Exam results information and commentary on performance

Paper 1 contained a mixture of accounting adjustments, financial statement preparation and preparation of notes. Students were required to account for matters relating to provisions, leasing, financial assets and taxation. They also had to process adjustments and prepare a statement of profit or loss in accordance with IAS 1. Advice was required on related party disclosures and a possible change in accounting policy. Overall the paper was well attempted particularly accounting for provisions and leases, related party disclosure and preparation of the statement of profit or loss. Weaker students struggled with the taxation adjustments, failed to give adequate explanations when asked for did not relate comments to the specifics of the question.

Paper 2 consisted of a consolidation question for 25 marks and shorter questions on matters after the end of the accounting period, accounting for a defined benefit pension scheme, distributable profits and borrowing costs. All questions had an average mark of over 50%. As usual, the consolidation question was well attempted. The question on the defined benefit pension scheme was particularly well done. Distributable profits is a technical area and many students could not adequately explain the effect on distributable profits of items included in profit or loss.

For Paper 1 areas covered included assessment of audit risk and materiality as well as designing procedures to address risks identified and to test the operating effectiveness of controls within consolidation processes. Students were also asked to assess business risks arising from a planned acquisition. Students performed less well in designing relevant audit approaches to audit risk with some providing overly generic or vague procedures which had not been appropriately tailored.

For Paper 2, areas covered included evaluation of subsequent events and the potential impact of such matters on the audit report and audit opinion. Students had weaker knowledge of matters relating to the auditors’ responsibilities around ‘other information’ and a number performed less well in demonstrating suitable knowledge of the impact on the audit report and audit opinion of the matters considered. In addition, lower-scoring students tended to provide generic or untailored answers to scenario or did not apply appropriate guidance and standards to the areas covered.

Paper 1 included a number of core topics such as adjustment to profits, capital allowances, income tax, capital gains and VAT calculations. These areas are regularly examined, and students were able to answer these parts of the paper. Students were less competent on the areas of the paper where they had to apply their knowledge to specific scenarios and recommend a course of action. Very few were able to consider the ethical implications of the scenario. Nor were they able to advise on who should own a property for income tax and capital gains tax purposes. This is disappointing as the later stages of the course place a lot of emphasis on giving relevant advice to clients.

Paper 2 question 1 focused on corporation tax and indirect taxes. Students were able to answer much of the corporation tax question. However, many students struggled with the corporation tax computation for a company with an investment business and also payments on account.  Payments on account is assumed knowledge from previous TC studies and is regularly examined as clients want to know both how much tax is owed and also when it has to be paid. It is clear that a number of students had not refreshed their knowledge from TC. The short form questions covered capital gains tax reliefs, inheritance tax and extraction of profits from a company. The first two questions were, broadly speaking, competently answered by students. The third question on profit extraction, required students to consider the interaction of a number of taxes and provide simple tax planning advice. Although the study material contains a similar question, students struggled to answer the question.

The exam diet contained an appropriate balance of topics that students usually welcome (such as valuation, share for share exchange, currency derivatives and an NPV calculation) versus some more challenging areas (for example working capital improvements and securitisation).

Students appeared to be underperforming when it came to applying their knowledge to the given scenarios.  Students continue to struggle with integrating their knowledge (evidenced with scoring marks in the early part of the requirement) with the given facts in the question material.

We will continue to stress in class the importance of not just learning the material and techniques, but also applying them to the particular exam scenario. To that end, we will continue to explore the application of Advanced Finance topics in the classroom for future courses, including increasing the number of exam standard application-based questions in the course materials and teaching where possible.

It is recommended that students spend more of their revision time attempting recent past exam paper questions. This will allow them to practice providing relevant tax advice in a range of scenarios.

