so what?’), or have you shown that there are additional outcomes of a particular course of action that have not been thoroughly considered?

Please note the marking scheme for the

award of Professional Marks for scepticism from Q3(a) of the December, 2018 exam: There were four PS marks available for this question, and it related to demonstrating scepticism towards the opinions of board members. In order to earn full PS marks here, the ACCA required the following: • ‘The candidate has presented a report and demonstrated excellent scepticism skills. The candidate has strongly but appropriately questioned and challenged the assertions made by board members in relation to their opinions on disruptive technology and has presented suitable and well-argued evidence to support their challenge to these opinions. The response was appropriate and courteous for a report at this level’ (ACCA December 2018 exam-marking scheme).

We see from this the connection between PS marks and the ‘so what?’ question. The candidate needs not only to challenge the views of the board but also to present a well-reasoned argument for the challenges.

Additionally, although the PS is scepticism, the style of the report is important (appropriate and courteous). This reminds us that candidates are expected to demonstrate professionalism throughout their scripts, and communication style is one indicator of this skill. Without the common theme of professionalism, it is not possible to gain all the PS marks available, so the two requirements are closely related.

In summary, it is fair to say that we need to think carefully not only about the technical content of answers, but also about how we plan and deliver them. Without practising this skill and receiving objective feedback we severely diminish our chances of being the right side of the the magic 50%!

To find out how to pass with my online programme visit https://www.fmelearnonline.com /acca-sbl/ PQ • Ashim Kumar is the SBL expert tutor on the FME learn online platform 23

PQ ICAEW spotlight

Star quality Could you be ICAEW’s #CharteredStar 2019? The ICAEW explains all here

talented individuals from across the globe to debate the key issues the world faces, sharing their ideas and experiences and working with peers to formulate and share innovative solutions.

t ICAEW we’ve now launched our competition to find the brightest young leaders to represent us at the next One Young World summit in London. We’re looking for you to demonstrate your passion for chartered accountancy – and we want your ideas on how the profession can help tackle the challenges facing the globe.

The competition We’re looking for young ICAEW members or ACA students who really stand out and who can demonstrate true leadership, have the ability to inspire and motivate others, and with a vision of how they (and the profession) can have a positive impact on society.

Our winners should demonstrate: • A genuine passion for the chartered accountancy profession and the key global challenges it faces.

• The confidence to represent ICAEW and Chartered Accountants Worldwide

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What is One Young World?

Attending delegates will participate in four transformative days of speeches, panels, networking and workshops. All delegates will be able to apply for the opportunity to give keynote speeches, sharing a platform with world leaders and with the world’s media in attendance.

Who attends One Young World?

Delegates from 190-plus countries will be addressed by influential political, business and humanitarian leaders such as Justin Trudeau, Paul Polman and Meghan, Duchess of Sussex, among many other global figures.

One Young World 2019 Taking place in London from 22-25 October, the summit brings together

‘No one expects us to achieve change straight away, but changing the world could start with changing one person’s world’ As the 2018 Chartered Star winner, Ali Qasim flew the flag for young chartered accountants at One Young World Summit in The Hague. Representing ICAEW and Chartered Accountants Worldwide, he had the chance to network, debate, make long-lasting connections and discuss innovative solutions for solving some of the world’s issues.

Ali Qasim

on the world stage.

• Excellent communication skills and an active social media network, and are comfortable using different social media tools and confidence speaking in front of a camera.

• Significant leadership skills in their roles, being able to demonstrate the values on ICAEW and Chartered Accountants Worldwide.

How to enter: To enter, you must produce a pitch in one of the following formats: •an article/blog of no more than 500 words.

• a video/vlog of no more than five minutes.

• an infographic.

Your pitch should focus on one of the five One Young World 2019 plenary session themes and how chartered accountants and the profession can contribute to these.

The plenary session themes are: • Education: Does the future of learning need to be reimagined?

