(CIMA) Chartered Institute of Management Accountants - Managerial Level
Chartered Management Accountants are involved at every level in organisations throughout the world. They are crucial members of the management team, making decisions and supplying information vital to the running of organisations in both the public and private sectors. As Chartered Management Accountants students will be qualified to work in a variety of businesses from large-scale corporations to management consultancy Practises. With over 58,000 students and 44,000 members are employed by organisations such as Procter $ Gamble, ICI, Cadbury Schweppes, IBM, British Airways and CoopersLybrandDeloitte, CIMA is the leading financial qualification for business today. Students who complete the Managerial level will be awarded the CIMA Advanced Diploma in Management Accounting. Entry Qualifications • Completion of ALL Foundation Level subjects
• Students with good academic qualifications may be given exemption from Foundation level provided subject-by-subject exemptions are confirmed by CIMA.
All Students need to register as members of the Institute at the following address:
Chartered Institute of Management Accountants (CIMA)
26 Chapter Street
London SW1P 4NP
Tel:+44 (0)20 7663 5441
Duration of course
This level consists of 6 subjects comprising 3 learning pillars: Management Accounting pillar, Business Management pillar and Financial Management pillar. CIMA will grant students a transfer credit under its transitional arrangements for those who have passed subjects under the old syllabus. It is quite normal practice to spend two semesters on one module in order to be confident in passing the examinations. Tutors recommend that students do not sit more than three subjects in any one sitting when taking the subject for the first time.
Note: students are requested to read the section at the back of the student handbook. Syllabus The Full Syllabus – Managerial Level This section sets out the specific syllabus for each of the six papers within the three learning pillars at the Managerial Level. However, it is implicit in each case, that material included in the syllabus for any of the papers within the CIMA Certificate in Business Accounting qualification, may also be relevant for the purpose of assessment, in related subjects. The syllabus for the CIMA Certificate in Business Accounting qualification can be viewed on the CIMA website. PAPER P1 MANAGEMENT ACCOUNTING PERFORMANCE EVALUATION Syllabus outline Topic and Study Weighting A. Cost Accounting Systems 25%
B. Standard Costing 25%
C. Budgeting 30%
D. Control and Performance
Measurement of Responsibility Centres 20% Syllabus Content A – Cost Accounting Systems – 25% Syllabus Content • Marginal (or variable) costing as a system of profit reporting and stock valuation.
• Absorption costing as a system of profit reporting and stock valuation.
• Throughput accounting as a system of profit reporting and stock valuation.
• Activity-based costing as a potential system of profit reporting and stock valuation.
• The integration of standard costing with marginal cost accounting, absorption cost accounting and throughput accounting.
• Process accounting including establishment of equivalent units in stock, work-in-progress and abnormal loss accounts and the use of first-in-first-out, average cost and standard cost methods of stock valuation.
• MRP and ERP systems for resource planning and the integration of accounting functions with other systems, such as purchase ordering and production planning.
• Back-flush accounting in just-in-time production environments. The benefits of just-in-time production, total quality management and theory of constraints and the possible impacts of these methods on cost accounting and performance measurement. B – Standard Costing – 25% Syllabus Content • Manufacturing standards for material, labour, variable overhead and fixed overhead.
• Price/rate and usage/efficiency variances for materials, labour and variable overhead. Further subdivision of total usage/efficiency variances into mix and yield components. (Note: The calculation of mix variances on both individual and average valuation bases is required.)
• Fixed overhead expenditure and volume variances.(Note: the subdivision of fixed overhead volume variance into capacity and efficiency elements will not be examined.)
• Planning and operational variances.
• Standard and variances in service industries, (including a the phenomenon of “McDonaldization”), public services (e.g. Health), (including the use of “diagnostic related” or “reference” groups), and the professions (e.g. labour mix variances in audit work). Criticisms of standard costing in general and in advanced manufacturing environments in particular.
• Sales price and sales revenue/margin volume variances (calculation of the latter on a unit basis related to revenue, gross margin and contribution margin). Application of these variances to all sectors, including professional services and retail analysis.
• Interpretation of variances: interrelationship, significance.
• Benchmarking
• Behavioural implications of setting standard costs.
C – Budgeting – 30% Syllabus Content • Time series analysis including moving totals and averages, treatment of seasonality, trend analysis using regression analysis and the application of these techniques in forecasting product and service volumes.