Paper 1 required students to account for inventories, financial instruments, share capital and intangible assets. Students had to process adjustments and prepare a statement of financial position in accordance with IAS 1 and an intangible assets disclosure note. They also had to advise on accounting for and the impact on the statement of profit or loss of two means of raising finance. In general, the paper was well answered. Weaker students did not follow the detailed information in the question or failed to identify the full range of accounting adjustments required. The statement of financial position was well presented but many students failed to provide narrative disclosures relating to intangible assets.

Question 1 of Paper 2 required the preparation of consolidation journal entries for a foreign subsidiary and a UK subsidiary requiring fair value adjustments. Overall the question was well attempted, but many students failed to appreciate the need to account for the post-acquisition effect of the fair value adjustments. A few failed to adjust at all for the fair value information provided. Students also had to advise on general exemptions from preparing consolidated accounts and whether any of these applied to the situation in the question. This part was well answered.

The short-form question in Paper 2 involved the exchange of assets, disclosure of auditor's remuneration, staff numbers and staff costs, Integrated Reporting and the Strategic Report and a comparison of two employee incentive schemes.

Again, the questions were well attempted particularly by those that made good use of the information in Supplementary materials. Exceptions were disclosure of auditor's remuneration and accounting for the post-exchange consequences of the exchange of assets.

For Paper 1 areas covered included evaluation of weaknesses in a sales system and recommendation of suitable actions, evaluation of audit risks over intangible assets, testing to confirm capitalisation of intangible assets in accordance with relevant accounting standards and corporate social responsibility strategies. Most students performed well in evaluating the sales system appropriately explaining implication of weaknesses and providing suitable recommendations. Weaker students failed to utilise scenario information in evaluating audit risks and designing suitable procedures to test compliance with accounting standards in capitalising intangible assets. Students were generally able to explain components of CSR strategies, but sometimes struggled to provide appropriate areas to consider using information from the question paper.

For Paper 2, areas covered included performance of substantive analytical review and evaluation of the results, business risks, methods of system implementation and tests of control. Students generally performed well in the numerical elements of substantive analytical review but sometimes struggled with the evaluation of the results. Overall most students performed well in evaluating business risks and methods of implementation. Weaker students failed to provide tests of control that would provide suitable levels of assurance over the operating effectiveness of controls in the scenario.

Paper 1 included a number of core topics such as adjustment to profits, capital allowances, income tax, capital gains (including reliefs), VAT calculations and investments in different types of companies. These areas are regularly examined and students were able to answer large areas of these parts of the paper. Students were less competent on the areas of the paper where they had to apply their knowledge to specific scenarios such as pensions and recommending a course of action. Very few were able to compare the cash flows of the different investments and conclude on which was the most tax-efficient. Nor were they able to advise on the professional conduct issues arising from the non-disclosure of VAT errors.

Paper 2 question 1 focused on corporation tax, indirect taxes and specific employment benefits. Students were able to answer much of the corporation tax question. However, many students struggled with the chargeable gains implications on the disposal of a leasehold property and the deferral of the gain via rollover relief.  Students were not able to advise on whether the company should prepare accounts for one long 16-month period or two shorter periods. The short-form questions covered inheritance tax (IHT), corporation tax groups and employed/self-employment. The IHT question was well answered with the exception of the interaction of APR and BPR on the farm in the death estate as in previous exam diets. The third question asked for students to conclude on whether the individual would be treated as an employee or self-employed and many left this part of the requirement unanswered and simply focussed on the analysis of the specific factors.

It is recommended that students spend more of their revision time attempting recent past exam paper questions. This will allow them to practice providing relevant tax advice in a range of scenarios. This message will be relayed to the students who will be studying for their TPS exams to December 2019.

The exam diet contained an appropriate balance of topics that students usually welcome (such as rights issues, money market instruments, options and an NPV calculation) versus some more challenging areas (for example fiscal policy and dividend policy).

Students appeared to be underperforming when it came to applying their knowledge to the given scenarios. Students continue to struggle with integrating their knowledge (evidenced with scoring marks in the early, knowledge-based, part of the requirement) with the given facts in the question material. This was seen most clearly in the dividend policy question, where required levels of application were usually not provided.