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General Comments 3]NKAPY
December 2010 was another successful diet for paper P1 with manycandidates passing and with some exceptional performances by individualcandidates.As always,I would like to convey my congratulations to all successfulP1 candidates and their tutors.The December 2010 P1 paper was similar in leveland ‘feel’ to all the previous P1 papers and it is my hope that candidates andtutors know what to expect in terms of approach even if they don’t know whatwill be on the paper in terms of content. SXX O#
Before I go on to discuss the individual questions.I have a fewgeneral remarks to make. 6QHUBm2
First,there is still evidence that candidates are not correctly orfully reading the questions.I will discuss the specifics below but in,forexample,Q1(c)(i) and also Q3(c),many candidates seemed not to realise what thequestion was actually asking.Perhaps some candidates answered the question theywish had been asked rather than the actual question set. Di r# [j
Second,it was frustrating to see that many candidates were unable tobring the content of one of my technical articles into their answers when it wasappropriate to do so.The content on environmental auditing for Q2 (b) wascovered in a technical article in Student Accountant that I wrote in March2009.The answer to this question (the stages in an environmental audit) wasclearly discussed in the technical article.Perhaps the fact that the article waspublished some time ago made some candidates think the content would not becovered.This should be salutary to future P1 candidates.Technical articlesshould be studied carefully by all P1 candidates including those written by theexaminer and by other authors. F&k< P>k
Third,there is ample scope for improvement in the development oflevel 3 intellectual outcomes like ‘construct’ and 'criticise’'(such as in Q1(c)(ii),Q2 (a) and Q4 (d)).Being able to operate at ‘level 3’ is important at theprofessional level in ACCA exams (and in professional life) and there wasevidence that some candidates lacked an insight into what these verbsmeant. i*xVD`x ~
There was an approximately even distribution of section B questionsin terms of ‘popularity’.All section B questions were done very well by some andvery poorly by others.I will explain some of the common errors in the commentsbelow. rIyIZWkI
Specific Comments u9 *ic~Nh
Question One ?<OE|nb&
The case in section A (question 1) was about ZPT,an internetcommunications company,which was involved in a number of false accounting andfraudulent activities.The auditor,JJC,was complicit in the situation.A similarsituation happened in ‘real life’ some years ago and so some candidates may havebeen familiar with some of the issues already.This does show the value ofstudying current cases from the business news in preparing for P1 exams as 'reallife’ themes are sometimes borrowed in framing exam casestudies.
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Part (a) contained two components,parts (i) and (ii).The first was abookwork task to explain the factors that might lead institutional investors toseek to intervene directly in a company they hold shares in.This was not arequirement to define ‘institutional shareholders’ as some candidates did(scoring nothing for their efforts in doing so).The content should have beenwell-known to any well-prepared candidate.Many were able to gain some marks forpart (a) even if they couldn’t get all six marks.For part (a)(ii),candidates hadto study the case to see which factors applied to ZPT.There were three suchfactors mentioned in the case and candidates had to use these to ‘construct thecase’ which means to produce arguments in favour of investor interventionbecause of the identified weaknesses. AHa]=ka>
Part (b) asked about absolutist and relativist ethics.I often put asubstantive ethics requirement from section E of the study guide into question 1and this paper was no exception.Shazia Lo was an accountant at ZPT who accepteda bribe to keep quiet about the company’s fraudulent accounting.The questionasked candidates to distinguish between absolutism and relativism and then tocritically evaluate Shazia Lo’s behaviour from these two perspectives for atotal of 10 marks.This means that both perspectives had to be discussed inconsidering Shazia Lo’s behaviour.From an absolutist perspective,it is obviousthat no accountant should ever be complicit in bribery,fraud ormis-statement.From a relativist perspective and this is where the case raises aninteresting ethical conundrum,it maybe right in some circumstances to showcompassion and to carefully consider the consequences of actions,not merelytheir legality.Shazia used the money not to enrich herself but to pay formedical treatment for her mother.This in no way excuses her actions but it doesraise the issue of trading one ethical good (upholding her professional andlegal duties) against another (assisting in the medical care of hermother). o`~,+6] D
There were three requirements in part (c) and all parts were donepoorly overall.What surprised me about this is that all parts are clearly ‘core’areas in the P1 study guide and whilst some candidates addressed the questionscorrectly and scored highly,many did not.Just to clarify what the questionsmeant,(a) was about the consequences of bad governance,(b) was about the case infavour of mandatory (rather than voluntary) IC reporting,and (c) was about thecontents of an internal control report.None of these should have been a strugglefor a well-prepared P1 candidate. mmC MsBfL
