PQ magazine

April 2015

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

Learning conference

What do ACCA examiners

want? We spill the beans
on F1, F7, P1 and P2

BIG 4

STUDENT
AUTHORS
TAKE AIM

BRIGHT FUTURE
FOR ICAEW PQs
Institute announces record student intake for 2014 and a move to CBE testing from 2016

The ICAEW is on the move. Record

student numbers and plans for
alternative papers and the phased
move towards CBE assessment were
all unveiled at the recent ACA tutors
conference.
Gavin Aspden, director, qualifications, and
Shaun Robertson, head of qualifications, told
conference delegates (on more than one
occasion) that the changes being outlined were
still subject to full governance and approval from
ICAEW Council. But they
amount to a radical move
Some
forward for the body that
22,000
first introduced objective
students are
testing to its syllabus in
currently studying
2002.
towards the
Robertson revealed that
various stages of
in 2002 just over 3,000
the ICAEW
students were signed up to
qualification
ICAEW training
agreements. Last year, a
massive 7,326 students joined the ICAEW
trainee ranks, beating the previous record set in
1988 when student numbers topped 7,000 for
the first time in a single year. You can add to
that another 3,115 PQs who signed up to the
CFAB qualification, a first step on the road to the
full qualification. These new records mean some
22,000 students are currently studying towards
the various stages of the ICAEW qualification.
Aspden revealed that, on top of bringing in
CBE assessment to all levels, the institute is also
looking to introduce alternative papers in two key
areas financial services and UK GAAP.
The education department is working on
phasing in computer exams from 2016. There

Agents of change: Shaun

Robertson and Gavin Aspden
will, however, be no change in the style or
approach of the exams.
Aspden said that the technology has to fit
what the ICAEW wants to achieve, and not the
other way around. The exams will also be
marked by a real person rather than by a
computer.
First to get the CBE treatment will be the Tax
Compliance exams, kicking off in March 2016.
The ICAEW believes this phased approach will
allow it to manage the risks and ensure the

qualification isnt compromised.

Interestingly, the ICAEW is adding long-form
questions to some of its OT papers at the first
level (Certificate). It has already done this to the
Accounting module and now plans to do the
same for the Management Information and
Principles of Taxation papers.
We spoke to the ICAEWs executive director of
learning and professional development, Mark
Protherough, about the proposed changes and
much more. See page 14

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comment PQ

CONTENTS

News
08ACCA results Glitch see some
PQs get their marks upgraded
10CIPFA exams Progression
rules dropped from this summer
12Careers focus New Reed
survey outlines whats going on
in the world of work
Features, etc
06Mind your Ps&Qs Exams on
demand are nothing of the sort;
and the best of social media
14Interview We speak to ICAEW
chief Mark Protherough about
the institutes plans for the future
16Lets get technical We explain
the concept of accruals
18ACCA P6 Expert advice on how
to pass this troublesome paper
20Essential economics Open
University lecturer Jonathan
Winship looks at the concept of
economic and accounting profit
22Audit Three top De Montfort
uni students
explain whats
wrong with
the UKs
audit market
24Exam skills How keeping your
answers neat and tidy improves
your chances of getting a pass
25ICAEW focus Improving
access to the qualification for all
part qualified students
26Throughput accounting How
to avoid the dreaded bottleneck

Meet the examiners

April 2015
28ACCA learning providers

conference The first in our

series of reports about what the
ACCA examiners really want
30CIPFA spotlight Apprentice
scheme nutures young talent
31The disposal of assets Get to
grips with this important concept
32Careers Life at Stockport
College; building your network;
and our Book Club review
38Fun time The lighter side of
accountancy plus our giveaways
The columnists
Robert Bruce The etiquette of
board meetings explained
8
Prem Sikka Corporate governance
code cant stop the scandals
10
Carl Lygo Students could hold key
to the general election
12
Subscribe to PQ magazine
Its FREE see page 35 or go to
www.pqmagazine.co.uk
ABC July 2013June 2014

32,361

Publishers statement: We have a

digital issue of the magazine which
is sent to 9,111 requested readers

Is it me or are ACCA tutors getting softer? I can remember the

days when putting an examiner in a room full of lecturers was
the equivalent of throwing them into a bear pit. Perhaps in the past
there was a lot of one-upmanship going on, but one wonders if pass
rates of 29% and 30% would have been tolerated as they are now. I can
only suppose that in those more confrontational days tutors felt that poor
pass rates reflected on their ability to teach their subject. The ACCA
learning providers conference is still a fantastic opportunity to meet the
examiners every two years, and with so many changes going on it is a
vital communication forum. This years conference in London again
showed there is no substitute for meeting an examiner in the flesh. It
definitely makes them more human! We have two pages in this months
issue on what the examiners want, with more to follow next month. After
the conference PQ spoke to the newly promoted Alan Hatfield hes
now an executive director and director of qualifications Catherine
Edwards. Watch out for that interview in next months issue, too.
One thing we should say is that while the ACCA will be using Pearson
Vue software for its CBE exams it will be using its own network of exam
centres. A student wrote to us concerned about exam capacity if ACCA
and CIMA students were trying to book exams at Pearson Vue at the
same time (see our lead letter on page 6). Hopefully, we have put that
concern to bed.
Sonny Sharma
We were really saddened to hear that LCAs Sonny
Sharma passed away recently. There arent many big
characters around these days, but it is fair to say this
man was one big personality. He will be missed by everyone who knew
him. A lawyer by trade, Sharma always put his students first, and his
smile and jovial character livened up our world.
Graham Hambly, PQ magazine editor (graham@pqaccountant.com)

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PQ have your say

email graham@pqaccountant.com
Not really on demand

The exams are marketed as on

demand, but if I wanted to sit at
a weekend I would have to wait
for more than six weeks from the
time I booked for a slot at any of
my nearest three centres.
This could cause serious
problems and will not lead to the
easy on demand booking we
were promised.
Name and address supplied
The editor says: Weve had it
confirmed by ACCA that they will
be using Pearson Vue software,
but at the associations own
network of centres. But we think
there still could be issues here
watch this space.

PQ magazine says that ACCA will

be using Pearson Vue centres
from late 2016 (March 2015
issue). This is bad news for both
ACCA and CIMA PQs alike! Im a
CIMA student and today booked
my OT under the new system.
Available appointments are few
and far between at my three local
centres. The earliest one I could
book was a month away.
Has anyone considered the
capacity of these centres when
they will be hosting both
sets of exams? My local
centre has 10 machines
and very little parking.

The writer of the star letter each month wins a fantastic I PQ mug!
Pick the right option

I have just read your article on

ACCA pass rates, particularly for P4
and P5 (PQ, March 2015). May I
just say that all the options are set
at a masters level all as difficult
as each other in their own way. P6
and P7 tend to have higher pass
rates, in my opinion, as these are
taken mainly by students who work
for the accountancy firms. In
addition, my educated guess is that
these papers attract a lot of UKbased candidates, especially P6.
P4 and P5 are popular papers
globally. I can say that from
teaching many P4 students, both in
the UK and abroad, the global pass
rates do not reflect the level of
performance that I have seen. You
can see the pass rates I have
achieved via my twitter feed and
these are consistently more than
double the global average.
Simply put, students must pick
the option that suits them best, but
this also includes picking a tutor
who knows that paper inside out.
Sunil Bhandari, ACCA tutor, by email

Glitch in the system

I was one of those students who

could access their ACCA exam
results on Saturday night (PQ
magazine, March 2015). This is not
the first time I have been able to
get my results early. There seems
to be a glitch in the ACCAs system
that happens every time they get

Hot & Tweet

Weve been busy

tweeting this
month, with many
of our tweets alerting readers to
stories that have been posted
on our website but didnt make
it into the magazine. We had
the full story of HMRCs court
of appeal win against the
Eclipse Film Partnership
(no35), which protects an
estimated 635m in tax. We
also covered the long-running
debate on the discrepancy of
VAT rates between printed
books and e-books that went
before the European Court. And
there was a big piece on
innovating auditor reports from
the FRC. You can find our take
on the story in the next issue of
NQ magazine, along with the
story of a new use for Facebook
collaring bankrupts!

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the results ready to release. Like

the students you talked to last
month I am a little worried about
the security of the ACCA system.
However, I read somewhere, I think
on the ACCAs website, that they
are now ISO 22301 approved. This
means they can identify and
manage current threats to its
business, and security of the exam
results must be one of these. So we
must be safe!
Name and address supplied

We also use tweets to highlight

the great jobs on offer on our
jobs board www.pqjobs.co.uk.
There are hundreds of great
jobs aimed at PQs. Two we
featured recently were for a
legal credit controller in
Edinburgh on a salary of up to
19,000, and a post for a PQ
management accountant in
Luton with a pay packet of up
to 33,000 up for grabs.
Follow us @PQmagazine.

When PQ heard that some ACCA December exam results

have been amended we went straight onto LinkedIn to
see what people thought. One correspondent said:
Great, good on them. Others quickly confirmed that
they had benefited; some marks were put up by two
percentage points, turning fails into passes. This got us
into another discussion about pass rates. There seems to be a rise in the
number of PQs receiving 49%, which was something we understood
bodies with a 50% pass rates try to avoid. We also asked what you
thought of the ACCAs new strapline Think Ahead. Youll have to wait
until next months issue to discover what came out of that. So if your
body had a strapline what would it be? Tell us, but be nice please!

PQ Magazine Fourth floor, Central House, 142 Central Street, London EC1V 8AR | Phone: 020 7216 6444 | Email: graham@pqaccountant.com
Website: www.pqmagazine.co.uk | Editor/publisher: Graham Hambly graham@pqaccountant.com | Advertising manager: Polly Thrasivoulou polly@pqaccountant.com
Associate editor: Adam Riches | Art editor: Tim Parker | Subscriptions: dom@pqaccountant.com | Contributors: Robert Bruce, Prem Sikka, Carl Lygo,
Tony Kelly, Phil Gammon, Jo Daley | Origination and print services by Classified Central Media
If you have any problems with delivery, or if you want to change your delivery address, please email dom@pqaccountant.com

Published by PQ Publishing PQ Publishing 2015

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PQ news

ROBERT
BRUCE
Making a
meal of
board
meetings
I was talking recently about the ability
of cartoons to jab the unexpected
against the expected and so produce
a laugh. And I remembered a cartoon
in the New Yorker magazine. It
showed three men on stage wearing
suits and ties. Above them was a sign:
Accounting Night at the Improv. They
are saying: Now is the part of the
show where we ask the audience to
shout out some random numbers.
Cartoons shake up your assumptions,
and this one crossed over the divide
between work and fun. Accountants
up on stage? Perish the thought.
But it is important to apply what
you would in your leisure life to the
work environment. The consultants
Independent Audit produce a regular
newsletter called The Effective Board,
and a recent one dealt with the
simple practicalities of board
meetings. The chairman shouldnt sit
in the middle of the long side of the
table. A free-for-all in the seating
shouldnt be allowed. Break up
groups. Dont let cabals develop. Dont
let the company secretary sit at the
other end to the chairman (the ability
to provide a subtle nudge will be
lost), and so on. The same rules apply
at a dinner party. The person in
command of the cooking and serving
should be in subtle touch with
whoever is hosting. Dont let all the
men sit at one end of the table. Move
people around. Dont let the evening
become static.
Dinner parties dont have to deal
with recalcitrant finance directors or
rogue non-executives. But the
underlying principles, like much in
life, are strikingly similar.
n Robert Bruce is an
award-winning writer on
accountancy for The Times

ACCA amends exam scores

after administrative review
A small number of ACCA December
sitters came in for a shock 11 days
after they had received their exam
marks their pass marks were
increased! For many it meant a
better pass percentage, but for
others the 2% rise turned a failure
into a welcomed pass. As one F5
sitter explained: My 48% has been
adjusted to 50% so no retake for
me, thank goodness, so relieved.
Interestingly, PQ magazine has
heard the amendment applied in
lots of papers F5, F6, F9, P1, P2,
and P6.
Sitters in Nottingham wondered if
it was a centre issue, but many
trainees agreed is was all very
strange. As one student said: I
could maybe understand it if it was
just happening in one exam, but it

Hatfield: a
one-off issue

seems very widespread.

