Examiners interview: F2 Management Accounting

Interviewer:

Hello. Welcome to the examiners interview for F2, Management Accounting. The examiner, Steve Jay, has provided the answers and his words are spoken by an actor.

The interview covers a range of issues focusing on changes to the syllabus from the December 2011 exams and students performance over the last four exam sessions.

Can you please start by reviewing candidate performance over the past four exam sessions?

Examiner:

Yes. I will review examination performance from June 2009 to December 2010. The questions I refer to are detailed in the F2 examiners reports over this period.

I would like to identify areas that generally were not done so well, in particular highlighting reasons for poor performance. Some problems appear to relate to a lack of knowledge. Examples include the treatment of abnormal losses, cost classifications, fixed overhead variances and standard cost operating statements.

Others seem to be due to careless reading of the question, for example the apparent misreading of relevant cost questions. Others relate to a lack of understanding, for example the under or over absorption of overhead, the apportionment of joint costs, constructing spreadsheet formula and the calculation of allowances for idle time. The joint cost issue related to candidates incorrectly apportioning cost on the sales value of units sold, not the sales value of production. The idle time problem was due to many candidates being unable to cope with the calculation of percentage losses. The problem with spreadsheet formula is a concern as we intend to use these extensively on the new paper.

Candidates usually do well on calculation questions on the under or over absorption of fixed overhead but perform poorly on written questions. This suggests rote learning at the expense of understanding. Students need to be aware that the new F2 syllabus will contain a substantial discursive element.

I suspect many of these problems are down to a failure to practice questions.

Interviewer:

Having reviewed the past performance of candidates, can you now highlight any lessons that need to be learned please?

Examiner:

Yes, of course I will. There are a number of things that candidates need to focus on in my view.

Each examination, computer or paper based, will cover the full syllabus. There are no unimportant areas, therefore it is important that candidates study all areas of the syllabus.

Management accounting is straightforward if students understand how the principles, methods and techniques work. In teaching it is important to focus on the understanding of techniques rather than encouraging rote learning approaches. It is part of my role to develop questions that reward understanding rather than rote learning.

Candidates need to develop an approach to answering multiple choice questions. In my experience of calculation questions it is usually best for students to ignore the alternative answers offered initially, whilst calculating their own answer. This is because many distracters are based upon incomplete calculations, which could

tempt candidates to stop before completing their own calculations. If their own answer does not correspond with any of the alternatives offered they should check their workings. If this still does not produce a result then they should try to eliminate wrong answers before guessing the right answer. In narrative questions it is important to consider all alternatives before making a selection, because once again some alternatives will offer an incomplete correct answer. Candidates should also be aware that the apparent difficulty of questions is likely to vary; guess and get on is a sensible strategy here. The number of candidates who offer no answer to some questions is surprising; remember there is no penalty for incorrect answers.

Objective testing question practice is very important. Candidates should be encouraged to work questions in class and to regularly attempt short objective testing based tests.

Interviewer:

Can you please give us some advice about the shape of future F2 exams?

Examiner:

There have been changes to the study guide for foundation level papers of the ACCA including F2. The papers will change from the December 2011 sitting.

Interviewer:

Can you start with the structure of the paper. Has it changed at all for December 2011?

Examiner:

Slightly. It will continue for the next few sittings with the current structure of 50 objective type questions but they will all be worth two marks each. One mark questions have been removed.

The computer based exam will continue to employ a mixture of question types, multiple choice, number entry, multiple response and multiple response matching. The paper based version will continue with multiple choice questions only.

Interviewer:

So what are the changes to the syllabus?

Examiner:

I will start with items that have been removed from the current syllabus.

All of the short term decision making, including cost volume profit analysis, relevant costing, limiting factor analysis and linear programming has been removed from the syllabus. The concept of relevant cost still remains, but will only be examined in the context of capital budgeting. This has implications for the types of examples used when teaching relevant cost.

Risk and uncertainty has similarly been removed from the syllabus, which means that expected value is no longer examinable.

The removal of apply methods relating non production costs to cost units means that ABC is not examinable by calculation. It is, however, examinable by narrative as you will see later.

Interviewer:

Has anything been added to the syllabus?

Examiner:

Yes, some new areas have been introduced.

The introduction of performance measurement is the major addition to the syllabus. It will account for approximately 20% of questions on the computer based and paper based exam.

The budgeting section has been expanded to include forecasting techniques, capital budgeting and the behavioral aspects of budgeting.

