6ea69ba1a0bd7f6fb72976eefb2d4afc

The Institute of Chartered Accountants in England and Wales

CASE STUDY Advanced Stage

For exams in 2013

Study Manual

www.icaew.com

Case Study The Institute of Chartered Accountants in England and Wales Advanced Stage

ISBN: 978-0-85760-489-7

Previous ISBN: 978-0-85760-259-6

First edition 2009 Fourth edition 2012

All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means or stored in any retrieval system, electronic, mechanical, photocopying, recording or otherwise without prior permission of the publisher.

British Library Cataloguing-in-Publication Data A catalogue record for this book is available from the British Library

We would like to thank

Sam Binks Harvey Freeman Neil Russell

for their assistance in the preparation of the Case Study Learning Materials

Printed in the United Kingdom by Polestar Wheatons

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Your learning materials are printed on paper obtained from traceable, sustainable sources.

The Institute of Chartered Accountants in England and Wales

iii

Welcome to ICAEW

I am delighted to welcome you as a student studying our chartered accountancy qualification, the ACA. The ACA will open doors to a highly rewarding career as a financial expert or business leader. Once you are an ICAEW member, you will join over 138,000 others around the world who work at the highest levels across all industry sectors, providing valuable financial and business advice. Some of our earlier members formed todays global Big Four firms, and you can find an ICAEW Chartered Accountant on the boards of 80% of the UK FTSE 100 companies. We are here to help you every step of the way. As part of a worldwide network of over 19,000 students, you will have access to a range of resources including the online student community, where you can interact with fellow students, and our student support team. Take a look at the key resources on page xv. I wish you the very best of luck with your studies and look forward to supporting you throughout your career.

Michael Izza Chief Executive ICAEW

v

Contents

Introduction vii Case Study ix Key Resources xv Faculties and Special Interest Groups xvi ICAEW publications for further reading xvi 1. Introduction to the Case Study 1

2. Financial analysis skills 21

3. Ethics 81

4. Introduction to Elite Case Study 99

5. Elite Cars Case Study 127

6. Elite exam paper 159

7. Debrief of Elite Case Study 167

Introduction vii

1 Introduction

1.1 What is the Case Study and how does it fit within the Advanced Stage? Structure

The syllabus has been designed to develop core technical, commercial, and ethical skills and knowledge in a structured and rigorous manner.

The diagram below shows the three modules at the Advanced Stage, which comprises two technical integration modules and the Case Study, where the focus is on the acquisition of more sophisticated technical skills and knowledge and their application in more complex scenarios.

The knowledge base

There is no new knowledge to be acquired for the Case Study. However, students will require a strong core of knowledge of the subjects (Audit and Assurance, Business Analysis, Corporate Reporting, Ethics and Taxation) that they have studied at Professional Stage and Technical Integration, and a good understanding of how this knowledge should be applied in complex situations across different subjects.

Progression from Professional Stage and Technical Integration

The aim of the Case Study is to ensure students are able to apply analysis techniques, technical knowledge and professional skills to resolve real-life issues faced by businesses.

The above illustrates how this paper is the final examination in the ACA qualification, linking the knowledge and application of the five subjects to complex real world problems.

The table below illustrates how the assessment of professional skills progresses through the Professional and Advanced Stages and how, within the Advanced Stage, the assessment in the Case Study differs from that in the Technical Integration examinations.

Case Study viii

1.2 Skills progression through the ACA qualification

Introduction ix

2 Case Study

2.1 Overview The overall aim of the Case Study module is to ensure that candidates can provide advice in respect of complex business issues in the form of a written report.

The objective of the Case Study is to assess understanding of complex business issues and the ability to analyse financial and non-financial data, exercise professional and ethical judgement, and develop conclusions and recommendations. The limited class time available with a tutor, even when supplemented by extensive home study, is insufficient for success in the Case Study. Students must bring work experience into their preparation and development programme.

Success at the Case Study requires an integration of the technical knowledge and skills acquired from all of the ACA modules, namely:

The core technical knowledge and skills and practical application acquired at the Professional Stage;

The technical, analytical, evaluative and integration skills from the Business Change and Business Reporting modules; and

The advisory, judgemental and communication skills acquired through practical work experience undertaken during the training contract.

All areas of the syllabus may be tested over time.

The Case Study is designed to reproduce a typical situation in which chartered accountants find themselves. This may involve information arising from meetings and communicated in memoranda, letters or reports. The situation will generally involve a business plan or transaction and will involve preparation for meetings and submission of reports. The transactions and plans may involve a variety of business and professional advisors and stakeholders and meetings that they may attend.

The reality of such situations is that before any meeting you would:

Expect to receive some materials in advance Carry out some work beforehand and refer to it during the meeting Not know the questions that you will be asked in the meeting Perform tasks as a result of the meeting Be expected to discuss and advise on relevant matters The Case Study scenario may be based on any one of a variety of different organisational structures or operations. Students will be provided with advance information on the organisation and its business environment ahead of the exam.

This information will not give specific indication of the eventual requirements of the Case Study. Students will be expected to familiarise themselves with the information provided about the organisation and the industry in which it operates, undertaking some additional analysis and research. Students may take the results of their work into the examination room.

The Case Study will not require the detailed computations needed for the Professional Stage or Technical Integration modules at the Advanced Stage, but students will be required to undertake financial and business analysis.

Requirements will be open in that there will be no predetermined correct answers to the Case Study.

Case Study x

2.2 Professional skills (a) Cognitive, analytical and evaluative skills

1 Identification of business, technical and ethical issues

2 Application of technical knowledge to identified issues

3 Understanding of scenario and wider business issues

4 Understanding of the relevance of data and information based on learnt, experienced and inferred knowledge

5 Selection of appropriate analytical tools

6 Analysis of requirements, situation and data

7 Assessment of quality of information

8 Candidates balanced judgement of priorities, strengths, weaknesses, opportunities and threats

9 Consideration of other perspectives, including competitive reaction and internal reaction

10 Conclusions and recommendations based on evidence, implications, assumptions and information generated

(b) Communication and articulation skills

1 Structure in presentation of data and written work 2 Integration and positioning of data within and alongside written work 3 Tact in presentation 4 Objectivity in presentation 5 Format and language

2.3 ACA Skills Development Grid

Introduction xi

2.4 The link to work experience The work experience requirements for students provide a framework to develop appropriate work experience, completion of which is essential in order to qualify for membership. Work experience is also an essential component for examination preparation.

The work experience framework is built around five key areas:

Business awareness being aware of the internal and external issues and pressure for change facing an organisation and assessing an organisations performance.

Technical and functional expertise applying syllabus learning outcomes and where appropriate, further technical knowledge to real situations.

Ethics and professionalism recognising issues, using knowledge and experience to assess implications, making confident decisions and recommendations.

Professional judgement making recommendations and adding value with appropriate, targeted and relevant solutions.

Personal effectiveness developing, maintaining and exercising skills and personal attributes necessary for the role and responsibilities.

The examinations embrace all of these skills.

The link between work experience and the examinations will be made explicit through input to the work experience framework by the examiners.

This will help students see that their practical knowledge and skills gained in the workplace feed back into the exam room and vice-versa.

The message is clear students should use the work experience framework and skills development grids to ensure success in exam performance and success in their workplace performance.

