Paper P3 – Management Accounting – Performance Strategy Post Exam Guide May 2010 Exam

Suggested Approach This question takes the Aybe scenario forward to show the impact amongst other things of opening a new subsidiary. Part (a) requires candidates to evaluate different risks facing Aybe and the DEC subsidiary – allowing candidates to draw on the pre-seen for some risks but then the unseen for the majority of the marks. Part (b) assumes knowledge of a management information system and requires candidates to show the good and bad points of this system. Part (c) is a question on foreign exchange transaction risk facing an international company. Most of normal hedging methods are considered to be inappropriate because of the group situation. Reward is therefore given for considering practical methods of risk mitigation. Part (d) focuses on ethics – with the complication of what can be considered a practical method of remitting funds from a subsidiary.

Marking Guide (a) Max of 1 for identifying each risk and max 3 for evaluating each of those risks Could include currency risks, inflation risk, logistics, transport etc, quality and problems with the joint venture with the government. (b) Maximum of 5 for each of factory extension and African subsidiary. There are very few strengths apparent, so there should be no upper limit on weaknesses. (c) (i) 1 mark for any reasonable point on mitigating foreign exchange risk. Could be countertrade, paying in local currency, futures , options etc Must be a discussion. (c) (ii) 1 mark per reasonable point on accounting issues. Should mention IAS 39 and problems of fair values (d) 1 mark per reasonable point on ways of decreasing the risk of unethical transactions For example, good control environment, good internal controls, ethical code, disciplinary action if found out, good salaries and working conditions, performance related pay must be awarded with care so no temptation to be unethical.

Marks 15 marks

9 marks

10 marks

6 marks

10 marks

Examiner’s Comments Marks for Q1 were reasonable. Part (a), (c)(i) and (d) were done reasonably well which was encouraging. Parts (b) and (c)(ii) were not answered as well as expected. The main problem was lack of knowledge especially in part (c)(ii)

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Paper P3 – Management Accounting – Performance Strategy Post Exam Guide May 2010 Exam SECTION B – 50 MARKS ANSWER TWO QUESTIONS ONLY

Question 2

(a)

Evaluate the proposal made by the governor of the central bank. (10 marks)

(b)

Evaluate the risk management strategy in B Bank (except for consideration of directors’ remuneration). Your evaluation should include recommendations for changes that will lower the bank’s exposure to risk. (15 marks) (Total for Question Two = 25 marks)

Rationale This question focuses on the banking industry, just before the banking crises of 2007/08. The aim is not to analyse the crisis itself, but to identify areas where risk management may have been weak at the time. Elements of the UK banking industry may be seen in the scenario, although this is not necessary to answer the question as areas of poor risk management strategy are noted in the scenario. The issue of directors’ remuneration in (a) is potentially novel and designed to provide a “twist” on standard questions in this area. Suggested Approach The question of whether directors paying a fee for a seat on the board is a reasonable suggestion should be discussed, it is likely that candidates will find few merits in this proposal, we are looking for a reasoned argument. Risks should be identified and discussed; there are several possible risks that could be mentioned. The main area of concern is mortgage lending and candidates are likely to mention the banking crisis in their answers.

Marking Guide (a) 1 mark per reasonable point. Points may include:

Marks 2(a) max 10 marks

The nature of the banking industry is that bank profits are affected by factors that are not necessarily within the directors’ control. Interest rates rise and fall in line with economic indicators, as does the demand for finance. There is not necessarily a clear and objective basis against which to measure the performance of the bank’s board or of the individual directors. The only people who would be willing to work on this basis would be risk-seeking individuals. Failure will cost them very little. Short term outlook They may also be tempted to indulge in dishonest or manipulative reporting for the sake of their bonus. The recent bad publicity attached to bank directors and their bonuses may make it seem attractive to pay directors in a manner that appears to force them to justify their remuneration.

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Paper P3 – Management Accounting – Performance Strategy Post Exam Guide May 2010 Exam (b) There are many different ways of answering this question. Points should be awarded for sensible alternative arguments. 1 mark per sensible point. Points may include: Suggest that strategic reviews should be conducted rather more frequently than once every four years. It is also unsatisfactory that non-executives do not normally challenge the executive directors’ strategic decisions. The bank’s lending policy appears to be very risky. In the event of a major downturn in the economy, there could be repossessions. It will end up owning large amounts of property that will have declined in value. The only real protection the bank has against this scenario is an economic forecast that predicts that house prices will rise at a rate well in advance of the general rate of inflation. The bank faces risks in the form of long term revenues. If house prices do continue to rise much faster than wages then it will become increasingly difficult for customers to be able to afford houses. That will cause mortgage applications to dry up and the bank will either have to find other outlets for lending or rely on interest from existing loans. The bank should, perhaps, consider alternative products that could be used to generate returns without undue risk. These could include shorter-term loans. Unrealistic expectations in the past have been met by extreme risk-taking by the banking industry. Examiner’s comments This question was done reasonably well. Candidates did not tend to go into enough detail in either part of the question but although they did not get high marks they often passed. Most candidates managed to come up with reasonable answers based on the worldwide banking crisis which was good. The benefit of reading the financial press was clearly demonstrated with this question. Common Errors The most common error was a lack of depth in the answers. Overseas candidates possibly did not perform as well as UK candidates in this question mainly due to less awareness of the current financial crisis. Part (a) was answered slightly better than part (b). Part (a) was done reasonably however some candidates missed the point that risk seeking individuals could be attracted by the idea rather than non risk seekers. It would not be to a bank’s advantage to have risk seekers as directors or people who were only interested in their own gain. Part (b) was done less well by some candidates. Some candidates did not discuss the mortgage policy at all which was poor. Reading the financial press would have been very useful for answering this part of the question as the financial crisis has been linked to risky mortgages in the US market. If the mortgages were not mentioned at all it was difficult to pass this question. 2(b) max 15 marks

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N’s ambitions to export to the US will be directly affected by exchange rates. The only alternative would be to fix the price in $ and for N to bear the risk. The biggest disadvantage may be that it could be difficult for a small company to arrange a forward contract for such a small amount.Paper P3 – Management Accounting – Performance Strategy Post Exam Guide May 2010 Exam Marking Guide (a)(i) 1 mark per relevant point. In some cases there could be market imperfections that make it difficult for price changes to have an impact 3b(ii) max 9 marks The Chartered Institute of Management Accountants Page 8 . the risk is unlikely to justify the time and fees involved. Overall. Marks 3a(i) max 8 marks (ii) 1 mark for each part of calculation 3(a)(ii) max 4 marks (b)(i) 1 mark per relevant point 3b(i) max 4 marks The following points could have been madeEven if N has no direct dealings with US suppliers or customers it will be exposed to movements in the $. The cost of those components will fluctuate in line with the $. imported parts or materials could be sourced from local suppliers and so it will not always be clear that they will be more expensive if. If the customer defaults or pays late then N will still be required to sell the $ amount and that could prove expensive and inconvenient. In some cases the competitor might not cut selling prices in pursuit of volume and could be happy to accept existing market share and simply take a larger profit from each sale. The arrangement is also binding on N. say. Some of the points which could have been made are as follows: Economic exposure is very difficult to quantify because the relationships are not always obvious. but some markets might not be particularly price sensitive. the $ strengthens. (ii) 1 mark per reasonable point. If the £ strengthens against the $ then it will become cheaper for N’s UK customers to import competing products from the US. N may use materials or components that are sourced from the US. Once the contract has been agreed the arrangement is relatively simple to manage. N will be able to determine the overall profit that it will make from this sale after allowing for the cost of the forward contract itself. Some products will have alternatives that could come from different countries and so the impact of a currency change could be mitigated by moving to a slightly more expensive supplier from a different country and so the cost might not be linear. If the £ strengthens then US customers will have to pay more $ for a product and so N will find it harder to compete]. For example. Currency movements can reduce competitor’s selling prices. Points could include the following: The biggest advantage is that N will receive a known £ amount for the $ that it will receive.

Part (b). Part (a). the scenario provides sufficient examples for a well-prepared candidate to accumulate a pass standard. Again. (15 marks) (b) K has been told by a major credit card company that several hundred of its customers had complained that fraudulent charges had been made to their credit card accounts for downloads from K’s site. (10 marks) (Total for Question Four = 25 marks) Rationale This question is based on an Internet music download company such as “Napster”. candidates need to explain what external auditors would be looking for when they first look at the risks of the system in an online environment. Suggested Approach In the first part. This question asks candidates to link information technology to business strategy and show how the former can support the latter. So while the question may not be within the practical skill set of most candidates. Initial investigations in K have been unable to determine either the validity of these claims or why additional charges may have been made. the scenario itself will provide points to include in the answer. Evaluate the risks to K of such complaints explaining how those risks could be alleviated. Specifically how the customer complaints could affect the business. In the second part the candidates have to think about the effects of a possible online credit card fraud on the company. This question focuses on the audit of IT systems. There is a detailed scenario from which many valid points can be drawn. The Chartered Institute of Management Accountants Page 10 .Paper P3 – Management Accounting – Performance Strategy Post Exam Guide May 2010 Exam Question 4 (a) Discuss FIVE factors that the external auditors should consider when performing a risk assessment of K’s IT systems. with an emphasis on the problems that IT can cause auditors. although with a few variations.

This type of fraud may attract press attention and K’s name will be associated with dishonest behaviour. The company cannot generate revenue and could even fail if it is deprived of its systems for any length of time. K’s system has valuable data that could be of immense value. therefore. Any five risks are acceptable. Marks 4(a) max 15 marks (b) 1 mark per relevant point Examples of points which could have been discussed are: There is a huge reputation risk.Paper P3 – Management Accounting – Performance Strategy Post Exam Guide May 2010 Exam Marking Guide (a) 1 mark per relevant point Up to 4 marks per risk discussed Some relevant points are: K’s dependence on IT is a major factor. There is an even greater risk that the credit card companies will refuse to permit payments to K. Paypal or similar could be used for payments. The auditor will be keen to see that K’s management understands the risks that are involved. both hardware and software. a potential target for hackers. If a sale is made that is subsequently discovered to be fraudulent then that address should be blocked from making further payments. The system is online and is. Apart from the payments being made the system has customers’ personal details which are valuable for committing identity fraud. will be changing over time. 4(b) max 10 marks The Chartered Institute of Management Accountants Page 11 . up to four marks per risk to a max of 15 marks. The auditor’s expertise should also be considered. Systems maintenance will be a significant issue. The technology used by consumers. K should have taken adequate precautions in the form of security and backup of the main system.

Part (c) is a question on foreign exchange transaction risk facing an international company. Dependent on contract Third party involvement Marks Max 4 marks Max 4 marks Max 4 marks Max 4 marks Max 12 marks The Chartered Institute of Management Accountants Page 3 . Part (b) is drawn from section C of the syllabus – review and audit of control systems. Part (b) looks at evaluation of projects and post completion audits. Reward is therefore given for considering practical methods of risk mitigation.Paper P3 – Management Accounting – Performance Strategy Post Exam Guide September 2010 Exam Rationale This question is based on a pre seen case study and on an unseen case study. This question is split into three parts: Part (a) is drawn from section B of the syllabus – risk and internal control. Part (a) requires candidates to evaluate different risks facing Aybe and Q – allowing candidates to draw on the pre-seen for some risks but then the unseen for the majority of the marks. Answers could draw on both. It explores candidates’ understanding of the advantages and disadvantages of hedging. Suggested Approach This question takes the Aybe scenario forward to show the impact amongst other things of installing specialised parts for a sports car. Part (c) is drawn from section D of the syllabus – management of financial risk. Most of normal hedging methods could be discussed in the answer. The unseen scenario is about a company which manufactures specialist components for a technologically advanced sports car. It asks candidates to design an approach to post completion audits of the company in the pre-seen case and to discuss the implications that these audits might have for the company’s capital budgeting process. It deals with the question of hedging movements on commodity prices using derivative financial instruments. Marking Guide Part (a)(i) The following are some points which could be expanded on: SPD could be accused of encouraging dangerous driving No control over installation or subsequent maintenance. It asks candidates to evaluate the risks associated with the development of a high-tech assembly that is designed to ensure the safe operation of a sports car.

Max 12 marks Max 2 marks per point Max 8 marks 2 marks 2 marks 3 marks Max 5 marks (c)(i) Calculation (c)(ii) The following points should be expanded on: Inconsistent with hedging Possibility of superior insight Option and short term gain Max 3 marks Max 2 marks per point Max 6 marks (c)(iii) The following points could be expanded on: Commercial advantage No real saving or reduction of risk in long term Max of 3 for each relevant point Max 4 marks The Chartered Institute of Management Accountants Page 4 . (b)(i) The following points could be expanded on: Project selection Correct allocation Different stages Focus on costs Correct allocation Variances (b)(ii) The following are suggested headings: Deter innovation Open and transparent audits Attitude of management Other relevant points may be made.Paper P3 – Management Accounting – Performance Strategy Post Exam Guide September 2010 Exam (a)(ii) Maximum of 4 for each response to the risks in part (a).

Paper P3 – Management Accounting – Performance Strategy Post Exam Guide September 2010 Exam Examiner’s Comments Marks for question 1 were reasonable. It is impossible to avoid financial risk with this syllabus so it is very important that candidates study it and can do the associated calculations. Parts (c)(i). Common Errors Part (c)(ii) and (c)(iii) was answered very badly by many candidates. Part (a) and (b) were done reasonably well which was heartening. The main problem was lack of knowledge of financial risk. There will always be a financial risk element in Q1 as it forms 35% of the syllabus. Many candidates simply missed this part or at least one of the subsections out. (c)(ii) and (c)(iii) were not answered as well as expected. This is a poor strategy as high marks must be gained in another area to make up for this. Hedging has been examined in most past P3 exams so there was nothing new in this one. The Chartered Institute of Management Accountants Page 5 . This area requires revision before the next attempt.

The Chartered Institute of Management Accountants Page 6 .Paper P3 – Management Accounting – Performance Strategy Post Exam Guide September 2010 Exam SECTION B – 50 MARKS ANSWER TWO QUESTIONS ONLY Question 2 (a) Advise the branch manager on the importance of adequate information systems (IS) for J. (15 marks) (Total for Question Two = 25 marks) Rationale This question is drawn from section E of the syllabus – risk and control in information systems. Part (b) should discuss the specific risks suggested in the case of failing to use specified computers and software. Your answer to part (a) should NOT discuss the specific matters identified by the member of the IS team during the branch visit. The answer should have been quite specific and discussed indentifying the customers. It places these issues in the practical context of a branch of an entity that is heavily reliant on its information systems. It tests candidates’ understanding of the importance of controls in systems and also the implications of compliance errors. (10 marks) (b) Evaluate the control implications of each of the matters discovered by the member of the IS team. Suggested Approach Part (a) should have been answered by suggesting applications of an IS system for the hire car industry. identifying the car being hired and any damage to it etc.

attitude etc Examiner’s Comments Candidates scored good marks in question two.Paper P3 – Management Accounting – Performance Strategy Post Exam Guide September 2010 Exam Marking Guide Part (a) Marks were awarded for relevant points. adverse publicity . Part (b) was answered slightly better than part (a). Part (b) was done very well by most candidates. Common Errors The most common error was a lack of depth in the answers. branch manager Max 6 marks Max 9 marks Max 15 marks PC . unauthorised software. When the industry is given in the case candidates should try to base their answer on that industry. data protection. copyright. however generic answers were not rewarded in the same way. Part (a) was done quite poorly with few candidates scoring high marks. Candidates should always try to relate their answer to the industry in the question. The following are suggested headings which could be expanded Control over vehicles Disputes over damage Identification issues Marks Max 10 marks Part (b) Laptop – viruses. Where candidates related their answers to the car hire industry in part (a) they achieved high marks. with many candidates achieving a pass.impact on network. Part (b) was done well by the majority of candidates. Many failed to discuss how IS could be useful in a car hire business. The Chartered Institute of Management Accountants Page 7 . Part (a) was not done well but many of the answers to part (b) were excellent. A general answer that relates to any business will score low marks.

Paper P3 – Management Accounting – Performance Strategy Post Exam Guide September 2010 Exam Question 3 (a) Discuss the operational risks that could arise as a result of the new management control system. (10 marks) (Total for Question Three = 25 marks) Rationale This question is drawn from section A of the syllabus – management control systems. Your discussion should include the potential risks associated with this new system. Marks were awarded for discussion of all relevant points. (15 marks) (b) Advise M’s directors on the ethical implications of their approach to personnel management. It introduces a potentially divisive and dysfunctional management accounting system and tests candidates’ ability to evaluate the effects of the system for the company as a whole and also the ethical issues that such an approach to management may have. Part (b) is a discussion of the ethical implications of the new management control system. Suggested Approach This question starts with a discussion on the risks which the new system could cause. There are many points which candidates could raise here. The Chartered Institute of Management Accountants Page 8 .

Where there is a scenario candidates should use it in their answer. Candidates should always use the scenario when answering questions. Could include the following areas: Beyond budgeting issues / no real empowerment Growth in revenue no longer viable objective Constantly changing promotions Competition between branches Effects on sales staff Publicity Marks Max 15 marks (b) up to 4 marks for discussion on each of the following areas: Professional behaviour / ruthless approach Employment law Competence and care Integrity Max 10 marks Examiner’s Comments Part (a) was done reasonably well by most candidates who chose this question but part (b) was done less well. Almost no marks were given for this approach. Common Errors Part (b) was poor. Many candidates did not discuss the main ethical issues raised in the case. Many of these points were not relative to the case at all such as objectivity. Part (b) was less well done with a surprising number of candidates just discussing the headings in the CIMA ethical guidelines and not relating them to the case at all. Most candidates found many issues to discuss on the new management control system and did pick up on points from the scenario. Listing the CIMA ethical guidelines gained no marks as many of them were completely irrelevant to the problems raised in the case study.Paper P3 – Management Accounting – Performance Strategy Post Exam Guide September 2010 Exam Marking Guide Question 3 (a) up to 4 marks per relevant discussion. The Chartered Institute of Management Accountants Page 9 .

Your answer should indicate why the nature of the currency risk associated with each of the contracts differs. The Chartered Institute of Management Accountants Page 10 . (6 marks) Recommend. It deals with the financial risks of operating overseas and links those financial risks to some of the more common methods available for the management of those risks. N’s directors are concerned that they will be exposed to significant risks if they establish a subsidiary in E and have identified two possible strategies for managing the risks: (i) (ii) Entering into a joint venture with a company located in E Borrowing in E Pesos Discuss the advantages and disadvantages of each of the two strategies for N. including internal hedging techniques such as netting and sourcing of finance. One situation had frequent small transactions and the other large infrequent transactions. Suggested Approach Candidates had to consider the two situations carefully and decide what the risks were. an appropriate strategy for the management of each of the currency transaction risks you have identified. Part (b) looked at ways of managing political risks and made two suggestions for doing so which candidates had to discuss.Paper P3 – Management Accounting – Performance Strategy Post Exam Guide September 2010 Exam Question 4 (a) (i) Evaluate the currency transaction risks that will arise under each of these contracts. The ways of dealing with the risks were therefore very different. (10 marks) (Total for Question Four = 25 marks) Rationale This question is drawn from section D of the syllabus – management of financial risk. with reasons. (ii) (9 marks) (b) Recent newspaper reports have documented the high levels of corruption and economic instability in E.

This question was not well answered. Part (b) was especially poor.small number of large transactions Comparison (a) (ii) Some points which could have been discussed were: Esta Accept risk Net receipt and risk of decline Offset/hedging Sorta Financial instruments Hedging Max 6 marks Max 3 Max 2 Max 4 Max 4 Max 3 Max 9 marks (b) Max of 3 marks for discussion of any of the following: Joint venture Control issues Risk of expropriation Control issues Local borrowing Bank's motivation Gearing Max 9 marks Examiner’s Comments This area of financial risk requires revision from many candidates.Large volume of small transactions Sorta . Candidates could not distinguish between the two suggestions or come up with any ideas of which might be better.Paper P3 – Management Accounting – Performance Strategy Post Exam Guide September 2010 Exam Marking Guide Marks (a)(i) 1 mark per relevant point Up to 4 marks per risk discussed Points may include: Esta . The Chartered Institute of Management Accountants Page 11 .

Paper P3 – Management Accounting – Performance Strategy Post Exam Guide September 2010 Exam Common errors Candidates were not good at this area at all. They then had no ideas of how to manage the different risks in the two situations. candidates gave very generic answers that discussed hedging in general. This area of financial risk is 35% of the paper so cannot be ignored. The Chartered Institute of Management Accountants Page 12 . Part (b) was done poorly as candidates could not come up with any ideas of why the two suggestions given in the question might be different. Very few candidates mentioned the difference in size and frequency of the transactions. This whole syllabus area should be revised before the next exam.

(7 marks) (ii) Recommend an approach to managing the risks that you have identified in (c)(i) above. (i) Calculate the impact on DEF Airport’s annual revenues of: • accepting S’s proposal • winning the contract with the Asian airline that is currently in discussion with the Business Development Manager. but the Directors are unsure whether the risks that it will create are justified by the associated revenues. (10 marks) (c) (i) Advise the directors of DEF Airport on the reasons why the airport is exposed to currency risk. (10 marks) (iii) Discuss the operational risks that DEF Airport could face if it accepts the proposal made by S. (12 marks) (b) Discuss the advantages and disadvantages of the airport Operations Manager being directly responsible for the supervision of airport security.Paper P3 – Management Accounting – Performance Strategy Post Exam Guide November 2010 Exam SECTION A – 50 MARKS ANSWER THIS QUESTION Question 1 (a) DEF’s board is seriously considering the proposal offered by S. (5 marks) (Total for Question One = 50 marks) The Chartered Institute of Management Accountants Page 2 . (6 marks) (ii) Evaluate S’s proposal using your calculations in (a)(i) above and also the other information provided in the scenario.

some basic calculations establish that the proposed growth is not particularly attractive in itself and is going to leave the entity with very little scope to pursue any further opportunities that may come along. Section (a)(iii) follows on from (a)(ii) by pointing out that offering a special deal to one major customer may have implications for other customers and that could further complicate the analysis of the proposal that has been offered. This sub-requirement is not particularly testing at this level. but it will force candidates to engage with the proposal on offer that must be analysed in a qualitative way in the next sub-requirement. all of the entity’s income and outgoings are in the local currency and so a superficial analysis might suggest that it does not face any currency risk. indeed. Having said that. There are potential upside and downside risks to each of the positions that could be taken by management and so the analysis is never clear-cut. Candidates will have to use some common sense to pick out facts such as the possibility that passengers using the services described may have little time and inclination to eat and shop at the airport and so they will not bring a great deal of additional business in to the retail side. The key thing that candidates should bring out in this part is that nothing is certain. those that will be obtained from the customer if a proposal is accepted and those that could be obtained from a new customer if the entity retains the scope to sell further business at its standard rates. The Chartered Institute of Management Accountants Page 3 . quite exposed because demand will be influenced by currency movements. Suggested Approach Section (a)(i) asks for a fairly clear set of computations. Candidates are asked to establish the annual revenues presently obtained from a major customer.Paper P3 – Management Accounting – Performance Strategy Post Exam Guide November 2010 Exam Rationale This question is based on both the common pre-seen scenario and the unseen scenario. Part (c) focuses on section D (Management of Financial Risk). In this case the entity is faced with a proposal that appears to offer considerable growth in turnover. it will help to settle exam nerves. It draws on themes that have been discussed in the context of airport management and travel in recent years. though. This part deals with the situation where a business has a large customer which is prepared to use the influence associated with that position to exert some pressure. The much smaller proposal offered by another customer would create almost as much additional revenue and consume very little spare capacity. the proposal will also take up most of the entity’s remaining spare capacity for new business. Part (b) draws mainly on section A (Management Control Systems). Marks awarded for clarity of argument rather than identifying the “correct” outcome. Paradoxically. but a little more thought indicates that it is. most notably the changes that are being brought about by the encroachment of low-cost airlines and the impact of economic factors on the demand for leisure and business travel. At the very least. Part (a) draws mainly on section B of the syllabus (Risk and Internal Control). Section (a)(ii) asks for an analysis of the numbers calculated in section (a)(i). This is quite a subtle question because a hasty analysis will suggest that the proposal is in the entity’s best interests because revenue from the major customer will more than double. This requirement focuses on the economic impact of foreign currency risk for the entity described in the scenario. The P3 syllabus focuses on the international aspects of financial risk and so that will be a recurring theme throughout all diets. However. This part asks candidates to think about the agency issues that might arise within an organisation if a manager has a remit that includes a range of competing objectives.

1 mark per reasonable point. adequate resourcing will reassure passengers and reduce delays). car parking . shops . Security arrangements might also be better linked to the flight schedules. It may be that the head of operations will start to see security as a source of competitive advantage. with S and with Asian airline.present position. which could include the following: • • Natural hedges Diversifying routes etc Max 5 marks The Chartered Institute of Management Accountants Page 4 . That could compromise the safety of flights. food etc (b) Candidates must discuss both the advantages and disadvantages Marks for all good advantages and disadvantages applied to the scenario. perhaps by having larger teams on duty at times when passenger numbers peak. (e. (a)(ii) Comments on calculations Comments on S proposal Comments on effect on airport Asian airline Marks 6 marks 2 marks 3 marks 3 marks 2 marks Max 10 marks 4 marks 2 marks 2 marks 4 marks Max 12 marks 1 mark per point (a)(iii) Comments on offering special deal Comments about low cost airlines Comments about mainstream airlines Comments about services. Max 10 marks 1 mark per point C(i) Various approaches are acceptable 1 mark per reasonable point. which could include the following: • • • • Screening and scanning procedures v the throughput of passengers.Paper P3 – Management Accounting – Performance Strategy Post Exam Guide November 2010 Exam Marking Guide (a)(i) Calculations 2 marks each . A single point of contact for all operational matters may improve communications.g. which could include the following: • • Passengers have choice on where they take holidays Passengers may not want to go to countries with the euro as currency etc Max 7 marks 1 mark per point C(ii) 1 mark per reasonable point relating to risks identifies in c(i).

Economic risk featured in the previous exam and it was suggested that some revision of this area would be helpful. Financial risk and indeed currency risk will generally feature in question 1 from now on. The Chartered Institute of Management Accountants Page 5 . The same is true of this exam. Common Errors The biggest problems were (a)(i) and part (c).Paper P3 – Management Accounting – Performance Strategy Post Exam Guide November 2010 Exam Examiner’s Comments Part (a)(i) was done very badly. If the layout is poor it is very unhelpful to the markers and the candidate may not gain marks if it is not clear how figures have been derived. In (a)(i) the calculations were done very badly. Part (a)(ii) was also poor. These 6 marks should have been easy to obtain as it was a simple calculation. Part (iii) was reasonable. Part (c) was done very badly. Hedging is not effective against economic risk so low marks were achieved if that was all the candidate wrote about. Part (b) was done well by most candidates with candidates coming up with good reasons for operations and security being one job or two. Most candidates suggested various types of hedging to mitigate against the risk and achieved a very low mark. candidates should revise economic risk. Very few candidates scored a high mark. Some information was included in the pre-seen case and some in the unseen. if candidates got the numbers badly wrong in part I they did not write much for part (ii). Answers were often badly laid out and incorrect. Poor numerical skills were shown and also very poor layouts. If the candidates could not do part (i) then they struggled to make a reasonable attempt at part (ii). In part (c) candidates did not understand economic risk at all and many wrote answers which scored zero marks. In the main candidates had good reasoned arguments for their decision which was excellent. candidates got numbers confused and did not do what was asked.

Part (a) draws mainly on section B (Risk and Internal Control). (10 marks) (Total for Question Two = 25 marks) Rationale This question is loosely based on two common themes that underpin a great deal of modern business: outsourcing of manufacturing and the use of IT to manage relationships with a network of suppliers and customers. It does not require an extensive knowledge of the IT issues underpinning EDI. Candidates should invest some time in thinking about their approach. Instead. It focuses on the use of EDI to manage and coordinate the complex manufacturing arrangements introduced in part (a).Paper P3 – Management Accounting – Performance Strategy Post Exam Guide November 2010 Exam SECTION B – 50 MARKS ANSWER TWO QUESTIONS ONLY Question 2 (a) Evaluate THREE operational risks associated with the manufacture of W’s products. The Chartered Institute of Management Accountants Page 6 .) (15 marks) (b) Evaluate the risks associated with the use of EDI for managing W’s ordering and accounting processes. It deals with a design-led business that outsources its manufacturing operations. Section (b) is more open-ended. The manufacturing arrangements are complex and any breakdowns will disrupt the production process. One part of the secret to answering this question is to select three fairly obvious risks that lend themselves to a discussion of their resolution. Part (b) draws on section E (Risk and Control in Information Systems). These themes are clearly interlinked in the real world and so the question has a degree of authenticity. (Your answer should include an explanation of how each of these risks could be managed. the primary issue is the fact that the entity described in the question has little more than electronic communication with its suppliers and customers. These are to be evaluated and suggestions are to be offered for their management. Suggested Approach Section (a) asks for the identification of three operation risks from the scenario (which is relatively long and complex). The key here is to think about the manner in which the interaction that is possible can be put to the greatest use. The question is scenario-based and concerns a business that has a range of products for which demand constantly outstrips supply.

