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02 June 2016

We provide a summary of the March Examiner Reports for P4, P5, P6 and P7

Students should understand that this is an advanced level paper that builds on the knowledge and skills examined in paper F9. The examiner wants you to take on the role of a senior financial professional, who is able to recommend and make financial management decisions that are likely to affect the entire business. You also have to be able to demonstrate your ability to read and digest quickly comprehensive and detailed questions. The operative word here is ‘quickly’! As a senior manager you need to work under scheduled deadlines and the examiner believes that to be successful in this exam you need to be able to demonstrate the ability to prioritise and manage your time. Business reports and proposals are expected to be succinct, professionally written and easy to read with clear headings and conclusion. That is what you need to product in the exam.
Sustained study over a long period of time (we aren’t told how long here) is also a key to success in this paper.
Q1 looked at how exchange rate fluctuations are influenced by inflation. Students were then asked to look at the impact of a capital investment project on the value of the company nd look at its effect on dividends.
Q2 asked candidates to apply the adjusted present value technique to a proposed investment project.
For Q3 sitters had to demonstrate their understanding of a partnership mergers and how such mergers can be valued.
Q4 wanted to see how knowledge of real options strategy using the Black Scholes pricing model can add to investment appraisal decisions. Risk factors in option theory was also there, along with government funding.

The examiner is worried that no-one is reading the reports, as previous advice seems to be ignored. The March report reiterates that good candidates distinguish themselves by being aware that if they come to this exam expecting to repeat memorised material they will probably only score between 20-30%.
PQs also need to ensure they have filled in the gaps in basic knowledge (models and techniques), and this might actually mean to need to refresh your F5 knowledge.
Q1 started by asking students to explain the performance pyramid. It then went on to the evaluation of operational performance indicators and their reliability. Then we moved to activity-based budgeting and an evaluation of two budgeting methods.
The Building Block model was key to Q2. You were then asked to provide the benefits of a real-time unified database.
Q3 was all about decision-making under risk and uncertainty.
Q4 looked at performance measurements in the public sector. The 3E’s structure helped in part (a).

P6 (UK)
The examiner felt overall the standard at the March exam was ‘fairly satisfactory’. When you go into this exam you need to spend sufficient time carefully reading the question and thinking before you start writing. Another key to success in P6 is to answer every part of the four questions. Finally you need good knowledge of the tax rules, particularly some of the more fundamental rules brought forward from the F6 syllabus.
Q1 looked at the acquisition of overseas businesses as branches or subsidiaries. You also had to consider the VAT treatment of purchasing goods and services. Finally you were require to explain the tax implications of a transfer of trade and assets.
Q2 required you to correct a number of errors relating to income tax, CGT and IHT liabilities for a married couple. HMRC’s penalty regime also came into play and the action you would need to take before becoming their tax adviser.
Q3 was a question on CGT implication of two disposals, the IHT reliefs on the death of a taxpayer and the application of IR35.
Q4 concerned the tax treatment of an individual shareholder of the sale of shares back to the company, with corporation tax and Vat thrown in!
Q5 was about business partnerships and calculation of income tax liability for a tax year, including a redundancy package.

The overall performance in this sitting was ‘poor’ with it being fairly obvious that many candidates had not properly prepared for this wide-ranging exam. Too many candidates focused on the minutiae of a point and missed the wider implications of the issue in hand. There was also a clear lack of both auditing and financial reporting knowledge.
Q1 centred in on business risk. The examiner is worried that many candidates were unable to differentiate between business and audit risk. Candidates needed to identify and discuss four risks of material misstatement. The examiner felt this should have been straightforward stuff. Sitters were then required to consider how outsourcing the credit control function should be audited. Here there was confusion between outsourcing and using an audit expert. Students need to know their IAS 402.
Q2 looked at three financial reporting issues. Candidates needed to provide exam procedures in relation to prospective financial information. You were faced here with a deferred tax, a convertible bond and an operating lease.
Q3 was not a popular option. This looked at the risk of fraud in revenue recognition.
Q4 was the most popular optional question and focused on ethics and practice management.
Q5 set out four potential audit adjustments and required candidates to consider their impact on the audit report.

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