• Fixed, variable, semi-variable and activity-based categorisations of cost and their application in projecting financial results.
• What-if analysis based on alternative projections of volumes, prices and cost structures and the use of spreadsheets in facilitating these analyses.
• The purpose of budgets and conflicts that can arise (e.g. between budgets for realistic planning and budgets based on ‘hard to achieve’ targets for motivation).
• The creation of budgets including incremental approaches, zero-based budgeting and activity-based budgets.
• The use of budgets for control: controllable costs and variances based on ‘fixed’ and ‘flexed’ budgets. The conceptual link between standard costing and budget flexing.
• Behavioural issues in budgeting: participation in budgeting and its possible beneficial consequences for ownership and motivation, participation in budgeting and its possible adverse consequences for ‘budget padding’ and manipulation; setting budget targets for motivation etc.
• Criticisms of budgeting and the recommendations of the advocates of the balanced scorecard and ‘beyond budgeting’. D – Control and Performance Measurement of Responsibility Centres – 20%
Syllabus Content
• Organisation structure and its implications for responsibility accounting.
• Presentation of financial information including issues of controllable/uncontrollable costs, variable/fixed costs and tracing revenues and costs to particular cost objects.
• Return on investment and its deficiencies, the emergence of residual income and economic value added to address these.
• Behavioural issues in the application of performance measures in cost profit and investment centres.
• The theory of transfer pricing, including perfect, imperfect and no market for the intermediate good.
• Use of negotiated, market, cost-plus and variable cost based transfer prices. ‘Dual’ transfer prices and lump sum payments as means of addressing some of the issues that arise.
• The interaction of transfer pricing and tax liabilities in international operations and implications for currency management and possible distortion of internal company operations in order to comply with Tax Authority directives. PAPER P2 MANAGEMENT ACCOUNTING DECISION MANAGEMENT Syllabus Outline The syllabus comprises: Topic and Study Weighting A. Financial Information for Short-term Decision Making 30%
B. Financial Information for Long-term Decision Making 25%
C. The Treatment of Uncertainty in Decision Making 15%
D. Cost Planning and Analysis for Competitive Advantages 30%
Syllabus Content
A – Financial Information for Short-term Decision Making – 30%
Syllabus content
• Relevant cash flows and their use in short-term decision, typically concerning acceptance/rejection of contracts, pricing and cost/benefit comparisons.
• The importance of strategic, intangible and non-financial judgements in decision-making.
• Pricing decisions for profit maximising in imperfect markets. (Note: tabular methods of solution are acceptable).
• Pricing strategies and the financial consequences of market skimming, premium pricing, penetration pricing, loss leaders, product bundling/optional extras and product differentiation to appeal to different market segments.
• The allocation of joint costs and decisions concerning process and product viability based on relevant costs and revenues.
• Multi-product break-even analysis, including break-even and profit/volume charts, contribution/sales ratio, margin of safety etc.
• Simple product mix analysis in situations where there are limitations on product/service demand and one other production constraint.
• Linear programming for more complex situations involving multiple constraints. Solution by graphical methods of two variable problems, together with understanding of the mechanics of simplex solutions, shadow prices etc. (Note: questions requiring the full application of the simplex algorithm will not be set although candidates should be able to formulate an initial tableau, interpret a final simplex tableau and apply the information it contained in a final tableau.) B – Financial Information for Long-term Decision Making – 25% Syllabus content • The process of investment decision making, including origination of proposals, creation of capital budgets, go/on go decisions on individual projects (where judgements on qualitative issues interact with financial analysis), and post audit of completed projects.
• Generation of relevant project cash flows taking account of inflation, tax, and ‘final’ project value where appropriate.
• Activity-based costing to derive approximate ‘long-run’ costs appropriate for use in strategic decision making.
• The techniques of investment appraisal; payback, discounted payback, accounting rate of return, net present value and internal rate of return.
• Application of the techniques of investment appraisal to project cash flows and evaluation of the strengths and weaknesses of the techniques.
• Sensitivity analysis to identify the input variables that most effect the chosen measure of project worth (payback, ARR, NPV or IRR).
• Methods of dealing with particular problems: the use of annuities in comparing projects with unequal lives and the profitability index in capital rationing situations. C- The Treatment of Uncertainty in Decision Making – 15% Syllabus content • The nature of risk and uncertainty.
• Sensitivity analysis in decision modelling and the use of computer software for “what if” analysis.
• Assignment of probabilities to key variables in decision models.