Common Errors Candidates did not answer what was asked and scored low marks. In part (a) the question specifically asked about risks associated with manufacturing. This was an interesting question where many different risks could have been chosen. 1 mark per point Examiner’s Comments This question was done very poorly. Only 1 mark for generic points such as viruses. The focus should have been risks associated with manufacturing but most candidates ignored this and just wrote about a multitude of risks in all areas. In part (b) answers should have specifically discussed an EDI but most just wrote about generic IT risks such as hackers and viruses. hacking etc. were listed. Must relate to EDI. The Chartered Institute of Management Accountants Page 7 . Part (b) was also very poor as many generic risks.Paper P3 – Management Accounting – Performance Strategy Post Exam Guide November 2010 Exam Marking Guide (a) 1 mark per reasonable point Max 5 for discussing each of 3 operational risks: Control over outsourced manufacture Reputation if product poor quality and late Logistics transport etc Marks 1 mark per point 5 marks 5 marks 5 marks Max 15 marks (b) 1 mark per reasonable point 1 mark for each good point on EDI system. Candidates should revise this area before the next attempt as it was very clear that very few candidates knew what EDI was and were just writing generic answers about IT. This approach did not score a high mark. Many candidates ignored this. which could have applied to anything and were not specific to the question scenario. It is very important that candidates read the questions carefully and ensure they answer what is asked otherwise no marks can be awarded.

both of which draw on section C (Review and Audit of Control Systems). Suggested Approach Section (a) asks for some reflection on the role of the non-executive director.Paper P3 – Management Accounting – Performance Strategy Post Exam Guide November 2010 Exam Question 3 (a) Evaluate the suitability of each of the three nominees. reflecting the fact that appointing a non-executive director is often a difficult task because very few candidates will ever be entirely perfect. The question is in two parts. They wish to see rewards being “earned”. candidates should be able to reflect on the implications of rewarding a decision-maker in a particular way. The basic problem is partly that of conflicting perceptions and partly of conflicting economic implications. By this stage. Part (b) asks for a discussion of the issues associated with setting bonuses. (15 marks) (b) Discuss the problems associated with determining a suitable level of bonus for each of P’s executive directors. These are the complexities that should start to figure in the strategic level. (10 marks) (Total for Question Three = 25 marks) Rationale This question is based around a scenario concerning a quoted company that wishes to recruit some additional non-executive directors and remunerate the executive board in a manner that will align the directors’ interests with the shareholders’. Candidates have to sift through the information provided to tease out the potential motivation and contribution that might be expected from each candidate. Stakeholders are nervous when their directors have nothing to gain from good performance and nothing to lose from bad. The requirement stresses the need for a balanced discussion of the pros and cons because there are positive and negative aspects to each. That brings together many of the themes running through both management accounting and finance. The Chartered Institute of Management Accountants Page 8 . Your answer should include arguments for and against each of the nominees. Section (b) asks for a discussion of the problems associated with operating a bonus system that offers performance-related rewards. There are some clues that each has strengths and weaknesses. but they are angry when the schemes that determine such rewards seem to be over-generous. Part (a) offers a shortlist of three potential appointments to the board with some biographical information about each. These are clearly core issues in the ongoing corporate governance debate.

1 mark per point Max 10 marks Examiner’s Comments Marks were high for this question. This should be for each director. The Chartered Institute of Management Accountants Page 9 . Part (b) was not quite as well done as some candidates gave generic answers for all directors rather than for each director.Paper P3 – Management Accounting – Performance Strategy Post Exam Guide November 2010 Exam Marking Guide (a) 1 mark per reasonable point Maximum 5 marks for discussion of each nominee Marks 1 mark per point Max 15 marks (b) 1 mark per reasonable point 1 mark for each sensible comments on bonuses. Part (a) was done very well by most candidates. There were many clues in the question and most candidates picked up on these and gave very good answers. The main problem was some candidates wrote about all of the directors rather than considering each director separately. Common Errors This question was done very well by many candidates.

Normally candidates are expected to reject this suggestion. Thus. (6 marks) (c) The management of V are thinking of changing their policy so that all customers will be required to pay in Y$. our consultancy competes only with other national marketeers. (5 marks) (b) Discuss the advantages and disadvantages of buying the currency option. Discuss the advantages and disadvantages of this policy change for V. Part (a) asks for a range of forecasts using the models available in the syllabus. which is on economic risk. the question has both an upside and a downside risk. That makes it more difficult for the customer to threaten to appoint a competitor.Paper P3 – Management Accounting – Performance Strategy Post Exam Guide November 2010 Exam Question 4 (a) (i) Use the information gathered by the Finance Director to produce three alternative forecasts of the expected spot rate when the payment is received. The scenario deals with a marketing consultancy that is being asked to advise on a local market. Your answer should include calculations to show the benefit of exercising the option. (9 marks) (ii) Recommend with reasons the forecasting model that you regard as the most reliable for V’s purposes. Part (b) asks for a calculation to determine which of two risk management instruments to purchase. (5 marks) (Total for Question Four = 25 marks) Rationale This question is partly scenario based and partly theoretical. At most. One is more expensive than the other. The different models produce different results and so candidates are asked to identify the most reliable. The whole question is from section D (Management of Financial Risk). but it offers less potential upside risk. The focus on transaction risk means that it complements the foreign currency material examined in question 1. The Chartered Institute of Management Accountants Page 10 . It presents a business that faces a major transaction risk and asks for some discussion of the issues associated with forecasting currency rates using the market relationships introduced by the syllabus. but it is less relevant in this case because of the nature of the business. Part (c) asks for a discussion of the merits of invoicing an overseas customer in local currency.

Candidates did not know what the benefit of this particular option could be given that there was no financial benefit. (b) calculations .3 marks each (a)(ii) comments on the 3 models 1 mark per reasonable comment Maximum 2 marks for each model. Many candidates talked about the generic benefits of options and many missed this part out. Part (b) was not done well. Many candidates wrote very generic answers about options rather that writing about this specific option.Paper P3 – Management Accounting – Performance Strategy Post Exam Guide November 2010 Exam Suggested Approach Section (a) requires a basic understanding of the key economic relationships that govern foreign currency movements. The customer may prefer to be invoiced in one currency (and the reasons will receive credit if explored by the candidate). Candidates who chose this question were rewarded for learning about financial risk. Part (a)(i) was very straightforward and marks were very high. Common errors Parts (a) and (c) were done well by most candidates. but the issues can be explored. The Chartered Institute of Management Accountants Page 11 . Marking Guide (a)(i) 3 forecast calculations . missing out an answer. This was probably because they did not read the question carefully.max 3 marks Maximum 4 marks for comments on advantages and disadvantages (c) 1 mark per sensible comment 9 marks Max 5 marks Max 6 marks Max 5 marks Examiner’s Comments This question was the least popular question but was the one with the best results. Part (a)(ii) was done very well with most candidates able to make sensible comments on each model. The resulting qualitative decision has no correct answer. even a small part. those relationships should be well understood. Section (c) requires candidates to think about the nature of the relationship between the two entities involved. lowers the chances of passing considerably. It is important to study all areas of the syllabus. Candidates are being asked to think beyond the knee-jerk reaction that forces companies to accept payment in foreign currency. but the relationship in this scenario means that it is unlikely to be a dealbreaker in this case. Section (b) requires the ability to spot the fact that one method has a slightly higher guaranteed minimum reward but that the other has a large potential upside whereas the more lucrative choice is pegged. Part (b) was poor. Part (c) was reasonable. Some candidates simply missed this part out completely. Given the emphasis placed on this by the syllabus. Candidates are expected to argue in common sense terms rather than having to use research studies to identify the strongest model.

as described in the Governance section (page 2) of the pre-seen.Paper P3 – Management Accounting – Performance Strategy Post Exam Guide March 2011 Exam SECTION A – 50 MARKS ANSWER THIS QUESTION Question 1 (a) (i) Evaluate the present structure of DEF’s board. (8 marks) (b) (i) Discuss the risks and benefits to DEF of the Chief Executive’s proposal to accept payments in US$ which would then meet part of the airport’s US$ outgoings. (8 marks) (c) Evaluate the risks to the retailers of accepting foreign currency payments at their shops and cafes. (9 marks) (Total for Question One = 50 marks) The Chartered Institute of Management Accountants Page 2 . Your evaluation should reflect all relevant facts provided about DEF. (8 marks) (iii) Discuss the risks associated with pursuing the airport’s mission statement (as provided in page 2 of the preseen) as a basis for the board’s strategic management of DEF. (9 marks) (ii) Evaluate the Chairman’s arguments that the board should not cooperate with Max unless it can be determined that the client whom he represents will not change the airport in any fundamental way. (8 marks) (ii) Explain the benefits of internal hedging methods for managing foreign currency risk over external methods involving financial instruments.

Suggested Approach Part (a)(i) asks for an understanding of the corporate governance requirements relating to board structure. It draws on themes that have been discussed in the context of airport management and travel in recent years. There are many points which could be made in a good answer. Part (c) is drawn from section C of the syllabus – review and audit of control systems. This is a straightforward question which relates to having balance on the board. It covers aspects of the higher-level strategic management of the entity. The chairman suggests the board should not consider the proposal unless the airport will continue in the same vein in the future. Good candidates discussed the board’s responsibility to shareholders in the light of the structure of the company. Part (b) is drawn from section D of the syllabus – management of financial risk. risk and internal control and audit and audit of control systems. with implications for the reconciliation and recording of takings. Some discussion on the risks of taking payment in foreign currency is required. (b)(i) is looking at financial risk. (b)(ii) this part continues the discussion of foreign currency. The answer should consider the idea of hedging using the bureau de change. There should be a discussion on how this affects the controls in the shops and cafes. but even some very basic desk research on the pre-seen case should help them. (a)(ii) asks for an analysis of the proposal made by Max. bringing in the composition of the board. focussing on the role of internal hedging techniques. Candidates should be able to answer this question on the strength of the information provided in the paper. the board’s responsibility to the shareholders and the implications of the mission statement. (c) This section looks at the risks of the retailers accepting payments in a variety of foreign currencies. B and C of the syllabus – management and control systems. It deals with the risks associated with accepting cash payments in the form of foreign bank notes. This question is split into three main parts: Part (a) covers aspects of sections A.Paper P3 – Management Accounting – Performance Strategy Post Exam Guide March 2011 Exam Rationale This question is based on both the common pre-seen scenario and the unseen scenario. most notably the changes that are being brought about by the encroachment of low-cost airlines and the impact of economic factors on the demand for leisure and business travel. (a)(iii) is looking for a discussion of the mission statement in terms of setting strategy for the future. The Chartered Institute of Management Accountants Page 3 . Candidates were asked to discuss internal versus external hedging methods. It deals with the management of currency risk.

Paper P3 – Management Accounting – Performance Strategy Post Exam Guide March 2011 Exam Marking Guide (a) (i) Discussion of the board structure 1 mark per relevant point should include some of the following • Balance • Skills • Role on non execs Marks Max 9 marks (ii) 1 mark per relevant point which could include: • Comments on the proposal • Duty to shareholders • Comments on structure • Redundancies Max 8 marks (iii) 1 mark per relevant point on mission statement Max 8 marks (b) (i) There must be a discussion. Discussion should relate to the scenario. 1 mark per relevant point. Max 8 marks (c) Various risks could be discussed. Points made should relate to the case material. Max 8 marks (ii) 1 mark per relevant point relating to case material. 1 mark for any reasonable point which could include: • • • • Cashing up Translation Different rates Forged notes Max 9 marks 50 marks Maximum marks awarded The Chartered Institute of Management Accountants Page 4 .

The Chartered Institute of Management Accountants Page 5 . although some answers were very brief. (b)(ii) was about hedging and the answers were quite general. It was clear that some candidates had not read the question in detail and did not pick up on several of the points which were there which would have helped to give a good answer. (a)(iii) which was about the mission statement was poor and a number of candidates missed it out completely.Paper P3 – Management Accounting – Performance Strategy Post Exam Guide March 2011 Exam Examiner’s Comments Some parts of this question were not answered very well. The good candidates were able to apply their knowledge and come up with most of the risks which was pleasing. (c) was reasonably well done. (b)(i) was about accepting payments in $US and was generally poorly thought through. most candidates gave very brief answers which lacked any depth. Part (a)(iii) was about the mission statement and was poor. (b)(i) and (ii) were also weak. Candidates gave fairly short answers to this and did not give a structured answer. Part (a)(ii) was not answered as well. The area of financial risk could do with some revision. Part (a)(i) was about governance and was answered very well by most candidates. The part about the mission statement was done badly. It was about whether to accept the proposal made by Max. The part of the question most often missed out is that relating to financial risk. Many answers were very short and missed the main issues. Common Errors Some candidates missed parts out which will always be difficult to recover from. Parts (b)(i) and (ii) were disappointing. Some answers to part (c) about the bureau de change were very good but others were poor. Using the reading time to make sure these points are used is important.

Some consideration of the ethical dilemma is required. with consequent implications for the inevitability of the risks and the need for avoidance. Marks will not be awarded for negatives of points made in (i). (8 marks) (ii) (b) (i) (ii) Recommend the course of action that the internal auditor should take if she is unable to persuade the Head of Internal Audit to draw these allegations of under-reporting of injuries to the attention of the senior management of Grove Council. This view is different from the director’s. Section (b)(i) is about ethics. Suggested Approach Section (a)(i) asks for an evaluation of the director’s view.Paper P3 – Management Accounting – Performance Strategy Post Exam Guide March 2011 Exam SECTION B – 50 MARKS ANSWER TWO QUESTIONS ONLY Question 2 (a) (i) Discuss the Director of Operations’ view that it is impossible to prevent all workplace injuries. (7 marks) (Total for Question Two = 25 marks) Rationale Part (a) is drawn from section B of the syllabus – risk and internal control. Candidates should invest some time in thinking about their approach. (5 marks) Discuss the Chief Executive’s view that it is unacceptable for Grove Council to tolerate any workplace injuries. Part (b) is drawn from section C of the syllabus – review and audit of control systems. (5 marks) Analyse the ethical dilemma faced by the internal auditor. It deals with the management of the risks associated with workplace accidents. The Chartered Institute of Management Accountants Page 6 . Part (ii) looks for an evaluation of the chief executive’s view. Section (b)(ii) is about the response of the auditor. It deals with the ethical dilemma faced by an internal auditor who has discovered the falsification of health and safety records. This should be discussed in some detail.

Common Errors This question was reasonably well done by most candidates who attempted it. The most common mistakes were not to discuss the ethical issues at all or to misunderstand the issues. Maximum marks awarded Marks Max 5 marks Max 5 marks Max 8 marks Max 7 marks 25 marks Examiner’s comments This was the most popular of the optional questions and was done reasonably well. Must include recommendations. This approach got no marks.Paper P3 – Management Accounting – Performance Strategy Post Exam Guide March 2011 Exam Marking Guide (a)(i) Max of 5 marks for discussing the Director’s view 1 mark per reasonable point (a)(ii) 1 mark for each good point on the Chief Executive’s view (b)(i) 1 mark per relevant point Ethical issues must relate to the scenario or no marks No marks for simply listing CIMA ethical guidelines (b)(ii) 1 mark per relevant point. While that is certainly a last resort there are many other options that should be explored first. The Chartered Institute of Management Accountants Page 7 . Part (b)(i) was poorly answered as some candidates did not try to relate their answer to the scenario and just listed CIMA’s ethical guidelines. When there is a scenario candidates must use it in their answer. Parts (b)(i) and (ii) were a little poorer than part (a). Many candidates answered (b)(ii) very badly and could only suggest the auditor resigned.

Section (c) asks for a discussion of the importance of a parallel run of the new and old systems. Marking Guide (a) 1 mark per relevant point Answer must evaluate the finance director’s statement. It does require some understanding of the issues as candidates have to evaluate the reasons the finance director does not want one. (10 marks) (Total for Question Three = 25 marks) Rationale This question is drawn from section E of the syllabus – risk and control in information systems. Candidates should demonstrate knowledge and understanding of the role of the internal auditor. (b) 1 mark for each sensible comment on the role of internal audit For example: • Independence • Knowledge of system • Experience • Skills Marks Max 10 marks Max 5 marks (c) Discussion required for maximum marks. Suggested Approach Section (a) asks for some reflection on the role of a post implementation review. (5 marks) (b) (c) Discuss the problems that might arise if an entity does not conduct a parallel run when implementing a new system. (10 marks) Evaluate the suitability of the internal audit department to conduct T’s postimplementation review in the event that such a review is conducted.Paper P3 – Management Accounting – Performance Strategy Post Exam Guide March 2011 Exam Question 3 (a) Evaluate the argument put forward by T’s finance director for refusing to have a postimplementation review. Maximum 4 if no discussion. 1 mark per relevant point Maximum marks awarded Max 10 marks 25 marks The Chartered Institute of Management Accountants Page 8 . Section (b) asks for a discussion of the suitability of internal audit to carry out such a review. It deals with the issues associated with implementing and testing a new information system.

Many candidates wrote about a post completion audit which is not the same. The syllabus has a significant section on IT and IS and candidates would benefit from revising this for future attempts. The role of the internal auditor will be examined fairly often as it is a significant part of the syllabus. Common Errors Most candidates did not seem to know what a post implementation review was. Candidates did not seem to understand the risks that were to be discussed. Candidates are often weak in this area. The Chartered Institute of Management Accountants Page 9 . This was a reasonably popular question but it was not done well. this was surprising as past questions have asked about how to minimise risks when changing a system. Part (iii) of the question was poorly answered. Generally. The answers were brief and often did not relate to the scenario at all. Few candidates could make sensible suggestions about whether internal audit would be suitable for this task. candidates choosing this question answered very briefly and seemed to have a poor level of knowledge.Paper P3 – Management Accounting – Performance Strategy Post Exam Guide March 2011 Exam Examiner’s Comments This question was done badly. this area of the syllabus could do with some revision before the next exam.

Part (a) asks for calculations of the net present value of the cash flow generated from the swap. It deals with the use of swaps for the management of interest rate risk. The Chartered Institute of Management Accountants Page 10 . Section (c) requires candidates to think about the nature of the swap and what the benefits could be. (5 marks) (Total for Question Four = 25 marks) Rationale This question is drawn from section D of the syllabus – management of financial risk. Suggested Approach Section (a) requires a basic understanding of calculations involved in a swap. Section (b) requires the ability to discuss the risks to W bank and also to understand how the bank could mitigate the risks. This question is partly calculation and part theory.Paper P3 – Management Accounting – Performance Strategy Post Exam Guide March 2011 Exam Question 4 (a) Calculate the net present value (NPV) of the cash flows that W Bank will generate from this swap under each of the three scenarios identified by the swaps department. (8 marks) (b) (i) Advise W Bank on the risks that will arise from this swap arrangement. (6 marks) (ii) Explain how W Bank might mitigate the risks arising from this swap and identify the difficulties in doing so. (6 marks) (c) Evaluate the benefits to P of entering into this swap arrangement. Part (b) looks at the risks and mitigation of the risks of the swap from bank’s perspective and part (c) looks at the benefit of the swap. W Bank discounts cash flows from such projects at 7%.

It is 35% of the syllabus and it is difficult to pass this subject without good knowledge of this topic. Common errors Part (i) was very well done with many candidates scoring full marks.Paper P3 – Management Accounting – Performance Strategy Post Exam Guide March 2011 Exam Marking Guide (a) (b)(i) Up to 3 marks for each of 3 forecast calculations 1 mark per reasonable comment Max 8 marks Max 6 marks Max 6 marks Max 5 marks (b)(ii) 1 mark per reasonable comment (c) 1 mark for each reasonable comment. The calculations were done well but part (b)(ii) was a little weak. The Chartered Institute of Management Accountants Page 11 . Part (b)(i) was a little weaker and part (b)(ii) was poor. Candidates who chose this question knew this area of the syllabus well which was heartening. In part (b)(ii) the obvious solution was for W to organise another matching counterparty swap. very few candidates mentioned this. It would be beneficial to all candidates to study this area of the syllabus. Part (c) was very well done. Maximum marks awarded Examiner’s Comments 25 marks This question was the least popular question but had the best marks.

suitable precautions for preventing the secret recipe from being obtained by a competitor. (8 marks) (ii) (b) (i) Advise the board on the implications of the secret recipe being obtained by a competitor. (6 marks) Evaluate the views of certain board members concerning there being no need to manage F plc’s currency risks. (4 marks) (ii) Recommend.Paper P3 – Management Accounting – Performance Strategy Post Exam Guide May 2011 Exam SECTION A – 50 MARKS ANSWER THIS QUESTION Question 1 (a) (i) Evaluate the risks arising from the outbreak of food poisoning to F plc’s reputation in terms of their likelihood and impact of occurrence. stating reasons. (6 marks) (ii) (d) Discuss the validity of the head of internal audit’s assertion that the external auditor should be prepared to cooperate with the internal audit department. (6 marks) (c) (i) Evaluate the head of internal audit’s statement that the divisional management accountant should not comment on the allocation of internal audit resources. (12 marks) (Total for Question One = 50 marks) ©The Chartered Institute of Management Accountants Page 2 . (8 marks) Advise the directors of F plc on the suitability of the two arguments proposed by the managers of the Meals Division for defending the company’s reputation.

It deals with the evaluation of the risks associated with product safety issues and the associated publicity. Part (i) deals with the possibility that the management of a division may request additional support from internal audit. Part (c)(i) One issue raised by this question is the possibility that such requests are not necessarily harmful for the independence of internal audit and that the internal auditor should be prepared to make resources available in response to such requests. The scenario depicts a situation in which the product appears to have been prepared incorrectly and so it is debatable whether the company in question is actually responsible for the ensuing damage. Suggested Approach Part (a) The problem is that the case has already created substantial negative press coverage and the customer who used the product incorrectly was a charity. lead outcome 1 (evaluate types of risk facing an organisation). it is also very possible that the real asset is in the form of the brand that has been created from that product. Part (b) This question raises some important questions about the implications of the loss of such information to a competitor. A competitor has already attempted to lure one of those staff members away from the company. component (a) (evaluate appropriate methods for managing financial risks). The suggested answer suggests that the company may have overstated the potential risk. Part (a) draws mainly on section B of the syllabus (Risk and Internal Control). It deals with the risks associated with intellectual property and the manner in which that might be protected. In dealing with the protection of the knowledge itself. Part (d) draws mainly on section D of the syllabus (Management of Financial Risk). The question focuses more on identifying these risks rather than asking for a solution to an impossible situation. The employee with the recipe has rather more power than is normally considered desirable and the directors will have to take that into account in protecting the company’s interests. lead outcome 2 (Evaluate alternative risk management tools). lead outcome 2 (Evaluate the process and purposes of audit in the context of internal control systems) components (b) and (e) (produce a plan for the audit of various organisational activities including management. accounting and information systems and discuss the relationship between internal and external audit work). Part (c) draws mainly on section C of the syllabus (Audit and Audit of Control Systems). In this case there is no possibility of using patents or similar legal safeguards because the property is basically just a recipe that cannot be patented. so any defence will make the company look as if it is attacking a worthy cause in order to escape responsibility. including the organisation’s ability to bear such risks). Part (b) also draws mainly on section B of the syllabus (Risk and Internal Control). There are many competing manufactured food products that enjoy considerable success and yet they do not taste very different to their competitors. While it could be argued that this would lead to a significant loss of commercial advantage. It deals with the strategic decision as to whether to actively manage currency risk or simply to leave it unmanaged and uncontrolled. It draws on themes associated with the evaluation and management of risks. candidates have to consider the reality.Paper P3 – Management Accounting – Performance Strategy Post Exam Guide May 2011 Exam Rationale This question is based on both the common pre-seen scenario and the unseen scenario. It is worth bearing in mind that there will often be problems that are difficult to resolve and for which there is no single correct answer. The entity’s primary safeguard is that knowledge of that recipe is restricted to two members of staff. although a candidate would have been given credit for a logical answer that made the contrary argument. the role of internal audit and the evaluation of currency risks. but deals with component (a) (discuss ways of identifying. component (b) (evaluate risks facing an organisation). measuring and assessing the types of risk facing an organisation. lead outcome 1 (evaluate types of risk facing an organisation). ©The Chartered Institute of Management Accountants Page 3 .

legal responses Marks Max 8 marks (a)(ii) 1 mark per valid point .Paper P3 – Management Accounting – Performance Strategy Post Exam Guide May 2011 Exam Part (ii) deals with the relationship between internal and external audit.any good arguments accepted There could be a range of answers here . independence is crucial.all good points would earn marks.max 5 relating to each argument. In particular. ©The Chartered Institute of Management Accountants Page 4 . All products carry that bacteria and charity was negligent are the two arguments Max 8 marks (b)(i) 1 mark per reasonable point . This question does require a degree of thought about the nature of the business and the ways in which it might be affected by currency movements. regulatory responses. (c)(i) 1 mark per reasonable point Must be an evaluation – if no evaluation max 3 marks Could include the following points: Internal auditors report to the board not anyone else. part (c)(ii) and part (d) were not answered well. Individual managers should not ask internal audit for help Independence Max 4 marks Max 6 marks Max 6 marks (c)(ii) 1 mark per reasonable point Could include: External auditor has a clear role defined by statute. the board could ask them to assist. This part of the question requires a clear understanding of the roles of both forms of audit. It is acceptable to use some of the internal auditor’s work but not vice versa If no discussion max 2 marks (d) Arguments for managing the risk max 5 marks Arguments against managing the risk max 5 marks Conclusion max 2 marks Maximum mark awarded Examiner’s comments Max 6 marks Max 12 marks 50 marks Some parts of question one were done well but others were very poor. there could be a variety of approaches taken and all good points would earn marks. Part (d) Arguably. Marking Guide (a)(i) Max 3 for any of the following risks: press coverage. (b)(ii) 1 mark per reasonable point Again. it would be irresponsible to ignore currency risks altogether but there are circumstances where companies are fairly well protected by natural hedges that make active management unnecessary. The main problem was not answering the question that was asked.

Some candidates launched into a list of hedging techniques which was not what the question required. Many candidates came up with reasons to hedge the risks but did not evaluate the benefits in any way. Again. It was also very clear that candidates had very poor knowledge of the role of either. ©The Chartered Institute of Management Accountants Page 5 . Many candidates gave a standard answer to the question whether internal auditors should cooperate with external auditors and achieved a very low mark. The question asked whether the external auditors should cooperate with the internal auditors not the opposite way round. Part (d) was a financial risk question and was done badly.Paper P3 – Management Accounting – Performance Strategy Post Exam Guide May 2011 Exam Common Errors Part (a)(i) was not done very well as many candidates ignored the fact that the question asked about risks to reputation and just wrote about all the risks in any area. Part (c)(ii) was very poor with candidates giving very standard answers to the wrong question. Answering the specific question asked is the key to a high mark. Candidates still do not learn this area of the syllabus even although it will always be a part of question one. reading the question carefully and answering what was asked would have helped candidates to gain high marks.

