Our review of the December 2009 ACCA exams

By Deborah Taylor, BPP's Head of ACCA Course Design

BPP's Head of ACCA Course Design takes a look at what students
can learn from each of the December 2009 CIMA exams.

F4 F5 F6 F7 F8 F9 P1 P2 P3 P4 P5 P6 P7

ACCA F4

This exam was a fair test of students' abilities. The first seven questions tested knowledge and followed an established pattern of covering the English legal system (statutory interpretation); the law of obligations (acceptance, privity, damages, professional negligence); employment law (employers and employees duties); and company law (limited liability). The law of insolvency was also examined incorporating compulsory winding up and administration.

The final three questions required a degree of legal analysis and would have undoubtedly presented a much stiffer test. Question 8 examined the 'reasonable' test in respect of exclusion clauses. This required an application of the guidance laid down in UCTA 1977 and UTCCR 1999. Question 9 was a difficult examination of conflict of interests for directors and it is likely that many students may have failed to grasp the issue at hand. The final question was a straightforward application of wrongful and fraudulent trading.

ACCA F5

The F5 exam was broadly in line with expectations. Questions were of a suitable standard, clearly worded and unambiguous and consistent with the June exam. The change in the exam format has reduced the complexity of the information given and therefore the questions asked.

The split between calculation and discussion was weighted slightly in favour of calculation, which is a minor deviation compared to past exams. Generally, students would have been able to answer discursive parts of questions without the need to refer to numerical calculations with the exception of question 1 where answers would have been enhanced by reference to the calculations performed earlier in the question.

ACCA F6

Overall this was a fair exam with the style in line with previous exams and within the guidance given from the examiner.

Question 1 focused on income tax, testing the commencement rules for a sole trader, adjustment of profit, calculation of income tax including investment and exempt income plus the dates for payment of tax.

Question 2 tested corporation tax which examined the rules on residence and required the calculation of the corporation tax liability for a nine month period incorporating pre-trading expenditure, plant and machinery capital allowances and industrial buildings allowance on a new factory. This question also included overseas income plus the deduction of double tax relief and in part (b) moved on to examine VAT registration, pre-registration expenses and disclosure of VAT errors.

Question 3 focused on three individuals and tested incorporation relief, gift relief and principal private residence relief.

Question 4 looked at the badges of trade and required a calculation of the income tax liability and Class 2 and 4 national insurance contributions if the disposal of the property was treated as a trade. Candidates also had to compute the CGT liability if the sale of the property were not treated as a trade.

And finally question 5 examined corporation tax loss relief involving two trading losses.

ACCA F7

The paper was similar to expectations, following the format laid out by the examiner: Q1 a consolidation, Q2 financial statement preparation, Q3 statements of cash flows/interpretation (both here) and Qs4 and 5 on other areas.

Q3, whilst reasonable in terms of difficulty, may have thrown some students as part (a)(i) required preparation of reconciliation in the carrying value of non-current assets, whereas Q3 usually focuses on interpretation and statements of cash flows. Another minor variation compared to previous sittings was that Question 5 also included a written interpretation section comparing different measures of earnings.

We have one bone of contention which relates to question 4 which was set in the context of non-current assets covering a definition of non-current assets and application of the standards to three scenarios: Q4(b)(iii) covered an asset being constructed over the year end and potential impairment, however we felt the scenario was somewhat confusing and open to misinterpretation, which we communicated at the ACCA Exam Review Board.

ACCA F8

This paper had good coverage of the syllabus and many marks available for core areas such as internal controls, audit procedures and evidence.

The questions were split into a series of short requirements making it easier for candidates to gain high marks. There was also a need for candidates demonstrate that they could apply their knowledge to the scenarios given in the questions.

Question 1 tested audit planning and required candidates to apply their knowledge of auditing procedures to a publishing house. Question 2 required the reliability of evidence and communication with those charged with governance. Question 3 was challenging, focusing on understanding the entity, its control environment and control risk. The tricky part of question 4 required candidates to apply their knowledge to a cash flow forecast with question 5 testing the assertions, controls and the audit of a claim from a customer.

ACCA F9

This was a challenging paper as questions integrated knowledge from a number of syllabus areas.

Question 1 was a manageable question on investment appraisal with some straightforward NPV calculations. The lease v buy financing decision was tested before the investment decision, which may have caused confusion. The discussion elements concerned equivalent annual benefit and capital rationing.

Question 2 was a wide-ranging question with straightforward cost of capital calculations mixed with calculation of a share price and gearing. There was a standard discussion on dividend policy but a harder requirement to discuss the reasons why different bonds might have different costs of debt.

Question 3 was again a wide-ranging challenging question. Part (a) required a conversion of a € investment into $s before a TERP calculation could be done. Part (b) required manipulation of P/E and EPS ratios. The rest of the question was then a relatively straightforward exchange rate discussion.

Question 4 mostly concerned working capital with forecast financial statements and discussion of working capital financing and management.

ACCA P1

This was a fair paper with balanced coverage of the syllabus and a strong ethics slant although no Corporate Social Responsibility was mentioned. A spread of different level requirements allowed some easy marks, although students were also expected to think on their feet to cover several application requirements.

