Professional Scheme
Relevant to Paper 1.2, Paper 2.4 and Paper 3.3

The interim syllabus review for Paper 1.2, Financial Information for Management; Paper 2.4, Financial Management and Control; and Paper 3.3, Performance Management has been conducted in conjunction with Oxford Brookes University and the exam panel members of the papers under review (the examiners, assessors, coordinator and ACCA’s Education Department). The comments made by tuition providers at the UK Teachers’ Conference in February 2002 and at annual visits to Premier tuition providers were also taken into consideration when conducting the review.
The general consensus of the tuition providers was that there was too much duplication between Papers 1.2 and 2.4 (for example, discounted cash flow). There was also concern that the syllabus for Paper 1.2 was too wide and included areas – such as budgeting and performance measurement – that might be perceived as being more suitable for examination at a higher level.
The aim of the interim syllabus review was to address these problems and endeavour to solve them. This article concentrates on the major changes to the syllabuses for Papers 1.2, 2.4 and 3.3.
Paper 1.2, Financial Information for Management
The impact of the interim syllabus review has been greatest on this paper in terms of the topics that have been removed. Paper 1.2 was regarded by tuition providers, almost without exception, as being too large in terms of syllabus content, hence the removal of a number of topics.
The following topics (with syllabus references in brackets) have been removed from the Paper 1.2 syllabus and, from June 2004 onwards, are no longer examinable in this paper:
•Activity-based costing (5(b)(iv)) – this is already covered in Paper 2.4.
•Contract costing (4(a)) – removed entirely. It will now not appear as part of the syllabus.
•Time series analysis (6(b)) – this is already covered in Paper 2.4.
•Decision-making with uncertainty (6(f))
- including concept of expected values. This has been moved to Paper 2.4. Decision tree analysis has been completely removed and will now not appear in the syllabus.
•Discounted cash flow techniques (6(I)) including:
- simple and compound interest
- net present value
- annuities and perpetuities
- internal rate of return
- future value
- nominal interest.
These areas will now be covered in Paper 2.4.
•Performance measurement (1(a)(v), (b)(ii), 7) including:
- measurement of productivity, activity, profitability, and quality of service
- relationship of measure to type of entity
- range of measures: monetary and non-monetary
- indices to allow for price and performance changes through time (for example, simple index numbers, Paasche and Laspeyres’ price and quantity indices, and chain index series)
- identification of areas of concern from the information produced
- difference between business performance and management performance
- benchmarking.
These areas will now be covered in Paper 2.4.
•Budgeting (8) – including preparation of fixed and flexible budgets and reporting of actual versus budgeted results. This is already covered in Paper 2.4.
A further amendment to the Paper 1.2 syllabus is to Section 5 – Costing methods and techniques, which has been amended to include explanations of variances and control.
Click here to read the examiner’s approach to examining Paper 1.2.
Paper 2.4, Financial Management and Control
As previously detailed above, the following topics have been transferred from Paper 1.2 to Paper 2.4:
•Decision making with uncertainty
•Discounted cash flow techniques
•Performance measurement.
Activity-based costing, time series analysis and budgeting were already included in the syllabus for Paper 2.4 and therefore do not represent new topics. The removal of these topics from Paper 1.2 eliminates duplication of syllabus areas between Papers 1.2 and 2.4, but does not result in the syllabus for Paper 2.4 becoming wider. In addition, the following changes have been made:
•Decision tree analysis – this area has been removed from the syllabus.
•Job, batch and process costing – these areas have been removed from the Paper 2.4 syllabus, as they are already covered in Paper 1.2. This removes duplication between the two syllabuses.
•Theory of constraints and throughput accounting – these areas have been added under the heading Different approaches to costing. Candidates are expected to have a basic knowledge of these areas.
As a Part 2 paper, Paper 2.4 is seen as being equivalent to a UK degree level paper.
Paper 3.3, Performance Management
The major changes to the Paper 3.3 syllabus are as follows:
•Changes in management accounting - this is a new section under the syllabus heading Developments in management accounting. It incorporates two new areas:
- contingency theory
- institutional theory.
