Exams

Paul Monahan asked the FAE Core examiner to share some thoughts and expectations on the new Topic Area 3 for the upcoming FAE examinations in August. Paul has summarised the examiner's comments across the elements of Topic Area 3 into a useful candidate guide for the exam. Data Analytics Paul Monahan (PM): Taking us through the three elements of this new topic area, can you share with us any personal experience you may have of these new areas and what your expectations are for FAE candidates, recognising their more limited practical experience? FAE Core Examiner (CE): In my own day job as a finance professional leading a large team of finance personnel, we have been using analytics tools for several years. The sheer volume of data created by companies can be viewed by finance as a threat or an asset. We have always chosen to see it as an asset yet, in the past, we have not always been able to exploit the data in any S.M.A.R.T. way. The growth of new technologies in this area are only now really starting to take hold and grow in financial conversations. Very heartening to see Chartered Accountants Ireland leading the way in this. Moving specifically into data analytics, this element of the topic is nicely balanced with the theoretical supported by the practical element. While we cannot yet examine the practical element, having seen the tools in action (and using them in my own industry), they do copper fasten the lessons from the theoretical aspects of data analytics course. What is essential to keep in mind is that the possibilities for data analytics are endless and, as an examiner, we can examine data analytics from any number of perspectives. From auditing right through to strategy or payback, data analytics exam indicators are not just limited to explain x, y or z. As in real life, they will play an increasingly important role of recording, analysing and predicting for companies. Artificial intelligence PM: Some candidates find artificial intelligence a bit confusing think this falls under the category of 'data analytics'. What's the difference? CE: The artificial intelligence is interesting insofar as it has been more accessible to us without us perhaps realising so; the machine learning and natural language processing that is integrated into our devices at work and home. The robotic process automation (RPA) element is an exciting element, and I would frame the differences between the two as follows: RPA is operational, whereas analytics is strategic. RPA can mimic and perform human tasks, whereas the analytics tools can sit above them to analyse the output. Both can fit and work seamlessly with each other.  For example, there is no reason why you could not set up an RPA process to perform processing and generate reports that it then, in turn, feeds into a data analytics set of tools. PM: That is a useful distinction. Interestingly, we created just that sort of flow through as part of some new data analytics, AI and emerging technologies (DAAIET) indicators we created in response to feedback we have received from students on a recent DAAIET Webinar. How do you see exam indicators shaping up in this area? CE: Candidates need to interpret the conditions presented in the cases to work out if these present an opportunity for an artificial intelligence-led solution. There was a good article written in Accountancy Ireland Extra about artificial intelligence back in March 2020. Emerging technology PM: Would you explain to us how you see this part of the Competency Statement (3.3)  being reflected in examination indicators? CE: What is interesting to see is that blockchain is featuring heavily in certain industries over others, and it will probably continue like that. For example, shipping, logistics, property, finance and banking are all areas where there are active blockchain projects. From an examination perspective, it is not unreasonable to see how a company could interact with a competitor/customer/supplier who is exposed to or is using this technology and, as the candidate, you will be required to demonstrate your understanding to answer whichever direction the indicator goes. I like the fact that the  Competency Statement developers delineated crypto from blockchain and came up with an interesting set of frameworks in both blockchain and cryptocurrency. Being able to use a framework gives candidates a good jumping-off point. It is not unreasonable to see indicators that require the use of those frameworks to help candidates frame their responses. CE: As a final note, we reviewed the new sample indicators developed in the education delivery programme for topic areas 3.1/3.2 and 3.3. We have based current exam indicators on the novel approaches adopted in these indicators. PM: Thanks for your time, that has been very useful.

