Case Study 2023 Examiners Report and Markplan

CASE STUDY – JULY 2023
EXAMINERS’ COMMENTS AND MARK PLAN
Contents
PART 1: EXECUTIVE SUMMARY ....................................................................................... 2
PART 2: THE CASE STUDY EXAMINATION ...................................................................... 4
Scenario for the paper (Advance Information) ............................................................................. 4
Analysis of Advance Information (AI) ................................................................................ 4
Statement of profit or loss – revenue ............................................................................................ 5
Statement of profit or loss – cost of sales and gross profit ............................................................. 6
Statement of profit or loss – administrative expenses and operating profit ...................................... 6
Statements of financial position and cash flow ............................................................................. 7
Information provided in the Case Study Exam (CSE) ..................................................... 10
Exam requirements ................................................................................................................... 10
Analysis of Case Study Exam information ...................................................................... 11
Summary of marks available........................................................................................... 12
PART 3: COMMENTARY ON CANDIDATES’ PERFORMANCE........................................ 13
Overview of professional skills ........................................................................................ 13
Assimilating and Using Information (AUI) ................................................................................... 13
Structuring Problems and Solutions (SP&S) ............................................................................... 14
Applying Judgement (AJ) ........................................................................................................... 14
Conclusions and Recommendations (C&R) ............................................................................... 15
Executive summary (including OAC)............................................................................... 15
Overview of performance by requirement....................................................................... 16
Requirement 1: Analysis of KUAS’s financial and operating performance .................................... 16
Requirement 2: Evaluation of request from Tully ....................................................................... 17
Requirement 3: Evaluation of proposal strategic alliance with FT .................................................. 18
PART 4: APPENDICES ..................................................................................................... 20
Appendix 1: Financial statement analysis: Revenue, costs, profits and business metrics
....................................................................................................................................... 20
Appendix 2: Financial data analysis: Calculation of total fee......................................... 22
Appendix 3: Commercial data analysis: Calculation of breakeven ................................ 23
© ICAEW 2023 Page 1 of 32

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PART 1: EXECUTIVE SUMMARY

Introduction
This report covers the July 2023 Case Study Exam (CSE). It is issued in conjunction with two sample answers
and related Examiners’ commentaries. The first of these was within the top quartile of all assessed scripts; the
second failed the exam. In reviewing these documents, it is important to be aware that it is rare for a script to be
uniformly ‘bad’ or uniformly ‘good’: a successful script will often present detailed coverage of all requirements but
include errors of calculation or logic; an unsuccessful script may contain one or two strong sections or several
excellent points but be let down by poor or incomplete text elsewhere. Unsuccessful candidates will also find
helpful guidance in the ICAEW Learning Materials.
Attached to this report are appendices giving examples of the sort of analysis that candidates did or might have
done. The two sample answers offer further insights into this area.
Overview of performance
The pass rate was 82.6% (November 2022: 81.2%; July 2022: 81.8%). This therefore maintains the overall pass
rate profile from recent sittings. Successful candidates showcased their higher skills and used the four hours
efficiently. They again exploited the spreadsheet functionality to good effect, which enabled them to cover the
calculation aspects of the requirements swiftly, thus giving themselves more time for the discussion sections.
The best scripts were methodical, well-balanced and relevant, answering each element of each requirement and
containing high-quality financial analysis; sound judgement; commercial recommendations; and succinct, focused
executive summaries. Good candidates were able to assimilate the case material into a report that demonstrated
business awareness and appropriate professional scepticism. Passing candidates had clearly prepared well,
making the necessary effort to assimilate the AI and to hone their exam technique on the exam software.
The subject of the case is Keep Us All Safe Limited (KUAS), a company based in Oxford. KUAS installs, monitors
and maintains electronic security systems – primarily intruder alarms, closed circuit television (CCTV) and access
control (entry systems) – for businesses across England. Revenue and profits dropped in 2021 but recovered in
2022. Early signs for 2023 are promising, while KUAS is also looking to pursue new opportunities.
The candidate is in the role of Laurie Reece, a final-year trainee ICAEW Chartered Accountant in the business
advisory unit at Spindle Turner Chartered Accountants, a firm of ICAEW Chartered Accountants (also in Oxford).
The exam requirements comprised:
1. An analysis and explanation of KUAS’s financial and operating performance for the year ended 30 June 2023
in comparison with the year ended 30 June 2022, covering: revenue for each activity and in total; cost of sales
for each activity, each cost area and in total; gross profit for each activity and in total; administrative expenses
by category and in total; and total operating profit. Candidates had to incorporate, as appropriate, a series of
business metrics and business issues.
2. An evaluation of the request from Tully for KUAS to provide security systems and services to its new
subsidiary, FG, under a three-year contract. For each of two alternatives (A and B), they had to calculate the
total fee, covering all relevant services provided under the contract and evaluate the financial estimates and
assumptions. They then had to explain and evaluate the commercial, ethical and business trust issues relating
to the contract, and recommend, with reasons, which of the two alternatives KUAS should propose.
3. An evaluation of the proposal to form a strategic alliance with SuperTel (ST). This required them to: prepare
calculations to show whether KUAS’s proposed strategic alliance with ST achieves breakeven operating profit
for KUAS over the 2½ years to 30 June 2026; and explain and evaluate the financial, operational and strategic
issues, that KUAS should take into account when deciding whether to proceed with the proposal, incorporating
any ethical and business trust aspects, for both KUAS and its clients.
As with previous Case Study exams, candidates generally did well on Requirement 1, less well on Requirement 2
and worst on Requirement 3. The quality of weaker candidates’ answers, especially in the skill of Applying
Judgement, was similar to past experience. Similarly, recommendations were often poor, characterised by an
inability, for all three requirements, to offer appropriate, commercial advice based on the candidate’s work.
Review of professional skills
Assimilating and Using Information (AUI): AUI was the strongest skill in this exam. Candidates largely produced
detailed, comprehensive appendices, efficiently using the spreadsheet functionality of the exam software,
though at Requirements 2 and 3 it was sometimes hard to follow the presentation. For Requirement 1,
candidates carried out the analysis required. Most presented clear appendices covering the core items and
including some analysis of business metrics. Most also analysed either the GOF/Mistify results for 2023 or staff
costs; only a minority did both. For Requirement 2, practically all candidates provided calculations for both
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alternatives by following the Nile example from Exhibit 7 and getting the correct fees; others made one or more
errors. Many went on to include sensitivity analysis. At Requirement 3, most produced the expected calculation,
working out KUAS’ share of operating profit under the ST alliance, using the Exhibit 9 blueprint (GOF/Mistify),
but again there were numerous errors. Coverage of business issues and wider context was much better for
Requirement 1 than for Requirements 2 and 3.
Structuring Problems and Solutions (SPS): SPS skills were very good in Requirements 1 and 2, much less so in
Requirement 3. In Requirement 1, candidates tended to look at revenue by activity but did not then bring in detail
from Exhibit 16 (eg, KUAS’s tender success rate, revenue from GOF/Mistify). Discussion of COS/GP was much
better. On administrative expenses and OP, the main omission was in relation to sales staff. At Requirement 2,
candidates mostly calculated direct labour costs correctly, but a sizable minority made errors. The probabilities
were dealt with well. Under commercial, ethical and business trust issues, candidates missed out the contractual
points, eg, responsibility for faults/delays. On Requirement 3, they did well on the revenue parts of the calculation.
Other areas, such as costs, were weak. Under operational and strategic issues, candidates had to think more
broadly, eg, consider the manufacturing of the new products. They recognised the overarching ethical and
business trust issues but mostly did not appreciate the potential for the ST products to be abused.
Applying Judgement (AJ): AJ was again a critical differentiator among marginal candidates and the lowest-scoring
skill overall. At Requirement 1, candidates discussed the reasons for movements in key revenue items, using the
business metrics/issues in Exhibit 16, but did not adequately explain the changes in upgrades or tenders. As with
SP&S, their work on COS/GP was better than for revenue. For administrative expenses, they failed to comment on
the implications of falling R&D costs and the GOF/Mistify alliance not breaking even. In Requirement 2, they
evaluated their calculations against the Nile precedent but mostly did not address the differences between the FG
contract and KUAS norms. On estimates/assumptions, they covered labour costs but didn’t reflect on the number of
call-outs. On commercial, ethical and business trust issues, despite a wide range of options across the key, they
often failed to display higher skills. For Requirement 3, in addressing the financial issues the main shortcoming was
in not comparing the ST figures and draft terms with those for GOF/Mistify. Candidates generally didn’t delve into
the operational/strategic impact. With ethical and business trust issues, they identified the risks to KUAS’s
reputation and the need to audit R&D but struggled to grasp the ethical risks underpinning the ST products.
Conclusions and Recommendations (CR): As often, candidates did better on Conclusions than Recommendations.
The disparity on this occasion was particularly pronounced. For Requirement 1, candidates concluded on the key
areas. With a few exceptions, recommendations were sparse. On Requirement 2, candidates failed to identify the
inherent risk of a 3-year contract or to conclude with a non-financial reason. Recommendations tended to be
limited to negotiating terms and conditions and/or seeking back-up for estimates. At Requirement 3, candidates
addressed the key points but did not adequately conclude on the operational/strategic impact of the ST proposal.
Only the better candidates were able to construct a well-developed and relevant recommendations section.
Review of requirements
Requirement 1: Most candidates analysed the main captions well, with clear and comprehensive appendices.
Better ones delved more deeply into the numbers, linking business issues/metrics to the accounts, eg, integrating
the figures for false alarms into their discussion on monitoring/maintenance costs and margins. Many did good
work on administrative expenses and operating profit, eg, connecting changes in pay to KUAS’s prior-year HR
initiatives. Only a small number compared the results for GOF/Mistify in 2023 against the forecast in Exhibit 9.
Requirement 2: Candidates were generally well prepared for the issues presented, having familiarised
themselves well with the illustrative example for Nile. Most correctly calculated the total fee payable under each
of the two alternatives. However, they then had difficulty translating this into a cogent evaluation. Less able or
less careful candidates made a number of errors and so missed out on some of the marks available for number-
work. Despite using Nile as their template, candidates often didn’t take the opportunity to benchmark the FG
figures against those for Nile – or to highlight areas where they were not comparable.
Requirement 3: This was again the worst of the requirements for weaker candidates. If they followed the principles
of the GOF/Mistify template (Exhibit 9), they would have done well. They needed to read carefully the terms of the
arrangement with ST to avoid making mistakes on the calculations. Consideration of the financial, operational and
strategic issues was patchy at best, almost non-existent at worst. Candidates needed to step back from their
workings and consider the ST opportunity in the round. Those who took everything at face value failed to exercise
their higher skills. The final part of the evaluation was in respect of ethical and business trust issues, especially on
artificial intelligence. Its coverage in Exhibit 14a, and in the media during the run-up to the exam, should have got
candidates thinking during their preparation, so it was disappointing that there was little awareness of it in scripts.
In summary, the KUAS case dealt with an understandable sector with contemporary issues, with an appropriate
level of numerical content for students on the verge of qualifying as ICAEW Chartered Accountants. Candidates
were able to demonstrate a strong ability in meeting the requirements.