2.5 Professional skills and the Case Study Because there is no new technical knowledge for the Case Study, all the marks are awarded for the demonstration of professional skills. The following pages set out a description of:

The specific skills that are assessed How these skills are assessed

Case Study xii

Case study: Skills and how they are assessed

Assessed skills How skills are assessed

Assimilating and using information

Understanding the subject matter Accessing, evaluating and managing data and

information provided in multiple sources (some pre-disclosed) and from independent research plans

Using technical knowledge and professional experience to assess interaction of information from different sources

Understanding an organisational framework: evaluating the strengths and weaknesses of an organisation and comparing with benchmarks

Planning, controlling and evaluating operations in a global context

Understanding the needs of customers/clients (internal and external)

Demonstrating an understanding of the significance of ethics in the business environment and the importance of ethical behaviour

Using relevant content of the International and ICAEW Codes of Ethics

Demonstrating an understanding of the regulatory structure of the profession, its ethos, culture and role in corporate and social responsibility

Uses the Advance Information (AI), Exam Paper (EP), knowledge of ethical codes and professional experience to define the specific issue / situation

Uses own understanding of context and findings

Describes wider context Identifies business issues

Understanding of business entity Understanding of position in industry

sector Appreciation of wider economy

Recognises where business is in its life cycle

Introduction xiii


Structuring problems & solutions

Using the information given: analysing and evaluating requirements, information, issues and business context

Analysing, evaluating and synthesising new and complex ideas

Displaying an enquiring and questioning mind

Identifying faults in arguments and gaps in evidence

Demonstrating an understanding of the pressures on professional ethical behaviour, including the interaction between professional ethics, the law and other value systems

Identifies and uses key information Demonstrates technical knowledge Uses professional experience Uses relevant strategic analytical tools (SWOT,

PESTEL, Porters 5 Forces)

Performs relevant analysis Produces quality analysis

Depth Breadth Logic Reasonableness

Uses knowledge of ethical codes and professional experience to perform relevant analysis

Financial data analysis: analysing and evaluating data by

selecting appropriate analytical and technical tools and applying technical knowledge and professional experience

demonstrating an understanding of sensitivities to change: flexing a range of inputs and evaluating potential outcomes

evaluating, prioritising and trading off solutions to complex problems, considering various perspectives, including those of competitors and internal audiences

Financial data analysis:

Uses appropriate analytical tools (valuation methodologies, sensitivity analysis)

Performs relevant analysis on Numerical data Other information

Integrates numbers and words

Financial statement analysis: analysing and evaluating financial

statements by selecting appropriate analytical and technical tools and applying technical knowledge & professional experience

linking all elements of financial statements, evaluating & making comparisons where there are complex interactions

evaluating financial statements in the context of other business information

Financial statement analysis:

Uses appropriate analytical tools to measure financial performance, identify trends and make comparisons

Performs relevant analysis on Financial statements Other information


Case Study xiv


Applying judgement

Using technical knowledge, & professional experience and evidence to support reasoning

Applying discrimination: filtering information to identify key factors

Applying a sceptical and critical approach Interpreting information from a range of

stances and developing arguments, appreciating the perspective of other parties

Conducting critiques: considering alternative views in testing the validity of ideas in practice

Considering and evaluating the effects of a range of alternative future scenarios

Seeking opportunities to add value Prioritising key issues Applying the concept of materiality to

interrelated situations

Appreciating the ethical dimensions of situations, exercising ethical judgement and explaining the consequence of unethical behaviour

Appreciating when more expert help is required identifying linkages, inconsistencies, ambiguities

Builds on implications of analysis Identifies and uses key financial information Recognises linkages Evaluates key points Discusses output

Pros / cons

Demonstrates professional scepticism Demonstrates objectivity / balance Demonstrates an appreciation of more than

one side / bias

Evaluates options Prioritises key points Uses knowledge of ethical codes and

professional experience

Drawing conclusions and making recommendations

Generating solutions for complex problems using information from multiple sources

Using technical knowledge, professional experience, evidence and analysis to support conclusions

Using valid and different technical skills to formulate opinions, advice, plans, solutions, options and reservations

Making decisions and recommendations in unstructured situations in which risks and uncertainty may exist

Specifying the criteria for the most appropriate proposal

Assessing the costs and benefits that may flow from a decision

Approaching decision making using an ethical framework

Draws conclusions linked to analysis and judgement

Makes practical commercial recommendations

Introduction xv


Integrative and multidisciplinary skills

Time awareness: recognising time constraints and prioritising given tasks

Preparing, describing, outlining the advice, report, notes required in a clear and concise style

Relating parts and wholes: discerning interrelated issues as part of complex scenarios, employing a sense of perspective in over-viewing situations

Providing a report to specialist or non-specialist audience

Provides appropriate terms of reference (purpose, scope, disclaimer)

Provides an executive summary that is consistent with the main report

Demonstrates appropriate balance between requirements

Uses sufficient but not excessive sub-divisions Uses appropriate but not excessive use of

notes and bullets

Uses correct style and language for audience with appropriate tact

Contains appropriate appendices calculations easy to follow assumptions clearly set out no excessive text figures appropriately carried forward to

main report

Provides a coherent answer to the requirement covers the major elements suitable use of figures figures clearly derived flows logically presents a structured discussion, not just a

list of facts

3 Key Resources

STUDENT SUPPORT TEAM

T +44 (0)1908 248 250 E [email protected]

STUDENT WEBSITE

icaew.com/students student homepage icaew.com/exams exam applications, deadlines, regulations and more icaew.com/cpl credit for prior learning/exemptions icaew.com/examresources examiners comments, syllabus, past papers, study guides and more icaew.com/examresults exam results

TUITION

If you are receiving structured tuition, make sure you know how and when you can contact your tutors for extra help.

If you arent receiving structured tuition and are interested in classroom, online or distance learning tuition, take a look at our tuition providers in your area on icaew.com/exams

ONLINE STUDENT COMMUNITY

The online student community allows you to ask questions, gain study and exam advice from fellow ACA and CFAB students and access our free webinars. There are also regular Ask an Expert and Ask a

Case Study xvi

Tutor sessions to help you with key technical topics and exam papers. Access the community at icaew.com/studentcommunity

THE LIBRARY & INFORMATION SERVICE (LIS)

The Library & Information service (LIS) is ICAEWs world-leading accountancy and business library. You have access to a range of resources free of charge via the library website, including the catalogue, LibCat. icaew.com/library

4 Faculties and Special Interest Groups

The faculties and special interest groups are specialist bodies within the ICAEW which offer members networking opportunities, influence and recognition within clearly defined areas of technical expertise. As well as providing accurate and timely technical analysis, they lead the way in many professional and wider business issues through stimulating debate, shaping policy and encouraging good practice. Their value is endorsed by over 40,000 members of ICAEW who currently belong to one or more of the seven faculties:

Audit and Assurance Corporate Finance Finance and Management Financial Reporting Financial Services Information Technology Tax The special interest groups provide practical support, information and representation for chartered accountants working within a range of industry sectors, including:

Charity and Voluntary sector Entertainment and Media Farming and Rural Business Forensic Healthcare Interim Management Non-Executive Directors Public Sector Solicitors Tourism and Hospitality Valuation Students can register free of charge for provisional membership of one special interest group and receive a monthly complimentary e-newsletter from one faculty of your choice. To find out more and to access a range of free resources, visit icaew.com/facultiesandsigs

5 ICAEW publications for further reading

ICAEW produces publications and guidance for its students and members on a variety of technical and business topics. This list of publications has been prepared for students who wish to undertake further reading in a particular subject area and is by no means exhaustive. You are not required to study these publications for your exams. For a full list of publications, or to access any of the publications listed below, visit the Technical Resources section of the ICAEW website at icaew.com

ICAEW no longer prints a Members Handbook. ICAEW regulations, standards and guidance are available at icaew.com/regulations This area includes regulations and guidance relevant to the regulated areas of audit, investment business and insolvency as well as materials that was previously in the handbook.

The TECH and AUDIT series of technical releases are another source of guidance available to members and students. Visit icaew.com/technicalreleases for the most up-to-date releases.

Introduction xvii

Audit and Assurance Faculty icaew.com/aaf Right First Time with the Clarified ISAs, ICAEW 2010, ISBN 978-0-85760-063-9

Clarified ISAs provide many opportunities for practitioners in terms of potential efficiencies, better documentation, better reporting to clients, and enhanced audit quality overall.

This modular guide has been developed by ICAEWs ISA implementation sub-group to help medium-sized and smaller firms implement the clarified ISAs and take advantage of these opportunities. This modular guide is designed to give users the choice of either downloading the publication in its entirety, or downloading specific modules on which they want to focus.