©The Chartered Institute of Management Accountants Page 6 . Suggested Approach Section (a) asks what the risks to the clients may be if the firm has such an aggressive competitive environment. Candidates should be well aware of the risks associated with dysfunctional behaviour and the scenario is a clear example of a setting in which dysfunctional behaviour is likely to thrive. (12 marks) Evaluate the strengths and weaknesses of C’s governance arrangements with respect to the partnership and its management committee. component (a) (discuss the principles of good corporate governance. component (b) (evaluate the appropriateness of an organisation’s management accounting control systems). It raises important issues about the skills and motivation of those appointed to that role and also about the continuity of management. Part (a) draws mainly on section A of the syllabus (Management Control Systems). This should be discussed in some detail.Paper P3 – Management Accounting – Performance Strategy Post Exam Guide May 2011 Exam SECTION B – 50 MARKS ANSWER TWO QUESTIONS ONLY Question 2 (a) Evaluate the risks to the quality of service offered to C's clients arising from the competitive nature of the firm's culture. The question also deals with the governance issues associated with appointing senior partners to the lead role in this type of entity. This happens frequently in professional partnerships and in other entities. It deals with the implications of running an entity with a management team comprising partners whose involvement with that role will be temporary. particularly as regards the need for internal controls). (13 marks) (Total for Question Two = 25 marks) (b) Rationale This question is based on a scenario relating to a consultancy that operates a very aggressive meritocracy for the retention and promotion of its staff. Arguably. such an approach to managing human resources may create significant risks to the entity because it may encourage staff to be more concerned with their own interests rather than those of the entity as a whole. Unfortunately. The management wishes to attract motivated and ambitious staff who will work hard to provide a competitive service. lead outcome 3 (Evaluate governance and ethical issues facing an organisation). Part (b) draws mainly on section B of the syllabus (Risk and Internal Control). Section (b) asks for an evaluation of the partnership’s governance arrangements. lead outcome 1 (evaluate control systems for organisational activities and resources). It describes a fairly typical set of circumstances for a leading consultancy business. that creates the dilemma that such staff will be equipped and motivated to take short-cuts that may threaten the quality of the service that they have been appointed to provide.

Most candidates came up with many of the points required to gain marks and demonstrated reasonable knowledge of corporate governance in part (b).Paper P3 – Management Accounting – Performance Strategy Post Exam Guide May 2011 Exam Marking Guide (a) 1 mark per reasonable point Could include: Personal promotion Pressure from partners Antagonising architects Risks to client service: Underspecifying materials Cutting costs Marks Max 4 Max 4 Max 2 Max 3 Max 3 max 12 marks (b) 1 mark per reasonable point Strengths They will all be engineers and know the system. While many candidates achieved a pass mark on this question it would have been good to have seen more candidates achieving higher marks. Common Errors There were no common errors apart from the general complaint of answers being fairly short and some key points being missed. no financial reward for being on committee. Weaknesses Huge increase in work. ©The Chartered Institute of Management Accountants Page 7 . max 4 marks max 9 marks max 13 marks Maximum marks awarded Examiner’s Comments 25 marks This question was popular and was done reasonably well by many candidates. no extra money to motivate etc.

component (d) (recommend risk management strategies and discuss their accounting implications). Translation risk is arguably the least important currency risk and yet it is highly visible to shareholders. VaR is an important measure of risk exposure and so candidates should be capable of making use of it. Part (a) draws mainly on section D of the syllabus (Management of Financial Risk). It deals with the dilemma confronting managers. (10 marks) (c) (i) Calculate the 95% daily value at risk (VaR) of G’s US$ bank balance. Apart from anything else. It asks for the calculation of the VaR statistic and for the interpretation of the results. That is more about the understanding of how a business might be affected by movements in its costs and selling prices rather than more complicated areas of currency management. (2 marks) (iii) Advise the directors on the relevance of the VaR statistic to their consideration of the risks associated with retaining this US$ bank balance. (3 marks) (ii) Use your answer to (c)(i) to calculate the 95% 30 day VaR of G’s US$ bank balance. It asks candidates to consider the extent to which the entity in the scenario is exposed to economic risk. lead outcome 1 (Evaluate financial risks facing an organisation). Economic risk is arguably the most important currency risk and yet it is almost impossible to observe and measure as a separate component of risk. (5 marks) Evaluate the validity of the directors’ concern that “the translation gains and losses on the US$ bank balance are visible to shareholders. component (a) (evaluate financial risks facing an organisation). (5 marks) (Total for Question Three = 25 marks) Rationale This question deals with the management of currency risk. Part (b) draws mainly on section D of the syllabus (Management of Financial Risk). That raises the question of whether managers might be tempted to waste time and money on hedging translation risks and possibly paying less attention to economic risks in the process. it asks for an indication of the factors that would determine economic exposure. component (b) (evaluate the effects of alternative methods of risk management). lead outcome 2 (evaluate alternative risk management tools). ©The Chartered Institute of Management Accountants Page 8 . whereas the offsetting of economic exposure is not and so their hedging policy may be misunderstood”. Part (c) draws mainly on section D of the syllabus (Management of Financial Risk). It visits important areas such as the measurement of economic risk. the possibility that economic risk is overlooked because it is less visible than other currency-related risks and the use of the value at risk (VaR) statistic. Rather than asking for the measurement of those risks. lead outcome 2 (evaluate alternative risk management tools). which would be a difficult area to evaluate.Paper P3 – Management Accounting – Performance Strategy Post Exam Guide May 2011 Exam Question 3 (a) (b) Advise the directors on the matters that they would have to consider in order to determine the extent of G’s economic exposure.

Marking Guide (a) 1 mark per relevant point on economic risk Could include: movement of US$. explain economic risk to shareholders. Part (c) asks for a discussion of the importance of VaR and to do some simple calculations. In general the small. elasticity. Part (b) There is always a dilemma about whether to worry more about translation risk or economic risk. All parts of this question were generally answered more poorly than expected. translation risk more obvious. That is more about the understanding of how a business might be affected by movements in its costs and selling prices rather than more complicated areas of currency management. Must be a discussion not just bullet points (max 5 if no discussion) (c)(i) Calculation Marks Max 5 marks Max10 marks Max 3 marks (c)(ii) Calculation . straightforward calculations were done very badly with few candidates achieving the full marks available for these. Common Errors Candidates still do not understand economic risk.Paper P3 – Management Accounting – Performance Strategy Post Exam Guide May 2011 Exam Suggested Approach Part (a) Rather than asking for the measurement of those risks. (b) 1 mark for each sensible comment on economic risk and translation risk Could include: Maximising shareholder wealth. That raises the question of whether managers might be tempted to waste time and money on hedging translation risks and possibly paying less attention to economic risks in the process. Useful for investment decision Max 5 marks Maximum marks awarded Examiner’s Comments 25 marks This question was the least popular of the optional questions and was often answered poorly by the candidates who attempted it.own figure based on answer to c(i) Max 2 marks (c)(iii) 1 mark per relevant point on relevance of VaR Could include: Measure of risk. possible price increase. This was very disappointing as the question was well within the syllabus and similar questions to parts (a) and (b) have been asked in the past. ©The Chartered Institute of Management Accountants Page 9 . which would be a difficult area to evaluate. part (a) asks for an indication of the factors that would determine economic exposure. This has been asked in most diets but it seems many candidates have not revised this area at all. difficult to measure and understand.

Paper P3 – Management Accounting – Performance Strategy Post Exam Guide May 2011 Exam Question 4 (a) Evaluate the difficulties associated with preventing and/or detecting this fraud. (7 marks) (Total for Question Four = 25 marks) Rationale This question deals with the controls that ought to prevent fraud and the extent to which those controls rely on the integrity and commitment of those who operate them. This part continues the analysis of the fraud by asking candidates to focus more directly on the shortcomings of the system. In doing so candidates should be careful not to criticise sound systems because they could be circumvented by collusion. (8 marks) (c) Discuss the suggestion that the human elements of control systems are frequently more important than the software elements in ensuring that records are correct. lead outcome 1 (Evaluate the benefits and risks associated with information related systems). lead outcome 1 (Evaluate the benefits and risks associated with information related systems). Part (a) draws mainly on section E of the syllabus (Risk and Control in Information Systems). Part (c) draws mainly on section E of the syllabus (Risk and Control in Information Systems). It asks candidates to discuss the respective importance of the programmed controls in any system relative to the controls operated by people. In practice. despite the fact that authorisation and supervision are often vitally important processes that rely largely. if not totally. The human element of any system is often overlooked. on human intervention. the system was sound but the controls were bypassed in a manner that would be difficult to prevent in even the bestdesigned system. information systems (IS) and information technology (IT) strategies that support management and internal control requirements). component (d) (recommend improvements to the control of IS). It asks candidates to identify the cause of a fraud that relied on the authorisation of fictitious salary payments by a senior member of staff and on collusion between that person and a member of the wages department. (10 marks) (b) Advise the college on the weaknesses in its systems and procedures. lead outcome 1 (Evaluate the benefits and risks associated with information related systems). ©The Chartered Institute of Management Accountants Page 10 . the main types of fraud perpetrated in computerised systems are generally very simple and rely more on human error than complicated programming and hacking. component (a) (advise managers on the development of information management (IM). In theory. It also exploited a degree of carelessness in the security over terminals. component (e) (evaluate specific problems and opportunities associated with the audit and control of systems which use IT). Part (b) draws mainly on section E of the syllabus (Risk and Control in Information Systems).

the amounts were small relative to the total payroll and the security was lax. This question required some thought about whether human error was important in an IT system. This area should be revised for future attempts. there was collusion.Paper P3 – Management Accounting – Performance Strategy Post Exam Guide May 2011 Exam Suggested Approach Section (a) requires a basic understanding of risks which may lead to fraud being committed. Some candidates just talked generally about human error and issues like bookkeeping rather than focusing on the question requirement. The fraud was carried out by senior people. Some parts of this question were done well but others were very poor. Part (b) was done well and part (c) was not too bad. budget and authorisation Max 8 marks (c) 1 mark for each sensible comment. Section (b) requires the ability to discuss these risks and the failings of the system which has allowed fraud to take place. Should have a discussion of human elements and software elements Max 3 if no discussion. ©The Chartered Institute of Management Accountants Page 11 . senior staff.collusion. Part (c) was done well by some candidates but poorly by others. Marking Guide (a) 1 mark for identification 2 for explanation of risks which could lead to fraud Main risks . Maximum marks awarded Examiner’s Comments Max 7 marks 25 marks This question was quite well done with many candidates scoring very high marks. falsification of record and small amount relative to total Max 10 marks (b) 1 mark per weakness identifies and 1 for explanation Security over keys. passwords. The question was straightforward and the scenario clearly set out the issues candidates should have discussed. Section (c) requires candidates to think about the nature of IT information and the importance of human error. Common errors Part (a) was done very poorly with candidates demonstrating a poor level of knowledge on why fraud is difficult to detect.

(12 marks) (Total for Question One = 50 marks) ©The Chartered Institute of Management Accountants Page 2 . (12 marks) (d) Evaluate both the currency and the non-currency risks associated with each of the two loan packages for the financing of the West African factory.Paper P3 – Management Accounting – Performance Strategy Post Exam Guide September 2011 Exam SECTION A – 50 MARKS ANSWER THIS QUESTION Question 1 (a) (i) F plc’s directors are concerned about the risks to F plc’s reputation arising from moving production to West Africa. Use CIMA’s Risk Management Cycle to evaluate FOUR possible risks to F plc’s reputation. Your answer should consider the following areas: • • • • Governance Staffing Support facilities Course content (10 marks) (c) Advise the board on the controls necessary during the development and implementation of the changes to the inventory management system. (8 marks) (Total for part (a) = 16 marks) (ii) (b) Advise the board of F plc on the control procedures that should be established over the development and running of the food technology courses that will be provided by the West African colleges for F plc. (8 marks) Recommend appropriate actions to manage those risks.

The expectation is that a practical set of suggestions will be provided. Part (d) requires the application of some fairly straightforward material on currency risk to a specific scenario. The question deals with the quality control over college courses. Part (b) also draws mainly on Section B of the syllabus (Risk and Internal Control). corporate social responsibility and press relations. Answers should reflect the importance and sensitivity of the system because of the potential costs and scope for bad publicity. Regardless of that. Part (d) focuses on section D (Management of Financial Risk). ideally. This part asks for the application of the CIMA risk management cycle to a significant overseas investment that will have the effect of exporting jobs from the home country. It also draws upon some of the environmental debates that have affected companies in the food business. The entity plans to make a significant change to its business model and it requires major changes to the information system in order to support that.Paper P3 – Management Accounting – Performance Strategy Post Exam Guide September 2011 Exam Rationale This question is based on both the common pre-seen scenario and the unseen scenario. It asks candidates to consider the risks associated with two alternative funding strategies. but focuses more on dealing with risks rather than their identification. using a certain amount of common sense. Part (b) may well be familiar ground to many candidates who have taken an interest in the management of any courses taken. one of which will offer security against government interference and expropriation. It is to be hoped that most CIMA candidates will have some familiarity with formal tuition for both their CIMA classes and any courses taken prior to CIMA and so they should be able to draw on those experiences. This has been a common issue facing many successful businesses. Part (c) is a relatively straightforward discussion of a new information system. Candidates are expected to identify both the financial and non-financial risks and to deal with both. in such a way that operations are not disrupted when the new factory is opened and the inventory management process changes. Part (a) draws mainly on Section B of the syllabus (Risk and Internal Control). ©The Chartered Institute of Management Accountants Page 3 . such as the qualifications and experience of the teaching staff. it should be clear that F plc needs to ensure that the college courses are working properly. Failing that. Those changes must be implemented and tested thoroughly and. The focus is on the entity’s reputation. The scenario raises questions of human resourcing. Part (c) draws on section E (Risk and Control in Information Systems). Suggested Approach Part (a)(i) asks for a discussion of the risks using the framework provided by CIMA’s Risk Management Cycle and part (a)(ii) requires a response to those risks. the scenario deals with the provision of an important service and the need to ensure that the service provider delivers appropriate support. There are certain fairly visible signs that can be studied. It draws on themes that have been discussed in the context of outsourcing and foreign direct investment.

in part (a) it was expected that some reference would be made to the CIMA risk management cycle. Another problem was that many candidates ignored that the question asked about reputation risk and discussed many other risks which achieved no marks. In part (c) some candidates discussed problems with the existing system and some discussed the problems of physically dealing with inventory rather than the development and implementation of an IT system. It would be useful to candidates to learn this area of the syllabus as it will always be a part of question 1 and an optional question as well. The answers on currency risk were reasonable but the answers on non-currency risks were weaker. Part (b) was done quite well and part (d) was done reasonably. The question was very clear so it was disappointing that some candidates did not answer what was asked. The question quite clearly asked for this to be discussed. ©The Chartered Institute of Management Accountants Page 4 . (b) 1 mark per reasonable point: Governance Staffing Support facilities Course content Marks Max 8 marks Max 8 marks 5 marks 5 marks 5 marks 5 marks Max 10 marks (c) 1 mark per reasonable point: System design and specification Programming and documentation Testing Training 4 marks 2 marks 6 marks 1 mark Max 12 marks (d) 1 mark per reasonable point: currency and non-currency up to 8 marks each Max 12 marks Maximum mark awarded 50 marks Examiner’s Comments This question was done reasonably in parts but some parts were poor. It is important that candidates answer what is asked. In part (a) and part (c) it was clear that candidates had only skimmed through the question and had not read what was asked for. to a maximum of 4 for each of the bullet points. Common Errors The main errors were in parts (a) and (c). In part (a) many candidates did not mention CIMA’s risk management system at all. Part (c) was asking about the development and implementation of the IT system for managing inventory not asking for a list of issues to be considered in managing the actual inventory itself. Candidates did not seem to have read the question properly. (a)(ii) 1 mark per reasonable point (upside and downside).Paper P3 – Management Accounting – Performance Strategy Post Exam Guide September 2011 Exam Marking Guide (a)(i) 1 mark per reasonable point. Some candidates had learned about financial risk and produced good answers but others gave very weak answers. If there was no mention of it then low marks were awarded. Part (d) the answers to this part were very mixed. This unfortunately meant that these candidates got low marks.

Part (b) asks for consideration of the motivational aspects of changing a management accounting system. given that any change in the measurement of performance will create stresses and pressures and so the associated uncertainty may be quite harmful. Part (a)(ii) builds on this by asking candidates to suggest changes to the reporting system in order to facilitate that changed mindset. ©The Chartered Institute of Management Accountants Page 5 . (5 marks) Recommend. Your advice should include recommendations as to how those difficulties might best be dealt with. The entity has been exploring lean management accounting and lean manufacturing techniques in order to explore ways to remedy matters. Part (a)(i) of the question sets the scene by asking candidates to consider the implications of a shift from creating value for the enterprise as opposed to maximising departmental profits. (10 marks) (Total for Question Two = 25 marks) Rationale This question draws mainly on section A (Management Control Systems). Suggested Approach The most important thing about part (a) is the ability to relate management accounting systems to the commercial priorities associated with running a professional practice. (10 marks) (Total for part (a) = 15 marks) (ii) (b) Advise H’s directors on the difficulties that are likely to be associated with implementing the changes that a move towards lean management accounting will create.Paper P3 – Management Accounting – Performance Strategy Post Exam Guide September 2011 Exam SECTION B – 50 MARKS ANSWER TWO QUESTIONS ONLY Question 2 (a) (i) Advise H’s board on the differences between managing value streams and managing departmental profits. the changes that H should make to its management accounting systems and policies in order to improve the management of the value streams. An entity has been unwittingly stifling itself because its heavy reliance on traditional management accounting practices has led to dysfunctional behaviour. Part (b) asks about the manner in which this change should be introduced. stating reasons.

Maximum mark awarded Examiner’s Comments 25 marks This question was the least popular of the optional question but was done very well by most of the candidates who chose it. uncertainty about new procedures.Paper P3 – Management Accounting – Performance Strategy Post Exam Guide September 2011 Exam Marking Guide (a)(i) 1 mark per reasonable point (a)(ii) 1 mark per reasonable point: Marginal costing Overhead apportionment Client focus Media budget Marks Max 5 marks Max 4 marks Max 5 marks Max 5 marks Max 3 marks Max 10 marks Max 10 marks (b) 1 mark per reasonable point Could include discussion between departments. resistance to change etc. Common Errors Although many candidates gave excellent answers to this question some candidates did not seem to know there was a difference between managing profits and managing value streams. Most candidates discussed value streams very well and were clear about the difference between adding value and profits. Part (c) was done well with most candidates giving good answers about the problems of change within organisations. That was really one of the main points of the question so that was a little disappointing. Very few candidates mentioned overheads or changing to marginal costing or ABC. ©The Chartered Institute of Management Accountants Page 6 .

Your answer should include advice on how to obtain the necessary data and information. ©The Chartered Institute of Management Accountants Page 7 . Suggested Approach The most important thing about parts (a) and (b) is the ability to identify meaningful performance measures. Your answer should include advice on how to obtain the necessary data and information. (10 marks) (c) Explain why it is easier to investigate the economy and efficiency rather than the effectiveness of the cleaning activities. The question provides sufficient lead for candidates to consider the manner in which economy and efficiency and also effectiveness audits may be carried out and also asks for some discussion of their relative difficulty. giving reasons. (5 marks) (Total for Question Three = 25 marks) Rationale This question draws mainly on section C (Review and Audit of Control Systems).Paper P3 – Management Accounting – Performance Strategy Post Exam Guide September 2011 Exam Question 3 (a) Recommend. Part (c) requires some thought about the conflicts that can arise in measuring different aspects of performance. It relates to value for money audit in a local government setting. This is an important aspect of the syllabus. giving reasons. this question tests transferrable skills such as the ability to identify relevant performance measures that are appropriate to any management accounting scenario. Quite apart from the importance of value for money audit in itself. (10 marks) (b) Recommend. the matters that the town council’s internal audit department should study in order to evaluate the effectiveness of the beach cleaning activities. the matters that the town council’s internal audit department should study in order to evaluate the economy and efficiency of the beach cleaning activities.

Could include: How clean is the beach. costs of other towns. any injuries. In general candidates had a good understanding of economy and efficiency which was good. time taken etc (b) 1 mark per reasonable point. Could include: Costs of other services . ©The Chartered Institute of Management Accountants Page 8 . The question was quite popular but was generally not well answered. Candidates did not seem to have enough knowledge to be able to suggest answers for part (b). Marks Max 10 marks Max 10 marks Max 5 marks 25 marks Candidates managed to give reasonable answers to part (a) but did less well on parts (b) and (c).Paper P3 – Management Accounting – Performance Strategy Post Exam Guide September 2011 Exam Marking Guide (a) 1 mark per reasonable point. Points must relate to effectiveness. Candidates did not seem to understand what effectiveness was in the context of an audit. costs of labour and machinery. This area requires some revision as it was clear that candidates did not really understand effectiveness. Points must relate to economy and efficiency. any complaints etc (c) 1 mark per reasonable point Maximum mark awarded Examiner’s Comments This question was not done very well. They did not seem to understand the difference between efficiency and effectiveness and many of the answers given in part (a) included effectiveness. Common Errors This question was not done particularly well.

©The Chartered Institute of Management Accountants Page 9 . It is.Paper P3 – Management Accounting – Performance Strategy Post Exam Guide September 2011 Exam Question 4 (a) (i) Construct the transactions that K would have to undertake in order to create a money market hedge. The question raises important questions about the management of foreign currency exposures. Your answer should include calculations of all relevant figures. Your evaluation should consider the risks and also the costs of doing so. but at what risk? Does a transaction or linked series of transactions that prevents currency risk make commercial sense? Does passing the risks to another party make sense? Suggested Approach Part (a) requires the preparation of some simple calculations and the description of the transactions associated with creating a money market hedge. The future payment can be fixed. (5 marks) Advise K on the costs that are likely to be associated with this hedge and also the risks that will be involved. (5 marks) (Total for Question Four = 25 marks) Rationale This question draws mainly on section D (Management of Financial Risk). payable when the contract is signed instead of the current agreement. It presents a situation in which an entity has to make a future payment in a foreign currency that cannot be purchased in advance using forward contracts or any of the traditional financial instruments. ignoring transaction costs. possible to construct a money market hedge. (7 marks) (ii) Explain whether the manufacturer would be likely to accept payment of GBP1m in GBP. Part (b) requires the ability to link currency management to wider commercial considerations. (8 marks) (ii) (b) (i) Evaluate the suggestion that K should pay the P$2m immediately. however.

Candidates do not appear to have sufficient knowledge of this topic so cannot demonstrate understanding or apply knowledge to any situation. Part (b) was done badly. Part (a) was done well by many candidates. ©The Chartered Institute of Management Accountants Page 10 . fixed costs etc.Paper P3 – Management Accounting – Performance Strategy Post Exam Guide September 2011 Exam Marking Guide (a)(i) calculation (a)(ii) 1 mark per reasonable point Could include: High fees. (b)(ii) 1 mark per reasonable point Could include: Risks passed to vendor. vendor may speculate etc Maximum mark awarded Examiner’s Comments Max 5 marks Max 8 marks Max 7 marks Max 5 marks 25 marks Parts of this question were done well. compliance . The calculation was done very well which was excellent. Revision of this topic is required. Many candidates failed to come up with any reasonable points. It is 35% of the paper and yet candidates still do the question when they know very little about the subject. This area of financial risk still requires revision by candidates. Part (b) was poor. Common Errors Part (a) was done quite well so no common errors to report. bank charges. risks etc (b)(i) 1 mark per reasonable point Could include: Risks.

Paper P3 – Management Accounting – Performance Strategy Post Exam Guide November 2011 Exam SECTION A – 50 MARKS ANSWER THIS QUESTION

Question 1

(a)
(i) Evaluate the ethical AND commercial implications of N’s bribery of the government official. (9 marks) Advise M plc’s board on an appropriate course of action with respect to the continuing bribery. (9 marks) In considering the ethical implications you may wish to reflect on the extent to which CIMA’s Fundamental Principles of Integrity, Objectivity, Professional Competence and Due Care, Confidentiality and Professional Behaviour could be relevant.

(ii)

(b)
(i) Evaluate the implications for N of the duplication of the story about the charity and of the demand for an admission of guilt and a donation. (8 marks) (ii) Recommend ways in which M plc could utilise information technology across all of its newspapers to reduce the risk of journalists stealing or fabricating news stories in the future. (9 marks)

(c)
(i) Recommend a course of action for the board of M plc with respect to reducing the risk of N being nationalised in the event of a change of government. You should assume that M plc will not sell its investment to J. (9 marks) (ii) Discuss J’s offer to buy M plc’s equity in N. (6 marks) (Total for Question One = 50 marks)

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Rationale This question is based on both the common pre-seen scenario and the unseen scenario. It draws on themes revolving around the protection of an entity from corruption and unethical behaviour on the part of a number of stakeholders, including government, employees and a related party. This is in the overall context of the creation and expansion of an overseas subsidiary. Part (a) draws mainly on Section B of the syllabus (Risk and Internal Control). This part asks for the application of CIMA’s ethical guidance, primarily in the form of the fundamental principles, to the question of whether a bribe should be paid in order to retain a permit that is required to continue in business. The matter was, perhaps, complicated by the fact that the request for the bribe was made by an official in a country where bribery and corruption are endemic. Thus, the payment of a bribe would be perfectly consistent with the country’s culture. Part (b)(i) also draws mainly on Section B of the syllabus (Risk and Internal Control). It asks for a discussion of the risks to a newspaper publisher’s reputation of one of its journalists being caught plagiarising and fabricating a news story. Part (b)(ii) draws mainly on section C (Review and Audit of Control Systems). It asks for some consideration of the ways in which IT might be used to deter the copying and distortion of news stories. Candidates are free to consider the ways in which evidence can be collated electronically and stolen copyright material may be traced back to its original owner. This could be familiar to some candidates given the prevalence of software in further and higher education that achieves similar objects, although there would be no need to have been exposed to such scrutiny to be able to attempt this question. Part (c) draws on section D (Management of Financial Risk). It asks candidates to consider the ways in which a newspaper company might be able to manage the risk of expropriation by a foreign government that has threatened to nationalise foreign businesses. In this case the nature of the business could have a direct bearing on the management of this risk. Suggested Approach Part (a)(i) asks for an evaluation of the ethical dilemma created by a corrupt official’s request for a bribe. Part (a)(ii) requires advice on the actions that should be taken by the UK-based holding company in the face of this bribery. The expectation is that candidates will draw upon CIMA’s ethical guidance in order to provide a basis for responding to this scenario, although it should be expected that some will use alternative approaches, such as the Bribery Act that has been gathering a great deal of attention in the UK press. Part (b) asks for a discussion of the risks associated with plagiarism by one newspaper of another newspaper’s published stories. Part (i) deals with the broad range of problems that such behaviour may create and part (ii) deals with the ways in which IT may be harnessed to address those risks. This part of the question is necessarily open-ended and marks would be awarded for relevant points that are not in the suggested answer. Part (c)(i) deals with a topic that does have some fairly well-defined material in the text. Candidates should be able to suggest ways in which the prospect of a change of government can be evaluated from a riskmanagement point of view. Part (ii) is a little more open ended because a local business partner has offered the holding company the opportunity to sell its stake and so address the risk of operating in that country and having capital committed there. This part of the question will require candidates to think about the underlying commercial risks and whether they require that the project should be abandoned.

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Marking Guide There are a number of approaches possible for parts of this question. Marks were awarded for reasonable arguments. (a)(i) 1 mark per reasonable point: integrity professional behaviour specific guidance on inducements no final resolution in rules

Marks

3 marks 3 marks 2 marks 3 marks Max 9 marks

(a)(ii) 1 mark per reasonable point: local norms commercial implications Bribery Act 2010

4 marks 4 marks 2 marks Max 9 marks

(b)(i) 1 mark per reasonable point: credibility charity donation = admission almost worse than fabrication

3 marks 3 marks 2 marks 1 mark Max 8 marks

(b)(ii) 1 mark per reasonable point: Plagiarism software History Checking sources Searches

4 marks 4 marks 2 marks 2 marks Max 9 marks

(c)(i) 1 mark per reasonable point: borrow locally align J’s interests with M’s harness media power develop links to new party other

3 marks 2 marks 3 marks 2 marks 4 marks Max 9 marks

(c)(ii) 1 mark per reasonable point: offer guarantees something loss of upside M board’s credibility J’s motives now suspect

2 marks 2 marks 1 mark 1 mark Max 6 marks

Maximum marks awarded

50 marks

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This would of course be impossible to enforce as they could access the internet from many locations and they would in fact benefit from reading other papers’ news stories. this would not be a good idea as it would change the balance of the Board. Part (a)(i) was done well by many candidates. Part (c)(i) and (c)(ii) were done reasonably well by most candidates.Paper P3 – Management Accounting – Performance Strategy Post Exam Guide November 2011 Exam Examiner’s Comments Parts of this question were done well and other parts were poorer. Candidates should always try and suggest practical solutions. It was good to see most candidates answering what was asked and making a good attempt at all parts of the question. This was a bit disturbing. many candidates seemed to think that bribery was fine in most circumstances and even came up with helpful suggestions of how it could be carried out in a better way. Common Errors Part (a)(ii) was done badly by many candidates. Part (a)(ii) was done badly with a number of candidates thinking bribery was fine and thinking of better ways to do it for the company. The suggestion in (c)(i) and sometimes (c)(ii) which was made by many candidates was that a government official could sit on the Board. Part (b)(i) was done well by many candidates. ©The Chartered Institute of Management Accountants Page 5 . Part (b)(ii) was poorer with some candidates thinking that restricting journalists’ access to the internet was the key to reducing plagiarism. Part (b)(ii) was not done very well with some candidates suggesting that journalists should be very closely monitored and some suggesting they should not have internet access. Overall question 1 was done quite well and better than in some previous exams.