Students believe December
sitters deserve a proper explanation
of what actually happened.
The ACCAs Director of Learning,

Alan Hatfield, said: We want to

reassure students that this was a
one-off processing issue and all
affected students have been
notified.
He added: There are many
quality assurance procedures and
safeguards built into the marking
procedure and the processing of
exam results to ensure that the final
results issued to candidates are
correct.
The notification emails also
apologised for the error and
promised that the ACCA was taking
any measures it can to ensure that
this cannot happen again in the
future.
For reports from the ACCAs
learning providers conference see
page 28

Scaled scores
the way ahead

The first-ever CIMA case study exam results will hit

inboxes in early April. The operational results will be first
they will be released on Thursday 2 April, followed by
the management pass rates on Friday 10 April. Last out
will be the strategic results on 16 April.
Students (like PQ magazine) might be a little
confused about what they are actually going to receive.
Instead of percentages, candidates will be given a
scaled score that will range from zero to 150.
As CIMA provides different versions of the exam over
the five-day exam window it believes scaled scores are
necessary so that scores reported are comparable no
matter what version a candidate sat. CIMA will be
publishing the five different exam questions set, so
sitters can judge which one was easier.
An institute insider explained that by converting raw
scores it allows CIMA to eliminate differences in
difficulty between forms and provides fair and
comparable results for candidates. Scaled scores also
make it easier for candidates to compare their
performances from one session to another.

EY launches earn as you learn

EY has launched a new Assurance Scholarship
programme giving students the opportunity to study for
a degree while receiving financial support and work
experience at the firm.
Building on an existing partnership with Lancaster
University, EY is teaming up with the Bath and Warwick
universities to offer the scholarship to 60 students.
Students studying certain degrees will be eligible to
apply, with 5,000 a year on offer to help with the
upfront costs of attending university. Students will also
benefit from a paid summer work placement at one of
EYs UK offices in their second year and a year-long
industrial placement in their third year of study.

In brief
Insolvency fees capped
The government has said it
will impose a cap on fees charged
by administrators of collapsed
companies. The move follows
protests from creditors over
excessive charges. Under rules laid
before Parliament, administrators
(and other practitioners) who
oversee insolvencies will have to
provide upfront estimated costs.
They will also have to provide
details of the work they propose to
carry out and say exactly how long
they expect it all to take.
8

Northern Ireland calling

A call has gone out for
volunteers to help set up a
Northern Ireland AAT branch.
Currently, both members and
students in the province are
missing out on events as there is
no point of contact. CIPFA has said
it would be prepared to provide
assistance to anyone interested in
taking on the role.

partnership linking the ACCA

qualification with graduate and
undergraduate courses at the
university. Starting this autumn,
both undergraduates and
graduates at Paces department of
accounting will be able to qualify
for specific exemptions from the
ACCAs 14 exams. The exemptions
will include four for graduate and
five for undergraduate courses.

ACCA joins forces with US uni

ACCA and Pace University
have announced a landmark

CIPFA signs Sri Lanka MoU

CIPFA and the Institute of
Chartered Accountants of Sri Lanka

have signed a Memorandum of

Understanding (MoU) to strengthen
the countrys public financial
management. The MoU outlines a
framework for co-operation
between the two institutes to
improve governance of public
finance within the country and help
improve training and development
in the accountancy profession. The
collaboration will open the doors to
membership for members of both
institutes and professional
development opportunities for
members of CA Sri Lanka.
PQ Magazine April 2015

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PQ news

PREM
SIKKA
Corporate
governance
code cant
stop the
scandals
The revelations that HSBC may have
helped its clients to evade taxes is the
latest corporate scandal. People are
angry and the regulatory system has
failed to check abuses. Internal
controls at banks, utility companies
and big accountancy firms do not
appear to be able to curb anti-social
practices. No ethics committee, audit
committee or external auditors have
reported weaknesses or misconduct.
External regulation is based on a
voluntaristic approach, typified by the
Code of Corporate Governance. The
comply-or-explain approach does not
empower stakeholders to take
directors to task. The interests of
consumers, employees, taxpayers and
suppliers get virtually no mention in
the Code. And glossy words in annual
reports are part of a cynical
impression management exercise.
External regulators are ineffective.
Some banks have been fined, but this
is now all part of the cost of trading,
as executives rush to meet profit
targets and maximise their bonuses.
The usual predatory practices continue
as the culprits are too big to shut
down and company directors are not
held personally liable. External
regulators have little independence.
They come from the very industry that
is to be regulated. Business executives
become regulators and then return to
the industry.
There is an urgent need to end the
voluntary approach to corporate
governance and make directors
personally liable for corporate
misdemeanours.
n Prem Sikka is professor
of accountancy at the
University of Essex

Top tax ideas

A tax system
that empowers
regional cities
and encourages
businesses to
invest in people will boost
employment and drive the UK
economy, according to the writers
of the winning essays in a major
PwC student tax competition. The
two winning students, Richard
Cha and Jamie Parker, both from
the University of Cambridge, each
walked away with a 10,000 prize.
Chas essay made the case for a
10

Progression rules dropped

from CIPFAs June sitting
CIPFA has changed its progression
rules. In the past, students could
not sit the exam of either strategic
stage module before successfully
completing all other modules.
This rule no longer applies,
although CIPFA is saying that given
their nature it is still important that
PQs plan to sit the strategic stage
modules at the end of their studies.
This all means that from the June
2015 sitting students can sit any
strategic stage module as part of
their last planned sitting of
Professional Certificate or
Professional Diploma modules.

At the same time, the institute

has announced minor presentation
changes to the headers on the front
cover of the June 2015 exam
papers. From this summer, there
will be no reference to the stage or
the title of the qualification and
some modules will be labelled UK
version or international version,
depending on your choice of paper.
Another change unveiled recently
is the embedding of the formulae in
the Management Accounting exam,
either in the relevant question or at
the back of the exam paper. So that
spells the end of the separate

formulae sheet document. That

said, separate formulae sheets will
continue to be provided for the
Financial Management and
Strategic Financial Management
exams.
Finally, in the Financial
Accounting paper, the cash flow
statement pro forma will be
included as the last page of the
paper rather than being provided
separately (from June 2015).
Candidates will be able to tear this
off and use the page as a template
for their exam answers if required
by the exam.

So are you happy at work?

So what makes you happy at work?

An AAT survey found having nice
toilets, music in the
office and the ability
to take your shoes off
are noticable plusses.
Happiness can also
be found in fun
colleagues, a bit of
respect and having
your ideas listened
to. Interestingly, the first moneyrelated option didnt appear until
number 11 on the list. That was
having a pay review scheme.

CIMA has updated its code of

ethics to ensure it remains
relevant and reflects the changing
dynamics and pressures of the
profession. While no changes have
been made to the CIMA syllabus,
the institute is still recommending
that students familiarise themselves
with the new-look 2015 code as it
will help PQs answer specific
decentralised tax system, with the
devolution of tax and spending
powers to cities. He argued that to
drive the modern UK economy a
competitive country and not just a
single competitive city is essential.
Parkers essay put the case for
greater decentralisation of taxes
and establishing a more explicit
link between businesses that
invest in human capital and the
rates they pay in taxation.
Salaries not so important
A large salary is no longer the top
priority for graduates when looking

Asked how their year had gone,

those surveyed gave a mixed
reaction. Some 20% said
the past 12 months had
gone badly from a
professional point of view.
In all, 55% of those
surveyed said they didnt
feel appreciated and one in
five plan to change bosses.

Top 10 factors for work happiness

1) Respect for employees
2) Flexible hours/understanding
when child sick

3) Hard working colleagues

4) Fun colleagues
5) Being acknowledged for your
achievements
6) Having ideas listened to
7) Free parking/close to public
transport
8) Regular thank yous
9) Realistic deadlines
10) Fast broadband
Also on the list: nice toilets (number
12); comfy chairs (20); music in
office (28); freedom to take your
shoes off (33); and good stationery
(35).

Know your code and pass the exam!

questions in the
exam hall.
PQs should also
note that CIMA has
updated its student
ethics support elearning tool. This
has been reviewed

for their first job, according to the

latest EY poll. When asked to rank
the most important considerations
when choosing a future employer
only 11% of students said the size
of the wage packet would be the
key factor. Salary and benefits fell
to fifth place in the ranking overall,
down from joint top position last
year. Access to training and
development opportunities topped
the poll with 35% of the vote a
15% percentage point hike on last
year. EYs Julie Stanbridge said:
Money clearly isnt king for
todays graduates.

and new questions from the

2015 practice exams have been
added.
The conflict of interest section
in the newly updated code has
particularly been beefed up the
six paragraphs on this area have
become 14.

Female CEO for Deloitte in the US

Deloitte has chosen Cathy
Engelbert as its new chief
executive. This is a first among the
Big 4 firms in the US. Engelbert
replaces Frank Friedman the
interim CEO. She has an
accounting degree from Lehigh
Univesity and joined Deloitte in
1986. Engelbert is both chair and
chief executive of Deloitte &
Touche for the next four years.
Meanwhile, in the UK, partners
re-elected David Sproul as their
CEO. He begins his second term
on 1 June 2015.
PQ Magazine April 2015

Read our full Study InterActive Terms and Conditions at studyinteractive.org/terms-and-conditions

PQ news

CARL
LYGO
Students
could hold
the balance
of power
The student vote could be the key to
deciding the 2015 general election if
the vote is as close as it is predicted
to be. At the 2010 election the Liberal
Democrats were the top choice among
students but the opinion polls suggest
their support has fallen away given
the broken promise that led to a
tripling of tuition fees for
undergraduate students. Labour have
put tuition fees at the centre of their
election manifesto, promising to
reduce fees to 6,000 a year, making
up the lost income for universities by
increasing taxation on more wealthy
pensioners.
Undergraduate students were asked
how they would vote in the May
election: the result was Labour 33%,
Green 28%, Conservative 23%,
Liberal Democrat 7%, SNP 4% and
UKIP 2%. Research by the Higher
Education Policy Institute (Spring
2015, Report 73) suggests there are
10 swing seats where students could
impact the result. This research
predicts Labour may gain six seats
from the Conservatives and two from
the Liberal Democrats, while the
Conservatives could gain two from the
Liberal Democrats. All of this assumes
students register to vote (the new
voter registration system has
changed) and turn out to vote.
What has been interesting for me
has been the student reaction to
Labours proposed tuition fees cut.
While the cut has been welcomed
students have complained that not
enough is being done to lend students
enough money to cover maintenance
costs. Maintenance loans are means
tested and the maximum household
income must be under 25,000 a
year to qualify for a full maintenance
loan.
n Professor Carl Lygo is
chief executive of BPP

