Paper P3 Management Accounting Performance Strategy Post Exam Guide March 2011 Exam General Comments Overall, performance

ce in the March 2011 examination was reasonable. Well-prepared candidates were capable of obtaining clear passes. Weaker candidates tended to avoid the requirements of the question, either through a failure to grasp what was required or as an attempt to obtain marks for repetition of memorised facts and information. As at previous sittings, where candidates did not achieve a pass, the main problems were a failure to apply their knowledge to the scenario and a failure to answer what was asked. When information is given in the scenario candidates are expected to use it to illustrate the main issues in their answer. Using the reading time wisely can be of huge benefit; candidates should always plan their answers and ensure they read the questions carefully before starting the paper. Candidates who answer the specific question asked could achieve high marks. Candidates waste valuable time if they fail to be specific in their answers, as only the points which answer the question requirements will gain marks. Again, one of the main problems in this sitting was that a significant numbers of candidates missed out parts of questions. The questions were all within the syllabus so it appears that candidates are not well prepared in all areas of the syllabus. There is less choice in this new syllabus so it is even more important that candidates learn all areas of the syllabus. Financial risk has become an even more important part of the syllabus and candidates must be prepared to do questions on this topic. It will inevitably be a part of question 1. Parts 1(a)(iii) and parts (b)(i) and (b)(ii) of question 1 were answered more poorly than expected. Question 2 was done reasonably well. It was about risks in the workplace and internal auditors. Question 3 was about risk in an IT setting. This question was done very badly. Many candidates failed to read the requirements correctly and did not answer what was asked. Question 4 was about financial risk and was done very well by those candidates who chose it. Financial risk is now 35% of the paper and there is less choice; therefore candidates must know this area of the syllabus and it was great to see some excellent answers to the calculation in part (a). Note that the attached marking scheme often makes more marks available than indicated on the question paper. This reflects the fact that questions at this level can often be approached in more than one way and that there is no single perfect answer. In applying this marking scheme, marks are always restricted to the total offered by the question and so there is no advantage to be gained from over-developing the answer to one question at the expense of another that may appear more difficult.

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Paper P3 Management Accounting Performance Strategy Post Exam Guide March 2011 Exam SECTION A 50 MARKS ANSWER THIS QUESTION

Question 1

(a)
(i) Evaluate the present structure of DEFs board, as described in the Governance section (page 2) of the pre-seen. Your evaluation should reflect all relevant facts provided about DEF. (9 marks) (ii) Evaluate the Chairmans arguments that the board should not cooperate with Max unless it can be determined that the client whom he represents will not change the airport in any fundamental way. (8 marks) (iii) Discuss the risks associated with pursuing the airports mission statement (as provided in page 2 of the preseen) as a basis for the boards strategic management of DEF. (8 marks)

(b)
(i) Discuss the risks and benefits to DEF of the Chief Executives proposal to accept payments in US$ which would then meet part of the airports US$ outgoings. (8 marks) (ii) Explain the benefits of internal hedging methods for managing foreign currency risk over external methods involving financial instruments. (8 marks)

(c)

Evaluate the risks to the retailers of accepting foreign currency payments at their shops and cafes. (9 marks) (Total for Question One = 50 marks)

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Paper P3 Management Accounting Performance Strategy Post Exam Guide March 2011 Exam

Rationale This question is based on both the common pre-seen scenario and the unseen scenario. It draws on themes that have been discussed in the context of airport management and travel in recent years, most notably the changes that are being brought about by the encroachment of low-cost airlines and the impact of economic factors on the demand for leisure and business travel. Candidates should be able to answer this question on the strength of the information provided in the paper, but even some very basic desk research on the pre-seen case should help them. This question is split into three main parts: Part (a) covers aspects of sections A, B and C of the syllabus management and control systems, risk and internal control and audit and audit of control systems. It covers aspects of the higher-level strategic management of the entity, bringing in the composition of the board, the boards responsibility to the shareholders and the implications of the mission statement. Part (b) is drawn from section D of the syllabus management of financial risk. It deals with the management of currency risk, focussing on the role of internal hedging techniques. Part (c) is drawn from section C of the syllabus review and audit of control systems. It deals with the risks associated with accepting cash payments in the form of foreign bank notes, with implications for the reconciliation and recording of takings.

Suggested Approach Part (a)(i) asks for an understanding of the corporate governance requirements relating to board structure. This is a straightforward question which relates to having balance on the board. (a)(ii) asks for an analysis of the proposal made by Max. The chairman suggests the board should not consider the proposal unless the airport will continue in the same vein in the future. There are many points which could be made in a good answer. Good candidates discussed the boards responsibility to shareholders in the light of the structure of the company. (a)(iii) is looking for a discussion of the mission statement in terms of setting strategy for the future. (b)(i) is looking at financial risk. Some discussion on the risks of taking payment in foreign currency is required. The answer should consider the idea of hedging using the bureau de change. (b)(ii) this part continues the discussion of foreign currency. Candidates were asked to discuss internal versus external hedging methods. (c) This section looks at the risks of the retailers accepting payments in a variety of foreign currencies. There should be a discussion on how this affects the controls in the shops and cafes.