An international edition is also available.

Quality Control in the Audit Environment, ICAEW 2010, ISBN 0-497-80857-605-5 The publication identifies seven key areas for firms to consider. Illustrative policies and procedures are provided for selected aspects of each key area, including some examples for sole practitioners. The guide also includes an appendix with answers to a number of frequently asked questions on the standard.


The Audit of Related Parties in Practice, ICAEW 2010, ISBN 978-1-84125-565-6 This practical guide to the audit of related party relationships and transactions is set in the context of the significant change in approach that is required under the revised ISA and highlights the importance of planning, the need to involve the entire audit team in this, to assign staff with the appropriate level of experience to audit this area and upfront discussions with the client to identify related parties.


Alternatives to Audit ICAEW, 2009, ISBN 978-1-84152-819-9 In August 2006, the ICAEW Audit and Assurance Faculty began a two-year consultation on a new assurance services (the ICAEW Assurance Service), an alternative to audit based on the idea of limited assurance introduced by the International Auditing and Assurance Standards Board (IAASB). This report presents findings from the practical experience of providing the ICAEW Assurance Service over the subsequent two years and views of users of financial information that help in assessing the relevance of the service to their needs.

Companies Act 2006 Auditor related requirements and regulations third edition March 2012 ICAEW, 2012, ISBN 978-0-85760-442-2

This third edition of the guide provides a brief summary of the key sections in the Companies Act 2006 (the Act) which relate directly to the rights and duties of auditors. It covers the various types of reports issued by auditors in accordance with the Act. It is designed to be a signposting tool for practitioners and identifies the other pieces of guidance issued by ICAEW, APB, FRC, POB and others to support implementation of the Act.

Auditing in a group context: practical considerations for auditors ICAEW, 2008, ISBN 978-1-84152-628-7

The guide describes special considerations for auditors at each stage of the group audit's cycle. While no decisions have been taken on UK adoption of the IAASB's clarity ISAs, the publication also covers matters in the IAASB's revised and redrafted 'ISA 600 Special Considerations - Audits of Group Financial Statements (Including the Work of Component Auditors)'. The revised publication contains suggestions for both group auditors and component auditors.

Corporate Finance Faculty icaew.com/corpfinfac Private equity demystified an explanatory guide Second Edition, Financing Change Initiative,

ICAEW, March 2010, John Gilligan and Mike Wright

This guide summarises the findings of academic work on private equity transactions from around the world. Hard copies of the abstract and full report are free and are also available by download from icaew.com/thoughtleadership

Case Study xviii

Best Practice Guidelines The Corporate Finance Faculty publishes a series of guidelines on best-practice, regulatory trends and technical issues. Authored by leading practitioners in corporate finance, they are succinct and clear overviews of emerging issues in UK corporate finance. icaew.com/corpfinfac

Corporate Financier magazine, ISSN 1367-4544 The award-winning Corporate Financier magazine is published ten times a year for members, stakeholders and key associates of ICAEWs Corporate Finance Faculty.

Aimed at professionals, investors and company directors involved in corporate finance, it covers a wide range of emerging regulatory, commercial and professional development issues.

The magazine includes features, news, analysis and research, written by experts, experienced editors and professional journalists.

In 2011, three major themes were introduced: Innovation & Corporate Finance; Financing Entrepreneurship; and Deal Leadership.

Corporate governance icaew.com/corporategovernance The UK Corporate Governance Code 2010

The UK Corporate Governance Code (formerly the Combined Code) sets out standards of good practice in relation to board leadership and effectiveness, remuneration, accountability and relations with shareholders. All companies with a Premium Listing of equity shares in the UK are required under the Listing Rules to report on how they have applied the UK Corporate Governance Code in their annual report and accounts.

The first version of the UK Corporate Governance Code was produced in 1992 by the Cadbury Committee. In May 2010 the Financial Reporting Council issued a new edition of the Code which applies to financial years beginning on or after 29 June 2010.

The UK Corporate Governance Code contains broad principles and more specific provisions. Listed companies are required to report on how they have applied the main principles of the Code, and either to confirm that they have complied with the Code's provisions or where they have not to provide an explanation.

Internal Control: Revised Guidance on Internal Control for Directors on the Combined Code (now the UK Corporate Governance Code)

Originally published in 1999, the Turnbull guidance was revised and updated in October 2005, following a review by the Financial Reporting Council. The updated guidance applies to listed companies for financial years beginning on or after 1 January 2006.

The FRC Guidance on Audit Committees (formerly known as The Smith Guidance) First published by the Financial Reporting Council in January 2003, and most recently updated in 2010. It is intended to assist company boards when implementing the sections of the UK Corporate Governance Code dealing with audit committees and to assist directors serving on audit committees in carrying out their role. Companies are encouraged to use the 2010 edition of the guidance with effect from 30 April 2011.

The UK Stewardship Code The UK Stewardship Code was published in July 2010. It aims to enhance the quality of engagement between institutional investors and companies to help improve long-term returns to shareholders and the efficient exercise of governance responsibilities by setting out good practice on engagement with investee companies to which the Financial Reporting Council believes institutional investors should aspire.

A report summarising the actions being taken by the Financial Reporting Council and explaining how the UK Stewardship Code is intended to operate was also published in July 2010.

Introduction xix

Corporate responsibility icaew.com/corporateresponsibility Sustainable Business January 2009

The new thought leadership prospectus acts as a framework for the work that ICAEW do in sustainability/corporate responsibility. It argues that any system that is sustainable needs accurate and reliable information to help it learn and adapt, which is where the accounting profession plays an important role. A downloadable pdf is available at icaew.com/sustainablebusiness

Environmental issues in annual financial statements ICAEW, May 2009, ISBN 978-1-84152-610-2 This report is a joint initiative with the Environment Agency. It is aimed at business accountants who prepare, use or audit the financial statements in statutory annual reports and accounts, or who advise or sit on the boards of the UK companies and public sector organisations. It offers practical advice on measuring and disclosing environmental performance. A downloadable pdf is available at icaew.com/sustainablebusiness

ESRC seminar series When worlds collide: contested paradigms of corporate responsibility ICAEW, in conjunction with the British Academy of Management, won an Economic and Social Research Council grant to run a seminar series which aims to bring academics and the business community together to tackle some of the big challenges in corporate responsibility. icaew.com/corporateresponsibility

The Business Sustainability Programme (BSP) The Business Sustainability Programme is an e-learning package for accountants and business professionals who want to learn about the business case for sustainability. The course is spread across five modules taking users from definitions of sustainability and corporate responsibility, through case studies and finally towards developing an individually tailored sustainability strategy for their business. The first two modules are free to everyone. For more information and to download a brochure visit icaew.com/bsp

Ethics icaew.com/ethics Code of Ethics

The Code of Ethics helps ICAEW members meet these obligations by providing them with ethical guidance. The Code applies to all members, students, affiliates, employees of member firms and, where applicable, member firms, in all of their professional and business activities, whether remunerated or voluntary.

Instilling integrity in organisations ICAEW June 2009 Practical guidance aimed at directors and management to assist them in instilling integrity in their organisations. This document may also be helpful to audit firms discussing this topic with clients and individuals seeking to address issues in this area with their employers.

Reporting with Integrity ICAEW May 2007, ISBN 978-1-84152-455-9 This publication brings ideas from a variety of disciplines, in order to obtain a more comprehensive understanding of what is meant by integrity, both as a concept and in practice. Moreover, because this report sees reporting with integrity as a joint endeavour of individuals, organisations and professions, including the accounting profession, the concept of integrity is considered in all these contexts.

Finance and Management Faculty icaew.com/fmfac Finance's role in the organisation November 2009, ISBN 978-1-84152-855-7

This considers the challenges of designing successful organisations, written by Rick Payne, who leads the faculty's finance direction programme.