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PART 2: THE CASE STUDY EXAMINATION

Scenario for the paper (Advance Information)
The case relates to Keep Us All Safe Limited (KUAS), a company based in Oxford. KUAS installs, monitors and
maintains electronic security systems – primarily intruder alarms, closed circuit television (CCTV) and access
control (entry systems) – for businesses across England. Results had been fluctuating but for the year to 20 June
2022 they were strong, with revenue at £23.1 million, up from £16.6 million, and operating profit – which had
halved from £839k to £413k in 2021 – at £1,690k, a margin of 7.3%.
Prior to the examination, candidates were provided with a package of information, containing a series of exhibits
relating to KUAS and the industry, comprising:
1. About you (Laurie Reece), your employer (Spindle Turner Chartered Accountants) and your client (Keep Us All
Safe Limited)
2. The UK security systems industry: An introduction
3. Keep Us All Safe Limited (KUAS): An introduction
4. KUAS: Review of the management accounts for the three years ended 30 June 2022
5. KUAS: Management accounts for the three years ended 30 June 2022
6. KUAS: Key features of the business
7. KUAS: Example tender – Nile
8. KUAS: Client case studies
9. KUAS: Product development and technology
10. Email dated 19 January 2023 from Eleanor O’Farrell to Adam Menzies: Industry research
11. Top Commercial Security Systems in 2022 (‘Be My Guide’, January 2023)
12. KUAS: Strategic summary
13. KUAS: Report on SSAA audit visit (April 2023)
14. Recent media coverage
Analysis of Advance Information (AI)
By carefully studying the 36 pages of the AI, candidates should have formed a detailed picture of KUAS and its
industry, using facts and figures from across the material. They should be aware of the main contents so that they
can easily locate key topics in the exam. Key points are summarised below. (Additional examiner commentary is
given in this font, highlighting links between exhibits and emphasising the insights that candidates should have obtained.)
Exhibit 1 introduces the candidate’s role: Laurie Reece, a final-year trainee ICAEW Chartered Accountant, based
in the business advisory unit at Spindle Turner, a firm of ICAEW Chartered Accountants in Oxford. You report to
Andrea Wallace, a partner in the business advisory unit. The work undertaken by the candidate is summarised.
This exhibit sets the overall context for the case scenario. The list of work undertaken by the candidate should not be ignored
– especially those that carry echoes later in the AI, such as the analysis of probabilities at Exhibit 7 (see below).
Exhibit 2 explains that the security systems market covers four broad product types: electronic security systems
(intruder alarms; CCTV; access control) – the area in which KUAS operates; physical security equipment; and fire
protection equipment. Companies in the sector install, monitor and maintain these products. The four largest
account for over 50% of UK market revenue but there are many other smaller businesses. Around 46% of market
revenue comes from public authority clients, 40% from commercial/industrial clients (KUAS’ sphere of activity – see
below); 14% from residential clients. Revenue is expected to grow by 3% from 2022 to 2023 (after a dip in the
preceding years), boosted by new technology – some of it incorporating artificial intelligence (AI) and machine
learning techniques – which is being introduced at a rapid rate, often involving synergistic alliances.
Once installed, most systems remain in place for a number of years, allowing the supplier to generate a recurring
stream of revenue from add-on services (monitoring and maintenance) and periodic upgrades. The key to success,
therefore, lies in winning as much installation work as possible.
Regulation affects the sector in a variety of ways:
• UK businesses using CCTV must operate it responsibly, adhere to data protection law and privacy rules.
• Independent certification bodies conduct audits to verify compliance with standards and codes of practice.
• There is growing pressure on security systems companies to demonstrate their sustainability credentials by
having products repaired, upgraded and recycled rather than thrown away.