• Analysis of probabilistic models and interpretation of distributions of project outcomes.
• Expected value tables and the value of information.
• Decision trees for multi-stage decision problems. D – Cost Planning and Analysis for Competitive Advantage – 30%
Syllabus content
• Value analysis and quality function deployment.
• The benefits of just-in-time production, total quality management and theory of constraints and the implications of these methods for decision-making in the “new manufacturing environment”.
• Kaizen costing, continuous improvement and cost of quality reporting.
• Learning curves and their use in predicting product/service costs, including derivation of the learning rate and the learning index.
• Activity-based management in the analysis of overhead and its use in improving the efficiency of repetitive overhead activities.
• Target costing.
• Life cycle costing and implications for marketing strategies.
• The value chain and supply chain management, including the trend to outsource manufacturing operations to Eastern Europe and the Far East.
• Gain sharing arrangements in situations where, because of the size of the project, a limited number of contractors or security issues (e.g. in defence work), normal competitive pressures do not apply.
• The use of direct and activity-based cost methods in tracing costs to ‘cost objects’, such as customers or distribution channels, and the comparison of such costs with appropriate revenues to establish ‘tiered’ contribution levels, as in the activity-based cost hierarchy.
• Pareto analysis.
PAPER P4 ORGANISATION MANAGEMENT AND INFORMATION SYSTEMS
Syllabus Outline The syllabus comprises: Topic and Studying Weighting A. Information Systems 20%
B. Change Management 10%
C. Operations Management 20%
D. Marketing 20%
E. Managing Human Capital 30%
A – Information Systems – 20%
Syllabus Content • Introduction to hardware and software in common use in organisations.
• Hardware and applications architectures (i.e. centralised, distributed, client server) and the IT required to run them (PCs, servers, networks and peripherals).
• General Systems Theory and its application to IT (i.e. system definition, system components, system behaviour, system classification, entropy, requisite variety, coupling and decouping).
• Recording and documenting tools used during the analysis and design of systems ( i.e. entity-relationship model, logical data structure, entity life history, dataflow diagram, and decision table).
• Databases and database management systems. (Note: knowledge of database structures will not be required).
• The problems associated with the management of in-house and vendor solutions and how they can be avoided or solved.
• IT-enabled transformation (i.e. the use of information systems to assist in change management).
• System changeover methods (i.e. direct, parallel, pilot and phased).
• IS implementation (i.e. methods of implementation, avoiding problems of non-usage and resistance).
• The benefits of IT systems.
• IS evaluation, including the relationship of sub-systems to each other and testing.
• IS outsourcing
• Maintenance of systems (i.e. corrective, adaptive, preventative). B – Change Management – 10%
Syllabus Content
• External and internal change triggers (e.g. environmental factors, mergers and acquisitions, re-organisation and rationalisation).
• The stages in the change process.
• Approaches to change management (e.g. Beer and Nohria, Kanter, Lewin and Peters, Senge et al.).
• The importance of managing critical periods of change through the life cycle of the firm. C – Operations Management – 20% Syllabus Content • An overview of operations strategy and its importance to the firm.
• Design of products/services and processes and how this relates to operations and supply.
• Methods for managing inventory, including continuous inventory systems (e.g. Economic Order Quantity, EOQ), periodic inventory systems and the ABC system (Note: ABC is not an acronym. A refers to high value, B to medium and C to low value inventory).
• Strategies for balancing capacity and demand including level capacity, chase and demand management strategies.
• Methods of performance measurement and improvement, particularly the contrast between benchmarking and Business Process Re-engineering (BPR).
• Practices of continuous improvement (e.g. Quality circles, Kaizen, 5S, 6 Sigma).
• The use of benchmarking in quality measurement and improvement.
• Different methods of quality measurement (i.e. operational, financial and customer measures).
• The characteristics of lean production, flexible, workforce practices, high-commitment human resource policies and commitment to continuous improvement. Criticisms and limitations of lean production.
• Systems used in operations management: Manufacturing Resource Planning (MRP), Optimised Production Technologies (OPT), Just-in-Time (JIT) and Enterprise Resource Planning (ERP).
• Approaches to quality management, including Total Quality Management (TQM), various British Standard (BS) and European Union (EU) systems as well as statistical methods of quality control.
• External quality standards (e.g. the various ISO standards appropriate to products and organisations).
• Use of the intranet in information management (e.g. meeting customer support needs).