THE CAREER CAROUSEL

How many times do you expect to
change your employer during your
working life? Well,
the latest Reed
Accountancy &
Finance salary
guide found 27%
of respondents had
had seven or more
employers. That
said, accountancy and finance staff
seem very happy bunnies. A
whopping 90% of those surveyed
said they were satisfied with their
current role. This is perhaps

reflected in the fact that just over

one in 10 (11%) said they will be
looking for a new
job in the next 12
months.
With new
vacancies starting
to outstrip the
number of active
candidates salary
expectations are starting to rise.
The research also shows that
what accountants want most
changes over their career. Between
the ages of 18 and 24, salary and

benefits is the priority (39%). This

changes for those aged 25 to 34,
when job satisfaction becomes the
key to a happy working life. From
35 to 45 work-life balance is allimportant. Finally, from 45 to 54
salary and benefits again become
the most important aspect of an
accountants working life thus
completing the circle!
Find out what you are worth by
requesting the Reed Accountancy
& Finance 2015 Salary and Market
Insight report go to
www.reedglobal.com/salaryguide

Well done to the Institute of Certified Bookeepers, named Best

International Association at the Association Excellence Awards 2015

CFO NOT SO SUPER

AT SUPERGROUP
The CFO of SuperGroup (read
Superdry here), Shaun Wills,
has been forced to quit after
being declared bankrupt.
Accountant Wills was the
subject of a personal
bankruptcy order on 10
February after a petition from
HMRC. It is, of course, an
offence to be a director if you
are an undischarged bankrupt'
unless you have a leave of
court (Company Directors
Disqualification Act 1986).
Eyebrows have been raised
over the two weeks it took
Wills to inform the board. In a
statement the firm said: This is
a personal matter, on which
SuperGroup will not comment

further, and is wholly unrelated

to the financial position of the
company.
Meanwhile, Paul Coyle, the
former group treasurer and
head of tax at Morrisons, has
been sentenced to a year in
prison for insider trading. The
case was brought by the
Financial Conduct Authority
after it was discovered Coyle
had bought and sold shares in
Ocado when it was in talks with
Morrisons over a joint venture
(worth 216m). Ex-KPMG
employee Coyle pleaded guilty
on both counts and on top of
his time in prison has been
ordered to pay 15,000 costs.
He made 80,000 on the trade.

Councils takes control

of 6bn health budget

In whats been seen as a surprise move by

some commentators, 10 Manchester councils
have been given control of over 6bn of NHS
spending.
CIPFAs CEO, Rob Whiteman, said he
welcomed any move that brings decision
making over health spending closer to local
people, but added that we must make sure
that all areas of the UK can benefit from any
devolution dividend.
Whiteman stressed that CIPFA will work to
make sure that any deal works for the people
of Manchester and that the right governance,
financial management and delivery systems
are in place.
Local government academic Tony Travers
emphasised that this devolution was one of
the most radical changes in healthcare since
the NHS was created. He expected there to
now to be a queue of every city region in the
country, including London, wanting to get in
on this.

In brief
ACCA is thinking ahead
The need for ACCA PQs to
think ahead has now been
incorporated in the ACCAs new
strapline. The director of strategy
and brands, David Grint, told
delegates at the global learning
providers conference that the
ACCAs new brand positioning aims
to reinforce its strategy to be the
worlds most forward thinking
12

professional accountancy body.

He explained for students the
brand has to tell a story. It means
supporting them so they realise
those early dreams and hopes, he
said. And he added that as their
careers evolve they know that the
ACCA will be constantly relevant to
whatever they do. Grint has also
refreshed the brand identity. You
can expect to see the ACCA logo in

orange and green boxes, as well as

the traditional red one.
Even Einstein failed an exam
The UK College of Business
and Computing took a novel and
eye-catching approach in a recent
online advert. It explained that in
1895 Einstein failed his exams, so
failure can happen even to a some
very clever people. For those who

dont know, a young Albert Einstein

failed the entrance exam to a
prestigious Polytechnic in
Switzerland. He passed the exam
12 months later after studying for a
year at a local high school.
PQ Magazine April 2015

PQ interview

A RECORD YEAR
PQ has a coffee and a chat
with the ICAEWs executive
director of learning and
professional development,
Mark Protherough

Protherough:
talking with PQs
about taking the
institute forward

ast year was a record one for

students signing up with the
ICAEW, so PQ magazine went
along to speak to executive director of
learning and professional development,
Mark Protherough, about what sparked
this rise. We also wanted to talk to him
about the proposed changes to the
ICAEW assessment process, unveiled at
the ACA tutor conference.
Protherough happily confirmed that
the total number of students joining
ICAEW training programme last year was
7,326, a new high. You can also add a
further 3,115 to this, those starting the
CFAB qualification. He was particularly
pleased that the growth comes across
the board from the Big 4,
internationally, in industry and the public
sector. The numbers signing up with
smaller and medium sized practices is
also the highest in 20 years.
Protherough believes that, to a certain
degree, the ICAEW is also taking market
share from its competitors. Interestingly,
the numbers were not impacted at all by
the Scottish referendum. However, if
there had been a yes vote it might have
been interesting to see what would have
happened, he ventured.
Along with the UK, the ICAEW is
particularly strong in Cyprus, the Middle
East and Malaysia. It is also working
closely with other professional bodies.
Protherough cited the work the ICAEW is
currently doing in Greece, Indonesia and
Botswana as the way forward. It wont
mean hundreds of new students but it
could lead to more small rises in student
numbers.
Women on the up
.
The ICAEW doesnt directly recruit its
own students, but in recent years there
appears to have been a problem with
recruitment female trainees. At 41%, the
ICAEW attracts the lowest female intake
of any of the accountancy bodies.
Protherough explained that traditionally
the ACA qualification attracted students
with science degrees and male students
dominate these courses. He felt many
firms are making huge efforts with
diversity and with more school leavers
being recruited this may help adjust the
14

balance. He pointed out that the ICAEW

would soon be unveiling its 2014 trainee
female intake, up 1% to 42% a move
in the right direction.
Next on the agenda was the training
contract now called the training
agreement. Protherough looked surprised
at our suggestion that it seemed old
fashioned. He sees it as unique a
tripartite agreement that protected both
the employer and student. He stressed
that the agreement says to employers
they have a duty of care for their
trainees, but also outlines to PQs what
they are expected to do in return. We
are saying that you are not just joining
KPMG or Deloitte, you are joining a
profession with ethical standards and
independence. So from the start, PQs
understand this is not just about doing
your day job. And if a student or
employer has a problem they can go to
the ICAEW to get it resolved.
The future is CBEs
.
Turning to the move to CBE assessment,
Protherough felt that technology seems to
finally be at a place where the ICAEW
does not have to compromise its
standards and rigour. That wasnt the
case even two years ago. The institute
will be announcing who has won the
tender process to run the exams this

Along with
the UK,
the ICAEW is
particularly strong
in Cyprus, the
Middle East and
Malaysia

April, but Protherough stressed it would

have to be the right testing package at
the right price that wins. He is also very
aware that he must get this right first
time.
To this end, the ICAEW has opted for a
phased approach. First up will be Tax
Compliance, which will switch to a CBE
format in March 2016. He is really
excited about how the move could
transform the exams. Instead of writing
about the theory of spreadsheets ICAEWs
will be working on them! It will make the
exams so much more real, he stressed.
Another major proposal is the offering
of alternative papers in two areas. The
first is financial services (banking and
insurance). Employers have told the
ICAEW their ACAs need these technical
skills. This module will be an alternative
to the existing Business Planning Tax
module, be fully open-book, and run for
two-and-a-half hours.
UK GAAP modules are also being
introduced as an alternative on papers
that concentrate of IFRSs. With the vast
majority of PQs (90%) working on UK
GAAP rather than IFRS this makes
practical sense, say employers.
We asked Protherough if there might
be more variants and he said yes.
However, he also said he didnt want to
cannibalise the market. Although he is
not looking at anything specific he did
mention the public and charity sectors,
but felt, ultimately, it will be the market
that decides where the demand will be.
Whatever happens there will be just one
designation the ICAEW chartered
accountant ACA.
He also revealed that he has already
talked to the Student Council about some
of these proposals. On balance, he felt
they gave him a green to amber light.
There was still some concern about the
speed of typing needed and how
specialist modules might affect future
careers, but the general consensus was
positive. Protherough promised to talk to
students again at the end of April.
He and his team certainly have a busy
time ahead! PQ

ICAEW PHASING TIMETABLE

January 2016: Accounting style long-form questions for
Management Information and Principles of Taxation
March 2016: Implement CBE for Tax Compliance
March 2017: Roll out CBE for Audit & Assurance,
Financial Accounting & Reporting & Financial Management
2018: Implement CBE for Business Strategy, Business
Planning Taxation, Corporate Reporting, Strategic Business
Management & Case Study
PQ Magazine April 2015

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PQ accruals

LETS GET TECHNICAL

Gareth John explains the accruals concept, also called the matching concept and sets you a little exercise

was flicking through an old photo

album with my wife at the weekend
and she spotted a picture of me
with an ex-girlfriend. Why are you on a
yacht with Julia Roberts? she asked.
You dont need to worry, darling, it was
before I met you I tried to reassure her.
I dont care you can sleep in the
spare room tonight was her response.
Thats a bit cruel, I thought!
And that got me to thinking about the
accruals concept, one of the key
underlying principles in preparing
accounts.
The accruals concept is also called the
matching concept because it involves
making sure that you match
transactions to the period that they relate
to. For example, if I make a sale in
December but dont actually get paid
until January, I will account for the
revenue when the sale was actually
made in December. When I get paid
for the sale is irrelevant to when I
recognise the income.
Applying the accruals
concept to expenses
When working out the expenses figure to
be recognised in the profit and loss
account, the key thing is to ensure that
you are recognising the correct number
of months of expense. In a three-month
accounting period we need to recognise
three months of expense. In a 12-month
accounting period we need to recognise
12 months of expense.
Setting up an accrual
Lets say a business started on the
1 January 2015 and has a year-end of
31 December. The first accounting
period is therefore 12 months long. Lets
say that during this year the business
received three 300 telephone bills, each
covering a three-month period (so 100
per month). By 31 December 2015 they
would have recognised 3 x 300 = 900
of telephone expense (this would be a
debit in the telephone expense account).
This is only nine months of expense so
we are not matching enough expense to
the 12-month accounting period. We are
short by three months! The way we
recognise the extra expense that is
required is with an accrual. An accrual is
a liability you owe to someone but
havent actually been invoiced for yet.
The reason this often happens is that
bills for many utilities are received in
arrears, ie after the end of the period
they relate to.
Lets say that the final 300 telephone
bill of the year (covering October to
16

Are you thinking

about accruals?

No dear,
we are a
perfect
match!