Yvonne McCafferty, FAE Core Risk Management Lecturer, takes a look at the risk management implications of the external environment and its impact on the company. At FAE level, you must have a strong awareness of the current business environment in which organisations currently operate. At FAE, you are being examined on your capability to integrate not only the required technical knowledge and skills but also to bring your business acumen and experience to the forefront. I would always encourage students to start reading at least one business newspaper every week to help develop this business awareness. You need to be able to bring real-life examples and business awareness to your exam answers at this level. The areas examined at FAE Core aim to develop a students' ability to assess the internal and external environments and strategic processes affecting organisations. The current COVID-19 pandemic is probably one of the most significant economic events that many organisations have faced, and we are now hearing daily news stories of businesses in turmoil. In light of the areas examined at FAE Core, some considerations of the business impact that the pandemic is having that might be helpful in the context of your studies are set out below.  Risk management We now live in a new normal, and businesses of all sizes are having their business resilience tested. In lectures, we saw how the UK Code of Corporate Governance refers to "emerging risks" and the responsibility of the directors to have procedures in place to identify such risks. The scale of this pandemic and its impact could not have been predicted and has undoubtedly tested the strength of an organisations risk management practices, with the crystallisation of many existing risks and the unfortunate arrival of many new risks. Businesses have had to act fast to weather the storm ultimately. The labour market has been significantly impacted, with unemployment rates predicted to soar amid the oncoming recession that economists believe is yet to arrive. As we know, many businesses have had to close completely, with the furloughing of employees and, in many cases, widespread redundancies. Fortunately, the government has launched many financial support schemes, all of which have had significant business uptake, like the wage subsidy scheme. For those businesses who were fortunate enough to be able to operate through a remote working structure, this has not come without challenge. Technology reliance has been an issue for many, coupled with an impact on the company's internal control environment. In a remote setting, it isn't easy to ensure controls continue to operate effectively. The effectiveness of controls over financial reporting, in particular, will be a concern for Boards and company auditors with a heightened risk of fraud presented. Candidates should consider the fraud triangle (pressure, opportunity and rationalisation) in the context of a remote working environment.  Financial reporting The pandemic has also presented a myriad of financial reporting issues, and this will likely continue. Going Concern and its appropriateness has been central to this. Directors have had to revisit cash flow forecasts to consider the lasting financial impact of the pandemic, an event as we know that is somewhat impossible to determine. For a 31 December 2019 reporter, COVID-19 has been determined to be a non-adjusting event requiring disclosure only, however, for reporters with year ends after December 2019, there will be an even more significant challenge. Companies will need to assess the impact on the valuation of assets, and we are likely to see an increase in the level of recognised impairments as a result. Accounting for payment breaks in areas such as lease accounting under IFRS 16, recognition of restructuring provisions, government support scheme accounting, are just some of the issues that will arise. Finally, when we consider corporate strategy, many companies have had to redefine their approach to survive. A strategic choice may be limited now due to financial pressures, yet we still see companies smartly transforming service offerings through online platforms. Companies who have tackled this crisis head-on, showing real leadership in a time of economic uncertainty and have been proactive will inevitably stand apart and recover quicker than those who have not.