• Planetary Health: How is climate change endangering our health?

• Media Freedom: How can we protect the truth?

• Poverty Alleviation: Can innovation solve economic inequality?

• Peaceful Future: In a polarised world, how can we build peace?

You will then need to publish and share your pitch on a social media platform of your choice with the hashtag #CharteredStar and send your entry to us by midnight on Sunday 19 May (British Summer Time).

Discover more and start your entry by going to www.icaew.com/charteredstar.

And good luck! PQ

PQ study apps

Apps that help you work, rest and play StudyBlue

My Study Life

StudyBlue is a revision app with a difference – it’s the largest online crowd-sourced study library. So not only can you make flashcards, notes and guides, you can share and access the material of everyone else on the app, too. With over 15 million users you’re bound to find someone who already has an abundance of material for your exam. You can filter through the resource material by college, courses or country, which is handy considering over 400 million pieces of material have been created by the app’s users. StudyBlue also lets you track your progress, create a calendar to set reminders and dates and even create and share quizzes with your fellow PQs! This app is free and available on both Android and iOS systems.

My Study Life may look like just another calendar on the surface, but it is much, much more. The app is built from the ground up, to allow you to integrate all aspects of your learning into its calendar.

The interface is simple and the app is very easy to use, especially if you’re no stranger to other e-calendars.

You can set reminders for assignments, exams, classes and meetings. A real selling point is the ability to put multiple aspects onto the calendar, so you can see if your work duties conflict with an upcoming exam or vice versa.

What makes My Study Life great is that it’s multiplatform – you can receive your notifications and calendar on multiple

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devices. Whether they be Android or Apple phones, tablets, computers and even in browsers. My Study Life is free and available across multiple platforms.

GoConqr The GoConqr Exam Time App has many similar features to other study apps – flash cards, notes, power-points, study plans and calendars. However, where GoConqr differs is its ability to helping you try to eliminate the boredom that can come with studying.

Embrace your inner artist by creating colourful and customisable mind maps. If you’re a fan of Trivial Pursuit, why not make a quiz on an exam or subject of your choice, and have you and your friends compete with each other? You can share your notes and creations with other users and can make use of their resources as well. This app is free and available on both Android and iOS. PQ Magazine May 2019

PQ magazine About you Title......................................................

Theeasiest easiestway wayto toget get your your free monthly copy The copy isis to togo goonline onlineatat www.pqmagazine.co.uk,ororyou youcan canfill fillinin the the form form below and send www.pqmagazine.com, send itit to: to: PQ Magazine, 4th Floor, Central House, 142 Central Street, London, EC1V PQ, Unit 3a, Kingfisher Heights, 2 Bramwell Way, Royal Docks, London E168AR 2GQ Study please tick a box in 1A or 1B 1A Please indicate accountancy body you belong to and tick the box of the next set of exams you are hoping to sit Applied ▫ Knowledge F1-3

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PQ analysis

Patisserie Valerie: a case

for internal audit BDO looks at the Patisserie Valerie fraud and the perils of neglecting independent assurance n October 2018, the AIM market was shaken by the news that shares in Patisserie Holdings Plc had been suspended following the revelation of a black hole in the finances of the business of around £40m. In a statement to the market the Board confirmed that “there is a material shortfall between the reported financial status and the current financial status of the business. Without an immediate injection of capital, the directors are of the view that that is no scope for the business to continue trading in its current form.”

PwC was appointed by the Board to undertake a forensic investigation. Following the initial investigation, the Board confirmed that “historical statements on the cash position of the company were misstated and subject to fraudulent activity and accounting irregularities”.

Then, hours later, the Board made the fresh announcement that it had just become aware of the winding-up petition by HMRC for £1.14m against Stonebeach Limited, a key trading subsidiary of the business.

From winning IPO of the year in 2015, a business valued at around £450m one day before the shares were suspended was now unable to confirm whether it could meet its liabilities.