The section on the nature and scope of management accounting has been amended to say management information, which means a slight expansion to section A.

Finally, a brief section on modern costing approaches has been introduced.

Interviewer:

Would you tell us more about specific items that have been added to the syllabus?

Examiner:

Certainly. I will start with performance measurement. The overview section is mainly concerned with understanding the relationship between mission, objectives and performance measurement. The effect of market conditions and government regulation on performance measurement is also examinable. In the application section candidates need to be competent in calculating and interpreting financial ratios, selecting performance indicators appropriate to a balanced scorecard system and the calculation of return on investment and residual income. On the CAT T7 paper students commonly experienced difficulties with the calculation of residual income.

Cost reduction and value enhancement focuses mainly on the differences between cost control and cost reduction, and the application of value analysis.

The final section on monitoring and reporting includes non financial indicators, performance measurement in a variety of contexts (service industry, not for profit organizations, managerial performance), the problem of short termism and benchmarking.

Performance measurement was a major part of the CAT T7 syllabus and past papers on the ACCA website give some indication of the types of questions that can be expected in the above areas. On your screen you can see an example of a performance measurement question taken from a CAT T7 paper. The correct answer is B!

Moving on to budgeting, the statistical techniques of correlation and ordinary least squares regression were already in the F2 syllabus so there are no changes in these areas. Forecasting is new and is mainly based around time series techniques. Candidates will need to be able to calculate moving averages and trends and to analyse seasonal variation on both additive and multiplicative basis.

I expect candidates to be aware of the limitations of nave short term forecasting models. The product life cycle is included in the syllabus to underline the fact that historic trends in sales should not be expected to continue forever.

Under the index numbers section of the syllabus I will expect candidates to be able to use single and multi item indices, including Laspeyre, and Paasche approaches.

The capital budgeting section of the syllabus requires candidates to have knowledge of the administrative procedures for constructing a capital budget, an understanding of compounding and discounting arithmetic and to be able to calculate NPV, IRR, payback and discounted payback. Further, they need to be able to distinguish between capital and revenue expenditure, and relevant and irrelevant cost. Questions will be set that require an understanding of annuities and perpetuities, including deferred cash flows. The behavioral aspects of budgeting section focuses on motivation and participation.

Past CAT T7 papers contain examples of statistical and behavioral questions similar to the ones we will use on the new paper. On your screen you can see an example of a multiple choice question on price indices taken from the CAT T7 paper. The correct answer is A.

10

Let me show you some examples of questions taken from CAT T7 paper on this area. On your screen you can see an example of a behavioral aspects of budgeting question. The correct answer is C!

It is commonly possible to disagree with answers to objective testing questions in the behavioral area. For example, participation may not increase the motivation of all employees, notably those with authoritarian personalities. Candidates are advised to adopt the consensus, text book view given in the publishers manual.

The next area is on management information. Sources of data requires a very basic knowledge of secondary sources of data. Sampling questions will require candidates to describe different sampling methods and to choose methods appropriate to given situations.

It is difficult to set good objective test questions on the preparation of written reports. Questions are likely to focus on the preparation of tables, charts and graphs.

11

Here is an example of a sampling question again. The correct answer is D.

Finally, there is the section on modern costing approaches. The syllabus requires a basic knowledge of these techniques. Although no calculations are required by the syllabus you may find it easier to teach some of these with numeric examples.

This is an example of a narrative ABC question taken from the CAT T7 paper. The correct answer is A.

Interviewer:

Thanks. Is there anything else you would like to say about future exams?

Examiner:

The exam format will change in the near future. After a settling-in period, possibly by the end of 2012, the structure of the paper will change to contain two sections.

Section A will contain 35 compulsory objective test questions worth two marks each. These will be of the same type as used in the 50 two mark question version of the exam.

12

Section B will contain three compulsory 10 mark questions. In the computer based exam section B answers will be entered using a variety of responses (multiple choice, drop down lists, selection of hot spots, number entry, multiple response and multiple response matching).

This format will allow us to use longer scenarios and to develop questions that better test understanding.

On the paper based alternative, section B questions will be answered on paper in traditional answer books. We will ensure that paper and computer based exams will be of the same standard. Section B questions will be based upon the budgeting, standard costing and performance measurement sections of the syllabus. Weightings of multiple choice questions will be adjusted to maintain the balance of the paper.

Interviewer:

Thanks very much.

13