Paul Monahan, Lead FAE educator, speaks with the FAE Core examiner who shares some insights from financial reporting indicators examined over the past number of sittings. Fortunately for the current candidate body, Paul Monahan (PM) and the FAE Core examiner (CE) have discussed several recurring patterns of behaviour they have seen when candidates approach financial reporting indicators. Though the discussion below, this year’s candidates can learn to avoid these pitfalls and enjoy great success. Silo learning Every year, the examining team pay very close attention to the A.A.F.R.P. The candidates tend to perform well and then carry good average marks into the Core. However, this success at financial reporting indicators does not hold up in August, leaving the examiner musing whether candidates adopt a silo approach to financial reporting. PM: What specifically do you look at when reviewing the A.A.F.R.P. results? CE: We look at the standards that are examined and note where candidates perform strongly, as well as where they are weaker. However, the cases we develop take on a life of their own, and we tend to develop a broad suite of financial reporting indicators that would be typical of companies in those industries. The commentary from the A.A.F.R.P. report is useful as we reserve the right to make an editorial decision to revisit something that has been attempted poorly in the previous December sitting of A.A.F.R.P. The key point being made here is that in past academic cycles, candidates perform markedly poorer in financial reporting indicators in August than in the previous December. Journals PM: In our conversation, you have raised journals in particular. Could you please expand on this for the benefit of candidates? CE: We understand that candidates are under pressure in the exam. It is designed to be that way. However, candidates often let themselves down in the quality of the journal entries that they produce. In a lot of instances, there are no references to debit and credit, meaning it is challenging to award marks. Reflect on that for a moment. The candidate has correctly performed the calculation, has identified the correct account, yet does not identify whether it is a debit or credit. It is as simple as writing a ‘DR’ or ‘CR’ over the relevant figure. There will always be marks for the correct journal entry, and it is disappointing that frequently these marks get left behind. PM: We are very clear with candidates about the importance of layout in journals indicators, and we have frequently allocated professional competence marks for this in reaching or cross marking cases. Our suggested solutions tend to include journals in a table, to help provide clarity over the debit and credit. This, perhaps, could be something that students could practice on the new e-assessment platform. We have also stressed to candidates that they must clearly differentiate between the correcting journal they are proposing and the journal that has already been posted if they wish to record the latter to demonstrate their understanding of the issue. CE: The best practice we have seen is candidates who clearly label their journals, provide narratives for each journal and provide comment on any disclosures that may be relevant.  Consolidation CE: It is evident that this is not a favoured candidate topic. We have seen examples of scripts whereby candidates have taken the strategic decision to omit to answer this indicator completely. This is a high-risk strategy, and there is no guarantee that candidates will pick up marks elsewhere in the script to compensate for one-eighth of the paper not being answered. PM:  That is a concern, particularly in an eight Indicator exam. I would hope that educators would not suggest a strategy of avoiding something as important as consolidation. Generally, we encourage students to work on their (perceived) weaknesses during the year, rather than gamble on what might appear. Our case study teaching material has probably been ‘overweight’ on consolidation and consolidation journals this year.

Paul Monahan, Lead FAE Educator, spoke with the FAE core examiner to reflect on a newly refreshed Topic Area 2 – strategic management and leadership. Strategic management and leadership has been amalgamated from the previous business leadership topic area along with some elements of strategic finance and strategic management accounting. Paul (PM) wished to explore where the examiner (CE) felt candidates struggled in the topic area’s exam in the past. Applying models to specific exam scenarios CE: Candidates appear to fall into two groups: those who understand the model and can make a reasonable attempt at applying it to the facts of the case and those who apply the models very generically. We see evidence of the latter group frequently where large passages of text are transcribed. In last year’s FAE Core Comprehensive paper (August 2019), a candidate had transcribed a quote from the 2017 summer paper, along with the name of the case character from back then. It was disappointing because not only was it a poor transcription, it was not relevant to the indicator being examined. PM: We tell candidates not to panic but instead assess the scenario presented to them. Indicators are directed in such a way that it is reasonable to deduce what model is being asked of the candidates. It is very likely that, based on past experience, the candidates will have seen the model used in either a technical lecture, an Integrated Case Day or one of the other cross marking or STEPS sessions. CE: The company in the case can have a number of differing, competing issues ongoing simultaneously; and this is true of real-life scenarios. There should be plenty of breadcrumbs that allow candidates to form and shape their answers around the models and frameworks that they use. PM: And the candidates should be encouraged to feel comfortable using their judgement in deciding what facts to use. Some may appear more urgent than others. The examiners reassure students there will be no ‘red herrings’ in the exam and no attempt made to send students down a ‘dead-end’. We also try to avoid this in teaching material. CE: That is correct. Candidates see different priorities. However, it should be obvious that some things are more important or time pressing.  