December) is actually received in

January 2016. Even though the bill is
received in the following year we need to
match this cost to the period that it
relates to, which is the year ended 31st
December 2015 as this is when the
telephone was being used.
To set up the accrual the double entry
is:
Debit telephone expense 300, being
added to the 900 already recognised.
Credit accrual 300, which is the
liability owed to the telephone company.
This means the telephone expense for
the year ended 31 December 2015 is
now 900 + 300 = 1,200, which is a
full and correct 12 months of expense.
Dealing with the accrual in the next
accounting period
As the accrual account is a balance
sheet item (it is a liability) it will be
carried down at the start of the following
period as a credit balance in the accruals
ledger account. Since the invoice that we
accrued for is now going to be actually
received we need to reverse the accrual
back out of the accounts. We do this by
posting exactly the reverse double entry
used to set it up:
Debit accrual 300 to get rid of it, as
we will now receive and pay the bill.
Credit telephone expense 300, as the
bill being paid actually relates to the prior

year not this one. We are therefore

cancelling the debit entry that would be
posted to the telephone expense account
for the bill being paid.
Why dont you have a go at this example.
When you have finished you can see me
talk through my solution at
www.firstintuition.co.uk/category/aat
Following on from the explanations above
the business receives the following
telephone bills in the year ended
31 December 2016:
In January 300 for the period
October to December 2015
In April 600 for the period January
to March 2016
In July 600 for the period April to
June 2016
In October 600 for the period July
to September 2016
They then receive a 600 telephone
bill for the period October to December
2016 in January 2017.
Show the telephone expense and
accrual ledger accounts for the year
ended 31st December 2016. PQ
Gareth John is a tutor/director with
First Intuition and helps to manage
their AAT distance
learning programme.
He was PQ Magazine
Accountancy Lecturer
of the Year in 2011
PQ Magazine April 2015

Speak to a personal
course advisor on
020 7400 6772
or enrol with us on-line
www.lca.anglia.ac.uk
ACCA Revision Course | Timetable May 2015

Lecture Timing 9.30am to 4.30pm

Day

Date

F4-F6

F7-F9

P1-P3

P6-P7

Saturday

09 May 2015

F5 Rev

F8 Rev

P3 Rev

P6 Rev

Sunday

10 May 2015

F5 Rev

F8 Rev

P3 Rev

P6 Rev

Saturday

16 May 2015

F6 Rev

F9 Rev

P1 Rev

P7 Rev

Sunday

17 May 2015

F6 Rev

F9 Rev

P1 Rev

P7 Rev

Saturday

23 May 2015

F4 Rev

F7 Rev

P2 Rev

Sunday

24 May 2015

F4 Rev

F7 Rev

P2 Rev

Quality, Affordability, Employability

LCA Business School London, 19 Charterhouse Street, London EC1N 6RA
Tel: 020 7400 6772 Email: acca@lca.anglia.ac.uk

PQ ACCA P6 paper

TECHNIQUE IS CRUCIAL
Pass rate: 38% (December 2014)
Technical difficulty: 9/10
Weighting of calculations: 40-50%
Weighting of discursive elements:
60-50%
Exam technique: 9/10

The syllabus
.
The P6 Advanced Taxation exam builds on F6
and requires more in-depth study of areas seen
previously. There is a strong emphasis on
application of knowledge to real life scenarios, on
the interaction of taxes and tax planning.
Communication of advice is also very important.
The P6 syllabus is broken down into four key
areas:
Apply further knowledge and understanding
of the UK tax system through the study of
more advanced topics within the taxes studied
previously and the study of stamp taxes: Although
there are some new topics introduced at P6, it
would be very hard to pass the exam based on
these alone. A thorough knowledge of the F6
content is also vital. Students must have a sound
understanding of the basics of income tax,
corporation tax, capital gains tax, inheritance tax,
VAT and national insurance. Questions often
involve almost entirely F6 knowledge, but tested
in a more advanced way.
Stamp taxes are the only new taxes introduced
at the P6 level, but represent a very minor area.
There is no guidance provided by the ACCA
on the weighting of different topics in the exam,
except that every exam will include an ethical
component for approximately five marks in
section A. Breadth of study is, therefore, very
important.
Identify and evaluate the impact of relevant
taxes on various situations and courses of
action, including the interaction of taxes: Most
questions in the P6 exam involve more than one
tax, often applied to the same transaction or
transactions. For example, the gift of an asset
during an individuals lifetime may have
implications for both capital gains tax and
inheritance tax. It is important that students can
distinguish between the different taxes,
particularly in relation to the reliefs and
exemptions available.
Questions may also require comparison of
different options, for example: employed versus
self-employed; setting up as a sole trader or a
company; taking a company car or a cash
alternative.

Helen Forster offers expert advice on passing P6 a tough nut to crack

18

Provide advice on minimising and/or

deferring tax liabilities by the use of
standard tax planning measures: Tax planning is
a key part of the P6 exam. Many questions will
involve some sort of tax planning, especially the
scenario questions in section A of the exam.
Popular tax planning areas include: planning
for groups of companies involving both losses
and gains; loss relief planning for sole traders;
tax planning for married couples; inheritance tax
planning. Advice on tax efficient investments
such as the Enterprise Investment Scheme,
Seed Enterprise Investment Scheme, venture
capital trusts and pensions is often required in
the exam.
Communicate with clients, HM Revenue and
Customs and other professionals in an
appropriate manner: As well as the practical
application of tax rules to client scenarios,
students are expected to produce professional
documents incorporating helpful, clear advice.
Question 1 in section A will require the answer to
be presented in a particular format such as a
report, memorandum or letter and will have four
marks available in respect of professional skills.
The use of headings and a clear, logical format
will help to obtain those marks.

Sitting the P6 exam

.
The P6 exam requires a sound knowledge of the
key rules and principles of all of the taxes as well

as an ability to apply these rules to sometimes

unfamiliar scenarios. Question practice is vital,
as the application of the rules is a skill that is
best obtained by experiencing as many
scenarios as possible.
Good exam technique is essential
.
Generally, the technical content of the
compulsory questions in section A is more
straightforward than that of the section B
questions. Although students may prefer to start
with the shorter section B questions, they must
ensure that they leave enough time to fully
answer section A, as this is often where the
easiest marks are to be found.
The P6 examiner has noted that students tend
to spend longer on the first question and seem
to lack a sense of urgency, often resulting in
poorer performance in later questions. Students
should try to maintain their level of effort
throughout the exam.
It is very important to read the requirement
carefully, and answer only the question set.
Revisit the requirement often to make sure that
all parts have been attempted and nothing has
been left out.
Finally, although the P6 syllabus may seem
daunting, remember that only 50% is needed to
obtain a pass. PQ
Helen Forster is a tax content specialist at
Kaplan Financial

PQ Magazine April 2015

PQ back to basics

Essential economics

In part two of his guide to essential economics, OU lecturer Jonathan Winship looks at economic profit and
accounting profit. Part one on accounting cost and economic cost was in Februarys issue of PQ magazine

ast month we learnt the importance of

knowing what is meant by economic
costs (also known as relevant costs) and
what is meant by accounting costs. Accountants
use economic costs for decision making
purposes such as whether to buy a machine to
generate income but use accounting costs for
the bookkeeping records that underlie the
published financial statements.
Accountants should also know the difference
between economic profit and accounting profit.
Even if we ignore purely accounting costs such
as depreciation, economic profit does not equal
accounting profit because, like economic cost,
its calculation includes opportunity costs. The
easiest way to understand economic profit, again
ignoring purely accounting costs such as
depreciation, is that it broadly equals accounting
profit less opportunity costs.
The next activity will help you understand the
difference between accounting profit and
economic profit.
Activity
Pat gives up her job and an annual salary of
45,000 to start a new business in a very
competitive industry. She draws 60,000 from
her savings account, giving up the opportunity to
earn 3% annual interest, to start and operate the
business over its first year.
In the course of the first year the business
generates income of 85,000 and incurs
expenses of 55,000.
a) What is the accounting profit for Pats
business for the first year?
b) What is the accounting rate of return for the
first year on Pats outlay of 60,000?
c) Why is the accounting rate of return very
misleading?
d) What is the economic profit for Pats business
for the first year?

Joseph Stiglitz, the American economist and

professor at Columbia University. He is
a recipient of the Nobel Prize in Economic
Sciences (2001)
Solution and feedback
a) The accounting profit is simply the income of
85,000 expenses of 55,000 = 30,000.
b) The accounting rate of return for the first year
is the profit of 30,000 as a percentage of the
outlay of 60,000 = 50%
c) This high rate of return is very misleading as
it ignores the opportunity costs involved in Pat
giving up her job and the interest on her money.
d) The economic profit is the accounting profit
of 30,000 less all the opportunity costs involved
in generating such a profit. The opportunity
costs are the 45,000 salary and the 1,800
interest (60,000 x 3%) given up. Economic
profit is thus 30,000 45,000 1,800 = -

A QUICK LOOK AT...

Ask yourself the following
questions: How confident are
you? Are you sure about the
treatment of supplies,
standard, exempt and zerorated? Do not fall into the trap
of thinking that a business
making wholly exempt
supplies can voluntarily
register it cant. A business
making a mixture of supplies
can register, but may be
partially exempt, which affects
the recovery of input tax.
Are you looking backwards
or forwards? There are two tests for
compulsory registration. The current VAT
registration limit is 81,000, but applied in
20

16,800 i.e. a loss of 16,800.

Pats accounting profit of 30,000 is actually
an economic loss of 16,800. This loss gives an
indication of the real result of Pat giving up her
job and her savings to invest in the business. It
is only an indication because we need to take
into account such factors as relevant taxes and
future earnings and costs of the business
beyond the first year. Nevertheless, the example
above shows the importance of including
opportunity cost in the real and relevant profit of
an investment.
The important final thing to remember is that
mainstream economics divides economic profit
into two types: normal profit and abnormal profit.
Normal profits are the minimum profits that
competitive firms, such as Pats in our example,
need to make to stay in their present line of
business; namely, to cover their opportunity
costs, while abnormal profits are any profits
greater than normal profits.
The idea in economic theory is that abnormal
profits should only be temporary, as any
abnormal profits in a perfectly competitive
industry would soon attract new entrants. New
businesses would soon be attracted until prices
fell to the point at which no abnormal profits are
left.
Although the real world often does not behave
like economic theory all PQ accountants need to
know core economic concepts such as
opportunity cost. When you are asked for the
cost or profit of anything (be it an investment,
project, activity or accounting period) always
remember if you need to supply the accounting
cost or profit, or the economic one. Its not
always obvious! PQ
Jonathan Winship is a lecturer at The Open
University Business School and one of the
authors of The Open University Professional
Certificate in Accounting

VAT REGISTRATION

two different ways. Dont think of

81,000 as an annual limit but a
threshold to be applied in two
situations. When looking at a growing
business, the taxable supplies of the
previous 12 months need to be
compared with the VAT limit of
81,000. This is not an annual test,
but looks at a rolling total of taxable
supplies at the end of each month.
When taxable supplies for the previous
12 months exceed the limit of
81,000, registration is compulsory.
However, if the anticipated value of
taxable supplies for a business is
expected to exceed 81,000 in just the next
30 days, then registration is compulsory. So
81,000 is applied in two different ways.

