To develop knowledge and understanding of financial management methods for analysing the benefits of various sources of finance and capital investment opportunities, and of the applicati
Trang 1To develop knowledge and understanding
of financial management methods for
analysing the benefits of various sources of
finance and capital investment
opportunities, and of the application of
management accounting techniques for
business planning and control
OBJECTIVES
On completion of this paper candidates
should be able to:
• explain the role and purpose of financial
management
• evaluate the overall management of
working capital
• evaluate appropriate sources of finance
for particular situations
• appraise capital investment through the
use of appropriate methods
• identify and discuss appropriate costing
systems and techniques
• prepare budgets and use them to
control and evaluate organisational
performance
• understand the basic principles of
performance management
• critically assess the tools and
techniques of financial management
and control
• demonstrate the knowledge,
understanding, skills, abilities and critical
evaluation expected in Part 2
POSITION OF THE PAPER IN THE OVERALL SYLLABUS
Students must have a thorough knowledge
of the material in Paper 1.2 Financial Information for Management and a good knowledge of other Part 1 papers
Financial Management and Control is integrated with other Part 2 papers by providing a management decision framework within which some aspects of the Part 2 syllabus are developed The effects of capital allowances and corporation tax on capital investment appraisal are examinable Knowledge gained from Paper 2.3 Business Taxation (UK) will be useful in this respect
Financial Management and Control is developed in Part 3 into advanced study of Performance Management (Paper 3.3) and Strategic Financial Management (Paper 3.7)
SYLLABUS CONTENT
1 Financial management objectives
(a) The nature, purpose and scope of financial management
(b) The relationship between financial management, management accounting and financial accounting (c) The relationship of financial objectives and organisational strategy
(d) Problems of multiple stakeholders in financial management and the consequent multiple objectives (e) Objectives (financial and otherwise)
in not-for-profit organisations
2 The financial management environment
(a) Financial intermediation and credit creation
(b) Money and capital markets (i) Domestic and international (ii) Stock markets (both major markets and small firm markets)
3.3 Performance Management 3.7 Strategic Financial Management
2.4 Financial Management and Control
1.2 Financial Information for Management
Trang 2(c) The Efficient Markets Hypothesis.
(d) Rates of interest and yield curves
(e) The impact of fiscal and monetary
policy on business
(f) Regulation of business (for example,
pricing restrictions, green policies
and corporate governance)
3 Management of working capital
(a) The nature and scope of working
capital management
(b) Funding requirements for working
capital
(c) Working capital needs of different
types of business
(d) The relationship of working capital
management to business solvency
(e) Management of stock, debtors, short
term funds, cash, overdrafts and
creditors
(f) Techniques of working capital
management (including ratio
analysis, EOQ, JIT, credit evaluation,
terms of credit, cash discounts,
factoring and invoice discounting,
debtors cycles, efficient short-term
fund investing, cash forecasting and
budgets, Miller-Orr model, basic
foreign exchange methods,
probabilities and risk assessment,
terms of trade with creditors)
4 Sources of finance
(a) Sources and relative costs
(including issue costs) of various
types of finance and their suitability
to different circumstances and
organisations (large and small, listed and unlisted) including:
(i) access to funds and the nature of business risk
(ii) the nature and importance of internally generated funds (iii) capital markets (types of share capital, new issues, rights issues, loan capital, convertibles, warrants)
(iv)the effect of dividend policy on financing needs
(v) bank finance (short, medium and long term, including leasing) (vi) trade credit
(vii) government sources: grants, regional and national aid schemes and tax incentives
(viii) problems of small company financing (collateral, maturity funding gap, risk)
(ix)problems of companies with low initial earnings (R&D, Internet, and other high-technology businesses)
(x) venture capital and financial sources particularly suited to the small company
(xi)international money and capital markets, including an introduction
to international banking and the finance of foreign trade
(b) Requirements of finance (for what purpose, how much and for how long) in relation to business operational and strategic objectives
(c) The importance of the choice of capital structure: equity versus debt and basic analysis of the term profile
of funds
(d) Financial gearing and other key financial ratios and analysis of their significance to the organisation (e) Appropriate sources of finance, taking into account:
(i) cost of finance (ii) timing of cash payments (iii) effect on gearing and other ratios (iv)effect on company’s existing investors
5 Capital investment appraisal
(a) Discounted cash flow techniques (i) simple and compound interest (ii) net present value
(iii) annuities and perpetuities (iv) internal rate of return (v) future value
(vi)nominal interest