Investment appraisal SR27: December 2009, ISBN 978-1-84152-854-4 This special report looks at the key issues and advises managers on how they can contribute effectively to decision making and control during the process of investment appraisal.

Case Study xx

Starting a business SR28: March 2010, ISBN 978-1-84152-984-2 This report provides accountants with a realistic and motivational overview of what to consider when starting a business.

Developing a vision for your business SR30: September 2010, ISBN 978-0-85760-054-7 This special report looks at what makes a good vision, the benefits of having one, the role of the FD in the process, leadership, storytelling and the use of visions in medium-sized businesses.

Finance transformation the outsourcing perspective SR31: December 2010, ISBN 978-0-85760-079-0

The authors of this outsourcing special report share their expertise on topics including service level agreements, people management, and innovation and technology.

The Finance Function: A Framework for Analysis September 2011, ISBN 978-0-85760-285-5 This report is a source of reference for those analyzing or researching the role of the finance function and provides a foundation for considering the key challenges involved, written by Rick Payne, who leads the facultys finance direction programme.

Financial Reporting Faculty icaew.com/frfac EU Implementation of IFRS and the Fair Value Directive ICAEW, October 2007, ISBN 978-1-

84152-519-8

The most comprehensive assessment to date of compliance with the requirements of IFRS and the overall quality if IFRS financial reporting.

The Financial Reporting Faculty makes available to students copies of its highly-regarded factsheets on UK GAAP and IFRS issues, as well as its journal, By All Accounts, at icaew.com/frfac

Financial Services Faculty icaew.com/fsf Audit of banks: lessons from the crisis, (Inspiring Confidence in Financial Services initiative)

ICAEW, June 2010 ISBN 978-0-85760-051-6

This research has looked into the role played by bank auditors and examined improvements that can be made in light of lessons learned from the financial crisis. The project has included the publication of stakeholder feedback and development of a final report

Measurement in financial services, (Inspiring Confidence in Financial Services initiative) ICAEW, March 2008, ISBN 978-1-84152-546-4

This report suggests that more work is required on matching measurement practices in the financial services industry to the needs of different users of financial information, despite the fact that the financial services industry has the greatest concentration of measurement and modelling skills of any industry. A downloadable pdf is available at icaew.com/thoughtleadership

Skilled Persons Guidance Reporting Under s166 Financial Services and Markets Act 2000 (Interim Technical Release FSF 01/08)

This interim guidance was issued by ICAEW in April 2008 as a revision to TECH 20/30 to assist chartered accountants and other professionals who are requested to report under s166 Financial Services and Markets Act 2000. A downloadable pdf is available at icaew.com/technicalreleases

Introduction xxi

Information Technology Faculty icaew.com/itfac The IT Faculty provides ongoing advice and guidance that will help students in their studies and their work. The online community (ion.icaew.com/itcountshome) provides regular free updates as well as a link to the facultys Twitter feed which provides helpful updates and links to relevant articles. The following publications should also be of interest to students:

Make the move to cloud computing ICAEW, 2012, ISBN 978-0-85760-617-4 Cloud computing in its purest form is pay-as-you-go IT, online and on demand. The IT capabilities provided as a service to businesses include: single software applications or software suites; online software development platforms; and virtual computing infrastructure, ranging from data storage to computer grids.

Bringing employee personal devices into the business - a guide to IT consumerisation ICAEW, 2012, ISBN 978-0-85760-443-9

The gap between business and consumer technology has been growing over the last few years, with the consumer market now leading in terms of ease of use and portability.

Making the most of social media - a practical guide for your business ICAEW, 2011, ISBN 978-0-85760-286-2

This guide will enable the business manager to develop a philosophy that allies social medias potential with the businesss objectives and capabilities, to set objectives and protect against pitfalls, and then to take the first practical steps in a mass communications medium very different from any that British business has encountered before.

Tax Faculty icaew.com/taxfac The Tax Faculty runs a Younger Members Tax Club which provides informal presentations, discussions and socialising. All young professionals interested in tax are welcome to attend. See the website for more details icaew.com/taxfac

Tax news service You can keep up with the tax news as it develops on the Tax Facultys news site icaew.com/taxnews. And you can subscribe to the free newswire which gives you a weekly round up. For more details visit icaew.com/taxfac

Demystifying XBRL This booklet, produced jointly by KPMG, the Tax Faculty and the Information Technology Faculty, explains exactly what iXBRL is all about and what must be done in order to e-file corporation tax returns using the new standard.

Implementing XBRL This booklet, produced jointly by Thompson Reuters, the Tax Faculty and the Information Technology Faculty, is a practical guide for accountants in business and practice, and follows on from Demystifying XBRL.

TAXline Tax Practice series of detailed briefings on current topics: TAXline Tax Practice 27 Let property - a brief guide by Rebecca Cave (published November 2011)

TAXline Tax Practice 26 The new pension rules by Anne Redston (published July 2011)

TAXline Tax Practice 25 Tax Credits by Robin Williamson (published April 2011)

TAXline Tax Practice No 23 HMRC Powers - an overview of the new powers and penalties regime by Paula Clemett (published October 2010)

Case Study xxii

CHAPTER 1

Introduction to the Case Study

Introduction

Topic List

1 Introduction to the Case Study Learning Materials

2 About the Case Study

3 The Case Study structure

4 Case Study assessment and the marking key

5 Preparing for the Case Study

1

Introduction

1 Introduction to the Case Study Learning Materials

The Case Study Learning Materials comprise:

The Case Study Manual Two practice exams:

CROP (the November 2008 exam) MMM (the July 2009 exam)

This Study Manual contains an introduction to the Case Study, an exploration of the skills including particularly financial analysis skills required to pass this exam. In addition, there is a section on ethics and a detailed analysis of the Elite Cars exam.

The two practice exams (CROP and MMM) then provide opportunities to practice and refine your skills. Each comes with a detailed analysis of how each paper should have been tackled, in the form of debrief pack.

Elite Cars and the two other cases have been selected for inclusion because they represent as wide a range as possible of case studies, covering:

Small and large businesses, both national and international Key areas of the Advanced Stage syllabus Variations in the style of exam requirements A broad mix of numerical content A cross-section of technical issues While each case is unique and presents its own issues and challenges, you will be able to identify the areas of commonality between Case Study exams as well as areas of difference. In respect of commonality, these three cases in particular emphasise the importance of financial analysis in the Case Study. They have not been updated for changes in GAAP or accounting terminology: what matters in the Case Study is not the technical content but the skills required in tackling the requirements. If, when attempting one of the three cases, you identify a current business issue which does not apply at the time when the case was originally set, this is perfectly acceptable.

Differences in the structure of the Case Study in comparison with TI and Professional Stage are reviewed, together with the differences expected in student preparation prior to the exam. There is an emphasis on the change in mindset that is required for the Case Study, the importance of starting your preparation as early as possible, and linking your academic studies as closely as you can to your experience in the workplace.

The major differentiators in candidate performance and key success factors for the Case Study are identified together with the differences between better and weaker scripts on specific sections of cases. In discussing the communication skills that are essential for success in the Case Study, the Learning Materials emphasise the pre-eminence of quality over quantity.

The assessment process is explained, so that you can understand what the examiners are looking for and how to satisfy them. The five professional skill areas on which the Case Study assessment process is founded are examined and broken down into their individual components. The five skill areas are:

Assimilating and using information Structuring problems and solutions Applying judgement Drawing conclusions and making recommendations Integrative and multidisciplinary skills Advice is offered on how to demonstrate these skills as effectively as possible in the exam setting, and how they interact with each other. Exercises (with tutor notes) are provided to enable you to

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Introduction to the case study 3

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understand how to use the Case Study Advance Information in preparation for your exam, as well as to help build your professional skills.

By providing real contemporaneous examples, the Learning Materials show how to make effective use of current business issues, SWOT, PESTEL and Porters 5 Forces analysis. The workbook is interspersed with skills tips for easy reference.