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Understanding this exhibit helps candidates put KUAS, its financial performance and its development in an industry context.
Exhibit 3 introduces KUAS. Current Managing Director Adam Menzies initially founded Menzies Alarms in 2007,
before merging it in 2011 with a nearby security systems company, Conga, to form KUAS, enabling the business to
diversify. Eleanor O’Farrell (Sales Director) and Orli Spitz (Operations Director), both former police officers, joined
Adam on the board, along with Derek Gardner (Technical Director) and Chang Yi (Finance Director). The Oxford
headquarters serve as offices and house an Alarm Receiving Centre (ARC) to monitor alarms. KUAS has three
ARCs in other cities. KUAS employs over 300 people and also sometimes uses subcontractors.
Just under 80% of revenue comes from installations and upgrades, 20% from monitoring and maintenance. KUAS
focuses on the commercial/industrial sector, for clients in five categories: construction; retail; leisure; industrial; other.
Construction sites generate higher average installation revenue than other locations but, unlike them, mostly do not
give rise to add-on services. Most work comes from references, recommendations and repeat business, but KUAS
also wins some through commercial tenders. KUAS has formed a number of strategic alliances (see Exhibit 9) with
companies that specialise in developing security technology products, such as CCTV analytics and anti-intruder fog.
Exhibit 3 provides the background to KUAS into which the detailed remaining case material can be integrated.
Exhibit 4 reviews the June 2022 management accounts, with 2020 and 2021 comparatives (Exhibit 5). It begins
with a table of financial and non-financial business metrics that KUAS uses. References to these are incorporated
in the accounts commentary – a strong hint to candidates that this is the sort of integrated analysis that they would be
expected to produce in the exam. The narrative in Exhibit 4 is also interspersed with a series of charts showing in
pictorial form some of the business’s financial headline figures for the 3 years under review. The commentary for
2022 is deliberately more detailed than for the earlier years as it provides more pertinent benchmarks for
candidates to use when they review the 2023 accounts; this emphasis is also reflected in the analysis below.
Statement of profit or loss – revenue
• Revenue over the three years to 2022 has been variable: 2020: 6.0% decrease to £20,971k; 2021: 21.0%
decrease to £16,578k; 2022: 39.5% increase to £23,121k. ‘General industry and economic factors’ caused a
drop in trading in the latter months of 2020, with clients delaying installations and upgrades. This continued
for most of 2021, followed by the release of pent-up demand – and hence the significant bounce-back – in
2022. (From the information given, it can be deduced that revenue was £22.3 million in 2019. The reported 2022 figure
thus represents a modest overall growth across the turbulent 3-year period. We are also told that the £16,578k achieved
in 2021 was ‘similar’ to that in 2017, implying good growth between 2017 and 2019 and shedding further light on the
extent of the disruption experienced in 2020 and 2021.)
• The 2020/21 decline was not as sharp as it might have been as KUAS was able to keep its monitoring and
maintenance activities running. Although representing only around 20% of revenue, these are a critical component of
the business, not least because of the high gross margins that they generate (see below).
• When installations and upgrades did return to former levels in late 2021, clients tended to scale back the scope,
eg, choosing a cheaper access control system. This meant a lower average value per installation. In particular,
average revenue per construction site fell from £56.4k to £51.5k. These figures can be proved through analysis
integrating the accounts with the business metrics table: all candidates should have spent valuable time during their
preparation in learning how to derive them.
• In 2022, ‘the number of upgrades almost doubled to 296, and their average value was also up, by 2.8% to £8.9k’
– figures derived from a combination of the accounts and business metrics table. Likewise, the average installation fee
per construction site went up from £51.5k to £54.0k (4.9%). It should be readily discernible by slicing and dicing
all the numbers provided that ‘construction contracts … generate by far the highest revenue per site for us.’
• In 2022, ‘the vast majority of clients once again opted for combined monitoring/maintenance contracts’ and ‘the
£837k increase in monitoring and maintenance revenue reflects the higher proportion of clients … now opting for
both services, as well as price increases for existing agreements’. This is largely apparent from the business metrics
table, which splits the number of other (ie, non-construction) installations for the year: for 2022, 663 out of 709 (ie, 93.5%)
have combined contracts, up from 539 out of 591 (91.2%) in 2021. The ‘price increases’ element can be demonstrated by
considering the average revenue per agreement.
• 113 monitoring and maintenance agreements were terminated in 2022, up from 101 in 2020, 87 in 2021. Various
reasons are given. ‘These trends could continue in 2023 …’ – a prediction to note for the 2023 accounts review.
• KUAS ‘achieved some major wins at the end of 2022 (the impact of which is already being felt in the new
financial year)’ – a pointer to some likely growth in the 2023 accounts.
• A theme running through all 3 years of the commentary is KUAS’s investment in technology via a set of strategic
alliance partners (explained much more fully in Exhibit 9: see below). Among projects stopped by the 2020 downturn
were the biometric access systems co-developed with KUAS’s partner Orca. Then in 2021, from another alliance,
with Sizzle, ‘we began selling our new video analytics product to clients’; and in 2022, as well as a further rollout
of the Sizzle product, KUAS ‘signed an agreement with another partner, GOF, for an anti-intruder fog, Mistify.’
• KUAS’s positive market image led its tender win rate to rise in 2020, by both volume and value. It improved
further in 2021 – when ‘the average value of successful tenders was much higher than the overall average
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revenue per new installation (£22.5k vs £18.0k)’ – and again in 2022, when KUAS also ‘continued to win more
work through references and recommendations. This may become an ongoing trend.’ The table of business
metrics shows four sets of data in relation to tenders for each year, namely: number participated in; number won; value of
tenders participated in; and value of tenders won. (There is also a graph of tender performance.) Candidates can therefore
analyse this data, calculate KUAS’s tender success rates by value and volume and interpret the findings.
• Other non-financial metrics are woven into the (2021) narrative to flag their relationship with the accounts:
o A drop from 125 to 104 minutes in average response time by ARCs, mainly owing to a new computer
system designed to improve scheduling and communication – a link to the growth in PPE (see below).
o A fall from 9.9% to 9.0% in false alarms, due to more reliable equipment from a new supplier, together
with fewer people visiting client sites, reducing alarm activations. This has a margin impact (see below).
Statement of profit or loss – cost of sales and gross profit
• Cost of sales (COS) is segmented in the accounts in two ways – by activity (ie, installations and upgrades,
monitoring and maintenance); and by cost area: purchases of goods for installation and repairs; direct labour
and subcontracted labour. In broad terms, the latter respectively represent 43%, 48% and 9% of total COS.
• Overall, COS moved in line with revenue over the period under review, so that the gross profit margin (GP%)
was relatively constant at around 32-33%. However, drilling down highlights some specific issues.
• The trading decline in late 2020 led to gross profit falling from £7,365k / 33.0% to £6,668k / 31.8%. Then in
2021, ‘even though the margins for both activities fell, overall gross margin improved to 32.3%, the result of a
change in revenue mix towards monitoring and maintenance, with its much higher margins.’ Candidates should
have taken the time to understand this slightly counterintuitive situation – effectively caused by monitoring and
maintenance representing a higher proportion of the year’s business. Actual margins were 28.1%, down from 28.5%
(installations and upgrades) and 44.8%, down from 47.8% (monitoring and maintenance).
• The lower installation margin in 2021 was caused by price pressure and was despite initiatives to increase
efficiency. For monitoring and maintenance, it was the result of extra call-outs, especially to clients delaying
the upgrade of ageing systems. For 2022, ‘GP% was at a new peak (33.3%). Installation and upgrade margin
was down from 28.1% to 26.8%, but there was a huge increase in monitoring and maintenance margin, from
44.8% to 56.6% … the result of fewer non-routine maintenance call-outs and fewer false alarms … as we
upgraded clients’ old systems to more reliable ones and saw the benefits of our strategic alliances.’ Annual
maintenance fees are fixed (see Exhibit 6 below), so more visits to client sites means more cost and hence lower margin.
It is critical to understand this as it directly – and sometimes significantly – impacts monitoring and maintenance results.
• A particular focus in 2022 was to retain key staff. Steps taken towards achieving this included: expanding the
installer/engineer workforce; enabling the best staff to be promoted and go on higher pay rates; introducing
flexible working to help solve the rise in staff sickness – another of the non-financial business metrics. Overtime
also increased as more clients asked for installations to be done outside regular hours. (See Exhibits 6/7 below.)
• The overall effect was a rise of almost 9% in average direct labour cost in 2022, from £26.2k to £28.5k. This
figure can be proved by simply dividing the direct labour cost by the number of installers, engineers and monitoring
operatives (note 7 to the accounts). Candidates should note that this is the total cost, and so would include payroll taxes
and other add-ons on top of basic pay. They should also note that staff numbers fell in 2021, during the business downturn.
Statement of profit or loss – administrative expenses and operating profit
• Administrative expenses were down by 15.2% from £5,829k in 2020 to £4,841k in 2021 and up by 21.4% to
£6,001k in 2022. Expressed as a percentage of revenue: 27.8% in 2020, 29.8% in 2021 and 26.0% in 2022.
• There are four categories of administrative expenses: head office staff; IT and premises, depreciation and
other; marketing and advertising; and R&D. By far the largest of these – in 2022, around 60% of the total – is
head office staff. Note 7 tells us that the number of these staff (including the directors, who stayed constant
at 5) went down from 96 to 93 in 2021 before going back up to 98 in 2022. As with the direct labour costs in
COS, this information can be used to prove the assertion that in 2022, ‘average payroll cost went up by 4%,
partly reflecting the early impact of some of the 2022 pay/promotion initiatives. Candidates could compare the
impact of these initiatives on the two groups of employees (installers, etc vs Head Office staff).
• In 2021, ‘with a high proportion of fixed staff costs, administrative expenses did not fall as much as revenue.
Most cost categories were down in absolute terms, but R&D costs went up as we continued to work with our
strategic alliance partners.’ R&D is an important activity for KUAS. It is actually all carried out by the partners, so
the cost in the KUAS accounts represent its contractual share of expenditure incurred by other parties. An increase in
R&D costs implies a higher level of development work and hence can be seen as an important investment in the future.
• Marketing and advertising was up by £178k (41.6%) to £606k in 2022: ‘It reflects a growing concentration of our
marketing effort on our strategic alliances as the products developed under these alliances come to market. We
are also seeing rivals spend more on marketing as they seek to differentiate themselves in a competitive market.’
Thus, as with R&D, higher marketing expenditure is probably a good sign rather than an indicator of poor cost control.
• The Sizzle and GOF alliances in 2022 …’meant that, along with some early development work with other new
partners, our R&D expenditure more than doubled, to £465k’. In addition, ‘our initial (2022) operating loss on the
GOF agreement was £186k. This is in line with forecast and we are confident that we will achieve the required
breakeven by 30 June 2023’. Candidates should ensure that they understand the link between these points and Exhibit 9.
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• The trading decline in late 2020 led to a fall in operating profit from £1,991k / 8.9% in 2019 to £839k / 4.0%.
In 2021, it suffered a further sharp decline, more than halving again to just £413k / 2.5% and then in 2022,
after two years of sharp decline, it more than quadrupled to £1,690k / 7.3%.
• Net finance income (interest) has been growing modestly in line with the rising cash balances.
Statements of financial position and cash flow
• The review of the management accounts extended beyond the key drivers of performance and explored the
impact of business activities on the other primary statements.
• One item addressed in all 3 years of the commentary is trade receivables, which represent the main element of
receivables, typically around 80%. They moved from £2,249k in 2020 to £1,637k in 2021 and £2,411k in 2022.
o In 2020, trade receivables days fell from 42 to 39. In 2021, ‘by bringing in a new credit control team and
processes, we managed trade receivables effectively, but some clients struggled to pay’. Then in 2022,
receivables and receivables days both went up and there was ‘an increased impairment charge (up
from £46k to £67k) to reflect a more prudent assessment of receivables.’. The 2022 days figure can be
calculated as 38.1, up from 36.0 in 2021, and this is clearly an area that is proving difficult to manage.
• The narrative also identifies the key changes in PPE:
o The carrying amount went up from £2,153k in 2020 to £2,444k in 2021 and then to £2,461k in 2022.
With changing little depreciation over the period, the movement is a function of the level of additions.
o In 2020, KUAS ‘took the decision to defer some planned capital investment’ but in 2021 this could no
longer be delayed: ‘We spent £626k [simply the additions in note 4] on leasehold improvements, the
new computer system [mentioned above in connection with ARCs] and other vital works.’
o In 2022, the review refers to ‘lower depreciation from assets, especially vans, nearing or reaching the
end of their useful lives. These vans also incurred higher vehicle repair costs – not a huge amount in
itself but indicative of general inefficiencies.’ The costs are shown in note 2 to the accounts: this confirms
that the expense is not large but the inefficiencies are echoed later in the AI (see Exhibit 14c below).
• Inventories, comprising small amounts of both work-in-progress (installations straddling year-ends) and
finished goods (replacement parts), are a small component of the business. They fell from £179k to £133k in
2021 and returned to £179k in 2022.
• The largest element of payables is trade payables. These moved broadly in line with trading activity, declining
from £690k in 2020 to £592k in 2021 and then increasing to £833k in 2022. Trade payable days (if calculated
as costs of purchases / trade payables – an approximation as trade payables could also include items such as
amounts due to utility providers and PPE suppliers) were 42.4 in 2020, 46.2 in 2021 and 42.4 in 2022.
• The 2021 review also comments that the usual annual dividend of £500k was halved in that year (the figure
appears on the face of the statement of cash flows for the year to which it applies).
• Despite fluctuations, the cash balance grew steadily over the period – though this was more a consequence
of offsetting movements in each year. By the end of 2020, KUAS ‘had replaced the small June 2019 overdraft
(£40k) with a positive balance of £466k', and this rose further to £667k in 2021 and £762k in 2022.
As always, time spent prior to the exam on the management accounts and commentary, linking these in with the supporting
exhibits as indicated above, would have been invaluable.
Exhibit 6 sets out the key features of KUAS’s business. It explains that clients choose one or more of the three
main types of system – intruder alarms, CCTV and access control – each coming with several options. KUAS’s
CCTV offerings include video analytics, which uses algorithms to detect people or objects through video images.
Access control systems can be audio-video, card reader or biometric. KUAS provides other specialist products to
clients, including security lights, product tagging and panic buttons and anti-intruder fog (see Exhibits 8/9).
KUAS earns most of its revenue from installing and upgrading these systems. It also offers two other services,
maintenance and monitoring, both of which it carries out solely for systems that it has installed itself (this is picked
up as a potential opportunity in the later strategic review – see Exhibit 12).
• Installations can take between one day with one installer and two weeks with a large team. Some are done
overnight or at weekends, for which it pays its staff overtime at a 50% premium and charges the client extra
(as in the Nile example – see Exhibit 7 below).
• To cover its initial outlay on equipment, KUAS requires clients to pay a small upfront deposit before starting
work, and the remaining fee within 30 or 60 days of completion. (The accounts review discusses the movements in
trade receivables days, and the difficulties that some clients are having in implicitly complying with these terms.)
• Upgrades of systems occur when new technology becomes available or after a specified period. The fee is
typically less than half the original installation fee. (The accounts review above confirms this.)
• Monitoring and maintenance are covered by renewable annual contracts. All non-construction clients now
sign maintenance contracts; most clients also sign monitoring contracts (over 90% of new sites have both services
– see accounts review). The fees are tailored to the client’s needs and may be increased for inflation on renewal.
Most clients pay monthly. (This should reduce the risk of default.)

