1 www.accaapc.com ACCA P5 Advanced Performance Management

ACCA P5 Advanced Performance Management
Sample Study Note
For exams in June2014
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© Lesco Group Limited, April 2015
All rights reserved. No part of this publication may be reproduced, stored in a
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permission of Lesco Group Limited.
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Sample Note Content:
Product Summary .......................................................................................... 4
Live online course timetable: ........................................................................... 5
Sample note: Corporate failure prediction ......................................................... 8
Please note:
This is just the sample study note extracted from the main study note in your tuition study
[This tuition study note is consistent in basic/super/gold package]. There would be more
chapters in the main study note covering the whole ACCA syllabus.
You can also take a look at the content within the main study note below:
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Product Summary
content
ACCA HD quality super tuition videos
ACCA HD quality super revision videos
Last minute revision
ACCA Live online tuition(4sessions)
ACCA Live online revision(14hours)
ACCA Mock exams(with tutor mark)
ACCA Tutor support
ACCA Electronic study note
ACCA Student online forum
Pass Guarantee
ACCA Final revision mock exam paper
ACCA Super Live online session (2030hours)
ACCA Super Live online revision
(Super 3 days)
ACCA 1V1 Career Advice
ACCA Extra exam techniques
demonstration
Live online mentoring
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Basic
Super
Gold
package
package
Package
Oxford Brookes BSc in Applied Accounting
Live online course timetable:
Live session/revision for F4-P7
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*Please Note: This Timetable may be subjected to future changes.
Kindly check regularly for any possible updates.
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Sample note: Corporate failure prediction
Quantitative measure: Altman Z score
Z = 1·2X1 + 1·4X2 + 3·3X3 + 0·6X4 + X5
Where:
X1 is working capital/total assets (WC/TA);
X2 is retained earnings reserve/total assets (RE/TA);
X3 is Profit before interest and tax/total assets (PBIT/TA);
X4 is market value of equity/total long-term debt (Mve/total long-term debt);
X5 is Revenue/total assets (Revenue/TA).
Key to remember:

If the score is 3 or above they are financially sound

Between 1.81 and 2.99 they need further investigation [grey area]

Below 1.81 they are in danger of bankruptcy
What to do to prevent failure?

See the signs and take action.

Seek external advice.

Management accept there is a problem.

Make strategic changes as necessary.

Put in more controls and management systems.
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Qualitative measure: Argenti’s A score
Qualitative models such as Argenti use a variety of qualitative and some
nonaccounting factors such as management experience, dependence on one or a
few customers or suppliers, a history of qualified audit opinions and the business
environment including the industry and economic situation.
Argenti developed a model, which is intended to predict the likelihood of company
failure based on three connecting areas that indicate likely failure:

defects,

mistakes

symptoms of failure
Which are all awarded a specific score.
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Sources of
problems
A
Variable
Score
Management defects

Chief Executive is an autocrat
8

Chief Executive also holds position of Chairman
4

Passive Board of Directors
2

Unbalanced Board of Directors, not representing all business functions or
overweight in one discipline
2


Weak Finance Director
Poor management in team
2
1
Accounting defects
No budgets or budgetary controls
3
No cash flow forecasts, or not up to date
3
3
No costing system: costs and contribution of each product or service are not known
Poor response to change: old-fashioned product or service, obsolete production
facilities, out-of-date marketing methods; old directors
15
43
B
Management mistakes(as a result from the above defects)
High gearing
15
Overtrading
15
Failure of a big project
15
45
C
Symptoms of trouble(as a result from the above defects and mistakes)
Financial indicators forecasting poor results[poor Z-score]
4
Creative Accounting
4
Non-financial signs (eg high staff turnover).
4
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Score
Maximum permitted
A
10
B
15
C
0
25
If any score which are more than 25 then it will need immediate action to avoid
company insolvency.
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Strengths and weaknesses of quantitative and qualitative models for
predicting corporate failure
Quantitative models:
Advantages:

Quantitative models such as the Altman Z-score use publicly available
financial information about a firm in order to predict whether it is likely to fail
within the two-year period.

The advantages of such methods are that they are simple to calculate and
provide an objective measure of failure.
Disadvantages:

However, they only give guidance below the danger level of 1·8 and there is
potential for a large grey area[1.81-2.99] in which no clear prediction can be
made.

Additionally, the prediction of failure of those companies below 1·8 is only a
probabilistic one, not a guarantee. This means not every company with Z
score under 1.8 will go bankruptcy.

These models are open to manipulation through creative accounting which
can be a feature of companies in trouble.
Qualitative models:
Advantages:

The advantage of the method is the ability to use non-financial as well as
financial measures and the judgment of the investigator
Disadvantages:

But this is subjective and will vary from different investigators.
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