Despite considerable efforts to save the business – including the injection of £20 million by the founder and a further £15m raised from institutional investors – Patisserie Holdings Plc went into administration in January 2019 and the business was sold the following month.

Details of the nature of the fraud have begun to emerge as the initial findings of the PwC investigation have been leaked to the media. It is alleged that the accounting records contain thousands of fraudulent entries going back several years, including fabricated invoices, double-counting of voucher sales and manipulation of cheque payments between accounts to inflate working capital at year end.

Board resolutions and directors’ signatures had also been allegedly forged to provide the authority necessary to open ‘secret’ bank accounts and overdrafts that had not been included in the accounting records.

The fraud therefore appears to have involved a comprehensive manipulation of the financial records of the business. The volume of fraudulent transactions and the extent of the deception required the collusion of several individuals with access to the accounting

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systems. The Finance Director of the business was arrested within days of the fraud coming to light. The Serious Fraud Office has opened an investigation into his conduct and recent media reports suggest that a further five members of staff are also being investigated.

Why was the fraud not detected?

It seems remarkable that a fraud of this scale could have been committed in an AIM listed company required to report regularly to the market – a company that had adopted many of the recommended features of effective financial governance including financial reporting to the Board, an Audit Committee and an annual external audit.

The Board and management must take much of the responsibility, and those innocent directors and managers who have been caught up in this are probably asking themselves why they didn’t challenge the financial reporting with more rigour, or act upon any suspicions that they may have had. More importantly, the financial governance framework established and relied upon by the Board appears to have failed in a number of key respects.

Much of the focus has been upon the role of the external auditors, given that the accounts for the business had been consistently signed off

with unqualified audit opinions. This has been the subject of numerous articles in the media and follows on from recent highly publicised business failures including BHS, Carillion and Conviviality.

The Financial Reporting Council is currently investigating the audits of Patisserie Holdings Plc undertaken for the past three years. There will be considerable interest in their findings once these are published.

The Audit Committee has also rightly come under the spotlight, with questions raised as to how it met its primary responsibility for monitoring the quality of internal controls and ensuring that the financial performance of the group was properly measured and reported on.

Internal controls do not appear to have been challenged sufficiently and whistle-blowing procedures – another area of Audit Committee responsibility – also appear to have been entirely ineffective.

The Committee comprised three individuals who certainly had the skills to challenge and question the controls over the business effectively. One was a qualified accountant and two had considerable industry expertise, including the Executive Chairman and founder of the business. Two of the Committee members were non-executive directors (NEDs).

PQ Magazine May 2019

exam advice PQ However, with hindsight it appears that the Committee took more comfort than was appropriate from the work of the external auditors in respect of the financial controls of the business. It also accepted representations from management without seeking independent assurance. The Committee had not established an internal audit function to provide this assurance.

Had corporate governance best practice been followed in full and an Audit Committee comprising three fully independent NEDs been appointed, a more robust challenge of controls may have taken place.

Internal audit and identifying fraud An internal audit function may well have been able to identify that fraudulent activity was taking place. The existence of such a function within the business may also have acted as a deterrent. However, the fraud appears to have been well concealed with extensive collusion.

The internal audit function would have needed to be well-supported by the Audit Committee and the Board, independent and properly resourced in order to overcome the likely challenges and efforts made by the finance team to prevent or restrict its access to the financial systems and controls.

Without the full backing of the Audit Committee it may well have been successfully diverted away from reviewing financial controls at all or its scope of work restricted to only those areas that the fraudsters wished it to see.

Internal audits and best practice In the US, it is requirement of NYSE listing rules for all listed companies to establish an internal audit function. Although it is recommended under the UK Corporate Governance Code and the Quoted Companies Alliance Code, the establishment of an internal audit function is not mandatory.