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Paper P3 Management Accounting Performance Strategy Post Exam Guide March 2011 Exam

Marking Guide (a) (i) Discussion of the board structure 1 mark per relevant point should include some of the following Balance Skills Role on non execs

Marks

Max 9 marks

(ii)

1 mark per relevant point which could include: Comments on the proposal Duty to shareholders Comments on structure Redundancies

Max 8 marks

(iii)

1 mark per relevant point on mission statement

Max 8 marks

(b) (i) There must be a discussion. 1 mark per relevant point. Points made should relate to the case material.

Max 8 marks

(ii) 1 mark per relevant point relating to case material.

Max 8 marks

(c) Various risks could be discussed. Discussion should relate to the scenario. 1 mark for any reasonable point which could include: Cashing up Translation Different rates Forged notes Max 9 marks 50 marks

Maximum marks awarded

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Paper P3 Management Accounting Performance Strategy Post Exam Guide March 2011 Exam

Examiners Comments Some parts of this question were not answered very well. (a)(iii) which was about the mission statement was poor and a number of candidates missed it out completely. (b)(i) and (ii) were also weak. Part (a)(i) was about governance and was answered very well by most candidates. Part (a)(ii) was not answered as well. It was about whether to accept the proposal made by Max. Candidates gave fairly short answers to this and did not give a structured answer. Part (a)(iii) was about the mission statement and was poor. (b)(i) was about accepting payments in $US and was generally poorly thought through. (b)(ii) was about hedging and the answers were quite general. (c) was reasonably well done, although some answers were very brief. Common Errors Some candidates missed parts out which will always be difficult to recover from. The part of the question most often missed out is that relating to financial risk. It was clear that some candidates had not read the question in detail and did not pick up on several of the points which were there which would have helped to give a good answer. Using the reading time to make sure these points are used is important. The part about the mission statement was done badly; most candidates gave very brief answers which lacked any depth. Parts (b)(i) and (ii) were disappointing. Many answers were very short and missed the main issues. The area of financial risk could do with some revision. Some answers to part (c) about the bureau de change were very good but others were poor. The good candidates were able to apply their knowledge and come up with most of the risks which was pleasing.

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Paper P3 Management Accounting Performance Strategy Post Exam Guide March 2011 Exam SECTION B 50 MARKS ANSWER TWO QUESTIONS ONLY

Question 2

(a)
(i) Discuss the Director of Operations view that it is impossible to prevent all workplace injuries. (5 marks) Discuss the Chief Executives view that it is unacceptable for Grove Council to tolerate any workplace injuries. (5 marks) Analyse the ethical dilemma faced by the internal auditor. (8 marks)

(ii)

(b)
(i)

(ii)

Recommend the course of action that the internal auditor should take if she is unable to persuade the Head of Internal Audit to draw these allegations of under-reporting of injuries to the attention of the senior management of Grove Council. (7 marks) (Total for Question Two = 25 marks)

Rationale Part (a) is drawn from section B of the syllabus risk and internal control. It deals with the management of the risks associated with workplace accidents, with consequent implications for the inevitability of the risks and the need for avoidance. Part (b) is drawn from section C of the syllabus review and audit of control systems. It deals with the ethical dilemma faced by an internal auditor who has discovered the falsification of health and safety records. Suggested Approach Section (a)(i) asks for an evaluation of the directors view. Candidates should invest some time in thinking about their approach. Part (ii) looks for an evaluation of the chief executives view. This view is different from the directors. Marks will not be awarded for negatives of points made in (i). Section (b)(i) is about ethics. Some consideration of the ethical dilemma is required. This should be discussed in some detail. Section (b)(ii) is about the response of the auditor.

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Paper P3 Management Accounting Performance Strategy Post Exam Guide March 2011 Exam

Marking Guide (a)(i) Max of 5 marks for discussing the Directors view 1 mark per reasonable point (a)(ii) 1 mark for each good point on the Chief Executives view (b)(i) 1 mark per relevant point Ethical issues must relate to the scenario or no marks No marks for simply listing CIMA ethical guidelines (b)(ii) 1 mark per relevant point. Must include recommendations. Maximum marks awarded

Marks Max 5 marks

Max 5 marks

Max 8 marks

Max 7 marks 25 marks

Examiners comments This was the most popular of the optional questions and was done reasonably well. Parts (b)(i) and (ii) were a little poorer than part (a). Common Errors This question was reasonably well done by most candidates who attempted it. The most common mistakes were not to discuss the ethical issues at all or to misunderstand the issues. Part (b)(i) was poorly answered as some candidates did not try to relate their answer to the scenario and just listed CIMAs ethical guidelines. This approach got no marks. When there is a scenario candidates must use it in their answer. Many candidates answered (b)(ii) very badly and could only suggest the auditor resigned. While that is certainly a last resort there are many other options that should be explored first.