Part (a) requires an understanding of the basics of option valuation. but they must be aware that increasing volatility in the underlying share price will increase the value of the options and so motivate the directors to take a more realistic attitude towards risk.Paper P3 – Management Accounting – Performance Strategy Post Exam Guide November 2011 Exam SECTION B – 50 MARKS ANSWER TWO QUESTIONS ONLY Question 2 (a) (i) Explain why the introduction of ESOSs could motivate V’s executive directors to accept positive net present value (NPV) projects. (8 marks) (b) Evaluate the advantages AND disadvantages of rewarding executive directors by paying a bonus based on a simple and transparent measure such as profit. (10 marks) (Total for Question Two = 25 marks) Rationale This question draws on section A (Management Control Systems). This links the material in this paper to concepts of risk and return and the manner in which executive directors may be motivated. Part (b) asks candidates to think about a number of strands of the debate about executive compensation. Part (b) deals with the need for simple and unambiguous feedback in the process of exercising control over the board’s performance and also the possibility of dysfunctional behaviour arising from rewarding executive directors with profit related bonuses. That is clearly an important topic in the syllabus and also in corporate governance more generally. Suggested Approach This question is all about aligning the directors’ interests with those of the shareholders. including the possibility that simplicity may make it easier to understand the directors’ motives. ©The Chartered Institute of Management Accountants Page 6 . Candidates need not be experts. (7 marks) (ii) Explain how an ESOS scheme could affect the actions taken by the directors (other than the project appraisal decision). Part (a) deals with the agency/control issues arising from executive share option schemes.

Part (a) was weaker with many candidates ignoring NPV and just talking about directors’ incentives and aligning them with shareholders’ interests.Paper P3 – Management Accounting – Performance Strategy Post Exam Guide November 2011 Exam Marking Guide (a)(i) 1 mark per reasonable point: Systematic v total risk Options encourage risk taking Marks 3 marks 4 marks Max 7 marks (a)(ii) 1 mark per reasonable point: Motive to increase share price Medium term Retain services Dividends 3 marks 1 mark 2 marks 2 marks Max 8 marks (b) 1 mark per reasonable point: Feedback Spot dysfunctional behaviour Profits do not equal shareholder wealth Creative accounting Short term 3 marks 2 marks 3 marks 1 mark 3 marks Max 10 marks Maximum marks awarded 25 marks Examiner’s Comments This was a very popular question and it was done well by candidates. Some of the answers to this question were very similar and clearly learned by rote. Common Errors The question was done reasonably well. good marks were achieved in this question by many candidates. Many candidates achieved maximum marks for parts of the question especially part (b). which was excellent. Candidates are reminded that they must apply their knowledge to the scenario provided in order to score highly. ©The Chartered Institute of Management Accountants Page 7 . However. A number of the answers to part (b) were clearly learned by rote as markers commented on the similarities between candidates’ answers. On the whole there were some high marks for this question.

Part (a) asks for an explanation of the factors that could have prompted such suspicions. Finally. Suggested Approach This is essentially a question about the possibility of fraud. Part (a) requires the ability to spot the factors that may have aroused suspicion. In this scenario. the work that the internal auditor should undertake if the bidding process for the buses is investigated. (8 marks) (Total for Question Three = 25 marks) Rationale This question draws mainly on section C (Review and Audit of Control Systems). In this case there appears to have been some corrupt behaviour surrounding a sealed bid for a large contract. we don’t actually know that the bidding process has been compromised. Candidates often confuse the possibility of fraud with a statement of fact. Part (b) is looking for some realistic suggestions as to the work that the internal auditor might undertake. (11 marks) (c) Advise the chief executive about TWO advantages and TWO disadvantages of the internal auditor being actively involved in the investigation of suspected fraud. (6 marks) (b) Recommend. Part (b) develops this by asking about the work the internal audit department would undertake. The internal auditor’s responsibilities with respect to fraud require careful consideration and so there is some scope for developing an argument. with reasons. ©The Chartered Institute of Management Accountants Page 8 . part (c) asks about the role of the internal audit function in investigating this type of irregularity. It relates to the possibility of dishonesty in the management of a tender for a contract to supply a major capital item.Paper P3 – Management Accounting – Performance Strategy Post Exam Guide November 2011 Exam Question 3 (a) Explain THREE factors that could have caused the head of internal audit to be concerned about the bidding process for the buses. Part (c) requires candidates to think about the role of internal audit within the organisation.

This approach did not achieve high marks. There were few marks available for writing about stages in an internal audit when the question was about an investigation into the bus tenders. Candidates did not appear to have read the question properly or just wrote everything they could think of about internal audit. testing. ©The Chartered Institute of Management Accountants Page 9 . Candidates must read the question and answer what is asked. reporting to the Board etc with no specifics relating to the scenario. Generally candidates must relate their answers to the scenarios to achieve high marks. Many candidates did not answer part (b) well and just talked about the stages of an audit rather than an internal audit investigation. Parts (a) and (c) were done quite well but part (b) was very poor.Paper P3 – Management Accounting – Performance Strategy Post Exam Guide November 2011 Exam Marking Guide (a) 1 mark per reasonable point: General context of bidding process Winner had inside knowledge Lowest bid rejected Lack of security Internal auditor excluded Note: candidates were required to discuss THREE factors only. up to 3 marks per advantage or disadvantage Maximum marks awarded Max 8 marks 25 marks Examiner’s Comments The results for this question were disappointing. These answers scored low marks. Many just listed stages in an audit such as planning. Common Errors Question 3(b) was done badly with candidates not answering what was asked. (b) 1 mark per reasonable point: Trace custody of sealed bids Examine documents Investigate relationships Justification re lowest bid Marks 3 marks 4 marks 3 marks 3 marks 3 marks Max 6 marks 4 marks 2 marks 3 marks 3 marks Max 11 marks (c) 1 mark per reasonable point.

Paper P3 – Management Accounting – Performance Strategy Post Exam Guide November 2011 Exam Question 4 (a) (i) Calculate the net payments that will be required in order to settle all inter-office balances. (8 marks) (ii) (b) Evaluate the suggestion that W’s London office should open a EUR bank account to deal with EUR receipts and payments. Part (ii) asks candidates to spell out the advantages and disadvantages of doing this. Suggested Approach Part (a)(i) requires the ability to apply a simple technique to reduce bank charges and avoid tying cash up in international bank transfers. Part (b) asks for a discussion of the advantages and disadvantages of opening a foreign currency bank account to deal with recurring transactions in a frequently used currency. ©The Chartered Institute of Management Accountants Page 10 . (6 marks) (Total for Question Four = 25 marks) Rationale This question draws mainly on section D (Management of Financial Risk). (11 marks) Advise W of the advantages and disadvantages of offsetting balances using multilateral netting. Part (b) is looking for both advantages and disadvantages of this simple hedging strategy. It asks candidates to discuss two internal hedging techniques (multilateral hedging and the use of a foreign currency bank account. both in terms of their application and their specific advantages and disadvantages. Part (a)(i) tests the ability to apply netting of balances in a simple case and part (ii) asks candidates to consider the advantages and disadvantages of using this technique. assuming that the process is managed by W’s London-based treasury department.

This was not what the question asked for and so high marks could not be given. Most candidates translated everything to one currency so achieved some marks but did not net the transactions properly. The question was not popular with UK candidates but was very popular with non-UK candidates who generally did well in this question. Bilateral netting does not do this. The idea of multilateral netting is that the numbers of transactions are reduced to the minimum possible in the most efficient way. ©The Chartered Institute of Management Accountants Page 11 . Common errors Many candidates did a bilateral netting calculation instead of multilateral netting.Paper P3 – Management Accounting – Performance Strategy Post Exam Guide November 2011 Exam Marking Guide (a)(i) Restating balances £ Netting off Any form of settlement that results in zero balances 3 marks 4 marks 4 marks Max 11 marks (a)(ii) 1 mark per reasonable point: Transaction costs Hedging Tax problems Exchange rate issues 3 marks 1 mark 4 marks 1 mark Max 8 marks (b) 1 mark per reasonable point: Internal hedge Need to retain positive balance Exposure restricted to net € Reduce bank charges More cost effective to move to Eurozone 2 marks 1 mark 2 marks 1 mark 2 marks Max 6 marks Maximum marks awarded 25 marks Examiner’s Comments This question was done quite well by candidates who chose it. The calculations were done badly by some candidates. The theory parts of this question were done reasonably well.

Such a situation requires the risks to be weighed against the potential benefits and also for those risks to be managed so that they are minimised. (7 marks) (c) Discuss the THREE stated possible methods of managing M plc’s exposure to movements of the USD against the GBP. Part (a) draws mainly on Section B of the syllabus (Risk and Internal Control). the entity has a particular business model that generates customer goodwill. stating reasons. It draws on themes involving the business risks associated with providing customers with the ability to post comments on a corporate website. This part asks for an evaluation of risks that are created by the application of new technology in order to gain a market advantage. (7 marks) (iii) Explain the difficulties that could arise from the board’s directive that the internal audit department should carry out regular reviews of journalists’ expenses. even if they cannot be eliminated. (10 marks) Recommend. (10 marks) (ii) (b) (i) Explain the importance of a robust control environment for M plc. but exposes the entity to the risk of publishing defamatory comments on its website.Paper P3 – Management Accounting – Performance Strategy Post Exam Guide March 2012 Exam SECTION A – 50 MARKS ANSWER THIS QUESTION Question 1 (a) (i) Evaluate the risks to M plc associated with allowing subscribers to post comments and views on the newspaper website. the implications of a weak control environment and the problems of managing currency risks when a significant cost is incurred in a particular country’s currency. Your answer should include an evaluation of the costs and risks associated with each of the three methods. (13 marks) (Total for Question One = 50 marks) Rationale This question is based on both the common pre-seen scenario and the unseen scenario. ©The Chartered Institute of Management Accountants Page 2 . (3 marks) (ii) Explain THREE ways in which weaknesses in the control environment appear to have contributed to the problems with journalists’ expense claims. appropriate controls that might be put in place in future to minimise the risks to M plc associated with malicious and inaccurate posts. In this case.

However. but the reality of this situation is that the nature of the business will make it very difficult to deal with currency risks. senior management does have a responsibility to manage those costs to the best of their ability and so it would be unacceptable to permit the expense claims to be left unmanaged. At the same time. The question requires candidates to demonstrate a degree of commercial awareness as well as an understanding of currency risk. It asks for some consideration of the control environment in the context of a newspaper’s control of journalists’ expenses. Candidates should recognise the need to allow staff some latitude in these circumstances while avoiding excessive claims. The unseen material contains some fairly clear prompts to reduce the likelihood of impractical suggestions. Part (c) draws on section D (Management of Financial Risk). otherwise it will be virtually impossible for them to do their jobs. It asks candidates to consider the ways in which an entity that is heavily exposed to movements in a critical exchange rate that governs the price of a vital and significant raw material can be managed. That would create a more stringent level of control but would risk diverting internal audit resources away from more traditional activities and would risk alienating the internal audit department from those who are being investigated in this way. Part (a)(ii) is looking for the ability to devise practical controls that could be applied in a cost-effective manner. such as positive vetting of all posts before they go live. there are ways in which the problem can be reduced to a manageable level. Suggested Approach Part (a)(i) asks for an evaluation of the risks associated with permitting subscribers to post comments freely on a website that is open to a wide readership of subscribers. ©The Chartered Institute of Management Accountants Page 3 .Paper P3 – Management Accounting – Performance Strategy Post Exam Guide March 2012 Exam Part (b) draws mainly on Section C (Review and Audit of Control Systems). Part (c) offers candidates three methods of dealing with ongoing. Solutions should be realistic with respect to the question of completely eliminating the threat because it is unlikely to be possible to do so. None of the three approaches is likely to be totally effective. Part (b)(i) and (b)(ii) ask for a sensible discussion of the conflict inherent in preventing excessive expense claims while ensuring that journalists are free to do their jobs quickly and efficiently without being hampered by checks and authorisations. day-to-day currency risks associated with purchasing raw materials that are priced in USD. The point of this question is that the newspaper must grant its staff considerable latitude in incurring and reclaiming expenses. In practical terms there would be very little to prevent a subscriber from copying any of the material posted to the site on an open web page or to prevent a rival newspaper from subscribing and repeating allegations made on the website in order to create a news story. The approach that should be taken to the management of such ongoing expenses may be different to the management of large and infrequent receipts and payments. Part (b)(iii) introduces a dilemma associated with the involvement of the internal audit department. Candidates should consider the potential for damage to the newspaper’s credibility arising from such posts and also the risk that the entity may have to pay substantial compensation to any party who is defamed by such a post.

This is a large area of the syllabus and candidates will find it difficult to pass this subject if they do not understand financial risk.Paper P3 – Management Accounting – Performance Strategy Post Exam Guide March 2012 Exam Marking Guide Part (a)(i) 1 mark per reasonable point: Reputation M’s exposure to compensation claims Public opinion Competitors’ behaviour Part (a)(ii) 1 mark per reasonable point: Identify subscribers Make subscribers accountable Security Pursue offenders Flag offensive posts Part (b)(i) 1 mark per reasonable point: Staff perception Management attitude Tolerance encourages exceptions Part (b)(ii) 1 mark per reasonable point: Overspending tolerated Sense of entitlement Lack of support for supervisors Part (b)(iii) 1 mark per reasonable point: Compliance Resentment Provide guidance Avoid dysfunctional savings Part (c) 1 mark per reasonable point: UK supplier USD deposit Accept risk Marks 3 marks 3 marks 3 marks 3 marks Max 10 marks 3 marks 3 marks 3 marks 3 marks 3 marks Max 10 marks 1 mark 1 mark 1 mark Max 3 marks 3 marks 3 marks 3 marks Max 7 marks 3 marks 4 marks 2 marks 1 mark Max 7 marks 5 marks 5 marks 5 marks Max 13 marks 50 marks Maximum marks awarded Examiner’s Comments Many parts of the question were done quite well. ©The Chartered Institute of Management Accountants Page 4 . Part (c) was poor with many candidates not demonstrating an understanding of financial risk. Some revision of this topic is required. Part (b)(i) was poor with a number of candidates just repeating the information contained in the question and not answering the question requirements. Parts (a)(i) and (ii) were answered well with candidates coming up with good suggestions.

Part (c) was also poorly done. As stated above. ©The Chartered Institute of Management Accountants Page 5 .this approach earned zero marks. many candidates just copied out what was said in the question .Paper P3 – Management Accounting – Performance Strategy Post Exam Guide March 2012 Exam Common Errors Part (b)(i) was poorly done but fortunately it was only worth 3 marks. Candidates could not distinguish between the three options and just repeated the same thing three times which was disappointing. Some revision of the area of financial risk is required by most candidates.

Part (b) deals with the risks associated with internal transfers between profit centres and the threat of dysfunctional behaviour when centres work to maximise their own reported profits. The entity’s founder has tended to be authoritarian in the past and has decided to forego some of the day-to-day control over local activities. Recommend. TWO measures that should appear under each perspective: • • • • Financial Customer Learning and growth Internal business processes (16 marks) (b) (i) Evaluate the potential for dysfunctional behaviour arising from the transfer of trade-ins between dealerships and divisions. ©The Chartered Institute of Management Accountants Page 6 . (6 marks) (ii) Explain how the problems identified in (i) might be overcome.Paper P3 – Management Accounting – Performance Strategy Post Exam Guide March 2012 Exam SECTION B – 50 MARKS ANSWER TWO QUESTIONS ONLY Question 2 (a) The founder has decided that each of the divisional managers will be evaluated using a balanced scorecard system. with reasons. That does not require any particular knowledge of the industry concerned. Suggested Approach Part (a) requires candidates to consider the facts that have been provided in the scenario. That requires some consideration of the information that could be reflected in a balanced scorecard in order to provide senior management with evidence that the local managers are working effectively and in the long-term interests of the business. (3 marks) (Total for Question Two = 25 marks) Rationale This question draws on section A (Management Control Systems). Part (b) asks candidates to think about the ways in which local managers could work against one another in the context of the information provided in the scenario. but it does require a common-sense understanding of the facts as provided. Part (a) deals with the introduction of balanced scorecard to introduce accountability in an entity that plans to provide local managers with greater autonomy.

It is important that measures suggested are sensible and useful. It was pleasing to see that there were some very good answers which covered most of the points in the examiner’s answer. Part (b) was quite poor as many candidates did not seem to be able to think of how to stop the dysfunctional behaviour. Common Errors Part (a) Lack of knowledge of the common perspectives used in the balanced scorecard was the most common error with candidates missing out some parts of the question. Some revision of this area is required. Some candidates did well in part (a) but found the learning and growth perspective difficult and in many cases just missed it out. Part (b) This part was weak. The area of balanced scorecards could do with some revision by all candidates as although the pass rate for the question was reasonable the marks were generally not very high. good points had to be made and developed under each heading.Paper P3 – Management Accounting – Performance Strategy Post Exam Guide March 2012 Exam Marking Guide Part (a) 1 mark per reasonable point: Each recommendation Recommendations in total Part (b)(i) 1 mark per reasonable point: No incentive to bargain with customer Underspend on maintenance Part (b)(ii) 1 mark per reasonable point: Market rates Servicing by recipient Rectification Marks Max 3 marks Max 16 marks 3 marks 3 marks Max 6 marks 2 marks 2 marks 1 mark Max 3 marks 25 marks Maximum marks awarded Examiner’s Comments This question was done reasonably well. Few candidates had much to say in this part of the question. ©The Chartered Institute of Management Accountants Page 7 . Some candidates had nonsensical measures which would have been of no use to the company. To gain a high mark.

Those contingencies must be effective and must be tested from time to time in order to prove that they are. (10 marks) (Total for Question Three = 25 marks) Rationale This question draws mainly on section E (Risk and Control in Information Systems). stating reasons. Part (a)(ii) requires some reflection on the quality of the assurances that will be obtained from a drill that has been planned and discussed in advance and that has been timed to minimise the disruption. Suggested Approach The whole question requires candidates to think very carefully about the information provided in the scenario and to apply that reflection when thinking about the requirements. Part (a)(i) requires some thought about the costs of running a disaster-planning exercise and the risk that doing so may actually harm the business because of the need to bring back-up systems into operation. It relates to the need to plan for contingencies when an entity is dependent upon IT systems for operations. Part (b) requires some thought about the practical consequences of asking staff to accept some disruption in their travel arrangements for the sake of the entity. ways in which H could ensure that the remote centre would be fully staffed in the event that a genuine disaster occurs. (8 marks) (ii) Discuss the weaknesses of the planned approach taken by H to its simulation. (7 marks) (b) Recommend. ©The Chartered Institute of Management Accountants Page 8 .Paper P3 – Management Accounting – Performance Strategy Post Exam Guide March 2012 Exam Question 3 (a) (i) Discuss the advantages and disadvantages to H of running a disaster simulation.

Paper P3 – Management Accounting – Performance Strategy Post Exam Guide March 2012 Exam

Marking Guide Part (a)(i) 1 mark per reasonable point: Prove backup system can meet needs Training value Cost Less costly alternatives Part (a)(ii) 1 mark per reasonable point: Least robust test Staff warned Communication difficult in reality Backup offline Part (b) 1 mark per reasonable point: Condition of employment Medical evidence required Familiarisation Overtime Transportation Childcare Staff loyalty

Marks

3 marks 2 marks 2 marks 3 marks Max 8 marks

2 marks 2 marks 2 marks 3 marks Max 7 marks

2 marks 1 mark 2 marks 2 marks 3 marks 2 marks 1 mark Max 10 marks 25 marks

Maximum marks awarded

Examiner’s Comments Many candidates answered this question very well but a number did it badly. There were some very good answers which analysed everything in depth and gained a high mark. There were several hints in the question which should have helped candidates do well. Many candidates did not mention the cost of simulating the disaster plan, which was one of the important points. Common Errors In general some centres had very short answers. If candidates do not write much they cannot achieve a high mark. Few candidates mentioned the transport or childcare issues that employees would have trying to get into work two hours early. It is important for candidates to bring into their answers as many aspects as possible from the scenario in order to provide the fullest response to the question requirements. If the answer is incomplete the candidate will not get a high mark.

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Paper P3 – Management Accounting – Performance Strategy Post Exam Guide March 2012 Exam

Question 4

(a)

Explain THREE reasons why Q would wish to borrow in EUR in order to finance the proposed French subsidiary. (6 marks) Calculate an estimated LKR to EUR exchange rate at the date of repayment in six years. Note: your answer should include an explanation of your method. (4 marks) Calculate the net present value of Q’s cash flows associated with financing if it accepts P’s swap arrangements, assuming a required discount rate of 9% and that the anticipated change in exchange rates will occur evenly over the six year period. (7 marks) Evaluate the risks to Q from P’s swap arrangement. (8 marks) (Total for Question Four = 25 marks)

(b)

(c)

(d)

Rationale This question draws mainly on section D (Management of Financial Risk). It asks candidates to consider the advantages of borrowing in a subsidiary’s functional currency and also the workings of a swap that might be used in order to obtain such funding.

Suggested Approach Part (a) requires the ability to explain the advantages of borrowing locally in order to finance foreign operations. The question deals with the basic strategy of matching income and outgoings to the fullest possible extent. Part (b) tests understanding of the mechanisms that might explain the equilibrium relationships between currency values. It does so in the context of using a model to link rates. Parts (c) and (d) require calculations and explanation in support of the decision to use swap arrangements.

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Paper P3 – Management Accounting – Performance Strategy Post Exam Guide March 2012 Exam

Marking Guide Part (a) 1 mark per reasonable point: Hedging Cost Translation risk Insolvency issues Part (b) 1 mark per reasonable point: Explanation Calculation Part (c) Use of LKR throughout Initial outflow Interest annuity Repayment Part (d) 1 mark per reasonable point: Principal not exchanged Q can default on P if P defaults on Q Movement on principal Loss of hedge

4 marks 2 marks 2 marks 2 marks Max 6 marks

3 marks 1 mark

1 mark 1 mark 3 marks 2 marks

2 marks 3 marks 2 marks 2 marks Max 8 marks 25 marks

Maximum marks awarded

Examiner’s Comments Overall, this question was not done well by most candidates who chose it. The calculations were very weak although the written parts, (a) and (d), were reasonably well done. The whole area of financial risk requires revision. It is difficult to pass this exam with no knowledge of financial risk. It is 35% of the syllabus so must be revised before the next attempt. Common errors Candidates must learn how to perform the finance calculations in this syllabus. Parts (b) and (c) were done very poorly by almost all candidates. Many candidates missed these two sections out altogether which meant they could not then obtain a pass mark for the question. There are only a few calculations within the P3 syllabus so it should not be too difficult for candidates to learn these. If candidates have not covered the whole syllabus then it is very difficult to pass this exam. All parts of the syllabus should be covered when revising in order to have the best chance of passing.

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(6 marks) Evaluate the Finance Director’s statement that there is no point in purchasing a sequence of short term instruments to lower exposure to interest rate risks over the remaining six years of the loan. (6 marks) (iii) (c) (i) Evaluate the potential effectiveness of RFID technology for the identification and prevention of fraud by staff. (8 marks) (Total for Question One = 50 marks) (ii) ©The Chartered Institute of Management Accountants Page 2 . (8 marks) Evaluate the risk that B’s venture in country A will fail because of cultural differences. Your answer should be supported by calculations that show the effects of the swap a) assuming that EURIBOR remains constant and b) assuming that the rate increases to 2%. (8 marks) (ii) (b) (i) Evaluate the risks for B arising from interest rate fluctuations. (8 marks) Recommend tests that B’s internal audit department could conduct to evaluate the effectiveness of the RFID technology while the pilot programme is operating. (6 marks) (ii) Discuss the potential risks and benefits that could arise from the swap arrangement with the major commercial bank.Paper P3 – Management Accounting – Performance Strategy Post Exam Guide May 2012 Exam SECTION A – 50 MARKS ANSWER THIS QUESTION Question 1 (a) (i) Discuss TWO ways in which B’s investment in country A could adversely affect the relationship between B’s board and the shareholders of B.

The project may attract a disproportionate amount of attention from the business press both in the company’s home country and in the new local market. while making the company seem too different may alienate them. It draws on themes involving the business risks associated with entering a foreign market. the starting point should be to think about the significance of the investment to the company and to the reputation of the board. which is not a material investment for a company of this size. The entity wishes to evaluate the control risks arising from the introduction of new technology that should be of value in inventory management. This is only one store. Two aspects are considered. The latter issue arises from the impact of interest rates on mortgage payments and will be particularly acute for a supermarket business because consumers may be able to switch their buying habits very quickly in response to any reduction in their disposable income. Part (a)(ii) offers the opportunity to explore some of the risks arising from global expansion. Part (b)(iii) asks for a basic understanding of the relationship between the buyers and sellers of derivative instruments and the extent to which the prices offered make it unlikely that the pricing of a succession of short-term instruments will make it possible to hedge a long-term risk. Part (b)(i) is looking for both the obvious point that a heavily geared company that has variable rate borrowing will have its cost of borrowing affected by movements in interest rates and the equally important fact that consumer demand is affected by the cost of interest. Part (a) draws mainly on Section B of the syllabus (Risk and Internal Control). The real significance of the project is that it may be seen as a reflection of the board’s ability to identify new markets and exploit them successfully. but are likely to be particularly acute for a supermarket that must promote itself and its products to consumers. The key to this part is to articulate the potential for conflict clearly so that the implications can be explored. There are also some very obvious risks associated with the possibility of causing offence to local customs or religious beliefs through the sale or promotion of products that could prove controversial. Overcoming that problem will be difficult because copying existing approaches to retailing will make it difficult to differentiate the new stores. In addition to exploring those risks the question asks for a discussion of the use of swaps to convert variable rate borrowings to fixed and also the risks associated with entering into a succession of short-term loans in place of a single loan covering the entire term for which funding is required. the risks associated with interest rate movements and the control risks associated with the implementation of new technology. In the event that this project falters then the board may be tempted to manipulate any reports of success and that could affect the directors’ credibility in the eyes of the shareholders. Part (c) draws mainly on section E (Risk and Control in Information Systems). Part (i) draws on the fact that the entity is a quoted company and the project is being promoted heavily as an indication that the board is taking the initiative to expand and create organic growth. There is also a danger that the directors will be perceived as building a retail empire for the sake of their own reputations and career progression rather than creating wealth for the shareholders. Part (b) draws mainly on section D (Management of Financial Risk). Opening a supermarket chain in a new country creates the risk that consumers will be resistant to the promotional strategy and will remain loyal to existing suppliers. In order to consider this effectively. ©The Chartered Institute of Management Accountants Page 3 . The entity is affected by variations in interest rates both because it has variable rate debt and also because interest rates affect the spending power of the consumers who buy from the company. That could lead to misreporting or dysfunctional behaviour in the event of any problems. That raises potential corporate governance issues because the directors may feel that their reputations are at stake and that the investment must appear to succeed. These exist for most businesses.Paper P3 – Management Accounting – Performance Strategy Post Exam Guide May 2012 Exam Rationale This question is based on both the common pre-seen scenario and the unseen scenario. Part (ii) deals with the cultural risks associated with entry to a new market. Part (i) focuses on the opportunities created by this technology. This part asks for an evaluation of risks associated with entry to a new foreign market. Part (ii) deals with the implementation issues. Suggested Approach Part (a)(i) asks for a discussion of two ways in which the expansion overseas could affect the relationship between the board and the shareholders. Part (b)(ii) is looking for a reasoned explanation of the effects of a particular interest rate swap opportunity and requires some basic calculations in order to make sense of the impact.