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• Alarm systems are classified as ‘monitored’ 24/7 (by KUAS’s local ARCs) – by far the majority among KUAS
clients nowadays (see accounts review) – or ‘unmonitored’ (the client is solely responsible for deactivating the
alarm and hence the overall security cost to the client could be greater).
• Monitoring operatives work on a system of 8-hour shifts. Overtime may be needed to cover staff absences
and is paid at the 50% premium (or subcontractors are used). The annual monitoring fee is based on KUAS’s
estimate of hours to be spent by monitoring operatives on the client.
• Maintenance contracts involve one or two visits per year. KUAS also provides a call-out service for any major
faults or problems. (The variability here can have a significant impact on monitoring and maintenance gross margins.)
Most clients rarely require a call-out.
• Maintenance generally takes place in standard business hours. Where a client needs it done outside these
times, engineers receive the 50% overtime premium, which is then reflected in the fee charged to the client.
Other features of the business:
• KUAS’s sales team of 12, led by Eleanor O’Farrell, receive a fixed salary, plus commissions, representing 10-
20% of their total pay. For example, in 2022, total pay was £526,000, of which commissions were £79,000.
• KUAS prices its work, especially in tenders, by applying a mark-up to the estimated costs, as for Nile (Exhibit 7).
• KUAS sources its security equipment from a range of reputable UK suppliers. Payment terms are 30-60 days.
(This could be considered in the context of payable days – see accounts review above.)
• KUAS has a good relationship with its suppliers and can generally obtain replacement parts quickly.
• IT is vital to administrative and support functions. KUAS has invested in several new systems in recent years.
• KUAS’s fleet of vans enables its installers, engineers and operatives to travel easily to and from client sites.
(These vans do, however, come with their problems – see above on Exhibit 4 and below on Exhibit 14.)
• KUAS seeks at all times to dispose of old equipment in an efficient and environmentally-friendly manner. It
works with any new clients on the removal and recycling of any equipment from the previous security provider.
There is a strong emphasis here on the labour aspects of KUAS’s work – not surprising since it is a service company and the
largest proportion of its operating costs is the salaries of its employees.
Exhibit 7 describes the successful tender for the security systems at Nile, a US online retailer expanding into the
UK by building three large warehouses. KUAS was asked to bid for three phases of work: installation/monitoring of
the warehouse systems during construction; installation at the completed warehouses; maintenance/monitoring of
the warehouse systems. Construction would begin on 1 July 2020, the warehouses opening on 1 January 2021.
KUAS and Nile drew up a contract with provisional fees of £61,500 per construction installation (ie, a little above the
KUAS average – see above), £27,150 per warehouse installation, £2,500 annual maintenance and monitoring per
warehouse and £15,000 per upgrade. The were based on detailed costings prepared by KUAS using mark-ups
within its usual ranges (65% for construction installations, 35% for warehouse installations and upgrades, 100% for
maintenance/monitoring). A table shows the cost elements of each (purchases, direct labour, subcontractors), with
a formula-based calculation for direct labour. The warehouse installations were to be done at weekends, so KUAS’s
usual 50% overtime premium applied. There was uncertainty over the number of days’ work per employee per site,
so KUAS used probabilities to calculate the expected cost and hence determine an appropriate fee. The fee was
based on the most likely figure, but in less clear-cut cases, KUAS uses an expected value approach.
Candidates should work very carefully through the calculations provided here to ensure that they understand them and how
they relate to the overall figures in KUAS’s accounts.
Exhibit 8 presents case studies of three KUAS clients in three different sectors: Ultrafit (leisure – gyms); Bowen
(construction – housebuilder); and Ringstar (retail – jewellers). For each, the exhibit explains the industry context
and KUAS’s involvement, with a description of the products supplied in each case. There are similarities, overlaps
and variations between the three. For example, all have CCTV, alarms and access control systems. Ultrafit and
Ringstar also have panic buttons; Ultrafit has additional CCTV covering its car parks; Ringstar has product tagging
and anti-intruder fog; and Bowen has perimeter fencing (sourced and erected by Bowen itself) and LED security
lights. KUAS has earned an average of £47,000 from each Bowen site (installation and monitoring). Ultrafit’s CCTV
allows managers to check on staff productivity. Ultrafit was acquired by leisure conglomerate Tully in 2021 but has
remained a KUAS client, its owner staying on the management team and continuing as the link with KUAS.
Here too, candidates should ensure that they make the connections to earlier material, eg, average revenue per construction site.
Exhibit 9 discusses KUAS’s product development and technology, carried out through strategic alliances. A table
summarises the current alliances (Orca, Sizzle, GOF – all mentioned in the accounts commentary – plus ‘various’)
and in particular KUAS’s share of the related R&D costs in each of the years to 30 June 2020, 2021 and 2022,
with a forecast for 2023. The exhibit goes on to describe the history and development of the alliance with GOF (a
company started by three Oxford University researchers), which is for a single product – an anti-intruder fog,
Mistify. Mistify went through several stages of testing before being launched in January 2022 via a trial at 10 of
Ringstar’s 50 stores, to be followed by the other 40 stores, then 100 locations of other KUAS retail/leisure clients.

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An agreement between KUAS and GOF, for an initial period of 24 months to 31 December 2023, documents the
parties’ rights and obligations, covering the arrangements for sharing revenue (20:80 between GOF and KUAS),
R&D costs and marketing (both 50:50), purchase costs and KUAS’s incidental expenses, as well as non-financial
terms in relation to accounting and audit of R&D costs, signage, exclusivity, warranties/indemnities and IP.
Candidates are given summary financial projections for the two years to 30 June 2023, showing how the revenue
and cost clauses work in practice. These indicate an operating loss of £186k for KUAS on its share of revenue
(£48k) in year 1, followed by a profit of £211k on its revenue share (£672k) in year 2 – ie, a combined operating
profit of £25k, meeting KUAS’s minimum requirement to break even, though it recognised that other measures of
success would be needed. Mistify would then be expected to earn increasing profits in future as it is rolled out
and many of the costs fall significantly. Actual 2022 revenue and costs were exactly as forecast (see Exhibit 4).
As with Nile above, candidates must take the necessary time to work through the calculations provided, referring to the
agreement terms, and to think through the risks, uncertainties and opportunities that such arrangements might present.
Exhibit 10 is an email from Eleanor Farrell attaching the results of a survey (Exhibit 11) on ‘Top Commercial
Security Systems in 2022’ by ‘Be My Guide’, an independent website offering advice to consumers. Overall,
KUAS was 4th out of 50, behind three competitors: Ostrin, LKT and Rangelight. Eleanor re-presents the results
pictorially. She is pleased that the survey reinforces KUAS’s pre-eminence in technology and client service but
concerned about its relative underperformance in reliability and value for money. She notes the success of LKT,
which recently undertook a £150,000 rebranding.
This pair of exhibits enables candidates to view KUAS from a different perspective and to understand the challenges it faces.
Exhibit 12 is headed ‘KUAS: Strategic summary’. Formulated by directors and senior managers in January 2023, it
restates KUAS’s focus on the economic environment; continued specialisation in its three main system types; and
forming alliances. KUAS is also considering doing maintenance of systems that it did not install. It faces risks in six
areas, to be reviewed regularly. They include loss of clients through per service; loss of market position from failure
to invest in technology; reputational damage through poor product quality. Mitigations are in place for all of these.
Exhibit 12 provides the context within which candidates should evaluate any strategic initiatives presented to them in the exam.
Exhibit 13 is a report by a certification body, SSAA, on its 2-day audit visit to KUAS in April 2023. KUAS continues
to demonstrate high standards, eg, in its installations and maintenance visits, but there are some ‘matters requiring
attention’, in respect of CCTV signage; personnel handling hazardous equipment not wearing appropriate protective
clothing; ARC staff leaving screens unattended.
These findings provide overall assurance about KUAS’s work while at the same time identifying some potential risks.
Exhibits 14a-e are a collection of five media articles:
a. An analysis of the potential positive impact of artificial intelligence on the future of security systems, for example
in reducing false alarms. However, its use in the security industry comes with ethical challenges.
b. A recent ruling by the Advertising Standards Authority (ASA) upholding a complaint of misleading advertising
against Ostrin – a rival to KUAS (see above).
c. A review of a television documentary ‘Secret Executive’, in which Orli Spitz goes undercover within KUAS. She
identifies a number of issues, eg, being able to walk onto a construction site without electronic entry and having
to ask for a hard hat. She finds that most staff are happy at KUAS and with the pay and promotion prospects
but they don’t like the uniform; the new alarm systems from one supplier are hard to fit; the vans provided to
engineers often suffer mechanical faults (with high repair costs) and break-ins; and the level of sickness is high.
(These issues echo various topics raised earlier.)
d. News of a theft of tools from a London construction site, with the claim that it might have been masterminded by
a former convicted thief working for LKT, which installed the site’s security systems. (LKT is another KUAS rival
and one of KUAS’s own directors is a former convicted burglar.)
e. A piece by a blogger who had seen an old security camera being thrown into a skip, with footage from which
appeared to show a well-known athlete buying illicit drugs, and who is contemplating his next course of action.
(Exhibit 6 discusses the disposal of old equipment.)
Collectively, these articles highlight matters clearly of relevance to KUAS, offering another angle on some issues mentioned
elsewhere and new insights into others. There will always be some marks available in the exam for appropriate reference to
media coverage, and this should therefore be treated as a serious part of preparation and not simply light reading to gloss over
once the more technical detail of the rest of the AI has been mastered.
Overall, the AI will have provided candidates with the opportunity to develop a comprehensive understanding of
the company and its industry with focused preparation and without the need for any significant further research.