A useful way to look at it is to step back and take in what is going on overall in the case for the company and the industry. Where are they in terms of the business cycle, what macroeconomic context is the case set in? How are the issues presenting themselves in terms of what is strategic or longer-term, what is tactical or medium-term and what is operational or shorter-term? PM: That clarity is useful, and I might add that the clue is in this topic area title – “strategic”. The strategic issues should be prevalent. Tactical and operational matters should be resolvable with time, resource or justifiable spend. It is important to recognise that most candidates have limited real-life business experience and are also under pressure in the exam. We encourage students to read relevant material so that they can see the ‘big picture’ trends affecting different industries. Unrealistic recommendations CE: Unrealistic recommendations are something we see regularly, and it can be across the range of answers.  In some instances, we see candidates who have correctly applied a model, have drawn on facts from the case and is scoring well along the way. Then when it comes to recommendations, candidates can lose focus, perhaps it is time pressure but sometimes the suggestions don’t fit the specific circumstances, or the cost of implementation would negate the benefit that was to be achieved in the first instance. Regrettably, this impacts on the professional mark awarded. In real-life, a client would not pay for unrealistic advice. PM: It is very useful to officially reinforce this message to candidates. I think this often comes down to confidence and perhaps time management. Some candidates can be reticent about making recommendations and can sometimes hedge their bets, which is something that we advocate that they do not do. We stress, particularly in the cross-marking sessions, the importance of the marks available for conclusions. We also make the commercial point that clients will pay a limited amount for analysis, what they tend to want (and are prepared to pay for) is advice. We often draw the attention of candidates to the unequivocal advice from the examiner on page 39 of the 2018 Report of the FAE Committee, pointedly noting that an incorrect conclusion can never score worse than no conclusion. CE: Candidates should look at this from another lens. A candidate does good work on explaining a framework or model, goes onto discussing its relevance, uses it to solve the problem presented by the case, identifies, and uses facts from the case to support discussion. So, logically, walking through the indicator and then arrives at recommendations… PM: It would be sensible to presume that one or two obvious things should present themselves as a result of that process and, if candidates did that, then that would significantly improve their answer and their marks. If they have done the work above, it must be confidence and that is perhaps a combination of limited business experience and trepidation about putting down what they feel might be the wrong answer in an exam context. CE: Agreed. And taking that final step can make all the difference in presenting a balanced, well thought out answer. It is clear that the candidates described above know their stuff so they should recommend what the analysis has pointed out. Perhaps candidates feel if they make an erroneous recommendation, they will jeopardise the marks. That is not really true. The candidate will stop scoring if they make a wild or completely unrelated recommendation. The downfall of financial tools PM: We tell candidates that they are expected to be comfortable at this stage with tools like investment appraisal, relevant costing, budgeting and cash flow forecasting, but these are only part of the indicator. Is it the analysis of the output from the calculation, and the amalgamation of this with the facts of the case, what is required to tell the next part of the story at FAE level? CE: That is correct. Some candidates are very weak or not confident using these tools, so a solid understanding of the moving parts is a necessity. Some candidates fixate on getting the calculation correct, to the detriment of under-developing the subsequent analysis and discussion required by the indicator. My advice here is to be crystal clear about what is being asked. For example, in a recent paper, a budgeting indicator was required. This was a big piece of calculative work, so the indicator was phrased in such a way to leave candidates with no doubt that this was all that was required. However, where an indicator asks a candidate to review something, then this really is the jumping-off point for further or sub-asks. PM: We warn against candidates overly focusing in on parts of the indicator that they are comfortable with and overdoing them. This clearly upsets the time allowance for the indicator. Again, we have drawn attention to the overall assessment of the performance of candidates in the FAE Committee Reports in 2018 and 2019, which note that some candidates are still not answering all parts of compound indicators. While there are many reasons for this, one is presumably an excessive focus on what candidates feel comfortable with. This is expensive in terms of marks lost. Cross marking sessions where candidates must attempt an indicator ‘cold’ against the clock and then mark another candidates attempt should graphically illustrate the marks lost if this is the route taken. CE: Time management is vital and we understand that candidates love the calculations, however, candidates must pay attention to the conjunction words that we use such as ‘also,’ ‘in addition,’ ‘furthermore,’ ‘can you also’. These are all branch off into sub-asks, so it is a shame to see candidates miss out on the marks in these subsequent important parts of the indicator because so much time was spent upfront on the calculative element.  PM: It is helpful to reinforce this point. Would you have a recent actual FAE example of candidates consistently missing the sub-asks in an indicator? CE: The FAE Core January 2019 Paper called Newline Investments, Business Leadership indicator #8 was a very good example of this. There were a number of issues raised in the course of the paper and the relevant appendix however candidate answers were very unstructured. There were three or four moving parts to the indicator, however, we had to specifically comment on the fact that candidates did not spot all the indicator parts or candidates over-invested in other parts of the indicator resulting in an imbalanced and poor scoring indicator overall.