• Contemporary developments in quality management.
• The role of the supply chain and supply networks in gaining competitive advantage, including the use of sourcing strategies (e.g. single, multiple, delegated and parallel).
• Supply chain management as a strategic process (e.g. Reck and Long’s strategic positioning tool, Cousins’ strategic supply wheel).
• Developing and maintaining relationships with suppliers. D – Marketing – 20%
Syllabus Content
• Introduction to the marketing concept as a business philosophy.
• An overview of the marketing environment, including societal, economic, technological, physical and legal factors affecting marketing.
• Understanding consumer behaviour, such as factors affecting buying decision, types of buying behaviour and stages in the buying process.
• Marketing research, including data gathering techniques and methods of analysis.
• Marketing Decision Support System (MDSS) and their relationship to market research.
• How business-to-business (B2B) marketing differs from business to consumer (B2C) marketing.
• Segmentation and targeting of markets, and positioning of products within markets.
• The differences and similarities in the marketing of products and services.
• Devising and implementing of pricing strategy.
• Marketing communications (i.e. mass, direct, interactive).
• Distribution channels and methods for marketing campaigns.
• The role of marketing in the strategic plan of the organisation.
• Use of the Internet (e.g. in terms of data collection, marketing activity and providing enhanced value to customers and suppliers) and potential drawbacks (e.g. security issues).
• Market forecasting methods for estimating current (e.g. Total Market Potential, Area Market Potential and Industry Sales and Market Shares) and future (e.g. Survey of Buyers’ Intentions, Composite of Sales Force Opinions, Expert Opinion, Past-Sales Analysis and Market-Test Method) demand for products and services.
• Internal marketing as the process of training and motivating employees so as to support the firm’s external marketing activities.
• Social responsibility in a marketing context. E – Managing Human Capital – 30%
Syllabus Content
• The relationship of the employee to other elements of the business plan.
• Determinants and content of a human resource (HR) plan (e.g. organisational growth rate, skills, training, development, strategy, technologies and natural wastage).
• Problems in implementing an HR plan and ways to manage this.
• The process of recruitment and selection of staff using different recruitment channels (i.e. interviews, assessment centres, intelligence tests, aptitude tests, psychometric tests).
• Issues relating to fair and legal employment practices (e.g. recruitment, dismissal, redundancy, and ways of managing these).
• Issues in the design of reward systems (e.g. the role of incentives, the utility of performance-related pay, arrangements for knowledge workers, flexible work arrangements).
• The importance of negotiation during the offer and acceptance of a job.
• The process of induction and its importance.
• Theories of Human Resource Management (e.g. Taylor, Schein, McGregor, Maslow, Herzberg, Handy, Lawrence and Lorsch).
• High performance work arrangements.
• The distinction between development and training and the tools available to develop and train staff.
• The importance of appraisals, their conduct and their relationship to the reward system.
• HR in different organisational forms (e.g. project-based firms, virtual or networked firms).
• Personal business ethics and the CIMA Ethical Guidelines. PAPER P5 INTEGRATED MANAGEMENT Syllabus Outline The syllabus comprises: Topic and Study Weighting A. The Basis of Strategic Management 30%
B. Project Management 40%
C. The Management of Relationships 30% Syllabus Content A – The Basis of Strategic Management – 30% Syllabus Content • The process of strategy formulation.
• The relationship between strategy and organisational structure.
• The reasons for conflict between the objectives of an organisation, or between the objectives of an organisation and its stakeholders, and the ways to manage this conflict.
• Strategic decision making processes.
• Approaches to strategic (e.g. rational, adaptive, emergent, evolutionary or system-based views based on Porter, Mintzberg, Bartlett and Ghoshal).
• Transaction cost view of the firm (e.g. Coase, Williamson) and its implication for organisational structure.
• Resource-based views of the firm and implications for strategy development.
• Ecology perspective on the firm.
• The determinants, importance and role of organisational cultures and ways to improve the effectiveness of an organisation.
• Introduction to corporate governance, including stakeholders and the role of government.
• Translating strategy into business (e.g. formation of strategic business units, encouragement of entrepreneurship inside organisations).
• Contemporary issues in business management (e.g. alliances, demergers, virtual organisations, corporate social responsibility and business ethics). B – Project Management – 40%
Syllabus Content
• The definition of a project, project management, and the contrast with repetitive operations and line management.