In principle. Part (c)(ii) requires some suggestions as to the manner in which this new system might be tested.Paper P3 – Management Accounting – Performance Strategy Post Exam Guide May 2012 Exam Part (c)(i) asks candidates to consider the implications of a fairly mainstream technology for the automation of inventory management. the replacement of a physical count should reduce staff time and ought to enable more frequent checking. The only problem is that the technology is now one step removed from counting products and could be defeated by a trick as simple as removing the electronic tag and leaving it in place in order to overstate any electronic count. Marking Guide (a)(i) 1 mark per reasonable point: Reputation Discovery of fabrication of reported results Refusal to withdraw in the event of failure Directors’ career prospects tied to retailing Performance expressed in directors’ terms Marks 2 marks 2 marks 2 marks 2 marks 3 marks Max 8 marks (a)(ii) 1 mark per reasonable point: National identity Product range 5 marks 5 marks Max 8 marks (b)(i) 1 mark per reasonable point: Gearing ratio Interest receivable Consumer demand 2 marks 2 marks 2 marks Max 6 marks (b)(ii) 1 mark per reasonable point: Calculations Implications of greater cost v lower risk Forecasting Counterparty risk 2 marks 3 marks 1 mark 1 mark Max 6 marks (b)(iii) 1 mark per reasonable point: Risk accepted by borrower or lender Term structure (c)(i) 1 mark per reasonable point: More spot checks Less scope for manipulation Abuse of tags 4 marks 4 marks Max 6 marks 2 marks 4 marks 3 marks Max 8 marks (c)(ii) 1 mark per reasonable point: Results of test counts Analytical procedures Discrepancies Observe a sample of counts Discussion with staff 2 marks 1 mark 3 marks 2 marks 1 mark Max 8 marks 50 marks Maximum mark awarded ©The Chartered Institute of Management Accountants Page 4 .

In many cases answers bore no relevance whatsoever to the question set. at the other extreme. for example substantive testing. liquidation. Any of the tests given were either generic description. In part (b)(i) the risks and benefits of the swap arrangement were given in a purely generic fashion with little reference to the case study. Part (b)(iii) was very poor with few candidates giving good answers. Many candidates again failed to read the question and discussed customer theft and general system efficiency rather than the relevance to theft by staff. Many had this trial bringing the whole group to its knees! Many had the trial forcing the group into raised gearing. Part (c)(i) was reasonable with candidates finding many benefits from the RFID system. Part (a)(ii) was reasonable. In part (c)(i) the response was mixed. Only a handful of candidates saw the problem of facing the current interest rate climate each and every time a short term instrument was renewed. Part (c)(ii) was very poor. ©The Chartered Institute of Management Accountants Page 5 . that is. The better scripts managed to produce the sensible comment regarding shareholders’ reticence through risk of overseas entry barriers and lack of core focus by management but few candidates came up with responses similar to the model solution. language misunderstanding in advertising and product labelling. Part (b)(ii) was done reasonably well with half the candidates scoring good marks although the risks and benefits was not answered very well. rights issues or. most candidates picked up on the CEO’s attitude as being a problem and to some extent the product risk but there were few really good answers that highlighted the danger of inadvertent PR disaster through for example. The best that most candidates achieved was to mention the cost involved in renewal. Responses to (b)(iii) were poor. Common Errors In part (a)(i) candidates demonstrated a lack of financial perspective with regard to the trial hypermarket. or very vague. In part (c)(ii) response was poor. the dangers arising from management pride and credibility at the expense of shareholder wealth. Part (b)(i) most candidates scored above half marks. Part (a)(i) was poor with few candidates coming up with good points that answered the question.Paper P3 – Management Accounting – Performance Strategy Post Exam Guide May 2012 Exam Examiner’s Comments In general question 1 was not done particularly well.

There is. These problems offer candidates the opportunity to demonstrate the ability to develop relevant tests. the procedures that should be in place to ensure the successful design and testing of the expert system. Part (b) asks candidates to consider the difficulties of testing the output from this system. This is a complicated area and the implications of making an incorrect decision are serious. giving reasons.Paper P3 – Management Accounting – Performance Strategy Post Exam Guide May 2012 Exam SECTION B – 50 MARKS ANSWER TWO QUESTIONS ONLY Question 2 (a) Advise H’s directors on the risks of using an expert system instead of legal staff at the call centre. therefore. Part (a) deals with the risks associated with relying upon an expert system for a delicate and complex decision-making process. bearing in mind the fact that the various cases that are being considered will be unique in themselves and any decision will be based on the balance of conflicting concerns. Marking Guide (a) 1 mark per reasonable point: Upside risks Easier for applicants to mislead company Less responsive to specifics of cases Cost of accepting unwinnable cases Time needed for problems to emerge More difficult to update No fallback to human operators Marks 3 marks 3 marks 3 marks 2 marks 3 marks 4 marks 2 marks Max 13 marks (b) 1 mark per reasonable point: Implementation Review of initial output Training Ongoing review 4 marks 6 marks 3 marks 2 marks Max 12 marks 25 marks Maximum mark awarded ©The Chartered Institute of Management Accountants Page 6 . Suggested Approach Part (a) requires candidates to think about the nature of the task that is being automated. There is an upside risk in terms of reducing costs and also being able to recruit and train staff more quickly. Part (b) deals with the development of the expert system discussed in part (a). There is a downside in that the company will lose revenue if it rejects winnable cases and will be exposed to significant costs if it accepts cases that are likely to be unsuccessful. (13 marks) Recommend. no “correct” decision that can be used as a benchmark when evaluating the outputs from the system. (12 marks) (Total for Question Two = 25 marks) (b) Rationale This question draws on section E (Risk and Control in Information Systems).

Common Errors The main weakness in (a) was the limited number of risks identified. part (a) produced a better response than part (b).Paper P3 – Management Accounting – Performance Strategy Post Exam Guide May 2012 Exam Examiner’s Comments In general. ©The Chartered Institute of Management Accountants Page 7 . In (b) the main weakness was failure to read the question so that the response formed around a generic description of a full system development cycle and not just the design and testing stages. by specifying the exact way the system could be tested by past cases won or lost. for example. There was a major failing to relate answers to the case study.

Paper P3 – Management Accounting – Performance Strategy Post Exam Guide May 2012 Exam Question 3 (a) Evaluate the respective arguments of J’s Chief Executive and the bank manager about the rate offered by the bank on the forward contract. Marking Guide (a) 1 mark per reasonable point: Pricing of forward rates Risks of leaving receipt unhedged Relevance of hedge not costed into deal Marks 5 marks 3 marks 2 marks Max 9 marks (b) 1 mark per reasonable point: Need to strengthen management team Accountant v treasurer Cost v benefit 3 marks 3 marks 3 marks Max 8 marks (c) 1 mark per reasonable point: Define role Agency Interview Check background 1 mark 2 marks 2 marks 3 marks Max 8 marks 25 marks Page 8 Maximum mark awarded ©The Chartered Institute of Management Accountants . but apparently growing. The question also asks how the company would go about identifying a suitable appointment. This question also requires some appreciation of the fact that the company concerned appears to be relatively small and it is faced with the decision as to whether to hedge a single large transaction. (8 marks) (b) (c) Recommend. Clearly. In reaching that decision it may be worth considering the possibility of employing an accountant in a more general financial management role that would encompass treasury. business to employ a corporate treasurer. (9 marks) Evaluate the bank manager’s recommendation to appoint a corporate treasurer. It deals with the pricing of forward contracts and also the issues relating to the appointment of a corporate treasurer. Parts (b) and (c) require some thought about whether it would be desirable for a small. (8 marks) (Total for Question Three = 25 marks) Rationale This question draws mainly on section D (Management of Financial Risk). this requires an understanding of the treasurer’s role. stating reasons. the steps that the directors of J should take in the selection of a suitable person for the role of corporate treasurer. Suggested Approach Part (a) requires an understanding of the process by which forward rates are arrived at. The pricing mechanisms are relevant because they provide both parties to such an arrangement with a basis for deciding whether the costs outweigh the benefits.

In part (b) a great deal of time was spent describing the general duties of a corporate treasurer rather than relating the role to this particular case. Common Errors In part (a) the weaker answers failed to cover all aspects and angles of the statements made by the executive and bank manager. ©The Chartered Institute of Management Accountants Page 9 . In part (c) many candidates failed badly in that they did not describe the steps to be taken in appointing a treasurer. such as appointing an accountant instead. Instead they concentrated on the desirable characteristics of such a person. In part (c) the candidates who were not successful generally failed to answer the question requirement asked.Paper P3 – Management Accounting – Performance Strategy Post Exam Guide May 2012 Exam Examiner’s Comments Part (a) was generally answered to pass standard. Although the better scripts recognised the likelihood of limited scope for such a post in the company virtually none saw the need for a more a more rounded financial skill base in the organisation. Part (b) also usually produced a pass. This unfortunately did not answer the question which was asked.

(10 marks) (Total for Question Four = 25 marks) Rationale Part (a) draws mainly on section A (Management and Control Systems) and part (b) on section B (Risk and Internal Control). (8 marks) (ii) Recommend. stating reasons. While the fact that TQM should render quality control almost redundant. This requires an understanding of the objectives and the philosophy of TQM. The question explores the potential of TQM for dealing with this problem and also asks for an evaluation of the risks associated with reducing the emphasis on quality control. Part (c) asks for a discussion of the implications of reducing the emphasis on quality control in the event that TQM is introduced. The fact that the company manufactures parts of car braking systems is also relevant. Part (a)(ii) requires an explanation of the process for the introduction of TQM. there are issues of legitimation. Management has demonstrated no commitment to TQM and has not supported the initiative taken by supervisory staff in a partial attempt to experiment with the approach. the actions that G’s board should have taken in order to successfully introduce TQM within G.Paper P3 – Management Accounting – Performance Strategy Post Exam Guide May 2012 Exam Question 4 (a) (i) Advise G’s board on the shortcomings of the approach that it has taken to TQM. ©The Chartered Institute of Management Accountants Page 10 . Suggested Approach Part (a)(i) requires an appreciation of the fact that the company has adopted TQM in an inadequate and ineffective manner. This question deals with a manufacturing company that wishes to reduce losses due to defects in the manufacturing process. (7 marks) (b) Advise G’s board on the risks associated with reducing the number of quality control staff in the factory.

Many scripts contained comment in part (a) that was more appropriate to Part (b). Common errors In part (a) time was spent in criticising the present manufacturing system rather than the attempt to introduce TQM. Too much time was spent in describing TQM in general terms. ©The Chartered Institute of Management Accountants Page 11 . The final part (c) also generally produced a pass for the average candidate yet generally insufficient points were made to convert a pass to a comfortable success.Paper P3 – Management Accounting – Performance Strategy Post Exam Guide May 2012 Exam Marking Guide (a)(i)1 mark per reasonable point: Not TQM Rescheduling Moving staff Demotivation 4 marks 2 marks 3 marks 1 mark Max 8 marks (a)(ii) 1 mark per reasonable point: Investigate failures Review manufacturing process Quality circles 3 marks 4 marks 2 marks Max 7 marks (b) 1 mark per reasonable point: Nature of product Problems overlooked Alleged negligence Reputation 4 marks 2 marks 3 marks 3 marks Max 10 marks 25 marks Maximum mark awarded Examiner’s Comments This question was. done well. Nevertheless this section did tend to score well. on the whole. Part (b) often followed up the irrelevant points in part (a) with repetition which did have more relevance in this section. Part (a) produced the weakest response.

Paper P3 – Management Accounting – Performance Strategy Post Exam Guide September 2012 Exam SECTION A – 50 MARKS ANSWER THIS QUESTION Question 1 (a) (i) Advise B’s directors of TWO risks for the company associated with health and safety in B’s stores that could each be categorised as having both high impact and high likelihood. that they should be careful to avoid causing resentment when dealing with other employees” (ii) Discuss the memo sent by the Head of B’s Internal Audit department. (8 marks) Discuss the reasons why the procedures stated in the health and safety manual may not have been followed by all employees throughout the B Group. Your answer should include the reasons why you have categorised each of the risks as such. (8 marks) Evaluate the potential risks and benefits to B of the counter-trade agreement with the South American supplier. (8 marks) (Total for Question One = 50 marks) (ii) ©The Chartered Institute of Management Accountants 2012 Page 2 . (8 marks) (c) (i) Discuss the Group Treasurer’s view that the nature of B’s business creates a natural hedge against currency risk. irrespective of the country in which they are based. (10 marks) The Head of the Internal Audit department recently sent a memo to all of the internal auditors in the B group that said: “I would like to remind all members of the audit department. (8 marks) (ii) (b) (i) Discuss the factors that the Head of the Internal Audit department should consider when planning an audit of the extent to which all employees of B’s stores are complying with the rules and principles as stated in the health and safety manual.

©The Chartered Institute of Management Accountants 2012 Page 3 . Part (a) draws mainly on Section B of the syllabus (Risk and Internal Control). but it may be that there is enough of an offset for the overall exposure to be ignored. The question goes on to reflect on the fact that the entity is a multinational corporation and that cultural differences may make it difficult for the internal audit department to enforce rules set by head office. Suggested Approach Part (a)(i) for the identification of two health and safety risks. Local staff and management may feel somewhat isolated and remote from head office and may resent the implication that the group’s values should be exported to their countries. Even if a candidate is unfamiliar with the details of counter-trade it should be possible to take into account the possibility of simplifying the currency risks by exchanging commodities. Part (b)(i) is looking for recommendations concerning the planning of a work programme that the internal audit department should undertake in order to reassure the board that health and safety regulations are in effect and are being complied with. Part (c) draws mainly on section D (Management of Financial Risk).Paper P3 – Management Accounting – Performance Strategy Post Exam Guide September 2012 Exam Rationale This question is based on both the common pre-seen scenario and the unseen scenario. Setting the internal audit department the task of checking compliance will help ensure that management is seen to discharge its responsibilities in the event of an accident. such as the need to wear uncomfortable kit or the need to take care with work that may leave colleagues at risk. If candidates decide to focus on specific health and safety matters such as injuries associated with lifting and the risk of violent confrontation with a shoplifter then that will be accepted provided the reasons for those being potentially costly to the company are expressed. This reflects the paradox that arises whereby management is always responsible for health and safety even though one of the main sources of risk is staff indifference. Part (c)(i) asks candidates to consider the implications of the inflows and outflows of currencies from buying inventory and trading with customers. Candidates are required to focus on sources of high risk and to justify their selections to ensure that marks are awarded to material risks only. The starting point is to consider two distinct risks that can be classified as having both a high impact and a high likelihood. The point of this question is more about asking candidates to demonstrate some understanding of the basics of currency risk and the ability to identify opportunities from unusual situations. The key is to think about the areas where the risk of non-compliance is greatest and to concentrate resources on those. For example. Two aspects are considered. Part (a)(ii) offers the opportunity to discuss some of the difficulties associated with enforcing health and safety regulations. There is an added dimension because the company operates internationally and there may be cultural difficulties to be overcome in communicating the need to take health and safety seriously. That is a difficult area for any employer because health and safety frequently creates some inconvenience to employees. Part (i) focusses on the ability to identify and evaluate the risks to the entity. There is no specific list of risks that will be accepted. It is unlikely that the cash flows are perfectly hedged. Part (c) deals with the management of currency risk for an entity that has global operations. Part (b) draws mainly on section C (Audit and Audit of Control Systems). something as basic as concentrating attention on the stores that have the highest accident rates could maximise the likelihood that exceptions are being uncovered. The entity has widespread and complex currency issues and those may well lend themselves to natural hedging techniques that would avoid the cost and complexity of financial instruments. This part asks for an evaluation of the health and safety risks associated with running a large retail organisation. Parts (a) and (b) draw on the health and safety risks associated with running a large organisation that has widespread operations. That raises questions about the extent to which there are net receipts or payments in any given currency. Part (c)(ii) asks candidates to consider the possibility of counter-trade. Part (ii) asks for an evaluation of the difficulties caused for management in terms of ensuring that health and safety matters are taken seriously. The first part of the question asks how the internal audit department might assist senior management in ensuring that staff are complying with health and safety instructions. but the risks must be sufficiently serious as to make them worth being concerned about. The suggested solution focusses on the risk of litigation and the risk of adverse publicity because both can be justified as both high impact and high likelihood. Part (b)(ii) is looking for an appreciation of the cultural aspects of conducting internal audit investigations across an international group.

Financial risk is 35% of the syllabus so candidates must know it. ©The Chartered Institute of Management Accountants 2012 Page 4 .Paper P3 – Management Accounting – Performance Strategy Post Exam Guide September 2012 Exam Marking Guide (a)(i) 1 mark per reasonable point: Identification of first risk Justification of first risk Identification of second risk Justification of second risk Marks 1 mark 4 marks 1 mark 4 marks Max 8 marks (a)(ii) 1 mark per reasonable point: Inconvenience Supervisors’ attitudes Communication problems Local culture 2 marks 3 marks 4 marks 1 mark Max 8 marks (b)(i) 1 mark per reasonable point: Widespread coverage Some focus based on analytical review Work programme for high risk stores Response to breaches 1 mark 2 marks 5 marks 3 marks Max 10 marks (b)(ii) 1 mark per reasonable point: Audit as constructive service Independent audit may create conflict Cultural issues 2 marks 4 marks 3 marks Max 8 marks (c)(i) 1 mark per reasonable point: Potential for offset Transactions risks short term Scope for shifting sources to hedge Treasury would help 3 marks 3 marks 2 marks 1 marks Max 8 marks (c)(ii) 1 mark per reasonable point: Exchange expressed in commodities Commodities can be generic Supplier loyalty Non-currency price changes Speculation 2 marks 1 mark 3 marks 3 marks 1 mark Max 8 marks 50 marks Maximum mark awarded Examiner’s Comments It was disappointing to see that candidates could not apply their knowledge on planning an audit to the scenario given. There will always be a part of question 1 which asks about financial risk and this paper was no exception.

Candidates made vague suggestions that risk could be considered but did not develop this point and almost no candidates suggested analytical review would help with the selection. who understood the principle and applied it to the scenario. Part (c)(i) was done quite badly with very little knowledge being demonstrated by candidates. Short.Paper P3 – Management Accounting – Performance Strategy Post Exam Guide September 2012 Exam Common Errors Part (b)(i) was not done very well with few candidates coming up with good points on how to plan this audit. Some answers lacked detail and were very short and a few candidates simply missed out this section. Hedging is a very common tool to reduce some financial risk and yet many candidates did not demonstrate a good understanding of the technique. Most candidates came up with very generic points on audit planning which gained very few marks. The answer had to be applied to the scenario. bullet point answers did not gain many of the 10 marks available for this part. Part (c)(ii) was an interesting question on counter trade and was done reasonably well by many candidates. ©The Chartered Institute of Management Accountants 2012 Page 5 . It would be a very good idea if candidates who did not pass this paper learned more about financial risk and the basics of hedging.

Suggested Approach Parts (a) and (b) requires candidates to think about the most relevant figures that should be incorporated into the calculation of ROCE.Paper P3 – Management Accounting – Performance Strategy Post Exam Guide September 2012 Exam SECTION B – 50 MARKS ANSWER TWO QUESTIONS ONLY Question 2 (a) Calculate T Forge’s budgeted ROCE for the year ended 31 August 2013 if (i) (ii) the existing lathes are retained. The question deals with the risks created by the sale of a technical product to customers who are likely to reject perfect inventory because of their inability to distinguish good items from defective. and the new lathes were purchased on 1 September 2012. ©The Chartered Institute of Management Accountants 2012 Page 6 . There are issues associated with the valuation of property and of plant and equipment that may lead to performance being massively overstated unless care is taken to adjust for information as necessary. Part (a) deals with the calculation of a relevant ROCE figure that can be used to inform strategic decisions about a subsidiary. Part (c) asks candidates to use their common sense in order to arrive at practical recommendations for dealing with incompetent quality control processes conducted by management. (10 marks) (Total for Question Two = 25 marks) (c) Rationale Question 2(a) draws on section A (Management and Control Systems). (9 marks) (b) Evaluate the use of ROCE by T Group (i) as a performance measure and (ii) as a tool for decision making. (6 marks) Recommend ways other than the investment in CNC lathes in which the management of T Forge could deal with the risk of rollers being rejected because of mistakes in customers’ quality control procedures. Note: You should explain any adjustments that you make to the figures shown above in order to calculate ROCE. Part (c) draws on section B (Risk and Internal Control). Part (b) asks for a discussion of the relevance of ROCE to the decisions that have to be taken in the management of the subsidiary.

A surprising number of candidates missed the calculation out completely. which meant they usually failed as the calculation was worth 9 marks. This was very disappointing. Candidates did show an understanding of the quality issues in part (c) and marks were much better for this part. Almost no candidates discussed the value of the site and very few made correct adjustments for the value of the lathes or for depreciation. The discussion was also poor. This syllabus area should be revised as ROCE is the most important measure of profitability in a company and should be understood by all candidates. Candidates knew the formula but did not show any understanding of how to apply it when in a slightly more complex setting. on the whole. disappointing. This question was very unpopular and yet ROCE appears in several subjects across the CIMA Professional Level syllabus. ©The Chartered Institute of Management Accountants 2012 Page 7 .Paper P3 – Management Accounting – Performance Strategy Post Exam Guide September 2012 Exam Marking Guide (a) 1 mark per part of calculation (b) 1 mark per reasonable point: Value of site Zero-value lathes overstates ROCE Figures not really comparable (c) 1 mark per reasonable point: Training Provide test equipment Independent tests Terms of trade Marks Max 9 marks 3 marks 4 marks 2 marks Max 6 marks 3 marks 2 marks 4 marks 2 marks Max 10 marks 25 marks Maximum mark awarded Examiner’s Comments This was the least popular question of the optional questions. Very few candidates got this right and many missed it out altogether. There were also very poor attempts by candidates to the written parts of this question. Common Errors The calculation in (a) was not well done. Very few candidates attempted the question and responses were.

Part (b)(i) continues this theme by asking candidates to recommend a practical response to deal with the threat of reputation loss arising from the lost files. (12 marks) Recommend.Paper P3 – Management Accounting – Performance Strategy Post Exam Guide September 2012 Exam Question 3 (a) Advise U’s board on the weaknesses in both the control environment and the internal controls that led to this loss of data. Part (b)(ii) asks for controls that could be implemented to prevent a recurrence. data being taken home on a memory stick). It deals with the implications of data security. (8 marks) to prevent similar problems occurring in the future. stating reasons. Suggested Approach Part (a) requires an understanding of the importance of the control environment and of the controls that should prevent data from being lost in the manner described. Marking Guide (a) 1 mark per reasonable point: Stress causes carelessness Unsupportive environment Training Personal copies not permitted Files restricted and encrypted Marks 1 mark 2 marks 3 marks 4 marks 4 marks Max 12 marks (b)(i) 1 mark per reasonable point: Public statement Close affected accounts Reimburse customer costs Publicise improvements Accept responsibility 2 marks 2 marks 3 marks 3 marks 2 marks Max 8 marks (b)(ii) 1 mark per reasonable point: Threaten disciplinary action Secure custody of files 2 marks 3 marks Max 5 marks 25 marks Maximum mark awarded ©The Chartered Institute of Management Accountants 2012 Page 8 . (5 marks) (Total for Question Three = 25 marks) (b) (i) (ii) Rationale This question draws mainly on section E (Risk and Control in Information Systems). actions that U’s board should take to restore the confidence of its existing and potential customers. The emphasis is on the common sense understanding of control rather than detailed technical knowledge. with particular reference to the very typical real-world scenario of security being breached by a very low-tech means (in this case.

Some answers did not go into much detail which meant they could not be awarded a high mark but the question had a very healthy pass rate. ©The Chartered Institute of Management Accountants 2012 Page 9 .Paper P3 – Management Accounting – Performance Strategy Post Exam Guide September 2012 Exam Examiner’s Comments This question was done reasonably well and was the most popular optional question. Common Errors Very few candidates mentioned closing the accounts in part (b)(i) and many did not mention changing password but generally this question was well answered.

(5 marks) Discuss the potential risks and benefits to G of buying its inventory from intermediaries in the neighbouring countries. (10 marks) (Total for Question Four = 25 marks) Rationale Question 4 draws on section D (Management of Financial Risk). ©The Chartered Institute of Management Accountants 2012 Page 10 . Part (c) deals with the steps that the government might introduce in order to protect revenues from tariffs. Suggested Approach Part (a) requires an appreciation of the logic behind purchasing power parity and the fairly obvious barriers that might affect the operation of PPP in practice. The question is looking for the ability to develop logical tests that might be applied in order to deal with avoidance in this area. (10 marks) (b) (c) Recommend actions that the Government in G’s home country could take in order to determine whether G’s competitor had been evading the tariff on imported clothing.Paper P3 – Management Accounting – Performance Strategy Post Exam Guide September 2012 Exam Question 4 (a) Discuss the argument that purchasing power parity theory should prevent exporters from charging different prices in different countries. Part (a) deals with the theory of purchasing power parity and its relevance to exporters. Part (c) asks about tariffs from the perspective of the government rather than the company. Part (b) deals with the risks that a retailer would run in buying from an indirect source via another country in order to exploit price differences. Part (b) deals with the risk of buying using “grey imports” from a neighbouring country.

Purchasing power parity is a common concept and it was surprising how few candidates understood it. Parts (b) and (c) were slightly better but showed a lack of knowledge and understanding. Some candidates gave excellent answers based on the scenario which was heartening. This question is on the financial risk section of the syllabus and candidates must understand this area as it is 35% of the syllabus and therefore will be tested in more than one question in each examination paper. Candidates must revise this area as it is asked frequently. ©The Chartered Institute of Management Accountants 2012 Page 11 . Some revision of this area would be useful as candidates will find it difficult to pass P3 without a good understanding of financial risk. The candidates who thought about this question and applied their answer to the scenario achieved high marks. Common errors Part (a) was often missed out which was surprising as it was one of the few parts of the paper which would have allowed candidates to demonstrate their knowledge of the subject area without having to apply the answer to the question scenario.Paper P3 – Management Accounting – Performance Strategy Post Exam Guide September 2012 Exam Marking Guide Part (a) 1 mark per reasonable point: Logic of PPP Practical barriers Artificial barriers 2 marks 3 marks 1 mark Max 5 marks Part (b) 1 mark per reasonable point: Reduce price Legality Quality of service Relationship with manufacturers 2 marks 3 marks 3 marks 3 marks Max 10 marks Part (c) 1 mark per reasonable point: Inspect accounting records Review purchase records Inspect vehicles Inspect deliveries Estimated charge 3 marks 3 marks 3 marks 2 marks 1 mark Max 10 marks 25 marks Maximum mark awarded Examiner’s Comments This question was not very well done. Part (c) was not well done with some candidates writing only 3 or 4 lines on this topic. Candidates that did answer it were often very confused and gave poor answers. especially part (a).

(8 marks) (ii) Recommend. (10 marks) (c) (Total for Question One = 50 marks) ©The Chartered Institute of Management Accountants 2013 Page 2 . (6 marks) (ii) Advise V’s IT Director on the steps that should be undertaken in order to upgrade V’s online booking system to offer a 24/7 connection to airline and hotel systems. a set of procedures that V should have in place to deal with the possible outbreak of civil unrest in any of the countries to which it sends its customers. (9 marks) Advise V’s directors on the difficulties associated with evaluating the impact of currency movements on demand for holidays. stating reasons. (8 marks) (b) (i) Evaluate the risks to V arising from the company’s existing online booking arrangements. (9 marks) (iii) Evaluate the risks for V arising from the existence of law firms which advertise “no win – no fee” services in the national press.Paper P3 – Management Accounting – Performance Strategy Post Exam Guide November 2012 Exam SECTION A – 50 MARKS ANSWER THIS QUESTION Question 1 (a) (i) Explain why it is difficult for V to advise its customers properly with respect to the threats arising from civil unrest.