A key focus of these Learning Materials is executive summaries and using financial analysis two areas in which weaker candidates frequently struggle. In addition, there is also a programme of detailed exercises on financial data and financial statement analysis provided in the Financial Analysis skills chapter.

By working through these Learning Materials, you should come away with extensive ideas on many techniques to help maximise your chances of success in the Case Study:

How to form a 'big picture' How to use your financial analysis effectively How to use SWOT, PESTEL and Porter's 5 Forces analysis How to make effective use of external material How to deal with financial information presented in a non-standard way How to use the four hours effectively in the exam itself How to demonstrate professional scepticism How to demonstrate ethics How to exercise judgement How to form (and communicate) recommendations and conclusions How to produce a high-quality executive summary How to achieve 'user focus' (i.e. remember the audience) How to add value How to organise your answer How to produce effective appendices and refer to them in main report With tips, hints and extracts from the examiners commentaries, these Learning Materials will give you a comprehensive toolkit that, if used properly as part of your preparation, will provide a pathway to passing the Case Study. The Learning Materials have been written and structured in such a way as to be suitable for both self-study and tutor-assisted learning.

2 About the Case Study

2.1 Introduction Chartered Accountants today are business and financial advisors. As an ACA, your unique selling point when compared with other advisors to business be they lawyers, bankers, marketing or public relations specialists is that you will have the knowledge and skills to interpret financial and other business data and communicate the underlying issues to your clients. This role may be encapsulated in the phrase 'making the numbers talk'.

During the first two years of your training, you will have received a thorough grounding in the concepts and principles that underlie the preparation, interpretation and use of financial and business information. In preparing for the Technical Integration (TI) exams, you will enhance your technical knowledge and develop the skills to tackle business scenarios that generate technical problems.

The objective of the Case Study is to assess your understanding of more complex interactions of business issues and your ability to analyse financial and non-financial data, exercise judgement and develop conclusions and recommendations. Marks are only awarded for professional skills.

The Case Study is always based on real-life situations and generally centres on a request for advice or assistance, from either your client or your boss. In developing your advice, you will have the opportunity to carry out some preparatory work, on your own or with your peers and your tutors, in advance of the exam. The exam requirements will ask you to assess and discuss practical, current commercial issues.

To be successful at the Case Study, you will need to:

Understand the businesss situation, i.e. where it is located in its lifecycle (start-up, transition, maturity, decline) and the generic issues it will be facing

Identify the key issues relevant to the case

Use relevant data, identify interrelationships and generate new ideas and information

Apply appropriately your knowledge of technical and ethical matters in the context of the case

Develop relevant quality analysis using the financial and non-financial data given

Apply your professional judgement and consider the consequences of your ideas

Develop clear conclusions and recommendations based on your analysis

Produce a well-structured document, using appropriate language to communicate your ideas to your audience.

These Learning Materials are designed to assist you in preparing to meet these requirements.

2.2 Comparison between the Case Study and the TI and Professional Stage exams

2.2.1 Differences in structure

The Case Study is unlike any of the other ACA exams. Although you have had opportunities to use open books, you will not have had an opportunity to see part of the exam paper in advance.

In more ways than one, the Case Study is probably also the longest exam you will have sat. Not only is it a four-hour paper, but you will also have spent at least two days working directly towards it. Furthermore, in the four hours, you will ordinarily be expected to produce only one piece of output (such as a report), although it may have a number of sections. If you have prepared properly, you should find that the four hours are not enough for you to say all that you would like to say in the report, and the challenge will be to discipline yourself to answer the requirements you have been set.

Your two days of direct preparation will have been spent familiarising yourself with, and analysing, the Advance Information about the organisation on which your Case Study exam paper is to be based. At the end, you will know the entity as though it were your client or employer, and you will have settled yourself into the role that you are going to be asked to take on in the exam. You will also have an understanding of the industry sector in which the organisation is based. A suggested approach is set out in the Elite Cars case, and further general guidance is given below.

2.2.2 Differences expected in student preparation prior to the exam

What is the recommended preparation time for the Case Study? You begin your preparation as soon as you start your training contract, because the main distinguishing feature of the Case Study is that it is a real-life situation requiring you to bring to bear all the expertise and experience that you have accumulated since your first day at work.

Developing your skills cannot be done in the final weeks before the exam. You will need to have planned your skills development programme as soon as you have completed your Professional Stage exams.

2.2.3 Difference in the assessment method for the Case Study

The Case Study is marked by reference to a Competency Based Assessment (CBA) key. All the marks are awarded for the demonstration of professional skills. Where you are required to demonstrate your technical knowledge, marks will be awarded in the context of how you analyse the problem and structure your solutions. Because of this focus on skills, there will not be a right or wrong answer (there may be for individual calculations, but these will form only a small part of the total).

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3 The Case Study structure

3.1 The Advance Information Four weeks prior to your exam, you will receive the Advance Information. This is a pack of (typically) 50-60 pages covering:

You, your firm/employer, your role and your client or business The commercial sector in which your client or business operates Financial and commercial information about your client or business Other information relevant to the case (e.g. customers, suppliers, potential acquirers or targets etc)

The Advance Information typically consists of 10-15 exhibits under one or more of these headings. Some of them will be mainly in narrative form (e.g. an industry overview), others will be largely numerical (e.g. extracts from a set of financial statements), and the remainder will be a mixture of the two (e.g. a business plan).

The documents will also be in a variety of formats and styles: there may be an internal memorandum, a survey commissioned from an external industry consultant, a letter from a public body, and so on. One of your tasks will be to unravel all the stakeholders and understand their perspectives on the business. But, regardless of these differences in content and style, the exhibits will all operate together so as to form a whole picture, and there will be connections or perhaps contradictions between them that you may be able to spot only on a very careful reading.

The numerical material could be in a form that you are familiar with and use in daily practice, such as current IFRS, or the material may be presented in an alternative format such as national GAAP, regulated, or other format with which you are not familiar. If the information is not in a standard conventional format, this would suggest that the examiner is likely to make some use of that format in the exam. You would therefore be well advised to familiarise yourself with the key aspects of it so that you feel comfortable in the exam itself.

The Advance Information will always include some background information on the industry in which the business operates. It might also provide details on a technical area that is relevant to the industry or to businesses of the same type and which is outside the syllabus for the Professional Stage and the TI (in the November 2005 Case Study, Rutwater, the regulations of the UK water industry featured prominently). The purpose of this is twofold: (i) to ensure that those candidates without practical experience of this technical area are not at a disadvantage; and (ii) to indicate that all applicable information on the area is included and candidates do not have to undertake any significant further research on it.

The purpose of issuing the Advance Information early is to allow you time to familiarise yourself with its contents, and to undertake any research and analysis you think fit. The intention is that, by the time you have finished working on the Advance Information, you will know the material as though it related to an organisation with which you have had dealings in your work (and the Case Study is always based on real entities). The examiners expectations are set out clearly in the standard rubric, reproduced below with the bold text as it appears.

This material is issued prior to the examination so as to allow you to familiarise yourself with the information provided and undertake any research and analysis you think fit. This information is also published on the website: www.icaew.com/students.

You MUST bring this material with you to the Examination Hall, annotated if you wish, together with your preparatory work. Once you have read the material, you are not expected to spend more than two days working on it: this would include familiarisation with the information provided, additional research and analysis, developing an awareness of the industry, discussion and assembling your preparatory work for use in the examination.

The use of pre-prepared study material will not significantly help you in your preparation for this examination. It is essential that you carry out sufficient analysis work of your own in order to have a good understanding of the Advance Information. You will not benefit from taking large quantities of additional material with you into the Examination Hall.

At the start of the examination you will receive some additional material which will complete the description of the case scenario and state the Case Study requirements. Your answer must be submitted on the paper provided by the ICAEW in the Examination Hall. Any pre-prepared papers or papers comprising annotated exhibits from the case material included in your answer WILL NOT be marked.