• 4-D and 7-5 models to provide an overview of the project process, and the nine key process areas (PM) to show what happens during each part of the process.
• Stakeholders (both process and outcome) and their needs.
• Roles of project sponsors, boards, champions, managers and clients.
• Key tools for project managers (e.g. Work Breakdown Structure, network diagrams (Critical Path Analysis), Gantt charts, resource histograms, establishment of gates and milestones).
• Evaluation of plans for projects.
• The key processes of PRINCE2 and their implications for project staff.
• The role of determining trade-offs between key project objectives of time, cost and quality.
• Managing scope at the outset of a project and providing systems for configuration management/change control.
• The production of basic plans for time, cost and quality.
• Scenario planning and buffering to make provision for uncertainty in projects, and the interface with the risk management process.
• Organisational structures, including the role of the project and matrix organisations, and their impact on project achievement.
• Teamwork, including recognising the life-cycle of teams, team/groups behaviour and selection.
• Control of time, cost and quality through performance and conformance management systems.
• Project completion documentation, stakeholder marketing, completion reports and system close-down.
• The use of post-completion audit and review activities and the justification of their costs. C – Management of Relationships – 30% Syllabus Content • The concepts of power, authority, bureaucracy, leadership, responsibility and delegation and their application to relationship within an organisation and outside it.
• The characteristics of leaders, managers and entrepreneurs.
• Management-style theories (e.g. likert, Tannenbaurn and Schmidt, Blake and Mouton).
• The use of systems of control within the organisation (e.g. employment contracts, performance appraisal, reporting structures).
• Theories of control within firms and types of organisational structure (e.g. matrix, divisional, network).
• The advantages and disadvantages of different styles of management.
• Managing different countries and cultures.
• Contingency approaches to management style (e.g. Adair, Fiedler).
• Theories of group development, behaviour and roles (e.g. Tuckman, Belbin).
• Disciplinary procedures and their operation, including the form and process of formal disciplinary action and dismissal (e.g. industrial tribunals, arbitration and conciliation).
• Personal time management.
• The nature and effect of legal issues affecting work and employment, including the principles of employment law (i.e. relating to health, safety, discrimination, fair treatment, childcare, contracts of employment and working time).
• The sources of conflict in organisations and the ways in which conflict can be managed to ensure that working relationships are productive and effective.
• Communication skills (i.e. types of communication tools and their use, as well as the utility and conduct of meetings) and ways of managing communication problems.
• Negotiation skills.
• Creativity and idea generation.
• Information gathering techniques (e.g. interviews, questionnaires).
• Introduction to compare governance, including business ethics and the role, obligations and expectations of a manger. PAPER P7 FINANCIAL ACCOUNTING AND TAX PRINCIPLES Syllabus Outline The syllabus comprises: Topic and Study Weighting A. Principles of Business Taxation 20%
B. Principles of Regulation of Financial Reporting 10%
C. Single Company Financial Accounts 45%
D. Managing short Term Finance 25%
Syllabus Content
A – Principle of Business Taxation – 20% Syllabus Content • Concepts of direct versus indirect taxes, taxable person and competent jurisdiction.
• Sources of tax rule s(e.g. domestic primary legislation and court rulings, practice of the relevant taxing authority, supranational bodies, such as the EU in the case of value added/sales tax, and international tax treaties).
• Direct taxes on company profits and gains:
? The principles of non-deductibility of dividends and systems of taxation defined according to the treatment of dividends in the hands of the shareholder (e.g. classical, partial imputation and imputation),
? The distinction between accounting and taxable profits in absolute terms (e.g. disallowable expenditure on revenue account, such as entertaining, and on capital account, such as formation and acquisition costs) and in terms of timing (e.g. deduction on a paid basis, tax depreciation substituted for book depreciation),
? The nature of rules recharacterising interest payments as dividends,
? Potential for variation in rules for calculating the tax base dependent on the nature or source of the income (scheduler systems),
? The need for rules dealing with the relief of losses,
? The concept of tax consolidation (e.g. relief of losses and deferral of capital gains on asset transfers within a group).
• Indirect taxes collected by the company:
? In the context of indirect taxes, the distinction between unit taxes (e.g. exercise duties based on physical measures) and advalorem taxes (e.g. sales tax based on value),
? The mechanism of value added/sales taxes, in which businesses are liable for tax on their outputs less credit for tax paid on their inputs, including the concepts of exemption and variation in tax rates depending on the type of output and disallowance of input credits for exempt outputs.