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Information provided in the Case Study Exam (CSE)
The Exam contained eight exhibits comprising new information:
15 Email dated 19 July 2023 from Andrea Wallace to you: KUAS: Draft management accounts and business issues
16 Note dated 19 July 2023 from Chang Yi: Additional information on the management accounts
17 KUAS: Draft management accounts for the year ended 30 June 2023
18a Email dated 18 July 2023 from Eleanor O’Farrell to Andrea Wallace: New contract
18b Recent media coverage
18c Extracts from FG’s published financial statements
19a Email dated 18 July 2023 from Derek Gardner to Andrea Wallace: Proposed alliance with SuperTel
19b Recent media coverage
Exam requirements
Please draft for my review a report addressed to the KUAS board. The report should comprise the following.
1. An analysis and explanation of KUAS’s financial and operating performance for the year ended 30 June 2023
in comparison with the year ended 30 June 2022. You should cover:
• revenue for each activity and in total

• cost of sales for each activity, each cost area and in total
• gross profit for each activity and in total
• administrative expenses by category and in total
• total operating profit.
Use the draft management accounts set out in Exhibit 17, incorporating as appropriate the business metrics
and business issues in Exhibit 16.
2. An evaluation of the request from Tully for KUAS to provide security systems and services to its new
subsidiary, FG, under a three-year contract (Exhibit 18a).
• For each of Alternative A and Alternative B:

o Calculate the total fee, covering all relevant services provided under the contract.
o Evaluate the financial estimates and assumptions.
• Explain and evaluate the commercial, ethical and business trust issues relating to the contract, including
any arising from Exhibits 18b and 18c.
• Recommend, with reasons, which of the two alternatives KUAS should propose.
3. An evaluation of the proposal to form a strategic alliance with SuperTel (ST) (Exhibit 19a).
• Prepare calculations to show whether KUAS’s proposed strategic alliance with ST achieves breakeven
operating profit for KUAS over the 2½ years to 30 June 2026. Use the estimates and assumptions in
Exhibit 19a.
• Explain and evaluate the financial, operational and strategic issues, including any arising from Exhibit 19b,
that KUAS should take into account when deciding whether to proceed with the proposal. Incorporate any
ethical and business trust aspects, for both KUAS and its clients.
• Advise KUAS, with reasons, whether it should proceed with this proposal.
Candidates were also told to include an executive summary and to balance their report across the three main
requirements, with other familiar guidance on time allocation; inclusion of ethical issues; and the need to cover at
each requirement all four skills areas: Assimilating and Using Information (A&UI), Structuring Problems and
Solutions (SP&S), Applying Judgement (AJ) and Conclusions and Recommendations (C&R).
They should have spent time studying Exhibit 15 carefully so as to understand the key elements of each requirement;
digest the other new exhibits; and identify the related AI exhibits to integrate into their answers.
For Requirement 1, they should then have begun a more detailed review, enabling them to assess KUAS’s 2023
results in light of both their analysis of 2022 carried out in preparation for the exam and the new information
(Exhibit 16). For Requirement 2, it was essential to read Exhibits 18a-c carefully to plan the numerical analysis
and the issues to be included in the evaluation requested. Finally, for Requirement 3, candidates had to read and
assimilate Exhibit 19a, plan their calculations and their evaluation, and link the information in Exhibit 19b to
relevant material within the case – notably Exhibits 8, 9, 12 and 14a.

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Analysis of Case Study Exam information
From an initial reading of the new exhibits, candidates should have established that:
• The analysis required was to cover both the whole statement of profit and loss down to operating profit, with
relevant segmental analysis, integrating as appropriate the updated business metrics and issues.
• KUAS has seen strong growth in revenue, gross profit and operating profit.
• The FG proposal gives KUAS an opportunity to expand its relationship with an existing client (Tully), but there
are some questionable and unusual features that may cause KUAS concern.
• The ST proposal would allow KUAS an entry into the exciting and fast-paced artificial intelligence arena.
However, it will need to weigh up the potential financial gains with the inherent uncertainties of such a move.
A more detailed review of the CSE should then have elicited the key facts to be addressed in the exam.
Comparison of the 2023 accounts and additional information against the 2022 accounts and business review
(Exhibits 4/5) and associated exhibits would reveal that:
• Revenue is up by £5,358k (23.2%), well above industry norms (3%), after a protracted period of instability,
and despite a weak economy – the result of both higher volumes and higher average revenue per site.
• Installations and upgrades (I&U) revenue was particularly boosted by upgrades, up £1,167k (44.3%) from
£2,634k to £3,801k, with a 34.5% increase in the number of upgrades.
• Installation revenue was up £3,178k (20.5%) to £18,665k, with the number of installations up by 9.4% to 815.
Average revenue per installation was up 10.2%, to £22.9k. Construction sites were a significant contributor,
with revenue up 62.2% and the number of sites by 47.2%.
• This growth is despite a decline in KUAS’s tender success rate, indicating that more business is being won
through referrals and recommendations, in turn a reflection of the company’s standing in the market.
• Monitoring and maintenance (M&M) revenue rose by £1,013k (20.3%) from £5,000k to £6,013k. Contracts for
monitoring and/or maintenance were signed for 762 new sites in the year, offset by 154 terminations.
• More installers and engineers have been recruited to support the ongoing increase in business. The two new
sales staff from Rangelight seem to have had a big impact. Staff retention is a key strategic goal: the schemes
introduced in 2022 have seen higher salary costs but also a rise in staff sickness levels, which is worrying.
• The overall GP margin has been maintained at around 33%, but this reflects an increase for I&U offset by a
fall for M&M, which is partly the result of higher levels of false alarms and associated maintenance visits.
• OP has increased through the increase in activity and changes in costs. However, the latter include a
reduction in R&D spend, which may not be good for the long-term future of the business.
Candidates will have expected to analyse the 2023 management accounts and to make use of information in Exhibit 16. The
business metrics are tabulated in a form that should be familiar from the AI (the section on tenders has been simplified, which
should have been good news). Similarly, the business issues all touch on areas that should be recognisable and the results from
GOF/Mistify should also have rung a bell and suggested the need for a comparison with Exhibit 9.
For Requirement 2, Eleanor O’Farrell, the Sales Director, explains in Exhibit 18a that KUAS has been asked by its
existing leisure client Tully to provide a full set of security systems and services to its new subsidiary, FG, which
operates 20 venues (multi-purpose complexes, comprising bowling alleys, cinemas and restaurants) across
England. The existing systems and provider have not proved suitable. The contract will begin on 1 October 2023,
when KUAS will start installation, and continue for an initial period of 3 years to 30 September 2026. Information is
presented under two alternatives (A and B), and the contract price for each must be determined. There are a
number of uncertainties. Most notably, Alternative B does not include monitoring and there is no fixed maintenance
clause: FG will pay for any maintenance call-outs as and when needed. The figures for maintenance must be
worked out by reference to a table of call-out probabilities. There is also concern that the FG’s financial position is
unhealthy and that its founding directors, who have presided over its poor performance and the apparent low
standard of work by the previous security provider, are to be involved in the decision-making process.
Exhibit 7 gave candidates a clear illustration of the type of analysis that might be expected in evaluating such an approach.
Although the Tully/FG project is not a tender, the contract follows a similar structure, and the equivalent figures in Exhibit 7
should have served as reference-point for the discussion of estimates and assumptions, including points of difference. Exhibit
7 also included an example of the sort of probability work required where there is a variable in the calculation, and candidates
should have been able to adapt this to the FG scenario. In general, it should have been apparent that a logical approach was
needed for the calculation; and that there were a number of uncertainties to evaluate. The decision involved weighing up the
quantitative outcome with a range of qualitative criteria, especially given that monetary difference between the outcomes
under the two alternatives was small.
For Requirement 3, candidates are provided with an email (Exhibit 19a) from Derek Gardner, the KUAS Technical

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Director, about a proposed alliance with SuperTel (ST), a company developing artificial intelligence (AI) and data
analytics products for the security market. The alliance will take effect from 1 January 2024, initially for 2½ years
until 30 June 2026, and will cover 3 products, which are currently in varying stages of development. As well as their
potential commercial benefits, each product has a functionality with possibly questionable ethical implications.
Exhibit 19a provides candidates with the information needed to calculate the operating profit under the proposed
alliance with ST and hence whether it meets the criterion to break even (by reference to KUAS’s share of revenue
and costs) over 2½ years. There is also a press release from ST (Exhibit 19b), which implies that it might be
focusing on another product and therefore not giving appropriate attention to the planned alliance with KUAS.
With proper preparatory work on the AI, candidates should have recognised that the calculation of operating profit should
follow the illustration provided in Exhibit 9 relating to KUAS’s existing alliance with GOF. The calculation was relatively
straightforward but it required candidates to read the exhibit carefully. They should also have realised that the other elements
of Exhibit 9, especially the draft terms with GOF, should serve as an important benchmark against which to assess the ST
proposal. Some of the terms are the same, but others differ subtly or are missing altogether. Those who had done a review of
the GOF results in Requirement 1 would have found that this provided a useful context against which to evaluate the ST
agreement. Much of Exhibit 19a is couched in terms that should lead candidates to apply their professional scepticism.
The CSE develops a number of features of KUAS’s business from the AI, each needing a different technique for
advising the board. Exhibit 15 sets out the route to be followed in writing the report:
• Requirement 1 entails a clear focus on financial statement analysis across the management accounts.
• Requirement 2 involves financial data analysis, along with professional scepticism and commercial awareness.
• Requirement 3 comprises strategic, operational, financial and ethical analysis. To do justice to this, familiarity
with KUAS’s strategy and the wider scenario is needed.
With proper time allocation, careful planning and a logical approach, candidates should have been able to
complete all the requirements within the four hours.
Summary of marks available
Marks were awarded under four headings: the three main requirements plus Executive summary including Overall
Assessment Criteria (OAC). For each of the three main requirements, under each of the four professional skills,
there were two or three mark-scoring areas representing specific topics in which the skill was to be demonstrated.
Each area had between three and six bullet-points, each worth half a mark, to a total of 100. The number of marks
per topic and skill (below) reflects an even balance between the three main requirements, as indicated in the CSE
rubric.
AUI SPS AJ CR Total
Review of KUAS’s financial and operating performance 6.5 9.0 8.5 5.0 29.0
Evaluation of request from Tully 7.5 7.5 9.0 5.0 29.0
Evaluation of proposed strategic alliance with ST 6.5 8.5 9.0 5.0 29.0
20.5 25.0 26.5 15.0 87.0
Executive summary (including OAC) 13.0
Total 100.0