When can a business charge VAT? Only a

VAT registered business can charge VAT.
However, that means output tax is charged on
sales and on capital transactions. Think
about this if you are dealing with
incorporation, although that might constitute
a transfer of a going concern which is outside
the scope of VAT.
When should a business stop charging
VAT? If anticipated supplies for the next 12
months are less than 79,000, a business
may deregister. On cessation of trading, a
business must deregister.
Cath Hall is an AIA Achieve e-tutor. The AIA
Achieve team is producing a series of A Quick
Look at articles throughout 2015. More
articles can be found on the AIA website:
www.aiaworldwide.com/a-quick-look-at
PQ Magazine April 2015

PQ De Montfort challenge

BE AUDIT YOU CA
Lisa Wakefield, a senior accountancy lecturer at De Montfort University, challenged her students to write an
article suitable for publication in PQ magazine. Here we publish an edited version of the winning entry by
Ahmed Dhada, Farhan Chohan and Amanveer Dhesi, who focused on problems within the world of audit

s far as professions go, auditing has a

relatively simple purpose. Auditors act
as independent examiners on behalf of
the shareholders and objectively assess whether
a companys financial statements and accounts
have been properly prepared. Audits serve a
fundamental purpose in promoting confidence
and reinforcing trust in financial information
[and capital markets], according to the ICAEWs
Agency Theory And The Role Of Audit report
(2005), which is essential in a developed
economy.
Recently, the auditing profession has come
under much scrutiny. The financial crash of
2007/08 raised questions on why the auditing
profession did not anticipate the possibility of
collapse. None of the worlds recent large
accounting scandals, like Tesco, Lets Gowex
and Olympus, were uncovered by the auditors
despite these scandals taking place over
multiple years and slipping past multiple audits.
Lets Gowex was unique in that the fraud was

uncovered by Gotham City Research, an

independent analyst firm. So the question is:
why have auditors become so inept?
One element of the profession criticised for
leading it to its current state is the dominance of
the Big 4 accounting firms and the oligopoly
they hold. The firms are, in order of size,
Deloitte, PricewaterhouseCoopers, Ernst &
Young and KPMG. The Big 4 audits 99 of the
FTSE-100 and 240 of the FTSE-250. British
Firms on average stay with the same auditors for
48 years. And some banks will only lend to firms
audited by one of the Big 4. This has resulted in
a lack of competition in the industry for the big
firms, no incentive to improve services, a lack of
choice and competitive pricing for the
customers, and no opportunity for growth for any
aspiring audit firms offering services of high
quality.
This has led to a decrease in the value of an
audit, increased audit costs and a cosy
relationship between big company boards and

the senior partners of major audit firms,

according to Alan Millichamp and John Taylors
2012 book Auditing, which might impede on
the objectivity and independence needed to
properly perform an audit.
The cosy relationship that hinders the
auditors effectiveness is only amplified by the
audit firms ability to perform non-audit services.
This only makes firms more familiar with their
clients, further impedes objectivity and
independence, creates a conflict of interest and
leads to a neglect of audit duties. While
combined audit revenues have fallen by $5bn
over the past five years, advisory fees have
jumped by $16.1bn, with audit firms
increasingly relying on consulting services for
their bottom line. If an audit firm wanted to win
a profitable, long-term consulting contract it
would become more hesitant to expose fraud or
do anything that would paint its client in a
negative light, especially if they rely on those
audit fees. The Enron scandal highlighted this

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The Institute of
Certied Bookkeepers

PQ Magazine April 2015

De Montfort challenge PQ

issue. Enron paid its auditors $52m a year, over

half of which was for non-audit services.
Many pieces of legislation have been enacted
or proposed to strengthen the independence of
auditors. In response to the Enron crisis, the
Sarbanes-Oxley Act overhauled the US auditing
landscape, disallowing non-audit services to
audit clients and forcing the mandatory rotation
of audit partners every five years. In Britain, the
Financial Reporting Council encouraged firms to
put their audits out to tender every 10 years or
explain why they did not. This regulatory
pressure has had a moderately positive effect;
33 FTSE-350 companies have put their audits
out to tender since the recommendation, and 50
more are expected this year. The European
Commission is currently drafting a law that
would make EU companies change auditors at
least every 10 years, or 20 if the audit was put to
tender directly, after some auditors were
accused of being asleep at the switch in the
lead-up to the bank collapses of 2007-09 (EU
deal marks big step in auditor rotation reforms,
Sam Fleming, 2013). While this extra
competition is good for the industry and
increases confidence in audits, it is not enough
that firms simply rotate between the Big 4. The
Public Company Accounting Oversight Board, a
US non-profit body dedicated to the oversight of
auditing, found deficiencies in 32% of Big 4
audits in 2011, and 36% in 2012. This is
especially concerning considering that the Big 4
audited companies that made up 97% of the
value on the US stock market.
Stricter regulation
.
The current European proposals are quite weak
in comparison to those originally mooted, which
were to break up the Big 4, disallow
simultaneous audit and non-audit services, force
rotations more frequently and promote joint
audits. These were severely watered down after
the Big 4 lobbied the European parliament. The
Big 4 seem to be using their dominance and
influence to maintain control of the audit
industry. It must be wrested from them.
Regulators should be far stricter. For a start,
they should disallow audit firms from providing
non-audit services to an audit client, this goes
without saying. The rotation rules are a lot
trickier. The rules we would propose would be
focused on levelling the playing field and
creating real competition in the industry. We
suggest that it should be made mandatory to
rotate audit firms after a much shorter period of
time, say four years, and not allow firms to revert
to a previously appointed auditor until a fixed
period of time expires since their last audit
engagement (say 25 years). This will stop large
companies from rotating between the Big 4 ad
infinitum, force the larger firms to eventually use
non-Big 4 auditors, break the oligopoly and
introduce real competition into the industry.
The only concern with this approach is the
PQ Magazine April 2015

Redpix Photography

AN BE!

Big 4 concerns: top De Montfort students Ahmed Dhada, Amanveer Dhesi and Farhan Chohan
fact that in the short term the quality of audits
provided by non-Big 4 firms to large
corporations might be inadequate and of poor
quality due to the fact that they might not be
properly equipped nor have the experience to
audit larger more complex companies. To
mitigate this worry, joint audits between Big 4
and non-Big 4 audit firms should be heavily
promoted and incentivised by regulators by
allowing joint audit engagements to last longer
than the standard four years. This will greatly
help prepare non-Big 4 auditors to audit large
companies.
The Big 4 have also argued that a close
relationship only increases the value of the audit
because of the familiarity the audit team will
have with the client firm, but the evidence for
this is scant. There is also a case to make for
the idea that making audits non-mandatory
would increase their reliability and quality. If
stakeholders begin to see audits no longer as
unnecessary red tape and as a genuine value
adding activity that attracts shareholders and
creditors, companies may take their selection of
auditors and the quality of services they are
providing more seriously, while auditors will work
harder to provide genuine value, knowing their
industry is no longer government guaranteed.
The Big 4 will be the most opposed to these
proposals since they have the most to lose. But
they are necessary to improve the quality of and
trust in the audit, and abate the criticisms that
are currently levied against the profession. Had
the auditing industry been properly reformed
earlier it is likely that some of the larger recent
accounting scandals would have been caught
early or even prevented. The economic
recession, on the other hand, could not have
been foreseen or prevented by the auditors
simply because it was not their duty to. An
auditors duty is to assure the shareholders that

the accounts have been prepared properly in

accordance to the relevant accounting
standards. This has caused much discussion
about expanding the auditors duties to increase
the value they offer, not just the shareholders,
but to society at large.
The most discussed expansion would be to
include a duty to detect fraud. As it stands,
external auditors were only responsible for 4.6%
of fraud detection in 2010 and 3.3% in 2012.
The argument stands that auditors would more
diligently look for fraud, and find it, while
potential fraudsters would be encouraged to
reconsider their folly, knowing they were more
likely to get caught. Another idea, put forward by
the ACCA, called for a widening of the scope of
the audit [so that it includes] engaging with
clients on issues such as risk management,
corporate governance an organisations
business model and its likely sustainability.
Consultancy role
.
While this would further serve the interests of
stakeholders at large, it would also push auditors
into more of a consultancy role and lead to the
aforesaid neglect of audit duties and destruction
of independence that we are attempting to
strengthen and preserve. The Institute of
Chartered Accountants of Scotland have gone in
the opposite direction. They recommend that the
duty of the external audit should be vastly
diminished and outsourced to internal auditors.
There seems to be no consensus on where the
industry should be going.
Whatever regulators choose to do, reforms
must be made. The fundamental purpose of an
audit is to provide independent assurance, and
it currently is failing to do so. The reliability of
and trust in the audit must be improved,
otherwise people will begin to ask: whats the
point? PQ
23

PQ exam skills

Improve your answer booklet

C

urrently, most accountancy exams

apart from computer-based ones
have to be answered in booklets
which are then scanned and marked by
humans on a computer. Examiners and
markers alike constantly criticise the layout
and quality of students scripts.
Accountancy exams are professional and
therefore answers need to look professional,
but with time pressure in exam conditions
this key requirement is often lost.
It is essential to follow a few easy rules
which will help the marker when marking
your script:
Always use a black ballpoint pen. This is
because all scripts are scanned and the best
colour to show up is black. A number of
students insist on using gel pens but once
scanned the marks made by them can
smudge and even go through pages,
affecting whats underneath.
Never write in the margins. One side is cut
off by the scanning machine and the other
side is where the marker annotates the
allocation of marks awarded.
Abbreviations are totally acceptable in
workings, but workings themselves need to
be followed, so a little narrative is required to
make them logical. Ensure you space them
out sufficiently, and all workings should be

No mark-er: a
highlighter is for
revision only use
a black pen in
the exam hall

Jenny Winstanley explains how making

your answers neat and tidy can really
help you get that vital pass mark

numbered and answers crossed referenced to

them.
If for some reason you have not left enough
space for something, then help the marker by
cross referencing to the page where you have
completed the rest of the answer
All questions should start on a new page and
you should aim to start each part of a question
or each issue (if applicable to the question) on
a new page.
Make use of subheadings. This makes your
answers automatically more logical and much
easier to mark. If the requirement or the
question numbers different parts, eg a), b) or
(i), (ii) then use the same numbering in your
answer
If your handwriting is small you need to aim to
write as large as you can. When your script is
scanned it is reduced in size to accommodate
the marking package which takes up a third of
the marking screen. Yes, the marker can zoom
in, but then they are unable to view a complete
line of text.
If you know you have untidy handwriting then
write using double spacing (that is write on
alternative lines).
The key to success in exams is to have
answers that look professional that is include
structure, space and subheadings. PQ
Jenny Winstanley, Reed Business School