• Employee taxation:
? The employee as a separate taxable person subject to a personal income tax regime,
? Use of employer reporting and withholding to ensure compliance and assist tax collection.
• The need for record-keeping and record retention that may be additional to that required for financial accounting purposes.
• The need for deadlines for reporting (filing returns) and tax payments. Types of powers of tax authorities to ensure with tax rules:
? Power of review and query filed returns,
? Power to request special reports or returns,
? Power to examine records (generally extending back some years),
? Powers of entry and search,
? Exchange of information with tax authorities in other jurisdictions.
• International taxation:
? The concept of corporate residence and the variation in rules for its determination across jurisdiction (e.g. place of incorporation versus place of management),
? Types of payments on which withholding tax may be required (especially interest, dividends, royalties and capital gains accruing to non-residents),
? Means of establishing a taxable presence in another country (local company and branch),
? The effect of double tax treaties (based on the OECD Model Convention) on the above (e.g. reduction of withholding tax rates, provisions for defining a permanent establishment),
? Principles of relief for foreign taxes by exemption, deduction and credit.
• The distinction between tax avoidance and tax evasion, and how these vary among jurisdictions (including the difference between the use of statutory general anti-avoidance provisions and case law regimes).
• Accounting treatment of taxation and disclosure requirements under IAS 12. Note: Examples of general principles should be drawn from a ‘benchmark’ tax regime (e.g. the UK, USA, etc) or an appropriate local tax regime. Details of any specific tax regime will NOT be examined. B – Principles of Regulation of Financial Reporting – 10% Syllabus Content • The need for regulation of accounts.
• Elements in a regulatory framework for published accounts (e.g. company law, local GAAP, review of accounts by public bodies).
• GAAP based on prescriptive versus principles-based standards.
• The role and structure of the IASB and IOSCO.
• The IASB’s Framework for the Presentation and Preparation of Financial Statements.
• The process leading to the promulgation of a standard practice.
• Ways in which IAS’s are used: adoption as local GAAP, model for local GAAP, persuasive influence in formulating local GAAP.
• The powers and duties of the external auditors, the audit report and its qualification for accounting statements no in accordance with best practice. C – Single Company Financial Accounts – 45%
Syllabus Content
• Preparation of the financial statements of a single company, including the statement of changes in equity (IAS 1).
• Preparation of cash flow statements (IAS 7).
• Reporting performance: recognition of revenue, measurement of profit or loss, extraordinary items, prior period items, discontinuing operations and segment reporting (IAS 1, 8, 14, 18, & 35).
• Property, Plant and Equipment (IAS 16): the calculation of depreciation and the effect of revaluations, charges to economic useful life, repairs, improvements and disposals.
• Inventories (IAS 2).
• Issue and redemption of shares, including treatment of share issue and redemption costs (IAS 32 and IAS 39), the share premium account, the accounting for maintenance of capital arising from the purchase by a company of its own shares.
• The disclosure of related parties to a business (IAS 24).
• Construction contracts and related financing costs (IAS 11 & 23): determined of cost, net realisable value, the inclusion of overheads and the measurement of profit on uncompleted contracts.
• Research and development costs (IAS 38): criteria for capitalisation.
• Intangible Assets (IAS 38) and goodwill (excluding that arising on consolidation); recognition, valuation and amortisation.
• Impairment of Assets (IAS 36) and its effect on the above.
• Post-balance sheet events (IAS 10).
• Provisions and contingencies (IAS 37).
• Leases (IAS 17) – Operating and finance leases in the books of the lessee. D – Managing Short Term Finance – 25% Syllabus Content • Working capital ratios (e.g. debtor days, stock days, creditor days, current ratio, quick ratio) and the working capital cycle.
• Working capital characteristics of different businesses (e.g. supermarkets being heavily funded by creditors) and the importance of industry comparisons.
• Cash-flow forecasts, use of spreadsheets to assist in this in terms of changing variables (e.g. interest rates, inflation) and in consolidating in a forecast.
• Variables that are most easily changed, delayed or brought forward in a forecast.
• The link between cash, profit and the balance sheet.
• The Baumol and Miller-Orr cash management models.
• The credit cycle from receipt of customer order to cash receipt.
• Evaluation of payment terms and settlement discounts.
• Preparation and interpretation of age analyse of debtors and creditors.
• Establishing collection targets on an appropriate basis (e.g. motivational issues in managing credit control).