This exam expected candidates to present sensible suggestions by taking hints given in the comprehensive scenarios, rather than straight reproduction of what they'd learnt, although it did allow some theory to gain basic marks.

The requirement of a memorandum should have given students a better than usual chance of achieving the professional marks.

This paper also picked up on two syllabus areas which have not featured to date: the American Accounting Association model for ethical decision making and risk auditing. These should have been answered well if students had read the examiner's previous articles on the subjects.

ACCA P2

The exam followed the expected format as outlined by the examiner at the February 2009 Teachers' Conference: consolidation and ethics in Q1, industry in Q3, discussion in Q4 and other areas in Q2.

Q1 was challenging as it included 41 calculation marks, testing a piecemeal acquisition and two disposals (one where control was lost, the other not) as well as adjustments on other areas of the syllabus. Q2 covered theory and analysis in respect of impairment. Financial instruments came up again, this time as the discussion question (Q4), covering the issues of complexity created by the mixed measurement model. We felt that both questions were fair.

Q3 was set in the context of the energy industry and covered many areas, some of them quite tricky. Having said that, because there were many areas to be discussed, a good mark should have been achieved by following good exam technique.

ACCA P3

The exam offered good syllabus coverage and presented a fair assessment. Section A provided an opportunity for a more traditional business analysis; covering Porter's five forces, evaluation of acquisition targets and stakeholder analysis. The question also required the use of financial information and contained professional marks. Section B contained some familiar frameworks and models; Porter's value chain, Harman's process-strategy mix, project management and software quality (including the V-model).

Although the requirements appeared quite prescriptive, there were subtleties, which could be easily missed. Section A required an assessment of the "attractiveness of the market", not a generic assessment. In Section B the requirement for the V-model did not ask for a generic description; the examiner wanted an explanation of the principles and then an evaluation of its use in context.

In essence, this paper was about using prescribed models in context and the level of application expected was certainly strategic throughout.

ACCA P4

Question 1 was straightforward; this focussed on a cash flow forecast which was used as the basis of a business valuation.

Question 2 also examined issues relating to an acquisition, and included the discussion of risk and ratio analysis. Part (c) was hard; this involved estimating the post acquisition beta of the company but was only for 6 marks.

Question 3 involved the valuation of share options and discussion of mezzanine finance.

Question 4 required a discussion of the issues that a bank would consider before lending, and a discussion of different types of debt finance. There were sufficient marks available in part (a) and (c) plus easy marks for introducing issues and defining terms to make this a manageable question.

Question 5 - interest rate risk management. The trickiest part was part (c), for 6 marks; this required calculation of value at risk. Two easy marks were available for defining and discussing value at risk and it would have been good technique to focus mainly on these easy marks.

ACCA P5

This was a fair paper, and was certainly easier than the June exam.

In Section A, question 1 applied budgeting and performance measurement concepts to a college; this involved the use of Fitzgerald and Moon's building block model. In question 2, beyond budgeting was tested in a numerical context, although unusual it should not have caused too much panic.

In Section B, question 3 tested transfer pricing with a mixture of numbers and discussion; this was probably the hardest of the optional questions, but was still manageable. question 4 covered ratio analysis and strategic evaluation of an investment decision. Finally, question 5 examined mission statements, critical success factors and key performance indicators.

ACCA P6

This paper covered the learning outcomes and was in a style expected.

Candidates were tested on their tax knowledge but also their ability to be able to think about the tax implications and to choose the best way of presenting their calculations.

Section A comprised two questions covering 62% of the marks split between a 24 mark question and a 38 mark question. Both questions were in the expected case study/scenario style and required candidates to construct their answers in a specified format.

Question 1 focused on the acquisition of a company's trade and assets, de-grouping charges, VAT aspects and calculation of the amended corporation tax computation.

Question 2 examined overseas aspects of income tax, inheritance tax on a gift; badges of trade; capital gains tax on the disposal of a principal private residence and ethics.

Section B comprised three questions of 19 marks each. These questions were in the usual succinct style to aid students in making their choice.

Question 3 tested the submission dates for the income tax return and income tax liability; agricultural and business property relief; capital gains tax and inheritance tax payable on the gift of a farm.

Question 4 looked at the implications when a loan from a close company is repaid; the annual net effect on a husband, wife and company's tax liability if the wife is employed; taxable gain utilising replacement of business asset relief.

Question 5 tested the difference in income tax and national insurance on choosing two different year ends when starting a trade; change of accounting date and flat rate scheme for VAT.

ACCA P7

This was a firm but fair exam with some welcome touches of originality alongside the familiar topics of planning, audit procedures, ethics, quality control, practice management and reporting. The ratio of knowledge to application was consistent with previous sittings and all major syllabus areas were tested, with much better balance between audit and non-audit engagements than in the previous paper.

The examiner introduced some new ideas following the June 2009 sitting: candidates were required to argue both for and against a prescriptive approach to auditing in the context of the Clarity Project while ethics was tested in the compulsory section for a change. Knowledge of auditing standards was explicitly tested again via both analytical procedures and subsequent events.

Question choice in the optional section may be a factor in candidates' success, as the prospective financial information in the most favourable looking question might have led to unnecessary analysis by candidates.

For further information, see www.bpp.com/acca