Instead, Audit Committees are only required to explain in the company’s annual report why an internal audit function has not been established and to describe the other sources of internal controls assurance obtained. As a result, there is a danger that many Audit Committees – like the Committee at Patisserie Holdings Plc – may rely too much on management representations about the operation of controls instead of gaining independent assurance over those representations.

As Patisserie Holdings Plc has demonstrated, for a business with a market capitalisation of £450m, operating a cash-based business across 180 stores, reliance on management assurance alone is not sufficient and left the business and its shareholders seriously exposed. NEDs and Audit Committee members elsewhere should now be reconsidering the arrangements in place at the companies where they have responsibility to make sure that they are receiving all the assurances that they require to fulfil their duty to monitor the quality of internal controls.

Where an internal audit function is in place, Heads of Internal Audit should be reviewing their plans to make sure that the risk of fraud has been considered sufficiently. PQ • Thanks to BDO for this article PQ Magazine May 2019

Solutions to your queries Philip Dunn tackles more of your problem areas

Question: I am a Level 4 student and do not fully understand the Fixed Overhead Variance and its sub-analysis. Please help!

Answer with example: Dunn Strike produces a standard cricket ball. Its planned and actual performance for quarter end March X19 was: Budgeted output 2,500 units, actual output 2,600 units. Budgeted fixed overhead £40,000, actual fixed overhead £41,500. Standard hours per unit of output 2.

Such variances are prepared when using a system of standard absorption costing.

• Standard hours in the budget 2,500 x 2 = 5,000.

Budgeted overhead recovery rate £40,000/5,000 = £8 per std hr.

• Standard hours produced 2,600 x 2 = 5,200.

Overhead recovered in activity achieved 5,200 x £8 = £41,600.

• Fixed Overhead Variance: Fixed overhead recovered in activity achieved – Actual overhead incurred. £41,600-£41,500 = £100 Favourable, over recovery.

• This sub-divides to: Expenditure and Volume, the two factors that affect overhead recovery.

Expenditure: Budgeted Overhead – Actual Overhead. £40,000-£41500 = £1,500 Adverse.

Overspend of Fixed Overhead.

Volume: (Budgeted Volume in Std Hrs – Standard hours produced) FORR (5,000-5,200)£8 = £1,600 Favourable. An over recovery due to the volume of production being greater than budget.

Total Variance £100 F Expenditure £1,500 A Volume £1,600 F Question: I am a Level 3 student considering embarking on Level 4 and have heard the term Primary Profitability Ratio in relation to Interpretation of Financial Statements. Could you please illustrate its purpose?

Answer: This refers to the Key Performance Indicator % Return on Capital Employed (ROCE) that is influenced by two major factors: Asset Turnover and Profit Margin.

This can be illustrated thus: Dunn Strike Ltd has a Capital Employed of £3.5m. Capital Employed being defined as NonCurrent Assets + (Current Assets – Current Liabilities).

Its current Turnover is £8.5m.

Its current Operating Profit before Interest and Tax is £1.2m.

• Primary Profitability Ratio: ROCE = Operating Profit before Interest and Tax/Capital Employed x 100/1 = £1.2m/£3.5m x 100/1 = 34.29%.

This measures the amount of profit in relation to the investment in the business.

• Asset Turnover Turnover/Capital Employed – No of Times. £8.5m/£3.5m = 2.43.

This a measure of the amount of Turnover generated from the Investment. It is important to achieve a high volume of sales as this aids overhead recovery – many overheads being fixed costs. The problem faced by some High Street stores is high Fixed Costs and reduction in Turnover.

• Profit Margin: Operating Profit before Interest and Tax/Turnover x 100/1 = £1.2m/£8.5m x 100/1 = 14.12%.

This shows that Operating Profit achieved is approximate 14p in each £1 of Turnover.

A 34% return is for many businesses most acceptable. Management in any business must strive to maximise the Asset Turnover and control Costs. It was once said by a former MD of Tarmac Plc: “We must make our Assets sweat” PQ • Dr Philip E Dunn is a freelance author and technical editor for Kaplan and Osborne Books 27

PQ technology

AI: myth or reality?