Joe Healy, Lead Educator at FAE advisory elective, spoke with the advisory examining team in advance of this August’s examinations about their views on the syllabus, its relevance to candidates’ future careers, the commercial nature of the exam papers. The commercial nature of the advisory syllabus often manifests itself in exam cases that are set against references to current events. The examining team in advisory are themselves c-suite level professionals and this is reflected in the style, syntax, and narrative of the cases. They have been very supportive of the introduction of new topic areas at the newly reformed advisory elective and the examiners feel the new breadth of the syllabus really does prepare advisory candidates for their future career as financial professionals either in practice or industry. However, the examining team are very practical in their approach to examining material for this topic. Therefore, how you approach cases, understand and communicate what is going on in a case, explain the issues and come up with clear advice are key skills that you will need to pick up in the coming months. Understand the real world Examiners understand the limited experience candidates may have at this point in their training. Candidates should appreciate what is going on around them at a macroeconomic level. This is why they appeal to candidates to engage with reputable publications at least once a week. If candidates want one tip where to start, it would be with the Financial Times weekend edition. The Lex column in the FT typically reviews the moving business and finance themes of the week.  Obviously, recent global events have resulted in economic uncertainty, but candidates should reflect on the impact this has had on financial markets, interest rates, currency appreciation/depreciation and redundancies. Equally, understanding how companies and institutions have reacted to these economic events can give candidates an insight into leadership. Candidates should be able to point to leaders who have excelled or struggled during these uncertain times and look at how different companies and different industries are impacted by change in different ways. Candidates will need to consider everything from the viewpoint of the specific organisation they are advising. Merging facts and real-world examples Stepping outside of the syllabus and taking a view on what is going on at a wider level can help candidates apply real-world application and enhancing answers in the exams, however, candidates still need to focus on the facts of the specific case. What the examiners wish to see is that candidates can bring relevant real-world application to their answers. At advisory, the examiners are looking to see how candidates react to the indicators before them. The examiners understand this topic is an open book exam, therefore supporting answers with facts from the case, backed up by relevant real-world examples clearly demonstrates candidate understanding. Between July and August, there is ample time for candidates to widen their real-world focus, attune their ears and understand what macro events are ongoing that are shaping all our economic narratives. If candidates make this change, it will bring success. Best of luck in the summer.