Assessment of the Case Study

All of the marks in the Case Study are awarded for professional skills allocated broadly as follows:

Assimilating and using information 20% Structuring problems and solutions 25% Applying judgement 25% Drawing conclusions and making recommendations 20% Demonstrating integrative and multidisciplinary skills 5% Presenting appropriate appendices 5% Of the total marks available, 15% are awarded for the executive summary and approximately 10% for the relevant discussion of ethical issues within your answer to the requirements. Ethical issues do not form a specific requirement but, within a requirement, may cover such topics as:

Lack of professional independence Conflicts of interest among stakeholders Doubtful accounting or commercial practice Inappropriate pressure to achieve a reported result.

You should be clear that marks are awarded for demonstrating your professional skills, not for reproducing facts from the case. In order to be successful, you will need to:

Demonstrate your knowledge of the case material and make use of your research

Carry out relevant analysis of the problems and your proposed solutions

Apply your judgement on the basis of the analysis that you have carried out

Draw conclusions from your analysis and judgement and develop them into practical commercial recommendations.

Omitting any one of these elements will have a significantly detrimental effect on your chances of success.

3.2 How to use the Advance Information Thorough preparation is one of the keys to success in the Case Study, given its breadth of subject matter and its assessment of Professional Skills. The required preparation can be broadly listed under five main headings:

Familiarisation with the information provided Strategic analysis Financial analysis Developing industry and business awareness including ethical considerations Integrating and assembling your preparatory work

Examples of questions that could be asked or matters that could be considered under each of the above headings are as follows:

Familiarisation with the information provided

What information has been provided? What is your role? What sort of organisation is the subject business? What ethical issues may be discerned? What information might you need which has not been provided?

Strategic analysis

Where is the business in its life cycle? What generic issues face businesses at this point?

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Financial analysis

Is the business making good profits, marginal profits or making a loss? How does it make its profits? Why is it making losses? Is its balance sheet strong or weak? Is it appropriately financed? Is it generating or absorbing cash?

Developing industry, business and ethical awareness

What are the current industry issues? What are the top companies doing at the moment? How can you use your personal experience?

Integrating and assembling your preparatory work

What opportunities are there to brainstorm with colleagues?

What opportunities are there to talk with managers and partners or other senior colleagues?

What opportunities are there to make presentations on issues to the class or the learning group?

How can you create a clear structure and cross-referencing system?

How will you use your information?

In summary, the recommended strategy is to familiarise yourself with the Advance Information to the point where you feel at ease with all sections of it and how they connect with each other. You may well want to identify some general headings under which the requirements are likely to occur e.g. takeover by one of the named large players in the market, appraisal of a new development project but the key is to be flexible so that you can adapt your approach in the exam itself according to the new information presented to you.

3.3 Additional analysis and research The rubric quoted above refers to additional analysis and research although this may vary from case to case. Generally you are expected to do a small amount of research yourself so as to enhance your familiarity with the industry. This should not be extensive; and, if you are working in a group, you will find that you can do it efficiently by allocating specific research tasks to each member and then sharing the output. Your technical knowledge from Professional Stage and TI is the framework in which to develop your wider business knowledge.

Having a good understanding of the areas that are covered will give you the background knowledge with which to assess the particular industry in which the subject company operates.

You can buy a good quality business newspaper (e.g. in the UK the Saturday edition of the Financial Times, which gives an excellent round-up of the weeks news), read the Economist or subscribe to a news articles service that can send messages direct to your desktop, palmtop or mobile phone.

There is about a month between the publication of the Advance Information and the exam, and so you will want to ensure that you are alert to developments in the industry during this period.

3.4 The Exam Paper (EP) In the exam itself, you will be issued with some more information (the Exam Paper), comprising 10-15 pages and usually spread across another 4-5 exhibits. This completes the scenario and sets out the exam requirements.

The Exam Paper will like the Advance Information consist of documents in a variety of formats and with a combination of words and numbers. The numbers will be in a format that is familiar, whether IFRS, national GAAP or some other convention that you will have been given a chance to assimilate in the Advance Information. Like the Advance Information, the Exam Paper comes with a standard rubric (reproduced below) and you should ensure you are familiar with it before you go into the exam.

DO NOT TURN OVER UNTIL YOU ARE TOLD TO DO SO

1 When instructed:

(a) check that your question paper contains all the required pages. The Institutes consecutive page numbering may be found under the base line at the foot of each page;

(b) enter your candidate number in the box provided above.

2 Number each page of your answer consecutively using the space provided at the top right of each sheet. Ensure that your candidate number is written on each page of your answer.

3 After the instruction to stop writing at the end of the paper, you will be given five minutes to assemble your answer in this folder. Fasten your complete script inside this folder using the hole in the back page and the tag provided. Do not include your question paper in the folder.

4 Answer folders and examination stationery, used or unused, must not be removed from the Examination Hall. Question papers may, however, be retained by candidates.

5 Your answer must be submitted on the paper provided by the ICAEW in the Examination Hall. Any pre-prepared papers, or papers comprising annotated exhibits from the case material, included in your answer WILL NOT be marked by the examiners.

The Exam Paper will comprise one or more requirements, with or without separate components, and these could interact in a number of ways, so it is essential that you read them very carefully and understand at the outset of the exam exactly what it is that you are being asked to do. For example, you could be asked to:

Draft a report to the client dealing with two or three interrelated aspects of the clients business

Produce a set of 'notes' for your boss about a possible transaction, with a separate covering summary drawing attention to key matters

Write a letter to a third party answering questions it has raised about your clients activities

Prepare information for a partner who is to lead a meeting with a prospective new client

The specific requirement for each exam is set out in the following form (the example provided relates to a report for a client).

Requirement

You are required to prepare a draft report as set out in the email from the partner in your firm to you. Your report should comprise the following four elements:

An executive summary

Your responses to the three detailed requirements as set out in Exhibit **, including financial appendices (as required).

State clearly any assumptions that you make.

Your report should be balanced across the three detailed requirements and the following time allocation is suggested:

Reading and planning 1 hour Performing calculations and financial analysis 1 hour Drafting report 2 hours

You will not be able to identify the actual exam requirements from the Advance Information, but good preparation will mean that you will be able to identify the relevant background issues quickly in the exam. You will also be able to decide which parts of the syllabus can be applied to answering the requirements.

With your preparation in place, in the exam you will be able to apply your analysis to the requirements that link back to the Advance Information, leaving yourself more time to consider how to use the Exam Paper that you are seeing for the first time.

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4 Case Study assessment and the marking key

4.1 Marks allocation The rubric in the exam paper continues as follows:

All of the marks in the Case Study are awarded for the demonstration of professional skills, allocated broadly as follows:

Applied to the four elements of your report (as described above)

Assimilating and using information 20% Structuring problems and solutions 25% Applying judgement 25% Drawing conclusions and making recommendations 20% 90%

Applied to your report as a whole

Demonstrating integrative and multidisciplinary skills 5% Presenting appropriate appendices 5% 100%

Of the total marks available, 15% are awarded for the executive summary and approximately 10% for the relevant discussion of ethical issues within your answer to the requirements.

In planning your report, you should be aware that not attempting one of the requirements will have a significantly detrimental effect on your chances of success, as will not submitting an executive summary. In addition, as indicated above, all four skills areas will be assessed under each of the four elements of your report. Accordingly, not demonstrating your judgement and/or failing to include appropriate conclusions and recommendations in each element of your report will affect your chances of success.

Details of the particular skills and attributes that the examiners are looking for under each of the professional skills are set out in the tables below.

It is important for candidates to focus on the fact that it is the evidence of their professional skills that is being assessed. Unsuccessful candidates are likely to produce facts with no analysis or judgement.

For each exam paper, a marking key is developed using the following criteria:

There will be five areas in which marks are given: the executive summary; the three requirements in the exam; and integrative and multidisciplinary skills (including relevant financial appendices).

There will be 10 Skills Assessment Boxes (SABs) (see below for definition) for each of the three requirements, 6 for the executive summary and 4 for integrative and multidisciplinary skills that apply to the document as a whole (2 of which are for the financial appendices).