Artificial intelligence is causing dramatic changes in the workplace – but how could it affect you? Narayanan Vaidyanathan explains all

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achine learning, machine intelligence, thinking machines or electronic brain – whatever you want to call it, artificial intelligence is here to stay. While machines haven’t completely taken over, they have slowly but surely crept into our lives, affecting the way we live, communicate and, ultimately, work. From voice-driven assistance on a mobile phone, suggestive searches to autonomous driverless cars, we will continue to see fast-evolving technologies in the coming years.

This year is the 30th anniversary of the worldwide web, meaning we are firmly part of the digital revolution; technology is something accountants cannot shy away from or avoid. At ACCA we have a deep interest in how technology impacts the accountancy profession and how it will continue to do so in the future.

So what is AI and machine learning?

The phrase ‘artificial intelligence’ was coined 63 years ago by John McCarthy, an American computer scientist. A true artificial intelligence based system has the ability to learn on its own, understand information and make decisions in response to that information. In a sense, AI is the ability of machines to exhibit human-like capabilities in areas like thinking, understanding, reasoning, or perception. Machine learning is a subset of AI that’s generally understood as the ability of the system to make predictions or decisions based on the analysis of a large historical dataset.

Professional accountants also need to think about and mitigate potential risks from decisions made by an algorithm. With machine learning there is the risk of unintended consequences; for example, when bias in the input data used by an algorithm creates unfair or unacceptable outcomes. In this context, it will be important for professional accountants to develop a core understanding of these types of emerging technologies. The profession can truly benefit from the ability of these technologies to support them with intelligent analysis of vast amounts of data.

Can we trust AI and machine learning?

Machine learning is a powerful tool with tremendous potential; it encompasses a staggering range of applications, such as recommendation search engines, fraud identification, detecting and predicting machine failure, optimising options-trading strategies, diagnosing health conditions, speech recognition and translation, enabling conversations with chat-bots, image recognition and classification, spam detection, predicting everything from how So why is AI relevant to the profession? likely someone is to click on an advertisement, ACCA’s recent report, called ‘Machine learning: through to how many new patients a hospital will more science than fiction’, takes readers admit. through how new technological developments While professional accountants may not need will have a huge impact on the accountancy to develop machine learning algorithms profession. It is a subject we have to analyse to themselves, they do need to have a sense of understand the value and benefits what they are dealing with. Accountants Embracing need to have the ability to ascertain whether alongside the ethical challenges it the presents. It is important for decisions made by these systems can be capabilities of professional accountants to trusted and viewed as ethical. machine learning appreciate the value AI brings to may not just be the work they do – from Is AI a threat to the profession? about competitive A recent Office for National Statistics survey generating valuable insights for advantage; it business decision-making, to looking into professions at the highest risk could be about fraud detection, to risk of being automated, stated that almost 26% necessity assessment to understanding of jobs relating to professional accountants complexities in taxation and also would be at risk from automation. with more effective non-financial Certainly there is likely to be some reporting. So, the accountancy profession needs disruption; for example, in areas where the to understand how AI and machine learning ‘intelligence’ needed is in a specific, defined works, especially given its role in influencing the sense. An example might be the coding of trust we have in the decisions of these systems. invoices where the AI could learn from historic

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data and do the coding to high accuracy thereafter.

But even sophisticated technology like this currently struggles to replicate the full contextual understanding and integrated thinking of which humans are capable. Therefore, human oversight of algorithm decision-making remains a consideration. And factors like building client relationships or leading successful teams remain deeply human endeavours.

Even beyond areas such as leadership, core technical activities can require forming an ‘opinion’. This in turn involves judgement and interpretation that can draw on multiple factors, and where future choices may not be fully informed just by patterns seen in the past.