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PART 3: COMMENTARY ON CANDIDATES’ PERFORMANCE

Overview of professional skills
The level of professional skills showed the familiar decline as candidates progressed through each requirement in
turn. They also revealed the typical pattern of higher marks being earned on the ‘left-hand side’ of the marking key
(AUI and SPS) than on the ‘right-hand side’ (AJ and CR), for all requirements.
Assimilating and Using Information (AUI)
For each requirement, there were three boxes for AUI, the first two for use of number-work, the third for referring
to business issues and wider context. A&UI was the strongest skill in this exam: candidates achieved around two-
thirds of the marks on average. They largely produced detailed, comprehensive appendices. As in recent exams,
they made efficient use of the spreadsheet functionality of the exam software and had rehearsed the type of
calculation required. Nonetheless, at Requirements 2 and 3, it was sometimes hard to follow the presentation.
For Requirement 1, candidates carried out the analysis required. Most evidenced their skills in presenting clear
appendices that covered the core items – revenue (both overall and by activity), gross profit, administrative
expenses and operating profit. The majority included some analysis of business metrics. Most also carried out an
analysis of the GOF/Mistify results for 2023 or of staff costs, but only a minority did both of these – and often, as
explained below, they then made little if any use of this additional work in their narrative. Candidates scored well
on assimilating facts from the AI into their analysis by making good links to the context, eg, industry growth rate,
legacy impact of COVID-19. Well-prepared candidates were able to incorporate these aspects into their scripts.
Below is an extract from a script that really got to grips with the scenario and wove together several strands:
For Requirement 2, practically all candidates provided calculations for both alternatives (A) and (B). Many went
on to include sensitivity analysis, adjusting a variable such as the number of call-outs under Alternative (B) or
days per installation. However, calculations were sometimes poorly laid out, and without labelling it was not
easy to tell what the candidate was attempting to do. Many followed the Nile example from Exhibit 7 and were
able to compute the right fee for both alternatives. Some applied the 10% discount to the wrong alternative, or
not at all, or used the wrong mark-up. Fewer scored well on contextualisation than for Requirement 1: most
candidates made some of the points shown on the marking key but very few identified more than half of them.
At Requirement 3, most candidates produced the expected calculation, working out KUAS’s share of operating
profit under the ST alliance. This indicated again the benefits of thorough familiarisation with the AI, as Exhibit 9
provided a relevant illustration of the necessary number-work. A gratifying number of candidates also worked out
the margin that KUAS would earn. Around half of the cohort correctly computed the revenue: where they did not
do so, it was generally by failing to reflect KUAS’s 75% share or through some careless slip.
Coverage of business issues and wider context was the worst of all three requirements. Many candidates referred
to KUAS’s quest to embrace artificial intelligence, but relatively few mentioned its healthy cash position (needed to
fund the likely high upfront expenditure) or the potential impact of inflation.

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Structuring Problems and Solutions (SP&S)
Candidates displayed very good SP&S skills in Requirements 1 and 2. They were much weaker in Requirement 3.
In Requirement 1, they tended to look at revenue by activity but did not then bring in the detail from Exhibit 16
about the changes in KUAS’s tender success rate or look at the below-forecast revenue from the GOF alliance.
The discussion of COS and GP was, a little unusually, much better done, with most candidates identifying the key
movements, both overall and by cost category. On administrative expenses and OP, the most common omission
was in relation to sales staff (another missed opportunity to make full use of business issues given in the exam).
At Requirement 2, candidates scored reasonably well in calculating the direct labour costs, but unfortunately a
sizable minority then went on to make errors, such as using the wrong number of days or installers. Calculations for
monitoring and maintenance were much better. It was particularly gratifying to see candidates using their practice
with Exhibit 7 to determine the correct expected value of 1.8 for call-outs under Alternative (B). The main failing
here was to work out the maintenance for just one year. The third mark-scoring area was for setting out the
commercial, ethical and business trust issues; on average, candidates obtained only half of the marks for these.
Typically, they did not mention the contractual points (responsibility for faults/delays; removal of old equipment) or
articulate the vested interests of the two FG directors.
Many candidates struggled with the SP&S aspects of Requirement 3. Having dealt well with the revenue parts of
the OP calculation, they tripped up when working out the costs. Most correctly computed the R&D and marketing
but for purchases, a number applied the 30% to the wrong revenue figure. The most frequent error was in relation
to incidental expenses by not working out the applicable months for each product. The second and third mark-
scoring areas (operational and strategic issues; comments on ethical and business trust issues) were done very
poorly. The operational and strategic issues required candidates to think more broadly, for example to consider
the manufacturing aspects of the proposed new products (the exam material is deliberately silent on this); while
perhaps only those who had focused on the unbudgeted direct labour costs for GOF/Mistify in Requirement 1
were in a position to question the absence of labour costs from the ST terms. They recognised the overarching
ethical and business trust issues but mostly did not appreciate the potential for the ST products tabulated in
Exhibit 19a to be used for unsuitable and dangerous purposes (the OECD Principles in Exhibit 14a).
Applying Judgement (AJ)
AJ proved once again to be a critical differentiator among marginal candidates and was the lowest-scoring skill overall,
with a little under 50% of the total marks available being awarded.
At Requirement 1, candidates appositely placed KUAS’s performance in the context of the fluctuating prior years.
They were able to extend their segmental analysis of revenue into a discussion of the reasons for movements in key
items, making appropriate use of the business metrics/issues in Exhibit 16. In general, however, they did not
adequately explain the movement in upgrades or get to the bottom of the trend in tenders by using the abridged
information provided in the exam. In line with SP&S, their work in respect of COS and GP was better than for
revenue, even though it involved some deeper analysis, for example in rationalising the margin movements for
installations and upgrades. They struggled on administrative expenses and OP, notably in failing to recognise
that the fall in R&D expenditure, whilst appearing to assist the bottom line, was in fact a concern in view of the
strategic imperatives facing KUAS. Likewise, only a minority made full use of the GOF/Mistify information and
hence did not identify the failure to achieve breakeven.
For Requirement 2, candidates did reasonably well at evaluating their total fee calculations. They assessed the
size of the FG contract against existing benchmarks; looked at variations with the previous Nile contract; and
recognised that their figures could change significantly if, for example, the security installation work was done with
no overtime. However, few appreciated the unusual nature of FG’s demand for the contract to exclude monitoring
under Alternative (B). In evaluating the estimates and assumptions, they were good at measuring the annual
salary for those working on the FG contracts against KUAS’s norms, commenting on the need to build in inflation
and discussing probabilities. However, very few made the point (which they could have brought forward from the
AI) that the number of call-outs could change as the contract continues; or calculated (and thus did not query) the
number of person days implicit in the maintenance costs. In the third AJ area for Requirement 2 – evaluating and
making recommendations on commercial, ethical and business trust issues – despite a wide range of options for
each point on the key, candidates were often lacking in their higher skills. They did best in advising KUAS to
investigate the media article about Tully’s alleged prying and in gauging the cashflow impact of the transaction.
Only a small minority questioned the merits of offering a discount to Tully, in an environment in which most clients
renew their maintenance automatically and inflation is running high.
For Requirement 3, the AJ marks were notably below 50% overall. This is a common experience: candidates who
have not allowed themselves sufficient time for Requirement 3 certainly don’t have time to apply their higher skills
to the scenario. In addressing the financial issues, the main shortcoming was in not comparing the ST figures and

32
draft terms with those for GOF/Mistify. Their numerical work showed that they must have familiarised themselves
with Exhibit 9 but they found it hard then to adapt their thinking to the different circumstances of the ST
agreement. Those who did not fully examine the GOF/Mistify results at Requirement 1 also put themselves at a
disadvantage. Candidates generally didn’t delve into the operational and strategic impact: this required them to
stand back and reflect on the scenario, and under time pressure that is difficult to do. For example, they glossed
over the presumption that there would be no additional monitoring and maintenance cost, and didn’t think through
the consequences of delayed product launches. With ethical and business trust issues, it was inevitable that with
the low marks for the equivalent SPS section, they would also do poorly here. They identified the risks to KUAS’s
reputation and the need to audit R&D but they struggled to grasp the ethical risks underpinning the ST products.
Reproduced in full below is one of the best sections among the cohort:
Conclusions and Recommendations (C&R)
As is almost always the case, candidates scored higher for all three requirements on Conclusions than on
Recommendations. The disparity on this occasion was particularly pronounced.
For Requirement 1, candidates concluded on the key areas. If one was omitted, it was typically revenue by
activity. Most advised KUAS to investigate the contract terminations and staff sickness issues, but otherwise
recommendations were sparse.
On Requirement 2, candidates failed to identify the inherent risk of a 3-year contract or to conclude with a non-
financial reason (as the difference in fee calculations was not significant). Recommendations tended to be
limited to negotiating terms and conditions and/or seeking back-up for estimates.
At Requirement 3, performance on C&R was similar to Requirement 1, with a large drop in the number of marks
obtained between conclusions and recommendations. Most candidates again addressed the key points but did not
adequately conclude on the operational/strategic impact of the ST proposal. Only the better candidates were able
to construct a well-developed and relevant recommendations section.
Executive summary (including OAC)
Executive summary marks were highest for Requirement 1, lowest for Requirement 2, with Requirement 3 marks
lying between the two. In all cases, candidates scored better in the top section of the key than the bottom. The key
offered flexibility, for example in allowing any sensible qualitative comment on all the main accounts captions for
Requirement 1 and any terms and conditions for negotiation at both Requirements 2 and 3.
For Requirement 1, most candidates scored all the available points in the top section. The chief omission was in
not commenting on KUAS’s declining tender success rate. In the bottom section, candidates did not offer any
advice in relation to GOF/Mistify.
For Requirement 2, only the stronger candidates commented on the risk of a 3-year contract or the cost uncertainties.
A minority advised KUAS to visit the individual sites to assess their security needs. In line with the outcome from the