Across the whole paper, there will thus be 40 SABs, the majority for structuring problems and solutions, and applying judgement.

4.2 Constructing the marking key The Case Study marking keys are constructed specifically for each exam and use a process called Competency Based Assessment (CBA). The starting-point is the generic competencies that are set out below and are linked to the assessed skills in the Assessment Grid in section 2 of the Introduction. These are lists of all the areas in which professional skills might be assessed in a Case Study exam. However, not all will be relevant to any given Case Study; the examiners select those that are relevant to ensure that the marking of successive cases is comparable.

Having selected the required competencies for the exam, the examiners will then set out the specific basis on which each competency for each of the five areas is to be assessed. This will comprise a set of possible facts, technical and ethical knowledge, outputs from analysis, implications from the analysis, conclusions and recommendations.


Structuring problems / solutions Applying judgement

Conclusions and recommendations

Uses the Advance Information (AI), Exam paper (EP), knowledge of ethical codes and professional experience to define the specific issue / situation

Uses own understanding of context and findings

Describes wider context

Identifies business issues

Understanding of business entity

Position in industry sector

Appreciation of wider economy

Recognises where business is in its life cycle

Identifies and uses key information

Demonstrates technical knowledge

Uses professional experience

Uses relevant strategic analytical tools (SWOT, PESTEL, Porters 5 Forces)

Performs relevant analysis

Produces quality analysis

Depth

Breadth

Logic

Reasonableness

Uses knowledge of ethical codes and professional experience to perform relevant analysis

Financial data analysis:

Uses appropriate analytical tools (valuation methodologies, sensitivity analysis)

Performs relevant analysis on

Numerical data

Other information


Builds on implications of analysis

Identifies and uses key financial information

Recognises linkages

Prioritises key points

Evaluates options

Discusses output

Pros / cons

Demonstrates professional scepticism

Demonstrates objectivity/ balance

Demonstrates an appreciation of more than one side / bias

Evaluates options

Evaluates key points

Uses knowledge of ethical codes and professional experience

Draws conclusions linked to analysis and judgement

Makes practical commercial recommendations

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Structuring problems / solutions Applying judgement


Financial statement analysis:

Uses appropriate analytical tools to measure financial performance, identify trends and make comparisons

Performs relevant analysis on

Financial statements

Other information


Provides terms of reference

Provides executive summary consistent with report

Demonstrates appropriate balance between topics

Uses sufficient but not excessive sub-divisions

Uses appropriate notes and bullets

Uses style / language for audience; appropriate tact

Avoids repetition

Appropriate appendices

Titled and cross- referenced

Clear calculations

No excessive text

Provides a coherent answer to the question

As there are 10 SABs for each of the three requirements, you should ensure that you allow yourself enough time to answer each part of all the requirements in as much detail as you can.

A typical allocation of grades might be as follows:

Requirements A&UI SP&S AJ C&R Total

Executive summary 1 2 1 2 6

Requirement 1 2 3 3 2 10



7 11 10 8 36

Overall paper: Report

2

Overall paper: Appendices

2

TOTAL 40 (Key to professional skills: A&UI = Assimilating and using information; SP&S = Structuring problems and solutions; AJ = Applying judgement; C&R = Drawing conclusions and making recommendations)

As can be seen from the table above, not attempting one of the requirements has a significantly detrimental effect on your chances of success, as does not submitting an executive summary. In addition to the importance of good preparation, the table clearly demonstrates the cascade effect of weak analysis (structuring problems and solutions) and poor judgement, with almost 60% of the SABs available being awarded for these skills. AJ in particular is a skill with which many candidates struggle: it manifests itself in a number of ways but in the Case Study it usually entails the need to challenge assumptions or to apply professional scepticism to facts and figures supplied by people or entities that may have vested interests.

It is likely that the exam requirements will comprise a series of components that interact in a number of ways. For example, you might be required to prepare a report that comprises:

The assessment of the financial impact of a number of events

An evaluation of an adjusted set of financial forecasts, taking into account these events

A discussion of the options that management could consider in the light of the impact of these events on their strategy for the business.

The marking key would comprise five sections being:

Executive summary Financial assessment Financial forecasts Strategic options Overall paper

Although there would be SABs available for each requirement individually, there would also be marks for how you linked the three requirements to produce a comprehensive report.

4.3 How are grades awarded? Each competency is assessed by reference to four levels:

Clearly competent (CC) candidates have to show that they have understood the requirement and have provided relevant evidence relating to most of the assessment criteria in the SAB.

Sufficiently competent (SC) candidates have to show that they have understood the requirement and have provided sufficient (some or enough) relevant evidence relating to the assessment criteria in the SAB.

Insufficiently competent (IC) candidates have shown only a partial understanding of the requirement and/or provided insufficient evidence relating to the assessment criteria in the SAB.

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Insufficiently demonstrated (ID) candidates have made an attempt to demonstrate the skill required but there is little or sparse evidence of their understanding of what is required.

If there is no evidence of you having addressed the competency, it will be marked as 'Not attempted'.

Not attempted (NA) candidates have not provided any evidence to show that they have understood the requirement or demonstrated the skill required. NA means that under that SAB nothing relevant has been provided.

Finally your competency for each of the four skills areas is reviewed overall by reference to the guidelines set out overleaf and an overall mark is awarded.

The professional skills that are assessed in the Case Study are themselves interrelated. In general:

Without sufficient familiarity of the Case Study information and wider business issues, by definition your analysis will be weak

Inadequate analysis of the problems and structuring of your solutions will leave you without a proper basis for exercising your judgement

If you are unable to demonstrate your application of judgement, it is unlikely that you will provide sufficient support for your conclusions

Without properly developing conclusions, you will have no basis for making your recommendations.

In the grades for the overall paper, your integrative and communication skills will be assessed.

Make sure that you know to whom you are writing. Having identified your audience, keep it in mind throughout. Each audience will have different requirements and expectations. Regardless of the audience, you will need to:

Avoid technical jargon and colloquialisms use simple language Be professional Be succinct Be relevant Be tactful

Finally, your report as a whole must answer the requirements that have been set, not those that you would like to have answered.

Clearly competent (CC)


Good definition of situation Extensive use of AI & EP/ethical framework/own understanding Good description of wider context

Structuring problems and solutions

Mostly correct/relevant analysis Good depth and breadth of analysis Good integration of numbers and words

Applying judgement Good links with output/analysis Good prioritisation of issues Good evaluation of options/balance/bias Good demonstration of professional scepticism


Draws conclusions on all issues Good linkage to analysis and judgement Makes good range of recommendations Good practicality and commerciality

Sufficiently competent (SC)


Reasonable definition of situation Adequate use of AI&EP/ethical framework/own understanding Reasonable description of wider context


Mainly correct/relevant analysis Reasonable depth and breadth of analysis Reasonable integration of numbers and words

Applying judgement Reasonable links with output/analysis Reasonable prioritisation of issues Reasonable evaluation of options/balance/bias Reasonable demonstration of professional scepticism


Draws conclusions on most issues Reasonable linkage to analysis and judgement Makes some recommendations Reasonable practicality and commerciality

Insufficiently competent (IC)


Weak definition of situation Some use of AI & EP/ethical framework/own understanding Weak description of wider context


Mainly incorrect/irrelevant analysis Weak depth and breadth of analysis Weak integration of numbers and words

Applying judgement Weak links with output/analysis Weak prioritisation of issues Weak evaluation of options/balance/bias Weak demonstration of professional scepticism


Draws some conclusions Weak linkage to analysis and judgement Makes few recommendations Weak practicality and commerciality

Insufficiently demonstrated (ID)


Poor definition of situation Minimal use of AI & EP/ethical framework/own understanding Poor description of wider context


Mostly incorrect/irrelevant analysis Poor depth and breadth of analysis Weak integration of numbers and words

Applying judgement Poor links with output/analysis Poor prioritisation of issues Poor evaluation of options/balance/bias Poor demonstration of professional scepticism


Draws few conclusions Poor linkage to analysis and judgement Makes minimal recommendations Impractical or uncommercial recommendations

4.4 How is numerical work rewarded? The Case Study will always require you to perform some calculations, though the extent of these will vary from case to case. What will not change, however, is their purpose. With this in mind, the marks awarded for calculations are spread across the professional skills.