The starting point is to establish that this is a low probability high impact risk. This part asks for an evaluation of the risks associated with advising individuals on the choice of a holiday destination. Part (b) draws mainly on section E (Risk and Control in Information Systems). However. ought to be explored.Paper P3 – Management Accounting – Performance Strategy Post Exam Guide November 2012 Exam Rationale This question is based on both the common pre-seen scenario and the unseen scenario. Part (iii) asks for an evaluation of the implications of “no win – no fee” legal services offered by law firms for potential defendants. Answers to this part should explore the implications for the defendants in such cases. the possibility that political unrest will break out in any given country. Part (c) draws mainly on section D (Management of Financial Risk). This is a topical area given the number of disturbances that have arisen across much of the world in the past few years. Part (ii) asks for recommendations concerning the procedures that the company could put in place to provide the basis for an effective response to any problems that arise once customers have travelled to their destination. ©The Chartered Institute of Management Accountants 2013 Page 3 . That may mean that the entity will face changing demand for its services because of currency movements. whether natural or political. Part (b) deals with the process of developing a new IT system that can communicate with suppliers’ systems. This is a business that relies heavily on on-line sales and that reliance is likely to increase over time. Part (a)(ii) is looking for sensible and realistic suggestions as to how a travel company might prepare for the possibility of a disaster. Suggested Approach Part (a)(i) asks for an evaluation of the difficulties associated with a risk exposure that is difficult to measure. The main issue to bear in mind is that the travel company is likely to be working in conjunction with one or more governments in the event of such a disaster. Commercial entities have generally been at an advantage in their dealings with customers with whom they are in dispute because very few people can afford to pay for legal advice or to take a case to court. Part (i) focusses on the problems associated with identifying and evaluating risks. The implications of both of these aspects. That creates a major dilemma for a holiday company because it cannot eliminate the risk to its customers unless it offers a very limited choice of destinations. Management time may be taken up with defending spurious claims. Part (a) draws mainly on Section B of the syllabus (Risk and Internal Control). bearing in mind the possibility of unforeseen political turmoil. The entity sells foreign holidays and so its selling prices are affected by foreign currency movements. Part (c) deals with the difficulties of evaluating the effects of currency movements on consumer demand. plus the likelihood that any adverse outcome will be reviewed with the benefit of hindsight. Customers may be more aggressive and more inclined to push for a settlement. Part (a) deals with the risks associated with a holiday company advising its customers to travel to foreign destinations where they may run the risk of becoming involved in a civil disturbance. in principle. At any given time there is. Part (ii) asks for a discussion of the process of developing and upgrading the system so that it can communicate with suppliers’ systems more effectively. The travel company’s primary role would be to inform the government about the number of UK nationals in the country and also their locations. affecting its customers while they are on holiday. The first part of the question asks how the IT system creates risks for the company. there is also the risk that customers will claim that the company was reckless if they are caught up in a conflict because they will be able to point to the existence of warning signs prior to their date of travel. It is unlikely that the company will be asked to provide any more direct assistance than that and so suggestions should be restricted to steps that might actually be undertaken. Claims may be encouraged by the advertising and publicity for these services. Part (a)(iii) asks for some suggestions as to the threats created by lawyers who are prepared to operate on the basis that they will only charge a fee if any claim is successful.

although a good system would do so to a greater extent). The charter airlines and hotels may also feel that the company is an unsuitable trading partner because of these systems problems. ©The Chartered Institute of Management Accountants 2013 Page 4 . bearing in mind the need for it to engage and interact with suppliers’ systems. Part (b)(ii) is looking for practical advice concerning the process of upgrading the system. There is also the possibility that certain currency movements may simply encourage customers to switch to unaffected destinations that are no less profitable. Finally. demand for holidays may not be particularly elastic. The company does not operate in a vacuum. Part (c) is essentially about economic risk. There is also an upside risk because the provision of an on-line booking facility will offer the opportunity to cut costs also stimulate demand (even a bad system will do so.Paper P3 – Management Accounting – Performance Strategy Post Exam Guide November 2012 Exam Part (b)(i) is looking for a discussion concerning the commercial implications of an unreliable online booking system. Answers should focus on the main issues. Answers should reflect the reality of this business rather than simply seeking a checklist of bullet points about systems development. There is an obvious risk that customers will be dissatisfied if their holiday bookings are cancelled. Competitors may be forced to raise their prices and suppliers may be forced to cut their margins in the event of adverse currency movements.

Paper P3 – Management Accounting – Performance Strategy Post Exam Guide November 2012 Exam Marking Guide Part (a)(i) 1 mark per reasonable point: outbreaks unpredictable Outcomes difficult to predict Cost of errors significant Warning signs difficult to interpret Government advice unhelpful Failure to warn will appear reckless Marks 2 marks 3 marks 1 mark 2 marks 1 mark 2 marks Max 8 marks Part (a)(ii) 1 mark per reasonable point: Passenger contact details Nationalities and passport details Local contact details Duty manager Security adviser 4 marks 3 marks 2 marks 2 marks 2 marks Max 9 marks Part (a)(iii) 1 mark per reasonable point: Traditional arrangement weakened customer’s position Customer has nothing to lose Management time Blame culture 4 marks 3 marks 2 marks 2 marks Max 8 marks Part (b)(i) 1 mark per reasonable point: Upside risks Customer concerns Security issues 2 marks 2 marks 3 marks Max 6 marks Part (b)(ii) 1 mark per reasonable point: Select consultant Determine industry standards Study websites Testing 2 marks 3 marks 3 marks 2 marks Max 9 marks Part (c) 1 mark per reasonable point: Competitors’ response Passing on costs deters customers Short v long-term Change to alternatives 4 marks 3 marks 2 marks 2 marks Max 10 marks 50 marks Maximum mark awarded ©The Chartered Institute of Management Accountants 2013 Page 5 .

Paper P3 – Management Accounting – Performance Strategy Post Exam Guide November 2012 Exam

Examiner’s Comments Some parts of question 1 were done extremely badly, part (c) being a disaster for many candidates. There was a noticeable failure of candidates to read the question paper and to answer what was asked. The other problem was vague general answers which did not draw on the scenario. Common errors In (a)(i) despite a bit of vague, general waffle most candidates managed to say enough to gain a pass mark. There was little in-depth analysis of the situation but many scripts recognised the uncertainty, the conflict of interest and the information angles. In (a)(ii) many candidates proceeded at a tangent and discussed what should have been done in the case of the recent civil unrest NOT what simple administrative procedures should be in place to deal with future situations. Some candidates demonstrated an outstanding naivety expecting the travel firm to have field hospitals and SWAT teams on 24 hour standby ready to be flown out in C130 transports to Athens or the Costa del Sol. At the other extreme some candidates thought this the place to demonstrate their academic knowledge of Risk Management systems. In (a)(iii) although there were some excellent answers, too many candidates concentrated purely on the consequence of legal risk, for example, compensation, damages, legal fees and reputation which are common in any litigation situation. They failed to discuss the additional problems arising from the NWNF law firms, for example, the fact that there are likely to be many more claims made in a much more collective and therefore powerful manner. In (b)(i) unsurprisingly candidates were able to identify sufficient risks to gain a pass and beyond since most of these risks were identified for them in the scenario. In (b)(ii) most scripts struggled to produce more than a purely generic response. This then generally capped their marks to 4 out of the 9 available. Little attempt was made to relate to the specifics of the case, for example they failed to recognise the need to work with the suppliers at the outset and throughout the process. Another example of failure to relate to the case study was the almost universal recommendation for parallel running in introducing the upgrade. Quite how this could be achieved in the circumstance of online bookings is hard to understand. Part (c) the final part of question 1 was a total disaster for the majority of candidates. This meant that the final 10 marks of the 50 available for question 1 were lost. Candidates simply failed to answer the question set. The words ‘on demand’ were totally ignored. Candidates went to great lengths attempting to evaluate the effects of transaction risks regarding currency movements instead of economic risk.

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Paper P3 – Management Accounting – Performance Strategy Post Exam Guide November 2012 Exam SECTION B – 50 MARKS ANSWER TWO QUESTIONS ONLY

Question 2

(a)

Evaluate the respective arguments put forward by K and by the Production Director concerning the need for H’s full board to be forward looking rather than focussing on past performance. (8 marks)

(b)

Evaluate K’s argument that H’s board should review the company’s strategic direction at its half-yearly meetings. (8 marks)

(c)

Evaluate the Production Director’s argument that K should not comment on the manner in which H is run because of her background and lack of experience in a manufacturing company. (9 marks) (Total for Question Two = 25 marks)

Rationale Question 2(a) and (b) draw on section A (Management and Control Systems). Part (a) deals with the distinction between feedforward and feedback in the strategic direction of a company. Part (b) addresses the question of whether strategy ought to be updated frequently or put in place as a long-term goal for management. Part (c) draws on section B (Risk and Internal Control). The question deals with the role of the nonexecutive director who is not an industry expert.

Suggested Approach Part (a) requires candidates to think about the relevance of strategic management. Clearly, strategy requires the directors to be forward looking and responsive. Having said that, there may be an argument that forward looking direction requires an understanding of past performance if it is to be effective. Part (b) Similarly, frequent updates to corporate strategy may create the risk that management will become confused and frustrated in keeping abreast of the latest developments and their implementation in terms of day to day operations. Part (c) asks candidates to think about whether non-executive directors should have a voice. Again, this required some thought about the role of the board and the non-executive directors in particular. Nonexecutives coming in from a different background may challenge existing ideas and opinions. If that provides some fresh approaches to running the business then it will lead to improvement. If it is based on ignorance and misunderstanding then it will be a distraction. The nature of this business is that it makes fairly basic components for sale to other manufacturers. It should be borne in mind that this leaves the board with fairly limited scope for developing new strategies.

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Paper P3 – Management Accounting – Performance Strategy Post Exam Guide November 2012 Exam

Marking Guide Part (a) 1 mark per reasonable point: Forward looking more constructive Past performance informs planning Feedforward about corrective action Both approaches have value

Marks 2 marks 3 marks 3 marks 1 mark Max 8 marks

Part (b) 1 mark per reasonable point: Provide direction Strategy should be left in place Business does not lend itself to constant change

3 marks 4 marks 3 marks Max 8 marks

Part (c) 1 mark per reasonable point: New non-exec should be competent Some distance is desirable Fresh insights may stimulate new ideas Non-executives encouraged to express themselves

1 mark 3 marks 4 marks 2 marks Max 9 marks 25 marks

Maximum mark awarded

Examiner’s Comments Candidates that were put off question 3 seemed to be forced into doing this question. Their attempts were rather inglorious in many cases. Very few candidates gained a good pass unfortunately.

Common Errors In (a) some of the definitions of feedback, feedforward and strategy made one wonder just what text books they had been reading. The better scripts saw the need for historical information to aid in future action and strategy and the need for environmental awareness but generally speaking the response was poor. This area of the syllabus could do with some revision as the answers in far too many cases were very poor. In (b) The same mistake made in 1(c) reappeared. Many candidates failed to read the important words in the question set. The words ‘at its half yearly meetings’ were key to a good response yet candidates ignored the short term span in terms of strategy and strategic implication. There was a strong lack of awareness between the strategic and the tactical. Candidates gave all sorts of reasons why the board should have 6 monthly meetings but in the main these reasons were tactical not strategic. There was a great deal of repetition and duplication in 2(a) and 2(b) some candidates giving almost identical answers to both parts of the question. In (c) the final part of question 2 a majority of candidates failed to identify the corporate governance angle in order to produce a quality response. There were a few good answers but in the main candidates concentrated on psycho analysis of the production director (anti feminist etc.) or discussed the differences between the respective industrial backgrounds of the PD and NED. Some candidates even went back to the arguments of about feedback, feedforward and strategy discussed in the previous 2 sections of the question.

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Part (b)(ii) requires the ability to recognise that arbitrage profits cannot be made with any consistency unless a substantial investment is made in data and trading infrastructure. (8 marks) (c) Evaluate the treasurer’s view that it is better for the company’s treasury department to operate as a cost centre rather than as a profit centre. Part (b)(i) requires an explanation of the results. (6 marks) Evaluate U’s argument that the company could profit from this opportunity. It uses the possibility of an arbitrage profit to explore the logic underlying pricing mechanisms. These parts of the question are essentially looking for a common-sense understanding of the manner in which markets work. Part (c) asks for a discussion of the operation of the treasury as a cost centre rather than a profit centre. (4 marks) (ii) Evaluate the treasurer’s argument that arbitrage is a risky commercial venture. this is a matter of using common sense to offer an opinion. although the suggested answer argues otherwise.Paper P3 – Management Accounting – Performance Strategy Post Exam Guide November 2012 Exam Question 3 (a) (b) (i) Calculate the potential gain that could have been made by the company if it had borrowed GBP 10m in order to exploit the anomaly that she had identified. It deals with the question of whether entities should take exchange rates as given or whether they should consider actively speculating on future rate changes. There is not necessarily a correct answer to this issue and it would be acceptable to argue that there are opportunities to profit from speculation. (7 marks) (Total for Question Three = 25 marks) Rationale This question draws mainly on section D (Management of Financial Risk). Again. ©The Chartered Institute of Management Accountants 2013 Page 9 . Suggested Approach Part (a) requires the ability to make some calculations that demonstrate that a money market hedge would yield a guaranteed surplus because of some anomalies in the figures presented in the question.

Paper P3 – Management Accounting – Performance Strategy Post Exam Guide November 2012 Exam Marking Guide Part (a) 1 mark per reasonable point: Principle Convert borrowed GBP at spot rate Deposit USD Sell USD forward at forward rate Interest Gain Marks 1 mark 1 mark 1 mark 1 mark 1 mark 1 mark Max 6 marks Part (b)(i) 1 mark per reasonable point: Profit from zero investment with zero risk Opportunity spotted through luck 3 marks 2 marks Max 4 marks Part (b)(ii) 1 mark per reasonable point: Opportunities fleeting Investment and fixed costs Anomalies small Opportunities rare 2 marks 4 marks 2 marks 2 marks Max 8 marks Part (c) 1 mark per reasonable point: Aim to minimise costs Speculation Expertise Risk Efficient markets 2 marks 1 marks 2 marks 2 marks 2 marks Max 7 marks Maximum mark awarded 25 marks ©The Chartered Institute of Management Accountants 2013 Page 10 .

Paper P3 – Management Accounting – Performance Strategy Post Exam Guide November 2012 Exam Examiner’s Comments The more numerate candidates were obviously attracted to this question. Significant numbers of such candidates confused arbitrage with speculation and hence went on to agree with the treasurer’s argument because of the dangers from speculation NOT because of the time/manpower/technology costs involved. or the distraction from core activity that arbitrage hunting would inevitably create. In (c) the weaker candidates spent a great deal of effort in explaining the difference between cost centres. In (b)(i) response was often limited to stating that arbitrage profit was possible. Better candidates gave further comment that the potential for such profits would quickly disappear through market forces. None of this answered the question set. efficiency and transfer pricing issues but overall there was a lack of depth and explanation in answers.e. Unfortunately these numbers only provided 6 out of 25 marks available so after a good start many candidates fell away to a bare pass or fail because of a lack of understanding of the financial markets and arbitrage. The average candidate did identify the risk of speculation should a profit centre approach be taken. profit centres and investment centres in addition to identifying the role of the corporate treasury department. ©The Chartered Institute of Management Accountants 2013 Page 11 . a risk free profit. In (b)(ii) it was very disappointing to see so many candidates gaining maximum marks in part (a) to then demonstrate their total lack of understanding of their calculations i. Common Errors In (a) those scripts that attempted the numbers generally managed to gain a pass at least and many gained the maximum marks available. the likelihood of error. Applying the own figure rule prevented total disaster for some such candidates. Better candidates scored well by picking up the motivation. Nevertheless candidates often made silly mistakes such as converting currencies using an inverted exchange rate. transposing figures and calculating a full years interest instead of 3 months.

Part (b) deals with the implications of the internal auditor acting in a biased manner. (10 marks) (Total for Question Four = 25 marks) Rationale Question 4 draws on section C (Audit and Audit of Control Systems). Part (c) deals with the planning of an audit assignment.Paper P3 – Management Accounting – Performance Strategy Post Exam Guide November 2012 Exam Question 4 (a) Evaluate the Head of Internal Audit’s assertion that F had not behaved in an independent manner. In this case it is clear that the auditor’s bias is due to a natural inclination to feel some sympathy for the subject of the audit. (8 marks) (b) (c) The Head of Internal Audit wishes to conduct a thorough investigation into the level and frequency of the inspection of the company’s delivery vans. Part (c) is looking for the ability to suggest specific and relevant audit tests for dealing with a specific matter. (7 marks) Discuss the implications of F’s behaviour for the governance of D. Part (b) requires some thought about the problems that a lack of independence will create for the board. ©The Chartered Institute of Management Accountants 2013 Page 12 . Part (a) deals with the question of auditor independence. Suggested Approach Part (a) requires an understanding of independence. If the directors cannot trust internal audit staff then they have no way of telling whether the entity is acting in accordance with their expectations. You should explain the purpose of the tests that you have recommended. Recommend the tests that the internal audit department could conduct to ensure that the depot mechanics are inspecting vehicles in accordance with company policy.

The ethical principles were regurgitated with little reference to the question set. Many scripts merely gave generic audit descriptions such as control test. Common errors In (a) although many scripts accepted that the Internal Auditor (IA) had not acted independently they found difficulty in explaining why. Many scripts showed no understanding as to what an audit test comprises. Too often something like ‘check maintenance log’ was given as a test when really the candidate should have said ‘check maintenance log dates and manager’s signature to ascertain whether vehicle tests seemed to have been carried out at regular intervals under management supervision’. There were. some good answers. ‘For the governance of D’ was ignored by many candidates as was ‘of auditor F’s behaviour’ thus answers went to great length to outline the consequences of the van accident on the company (litigation etc. Better candidates picked up a pass mark by discussing the role of the IA within the corporate governance framework and the crucial nature of the IA’s integrity and independence in the director/shareholder assurance function. In (b) failure to read the question led to the downfall of many. substantive test etc. Even when some sort of test was recognised candidates could not fully define what the auditor should do. A good number thought the IA was independent because he had no relationship with the depot manager thus failing to see the broader understanding of the term. In (c) it was clearly evident that audit is not the strong point of most P3 candidates. Answers were mainly dominated by describing new control systems that the company should now introduce.) or how all internal controls were inadequate (not just the IA function). however. There was a tendency to not recognise that independence and objectivity are interrelated.Paper P3 – Management Accounting – Performance Strategy Post Exam Guide November 2012 Exam Marking Guide Part (a) 1 mark per reasonable point: Define independence Auditor’s sympathy Auditor’s responsibility Auditor not responsible for auditee 2 marks 2 marks 2 marks 2 marks Max 7 marks Part (b) 1 mark per reasonable point: Control environment Need for trust Staff perception 3 marks 3 marks 3 marks Max 8 marks Part (c) 1 mark per reasonable point: Review records Analytical review Branch visits Spot checks 3 marks 3 marks 3 marks 3 marks Max 10 marks 25 marks Maximum mark awarded Examiner’s Comments Response to question 4 was not as good as expected. ©The Chartered Institute of Management Accountants 2013 Page 13 . There was also a strong fallacy that the IA should actually tell company staff what to do in terms of internal control and should actually introduce internal controls themselves. the last two parts being far worse than the first.

the factors that the Safety Manager should take into account when writing safety rules to protect both the adventure leaders and customers on cycling holidays. (10 marks) (c) (i) Evaluate the risks that V will be taking with respect to its reliance on the Minister for Tourism if it proceeds with the proposed development on J’s island.Paper P3 – Management Accounting – Performance Strategy Post Exam Guide March 2013 Exam SECTION A – 50 MARKS ANSWER THIS QUESTION Question 1 (a) (i) Recommend. (10 marks) (ii) Recommend. (7 marks) (Total for part (a) = 20 marks) (ii) (b) Discuss the risks and benefits that are likely to arise from the Operations Director’s proposals to restructure the responsibility centres. the background and experience that should be sought when recruiting the Safety Manager. stating reasons. (6 marks) Discuss the reasons why it is important to have a Safety Manager who takes responsibility for the health and safety of adventure leaders. (10 marks) (Total for part (c) = 20 marks) (Total for Question One = 50 marks) ©The Chartered Institute of Management Accountants 2013 Page 2 . stating reasons. stating reasons. some precautions that V could take to prevent losses arising from the withdrawal of support by the Minister for Tourism. (7 marks) (iii) Recommend.

say. It does require a certain amount of common sense concerning the risks associated with leading sporting activities in a foreign country. That requires a discussion of both the reduction of the risk of accident and the legitimation of the company’s activities. whose role would be to deal with these risks. This requires an understanding of the motives and motivations associated with corporate structure . Part (a) deals with the benefits of mitigating staff health and safety risks by the appointment of a safety officer.Paper P3 – Management Accounting – Performance Strategy Post Exam Guide March 2013 Exam Rationale This question is based on both the common pre-seen scenario and the unseen scenario. That part of the question does not require candidates to be expert cyclists. Part (b) deals with the implications of restructuring senior management roles. The company’s operations are presently structured round three distinct product groups. any accident is likely to occur overseas and the question of jurisdiction will further complicate the employee’s problems. There could be legal consequences in the event that the company is ever sued for negligence by an injured employee. Furthermore. the risks of cycling long distances in a hot climate. otherwise the post will either be ineffective or impossible to fill. although that threat is mitigated by the fact that an employee is unlikely to have the resources to mount a successful claim. This requires a realistic evaluation of the resources that can be invested in dealing with those risks. For example. Part (i) focusses on the attributes that would be required of a Safety Manager. The question asks for an intelligent discussion of those factors and so candidates are not required to offer specific solutions for dealing with. The job is specialised and there may not be an existing pool of applicants with specific experience in this role. The fact that only one person will be appointed means that the company has to decide upon the priorities for this position and set a realistic set of criteria. where factors such as climate and culture could affect the risks involved. but it is more important that the Safety Manager should be aware of the risks created by leading groups of participants who are of a mixed ability. It has been proposed to change the structure so that managers will have responsibility for functions that feed into the creation of all three products. Candidates should consider the work that the safety officer will have to undertake and should then rank the areas where skill and experience will help. In other words. Part (c) deals with the management of risks arising from operating in a foreign country. The former is almost certainly more important than the latter. This part asks for an understanding of the risks to staff who are responsible for leading “adventure” holidays. Part (b) draws mainly on section A (Management and Control Systems). Part (iii) asks for a discussion of the factors that should be taken into account when developing safety rules for leading groups on a cycling holiday. The entity proposes a major investment in a country with which it has had no prior dealings. Suggested Approach Part (a)(i) asks for recommendations for the attributes that will be required of a safety officer for a specific role. which requires consideration of the risks themselves and the advantages to the company of addressing them. The company has a moral obligation to protect its staff and the safety officer will help the company to ensure that the risks are kept to the lowest possible level. Part (a) draws mainly on Section B of the syllabus (Risk and Internal Control). Part (a)(ii) asks for a discussion of the benefits associated with this appointment. Part (a)(iii) requires a discussion of the factors that the safety officer should consider when writing about cycling holidays. ©The Chartered Institute of Management Accountants 2013 Page 3 . The support of the local government will be crucial to the success of this investment and the question asks for an evaluation of the risks (i) and a discussion of the possible responses (ii). a professional cyclist may have relatively little concept of the risks associated with leading a group of amateurs who may have limited skill and fitness. Part (c) draws mainly on section D (Management of Financial Risk). Part (ii) asks for a discussion of the benefits that this appointment will bring. a basic skill in the activities will be of some value.

those risks will also require an understanding of the implications of this investment for the government. The expectation is that candidates will consider the possibility of the same potential for dysfunctional behaviour changing form rather than being eliminated altogether. At present the Operations Director oversees three operating departments. Part (c)(i) requires candidates to think about the risks arising from this investment. Part (c)(ii) requires a discussion of the techniques that might be used to mitigate those risks. The company proposes to build a hotel in a country with which it has not had any prior dealings. those generic techniques should be edited and structured in a manner that relates to the specific facts provided in the scenario. each of which is responsible for a designated product group. Marking Guide Part (a)(i) 1 mark per reasonable point: knowledge of sport v relevant experience Sailing/ cycling may be most critical Nationality Part (a)(ii) 1 mark per reasonable point: Legal and moral risks Mitigating risks Different risks arising from leadership Complacency Part (a)(iii) 1 mark per reasonable point: Road conditions Climate Mechanical reliability Management time Fatigue Marks 4 marks 2 marks 3 marks Max 6 marks 4 marks 2 marks 3 marks 3 marks Max 7 marks 7 marks 5 marks 4 marks 2 marks 3 marks Max 7 marks Part (b) 1 mark per reasonable point: Competition for resources Greater focus Specialisation Risk of dysfunctional behaviour Part (c)(i) 1 mark per reasonable point: Sunk cost Project’s visibility Protestors Part (c)(ii) 1 mark per reasonable point: Link with J Restructure deal Further investment in country Social responsibility 4 marks 4 marks 5 marks 4 marks Max 10 marks 4 marks 4 marks 6 marks Max 10 marks 4 marks 2 marks 4 marks 2 marks Max 10 marks 50 marks Page 4 Maximum mark awarded ©The Chartered Institute of Management Accountants 2013 . The proposal is that future operations be structured according to three functional areas associated with creating holidays: airlines.Paper P3 – Management Accounting – Performance Strategy Post Exam Guide March 2013 Exam Part (b) asks candidates to consider the implications of restructuring the company. Part (c) requires candidates to think about the problems associated with foreign direct investment. To an extent. The plans will create a great deal of environmental damage and so the host government may decide not to support the company in the event of a serious backlash from the protestors who are already active in the area. to the detriment of the company. Candidates should be aware of some of the generic techniques that can be used to address the risks associated with dealing with host governments. Ideally. hotels and marketing. There are further strategic implications of the proposal and those should be discussed as well. That creates the possibility that there will be competition between the three senior managers for resources.

very few candidates mentioned corruption. Part (c) was poor with candidates showing a lack of awareness of the issues. Common errors Q1(a)(i) answers were often very general. Many answers showed a disappointing lack of commercial awareness.Paper P3 – Management Accounting – Performance Strategy Post Exam Guide March 2013 Exam Examiner’s Comments Some parts of the questions were answered reasonably well. with little thought about the question. which was disappointing. this is not at all possible and should have been obvious. Q1(a)(iii) Lots of “failed to read the question” answers nothing to do with Cycling. Few candidates made these points. Some of the answers should have been obvious such as going into partnership with a local company or taking out loans with a local bank. ©The Chartered Institute of Management Accountants 2013 Page 5 . but many recognised local taxes! Many candidates talked about insuring against the risks. others were poor. Part (a) was answered quite well but many candidates gave very general unfocussed answers and did not score high marks. Q1(c)(i) often general the answers had nothing to do with Minister for Tourism. hardly any candidates considered obvious issues such as road conditions or traffic.

but at least it removes the problem. (7 marks) (c) Advise F on the ethical issues arising from destroying his notes and maintaining silence on this investigation. Obtaining his cooperation by paying him to leave seems like a rather unjust outcome. This is a practical response to a difficult situation. On balance. the circumstances can be evaluated as providing very little justification for disregarding the directors’ instruction to let matters rest. Candidates should consider whether the auditor has any real reason to breach the duty of confidence owed to the entity. (10 marks) (b) Critically evaluate the decision by the Chief Executive to pay the Canteen Manager to resign quietly. The entity cannot trust the manager to remain in place. but it also has very little real justification for sacking him. Candidates should focus on the simple economics of this scenario rather than wasting time and energy on expressing anger at the manager’s behaviour. CIMA’s ethical guidance is a good place to start. This is a simple fraud. Part (b) deals with the fairly common practice of asking fraudulent members of staff to resign. Part (b) deals with the decision by the entity to pay the fraudulent member of staff to leave quietly.Paper P3 – Management Accounting – Performance Strategy Post Exam Guide March 2013 Exam SECTION B – 50 MARKS ANSWER TWO QUESTIONS ONLY Question 2 (a) Discuss the difficulties associated with proving that the Canteen Manager was fraudulent. Part (c) asks candidates to consider the ethical response of the internal auditor to this dilemma. Candidates are required to use their common sense to evaluate the problems that the entity would face in attempting to offer proof against the manager using the material that has been uncovered. (8 marks) (Total for Question Two = 25 marks) Rationale Question 2 draws on section C (Audit and Audit of Control Systems). ©The Chartered Institute of Management Accountants 2013 Page 6 . but it has been carefully designed and it will be difficult to prove anything unless any of the parties involved confesses. Part (c) deals with the possibility that the qualified accountant who discovered the fraud has an ethical duty to report the fraud to the authorities. but it does not provide outright proof. Suggested Approach Part (a) requires candidates to think about the information provided in the scenario. That evidence is persuasive. Part (a) deals with the detection of fraud by a middle-ranking manager. The question describes the evidence that is available to the entity.

