CIMA Gateway Nov 2017 Examination - A relevant scenario

Scenario 1:

"We must change our way of operations. Our current operations take too long to complete our orders and we need to consider the significant investments made in working capital. This is a question that is revolving around for long and needs to be addressed by the management before the next board meeting. We are spending too much time to complete every order." The Finance director needs your comments on the following matters:

Should ZX change its current manner of operations considering the fact that working too closely results into being able to serve the customers satisfactorily and also that the investment in working capital is alarming?

What change management issues that are required to be considered?

Scenario 2:

ZX's investments in the new store in Kordia has not worked well since the demand could not pick up despite significant investments made in the new business center. ZX has acquired a HHN - a distribution company in another country - Kormax. HHN will ensure that the goods made at ZX in Kordia are distributed in other nations. However, the pricing for the goods transferred between ZX and the HHN is still under discussion. Kormax does not have any tax treaty with Kordia and the tax rates are significantly higher as compared withi Kordia.

You are required to explain the ethical considerations while deciding the transfer pricing between the two companies.

Explain the implications of requirements of impairment review on the financial statements on the investments made in the new store.

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Impairment of Financial Assets - Simplified Approach

IFRS 9 discusses the relevance of impairment loss to be accounted for at the time of initial measurement of the financial asset itself. The simplified approach under IFRS 9 helps an entity to quantify the life time losses for majority of receivables and contract assets, rather than spending time analyzing the initial 12 months' expected losses and review these on each reporting date.

While this is going to take care of majority of financial assets (taken through amortized cost), the IASB has not provided any insight for the accounting for short term investments, that are held with a business model of recovery of contractual cash flows. This is likely to be a challenge for institutions making such investments to measure both 12 months' expected losses and also the life time expected losses. For banking and insurance companies, while they have a comfort of using their existing models and tools to quantify the initial 12 months' expected loss, other companies will continue to face the challenge of measuring both 12 months' expected loss and the life time expected loss at the end of each reporting date.

The video session explains the simplified approach for the trade receivables, contract assets and lease receivables.

https://www.youtube.com/watch?v=SK6AvNGatjk

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Passing the ACCA P2 exam is easier, however..!!

The ACCA P2 (Corporate Reporting) syllabus contains many IFRS, and also consider the relevance of ethics for an accountant. It is however true that the ACCA P2 examination is predictable like any other ACCA examination. The broader guidelines issued by the ACCA suggest what is likely to be tested in different sections, especially the mandatory question on Consolidated Financial Statements. A few areas are commonly tested, thereby making the students exam ready with more focus on few must know topics, rather than know it all.

It may not be too much to ask from the ACCA to make the examination unpredictable and somewhere control its P2 pass rates, by increasing the level of the examination. After all, ACCA is significantly an accounting qualification as considered by most of the people. Many accounting standards are also tested through P7, Advanced Auditing paper that is a tougher one to crack assuming that the ACCA members are likely to be conducting audit, if in practice.

An approach that ACCA may consider is to increase the pass marks for P2 paper. However, this is certain to bring inconsistency among different papers, and create confusion. Probably, making the examination tougher (either in making or in assessing answer sheets), could bring a better quality result, rather than too many students close to 50 marks.

It may be recommended to remove Professional Ethics and test those under the new Paper (P1 / P3 merged paper) and rather create more scenarios under the P2 examination. Better still, to may be remove the optional questions under P2 and make the questions mandatory. This is likely to get the prospective students prepare more rigorously for the examination so that they are able to understand and apply IFRSs practically with a better insight.

Not being too critical of the ACCA P2 examination, it certainly includes new areas of development in accounting and makes a point to test this in most of the exam sittings, and therefore the value of the profession is maintained well.

Disclaimer: The views presented above are of the author and do not mean to bring disrepute to any Institution or qualification.

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