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Paper P3 Management Accounting Performance Strategy Post Exam Guide March 2011 Exam

Question 3

(a)

Evaluate the argument put forward by Ts finance director for refusing to have a postimplementation review. (10 marks) Evaluate the suitability of the internal audit department to conduct Ts postimplementation review in the event that such a review is conducted. (5 marks)

(b)

(c)

Discuss the problems that might arise if an entity does not conduct a parallel run when implementing a new system. (10 marks) (Total for Question Three = 25 marks)

Rationale This question is drawn from section E of the syllabus risk and control in information systems. It deals with the issues associated with implementing and testing a new information system.

Suggested Approach Section (a) asks for some reflection on the role of a post implementation review. It does require some understanding of the issues as candidates have to evaluate the reasons the finance director does not want one. Section (b) asks for a discussion of the suitability of internal audit to carry out such a review. Candidates should demonstrate knowledge and understanding of the role of the internal auditor. Section (c) asks for a discussion of the importance of a parallel run of the new and old systems.

Marking Guide (a) 1 mark per relevant point Answer must evaluate the finance directors statement. (b) 1 mark for each sensible comment on the role of internal audit For example: Independence Knowledge of system Experience Skills

Marks Max 10 marks

Max 5 marks

(c) Discussion required for maximum marks. Maximum 4 if no discussion. 1 mark per relevant point Maximum marks awarded Max 10 marks 25 marks

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Paper P3 Management Accounting Performance Strategy Post Exam Guide March 2011 Exam

Examiners Comments This question was done badly. This was a reasonably popular question but it was not done well. The answers were brief and often did not relate to the scenario at all. Candidates did not seem to understand the risks that were to be discussed. The syllabus has a significant section on IT and IS and candidates would benefit from revising this for future attempts. Candidates are often weak in this area.

Common Errors Most candidates did not seem to know what a post implementation review was; this area of the syllabus could do with some revision before the next exam. Many candidates wrote about a post completion audit which is not the same. Few candidates could make sensible suggestions about whether internal audit would be suitable for this task. The role of the internal auditor will be examined fairly often as it is a significant part of the syllabus. Part (iii) of the question was poorly answered; this was surprising as past questions have asked about how to minimise risks when changing a system. Generally, candidates choosing this question answered very briefly and seemed to have a poor level of knowledge.

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Paper P3 Management Accounting Performance Strategy Post Exam Guide March 2011 Exam

Question 4

(a)

Calculate the net present value (NPV) of the cash flows that W Bank will generate from this swap under each of the three scenarios identified by the swaps department. W Bank discounts cash flows from such projects at 7%. (8 marks)

(b)
(i) Advise W Bank on the risks that will arise from this swap arrangement. (6 marks) (ii) Explain how W Bank might mitigate the risks arising from this swap and identify the difficulties in doing so. (6 marks)

(c)

Evaluate the benefits to P of entering into this swap arrangement. (5 marks) (Total for Question Four = 25 marks)

Rationale This question is drawn from section D of the syllabus management of financial risk. It deals with the use of swaps for the management of interest rate risk. This question is partly calculation and part theory. Part (a) asks for calculations of the net present value of the cash flow generated from the swap. Part (b) looks at the risks and mitigation of the risks of the swap from banks perspective and part (c) looks at the benefit of the swap.

Suggested Approach Section (a) requires a basic understanding of calculations involved in a swap. Section (b) requires the ability to discuss the risks to W bank and also to understand how the bank could mitigate the risks. Section (c) requires candidates to think about the nature of the swap and what the benefits could be.

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Paper P3 Management Accounting Performance Strategy Post Exam Guide March 2011 Exam

Marking Guide (a) (b)(i) Up to 3 marks for each of 3 forecast calculations 1 mark per reasonable comment Max 8 marks Max 6 marks Max 6 marks Max 5 marks

(b)(ii) 1 mark per reasonable comment (c) 1 mark for each reasonable comment.

Maximum marks awarded Examiners Comments

25 marks

This question was the least popular question but had the best marks. Candidates who chose this question knew this area of the syllabus well which was heartening. The calculations were done well but part (b)(ii) was a little weak. It would be beneficial to all candidates to study this area of the syllabus. It is 35% of the syllabus and it is difficult to pass this subject without good knowledge of this topic. Common errors Part (i) was very well done with many candidates scoring full marks. Part (b)(i) was a little weaker and part (b)(ii) was poor. In part (b)(ii) the obvious solution was for W to organise another matching counterparty swap, very few candidates mentioned this. Part (c) was very well done.

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