Lets get straight in with tip number 1. Know your exam!
For the drafting and interpreting financial statements exam you have a time limit of up to 2 and a half hours. During that time you’ll be required to complete 7 tasks. The total amount of marks available in this exam is 120 meaning you’ll need 84 out of 120 in order to pass.
On screen now I’ve shown the task numbers alongside the marks that each task is worth and the number of minutes that should roughly be taken on each task.
Task 1 & 2 (combined) 40 marks - 47 minutes
Task 3 – 8 marks – 10 minutes
Task 4 – 12 marks – 15 minutes
Task 5 – 30 marks – 36 minutes
Task 6 – 8 marks – 10 minutes
Task 7 – 22 marks – 22 minutes
By spending this long on each task it will take you up to 140 minutes allowing you 10 minutes at the end to check through your answers. I would strongly recommend allowing yourself this time to make sure you’ve answered every question and to make sure you haven’t made any silly mistakes.
If you need to pause to have a little longer to look over these then please do that now.
Tip 2 - knowing the topics for each task.
For this exam it is thankfully a rather predictable layout which is great to see and really does help with preparation. Let’s have a look at each task and see what we can expect to see.
Task 1 & 2 – Theses tasks are linked together and will cover drafting statutory financial statements for limited companies, here we can expect to see questions where you need to complete a statement of profit or loss, statement of changes in equity, statement of cashflows and statement of financial position. Although unlikely to get asked to produce all 4 please be aware that you can be asked to produce any of them. Practice will be key on these questions; you should be able to get yourself into a really strong position both competency and timing wise through repeating practice questions.
Task 3 – This is a written task on the reporting frameworks, now in terms of questions this does cover quite a wide range, because the reporting framework covers quite a wide range. It is often split into 2 or 3 questions so the amount of detail you’ll need to go into on these questions isn’t too daunting. Later in this video I’ll be covering the written questions in more detail so I’ll be talking more about what I’d expect to see here in that section. Just bare in mind its an 8 mark question so do your best but don’t spend too long deliberating on what to put. Get a couple of sentences in, move on and come back to it if you have the time.
Task 4 – This will be a partially written task on the international accounting standards. This task will bring together your knowledge on your study of IAS’s and IFRS’s. It will be a combination of written elements and multiple choice questions. Again I will cover this task in more detail under the written section within this video.
Task 5 – This task is about drafting consolidated financial statements. Within this task you’ll have to complete a consolidated set of group accounts. I’d expect to see a parent and subsidiary’s set of accounts with the task being to prepare a consolidated statement of financial position and consolidated statement of profit of loss. In a similar situation to task 1 practice questions are key, I wouldn’t expect any major curve balls so as long as you feel confident in answering the practice questions I’d expect you to be absolutely fine on this question. This is one of the more complex tasks to get your head around so fully appreciate it will take time for you to be confident but once you get through that barrier this question shouldn’t cause too many problems.
Task 6 – This task is about interpreting financial statements using ratio analysis, here we can expect to be given financial information on a business, usually in the form of financial statements but not always. From the data provided you’ll be required to calculate various ratios. There is absolutely no reason not to do well on this task as long as you’ve learnt your ratios. Do whatever you need here to help them go in. Flash cards, poster on your bedroom ceiling, record yourself reading them out and playing them back in the car. Whatever it takes, just learn those damn ratios.
Task 7 – The last task, this is a written task on interpreting financial statements using ratio analysis so similar to what you’ve done in task 6 but this time you’ll have to write about them. One of the key parts to doing well on this question is to follow a well rehearsed format to make sure you’ve hit the key points. it is worth 22 marks and getting at least 50% on this task should be very easily achieved. You’ll need to be able to understand what goes into each ratio and therefore what can effect it and what does it mean to the business.
Tip 3 is understanding how to approach the written tasks.
We’ve already spoken about the fact that there will be 3 written tasks through this exam. Let’s break each one down now and look at common topics along with how they should be approached.