John Munnelly and Claire Bergin from the FAE lecturing team discuss their expectations and the importance of Topic Area 4 of FAE Core. Humanity has always been industrious. From early trade to modern commerce, people have found ways to create and trade exchanges of value. The notion of commerce came from the formalisation and organisation of such trade. What has become increasingly apparent in this century as commerce has globalised is humanity’s impact on its surroundings. Industry and commerce have a greater impact on our way of existing than we as individuals do. Newly introduced at Topic Area 4 – corporate social responsibility (CSR), sustainability, and integrated reporting (IR) – should not be underestimated by FAE candidates. Topic area 4.5 has a wide remit and candidates need to expand their perceptions when studying this area. Central to operations A criticism levelled at CSR, sustainability, and IR is a 'nice to have', that it is something for global conglomerates with dedicated departments to produce colourful appendices to the annual report. The reality could not be further from the truth. FAE candidates need to understand CSR is a must-have for businesses to be successful today and into the future. It is not something that is done on the outskirts of the business or just for those people who are interested in the space. It should be central to the operations of a successful business but more so central to a sustainable business. This requires a new way of thinking, critical thinking, another tool in the Chartered Accountants skill set.  The topic area sets out to arm candidates with frameworks and tools that allow them to develop responsible, ethical and sustainable business mind-sets when facing challenges – not only in their FAE examinations but also in their day-to-day roles and future careers as leaders in the marketplace. An accountant’s role in sustainability Starting with the widest focus possible, candidates must understand businesses role in solving society’s biggest social and environmental issues. The most obvious place to start is at the United Nations Sustainable Development Goals framework and The World Business Council for Sustainable Development. From an Irish perspective, Business in the Community Ireland (BITCI) is the group working to bring businesses together to help make a positive change in society – The Leader’s Group on Sustainability is an excellent example of a working group that is CEO-led. Northern Irish candidates can check out Business in the Community Northern Ireland, as well.  Candidates should understand that the best types of CSR strategies/approaches are those aligned to the business strategy and purpose. It must have buy-in and be led by senior leadership for it be authentic both internally and externally, and it should not be used as a PR method.  A wider focus on CSR It’s important for candidates to realise that CSR is not just community- or charity-focused. It is about a business being responsible in all facets of its operations. A useful framework to distil this wider focus is the four key pillars of CSR: Community;  Environment;  Workplace; and Marketplace. In Ireland, the certification for responsible business that is accredited by BITCI and audited by the NSAI is The Business Working Responsibility Mark. There is also a similar American version, the B Corp Certification, that is used around the world and synonymous with some well-known brands.  Sustainability Closely aligned to CSR is sustainability. Candidates must understand the complexities of sustainable procurement. If we consider current global events, candidates should question whether current procurement practices are sustainable in the longer term. Can a reliance on a race-to-the- bottom for price as a means of competitive advantage be sustained to increasingly conscious consumers? Candidates must understand that there needs to be transparency within the supply chain to meet the demands of clients, customers, and other suppliers. Integrated reporting Finally, candidates must be aware that the future of corporate reporting will be in the integrated reporting model; some companies have already chosen to prepare their finances in this way. CSR, sustainability, and integrated reporting exams Exam indicators will seek to test candidates' ability to recognise the appropriateness and practicality of implementing the correct measures in the correct situation. Sometimes starting with basics, along with the correct support from senior management, can have the most profound effects for a business. Candidates need to combine scepticism with what is achievable and measurable, and not what is aspirational and unenforceable. Candidates might find themselves having to critique a company’s CSR policy (or lack of), sustainable practices (or lack of), or questionable activities; they should identify gaps and recommend improvements. Indicators could also present candidates with a crisis caused by breaches of CSR and they will have to advise how to react appropriately to the situation.  Candidates should look to current events to draw from interesting real-time, real-life examples of businesses acting responsibly in the current pandemic crisis. All across our economy, different industries are responding in customer-focused ways. In banking, forbearance on debt is being offered. In logistics and shipping, they are prioritising essential economic supply. Even at a local level, retailers are prioritising the needs of vulnerable groups such as the elderly with dedicated shopping times and delivery.  American author, Mark Twain is credited with the saying "It is never wrong to do the right thing." CSR, sustainability, and IR go beyond the boundaries of the businesses and to the centre of humanity.  Candidates should remember that they will transition into leadership later in their careers. Be sure to study widely, and learn well as you are the global citizens of tomorrow.  Enjoy your studies in this area.