(b) Appraisal of domestic capital investment opportunities for profit making and not-for-profit organisations through the use of appropriate methods and techniques (i) the risk / return relationship (ii) return on capital employed (iii) payback
(iv)internal rate of return (v) net present value (vi)single and multi-period capital rationing
(vii) lease or buy decisions
Financial Management and Control (Continued)
Trang 3(viii) asset replacement using
equivalent annual cost
Including (in categories (i)-(viii))
the effects of taxation, inflation,
risk and uncertainty(probabilities,
sensitivity analysis, simulation)
6 Costing systems and techniques
(a) The purpose of costing as an aid to
planning, monitoring and control of
business activity
(b) Different approaches to costing
(c) Costing information requirements
and limitations in not-for-profit
organisations
(d) Behavioural implications of different
costing approaches including
performance evaluation
(e) Implications of costing approaches
for profit reporting, the pricing of
products and internal activities/
services
7 Standard costing and variance analysis
(a) Standard costing
(i) determination of standards
(ii) identification and calculation of
sales variances (including quantity
and mix), cost variances (including
mix and yield); absorption and
marginal approaches
(iii) significance and relevance of
variances
(iv)operating statements
(v) interpretation and relevance of
variance calculations to business
performance
(b) Planning and operational variances
(c) Behavioural implications of standard costing and variance reporting
8 Budgeting and budgetary control
(a) Objectives of budgetary planning and control systems including aspects of behavioural implications
(b) Evaluation of budgetary systems such as fixed and flexible, zero based and incremental, periodic, continuous and activity based
(c) Development, implementation and coordination of budgeting systems:
functional, subsidiary and master/
principal budgets (including cash budgeting); budget review
(d) Calculation and cause of variances
as aids to controlling performance
(e) Quantitative aids to budgeting and the concepts of correlation, basic time series analysis (seasonality) and forecasting; use of computer based models
(f) Behavioural implications of budgeting and budgetary control
9 Performance measurement
(a) Measurement of productivity, activity, profitability and quality of service (b) Relationship of measure to type of entity and range of measures, both monetary and non-monetary (c) Indices to allow for price and performace changes through time (d) Evaluating performance against objectives and plans, and identifying
areas of concern from the infomation produced
(e) The impact of cost centres, revenue centres, profit centres and investment centres on management appraisal
(f) Difference between business performance and management performance
(g) Benchmarking
EXCLUDED TOPICS
The following topics are specifically excluded from the syllabus:
• Calculations involving the derivation of cost of capital in discounting problems Candidates will always be supplied with
an appropriate discount rate
• Calculations relating to Modigliani and Miller propositions
KEY AREAS OF THE SYLLABUS
The core of the syllabus is aimed at developing the skills required in supporting managerial decision making They reflect the core competencies needed for students
to satisfy the aim of the paper identified above; The core areas are:
• financial management objectives
• management of working capital
• sources of finance
• capital investment appraisal
• costing systems
• standard costing and variance analysis
• budgeting and budgetary control
• performance management
Trang 4APPROACH TO EXAMINING THE
SYLLABUS
The examination is a three hour paper in
two sections Financial management
issues will always, but not exclusively, be
examined in Section A The Section A
question will typically be a scenario based
question Most of the Section B questions
will contain a mix of computation and
discursive elements although it is intended
that at least one question will be entirely
discursive The balance between
computation and discursive elements will
remain largely constant from one
examination to the next
Number
of marks Section A: One compulsory
scenario-based question 50
Section B: Choice of 2 from 4
questions (25 marks each) 50
100
ADDITIONAL INFORMATION
Present value and annuity tables will be
provided in the examination The Study
Guide provides more detailed guidance on
the syllabus
RELEVANT TEXTS
There are a number of sources from which
you can obtain a series of materials written
for the ACCA examinations These are
listed below:
Foulks Lynch – ACCA's official publisher
Contact number: +44 (0)20 8831 9990
Website: www.foulkslynch.com
Accountancy Tuition Centre (ATC) International
Contact number: +44 (0)141 880 6469
Website: www.ptc-global.com
BPP
Contact number: +44 (0)20 8740 2211
Website: www.bpp.com
The Financial Training Company
Contact number: +44 (0)174 785 4302
Website: www.financial-training.com Candidates may also find the following texts useful:
C Drury Management and Cost
Accounting (5th Edition)
International Thomson Business Press ISBN 1861525362
A Griffiths & D Wall
Applied Economics (9th Edition)
F T Prentice Hall ISBN 0273651528
D Watson, A Head Corporate Finance:
Principles and Practice
FT Prentice Hall ISBN 0273651323
Wider reading is also desirable, especially regular study of relevant articles in ACCA's
student accountant.