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Q
Q

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24

PQ Magazine April 2015

ICAEW focus PQ

ike all assessment bodies, ICAEW is

required to make reasonable adjustments
for students under the Equality Act 2010;
we call these access arrangements and they are
changes to the way we deliver the exam or to the
exam environment. Access arrangements ensure
all students can demonstrate their knowledge,
skills and experience on a level playing field.
Access arrangements arise from physical or
mental impairment that has a substantial and
long-term negative effect on your ability to do
normal daily activities. This includes specific
learning difficulties such as dyslexia, and physical
impairments that directly impact the ability to
write, for example. However, many people I talk to
are surprised by the range of different
circumstances and adjustments that come under
access arrangements; I would encourage anyone
who thinks they might be eligible to get in touch
with us.
All the information you might need as a
student in relation to access arrangement
requirements is on our website; the guidance
and forms are available with embedded text-tospeech PDF functionality, and we have a team
who can answer all your questions on
arrangements aa@icaew.com. We can also
offer adjustments for some circumstances that
fall outside the Equality Act 2010; we do this to
help students who have short-term issues that
might otherwise stop them being able to
complete their exams.
Case-by-case basis
.
At ICAEW we are proud of our inclusive
approach and we deal with access arrangements
on a case-by-case basis, so if you think you need
arrangements it will be your specific
circumstances well consider, and we wont
award you something thats inappropriate just
because it worked for another student. We might
look at what your employer provides for you in
your job, because whats effective in supporting
you in the workplace is often the best approach
for an exam environment. Where the
arrangements weve agreed are complex well
arrange to speak with you and your employer
or tuition provider if needed to talk through
exactly how things will work on exam day.
The arrangements well agree to provide can
vary according to the type of exam youre sitting;
for example, some students might need a
computer when sitting the essay-based
examinations, but dont need any adjustments
for the Certificate Level. The arrangements also
need to be reasonable and we need to ensure
that they are fair and that no student might have
an advantage; our application process has room
for dialogue to ensure weve fully understood

ACCESS ALL

AREAS
ICAEWs Richard Eckersley describes the institutes access arrangements

your circumstances, and this means that we

treat your application individually while ensuring
any arrangements we agree will be in line with
other students with comparable circumstances.
Were always striving to improve our offer to
students who need access arrangements. For
example, some students are now taking
advantage of our ability to support computers
with text-to-speech software enabled in essaybased exams. Unlike some other bodies, were
also able to offer paper versions of our electronic
tests where this is reasonable, and were
intending to continue to do this in future when
we put more exams onto computer.
Moving forward, well continue to ensure that

students needs are met through reasonable

adjustments to our examinations.
In our guidance document we give more detail
on questions such as those below:
Who can apply for access arrangements?
What access arrangements are available?
Are access arrangements available at all
venues?
How do I apply for access arrangements?
How and when do I apply, and what
information do I need to include?
How long will the process take?
For more visit icaew.com/aaguidance PQ
Richard Eckersley, Senior Assessment
Manager, ICAEW

For the latest issue see issuu.com

NQ magazine is an e-mag for newly

qualifieds who want to get ahead

All the back issues are available too type NQ magazine into www.issuu.com

Sign up today via the PQ magazine website www.pqmagazine.co.uk

PQ throughput accounting

AVOID THE BOTTLENECK

Hafeez Qazi explains how you can cope with throughput accounting questions, which frequently occur in F5

he emphasis of this article is to provide relevant information about

throughput accounting (TA) to F5 students, explaining what
concepts are involved in TA and how these can be applied to
exam questions.
TA is a very popular F5 exam question generally covered in section A,
but it also gets addressed in section B at times. TA is a decision-making
accounting model applied by management accountants when the
organisation is facing certain limitations of its resources. When such
constraints arise due to lack of supply of materials, limited availability of
skilled workforce or limited capacity of plant and machinery TA
emphasises resource allocation to products on a priority basis.
Therefore, the primary aim of TA is to utilise organisational resources
most efficiently and to maximise profitability. In the profit-making sector
this preference is developed on the basis of the profitability of each
product, whereas in non-profit organisations the preference may be based
on organisational aims, the nature of the job, urgency to deliver or even
the legal aspects involved.
First off, here are some important definitions/formulae involved in TA,
which would lead us to apply TA in the larger interest so as to maximise
profitability and efficient resource utilisation.

Theory of constraints (TOC)

.
As per TOC, an organisation must identify its system bottlenecks and
exploit these bottlenecks in the short run. In the long run, it must find
ways to eliminate such bottlenecks, in order to improve performance. The
following basic concepts play a vital role in TA questions.
Throughput

Return per bottleneck hour

Throughput accounting ratio (TPAR)

Sales revenue material cost

Throughput per unit
Hours on bottleneck
Throughput Return per bottleneck hour
Factory costs per bottleneck hour

COMPARISON TO MARGINAL COSTING

Marginal Costing
Focus on......
Contribution
Contribution = Selling Price Variable Cost
Variable costs = Materials, labour, variable
overheads

Throughput Accounting
Throughput return
Selling Price Material cost
Materials

With the exception of materials, all other costs are treated as fixed in
throughput accounting.
Bottleneck resource: This is a resource (quantity of materials, or labour
hours or machine capacity) which has the most shortage in the short run
compared to other resources, which then limits the production process to
achieve its maximum output. In other words, it is a resource with lowest
capacity (availability) as compared to other resources at present which
restricts maximum utilisation of other resources.
As I mentioned earlier, the primary aim of TA is to efficiently utilise the
system bottleneck in order to improve performance. There are a series of
steps that need to be to be applied in order to achieve this aim. These are
as follows remember that due to reduced marks in the current exam
structure, all steps may not be examined from one question, but you must
be well prepared to get a good grip on the topic:
1. Identify the bottleneck resource (if not indicated in the question).
2. Calculate the throughput return/unit for each product.
3. Calculate the throughput return/bottleneck hour for each product.
4. Rank the products based on throughput return/bottleneck hour (the
highest ranking product will be the one with the greatest return/factory
hour).
5. Calculate the optimal production plan. Allocate the bottleneck resource
to each product based on the ranking established. Production of a product
should not exceed the maximum demand for that product.
Remember, the examiner may specifically ask you to calculate the
throughput accounting ratio (TPAR), and then on the basis of throughput
26

accounting ratio she may require you to develop the ranking order. The
similar principle of higher the TPAR, better the product is, applies.
Illustration
AlphaBeta Ltd makes two products, the Alpha and the Beta. The factory is
open five days a week for 50 weeks of the year. AlphaBetas machines can
only work on one product at a time. The two products pass through two
departments, using some skilled and some semi-skilled workers. The
labour times needed in the departments are:

Machine 1
Machine 2

Minutes per unit of product

Alpha
Beta
12
15
18
12

It is difficult to recruit staff to AlphaBeta and so they can only utilise

current staff, who are available for a maximum of 1,440 minutes on
Machine 1 and 972 minutes on Machine 2 per day. Total factory costs for
the year are $250,000 as per budget.
The current selling prices and costs for the two products at AlphaBeta
are:
Alpha
Beta
$ per unit
$ per unit
Selling price
45.00
50.00
Direct materials
8.00
17.50
Direct labour
6.00
6.60
Variable overheads
3.10
7.50
Fixed overheads
8.33
10.42
Profit per unit
19.57
7.98
From this illustration a number of questions can be set up by the F5
examiner. First of all we are not told which machine is the bottleneck,
therefore we can aim to determine the bottleneck resource first. This can
be determined by calculating maximum capacity of each machine.
Machine 1
Alpha volume per day = 1,440 minutes per day
12 minutes per unit
= 120 units per day
Beta volume per day = 1,440 minutes per day
15 minutes per unit
= 96 units per day
Machine 1 can either process 120 units of Alpha or 96 units of Beta per
day.
Machine 2
Alpha volume per day = 972 minutes per day
18 minutes per unit
= 54 units per day
Beta volume per day = 972 minutes per day
12 minutes per unit
= 81 units per day
Machine 2 can either produce 54 units of Alpha or 81 units of Beta per
day.
For both products, machine 2 has lower capacity than machine 1, which
means that if machine 2 can finish any daily production target, machine 1
can easily finish that job; therefore machine 2 would be described as the
bottleneck.
Remember! Once bottleneck resource has been identified, all decisions
must be subject to the bottleneck in the question.
From the information provided, the examiner can ask to determine
ranking order of each product.
PQ Magazine April 2015

throughput accounting PQ

Alpha

Beta

Throughput return
per unit (SP DM cost)

$45 $8 = $37

$50 $17.50 = $32.50

Bottleneck (machine 2)
time per unit

18 minutes

12 minutes

Throughput return
per minute

$2.06

$2.71

RANKING ORDER

2nd

1st

Another short question for section A or a requirement for section B can be

to determine optimum product mix. Always remember to calculate
optimum (profitable) product mix by allocating the bottleneck resource
using ranking order.
Time available per day on Machine 2
Beta (1st ranking product first) (12 minutes x 81 units)

972 minutes
972 minutes

Another question to be asked can be to calculate throughput return or

maximum profit from the optimum production plan.

Throughput from Beta per unit is $32.50; therefore 81 units per day
would make up $2,632.50 per day.
Total factory costs are $250,000 per annum, and there are 250 days per
year (50 weeks x 5 days/week); therefore factory costs will be $1,000 per
day. So maximum profit will be $1,632.50 ($2,632.50 $1,000) per day.
From the information provided, TPAR of each product can be
calculated, which then can also be used to rank the products.
Throughput Accounting Ratio = throughput return per minute
factory costs per minute*
* remember TPAR can be calculated either per minute, per hour or even
per day.
TPAR = $2.71 per minute
= 2.63
$1.03 per minute
* Factory costs $1,000 per day/972 minutes bottleneck time per day
Note: all the above can be examined in section A or can easily be merged
in various requirements of section B longer question. PQ
Hafeez Qazi is an accountancy lecturer at LSBF. In 2014, he was
named Accountant of the Year by the Association of International
Accountants

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PQ Magazine April 2015

27

PQ ACCA learning conference

WHAT DO ACCA EX
PQ magazine recently attended both days of the ACCA Global learning providers conference in London,
giving you a unique insight into what you need to do to get a pass straight from the horses mouth the
examiner. This month we cover four sessions F1, F7, P1 and P2. We have more insight next month

F7 Financial Reporting
The examiner started his presentation by
laying out the new format of F7.
Section A has 20 two-mark MCQs, which
are computer marked. Section B, which
contains the core part of the previous
format, consists of two 15-mark questions
and one 30-mark question which are
professionally marked.
He stressed that the MCQs in section A will
contain a mix of both narrative and
computational questions. His only specific
guidance is that the 30-mark question will be
consolidation or preparation of a single entity
financial statement from a trial balance.
Looking at candidates performance in
December 2014, he felt the pass rate (43%)
was in line with recent diets and the longterm average. Most candidates are answering
all the questions and he said there was a
good correlation between section A and B
so those who scored well in section A also
scored well in section B.
Section A problem areas
The examiner wants candidates to read the
MCQs very carefully, particularly the
requirement. There is also some evidence of
poor time allocation in this section.
Specific topics that candidates struggled
with this time around were Q3 (NCA historic
cost versus current cost) and Q19 (finance
and operating leases).
He wants PQs to avoid thinking that the
MCQs are easy. The new format also means
it becomes even more critical to learn the
whole syllabus. Candidates must also
understand the mark allocation you get two
marks or nothing! There are no marks for

interpretation was poor, with many not using

adjusted ratios.
Q2 was on single entity financial
statements. Answers often had no schedule
of adjustments (just workings). The statement
of financial position was, however, answered
well.
Q3 (a) covered consolidation of statement
of comprehensive income and financial
position. Part (b) was on recognition of
intangibles. Part (a) was done well, but a
common mistake was on determination of
pre-acquisition profit. In (b), many
candidates did not recognise the list of
customers.

getting things partly right here. So read each

of the choices carefully before you opt for the
answer. Oh, and you can guess if you cant
work it out!
Section B problem areas
Here the examiner pointed out the usual
problems such as repetition, poor workings,
candidates not interpreting ratios and illegible
handwriting.
When it came to Q1, students had to
calculate ratios and interpret them.
Candidates made elementary mistakes in the
adjustments. They also calculated additional
ratios not asked for and as always

Changes for September 2015

IFRS 15 Revenue replaces IAS 18 Revenue
and IAS 11 Construction Contracts:
There is some new terminology here, but
no real change to underlying treatment
(construction contracts).
F7 will not examine variable consideration.
Learning outcome B10 has been re-written
in accordance with IFRS 15.
Look out for the IFRS 15 technical articles
produced by the examining team.
New version of IFRS 9:
Business model and contractual cash flows
approach to classification.
New classification for (some) debt.
Fair value through other comprehensive
income.
With the exception of an impairment on
trade receivables, the calculation of
impairment losses will not be examined.
However, the accounting treatment of an
impairment loss is examinable.