• The payment cycle form agreeing the order to making payments.
• Centralised versus decentralised purchasing.
• The relationship between purchasing and stock control.
• Principles of the economic order quantity (EOQ) model and criticisms thereof.
• Types and features of short-term finance: trade creditors, overdrafts, short-term loans and debt factoring.
• Use and abuse of trade creditors as a source of finance.
• The principles of investing short term (i.e. maturity, return, security, liquidity and diversification).
• Types of investments (e.g. interest-bearing bank accounts, negotiable instruments including certificates of deposit, short-term treasury bills and securities).
• The difference between the coupon on debt and the yield to maturity.
• Export finance (e.g. documentary credits, bills of exchange, export factoring, forfeiting). PAPER P8 FINANCIAL ANALYSIS Syllabus Outline The syllabus comprises: Topic and Studying Weighting A. Group Financial Statements 35%
B. The Measurement of Income and Capital 20%
C. Analysis and Interpretation of Financial Accounts 35%
D. Developments in External Reporting 10%
A – Group Financial Statements - 35%
Syllabus Content
• Relationships between investors and investees, and the exclusion of subsidiaries form consolidation with reference to dominant influence, participating interest, management on a unified basis and significant influence.
• The preparation of consolidated financial statements (including the group cash flow statement) involving one or more subsidiaries, sub-subsidiaries and associates, under the acquisition and pooling of interests methods (IAS 7, 22 & 27).
• The treatment in consolidation financial statements of minority interests, pre and post acquisition reserves, goodwill (including its impairment), fair value adjustments, intra-group transactions and dividends, piece-meal and mid-year acquisitions, and disposals to include sub-subsidiaries and mixed groups.
• The accounting treatment of associate and joint ventures (IAS 28 & 31) using the equity method and proportional consolidation method.
• The accounting entries for mergers, demergers and capital reconstruction schemes.
• Foreign currency translation (IAS 21) to include overseas transactions and investments in overseas subsidiaries. B – The Measurement of Income and Capital – 20%
Syllabus Content
• The problems of profit measurement and the effect of alternative approaches to asset valuation; current cost and current purchasing power bases and the real terms system; accounting for changing prices (IAS 15) and hyper inflation (IAS 29).
• The principles of substance over form (IAS 1) and its influence in dealing with transactions such as sale and repurchase agreements, consignment stock, debt factoring, securitised assets, loan transfers and public and private sector financial collaboration.
• Financial instruments classified as liabilities or shareholders funds and the allocation of finance costs over the term of the borrowing (IAS 32 & 39).
• The measurement and disclosure of financial instruments (IAS 39).
• Retirement benefits, including pension schemes – defined benefit schemes and defined contribution schemes, actuarial deficits and surpluses (IAS 19). C – Analysis and Interpretation of Financial Accounts – 35%
Syllabus Content
• Ratios in the areas of performance, profitability, financial adaptability, liquidity, activity, shareholder investment and financing, and their interpretation.
• Calculation of Earnings per Share under IAS 33, to include the effect of bonus issues, rights issues and convertible stock.
• Interpretation of financial statements via the analysis of the accounts and corporate reports.
• Reporting the results of analysis.
• Limitations of ratio analysis (e.g. comparability of businesses and accounting policies).
• The identification of information required to assess financial performance and the extent to which financial statements fail to provide such information.
• Segment analysis: inter-firm and international comparison (IAS 14).
• Interpretation of financial obligations included in financial accounts (e.g. redeemable debt, earn-out arrangements, contingent liabilities.
• The effect of short-term debt on the measurement of gearing.
• The need to be aware of aggressive or unusual accounting policies “creative accounting”, (e.g. in the areas of cost capitalisation and revenue recognition). D – Developments in External Reporting – 10%
Syllabus Content
• Increasing stakeholder demands for information that goes beyond historical financial information and the model for an expanded Operating and Financial Review (OFR) proposed by the UK government.
• Environmental and social accounting issues, differentiating between environmental measures and environmental losses, capitalisation of environmental expenditure, and the recognition of future environmental costs by means of provisions.
• The Global Reporting Initiative: non-financial measures of environmental impact.
• Human resource accounting.
• The influence of different cultures on financial reporting.
• Pressures for improved quality of financial reporting following large scale corporate collapses in the US and UK, and implications for corporate governance and external audit.
• Major differences between IAS’s and US GAAP.
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