Financial Management and Control (Continued)
STUDY SESSIONS
1 The Economic Environment I
Macroeconomic objectives (a) Identify and explain the main macro-economic policy targets
(b) Explain how government economic policy may affect planning and decision-making in business (c) Define and explain the role of fiscal, monetary, interest rate and exchange rate policy
Fiscal Policy (d) Identify the main tools of fiscal policy
(e) Explain how public expenditure is financed and the meaning of PSBR (f) Explain how PSBR and taxation policy interact with other economic indicators
(g) Identify the implications of fiscal policy for business
2 The Economic Environment II
Monetary, inflation and exchange rate policy
(a) Identify the main tools of monetary policy
(b) Identify the factors which influence inflation and exchange rates, including the impact of interest rates (c) Identify the implications of
monetary, inflation and exchange rate policy for business
Trang 5Aspects of government intervention and
regulation
(d) Explain the requirement for and the
role of competition policy
(e) Explain the requirement for and the
role of official aid intervention
(f) Explain the requirement for and the
role of Green policies
(g) Identify examples of government
intervention and regulation
3 The nature and scope of financial
management
(a) Broadly describe the relationship
between financial management,
management accounting and
financial accounting
(b) Discuss the nature and scope of
financial objectives for private sector
companies in the context of
organisational objectives
(c) Discuss the role of social and
non-financial objectives in private sector
companies and identify their
financial implications
(d) Identify objectives (financial and
otherwise) in not-for-profit
organisations and identify the extent
to which they differ from private
sector companies
(e) Discuss the problems of multiple
stakeholders in financial
management and the consequent
multiple objectives and scope for
conflict
4 The financial management framework
(a) Identify the general role of financial intermediaries
(b) Explain the role of commercial banks
as providers of funds (including the creation of credit)
(c) Discuss the risk/return trade-off (d) identify the international money and capital markets and outline their operation
(e) Explain the functions of a stock market and corporate bond market (f) Explain the key features of different types of security in terms of the risk/
return trade-off (g) Outline the Efficient Markets Hypothesis and assess its broad implications for corporate policy and financial management
(h) Explain the Separation Theorem (i) Explain the functions of, and identify the links between, the money and capital markets
5 Management of Working Capital I
General issues (a) Explain the nature and scope of working capital management (b) Distinguish between cash flow and profits
(c) Explain the requirement for effective working capital management (d) Explain the relationship between working capital management and business solvency
(e) Distinguish between the working capital needs of different types of business
Management of stock (f) Calculate and interpret stock ratios (g) Explain the role of stock in the working capital cycle (h) Apply the tools and techniques of stock management
(i) Analyse and evaluate the results of stock management techniques
6 Management of Working Capital II
Management of creditors (a) Explain the role of creditors in the working capital cycle
(b) Explain the availability of credit and the role of the guarantee
(c) Identify the risks of taking increased credit and buying under extended credit terms
(d) Explain how methods of paying suppliers may influence cash flows
of both parties (e) Discuss the particular problems of managing overseas accounts payable (f) Calculate and interpret creditor ratios (g) Apply the tools and techniques of creditor management
(h) Analyse and evaluate the results of creditor management techniques Management of debtors
(i) Explain the role of debtors in the working capital cycle
(j) Explain how the credit-worthiness of customers may be assessed
Trang 6(k) Evaluate the balance of risks and
costs of customer default against the
profitability of marginal business
(l) Explain the role of factoring and
invoice discounting
(m) Explain the role of early settlement
discounts
(n) Discuss the particular problems of
managing overseas debtors
(o) Calculate and interpret debtor ratios
(p) Apply the tools and techniques of
debtor management
(q) Analyse and evaluate the results of
debtor management techniques
7 Management of Working
Capital III
Management of cash
(a) Explain the role of cash in the
working capital cycle
(b) Calculate optimal cash balances
(c) Describe the functions of, and
evaluate the benefits from,
centralised cash control and
Treasury Management
(d) Calculate and interpret cash ratios
(e) Apply the tools and techniques of
cash management
(f) Analyse and evaluate the results of
cash management techniques
8 Sources of finance I: small and medium sized enterprises (SMEs)
(a) Explain financing in terms of the
risk/return trade-off (b) Describe the requirements for finance of SMEs (purpose, how much, how long)
(c) Describe the nature of the financing problem for small businesses in terms of the funding gap, the maturity gap and inadequate security (d) Identify the role of risk and the lack
of information on small companies
to help explain the problems of SME financing