So AI may not be ready to ‘take over’ completely, but the accountancy profession cannot be complacent and must prepare for the future.

Acting responsibly With any use of technology, power comes alongside responsibility. In regards to machine learning, ethical considerations are paramount.

Accountants need to consider and manage potential ethical compromise from decisionmaking by algorithm, such as the risk of bias in the data set that feeds them or the issue of who is ultimately accountable for decisions.

At the very least, all finance professionals should keep abreast of how AI is evolving and be wary of how the developing capabilities could overlap with their impact on their roles.

To prepare for this, ACCA has already included a range of digital topics within its qualification. It has also enhanced the digital content across many of the exams for students, while also ensuring digital is weaved into members’ continuous professional development.

So we will always look beyond the hype, and cover the technologies that keep ACCA students – and members – at the forefront of their profession because digital is a vital professional quotient. PQ • Narayanan Vaidyanathan – head of business insights, ACCA PQ Magazine May 2019

careers PQ

Five tips for success It’s natural, to evaluate your current employment situation from time to time and wonder if it might be time for a change. Some will look back on the previous 12 months and decide to seek the success that they’re striving for with another company. But it needn’t be so. Success might be more easily achieved by simply changing your approach to work. With that in mind, here are some top tips to help you nail your career this year.

1. Active listening: Your ability to listen has a major impact on your ability to carry out your job, and on the quality of your relationships with colleagues. By becoming a better listener, you can improve your productivity, as well as your ability to influence, persuade and negotiate.

2. Independent thinking: One of the first things you learn on entering the workplace is the importance of following instructions. But leaders

Life at East Lancashire Hospitals NHS Trust Rebecca Dixon, 28, is an assistant management accountant at Royal Blackburn Hospital, starting at ELHT as a 16-year-old apprentice. She is studying for AAT Level 4 and aims to study CIMA. Rebecca was named PQ of the Year at our 2019 awards What time does your alarm clock go off on a work day?

5.15am. I need plenty of time to get my two little boys up and ready, drink lots of coffee and organise my husband.

What’s the first thing you do when you get to work? Make a brew and check my diary.

What’s on your desk? My trusty ‘to-do list’ pad, a paper flower that my husband made me for our first wedding anniversary, lots of stationery, a leadership award and my PQ award, of course!

What’s the best thing about where you work? The people. I have an incredible team who are so passionate and support one another. They continually strive to innovate and improve the ELHT finance support function. They are my other little family and I love going to work every day.

Where’s your favourite place

to go for lunch? KFC (it’s just too tempting having one opposite the hospital).

What (or who) can you see when you sit at your desk?

The management accounts team and a table usually full of cakes, sweets and biscuits.

Which websites are your favourites and why? Twitter – I’m addicted – and Amazon.

Which websites do you use for work? Finance and Skills Development, mainly. I get lots of training tips and ideas from there and I lead on quite a few training sessions.

How many hours a week do you spend in meetings? It varies; month end there are usually no meetings, but some weeks it can be 10 hours or more.

My role involves lots of face-to-face communication, which is great.

What time do you leave the

office? Usually 5pm.

How do you relax? Spending time with my boys, we are so busy that my relaxing time is usually playing with action figures.

What’s your favourite tipple?

A large glass of Pinot.

How often do you take work home? I have created the odd presentation or newsletter on a weekend, but other than that I don’t take work home. I work flexible hours and I stay late when work needs to be done.

What is your favourite TV show? The Walking Dead.

Summer or winter? Summer.

Pub or club? Club, not that I go to many anymore.

Who is your hero? Nelson Mandela. He was a true, great leader who fought relentlessly.

If you had a time machine, where would you go? 2030, to get a peak at my kids grown up.

of important elements in a job offer for employees is job title.

Only then do hours and flexible working come into play.

Tesco can only use 20% of the money they pay in and cannot use the rest to train staff for the new skills it needs. “In effect it’s an 80% tax on training,” he said.