So task 3 as we’ve said will cover the reporting framework, but what are the sort of questions that could appear here. Some of the common topics I’d expect to see are:
Differences between types of business organisations, sole traders, ltd companies etc.
Difference between a private ltd company and public ltd company.
The definitions of elements of the financial statements, assets, liabilities, equity, income and expenditure.
The underlying principles of accounting, accruals and going concern concepts.
Support qualitative characteristics such as faithful representation and relevance.
As these are knowledge based written elements learning the definitions will be key to achieving full marks on this task.
Then for task 4 we now know that this task tests your knowledge on the international accounting standards. Although the following will more than likely be the only IAS or IFRS that you have learnt because they’re the only ones which will have been covered within your study material let’s just make sure you’re 100% aware of which ones can be tested. I’ve included on screen now the possible options and therefore the ones you must be familiar with:
IFRS 3 Business combinations
IFRS 10 Consolidated financial statements
IFRS 15 Revenue from contracts with customers
IFRS 16 Leases
IAS 1 Presentation of financial statements
IAS 2 Inventories
IAS 7 Statement of cashflows
IAS 10 Events after reporting period
IAS 12 Income taxes
IAS 16 Property plant and equipment
IAS 36 Impairment of assets
IAS 37 Provisions, contingent liabilities, and contingent assets
IAS 38 Intangible assets
Any of these maybe tested within the exam so you must understand for all of them, what they are and how they should be treated in the accounts.
The last task of your exam, task 7 will also be the final written task and although this is the written task with the highest number of marks available, I would personally say that it’s also the easiest to prepare for. Within this task you’ll be required to analyse the ratios of a business. This could either be between two businesses which you then need to compare performance, or it could be the same business but you’re having to compare between a past year and current year’s performance. When answering these questions I would follow a process. That process being the following:
Is the ratio better or worse?
Explain what the ratio actually means, what is it made up of and what is the impact of it being better or worse.
Explain what could have caused the ratio to be better or worse.
How does the ratio link to other ratios. Are there any consistencies between them. For example if operating profit margin is worse, has return on capital employed or interest cover also decreased.
If you follow this format you should be getting as a minimum 75% of the marks on offer.
Tip 4 using all resources that are available to you. At the time of making this video within the lifelong learning portal on the AAT website you currently have available to following learning tools:
4 e-learning modules
6 key calculations (which include the more challenging calculations on the consolidated statements so well worth a look at)
2 videos
1 green light test
and
2 mock exams
Now the mocks exam are an absolute must before sitting your actual exam as they are for any AAT unit but for this unit I would definitely have a look at the key calculations which you don’t get for all exams but they have been provided in the life long learning portal for this one.
Tip 5 Use the examiner’s report to your advantage. This has now been released for drafting and interpreting financial statements and can be found on the lifelong learning portal. I would strongly encourage that you take a look at the full document but the key points for areas to improve that I would take away from the report are as follows:
Task 1 Preparing statement of cash flows, now I’ve been teaching this unit for a number of years now and can say with confidence that on task 1, the majority of students hope for the statement of profit or loss over statement of cashflows so this is no surprise that they’ve found an overall weaker performance on the statement of cashflows.
Just keep in mind that the format doesn’t really change the only thing to watch out for that differs is whether you’re reconciling from the operating profit figure or the profit after tax figure because that will determine whether you need to take our interest and tax when completing the reconciliation. You also know whether you’ve done it correctly or not because when you add up your cash generated from operating activities, investing activities and financing activities it should equal the difference between the cash at the start of the year and cash at the end of the year.
The other point that I thought was interesting was:
“taking note of the number of marks available to ensure students are making enough valid points to achieve full marks. This is particularly relevant in the ratio analysis task and students should think about the components of the ratio when answering this task to ensure all their points are valid”
Now this links to what I said in tip number 3 on the ratio analysis, you need to work through the format that I’ve provided for each ratio given. Think about the figures that make up each ratio and how these going up or down would effect the result of the ratio.
