What are the options?

Firstly if the business is created as a sole trader there are a number of possibilities for the trading loss.

The trading loss could be offset against general income (and gains) in the current tax year and/or the previous tax year.  General income remember, is before the deduction of any personal allowances.

It is worth noting that this is an all or nothing relief and could lead to wastage of personal allowances.  It is also worth noting the and/or in respect of the years of offset. You do not have to offset in both years, you could just choose one and you also don’t have to start with the current year first, you could do previous year and then current year.

As this is an opening year loss there is also another relief to consider – early trading loss relief. This is available to any trading loss made in the first four tax years of a trade and it allows the loss to be offset against general income of the three previous tax years on a FIFO basis.

Finally any loss remaining can be carried forward for offset against future trading income from the same trade. So we are looking at three possible loss reliefs if the business is set up as a sole trader.

Turning our attention to the business being set up as a company.

The trading loss can be offset against total profits of the current year and then carried back for 12 months for offset against total profits.  Total profits are everything before deducting any gift aid donations. It is worth noting that this loss relief could mean the gift aid donations are wasted.  It is also worth noting that if the trading loss is made in the first accounting period the carry back option is not available as the company did not exist previously.

Any loss left over can be carried forward against future trading profits of the same trade.

Clearly there are less options available if the business is set up as a company.

“I’m not very good at essays”

“I couldn’t think of anything to write”

“My first language is not English so I can’t do written questions”

“I ran out of time and couldn’t do that question”

Sound familiar?  Is that you? 

Well there’s a secret to passing ACCA Paper P2: guess what, it’s question four!

Dedicate equal time to groups and discussion

In your revision dedicate almost as much time as you do to groups (which is probably about 25 marks of the exam, by the time you strip out the adjustments on other syllabus areas) to preparing for the discussion question (which is also 25 marks!).

Have 5 Things

How about having five things to say up your sleeve about each of the topical things at the moment? For example, management commentary, fair values, financial instruments or pensions.

Management Commentary – 5 Areas For Focus

Using Management Commentary, our list of 5 things becomes:

1. the definition
2. why the IASB decided not to make it compulsory
3. the suggested contents (that’s another 5 things!)
4. advantages and disadvantages of having one
5. how it could be improved.

Ok, you caught me, that’s more than 5 things, isn’t it?

The key is to tailor 5 things that you have learned to answering the question set, and making sure your preparation is not just about knowledge (items 1 and 3), but also application (items 2, 4 and 5).

Exam practise makes perfect

Practise some!  Yes, I know, not a popular tip I imagine, but you do need to have plan for the exam.  How about going through the discussion questions for the last 6 exams and doing a plan for each one?  Then, have a read of the answer, and note down the things you didn’t know as a revision recap tool.

In the exam, try planning before jumping in and getting blinkered.  Have you tried brainstorming using a mind map to generate more ideas?

Give a balanced answer: there will normally be marks for both sides of the answer, whether it’s advantages and disadvantages, need for more disclosure or less disclosures, etc.

Don’t forget those 2 professional marks. You are not going to lose them if your first language is not English, but the examiner is looking for structure, analysis, judgement and clear communication.

Come to a conclusion: a discussion needs a conclusion, and there will normally be a mark for it!

How are you progressing?

I’d love to hear how you’re getting on with your P2 revision in the comments section below.

The ACCA P7 Advanced Audit and Assurance exam paper tests, among other things, candidates’ knowledge of auditors’ responsibilities as explained by International Standards on Auditing (ISAs) – among them ISA 250 Consideration of  Laws and Regulations in an audit of financial statements. As organisations across the world continue to struggle in the current financial climate, a warning has come from both sides of the Atlantic that actions which ignore relevant laws and regulations could have serious financial consequences.

What laws have been broken?

In the USA, financial regulator the Securities and Exchange Commission (SEC) has launched investigations into a number of major film studios as they attempt to expand into the potentially lucrative Chinese film market. Concerns have been raised by the SEC that in order to gain access to certain influential government officials, studios such as 20^th Century Fox, Disney and Dreamworks Animation may have breached legislation in place in the USA since 1998 – the Foreign Corrupt Practices Act – while in the UK, an NHS body has been fined £70,000 for releasing sensitive patient information to the wrong person, breaching the 1998 UK Data Protection Act.

What does this mean for external auditors?

Leaving aside the reputational damage to a firm associated with a law-breaking client, ISA 250 alerts auditors to their responsibilities when considering the laws and regulations in force within the jurisdictions of their clients.

