Avoiding the pitfalls in your financial reporting indicators

Jun 30, 2020

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.