In brief

need team members who won’t shy away from the opportunity to challenge the status quo. If you have suggestions, then voice them.

3. Proactivity: The best leaders would prefer not to spend their time micromanaging or hand-holding. Look for opportunities to take charge of tasks and demonstrate your desire for more responsibility.

4. Adaptability: The workplace is in a constant state of flux. Processes, jobs, priorities, markets and leaders are changing all the time, and some of the most valued employees are those who are able to take change in their stride, without being fazed by it.

5. Positivity: Your attitude can have a big impact on your standing in the workplace. The ability to remain upbeat in the face of adversity demonstrates resilience, making you the ‘go-to’ person when things get tough. Even on a day-to-day basis though, showing that you are pleased to be there will put you in good stead.

• Laura Little, Learning and Development Manager, CABA

PQ Magazine May 2019

Show me the money The expectation gap between finance professionals and employers seems to be widening. Money seems the big driver, with 90% of accountants saying that salary was the most important factor when looking for a job. However, just 60% of employers thought this would be the case. And while just 6% of employers believe location to be the least important part of the job offer, accountants vote it as their second most important factor (63%). Number three on the list

Apprentice system broken?

Tesco CEO Dave Lewis believes the apprenticeship system is “broken”. He told the British Chambers of Commerce annual conference that firms needed more control over how apprenticeship levy money is spent. He felt that the current system is too open to abuse and not flexible enough. He said

Big team, little team If you want a job done then give it to a big team. But if you want a more interesting result then you need to use a small one! A study of millions of scientific papers found that big team ‘do the work’, but it was smaller teams that come up with the really creative ideas.

The PQ Book Club: books you should read CIMA 100 – Leading the Transformation by Dr Martin Farrar (AICPA, free download from CIMA’s website) In case you’ve not noticed, 2019 is CIMA’s centenary year, and this interesting potted history of the organisation plots its development over the 100 years. CIMA started life as the Institute of Cost Accountants, progressing through a number of different monikers before finally becoming the Chartered Institute of Management Accountants in 1986.

Dr Farrar’s book plots the

significant moments in the organisation’s history, from the establishment of costing as a science in the early days to the ground-breaking development of management accounting in the post-Second World War years.

Its continual evolution shows an organisation not afraid to embrace challenge, and tackling head on the changing nature of the global economy. CIMA’s history is littered with fascinating characters, and their influence is well documented.

The author also looks forward.

He writes: “In the next 100

years, if the Institute is to remain relevant and have a global role, current and new generations of pioneering members and students will need to inspire and demonstrate the value management accountancy brings to organisations around the world.”

PQ rating 4/5 CIMA students should get acquainted with their body’s history – and reading this book is the best way of doing it.

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PQ got a story, funny or serious, you want to share? Email graham@pqaccountant.com Accountants’ Nixon Williams announced the launch of a new online service designed to help the nation’s canines manage their tax and accountancy needs – on 1 April. ‘Pet-ty Cash’ is a low-cost, fixed fee accountancy package for the growing number of dogs currently earning their ‘daily cruft’ on social media platforms such as Instagram, YouTube and Facebook. A Nixon Williams spokesperson said: “Although we already work with thousands of contractors, consultants and freelancers all over the UK, we’ve chewed over the possibility of expansion for some time. We now want to become the top dog for the country’s canines. On Instagram alone, the #dogsofInstagram hashtag has attracted more then 139m posts and many of these pets have been catapulted into social media stardom.” Were you fooled?

SHAGGY DOG STORY

TELL ALEXA TO ORDER POPCORN COLLEGE Envelopes, the hi-fi popcorn. Great to SCANDAL and three-piece see that the adult suits have all been hat or cap, peanut WIDENS dropped from the Office of National Statistics’ latest inflation basket list. Also ‘out’ are washing powder, crockery sets and dry dog food! In

their place we have smart speakers, bakeware and

butter and washing liquid have also been added. A nonleather sofa and dinner plates also show our changing buying habits.