(e) Explain the role of information provision provided by financial statements (f) Describe the particular financing problems of low-earning/high growth companies
(g) Describe the response of government agencies and financial institutions to the SME financing problem (h) Explain what other measures may be taken to ease the financial problems
of SMEs such as trade creditors, factoring, leasing, hire purchase, AIM listing, business angels and venture capital
(i) Describe how capital structure decisions in SMEs may differ from larger organisations
(j) Describe appropriate sources of finance for SMEs
(k) Calculate and interpret appropriate ratios
9 Sources of finance II: equity financing (a) Describe ways in which a company
may obtain a stock market listing (b) Describe how stock markets operate, including the AIM
(c) Explain the requirements of stock market investors in terms of returns
on investment (d) Calculate, analyse and evaluate appropriate financial ratios (e.g EPS, PE ratio, dividend yield, etc.) (e) Outline and apply the dividend valuation model, including the growth adjustment
(f) Explain the importance of internally generated funds
(g) Describe the advantages and disadvantages of rights issues (h) Calculate the price of rights (i) Explain the purpose and impact of a bonus issue, scrip dividends and stock splits
10 Sources of finance III: debt and near-debt financing
(a) Explain the features of different types
of preference shares and the reasons for their issue
(b) Explain the features of different types of long-term straight debt and the reasons for their issue (c) Explain the features of convertible debt and warrants and the reasons for their issue
(d) Broadly describe the reasons for the choice of financing between preference shares, debt and
near-Financial Management and Control (Continued)
Trang 7debt instruments in terms of the risk/
return trade-off
(e) Assess the effect on EPS of
conversion and option rights
(f) Broadly describe international debt
markets and the financing of foreign
trade
(g) Calculate and interpret appropriate
ratios
11 Sources of finance IV: the capital
structure decision
(a) Explain and calculate the level of
financial gearing
(b) Distinguish between operational and
financial gearing
(c) Outline the effects of gearing on the
value of shares, company risk and
required return
(d) Explain how a company may
determine its capital structure in
terms of interest charges, dividends,
risk and redemption requirements
(e) Explain the role of short term
financing in the capital structure
decision
(f) Explain the relationship between the
management of working capital and
the long term capital structure decision
(g) Calculate and interpret appropriate
ratios
12 Investment decisions
(a) Define and distinguish between
capital and revenue expenditure
(b) Compare and contrast fixed asset
investment and working capital investment
(c) Describe the impact of investment projects on financial statements (d) Calculate payback and assess its usefulness as a measure of investment worth (e) Calculate ROCE and assess its usefulness as a measure of investment worth
13 Interest and discounting
(a) Explain the difference between simple and compound interest (b) Explain the relationship between inflation and interest rates, distinguishing between nominal and real interest rates, and calculate nominal interest rates
(c) Explain what is meant by future values and calculate future values, including application of the annuity formula
(d) Explain what is meant by discounting and calculate present values, including the application of the annuity and perpetuity formula, and the use of present value and annuity tables
(e) Explain the importance of the time value of money and the role of the cost of capital in appraising investments
14 Investment appraisal using DCF methods
(a) Explain the importance of the time value of money and the role of the cost of capital in appraising investments
(b) Identify and evaluate relevant cash flows of potential investments (c) Calculate present values to derive the NPV and IRR measures of investment worth
(d) Explain the superiority of DCF methods over payback and ROCE (e) Assess the merits of IRR and NPV (f) Apply DCF methods to asset replacement decisions
15 Project appraisal allowing for inflation and taxation
Inflation (a) Distinguish general inflation from specific price increases and assess their impact on cash flows (b) Evaluate capital investment projects
on a real terms basis (c) Evaluate capital investment projects
on a nominal terms basis Taxation
(d) Calculate the effect of capital allowances and Corporation Tax on project cash flows
(e) Evaluate the profitability of capital investment projects on a post-tax basis
Trang 816 Project appraisal allowing for risk
(a) Distinguish between risk and
uncertainty
(b) Identify the sources of risk affecting
project profitability
(c) Evaluate the sensitivity of project
NPV to changes in key variables
(d) Apply the probability approach to
calculating expected NPV of a project
and the associated standard deviation
(e) Explain the role of simulation in
generating a probability distribution
for the NPV of a project
(f) identify risk reduction strategies for
projects
(g) Evaluate the usefulness of risk
assessment methods
17 Capital rationing
(a) Distinguish between hard and soft
capital rationing
(b) Apply profitability index techniques
for single period divisible projects
(c) Evaluate projects involving single
and multi-period capital rationing
18 Leasing decisions
(a) Distinguish between operating and
finance leases
(b) Apply DCF methods to projects