F1 Accountant in Business
With a pass rate of 83% last
time out it is hardly surprising
the examiner believes students
find this a pretty
straightforward paper. He sees
it as a gateway paper, opening
the door to new concepts for
ACCA PQs.
Candidates strengths
Generally, candidates are good
at syllabus areas A, B and C; it
is in D, E and F they do not do
so well.
Trainees seem to cope well
28

with the easier theories

Maslow, Blake, stakeholders,
Porter and Fayol.
Ethical threats and corporate
codes are new areas where they
also excelled.
Candidates weaknesses
Generally, candidates dont do
so well in part B topics such as
corporate governance and
sustainability.
They struggle with ethical
principles such as public
interest. But, perhaps more

worringly, they dont seem to

know what GAAPs and IFRSs
are!
Candidates also find some
HR topics difficult, particularly
the more complex theories and
the whole area of appraisal.
The examiners advice is to
attempt all the questions
(seems pretty obvious). But he
pleaded that students dont try
to choose answers that simply
do not exist! Some are actually
making up their own answer
rather than choosing one of the

ones provided. Some put D

when the options are A, B or C.
Too many are also using the
default sequences, putting A,
B, C and D.
A candidates knowledge
needs to be broad but shallow;
they have to know something
about all the topics. This
makes question spotting
impossible.
The examiner also stressed
there are no trick questions
and that your first instinct is
often right.
PQ Magazine April 2015

ACCA learning conference PQ

XAMINERS WANT?
P2 Corporate Reporting

The P2 examiner is clearly worried about an

expectation gap between what he
examines and what tutors think he will
examine. However, he stressed that this was
not a closed area and he wanted to gauge
views, promising he is never upset by
constructive criticism!
Section A of his exam is the compulsory
50 marker. He felt there was no pattern
here, but it will always cover group
accounting. He told the packed seminar
that foreign currency may be in section B
(see June 2014) and that if group cash flow
is in section A then he may test the
principles of group accounting in part b. So
you have been warned. Candidates can also
expect to see ethics in question 1b.
The examiner pointed out that how well a
candidate does in section A normally
determines if they get a pass or a fail. So if
you can achieve 2530 marks in this
section you will normally achieve a pass.
For section B, candidates have to answer
two out of three questions, worth 25 marks
each. Again, he felt there was no pattern to
this section, although he revealed he uses
mostly real scenarios. Questions here will
also cover a variety of IFRSs. He advised
sitters to read professional pronouncements
and regulators reports and take a look at
specific industry issues and company
reporting.
The examiner said that candidates seem
to be taught by standard, and consequently

find it difficult to apply principles. He

wondered then if the solution is to teach by
principle!
As a guide, he also said that, generally,
there is one mark per valid point available
in his paper. The examiner said that it is
probably the most important thing he would
say that day. During the discussion we
discovered that the F7 examiner goes down
to 0.5 marks.
Another concern is candidates maths
skills, which he has found to be generally
quite poor. Some base knowledge appears
to be lacking here.

The examiner emphasised that although

his paper is perceived to be difficult the
actual pass rates are stable; it was 50%
last time around.
Changes for September 2015
Updates to examinable documents.
IFRS 15 replaces IAS 18 and IAS 11.
Construction contracts no longer excluded
from P2.
IFRS 9 fully examinable.
List of EDs updated.
Current issues outcome (H3 9a)) rewritten.

P1 Governance, Risk and Ethics

This examiner has been the same
one since the start of this
syllabus, being appointed in
January 2006. He started his
presentation by showing the pass
rates since December 2007,
revealing a mean pass rate of
50.9%. One eagle-eyed tutor
quickly pointed out his December
2014 pass rate was 52% rather
than the 53% he used to get to
that mean.
He stressed there are four
musts for this exam:
Must revise the whole syllabus
question spotters are usually
wrong.
Must work through previous
exams and study model answers.
Must obey the verb.
Must study the case if required by the
requirement (and it usually is).
A typical issue for candidates in the P1
PQ Magazine April 2015

exam is the failure

to revise the whole
syllabus, said the
examiner. There
are also problems
with not locating
the answer in
terms of the case
(which is a usual
requirement in P1
exams). Many PQs
provide trigger
answers. They see
a word and then
write about this
regardless of what
the question says.
Time budgeting
is always crucial
for this test and
the examiner feels that students should
answer their strongest question first.
Planning the answer before answering is

another key to success. And get your

grammar sorted. If it says explain it
doesnt mean define, he said.
Interestingly, in the Q&A session that
followed some tutors felt the move to
shorter questions in F5 to F9 may have an
impact on this papers big 50-marker. The
ACCA has got to be aware that this paper
becomes a big step up in the future, said
one top tutor.
The discussion then went on to look at
what makes a good answer. He revealed
that one marker received 17 additional
answer booklets from one candidate! Yet
the examiner pointed out that you dont
have to write a lot to get a pass your
answer just needs to be focused. If there
are four marks available for discussing the
advantages of having non-executive
directors then the examiner said you should
stop when you have made four points.
Thats basic exam technique, which should
have been mastered by P1.
29

PQ CIPFA spotlight

NUTURING TALENT
The CIPFAs Finance Apprenticeship
Scheme has many advantages over
traditional paths into the profession

pprentice schemes are proving an

attractive option for young people and
quite often providing an alternative to
the university route, as they allow young people
to earn while they learn instead of getting into
debt. They offer the opportunity to move into the
world of work, to learn on the job as well as in
the classroom, and take home a salary while
they are doing it. Apprentices can be confident
that they will save money while they train and
that, once they have completed their
programme, they will be equipped with skills
that are highly applicable to the workplace and
matched with vital on-the-job experience.
Not only are apprenticeships appealing to
those young people looking for an alternative to
routes such as university, they offer great
benefits to employers too. Government figures
show that, in the 2013/14 academic year, there
were 440,000 apprenticeship starts in England,
proving theres a large appetite for the schemes
amongst employers and young people. Taking
on an apprentice can really benefit organisations
in all sectors and of all shapes and sizes, as it
facilities a cost-efficient increase in head count,

30

whilst ensuring apprentices skills are developed

to meet specific organisational requirements.
The public sector finds itself in an era of
increased austerity and transparency and a
cadre of well-trained finance employees are

more important than ever for business success.

Having a team with the right skills is vital for
allowing organisations to meet the challenges
they face today. Apprenticeship schemes
provide a cost-effective way of allowing public
sector employers to extend their workforce and
increase their efficiency, whilst also training
someone to suit their organisational needs and
allowing them to plan for the business
challenges of the future.
CIPFA is in its second year of providing a
finance apprenticeship scheme. The one-year
programme helps public sector organisations
recruit level 3 AAT qualified or equivalent
apprentices, pre-screened by CIPFAs
recruitment team. The apprenticeship scheme is
not only limited to young career starters, its
also open to more mature applicants who may
be looking for a new opportunity or change in
direction, and who can demonstrate the right
entry criteria. CIPFA not only handles the
recruitment process, it also manages payroll and
training, allowing employers to focus on
nurturing new talent within their organisations
and the apprentices on gaining valuable work
experience while studying for the AAT Level 4
qualification.
CIPFA are holding information sessions for
employers and prospective apprentices in
Birmingham, London and Manchester during
March and April. PQ
For more information on the events and the
scheme, visit: www.cipfa.org/apprenticeships,
email apprenticeships@cipfa.org or call the
Employer Relations team on 020 7543 5757

PQ Magazine April 2015

disposal of assets PQ

A matter of record

Philip Dunn explains the principles behind the disposal

of assets, a subject students must get to know well

ccounting for the disposal of assets is a competence that needs to

be developed by both AAT and ICB students. The topic is
included in AATs Level 3 Diploma in Accounting, Accounts
Preparation 1 and ICBs Certificate in Bookkeeping and Accounts (Manual)
at Level 3. More complex tasks on this topic are likely to be included at
Level 4.
When recording transactions in the general ledger for an asset disposal
there are a number of factors to consider:
The original cost of the asset disposed.
The accumulated depreciation associated with the asset to-date.
The proceeds from the sale of the asset (remember that this can be
either funds received or a part exchange value).
The profit or loss on disposal.
The case study that follows illustrates various aspects of accounting for
fixed (non-current) assets, their accounting treatment over time and the
procedure in handling a disposal of an asset.
Ernie Heyes is an agricultural contractor operating in North Yorkshire.
He commenced in business on 1 January 2011, at which time he invested
120,000 in plant and equipment.
He has adopted a policy of depreciating his plant and equipment at a
rate of 20% straight line and he depreciates his assets in the year of
purchase but not in the year of sale.
At the 1 January 2014 his general ledger showed:
Plant and Equipment at Cost
1 Jan Balance b/d

120,000

Provision for Depreciation Plant and Equipment

1 Jan

Balance b/d 72,000

Disposal Account

namely: 120,000 x 20% for three years. = 72,000

On 1 December 2014 he disposes of an item of plant, purchased on 1
January 2011 that had cost 12,000 and receives a cheque for 6,000 on
its disposal.
We now need to record this transaction and to determine whether there
is a profit or loss on the disposal of the asset.
We need to open a disposal account and debit it with the original cost of
the asset and show this asset being transferred from the Plant and
Equipment Account at Cost.

1 Dec Plant & Equipment

at cost

Provision for Depreciation on Plant and Equipment

1 Dec Disposal a/c
7,200 1 Jan
Balance b/d

12,000

1 Dec Plant & Equipment

at cost
31 Dec *Profit & Loss
account

Plant and Equipment

1 Jan Balance b/d

120,000

1 Dec

Disposal a/c

72,000

Finally, the proceeds need to be recorded as: Debit the Bank and Credit
the Disposal account. At that point we can then balance off the Disposal
Account to determine the profit or loss on disposal of the asset.