Contingency theory offers a conceptual framework for changes in management accounting, based on internal and external influences. While students are often switched off by theory, they can take comfort from the fact that this conceptual framework is extremely relevant to accounting practitioners. It is based on the understanding that there is no single management accounting system that is suitable for all organisations. Therefore, it is necessary to identify a match between specific aspects of an accounting system and certain defined circumstances that affect an individual organisation.
Organisations cannot stand still. And their management accounting systems must evolve to suit the changing environment in which organisations operate. Understanding this concept – and thus contingency theory – is vital to accountants who will be working in an ever-changing environment.
While candidates are not expected to delve deeply into theoretical debate, it is important that they have a clear understanding of the basic principles of contingency theory and its implications for management accounting. Students are encouraged to do some extra reading on the subject, without getting too ‘bogged down’. Suggested reading includes:
•Emmanuel, C and Otley, D Accounting for Management Control (Chapman and Hall) ISBN 1861522118
•Otley, D The Contingency Theory of Management Accounting: Achievement and Prognosis (Accounting, Organisations and Society, 5(4), pp 413-428, 1980).
It should be emphasised that the Study Guide requires candidates to explain the contingency theory of management accounting, not to take part in theoretical debates. An understanding of the principles and how they can be applied in a real world situation is what is required.
Institutional theory presents a framework for understanding change and implications for management accounting, again based on internal and external influences. As mentioned above, accountants work in an ever-changing environment, whether from internal pressures (socio-political and cultural) or external influences (government and peer pressure), and it is therefore important to understand how to design management accounting systems in such an environment.
Institutional theory is a very wide-ranging subject, and there is a huge amount of literature that has been written about this area. As with contingency theory, candidates are expected to know the basic principles of institutional theory and its implications for management accounting. The Study Guide requires candidates to be able to explain how institutional theory presents a framework for understanding changes in, and the implications for, management accounting.
Suggested reading includes:
•Powell, W W and DiMaggio, P J, Eds The New Institutionalism in Organisational Analysis (University of Chicago Press, Chicago, 1991)
•Scott, W R and Meyer, J W, Eds Institutional Environments and Organisations (Sage, Thousand Oaks, CA, 1994).
While the books listed above are useful reading, candidates should bear in mind the requirements of the Study Guide, and not get too involved in the intricacies of the theory.
Students should be familiar with the following changes:
•Activity-based management – this is a new area that has been introduced under the syllabus sub-heading Trends and developments in management accounting techniques and methods. Candidates will be required to explain and demonstrate activity-based management in the context of an ever-changing environment.
•Activity-based approach to customer profitability analysis – another new area that has been introduced under the syllabus sub-heading Information for decision making. Candidates will be required to explain and demonstrate activity-based customer profitability analysis.
•Strategic management accounting in the context of international organisations – this is a new topic included under the syllabus heading Planning and control. Candidates will be required to understand the principles of strategic management accounting and be able to apply these to international organisations – informally, this could be termed as the ‘what, why and how’ of strategic management accounting in the context of international organisations, including for example, the effects of government incentives and protectionism.
Suggested additional reading includes:
•Ashton, D, Hopper, T and Scapens, R W, Eds Issues in Management Accounting (Prentice Hall, Hemel Hempstead, 1995). There is a chapter in this book on strategic management accounting which is relevant.
• Transfer pricing in an international context – this is a new topic that has been introduced under the syllabus heading Decision-making, sub-heading Pricing strategies and the evaluation of pricing decisions. Candidates will be required to explain and demonstrate the issues that require consideration when setting transfer prices in multinational companies.
As a Part 3 paper, Paper 3.3 is seen as being of an equivalent level to a UK Masters degree paper. As such, candidates are expected to have some knowledge of the more theoretical aspects of accounting, such as contingency theory and institutional theory. This expectation is reflected in the updated syllabus for Paper 3.3.