involving buy or lease problems
(c) Assess the relative advantages and
disadvantages of different types of
lease
(d) Describe the impact of leasing on
company gearing
19 Costing systems and techniques
(a) Outline and distinguish between the nature and scope of management accounting and the role of costing in meeting the needs of management (b) Describe the purpose of costing as
an aid to planning, monitoring and controlling business activity (c) Different approaches to costing (i) marginal costing and absorption costing
(ii) service costing (iii) theory of constraints and throughput accounting (iv)activity based costing; use of cost drivers and activities
(v) life cycle costing (vi)target costing (d) Describe the costing information requirements and limitations in not-for-profit organisations
(e) Broadly outline the behavioural implications of different costing approaches including performance evaluation
(f) Explain the potential for different costing approaches to influence profit reporting and the pricing of products and internal services (g) Explain the role of costing systems in decision making
20 Standard costing I
(a) Explain the uses of standard costs and the methods by which they are derived and subsequently reviewed
(b) Calculate and evaluate capacity limitations when setting standards (c) Describe the types of standard (ideal, attainable, current and basic) and their behavioural implications (d) Calculate basic labour, material, overhead (variable and fixed) and sales variances, including problems
of labour idle time (e) Explain the reasons for variances (f) Assess appropriate management action arising from the variances identified
21 Standard costing II
(a) Prepare reconciliations using operating statements which (i) reconcile budgeted and actual profit figures, and/or (ii) reconcile the actual sales less the standard cost of sales with the actual profit
(b) Calculate and explain operational and planning variances
(c) Demonstrate how absorption and marginal approaches can be used in standard costing
(d) Calculate mix and yield variances for materials
(e) Calculate mix and quantity variances for sales
(f) Demonstrate an understanding of the inter-relationships between variances (g) Explain the reasons for variances (h) Assess appropriate management action arising from the variances identified
Financial Management and Control (Continued)
Trang 922 Budgetary planning and control I
(a) Identify the purposes of budgetary
planning and control systems
(b) Describe the planning and control
cycle, and the control process
(c) Explain the implications of
controllability for responsibility
reporting
(d) Prepare, review and explain a budget
preparation timetable
(e) Prepare and evaluate functional,
subsidiary and master budgets,
including cash budgets
(f) Explain the processes involved with
the development and
implementation of budgets
(g) Explain the process of participation
in budget setting and how this can
address motivational problems
23 Budgetary planning and control II
(a) Prepare and evaluate fixed and
flexible budgets and evaluate the
resulting variances
(b) Prepare flexed budgets when
standard fixed overhead absorption
is employed
(c) Assess the behavioural implications
of budgetary control and
performance evaluation, including
participation in budget setting
24 Budgetary planning and control III
(a) Describe and evaluate the main
features of zero based budgeting
systems
(b) Describe the areas/organisations in
which zero based budgeting may be applied
(c) Describe and evaluate incremental budgeting and discuss the differences with zero based budgeting
(d) Describe and evaluate periodic and continuous budgeting systems
25 Quantitative aids to budgeting
(a) Describe and apply the techniques of (i) high-low method
(ii) least squares regression (iii) scatter diagrams and correlation (iv) forecasting with least squares regression
(v) time series to identify trends and seasonality
(vi) forecasting with time series (b) Evaluate the results of quantitative aids
26 Indices
(a) Explain the purpose of index numbers, and calculate and interpret simple index numbers for one or more variables
(b) Deflate time-related data using an index
(c) Construct a chained index series (d) Explain the term 'average index', distinguishing between simple and weighted averages
(e) Calculate Laspeyres and Paasche price and quantity indices (f) Describe the relative merits of Laspeyres and Paasche indices
27 Performance measurement
(a) Outline the essential features of responsibility accounting for various types of entiy
(b) Describe the range of management performance measures available for various types of entity
(c) Calculate and explain the concepts
of return on investment and residual income
(d) Explain and give examples of appropriate non-montary performance measures (e) Describe the various types of responsibility centre and the impact
of these on management appraisal (f) Discuss the potential conflict in the use of a measure for both business and management performance (g) Analyse the application of financial performance measures including cost, profit and return on capital employed
(h) Assess and illustrate the measurement of profitability, activity and productivity
(i) Discuss the measurement of quality and service
(j) Identify areas of concern from information supplied and performance measures calculated (k) Describe the features of benchmarking and its application to performance appraisal
28 Revision
Trang 10Financial Management and Control (Continued)