TAX MEAT NOW, SAYS UN

ROCKED TO SLEEP Scientists have found that being gently swayed while sleeping boosts memory in both adults and children! It appears that being rocked softly and continuously also induces a deeper sleep. When put through memory tests people did significantly better on the morning tests after they were rocked.

Rocking was also found to be linked to brainwaves associated with helping memory.

SECRET ACCOUNT The lavish and ‘strange’ tastes of Queen Anne (as seen in The Favourite) have been revealed by historians, who have uncovered her personal accounts. A document found at Blenheim Palace shows her spending over three years. In today’s money, Anne spent £12m between 1708 and 1711. One entry is for £10 and 15 shillings for someone called the ‘Mad Spaniard’. Another payment of £1,000 was paid to a ‘Mr M’ for his “secret service”. Isn’t that a Bond character? The Queen also spent £50 on drinking chocolate.

’ WEV E Do you love tax?

It’s time to declare your love! Of tax, of course. And we have the ideal way of doing that too, with our snazzy ‘I Love Tax’ t-shirts. Come on, who doesn’t know someone who loves tax? We are giving away three t-shirts away this month.

To be in with a chance of being sent this great giveaway just send your name, address and t-shirt size to graham@pqaccountant.com. Head up your email ‘I love tax”.

Taxes on meat and the adoption of more plant-based diet are needed now to protect the environment, the United Nations has said. It’s Global Environmental Outlook report says an emissions tax on food could be transformative in reducing greenhouse gases and loss of wildlife habitat linked to eating red meat. The report quotes research that claims that one billion tonnes of carbon dioxide-equivalent could be achieved with the reduction of meat consumption. Beef generates six times the greenhouse gas emission per kilo of protein as soya beans. Red meat also requires 28 times more land to produce than chicken, and is a driving force in the deforestation of the Amazon.

The list of parents caught up in the US college admissions scandal reads like a who’s who of the wealthy and privileged in California. It has led to a hedge fund sacking one employee and another ‘stepping down’. The Inland Revenue Service is getting in on the act, looking into whether the alleged bribes were disguised as charitable donations. The man behind the scam, William Singer of Edge College and Career Network), has admitted racketeering, money laundering and obstruction of justice, and faces 65 years in jail!

‘BRAND KELLY’ WINS TAX FIGHT Lorraine Kelly has escaped paying a £1.2m tax bill, after a judge ruled she is her ‘own brand’. HMRC had claimed the broadcaster was an ITV employee, but the judge sided with Kelly and agreed she was a ‘self-employed star’. The case centred on a contract Kelly signed in 2012 to present the ‘Lorraine’ show. Judge Jennifer Dean ruled that the relationship Kelly had with ITV was a contract of services and not that of employer and employee. She did not receive staff benefits such as sick or holiday pay and was allowed to carry out other work.

GOT THE L OT Radio 4 quiz challenge This is no ordinary puzzle book, this is a ‘Today Programme Puzzle Book’! Yes, we have this great book and its 280 cryptic, linguistic and numerical brainteasers up for grabs. Isn’t it time you challenged your grey matter and hone your reasoning and logic skills?

Send us your name and address to be entered for this lucky dip. There will be three lucky winners of this giveaway. Head up your email ‘Today’s puzzle’ and send it to graham@pqaccountant.com

Terms and conditions: One entry per giveaway please. You must send your name and address to be entered for the draw. All giveaway entries must be received by Friday 10 May. The main draw will take place on Monday 13 May 2019.

TO ENTER THESE GIVEAWAYS EMAIL GRAHAM@PQACCOUNTANT.COM 30

PQ Magazine May 2019

MAKING LIFE SIMPLE

CREATING THE RIGHT ENVIRONMENT FOR YOU

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