Having already obtained an understanding of the legal and regulatory framework applicable to the entity and how it is complying with that framework (in line with ISA 315 paragraph 11) the auditor needs to obtain sufficient appropriate audit evidence that material amounts and disclosures included in the financial statements comply with relevant laws and regulations (such as tax and pensions) while other areas not directly related to the financial statements (such as compliance with certain operating licences, solvency requirements and environmental regulations) do not affect an entity’s ability to continue its business or lead to material fines or penalties.

Audit procedures

The auditor shall make suitable enquiries of management and, where appropriate, those charged with governance, about any instances of non-compliance, seeking written representations where appropriate and inspecting correspondence with relevant licensing and regulatory authorities, to ensure the financial statements are not misstated.

ISA 250 also reminds auditors that although it is management’s job to ensure an entity conducts itself in accordance with laws and regulations, any non-compliance can increase audit risk just like any other element of the financial statements – consequently, auditors must maintain a sense of professional scepticism at all times.

What if the auditor discovers (or suspects) non-compliance?

The auditor may uncover cases where non-compliance (under-payment of tax for example) has a material impact on the financial statements – if this is not corrected, either a qualified or adverse opinion would be issued, depending on the extent of the non-compliance. If the auditor is unable to conclude whether non-compliance has had a material impact on the financial statements however, this represents a limitation on the scope of the audit and the auditor should issue either a qualified or disclaimer of opinion, again, depending on the extent.

Proceed with caution

The auditor needs to be careful here, as the scope of the audit may have been limited by management themselves or, worse still, those charged with governance. In such cases of suspected non-compliance, a higher authority than that of the guilty party will need to be informed – if that leads the auditor to an audit committee, supervisory board or even higher, such as enforcement agencies, it is likely that legal advice will need to be sought before taking further action (money laundering may need to be considered here as well, necessitating stringent procedures to ensure auditors do not tip-off any potentially guilty parties).

ISA 250 protects auditors from suffering the same fate as any ill-informed clients – otherwise, for them it really will be a wrap.

Q8

Problem question on contract formation including advice on type of remedies available

Q9

Problem question featuring Company Directors and alleged breach of duties

Q10

Problem question featuring a company in difficulty covering liquidation and administration.

For these ACCA F4 questions you should be aware that 7 of the 10 marks are available for your knowledge of the law and only 3 marks for your advice. This means that you should focus most of your answer on explaining the area of law that is relevant to the question. Only when this is done should you attempt to apply the facts of the scenario to the law and provide advice.

I have recently been working with the ACCA on an exam technique presentation to ensure that we are able to communicate the examiner’s main concerns that students are not performing well in many of the questions that examine these frameworks.

It is well worth viewing this 20 minute presentation. It is based around a question that came up in the June 2011 exam; this question is Q90 (APX accountancy) in the 2012 BPP P5 Practice & Revision kit.

Has this helped? What other parts of your revision have you focused on up until now?

I have recently been working with the ACCA on an exam technique presentation to ensure that we able to communicate the examiner’s main concerns in this commonly tested area.

It is well worth viewing this 20 minute presentation. It is based around a question that came up in the June 2011 exam; this question is Q32 (MMC) in the 2012 BPP P4 Practice & Revision kit.

From your F4 studies you will recall that directors have a duty to act in a way that will promote the success of the company for its members. Section 172 of the 2006 UK Companies Act specifically talks about considering the long term. However, institutional investors, who also have a fiduciary duty (which you recall is a duty to act in good faith) have increasingly been advised that their duty is for short term profits in their investments rather than long term gain. Those institutional investors then create pressure on companies to seek short term gain.

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In my last blog I talked about using the examiner’s report to learn why students have failed and make sure that you don’t fall into the same traps. In this post I am going to be thinking about structuring your ACCA F5 revision to make sure that you don’t find yourself in the exam with time left over because you have run out of ideas as topics you weren’t expecting or don’t know how to approach have come up.

I cannot stress enough the importance of avoiding question spotting – all questions are compulsory in the ACCA F5 exam so you have to be prepared for whatever the examiner decides to throw at you. I suggest you devise a revision timetable to make sure that you practice attempting questions from all of the five syllabus areas. You should ensure that this gives some relaxation time, but is also realistic about the amount of work that you need to do.

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The ACCA F4 exam is likely to include the following:

Q5

Capital structures including the NEW TOPIC of treasury shares

Q6

Company directors, maybe including some insider dealing or the NEW TOPIC of market abuse

Q7

Employment law focusing on either employment contracts or distinguishing between employees and self-employed workers

There are two main types of audit risk questions – those which test knowledge and those which require you to apply your knowledge to a scenario.

On the whole candidates perform well on questions relating to the audit risk model and most students can define audit risk, explain the meaning of the terms inherent risk, control risk and detection risk and even give examples of each. However when it comes to applying knowledge and describing and explaining audit risks from a given scenario Pami Bahl’s examiner’s reports tell a completely different story…

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