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You could potentially be awarded marks across all four skills areas. For example, if you are asked to calculate an offer price for a business your client is seeking to acquire, you could gain credit (i) in 'Assimilating and using information', for applying a P/E ratio from the Advance Information to an earnings figure; (ii) in 'Structuring problems and solutions', for commenting on your choice of P/E ratio and earnings figure; (iii) in 'Applying judgement', for adjusting this earnings figure for seasonal distortions; (iv) in 'Drawing conclusions and making recommendations', for suggesting a price that is logically derived from the foregoing work. You will also score marks for making due reference to this outcome in your executive summary and under 'Overall paper: Appendices for presenting your calculations clearly and stating appropriate workings and assumptions.

4.4.1 What does a marking key look like?

An extract from a sample marking key is provided overleaf. It relates to the analysis of an offer to acquire a business from the perspective of the target business, its owners and management.

You will see that within the columns of the marking key there are different numbers of SABs indicating the different weightings within this topic of the professional skills being assessed. There are two SABs for Assimilating and Using Information (A&UI); three SABs for Structuring Problems and Solutions (SP&S); three SABs for Applying Judgement (AJ); and two SABs for Conclusions and Recommendations (C&R). This is a typical weighting of skills assessment for most topics.

4.4.2 Translation of initial grades to final marks

The overall marks are built up from the individual competencies, with marks awarded as follows:

Clearly competent 6

Sufficiently competent 4

Insufficiently competent 2

Insufficiently demonstrated 1

Not attempted 0

In order to ensure that the marking of each Case Study is comparable, weighting factors are applied to the grades, based on the actual cohort of candidates sitting the exam and calculated individually for each Case Study exam following a reflective process. The result is a final mark out of 100; the pass mark is 50.

Uses relevant AI & EP info to adjust cashflow forecast Comments on impact of adjusting cashflow IS: employment costs

NA ID IC SC CC

Comments on cashflow forecast

Identifies months when o/d breachedNA ID IC SC CC

Describes wider context

Partnership changed to limited company

Partners v directors roles / directors' responsibilities

Business currently near overdraft limit

Elite position very weak in the short term / variable historically

Own research

NA ID IC SC CC

NA ID IC SC CC

Comments on proposed finance

Deteriorating cashflow position

NA ID IC SC CC

ASSIMILATING & USING INFORMATION STRUCTURING PROBLEMS & SOLUTIONSREQUIREMENT 1 - FUNDING REQUIREMENTS

Bank loan finance delay (980k Nov->Jan)

Increase in NCA expenditure (20k Aug, 25k Sept)

Additional tax payment (40k Dec)

Share capital injection delay (500k Nov->Jan) IS: overheads / depreciation

IS: interest / dividends

BS: NCA

BS: inventory

AR slowdown (eg 20k Sept, 30k Oct, reverse 50k in year)

Suggested exit payment to J & G (300k Apr)

Identifies issue of finance delay v bank o/d limit terms

Identifies peak funding requirement

Identifies change from bank o/d to bank loan

Explains adjustments / assumptions

Problems caused by errors and delays

Taking up new funding from NWF will ease cashflow

Loss of control if new funding accepted

Bank o/d will need to be renegotiated

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Evaluates key points Draws conclusions (under a heading) Considers / explains implications for J & G

Elite is running out of cash / profit & BS overstated

Considers implications for future shareholders

Considers implications of breaching o/d terms

Cashflow is a critical issue for Elite

Recognises linkages between areas

AR delay v staff cover and ability

Errors on NCA forecast v staff competence

Effect of NWF timing v bank terms

NA ID IC SC CC

Makes recommendations

Appreciates possible bias / scepticism

Ensure forecast figures correct / need for staff training

Forecasts prepared by Elite management

Need to prepare longer term forecasts

Try to renegotiate continuation / new o/d terms

Possible over-optimism on sales and receipts

Implement profit & cash monitoring to avoid breaches

NA ID IC SC CC

Pressure not to breach o/d terms

Adjs from a letter / not confirmed by JED

CONCLUSIONS AND RECOMMENDATIONSAPPLYING JUDGEMENT

NA ID IC SC CC NA ID IC SC CC

NA ID IC SC CC

CCSCICIDNA

Total 10

Cash flow problem exacerbated by exit plans

Short time frame for action / renegotiation with bank

Elite should not be operating at max o/d level all the time

Further breaches may trigger personal guarantees Considers critical nature of profit calculation

Considers need for sensitivity analysis

Profit overstatement v loan and VC criteria

Bank loan conditional on getting NWF funding

J & G exit terms will breach new o/d limit Consider slowing payments to creditors

Known 'errors' already / poor staff supervision?

May be further (as yet unknown) adjustments

4.5 What is an appropriate grade profile? The range of grades awarded to each requirement varies from paper to paper depending on the subject matters. To ensure a pass, a candidate should aim to achieve more than 50% passing grades (SC or CC) in each of the requirements.

4.5.1 Applying your knowledge of the Learning Materials

Grades available in the Case Study relate to the application of your use of your professional skills and business knowledge. Nevertheless, a good technical grounding is an essential foundation. The Advanced Stage syllabus comprises the following:

Audit and assurance Business strategy Corporate reporting Ethics Taxation

Accordingly, you need to consider the major issues for any business entity in each of these areas, given the entitys stage in its life cycle.

4.5.2 Understanding the stage of the business in its life cycle

Your use of the Advance Information needs to take place at several different levels. Some exhibits such as any industry overviews are contextual and provide the background for your required output. Others, such as the subject entitys financial statements, will need to be used in much greater detail. Others still, such as a list of the entitys key clients, may come somewhere in the middle.

However, there is one vital question that you will have to get clear at the outset, as this will have a pervasive impact on your preparation: at what stage in its life cycle is the business? This will determine the appropriate framework for any required discussion of its business strategy, financial strategy or business transformation issues.

4.5.3 Understanding the role of the candidate in the case

Your role in the case will be as a student in the final year of his/her training contract, which might be in a:

Professional accountancy practice Company outside the accountancy profession Central or local government department Statutory agency or regulator Not-for-profit organisation.

You may also be on secondment to a client or another department in your organisation. It is important that you appreciate your required role, as this will provide the appropriate perspective for your exam output.

4.5.4 Demonstration of communication skills executive summary

The 'executive summary' in the exam can be in one of a number of possible formats, so you need to be aware in broad terms of the main characteristics of each of these when you go into the exam. You may want to have a checklist with you.

This summary and the financial analysis contained in the numerical appendices (which are rewarded separately) are two items that will almost always be required. These are key features of the Case Study and are covered later in this Case Study Manual.

4.5.5 Quality v quantity

'How much do I have to write in order to pass the Case Study?'

Passing the Case Study is nothing to do with how much you write and everything to do with what you write. The aim of the exercise is to keep your script relevant. The longer scripts tend to be those that are padded out with irrelevant material, an inevitable consequence of which is that their authors run out of time to spend on the bits that really matter.

4.5.6 Differentiators

From previous Case Study exams, the examiners have identified features that regularly distinguish successful candidates from failing ones. Here (in no particular order) are the top ten most common differentiators, or critical success factors:

Good-quality financial analysis that makes the numbers talk A succinct executive summary that covers all of the major issues An absence of irrelevant material Use of material from both the Advance Information and the Exam Paper Development of analysis through judgement into reasoned recommendations and conclusions Inclusion of innovative (but realistic) ideas Comprehensive coverage of all parts of the requirements References to economic and industry factors including ethical iss

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