©The Chartered Institute of Management Accountants 2013 Page 7 . The answers were very brief especially as eight marks were available for this part of the question. Question 2(c) was a problem as the ethical issues should have been clear and all candidates should have been aware which principles had been compromised. Generally the answers were very short and generic with poor discussion of the ethical principles. Then going on to discuss why the internal auditors should resign. The internal auditors had uncovered the fraud and the company had decided it did not want to press charges because of the laptop being a personal one and also it did not want publicity. In part (c) the ethical problems were discussed quite poorly in some cases with many candidates not even naming any of the ethical principles in their answer. That was not an issue in this question. Lots of discussions of company resignations and internal auditor resignations none of which was appropriate. There should have been a discussion on whether the proof was clear and unambiguous. Part (a) was not especially well done. Common Errors The most common error was candidates who failed to grasp why the company did not involve the police.Paper P3 – Management Accounting – Performance Strategy Post Exam Guide March 2013 Exam Marking Guide Part (a) 1 mark per reasonable point: Burden of proof Interpreting facts Confession unlikely Computer tainted Marks 2 marks 5 marks 5 marks 4 marks Max 10 marks Part (b) 1 mark per reasonable point: Personal motives Saving cost New appointment possible Staff motivation Misuse of funds Part (c) 1 mark per reasonable point: Code of ethics Breaching confidence Integrity Maximum mark awarded 2 marks 4 marks 2 marks 2 marks 2 marks Max 7 marks 3 marks 5 marks 3 marks Max 8 marks 25 marks Examiner’s Comments The answers were generally good but there was failure to grasp the reality of the economics of the situation and a need to move on.

progress has to be managed and the risks dealt with at every stage. despite the risks that this might create for their employers. However. Companies cannot afford to disregard new technology because they could lose competitive edge if they simply banned innovation. That means that the entity has no real control over the devices that are used to create and update vital software files. (12 marks) (Total for Question Three = 25 marks) (b) Rationale This question draws mainly on section E (Risk and Control in Information Systems). There is a risk that data will be lost or rendered useless because it cannot be opened. It deals with the increasingly commonplace tendency for employees to equip themselves with the latest IT equipment. (13 marks) Recommend. Marking Guide Part (a) 1 mark per reasonable point: Security issues Customers open to threat Support Non-standard software Fragile hardware Software piracy Recovery of files from leavers Upside risks Part (b) 1 mark per reasonable point: No personal kit Evaluation of new products Checklist Software issues Justify changes Maximum mark awarded Marks 3 marks 2 marks 3 marks 3 marks 2 marks 1 mark 1 mark 2 marks max 13 marks 2 marks 4 marks 3 marks 2 marks 2 marks max 12 marks 25 marks ©The Chartered Institute of Management Accountants 2013 Page 8 . There are also risks of viruses and other payloads being introduced into the system. Part (b) asks candidates to think about a realistic response to the threats and opportunities created by developments in IT. Staff have taken to spending their own money on non-standard hardware and. software. presumably. with explanations. the policies and procedures that H should adopt for the use and purchase of laptops and other devices used by the trainers.Paper P3 – Management Accounting – Performance Strategy Post Exam Guide March 2013 Exam Question 3 (a) Discuss the risks associated with H’s staff using their own equipment (for example tablets) instead of the laptops provided by H. Suggested Approach Part (a) requires candidates to consider the needs of an entity that is heavily dependent upon its information systems.

There were a lot of bullet point answers which could signal that candidates had run out of time and were scrambling to get some points down in the last few minutes.Paper P3 – Management Accounting – Performance Strategy Post Exam Guide March 2013 Exam Examiner’s Comments Question 3 was a little disappointing. ©The Chartered Institute of Management Accountants 2013 Page 9 . There was nothing really wrong with the answers to this question. Common Errors Part (a) Most candidates came up with the risk of viruses but that was in many cases all they discussed. Some candidates wrote large amounts about the USB drive which was only a small part of the answer. they just lacked width and depth. There was also a disappointing lack of any attempt to put answers in the context of what was asked. Candidates did not really discuss the needs of the company or the trainers and so failed to score high marks. Most candidates didn’t consider the reality of managing a workforce and managing their “Tools of the job” and all that that entails. Part (b) tended to be poor with candidates failing to think of the needs of the trainers and the training company.

Part (c) deals with the option pricing. The logic amounts to accepting a curb on the upside risk in return for a contribution towards the cost of limiting the downside risk. Part (a) deals with the VaR statistic. (5 marks) (ii) Calculate the probability that either of the two options will be exercised.Paper P3 – Management Accounting – Performance Strategy Post Exam Guide March 2013 Exam Question 4 (a) (i) Calculate the 30 day 95% value at risk on the U$ receivable. Part (a)(ii) requires the manipulation of the formula for VaR to carry out a simple probability calculation. Part (c) is looking for a discussion of the issues associated with options pricing. (5 marks) (Total for part (a) = 10 marks) (b) Evaluate the implications for M of each of the two option arrangements. ©The Chartered Institute of Management Accountants 2013 Page 10 . Part (b) deals with the effectiveness of an option strategy for hedging. (8 marks) (c) Discuss the factors that M and the counterparties should take into account when negotiating the price of the options. (7 marks) (Total for Question Four = 25 marks) Rationale Question 4 draws on section D (Management of Financial Risk). Suggested Approach Part (a)(i) requires the calculation of the value at risk statistic. Part (b) requires candidates to think about the implications for buying a put option and selling a call when faced with the prospect of receiving a substantial payment of foreign currency.

few candidates would have obtained a pass mark for the question. The majority of attempts at this question were just appalling. Part (c) was slightly better but still poor as candidates did not seem to understand what counterparties would be looking for and what might affect the option price. Part (b) was done badly as candidates could not discuss the risks associated with option pricing at all. Common errors Some candidates had clearly done this question as they thought they could do part (a)(i). Financial risk forms 35% of this syllabus and should be understood by all candidates. On the whole this question was extremely badly answered. Many got the risks completely confused. They then had no idea of how to tackle part (a)(ii) and then could not comment on pricing options. ©The Chartered Institute of Management Accountants 2013 Page 11 . which was attempted reasonably well by many candidates.Paper P3 – Management Accounting – Performance Strategy Post Exam Guide March 2013 Exam Marking Guide Part (a)(i) 1 mark per reasonable point: Calculate VaR Part (a)(ii) 1 mark per reasonable point: Calculate probability Part (b) 1 mark per reasonable point: Downside risk Upside risk Cost offset Counterparty risk 5 marks 5 marks 2 marks 2 marks 3 marks 2 marks Max 8 marks Part (c) 1 mark per reasonable point: Inherent risk Volatility Forecasts Maximum mark awarded 2 marks 4 marks 2 marks Max 7 marks 25 marks Examiner’s Comments This question was answered very poorly by almost all candidates who attempted it. This whole area of the syllabus needs revision as very few of the small number of candidates who attempted this question had any idea at all of how to tackle it. Unfortunately the answers to part (b) were very poor and part (c) not much better. if this had been tested in question one. Many candidates missed out the calculations and attempted (b) and (c) and others just attempted the calculations. The poor level of knowledge demonstrated in the answers to this question was just dreadful. Many candidates got (a)(i) correct but then could not do a(ii) at all.

Recommend. (12 marks) (Total for Question One = 50 marks) ©The Chartered Institute of Management Accountants 2013 Page 2 . (10 marks) (Total for part (b) = 21 marks) (ii) (c) Evaluate possible actions that the Government of Country T might take in response to the proposal for Country F’s new railway line. with reasons. You should explain why the factors are important. three possible strategies that F-rail might adopt when hearing that there could be adverse reactions by the Government of Country T. (11 marks) Advise the railway companies of the factors that they should consider when selecting an IT company to run the IT facility when the current contract expires.Paper P3 – Management Accounting – Performance Strategy Post Exam Guide May 2013 Exam SECTION A – 50 MARKS ANSWER THIS QUESTION Question 1 (a) Evaluate the risks to TCL’s reputation arising from the newspaper stories concerning the punctuality of its trains. (5 marks) (d) F-rail is concerned that the Government of Country T may not react favourably when it is announced that F-rail plans to build the high speed line. (12 marks) (b) (i) Evaluate the control issues arising from the fact that T Railways has no direct access to the IT facility that processes long-distance revenue data.

Part (b) draws mainly on section E (Risk and Control in Information Systems). particularly commuters who depend on the rail service. This part discusses the risks arising from reports published in the national press that the company manipulates reports concerning the punctuality of its services. A rail operator located in a neighbouring country plans to build a new line that will reduce T Railways’ revenue. Part (b) deals with the IT risks associated with shared service providers. The operation of public transport is a major political issue in most countries and so the implications of these reports will require careful consideration.Paper P3 – Management Accounting – Performance Strategy Post Exam Guide May 2013 Exam Rationale This question is based on both the common pre-seen scenario and the unseen scenario. The railway operator must find some practical ways to prevent a dispute that will make it difficult to continue to operate through Country T. Suggested Approach Part (a) asks candidates to think about the significance of the revelation that a railway company is not responsive to the needs of its customers. Part (c) requires practical suggestions in order to defuse a potentially costly dispute before it gets out of hand. Part (a) deals with the reputation risks arising from reporting inaccurate information concerning the quality of the company’s service. Part (a) draws mainly on Section B of the syllabus (Risk and Internal Control). The key issue is to recognise that there is no need to harm T Railways and it may be possible to offer some concessions that will lead to a mutually advantageous outcome. for example. ©The Chartered Institute of Management Accountants 2013 Page 3 . As is common in such arrangements. which could prove disruptive because the rail operator will still wish to route its services via T Railways’ lines. Part (b) requires some thought about the implications of being unable to observe the operation of the IT system directly. The company depends on a shared service provider to operate its IT function. That arises in both the context of checking on day to day operations and also the selection of a service provider (either retaining the same firm or finding a replacement) when the present contract comes to an end. a risk that the government will impose new regulations. many of whom have no alternative means of travelling to work. The rail operator is concerned that T’s government will retaliate in some way. Part (c) deals with the risks arising from the need to maintain satisfactory relationships with foreign governments. the company is unable to conduct its own tests on the operation of the system and that will have implications for the ability of management to ensure that their responsibilities for safeguarding assets and accurate record keeping are discharged properly. There is. Part (c) draws mainly on section D (Management of Financial Risk). This is an important commercial and political matter because the operation of rail services has significant implications for customers.

©The Chartered Institute of Management Accountants 2013 Page 4 . The weaker scripts concentrated on revenue loss and not much else. In part (c) most candidates gained a pass despite failure to apply common sense to the scenario and appreciate that if a small landlocked country takes strong action such as border closure and banning neighbouring countries’ trains there can only be one loser . The average script picked up on the inability to vet staff quality and input/output controls etc but wasted too much time on how T Railways could not ascertain whether the revenue formula was no longer appropriate or how it could not be ascertained whether it was being properly applied or that their ticket inspectors might make mistakes. lack of integrity etc. There also seemed to be a belief that there would be no information available from the IT Company for resource planning and budgeting which seems highly unlikely. Part (b) caused serious problems for the average candidate who failed to understand the situation. Part b (ii) was answered quite well but a sizeable minority failed to answer the question set. The inability to verify the data provided by the other railway companies was key along with the validity of the audit function but only the better candidates picked up on this. going into potential new IT systems rather than new outsourced management of systems.Paper P3 – Management Accounting – Performance Strategy Post Exam Guide May 2013 Exam Marking Guide Part (a) 1 mark per reasonable point: Importance of punctuality Perception that TCL does not care Cynical response Company using dysfunctional policies Need to whistleblow Marks 2 marks 3 marks 3 marks 3 marks 2 marks Max 12 marks Part (b)(i) 1 mark per reasonable point: Control environment T has different issues from others Customer data External auditor Favouring other rail companies 3 marks 3 marks 2 marks 2 marks 2 marks Max 11 marks Part (b)(ii) 1 mark per reasonable point: Relevant experience Management expertise Staffing Financial security 3 marks 3 marks 3 marks 3 marks Max 10 marks Part (c) 1 mark per reasonable point: Retaliation Compromise Part (d) 1 mark per reasonable point: Consultation Cooperation Government support T more vulnerable Maximum mark awarded 2 marks 3 marks Max 5 marks 4 marks 4 marks 4 marks 1 mark Max 12 marks 50 marks Examiner’s Comments In (a) most candidates managed to say something sensible in order to gain a pass. The better candidates discussed each individual newspaper story picking up on failure to meet objectives.the small landlocked country.

Common errors Part (b) was poor with candidates often writing only about the revenue formula. Better candidates came up with appropriate ‘sweeteners’ such as supplier contracts with T companies and employment provision to T workers to enable the HS link to be built. ©The Chartered Institute of Management Accountants 2013 Page 5 . Part (d) was a problem for some candidates as they did not really think about the specific question requirements and wasted lots of time discussing joint ventures instead of thinking of other ways of mitigating the risk.Paper P3 – Management Accounting – Performance Strategy Post Exam Guide May 2013 Exam In (d) weaker candidates advocated a joint venture without specifying much detail and had not thought it through at all. Part (b)(i) was also surprisingly poor with quite a few candidates writing about new IT systems rather than the problems of outsourced management of systems.

The fact that some of the risks cannot be reduced or avoided should be taken into account in this evaluation. ©The Chartered Institute of Management Accountants 2013 Page 6 . Part (b) asks candidates to comment on the manner in which four risks have been mapped using TARA. Part (a) deals with the benefits that might be obtained from mapping risks using the TARA framework. It is perfectly acceptable to disagree with the suggestions that have been made provided that disagreement is justified by a sensible argument. (5 marks) Critically evaluate the placing of each of the identified risks in the risk map. the risks are already classified in a credible and defensible manner. Having said that.Paper P3 – Management Accounting – Performance Strategy Post Exam Guide May 2013 Exam SECTION B – 50 MARKS ANSWER TWO QUESTIONS ONLY Question 2 (a) Discuss the benefits that the dental practice may obtain from the risk mapping exercise described above. Part (b) asks candidates to consider the results of a mapping exercise and to comment on their agreement or disagreement with the placing of particular risks. it would be worth considering the nature of the risks faced by this particular type of entity. stating with reasons whether or not you agree with the placement. (20 marks – 5 marks per risk) (Total for Question Two = 25 marks) (b) Rationale Question 2 draws on section B (Risk and Internal Control). Suggested Approach Part (a) requires candidates to think about the benefits that can be obtained from a management team taking time to formally list and comment on the risks that are faced by the entity.

There was some lack of clarity regarding gross and net risk situations with candidates assuming low probability because controls had been applied but this was perhaps acceptable. Common Errors The better scripts related the risk map to the dental practice stating for example that better risk prioritisation meant fewer compensation claims and fewer work hours lost through cross contamination.Paper P3 – Management Accounting – Performance Strategy Post Exam Guide May 2013 Exam Marking Guide Part (a) 1 mark per reasonable point: Subjective Identify risks Agreement on resolution Part (b) 1 mark per reasonable point: Each risk Marks 1 mark 3 marks 3 marks Max 5 marks Max 5 marks per risk Max 20 marks 25 marks Maximum mark awarded Examiner’s Comments This question was extremely popular and there were many good answers. In (b) most candidates managed a comfortable pass with better scripts gaining high marks. ©The Chartered Institute of Management Accountants 2013 Page 7 . Weaker candidates answered textbook style on the objective/benefits of risk management with little reference to the question scenario.

Suggested Approach Part (a) requires some thought about the natural concerns that a management team might have when reporting very small profits. there is a natural tendency for managers to wish to report substantial profits. Even setting aside the possibility of profit-related pay and bonus. ©The Chartered Institute of Management Accountants 2013 Page 8 .Paper P3 – Management Accounting – Performance Strategy Post Exam Guide May 2013 Exam Question 3 (a) (b) (i) Discuss the possibility that M’s transfer pricing arrangements will cause dysfunctional behaviour. They counter those risks with the most cost-effective evidence that is available. (8 marks) (Total for part (b) = 15 marks) (Total for Question Three = 25 marks) (ii) Rationale Part (a) of question 3 draws mainly on section A (Management and Control Systems). It deals with the motivational issues arising from intra-group transfer prices that lead to individual companies reporting artificially inflated or deflated profits. (7 marks) Discuss FOUR factors that the Head of Group Internal Audit should consider when assessing the possibility that a subsidiary could be investigated by its local tax authority. Part (b) asks for some thought about the risks associated with the objectives of the audit. Part (b) draws on section C (Audit and Audit of Control Systems) asking how the internal audit department might pre-empt a tax investigation by reviewing transfer process for compliance with tax law. Auditors are generally keen to identify the areas which are most likely to have an impact on the audit’s findings. Local boards may be concerned that their role in the company is undervalued if they are required to manufacture parts for resale at little more than cost. (10 marks) Advise the board on the matters that it should cover when briefing the Head of Group Internal Audit in order to be certain that its requirements are met by the internal audit investigation into M’s transfer pricing practices. All audits are planned on the basis of understanding the issues and then using common-sense to evaluate the possible responses.

Paper P3 – Management Accounting – Performance Strategy Post Exam Guide May 2013 Exam

Marking Guide Part (a) 1 mark per reasonable point: Transfer prices imposed Little control over reported performance Sacrificing quality to cut costs Management time Demotivation Disrupt internal sales Improve system

Marks 3 marks 2 marks 3 marks 2 marks 2 marks 1 mark 3 marks Max 10 marks

Part (b)(i) 1 mark per reasonable point: Clear objective Evidence collection Confidentiality Timetable

2 marks 2 marks 2 marks 2 marks Max 7 marks

Part (b)(ii) 1 mark per reasonable point: Tax rates Effective tax rates Past behaviour of tax authorities Nature of products and their market Maximum mark awarded

2 marks 2 marks 2 marks 4 marks Max 8 marks 25 marks

Examiner’s Comments The candidates found this question the most difficult to respond to. Problems evolved around failure to understand the question and failure to answer the question set. Common Errors In (a) even the better scripts spent far too much effort explaining how transfer pricing can cause dysfunctional behaviour. Candidates often ignored the requirement to explain why this company’s specific transfer pricing policy (market value basis) could cause dysfunctional behaviour. Part (b) should have produced an easy 7 marks but it did not do so. The answers often could not be related to what had been asked. Very few scripts directly covered the requirement by specifying simple points such as objective, scope and timeline. In (c) the identical comment is applicable. The question was answered very badly with few candidates demonstrating any understanding of how transfer pricing could be used to manipulate taxation. Given the recent coverage in the press on companies doing just this, it was surprising. Answers were unrelated or too vague and brief to be intelligible, e.g. ‘size of profit’ with no further development or ‘transfer price and cost’ with no subsequent explanation.

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Paper P3 – Management Accounting – Performance Strategy Post Exam Guide May 2013 Exam

Question 4

(a)

Calculate the gain S will make writing a futures contract, assuming that she invests the maximum possible amount that she can afford in the initial margin and that her expectations turn out to be accurate. (8 marks) Discuss the risks that S will be taking if she enters into this contract. (10 marks)

(b)

(c)

Explain why S chose to use a futures contract as the basis for her speculation in the market. (7 marks) (Total for Question Four = 25 marks)

Rationale Question 4 draws on section D (Management of Financial Risk). Part (a) deals with the calculation of a speculative profit from the use of a forward contract to exploit an overpriced currency. Part (b) deals with the risks associated with such speculation. Part (c) deals with the advantages of using derivatives to gear up speculative investments.

Suggested Approach Part (a) requires some basic calculations, albeit in an unusual form. It is important to understand the operation of the main types of financial instrument listed in the syllabus. Part (b) requires some thought about the risks that this speculative investment might involve. The instrument is exchange traded and so there are no real counterparty risks. There is every chance that the investment will fail to show a profit. Part (c) is looking for the ability to explain the uses of derivatives for investment purposes.

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Paper P3 – Management Accounting – Performance Strategy Post Exam Guide May 2013 Exam

Marking Guide Part (a)(i) 1 mark per reasonable point: Calculate gain

Max 8 marks

Part (b) 1 mark per reasonable point: Upside risk Downside risk Worst case Margin call Counterparty

2 marks 4 marks 2 marks 2 marks 1 mark Max 10 marks

Part (c) 1 mark per reasonable point: Only practical way to profit Profits otherwise restricted Regulated market Limited downside

Maximum mark awarded

2 marks 3 marks 2 marks 2 marks Max 7 marks Total 25 marks 25 marks

Examiner’s Comments This was the least popular of the optional questions. Many candidates failed to understand margin payments and the use of such financial instruments for speculation. Common errors In (a) candidates did not grasp the significance of the margin payment and the leverage effect this could produce. Consequently most calculations were made on the basis of a single contract not six contracts. The vast majority of scripts gained an own figure single mark instead of the eight available. In (b) candidates generally gained marks for stating the obvious forex risks and the likelihood of future margin calls. Many wasted valuable effort in identifying all the elements contributing to exchange rate movement e.g. inflation risk, interest risk, political risk etc. In (c) the weaker candidates often missed the whole speculative nature of the proposed transaction and introduced arguments relative to hedging. Nevertheless, candidates gained marks for identifying that futures are market traded, easy to obtain, cheaper than options etc. Only the really good candidates picked up on the leveraging effect mentioned in (a) enabling greater potential return from the limited finance available.

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(14 marks) (b) (i) Discuss the risks associated with TCL’s policy of requiring ticket inspectors to detain passengers who do not have valid tickets and who refuse to pay. (8 marks) (Total for part (b) = 16 marks) (c) (i) Evaluate the respective arguments put forward by the minister and the consultancy firm as to whether T Railways’ management team has been reckless with respect to borrowing risk. (6 marks) (Total for part (c) = 20 marks) (Total for Question One = 50 marks) ©The Chartered Institute of Management Accountants 2013 Page 2 . Your answer should include a discussion of the conflicts that may arise from the use of multiple performance indicators.Paper P3 – Management Accounting – Performance Strategy Post Exam Guide September 2013 Exam SECTION A – 50 MARKS ANSWER THIS QUESTION Question 1 (a) Evaluate the Board’s argument that the railway system will be easier to manage if it is privatised. stating reasons. (6 marks) (iii) Evaluate the advice from the consultancy firm as to whether T Railways should use floating rate debt. (8 marks) (ii) Evaluate the consultancy firm’s advice to restructure T Railways’ long term finance in advance of the privatisation. procedures that TCL could implement with respect to dealing with passengers who refuse to pay. (8 marks) (ii) Recommend. You should illustrate your points with examples taken from both the pre-seen case study and the information in the scenario about customer complaints.

Part (c) draws mainly on section D (Management of Financial Risk). which means that it cannot go back to first principles and determine which of the indicators is most consistent with maximising shareholders’ wealth. Suggested Approach Part (a) asks candidates to think about the nature of the performance indicators and the possibility that they will lead to dysfunctional behaviour by the company’s board. Staff who are forced to apprehend thieves are at risk of injury if the culprit resists arrest and may also be open to the threat of criminal proceedings themselves if a customer claims to have been injured. Part (c) deals with the risks associated with different forms of borrowing that might be used by the company.Paper P3 – Management Accounting – Performance Strategy Post Exam Guide September 2013 Exam Rationale This question is based on both the common pre-seen scenario and the unseen scenario. ©The Chartered Institute of Management Accountants 2013 Page 3 . This can be contrasted with the relative simplicity of a profit-making entity whose primary duty will always be to maximise shareholder wealth. Part (b) deals with the risks associated with asking staff to apprehend criminals who steal from the company. The fact that the indicators may be in conflict will make matters more complicated because management may feel that their decisions have to favour one stakeholder over another or that a suboptimal decision will have to be implemented in order to strike a balance between the effects on the different indicators. Part (a) deals with the complications arising from the fact that T Railways is in public ownership. Part (a) draws mainly on Section A of the syllabus (Management and Control Systems). Both fixed and variable rate instruments carry risks (the former potentially leaving the company uncompetitive if interest rates fall and competitors are on a variable rate). The company has to make important decisions concerning the choice of debt for long-term financing. This has led to allegations that staff are being exposed both to the risk of injury and to accusations of assaulting those who have been detained. This is a common situation and one that can happen in both the commercial and not-for-profit sectors. Part (c) requires an understanding of the risks associated with different forms of borrowing. Part (b) draws mainly on section B (Risk and Internal Controls). Part (b) requires some thought about the risks arising from a relatively simple and easily understood scenario. That creates the possibility that the company will be subject to potentially conflicting aims and objectives. This part discusses the fact that the entity in question is faced with a number of performance indicators that are potentially in conflict. providing a vital utility in the form of public transport. If fare-dodging passengers could leave the train without any action by the train staff then the company could lose significant revenue. At present the entity is financed largely with a very soft loan provided by government and so the directors have very little direct experience of having to manage relationships with lenders. The entity is in public ownership. The company employs ticket inspectors who are required to apprehend passengers who are not in possession of a valid ticket until they can be arrested by the police. Dealing with this risk requires a balanced and delicate response from the company.

Paper P3 – Management Accounting – Performance Strategy Post Exam Guide September 2013 Exam Marking Guide Part (a) 1 mark per reasonable point: Public ownership usually implies conflicting objectives Companies can aim to maximise wealth Safety issues Freedom from public sector borrowing constraints Confusion when selecting strategy Need for safety could be compromised Juggling objectives Balanced scorecard Marks 2 marks 2 marks 2 marks 2 marks 2 marks 3 marks 2 marks 2 marks Max 14 marks Part (b)(i) 1 mark per reasonable point: High probability and high impact Violent response Claims of injury/reasonable force Demotivate staff Police may not be supportive 2 marks 3 marks 5 marks 2 marks 2 marks Max 8 marks Part (b)(ii) 1 mark per reasonable point: Name and address and ID Inform staff at next station and deal with problem there Written and video evidence 3 marks 5 marks 2 marks Max 8 marks Part (c)(i) 1 mark per reasonable point: Existing loan has soft conditions Loan undated All profit goes to government anyway Hidden reserves Part (c)(ii) 1 mark per reasonable point: Strategy clearer to stakeholders Replacement finance likely to be harder Equity looks better than debt Part (c)(iii) 1 mark per reasonable point: Volatile rates Consultant’s expectations Demand for rail travel inelastic No competition (in short term) Maximum mark awarded 3 marks 1 mark 2 marks 3 marks Max 8 marks 2 marks 1 mark 4 marks Max 6 marks 1 mark 1 mark 3 marks 2 marks Max 6 marks 50 marks ©The Chartered Institute of Management Accountants 2013 Page 4 .

with candidates realising that the entity has a complex set of objectives and constraints because of its role within the economy and because of the fact that it is in public ownership. The answers concentrated on whether the minister was competent rather than why his views may be incorrect. Part (b) Answers to part (i) were generally good. Better answers demonstrated some thought about the differences between profit-making entities and those in the public sector. Common Errors Part (c)(i) was the main area of difficulty.Paper P3 – Management Accounting – Performance Strategy Post Exam Guide September 2013 Exam Examiner’s Comments Part (a) This was generally answered well. Answers to parts (ii) and (iii) were generally stronger. Part (c) Answers to part (i) tended to focus on the competence of the minister to evaluate gearing. Very few candidates picked up the points that the entity is in a very strong position to pass the cost of interest on to customers. Answers to part (ii) varied. it is necessary to offer an explanation as to why that is so. Most candidates were capable of suggesting realistic responses to the threat. with a range of issues being highlighted as potential risks. but a significant minority suggested impractical ideas that would have been unduly expensive to implement. Railway fares are generally not a discretionary purchase and so travellers will have to pay even if prices rise in response to increasing interest rates. Even if the minister’s views are totally incorrect. ©The Chartered Institute of Management Accountants 2013 Page 5 .

otherwise employees may feel disenchanted when the internal auditor is appointed. Thus. Parts (a) and (b) deal with the importance of the control environment. including a failure to collect revenues from customers. the steps that the Chief Executive should take in order to create an effective internal audit department. which asks candidates to consider the common situation whereby employees are interested only in the actual business process and have little or no real interest in the underlying administration or accounting.Paper P3 – Management Accounting – Performance Strategy Post Exam Guide September 2013 Exam SECTION B – 50 MARKS ANSWER TWO QUESTIONS ONLY Question 2 (a) (b) Explain why it is necessary to improve G’s control environment. but a slack attitude to control. there has to be some sensitivity. the company also has to ensure that transactions are properly accounted for or there could be serious repercussions. While it is fair to argue that the business model is probably the driving force behind any profits. (8 marks) Recommend. ©The Chartered Institute of Management Accountants 2013 Page 6 . (13 marks) (Total for Question Two = 25 marks) (c) Rationale Question 2 draws on section C (Audit and Audit of Control Systems). There is also a need for management to be assertive in order to deal with the fact that the audit department will have to be seen to be well supported. (4 marks) Evaluate the Chief Executive’s proposal to impose disciplinary measures on staff who are responsible for bookkeeping errors or delays. Part (c) asks candidates to discuss the creation of an internal audit department within an entity that has a weak control environment. otherwise there will be no change. It calls for a brief discussion in order to lead into part (b). Suggested Approach Part (a) requires candidates to think about the importance of the control environment. Part (c) asks candidates to consider the best way to introduce internal audit to this entity. stating reasons. The company has a successful business in place.