Disposal Account
1 Dec Plant & Equipment
at cost

12,000 1 Dec Depreciation Provision 7,200

Plant & Equipment

Disposal Account
12,000 1 Dec Depreciation Provision 7,200
Plant & Equipment
1,200 1 Dec Bank
6,000
13,200

13,200

12,000
* This represents a profit on the disposal of the asset as:

Then we need to take account of the depreciation written off the asset to
the point of disposal. This will be, considering his policy, three years at
20% per annum on 12,000 = 7,200; and therefore the net book value
of the asset at the point of disposal is 4,800 (12000-7200).
We would then Debit the Provision for Depreciation Account on Plant
and Equipment and Credit the Disposal Account with the cumulative
depreciation to date.
PQ Magazine April 2015

Proceeds 6,000 less the Net Book Value of the asset 4,800 = 1,200.
This would be transferred at the end of the accounting period to the profit
and loss account/Income Statement.
The above example assumes that there were no other disposals in the
year. Please also note that the Depreciation charge for the year would be
based on (120,000-12,000)* 20% = 21,600 and would be dealt with
in the year end procedures. PQ
Dr Philip Dunn is an education and training consultant
31

PQ careers

The PQ Book Club

Life at Stockport College

EVERY MONTH WE REVIEW THE

BOOKS YOU SHOULD BE READING

Stephen Field is the colleges AAT Course Coordinator. AAT and ACCA qualified, he has
worked at the college for eight years, having started his career in banking. Stephen was
named PQ magazines public sector Lecturer of the Year at our recent awards night

Winners and how they succeed

by Alastair Campbell (Hutchinson
Random House, 20)
As a former spin doctor for one Tony
Blair, and a
key architect
of New
Labours three
successive
general
election wins,
Campbell
knows a great
deal about the
winning
mindset. In
this book he
sets out to discover others secrets of
success; his interviewees include
Floyd Mayweather, Anna Wintour,
Jos Mourinho and Albanian PM Edi
Rama among others. With them he
discusses his three planks of winning
objective, strategy and tactics, or
OST, as he calls them. Key to
success, says Campbell, is identifying
your objective, then devising a
strategy to achieve that goal, and
devising tactics to help drive the
strategy. Too many people even
high-powered business and political
figures confuse the strategy with
the tactics, says the author. To
explain it, Campbell uses the
example of dieting: Its not difficult
to turn a vague I want to lose weight
into a campaign with a clear O, S and
a credible set of T. Objective: lose 10
kilos. Strategy: diet (eat less, exercise
more). Tactics: record calorie intake
and exercise output; visualise thinner
me, possibly with photos on fridge;
use stairs not lift; join up with other
dieters. Expressed like this, a real
sense of purpose is injected into what
is being planned.
There are some surprises here, too.
Campbell is astonished at how many
of the top people he spoke to were
driven more by a fear of failure. Top
cycling coach Dave Brailsford
summed it up: I hate losing more
than I love winning, he said. Its a
theme that constantly recurs.
One criticism of this book is that
winning is defined in materialistic and
status terms, a Thatcherite conceit
thats somewhat ironic given
Campbells left-of-centre credentials.
There are, after all, other ways of
achieving and defining success.
What price happiness?
On the plus side, this book is very
well writen, and divided into easily
digestible chunks, and its chock-full
of fascinating insights.
PQ rating: 4/5 The big lesson here is
that you devise your own OST.
32

What time does your alarm

go off on a work day? 6.15am.
Whats the first thing you do
when you get to your desk?
Check my emails.
Whats on your desk? PC and
an in-tray with my to do list.
Whats the best thing about
where you work? The students
such a variety of characters.
Wheres your favourite place
to go for lunch? Im married to a
great cook, so lunch is always
brought from home.
What can you see when you
sit at your desk? The Pennines
in one direction, and Manchester
Airport in the other.
Which websites are your
favourites and why? No real
favourites, just what takes my
interest at the time.
Which websites do you use

for work? AAT, PQ Magazine

(study zone), ACCA/CIMA.
How many hours a week do
you spend in meetings? As
few as at all possible,
unless they directly
affect what I do I
avoid them like the
plague.
What time do you
leave the office? I
teach in the evenings,
so often it is 9pm, and then I have
a one-hour journey to get home.
How do you relax? Going to the
pub with my wife Amanda, and
going out with friends.
Whats your favourite tipple?
Real ale I attend as many beer
festivals as I can.
How often do you take work
home with you? Every day I
travel by train, so I get preparation

work done. Im always working on

a way to explain something to a
student in a clear manner.
Anybody who teaches will know
that to be successful 37 hours is
merely the start point.
What is your favourite TV
show? History and comedy
programmes a sense of
humour is essential in my job.
Summer or winter? Summer.
Pub or club? Pub, as anybody
who knows me will testify. So
many good beers to try!
Whos your hero? John Lennon.
If you had a time machine,
where would you go? To the
future to see how my sons have
done for themselves, and to see
how the world has changed.
If you hadnt chosen teaching
accountancy, where might
you be ? A sports statistician.

The workplace: building your network

Karen Young offers advice on
how to build your personal
brand online and in person

Networking can be a useful tool for those looking for a

change of job or to advance their careers. Meeting
people through events is one of the most beneficial
forms of networking if done effectively, although it is, of
course, possible these days to utilise
social networking sites
and other online
channels, too.
There are now more
events available than ever
before for finance
professionals so you need
to pick and choose
carefully. Try connecting
with your local institute
branch network, as you will
find there are events going
on in your region throughout
the year. The ICAEW
regularly hosts regional business updates with guest
speakers from banks and economists, in addition to
quiz nights, bowling, annual awards and dinners, where
you can broaden your professional network. The ACCA,
CIMA, ICAS and AAT host similar events.
When you attend a networking event it is important to
present yourself professionally; people you meet will be
your peers, recruiters, potential clients or employers so
always remain professional. It is important to introduce
yourself to new people when networking; if something
like this makes you nervous, practice conversation
starters about the theme of the event, recent industry
news, or use easy conversations starters such as: where
do you work? Did you attend last years awards?
If there are specific people that you are looking to
make contact with at an event, checking the table plan
for their name to introduce yourself is a great way to put

names to faces. So you can follow up and maintain

your network, keep business cards handy and
exchange these so you have all contact information too.
After networking offline, keeping in contact after the
event by phone, email or social media shows people
you have remembered them but are also interested in
keeping in touch. Developing your online network may
not be your priority when youre busy studying for
exams, but there are simple steps
you can take to make sure you are
maximising your online networking
potential.
Firstly, set up a professional
networking profile on a site such
as LinkedIn with a clear
biography using key words
suitable to your accounting field.
After this, be sure to connect
with your network following
meetings to maintain the
relationships that you have just
forged. Find LinkedIn groups
to join where you will be
surrounded with like-minded professionals.
Once you are online and start to network, there are
no geographical boundaries to hold you back. In the
digital age, where everyone is on the go and schedules
are tight, it can be difficult to attend all the events you
would like in person. Online networking can be the
perfect back up and sometimes a successful way to pin
people down.
Its important to consider that whilst establishing
yourself within the accounting profession, making faceto-face contact cannot be underestimated and faces
can be far more memorable than names. Using online
networking to compliment this and maintain
relationships can offer you the best of both worlds.
For more information and access to job opportunities
visit www.hays.co.uk/accountancy
Karen Young, Director, Hays Accountancy &
Finance
PQ Magazine April 2015

Well help you

to see the light!
Financial Accountant

Management Accountant

International Travel & Leisure, Surrey

FMCG, South West London

To 35,000 + Study Support

To 38,000 + Study Support

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PQ got a story, funny or serious, you want to share? Email graham@pqaccountant.com

SHOW US YOURS?

A couple of years ago we asked to see your

tattoos and were surprised by the response.
We thought it was time to see if you had
added any more. Many people dont
associate tattoos with accountants but here
at PQ magazine we like to challenge
stereotypes. We discovered last time that
many tattoos have a story to tell. One AAT
told us hers says Believe you can and
youre half way there and she got it to
motivate herself while studying as she was
lacking confidence in the exam hall. We had
a smile about one of our favourites Peters
wolf. He explained it was his second
favourite animal, but a penguin tattoo was
too girly. So send your tattoos pix to
graham@pqaccountant.com and we will
feature them in next months issue.

MEMORABLE

SNAPS

PQ magazines editor
Graham Hambly isnt one
for selfies or any sort of
photograph for that matter
but then he heard that
the ACCA had a
photobooth at the evening social event for delegates at the
global learning providers conference. So who best to have your
picture taken with? When CEO Helen Brand began her welcome
speech he thought, shall I? The editor wandered over to Helen
for a chat and casually asked if she would like her picture taken
with him. To everyones surprise she welcomed the idea. Helen
may have regretted her response as a queue quickly formed of
delegates eager to get their picture taken with the head honcho.
PQ was fine though we already had our picture!

PWC GETS ON WHAT HAPPENED

FRONT PAGE
OF THE SUN

PwC hit the front page of the Sun

for its cosy relationship with the
Labour Party. The Electoral
Commission showed that the firm
completed work worth 386,605
for Labour in the last three
months of 2014.
Labour was
accused of
hypocrisy for
letting PwC work
so closely with it
while advocating a
clampdown on tax
avoidance. The
Sun pointed out
Labours Margaret
Hodge had alleged
that PwC was guilty
of promoting tax
avoidance on an
industrial scale.

TO YOURS?

PQ magazine
giveaways and quiz
prizes are always a
big hit with our
readers. Nick
Farmer was one of
our recent annual
quiz winners. The
headphones
caused great
excitement in his
house, with the
prize donated to his teenage son lucky
boy. There is a benefit to this generous
gift, explained Farmer: I wont have to
ask him to turn his music down when Im
studying, he told us. Of course, our most
popular competition to date was a
calculator giveaway! Jeremy Davies,
pictured above, provided us with the
proof that he received his limited edition
Canon calculator. Lets hope he has taken
it out of the plastic now.

WEV E

TURN IT OFF

Using your iPad before

bedtime makes it harder to
get to sleep, reduces
alertness the next morning
and can lead to serious
illness. Those glowing
screens need to be banished
from the bedroom because
they are putting your body
clock back an hour-and-ahalf, adding to a long-term

lack of sleep. Believe it or

not, these conclusions come
from the first-ever in-depth
study on the effects of iPads
on sleep. The Harvard
University researchers found
that volunteers who read in
bed took 10 minutes longer
to fall to sleep and produced
lower levels of melatonin
the hormone that aids sleep.

ACCOUNTANT BANNED FROM CARRYING MIRRORS!

Pervert accountant Barry Dyson of Horwich, Greater Manchester, has been

jailed for 16 weeks for using mirrors to peep up the skirts of shoppers in
Harvey Nichols. He has also been banned from carrying reflective items in
public. Dyson, who admitted outraging public decency, lost his job at a
Salford accountancy firm as a result of the case.

GOT THE L OT

Becker F4 study material

We bumped into Becker at the ACCA

global learning providers conference
recently. They kindly gave us two sets of
their F4 study system, along with a
study question bank and revision
question bank. These manuals cover
the June exams and, remember,
Becker is an approved content provider.
To enter this giveaway all we need is your name and address
emailed to graham@pqaccountant.com. Head up your email
Becker F4 and we will do the rest.

Bumper pack

We are giving our readers the chance to win not one

but four books that have been reviewed recently in
the PQ Book Club. So we are giving away HMRC:
Her Majestys Roller Coaster, The Small Big,
Dance with the Enemy and, finally, this months
book Winners, and how they succeed. A great mix
of serious and fun!
All you need to do to be in with a chance of being
sent this great collection is to send your name and
address to graham@pqaccountant.com heading
up your email PQ Book Club.

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 17 April. The main draw will take place on Monday 20 April 2015.

TO ENTER THESE GIVEAWAYS EMAIL GRAHAM@PQACCOUNTANT.COM

38

PQ Magazine April 2015

A
R
CO EV CC
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