General / Exam prep Flashcards
Need to be competent at saying what changes in ratios point to.
Use the numerator denominator to help figure out
Eg. Inventory days gone up..
- EoY Inv value may be wrong
Eg TR collection days up:
- Could be CC procedures inadequate
- Could be cash sales missing (so denominator Rev is down and TR is relatively higher)
Go with the obvious !
Keep it simple
keep asking why … so what ?? imagine a little kid asking
eg. i answered a variance question saying we could have bought better quality material and therefore wasted less (price was up, usage down)
To me this explained both variances but actually it wasn’t really explicit enough because although I’ve said better quality therefore less waste…
.. I didn’t actually say that better quality material would typically cost more … I just ‘assumed’ that knowledge.
I could also have expanded more on the quality/waste .. again I should have asked ‘why?’ and probably given an example eg. better quality wood, less knots …
Task 1 - will errors show up in reconciling SLCA; PLCA to subsidiary acc
You must assume all other postings other than the one mentioned are correct.
Advice from Taylor “Does it affect a total”
EG
An addition error resulting in an incorrect net amount posted on an invoice to the purchase day book.
Doesn’t say wrong amount posted to Purchase LEDGER or subsidiary (memorandum) ledger …. so assume they are correct and the error in the DAY book won’t be
Remember Task 1 multiple choice read wording carefully…
Which one of the following internal control procedures over purchases and subsequent payments is MOST LIKELY to be effective for a business in reducing the risk of fraud?
There were several valid options but the one that had 3 ppl doing the transaction was the answer.
i) Which TWO of the following should be considered the most important steps to take IMMEDIATELY?
In the below (everyone using same pw, manual backup) I picked 4 & 5 but 4 wouldn’t kick in for 3 months … correct answer was 2 (I preferred 2 because it was system prompted so automatic/forced… I thought ‘asking’ might not be enough!!!
- Introduce a new policy to change passwords every three months.
- Request each user to set their own password.
- Install new anti-virus software.
- Set the system to prompt for a new password every three months.
- Set an automatic backup for all computers to run each evening.
Really remember the ‘what does that mean… impact’
ie. in one example comparing suppliers I said long delivery time was bad but the model answer said …
this means potential delays to customers or that VD would need to hold higher inventory.
delays to customers should be avoided because of the importance of CUSTOMER LOYALTY & SATISFACTION
on the other hand
holding more inventory is bad as it INCREASES the length of the CASH OPERATING CYCLE (cashflow)
This may not be acceptable given high growth and fears of overtrading
Task 5 what to watch out for…
Sneaky 6 month period thrown in.
Review Osborne practice 3 task 5
Identifying strengths and weaknesses
Don’t forget to answer the FULL question. I sometimes forget to keep going far enough .. eg. I say that ‘this prevents goods being paid for that were not received or were not to specification’ …. which is not going as far as the model answer that goes on to say WHY this is a problem… ie. it ultimately hits their profit.
Also I have sometimes identified a weakness and said what could happen eg. Lack of segregation…AP Clerk could commit fraud … which could affect profits BUT the question asked for a remedy and I failed to just say get another person involved… check supplier statements etc!!!
BPP 6.8
Really think carefully eg. When given operating statement and asked why extra profit was made I correctly identified that main reason was the extra volume (albeit at a slightly lower sale ppu).
However I talked about the overall cost adverse variance whereas the answer said that the favourable cost variances contributed… which of course technically they did even though they were outweighed by the adverse cost variances..
Subtle but important to understand… I talked about net costs only … which in a way is valid in itself but technically the favourable costs CONTRIBUTED to the extra profit which is what the question asked and the unfavourable ones Detracted from the profit (but I wasn’t asked what detracted)
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when coming up with ‘non-financial’ considerations in Task 4 ..
.. Don’t be too fixated on ‘non-financial’ … AAT model answers contain things like
What will happen to supervisor after 1 yr trial period.. is can it really be a fixed-term contract or will it be standard in which case what will happen to him.. I feel like this is financial (redundancy cost) but I suppose you could be considering his feelings!
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When picking out assumptions in a budget … it’s quite subtle but according to emma there is an assumption that there will be no penalty fee (when cancelling marketing contract)… The narrative says ‘it is expected there will be a fee but amount unknown so not included’ ….. Emma describes this as a roundabout way … I think basically that bit is in to ‘point us’ to the assumption there will be no fee .. because we’re only students and it would be too much to expect us to come up with that withut the HINT… but thinking of the Budget as an entity in itself without the narrative … the BUDGET assumes there will be no fee….
… Get it ?????
Remember to include the EFFECT of the budget assumption … it the Budget is now overstating profit…
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Remember to avoid commenting on the Business decisions in the budget … ie cancelling the market is not a weakness in itself… its the assumption that this wont affect sales and that there wont be a fee that is the weakness…
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Also when doing budget assumptions/weaknesses try and say ‘even though…..’ to help clarify WHY its a poor assumption. ….
There is assumption 25% increase in sales volume based on increased efficiency/capacity…. EVEN THOUGH ….. I was thinking even though there’s no evidence for assuming there is a market for the extra…. but Emma put Even Though they are cancelling marketing contract…. (although she worded it ‘that seems unlikely’ given cancelling marketing…)
Who appoints auditors?
SHAREHOLDERS !!!