Many candidates failed to pick up on the idea that the proposal requires a major change of culture within the entity. Common Errors Many answers were unclear and not expressed in any logical format which made it more difficult to award marks. The answers to part (c) were extremely variable. ©The Chartered Institute of Management Accountants 2013 Page 7 . but they did not structure them well. A significant minority was not aware of the nature of internal audit and simply offered lists of tests that internal auditors might carry out. Part (b) Answers to part (b) could have been structured better. Most candidates were aware of the control environment. Part (c) Answers were very variable in quality. Many answers made a variety of sensible points. many candidates demonstrated very little knowledge of internal audit. Many candidates were aware of the role of the internal audit department and were capable of offering realistic suggestions as to how an effective department might be created. The proposal to introduce penalties was intentionally extreme and there are arguments both for and against the proposal in this context.Paper P3 – Management Accounting – Performance Strategy Post Exam Guide September 2013 Exam Marking Guide Part (a) 1 mark per reasonable point: Senior management attitude Costs from slack bookkeeping Part (b) 1 mark per reasonable point: Focus on quality Disciplinary action Motivate bookkeeping staff Part (c) 1 mark per reasonable point: Decide level of commitment Terms of reference Recruit head first Remainder of team Choice of location Powers of inspection Reports acted upon Maximum mark awarded Marks 2 marks 3 marks Max 4 marks 4 marks 3 marks 2 marks Max 8 marks 2 marks 2 marks 3 marks 2 marks 2 marks 2 marks 3 marks Max 13 marks 25 marks Examiner’s Comments Part (a) This part was intended to lead candidates into part (b).

It would cost relatively little to copy some of the competitors’ behaviour in the short term in a sample of stores to determine whether there is a real impact on sales. The competitors’ business model is partly about merchandising through stores that are open to the public. Part (b)(ii) asks for some practical suggestions to overcome the difficulties identified in (b)(i).Paper P3 – Management Accounting – Performance Strategy Post Exam Guide September 2013 Exam Question 3 (a) Evaluate the Sales Director’s belief that L’s competitors are at an advantage because of their superior information management systems. The chains may be able to differentiate themselves in terms of product placement and through giving targeted discounts using voucher and cash-back schemes. (9 marks) (b) (i) Advise L’s directors on the difficulties associated with quantifying the potential benefits that L would gain from improved information management systems. The new system could be purchased and there may be little or no improvement in sales. (8 marks) (Total for part (b) = 16 marks) (ii) (Total for Question Three = 25 marks) Rationale Question 3 draws mainly on section E (Risk and Control in Information Systems). Suggested Approach Part (a) requires some thought about the nature of the business that the company finds itself in. The company in question does not have that facility and so its managers have to consider the extent to which this puts it at a significant disadvantage. ©The Chartered Institute of Management Accountants 2013 Page 8 . namely that the value of the resulting improvements in terms of better information may not be known until after the investment has been made. It deals with the potential competitive advantage that may be obtained from a sophisticated information management system that provides the board with suitable information that can be adapted and reorganised in order to meet the company’s needs. It is a supermarket chain that sells virtually the same products as its competitors at similar or identical prices. (8 marks) Recommend actions that L could take in order to overcome the difficulties identified in your answer to (b)(i) above. Part (b)(i) deals with the problem that affects virtually every IT project appraisal.

Paper P3 – Management Accounting – Performance Strategy Post Exam Guide September 2013 Exam Marking Guide Part (a) 1 mark per reasonable point: L is competing with a simple system Competitors may understand customers better Loyalty cards Information from inventory system Part (b)(i) 1 mark per reasonable point: Difficult to predict benefits Focus groups suggest little benefit Customers may be fickle Biased advice from vendors Part (b)(ii) 1 mark per reasonable point: Market research Copy other stores Simple voucher scheme to gauge effect Copy other techniques Maximum mark awarded Marks 2 marks 3 marks 3 marks 3 marks Max 9 marks 1 mark 2 marks 3 marks 2 marks Max 8 marks 3 marks 3 marks 3 marks 1 mark Max 8 marks 25 marks ©The Chartered Institute of Management Accountants 2013 Page 9 .

Candidates must be able to think about the risks associated with different types of entity and to apply knowledge to specific problems. consumer behaviour may be complicated and difficult to understand. L’s competitors claim to benefit from their more sophisticated systems. ©The Chartered Institute of Management Accountants 2013 Page 10 . Retailing is a major industry that is discussed widely in the business press. For example. Good answers picked up on the potential benefits that might be obtained from the various initiatives that the competition has introduced and also pointed out that L retains the ability to compete on the basis of the information that it already has. Answers to part (b) tended to overlook some of the difficulties in this area. Part (b) The classic dilemma associated with any decision to invest in a new system is that it is rarely clear whether the information gathered will justify the cost. Common Errors Many answers were simply not feasible. The scenario offered some issues that could be understood at a common sense level. customers claim to be irritated by changing supermarket layouts. depending on whether the candidate appeared to have thought about the nature of the entity. In any event. Part (a) The evaluation of this assertion is complicated because the entity in question has a simpler system that is potentially much cheaper to operate and may also provide management with all of the information that is required to operate successfully. but those claims will be difficult to support and they may be motivated by a desire to appease shareholders who wish to see evidence that their investments have been justified. Answers to this question often lacked realism. but they may not realise that such changes make them spend more despite their irritation.Paper P3 – Management Accounting – Performance Strategy Post Exam Guide September 2013 Exam Examiner’s Comments Answers to this question varied in quality.

Suggested Approach Part (a) requires some basic calculations. (9 marks) (c) (Total for Question Four = 25 marks) Rationale Question 4 draws on section D (Management of Financial Risk). Part (b) deals with the implications of agreeing to a swap that does not cover the whole period of the loan. What risks will that create? Part (c) is looking for the ability to look at the basic information in the scenario to highlight the fact that the party seeking the swap is actually quite a poor credit risk. (9 marks) Advise the counterparty on the risks associated with entering into the proposed swap with Z. (7 marks) (b) Advise Z’s board of the implications of entering into a 10 year swap in order to protect the cost of servicing a 14 year loan. Marking Guide Part (a) 1 mark per reasonable point: Calculate rates Part (b) 1 mark per reasonable point: Whole term would have been better Short term protection Hedge accounting No real choice of counterparty Part (c) 1 mark per reasonable point: Worst case Z poor credit risk Z’s directors reckless Bank unwilling to commit to Z Maximum mark awarded 7 marks 3 marks 2 marks 2 marks 3 marks Max 9 marks 3 marks 3 marks 2 marks 2 marks Max 9 marks 25 marks ©The Chartered Institute of Management Accountants 2013 Page 11 .Paper P3 – Management Accounting – Performance Strategy Post Exam Guide September 2013 Exam Question 4 (a) Calculate the effective swap rates for both Z and the counterparty. Part (a) deals with the calculation of the effective swap rates enjoyed by two parties to an interest rate swap. Part (b) requires some thought about the impact of leaving the final 4 years of a 14 year loan unhedged. Part (c) deals with the question of counterparty risk in this particular scenario. based on a common topic.

The basic question here is whether it is a serious matter that only the first ten years of a fourteen year loan can be protected. which is part of the answer but is not the key issue. Part (c) Candidates showed little understanding of the topic. Very few candidates reflected upon the costs to the counterparty of Z’s default. Part (b) Very few candidates offered a reasoned argument concerning the implications of a swap that does not offer a precise match to the risk that is to be hedged. Part of that argument is that the short to medium term situation would be resolved by this arrangement and so it is not clear that the swap is a bad thing. with no indication of what those workings had accomplished.Paper P3 – Management Accounting – Performance Strategy Post Exam Guide September 2013 Exam Examiner’s Comments This question posed a question about a swap in a slightly unusual context. Part (a) Calculations were often badly presented and it was not always clear what the final answer actually was. Part (c) Answers tended to focus on the likelihood of Z defaulting. Many scripts simply set out a standard set of workings. That demonstrated a lack of understanding of what is involved in a swap. ©The Chartered Institute of Management Accountants 2013 Page 12 . Such changes are necessary to avoid questions on this topic from becoming a matter of rote learning. Common errors Part (a) The calculation was often incomplete and the calculations were sometimes very badly laid out.

(14 marks) Discuss the merits of the Board’s decision not to hedge the value of the minibus contract unless it would be permitted to apply hedge accounting to the hedging instrument. (14 marks) (ii) Recommend.Paper P3 – Performance Strategy Post Exam Guide November 2013 Exam SECTION A – 50 MARKS ANSWER THIS QUESTION Question 1 Required: (a) (i) Evaluate THREE significant risks to GAMESCO arising from its dependence upon commercial sponsorship and brand leasing. membership and operation of GAMESCO’s Board of Directors as the basis for sound governance. (10 marks) (Total for Question One = 50 marks) (c) ©The Chartered Institute of Management Accountants 2014 Page 2 . the actions that GAMESCO should take to persuade the major sponsors who are concerned about the possibility of adverse publicity not to withdraw their agreement to support the Games. (12 marks) (Total for part (a) = 26 marks) (b) Evaluate the structure. stating reasons.

Part (b) deals with the governance of the entity that has been created to manage the games. Part (a) draws mainly on section B of the syllabus (Risk and Internal Controls). focussing on the membership of the board and the backgrounds of those members. Part (c) draws mainly on section D (Management of Financial Risk). and asks candidates to express an opinion on the strengths and weaknesses of those arrangements. Part (c) focusses on the manner in which the reporting of risks may feed back into their management. Part (b) draws mainly on section C of the syllabus (Audit and Audit of Control Systems). Suggestions have to be realistic and measured.Paper P3 – Performance Strategy Post Exam Guide November 2013 Exam Rationale This question is based on both the common pre-seen scenario and the unseen scenario. Part (c) also requires some thought concerning the practicalities of applying hedge accounting. reflecting the needs of the entity. The entity has to make a substantial payment in the future and it is considering the availability of hedge accounting as a factor in deciding whether or not to hedge the payment. despite the fact that some of its clients will not wish to be associated with others. Candidates should be aware of the reporting implications associated with currency risks and hedging because managers are often motivated almost as much by the perceptions of stakeholders concerning risks as they are by the risks themselves. The paper provides a fairly detailed description of the entity’s governance arrangements. ©The Chartered Institute of Management Accountants 2014 Page 3 . Part (c) deals with the hedging of currency risks arising from the purchase of vehicles from a foreign supplier. Part (b) requires an understanding of how an effective governance system might be structured and organised. Suggested Approach Part (a) asks candidates to think both about managing relationships with stakeholders and about the best way to resolve a public relations disaster. but candidates have to consider the work that would be undertaken in order to be certain that the conditions apply. The entity in question is faced with the conflicting objectives of raising revenue from as many different sources as possible. Candidates must recognise those strengths and weaknesses. The question states the conditions that must be met. The scenario offers a model for consideration that has both strengths and weaknesses. This could lead to a significant loss of revenue. The entity in question has entered into some questionable transactions that undermine its credibility and candidates are asked to think about how best to manage the consequences. Part (a) deals with the reputational issues associated with the organisers of a sporting competition accepting sponsorship from a fast food company that sells unhealthy food and also from its decision to sell clothing that is sized for overweight customers.

each risk up to Up to 5 marks per risk Part (a)(ii) 1 mark per reasonable point: Encourage Foodfast to sell a range of healthy products Stress the fact that diet is a matter of consumer choice Convince sponsors that they may alienate consumers if they withdraw Argue that newspapers are mocking overweight readers Legal advice Maximum for part a(ii) Part (b) 1 mark per reasonable point: Lack of non-executives Emphasis on functional responsibilities Large board sporting bias Consensus Links to government Monthly meetings Maximum for part (b) Part (c) 1 mark per reasonable point: Risk more important than accounting Significance of hedge accounting Stakeholder expectations Could explain decision to accept risk Maximum for part (c) Maximum mark awarded Max 14 3 marks 2 marks 2 marks 3 marks 3 marks Max 12 marks 2 marks 3 marks 3 marks 3 marks 2 marks 2 marks Max 14 marks 2 marks 2 marks 4 marks 2 marks Max 10 marks 50 marks ©The Chartered Institute of Management Accountants 2014 Page 4 .Paper P3 – Performance Strategy Post Exam Guide November 2013 Exam Marking Guide Marks Part (a)(i) 1 mark per reasonable point: Three risks.

The question was about hedge accounting not about what is hedging. Many candidates missed the point regarding the sports clothing. Part c was really poor. Many overseas candidates had no idea whatsoever or simply listed the characteristics of good governance without any attempt to relate to the actual practice employed by the Gamesco board.Paper P3 – Performance Strategy Post Exam Guide November 2013 Exam Examiner’s Comments Part (a)(i) A substantial number of candidates failed to structure and coordinate valid comment under 3 sensible risk headings. There was an overall lack of in-depth ethical scrutiny and real world common sense was in UK scripts and this was almost non -existent in many overseas scripts. Candidates showed no knowledge whatsoever of this topic which was very disappointing. Candidates did not understand that it was the poor image portrayed by ill. Some candidates simply rambled on with no attempt to organise their response.fitting sports clothes that was the main problem in part (a)(ii). Many candidates scored zero in this part of the question. ©The Chartered Institute of Management Accountants 2014 Page 5 . Part (a) (ii) was poor. Part (b) was generally covered well by UK candidates but not done well by overseas candidates. Common errors Very poor layout in part (a)(i). The non-voting shareholders caused great misunderstanding and confusion and the representatives of the individual sports were often considered to be non-executive directors. In consequence many scripts proposed redesign and grovelling apology. Many assumed that the adverse publicity was down to poor product design and size range and not simply the media manufacturing stories to sell newspapers. Getting rid of the sponsor Fast Food combined with grovelling apology was often the only specific response in addition to much general waffle on good communications etc. In part (c) only a handful of candidates (mainly UK) had any idea what the question was about. Comment regarding the food company was often more sensible but again lacked commercial sense. Hedging and hedge accounting were assumed to be the same thing.

focussing on a relatively small company that has recently introduced this approach. (12 marks) (Total for Question Two = 25 marks) Rationale Question 2 draws on section A (Management and Control Systems). An account manager has been appointed to take charge of the company’s relationship with its biggest customer. Suggested Approach Part (a) requires candidates to think about the implications of a management structure that does not necessarily offer the certainty associated with a clear-cut reporting structure. the changes that L’s board should introduce in order to minimise the threats arising from having an autonomous account manager. The whole point of the system that has been introduced is to ensure that there is recognition of competing and conflicting needs and opportunities. ©The Chartered Institute of Management Accountants 2014 Page 6 . which continue to provide most of the company’s revenue. stating reasons. It is important to recognise that there is scope for conflict between that customer’s needs and the needs of the other customers.Paper P3 – Performance Strategy Post Exam Guide November 2013 Exam SECTION B – 50 MARKS ANSWER TWO QUESTIONS ONLY Question 2 (a) Evaluate the potential risks that might arise from L’s appointment of an account manager to deal with H’s business. (13 marks) (b) Recommend. The question deals with the advantages and disadvantages of the matrix structure of management. Part (b) asks candidates to consider the best way to resolve the conflicts identified in (a). Clearly. there may be times when a priority has to be identified and that will require some commercial awareness.

The danger of fraud through familiarity and conflict of interest were often recognised though understanding could have been made with more clarity and depth. Sometimes controls recommended were too simplistic.Paper P3 – Performance Strategy Post Exam Guide November 2013 Exam Marking Guide Part (a) 1 mark per reasonable point: Identification of matrix structure Upside risks Risks associated with major customer may not be justified Account manager’s dysfunctional behaviour Conflict with functional managers Confusing for junior staff Marks 3 marks 3 marks 3 marks 4 marks 3 marks 2 marks Max 13 marks Part (b) 1 mark per reasonable point: Clear communication Company’s interests come first Subordinate staff can seek clarification Internal candidate for manager Policy for conflict resolution 4 marks 3 marks 3 marks 3 marks 3 marks Max 12 marks Maximum mark awarded Examiner’s Comments 25 marks Question Two was done well. Overseas candidates reproduced their answer to part (a). budgeting etc. Common Errors Controls in part (b) were often very weak and simplistic and very badly explained. In (b) although some candidates saw the need to restructure and reorganise most scripts merely advocated the inclusion of the account manager within the existing control systems by applying segregation of duty. approvals and authorisation. Sometimes the frauds envisaged were over-elaborate. ©The Chartered Institute of Management Accountants 2014 Page 7 . vague and ill explained.

There is sometimes a tendency for candidates to focus too much attention on the purchase of financial instruments with which to hedge risks. although the secret is basically to think in terms of ways in which the foreign government’s interests may be used to exert some influence in order to prevent problems. It is important to consider whether the risk is worth hedging at all and whether there are any viable internal hedging techniques that may prove less complicated and less expensive. ©The Chartered Institute of Management Accountants 2014 Page 8 . Suggested Approach Part (a) focuses on the risks arising from four possible approaches for hedging two foreign currency balances. It deals with the implications of internal and external hedging techniques and also the need to maintain a good relationship with foreign governments. Part (b) deals with the need to manage relations with foreign governments. questions have tended to deal more with the issues arising from foreign direct investment and so this question may offer a bit of a challenge. (9 marks) (Total for Question Three = 25 marks) Rationale Question 3 draws on section D (Management of Financial Risk). In the past. These include leading a payment as well as the more obvious financial instruments that might be used. Candidates also have to consider leaving the risk unhedged altogether. This is a slightly unusual case because it deals with the potentially emotive question of importing a valuable artwork from the country in question.Paper P3 – Performance Strategy Post Exam Guide November 2013 Exam Question 3 (a) Evaluate for each of the four possible actions identified by R’s chief accountant: (i) (ii) The associated risks The cost (as far as it is possible to do so from the information provided) (16 marks) (b) Discuss the risks to R associated with the need to obtain government licences and permits before the painting can be shipped from Country W (your answer should include how those risks can be reduced).

Paper P3 – Performance Strategy Post Exam Guide November 2013 Exam Marking Guide Part (a) 1 mark per reasonable point: Marks Leave the transactions unhedged Options Forward sale and purchase Leading Part (b) 1 mark per reasonable point: Cultural significance Loss of value if no export licence Talk to officials Make purchase conditional Publicise charitable aspect of sale 4 marks 5 marks 5 marks 6 marks Max 16 marks 3 mark 2 marks 2 marks 2 marks 2 marks Max 9 marks 25 marks Maximum mark awarded ©The Chartered Institute of Management Accountants 2014 Page 9 .

In part (a) most candidates failed to answer the question set and wasted valuable examination time. Answers to part (b) were often limited and shallow. Most scripts failed to appreciate that the painting had actually been purchased. Few candidates appreciated the natural hedging inherent in the 2 contracts.Paper P3 – Performance Strategy Post Exam Guide November 2013 Exam Examiner’s Comments Question three was done by very few candidates and the marks were very poor. ©The Chartered Institute of Management Accountants 2014 Page 10 . Common Errors Very few candidates actually answered what was asked in part (a) Candidates wasted time by doing long and impossible calculations of gains and losses which were not asked for in the question. Many overseas candidates had no idea as to what was required. Despite this candidates did often manage to gain some marks through their understanding of the different options. The effort should not have gone into the calculation but into the evaluation of the risks of each option. Candidates wasted considerable time and energy for nothing. Instead of evaluating the cost of each option they attempted to calculate the exchange gain/loss under each option which was impossible because they did not have the spot rates at the contract settlement dates. Candidates did not answer as if the painting had been purchased which was very clear from the question. Part (b) was also poor with very weak answers.

recent history has suggested that new technologies are rarely impossible to hack as a host of devices. bank ATMs and DVDs have shown very clearly. (9 marks) (b) Evaluate FOUR risks that might arise from the introduction of smart meters and suggest how each might be dealt with. Part (b) requires some thought about the risks that will arise from the investment in this new technology. such as mobile phones.Paper P3 – Performance Strategy Post Exam Guide November 2013 Exam Question 4 (a) Discuss the potential benefits for E that may come about from the introduction of smart meters. up to 4 marks per risk 3 marks 2 marks 4 marks 3 marks Max 9 marks Max 16 marks Maximum mark awarded 25 marks ©The Chartered Institute of Management Accountants 2014 Page 11 . One of the motives for the investment has been the ability to enhance error checking and fraud detection. Having said that. Part (a) effectively asks for some thought about the potential benefits to be had from “big data” and part (b) asks about the potential risks associated with investing in new data gathering technology Suggested Approach Part (a) asks about the potential benefits that might be had from the introduction of electronic meters that permit an electricity supplier to track customers’ consumption in real time. (16 marks) (Total for Question Four = 25 marks) Rationale Question 4 draws on section E (Risk and Control in Information Systems).. That has potential implications for data gathering as well as the simplification of accounting for electricity billings. Marking Guide Part (a) 1 mark per reasonable point: Cost savings Reduce fraud Data mining Marketing information Part (b) 1 mark per reasonable point: Each of four risks.

Common Errors Part (b) was a little weaker than part (a) as many candidates did not really answer what was asked but discussed generic IT risks. ©The Chartered Institute of Management Accountants 2014 Page 12 . viruses etc that would exist whether smart meters were installed or not. This over emphasis on generic IT problems was especially evident in the overseas scripts.Paper P3 – Performance Strategy Post Exam Guide November 2013 Exam Examiner’s Comments Part (a) produced a good response from home and overseas scripts although weaker overseas candidates often failed to completely identify the ultimate benefits of the project eg although no longer having to go to visit customers is a benefit. In part (b) home candidates were usually able to generate sufficient comment on the risks involved in the project but there was often too much emphasis on generic IT risk eg hacking. it is the customer satisfaction and the cost saving which are the real benefits to the company.

Part (b) deals with the conduct of a post-completion audit of a building project that has failed to an extent. stating reasons. (8 marks) (Total for part (b) = 16 marks) (c) Recommend.Performance Strategy Post Exam Guide March 2014 Exam SECTION A – 50 MARKS ANSWER THIS QUESTION Question 1 Required: (a) (i) Recommend. (12 marks) (Total for Question One = 50 marks) Rationale This question is based on both the common pre-seen scenario and the unseen scenario. the actions that GAMESCO should take to minimise the risks to the success of the Games associated with the threatened response by D’s government to the forthcoming documentary. Part (b) draws mainly on section C of the syllabus (Audit and Audit of Control Systems). thereby undermining the credibility of the Games. (12 marks) (ii) Advise the Games Co-ordinating Committee of the risks arising from athletes being caught using banned substances to enhance their performances at the Games. Part (c) deals with the management of the political risks that could lead to the loss of a major competitor. the major issues that should be investigated during the post completion audit of the swimming pool project. (10 marks) (Total for part (a) = 22 marks) (b) (i) Discuss the advantages and disadvantages to GAMESCO of conducting a post completion audit of the swimming pool project.Paper P3 . Part (c) draws mainly on section D (Management of Financial Risk). the procedures that GAMESCO should put in place in order to deter and detect the use of drugs by athletes. Part (a) deals with the risks associated with making a public commitment to investigate and penalise the abuse of performance enhancing drugs in a sporting tournament. stating reasons. ©The Chartered Institute of Management Accountants 2014 Page 2 . Part (a) draws mainly on section B of the syllabus (Risk and Internal Controls). stating reasons. (8 marks) (ii) Recommend.

with a number of high-profile cases having occurred in the recent past. The organisers of the Games face a delicate diplomatic challenge in persuading the government which claims to have been defamed to respond in some way other than banning its athletes from participating in the Games. Furthermore. but that have also affected its suitability for conversion to a public amenity for the local community. thereby reducing their perceived success. As with any post-completion audit. but will come to light when cheating is discovered during a later competition. there is a risk that managers may be deterred from acting in the future and that future decision-making will become defensive. There is also a conflict because the discovery of this type of abuse will almost certainly attract a great deal of adverse publicity. Decisions were taken during the construction of a swimming pool that will ensure its readiness for the Games themselves. Part (c) focusses on the threatened response to the broadcast of a critical television documentary.Performance Strategy Post Exam Guide March 2014 Exam Suggested Approach Part (a) asks candidates to think about the threats associated with making a commitment to deal with the abuse of performance enhancing drugs. any undue focus on this form of cheating will also undermine the credibility of the Games. The concern is that the subject of the documentary will withdraw from the Games. This is a topical area. There is a risk that an offence will not be discovered during the Games.Paper P3 . The Games organisers are effectively committing themselves to dealing with an offence that is very difficult to detect. ©The Chartered Institute of Management Accountants 2014 Page 3 . Part (b) requires some common sense about the management of a building project.

Performance Strategy Post Exam Guide March 2014 Exam Marking Guide Part (a)(i) 1 mark per reasonable point: Risk-based approach Suspicious performance investigated Some random testing Little point in testing losers Check identity Duplicate sample Document results Marks 2 marks 2 marks 2 marks 1 mark 2 marks 2 marks 2 marks Max 12 marks 3 marks 2 marks 5 marks 1 mark Max 10 marks 1 mark 1 mark 2 marks 1 mark 1 mark 3 marks Max 8 marks Part (a)(ii) 1 mark per reasonable point Possibility that failures will remain undiscovered Press coverage could focus on the athlete rather than the Games Cheating unlikely to be discovered prior to Events False positives Part (b)(i) 1 mark per reasonable point: Not working to plan May be other cases Recover costs from builder Press attention Too late to change Relationship with builder Part (b)(ii) 1 mark per reasonable point: Correspondence and reports How was problem managed? Study plans and blueprints Site visits Contract Part (c) 1 mark per reasonable point: Contingency plans Seek local government support Lobby foreign government Promote importance of attending 4 marks 2 marks 2 marks 2 marks 1 mark Max 8 marks 3 marks 3 marks 3 marks 5 marks Max 12 marks Total 50 marks ©The Chartered Institute of Management Accountants 2014 Page 4 .Paper P3 .

The answers to part (c) were weaker than the answers to part (a) and part (b).Paper P3 . Many candidates thought that using positive feedback was not a good idea which was interesting. ©The Chartered Institute of Management Accountants 2014 Page 8 . It would be a good idea in most organisations to praise positive things so getting positive feedback would be encouraging and motivating. Part (b) was done well as many candidates came up with the idea of demotivation and staff losses which was good to see. Common Errors Some candidates scored low marks for part (c).Performance Strategy Post Exam Guide March 2014 Exam Marking Guide Part (a) 1 mark per reasonable point: Viewing figures could be misleading in isolation Upside risks Avoid repeat purchase of declining show Responses may not reflect opinions Marks 3 marks 3 marks 2 marks 2 marks Max 6 marks 3 marks 2 marks 3 marks 2 marks Max 9 marks Part (b) 1 mark per reasonable point: Dysfunctional behaviour Overpay for popular programmes Demotivate department Risk losing staff Part (c) 1 mark per reasonable point: Consistent with business model Positive pursuit of success Lock in past success Encourage creativity Some role for negative 2 marks 2 marks 2 marks 3 marks 2 marks Max 10 marks Examiner’s Comments This question was reasonably well done by candidates.

Performance Strategy Post Exam Guide March 2014 Exam Marking Guide Part (a) 1 mark per reasonable point: Programming time Processing time/slow system False positives Preserve evidence Marks 3 marks 3 marks 2 marks 3 marks Max 10 Part (b) 1 mark per reasonable point: Dormant accounts by number and value Contact account holders 4 marks 4 marks Max 7 1 mark 4 marks 1 mark 3 marks 2 marks Max 8 Part (c) 1 mark per reasonable point: change software Flag transactions Deposits Report by branch and by clerk Publicity Examiner’s Comments This question was done reasonably well. ©The Chartered Institute of Management Accountants 2014 Page 10 . Part (c) was again the weakest part with candidates struggling to come up with practical ideas.Paper P3 . Many failed to score many marks at all for this section as their ideas were not practical. Some did not relate the answer to the scenario but discussed fraud detection in general terms which scored very few marks. Common Errors Part (c) was disappointing as candidates did not really answer the question.

Parts (b) and (c) were however also weak with candidates being unable to demonstrate the ability to think about transfer prices or currency implications of buying flax fibre. Common errors Candidates were not good at the calculations.Paper P3 . Candidates should study this topic in the future. many scored very low marks. ©The Chartered Institute of Management Accountants 2014 Page 12 . Financial risk is a major part of the syllabus so it really must be studied. It is very risky to enter this exam with very low ability in these types of question. Candidates in general did not do this well but there were some excellent answers. Part (b) was poor as was part c and in general the calculations were poor.Performance Strategy Post Exam Guide March 2014 Exam Marking Guide Part (a)(i) 1 mark per reasonable point: Calculations Stating assumptions 6 marks 4 marks Max 9 3 marks 3 marks Max 6 2 marks 3 marks Max 4 4 marks 3 marks Max 6 Part (a)(ii) 1 mark per reasonable point: Inflation and wages Interest rate parity Part (b) 1 mark per reasonable point: Raw materials Buying goods from a fellow sub Part (c) 1 mark per reasonable point: Response to redundancies Developing country Examiner’s Comments This was the least popular of the optional questions.