In part (c)(i),it seems that many candidates saw the first part ofthe requirement but ignored the second part.So they described the nature of‘sound corporate governance’ whilst neglecting the second part which was to dothis ‘by assessing the consequences of the corporate governance failures ayZPT’.This question is essentially probing the main purpose of corporategovernance: without sound corporate governance,companies go bust,employees losetheir jobs,investors lose their investments and can be financially ruined,and anumber of other terrible outcomes.So the ‘consequences of CG failure’ was oftenoverlooked by candidates,which meant that they failed to gain thosemarks. FIJ]`
Part (c)(ii) was concerned with the debate over the mandating ofinternal control reporting.Some candidates correctly identified that this debatehad taken place in the United States some years ago over section 404 of SarbanesOxley (although it wasn’t necessary to know this to gain the marks).The point ofhaving this requirement in the question was to highlight that poor internalcontrols were in part responsible for the situation at ZPT and that mandatoryreporting to an agreed reporting framework would have made it much moredifficult for the IC failures to have occurred.The accountability created byhaving to report on internal controls could have made it much more difficult forthe ZPT management to have got away with the bad practice that theydid. RR`\q >|
Part (c)(iii) was about the contents of such a report.The markingteam allowed some latitude here but the essential components should haveincluded,in all cases,an acknowledgement statement (whose job is it?),adescription of the processes (how is IC done?),it should be accurate andreliable,and,specifically,it should explain any particular ICweaknesses. %Zeb#//Jz
The professional marks were awarded for framing the answer to thethree components of part (c) in the form of a speech by a legislator.There wassome evidence of improvement in candidate’s taking this seriously and settingout their answer accordingly,but others made errors like setting it out as amemo or letter,or else by using bullet points (in a speech?) or unlinkedstatements.I would again reinforce the importance of being prepared to answer ina variety of ways because these four marks really can make a difference betweena pass and a fail. BL0xSNE**
Question Two U~|)=+%O
This question was mainly concerned with sustainability andenvironmental themes although part (c) introduced some content on risk.Manycandidates did well on part (a) which was pleasing to see.Explaining what‘sustainability’ meant was straightforward for well-prepared P1 candidatesalthough some could not see the way in which the finance director hadmisunderstood the term.He thought it meant going concern and so equatedsustainability with the business being financially sustained rather than theenvironmental sustainability of the company. W$}2
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Part (b) was about environmental auditing.I addressed this topic indetail in a technical article for Student Accountant in March 2009 so wassurprised that this question was not answered well by the majority ofcandidates.Environmental auditing is an important element of environmentalmanagement and in reassuring investors and other stakeholders concerned with anorganisation’s environmental risk.It is important that candidates and tutorscarefully study technical articles–they may contain content relevant toexams! pB VzmQF
Part (c) was done better overall.The ‘strategic/operational’ riskdistinction has appeared before and there was a technical article on this byNick Weller in September 2008.The final task,to explain why the environmentalrisks at JGP are strategic,was less well done although a careful analysis of thefacts of the case should have enabled an answer to be arrived at if thecandidate knew what strategic risks are. @q|c|X:I
Question Four 1"l48NL L|
Question four was mainly about risk with part (d),for fivemarks,asking about social responsibility.The case was about a manufacturer (thiswas important for answering part (a)) with a voluntary supplier payment policyand a number of internal pressures on working capital serving to increaseliquidity risk.Most candidates were able to define liquidity risk in part (a)but fewer were able to explain its particular significance to UU (the company inthe case).A careful reading of the case would have alerted a well-preparedcandidate to the reasons fro UU’s particular vulnerability to liquidityrisk.Included in this was the fact that it was manufacturer with inventorylevels not present in service industry companies. 3D,tnn+J
Part (b) raised the issue of embedding risk into systems andculture,a subject that has been examined before on a P1 paper.This part was donequite well by many candidates whereas part (c) was less welldone. !( _ qM
Part (c) involved a careful analysis of the case to bring out thevarious factors that would make it difficult to embed liquidity risk managementat UU.It was specifically about liquidity risk management and not riskmanagement in general.The obstacles were relatively straightforward to find inthe case and the highest marks were gained by those most able to show how thedifferent attitudes of the company’s managers put pressure on the differentaspects of the company’s working capital. 7* +tG7I @
For five marks,part (d) asked candidates to criticise the voluntarysupplier payment policy as a means of demonstrating CSR.This means candidateshad to point out why it wasn’t a very good means of demonstrating CSR.The casecontained a number of issues associated with the policy which thebetter-prepared candidates picked up on.Poor answers receiving few or no markswere those that simply defined CSR or used a textbook framework (such asCarrol’s framework) in an attempt to answer the question. [MAvU
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