32
main body of the report, many failed to conclude with a non-financial reason and/or to advise KUAS to learn lessons
from the first five sites before proceeding with the rest of the installation work.
For Requirement 3, around half of candidates scored most or all of the marks in the top section. The point most
often missed was ‘concludes on operational/strategic impact’. In the lower section, the main failing was in not
giving a reason to support the conclusion.
Only a minority of candidates achieved the ‘Appropriate summary of report section’ bullet at each requirement.
‘Summary’ was frequently a misnomer, being almost a long as the report section from which it was derived.
Candidates scored adequately for OAC. Only around half achieved both points available, ie, both the structure and
language of their report met the required standard. The most common failing was in not providing enough headings,
including titles for appendices. It should be noted that there is no longer a bullet-point for spelling/grammar.
Overview of performance by requirement
Each requirement had equal credit available: 29 marks (or 58 half-marks). As the above analysis by professional skill
indicates, candidates once again obtained the highest marks for Requirement 1, dropping progressively through
Requirements 2 and 3. As Requirement 1 has a broadly similar format at each sitting, there is some evidence that
candidates are advised to spend more time on it, so it is perhaps inevitable that this is where they do best. However,
it was gratifying that there were fewer poor (or entirely absent) Requirement 3 answers on this occasion.
Requirement 1: Analysis of KUAS’s financial and operating performance
Most candidates performed good analysis of the main numbers with clear and comprehensive appendices. They
worked methodically through the accounts, presenting comparative figures and movements for all the key figures.
They displayed mastery of the software, and had clearly practised their technique in advance. By doing all of
these things, they were able to produce detailed calculations at speed, resulting in more time to write their
commentaries. Better candidates differentiated themselves by delving more deeply into the numbers, which
earned them more marks not just for the analysis but for then going on to evaluate it.
Candidates should have anticipated and thus recognised the information (business issues/metrics) in Exhibit 16
that they needed to link to the management accounts in order to carry out the type of analysis demonstrated in
Exhibit 4 of the AI. For example, instead of just looking at the overall movement in direct labour costs, they could
link it to the changes in headcount and thus make more meaningful comments that added value to the reader.
Better candidates were also able to integrate the non-financial information on false alarms into their discussion of
gross margins for M&M work.
A pleasing majority of candidates carried out good work on administrative expenses and operating profit, for
example by connecting the changes in pay to KUAS’s prior-year HR initiatives. The items most usually missed in
the evaluation of these points were commenting on the impact of the new sales staff on revenue; rationalising the
fall in R&D expenditure; and GOF/Mistify. A script that did all of these was the following:
A notable part of Exhibit 16 was the summary of the results for GOF/Mistify in 2023. It was intended that candidates
would compare these against the forecast in Exhibit 9, spotting that the breakeven target had not been met. They
should have identified and then commented on the significant variances (shortfall on revenue and the inclusion of
direct labour costs when none had been anticipated) and their impact on KUAS’s overall performance. In practice,
only a small number did this and very few did it well.

32
Detailed information on KUAS’s tendering performance had been given in the AI. In the interests of reducing the
amount of data in the exam, abbreviated figures for 2023 were provided, the intention being for candidates to offer
some high-level analysis without having to crunch a lot more numbers. In the event, only a few were really troubled
by the declining success rates and in particular the losses to KUAS’s high-profile rival Ostrin.
Requirement 2: Evaluation of request from Tully
Given the detail in the AI (Exhibit 7) setting out the calculation for a new business proposal (Nile), Requirement 2
should not have come as a surprise. Candidates should have been generally well prepared for the issues presented,
and it was apparent that a large majority had familiarised themselves well with the illustrative example for Nile.
It was therefore pleasing that most did calculate correctly the total fee payable under each of the two alternatives.
However, they then had difficulty translating this into a cogent evaluation, so their marks tailed off as they moved
across the key.
Good candidates set out their calculations neatly, explaining with workings how they derived the more involved
figures. Their scripts were a pleasure to mark as it was immediately apparent what they were doing. Presenting
tidy workings indicates a methodical approach, improving a candidate’s chances of getting the right answer – and
securing the ‘easy’ mark for ‘numbers clearly derived’. Unfortunately, as always, weaker submissions contained a
number of errors. These included: failing to calculate maintenance for three years; using their own formula for
determining the direct labour cost (this might have been avoided by following the Nile illustration more closely);
misreading the number of venues and/or installers. By and large, candidates understood how to apply the
probabilities for call-outs under Alternative (B). Those who rounded up 1.8 to 2.0 still earned the marks, as long
as they explained what they were doing, ie, assuming that it had to be a whole number – though as it becomes a
whole number when multiplied over 20 venues, it is a moot point whether rounding is mathematically necessary.
Despite using Nile as their template, candidates often didn’t take the opportunity to benchmark the FG figures
against those for Nile – or to identify areas where they were not comparable. Better ones compared the mark-ups
– sometimes linking them to the actual margins earned by KUAS in 2023 – or discussed the reasonableness of
the £30,000 average salary in the context of KUAS’s actual payroll costs in 2023.
Many candidates also failed to question the meaningfulness of average figures, given that they had been told that
the features of each location were different, and that each consisted of three separate types of building, which
would present their own security challenges. They could have brought in useful points from the AI, such as the
phenomenon of call-outs increasing/decreasing as equipment is in place for longer (Exhibit 6), or their foregoing
work on Requirement 1, such as the rising sickness rate and its potential impact on the need for subcontractors.
A more obvious point, missed by many, was that pricing a three-year contract now would be a big risk at a time
when inflation was running high, compounding the potential margin erosion for KUAS in offering FG a discount.
Very few candidates indeed did a sense-check on the direct labour costs to see how many days of work they
represented (see working in Appendix 2).
If they had got their calculations correct, or nearly correct, candidates would have seen that there was little to
choose financially between the two alternatives and so their decision had to take account of other factors, which
were mainly included under ‘Commercial, ethical and business trust issues’. Candidates barely averaged 50% of
the marks available here for either SP&S or AJ. They mostly failed to acknowledge the differences between the
proposed project and the ones that it normally undertakes. Thus, while the idea of a discount had been mooted in
Exhibit 12, there must be serious questions over the validity of doing it without any cost increases at a time when
most maintenance contracts are renewed and when inflation is high – and for an existent client rather than one
that KUAS is trying to win for the first time. This candidate showed a strong appreciation of some key issues:
Without a holistic evaluation of the proposal, candidates struggled to offer commercial recommendations. An
example of a suitably focused and succinct list is shown below for one of the highest-placed candidates.

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Requirement 3: Evaluation of proposal strategic alliance with FT
Requirement 3 was again the worst of the requirements for weaker candidates, who by that stage had run out of
time or such inspiration as they had to begin with.
On the whole, the number-work was well done. As with Requirement 2, candidates had a blueprint from which to
work in the AI (GOF/Mistify – Exhibit 9) and if they followed the principles of this, they would have done well.
However, there were a number of variations between ST and GOF/Mistify, and so if they blindly copied the figures
from Exhibit 9 too, they would have scored lower marks. It was important to take a few minutes to read carefully
the terms of the arrangement with ST, and so those candidates who had left themselves less than the requisite
time to spend on Requirement 3 were inevitably not well-placed to do this. Mistakes were common, whether simply
failing to insert the right formula on the spreadsheet, using the wrong percentage share of revenue and/or costs or
not getting the incidental expenses right through miscalculating the number of months for which they would apply
to each product. The rush evident in many scripts translated into not getting the mark for ‘numbers clearly derived’.
Consideration of the financial, operational and strategic issues was patchy at best, almost non-existent at worst.
The task for candidates was to step back from their workings and consider the ST opportunity in the round. At a
financial level, it did not offer a huge return in the opening period but the future could potentially be very lucrative.
Candidates should have applied their professional scepticism to the whole venture and asked themselves such
questions as: What exactly do these products do? Are they really innovative? What are their USPs? Have clients
said that they want them – and that they will pay the stated prices for them? Will the products be ready on time, at
the estimated costs? What are others in the market doing (if they have similar products close to launch, will KUAS
lose out on any first mover advantage)? Does ST care seriously about making the products work? Should KUAS
wait to see what happens with STManager before taking on the risks of working with ST? Who is actually going to
make the products, could they make them fast enough if demand became high and will the necessary quality
assurance protocols be in place?
Candidates who took everything at face value and failed to ask themselves questions of this nature failed, in so
doing, to exercise their higher skills and thus capped the marks that they could achieve. The first sample answer
offers an excellent illustration of someone who was really on top of the scenario, while the script extract below
displays an equally strong grasp of the pros and cons involved:
The final part of the evaluation related to ethical and business trust issues. The ethics of artificial intelligence (AI)
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had been trailed in Exhibit 14a and so should have got candidates thinking during their preparation for the exam.
Moreover, scarcely a day has passed in recent months without media coverage of the increasing prominence of
AI, so it was surprising to see so few candidates referring to it in scripts.
As with Requirement 2, a poor performance in evaluating the issues correlated with a low recommendations mark –
a disappointment as the points in the marking key were generally straightforward. With better time allocation,
candidates could have scored well. One of the best responses here was the following very comprehensive list:

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PART 4: APPENDICES
Appendix 1: Financial statement analysis: Revenue, costs, profits and business metrics
Summary
2023 2022 Change Change
£000 £000 £000 %
Revenue 28,479 23,121 5,358 23.2%
Cost of sales (19,023) (15,430) (3,593) (23.3%)
Gross profit 9,456 7,691 1,765 22.9%
Administrative expenses (7,167) (6,001) (1,166) (19.4%)
Operating profit 2,289 1,690 599 35.4%
Revenue
Mix Mix
By activity
2022 2021
Installations and upgrades (I&U) 22,466 18,121 4,345 24.0% 78.9% 78.4%
Monitoring and maintenance (M&M) 6,013 5,000 1,013 20.3% 21.1% 21.6%
28,479 23,121 5,358 23.2% 100.0% 100.0%
Installations (construction)
Revenue 3,154 1,944 1,210 62.2%
No. [share of installations (all) = 6.5%/4.8%] 53 36 17 47.2%
Average 59.5 54.0 5.5 10.2%
Installations (other)
Revenue 15,511 13,543 1,968 14.5%
No. 762 709 53 7.5%
Average 20.4 19.1 1.3 6.8%
Installations (all)
Revenue 18,665 15,487 3,178 20.5%
No. 815 745 70 9.4%
Average 22.9 20.8 2.1 10.2%
Upgrades
Revenue 3,801 2,634 1,167 44.3%
No. 398 296 102 34.5%
Average 9.6 8.9 0.7 7.9%
Monitoring and maintenance (M&M)
New installations – monitoring and maintenance 726 663
New installations – maintenance only 36 46
M&M agreements terminated in year (sites) (154) (113)
Net change 608 596
Increase in M&M revenue (£000) 1,013 837
Average M&M revenue per new site £1,666 £1,404 £262 18.7%
Tenders: % success rates
By volume 33.0% 38.9%
By value 31.7% 34.5%
GOF/Mistify
Actual Forecast Variance
£000 £000 £000
Revenue
Ringstar 192 192
Other clients 160 480 (320)
352 672 (320)
Cost of sales
Direct labour costs (30) - (30)
Purchase costs (176) (336) 160
Gross profit 146 336 (190)
Share of R&D costs (35) (35)
Share of marketing costs (30) (30)
Incidental KUAS expenses (60) (60)
Operating profit 21 211 (190)
Operating loss – initial period (186) (186) -
Operating profit/(loss) – cumulative (165) 25 (190)

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Cost of sales
2023 2022 2023 2022 Change Change
£000 £000 % % £000 %
By cost area
Purchases of goods for installation 8,158 6,732 42.9% 43.6% 1,426 21.2%
Direct labour (see below) 9,251 7,376 48.6% 47.8% 1,875 25.4%
Subcontracted labour 1,614 1,322 8.5% 8.6% 292 22.1%
19,023 15,430 100.0% 100.0% 3,593 23.3%
By activity
I&U 16,199 13,261 85.2% 85.9% 2,938 22.2%
M&M 2,824 2,169 14.8% 14.1% 655 30.2%
19,023 15,430 100.0% 100.0% 3,593 23.3%
Direct labour (£000) 9,251 7,376 1,875 25.4%

Installers and engineers 292 259 33 12.7%
Average payroll cost per employee (£000) 31.7 28.5 3.2 11.2%
Gross profit
Mix Mix Margin Margin
2023 2022 2023 2022
£000 £000 % % % %
By activity
I&U 6,267 4,860 66.3% 63.2% 27.9% 26.8%
M&M 3,189 2,831 33.7% 36.8% 53.0% 56.6%
9,456 7,691 100.0% 100.0% 33.2% 33.3%
Admin expenses by category and in total
£000 £000 £000 %
Head office staff 4,773 3,975 798 20.1%
IT and premises, depreciation and other 1,283 955 328 34.3%
Marketing and advertising 944 606 338 55.8%
R&D 167 465 (298) (64.1%)
7,167 6,001 1,166 19.4%
% of revenue 25.2% 26.0%

£000 £000 £000 %
Staff costs
Directors’ salary costs (5 directors) 575 540 35 6.5%
Average 115 108 7 6.5%
Head office staff costs 4,773 3,975 798 20.1%
Less: Directors’ costs (575) (540)
Other head office staff costs 4,198 3,435
Other head office staff (112 – 5 / 98 – 5) 107 93
Average payroll cost of other staff 39.2 36.9 2.3 6.2%
Sales staff costs (14 / 12 staff) 665 526 139 26.4%

Less: Commissions 133 79 54 68.4%
Basic salaries 532 447 85 19.0%
Average total salary 47.5 43.8
Average commission 9.5 6.6
Average basic salary 38.0 37.2
Other costs
Impairment allowances: trade receivables 109 67 42 62.7%
Vehicle repair costs 45 36 9 25.0%
Operating profit
Operating profit 2,289 1,690
Operating profit margin 8.0% 7.3%
Other data
Average response time to alarm calls (min) 124 113
% of false alarms from client sites in year 8.1% 7.2%
Staff sickness 3.5% 2.7%

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Appendix 2: Financial data analysis: Calculation of total fee
Alternative
Alternative (A)
(B)
£ £
Installation
Cost of equipment 7,200 7,200
Direct labour costs (Working 1) 9,375 9,375
Subcontracted labour costs 1,200 1,200
Cost per venue 17,775 17,775
Total for 20 venues 355,500 355,500
Mark-up: 40% 142,200 142,200
Fee (X) 497,700 497,700
Monitoring and maintenance

Purchases (Working 2) 200 180
Direct labour costs – maintenance (Working 2) 1,000 1,440
Direct labour costs – monitoring 1,200 -
Cost per venue for 1 year 2,400 1,620
Total for 20 venues for 1 year 48,000 32,400
Total for 20 venues for 3 years 144,000 97,200
Mark-up: 100% 144,000 97,200
Fee (Y) 288,000 194,400
Total fee (X + Y) 785,700 692,100
Discount (10%) (78,570) -
Adjusted fee 707,130 692,100
Working 1: Direct labour
Number of days per site 5

Number of installers per site 10
Average annual payroll cost 30,000
Total cost = 10 x £30,000 x 5/240 6,250
Overtime premium 3,125
Total costs with overtime 9,375
Working 2: Expected value for Alternative (B)
Expected
Call-outs Probability
value
0 0% 0.0
1 40% 0.4
2 40% 0.8
3 20% 0.6
1.8
Cost of purchases per venue = 1.8 x £100 180

Cost of direct labour per venue = 1.8 x £800 1,440
Working 3: Calculation of person days for M&M costs
Without overtime, 50 person days = £6,250 (as above). Thus M&M direct labour costs per venue correspond to:
£1,000: 1,000/6,250 x 50 = 8.0 person days
£1,200: 1,200/6,250 x 50 = 9.6 person days
£800 (call-out): 800/6,250 x 50 = 6.4 person days

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Appendix 3: Commercial data analysis: Calculation of breakeven
2024 2025 2026 TOTAL
£000 £000 £000 £000
Revenue (price x volume)
Density control cameras (8 x 0 / 30 / 48) - 240.0 384.0 624.0
Parking monitor system (7 x 0 / 10 / 25) - 70.0 175.0 245.0
Alarm system (5 x 0 / 0 / 75) - - 375.0 375.0
Overall revenue - 310.0 934.0 1,244.0
Revenue to KUAS (75%) - 232.5 700.5 933.0
Costs
Purchase costs (= overall revenue x 30%) - (93.0) (280.2) (373.2)
Share of R&D costs: 60% x 250 / 210 / 170 (150.0) (126.0) (102.0) (378.0)
Marketing costs: 60% x 20 / 85 / 125 (12.0) (51.0) (75.0) (138.0)
Incidental KUAS costs (see below) (18.0) (18.0) (6.0) (42.0)
180.0 (288.0) (463.2) (931.2)
Operating profit/(loss) (180.0) (55.5) 237.3 1.8
Working: Incidental costs Months
Density control cameras 6, 0, 0 6.0 - -
Parking monitor system 6, 6, 0 6.0 6.0 -
Alarm system 6, 12, 6 6.0 12.0 6.0
18.0 18.0 6.0
Note: Margins
GP% 2026 = (700.5-280.2)/700.5 = 60.0% / OP% = 237.3/700.5 = 33.9%

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July 2023 - KUAS Ltd
OAC R1 R2 R3 TOTAL
ES 2 8 8 8 26
AUI SPS AJ CR
Req 1 13 18 17 10 58
Req 2 15 15 18 10 58
Req 3 13 17 18 10 58
TOTAL 41 50 53 30
200
Abbreviations
I&U Installations and Upgrades

M&M Monitoring and Maintenance
AI Artificial Intelligence
B/E Breakeven
DCCS Density Control Camera System
ST SuperTel
EXECUTIVE SUMMARY
R1 - Review of KUAS's financial/operational performance
ES.OAC ES.R1.1
(A) Report structure: disclaimer AND from firm AND headings (S) (A) Qualitative comment on revenue with fig
(B) Report language: formal AND tactful AND ethical (FT) (B) Qualitative comment on COS/GP/GP% with fig
(C) Qualitative comment on admin expenses/OP/OP% with fig
(D) Tenders: fall in success rate worrying / review pricing strategy
ES.R1.2
(A) Investigate client M&M contract terminations

/ address RVU concerns
(B) Investigate why GOF/Mistify below forecasts

/ comment on impact of reduced R&D
(C) Address staff sickness / 'Secret Executive' staff issues
(D) Appropriate summary of report section
Column total Column total

R2 - Evaluation of request from Tully R3 - Evaluation of proposed strategic alliance with ST
ES.R2.1 ES.R3.1
(A) Compares total fees under (A) AND (B) with figs (A) Concludes on forecast OP with fig
(B) 3-year contract high-risk eg inflation, cost uncertainty (B) Concludes on operational/strategic impact
(C) Concludes/recommends on commercial/ethical issues (C) Concludes on ethical/business trust issues
(D) KUAS must visit all sites to assess security needs (D) Potential reputational damage eg product failure, legal breach
ES.R2.2 ES.R3.2
(A) Concludes on way forward with non-financial reason (A) Concludes on way forward with reason
(B) Negotiate T&C eg flex for delays, payment terms, faults (B) Market research needed to establish demand
(C) Learn lessons from first 5 FG sites (C) Negotiate T&C eg costs of delays, R&D share
(D) Appropriate summary of report section (D) Appropriate summary of report section

REQUIREMENT 1 - Review of KUAS's financial and operational performance
ASSIMILATING & USING INFORMATION STRUCTURING PROBLEMS & SOLUTIONS
R1.AUI.1 R1.SPS.1
Appendix 1 Revenue by activity (report)
(A) Analysis of business metrics eg site numbers, tenders (A) Mix: constant / I&U 78.9% v 78.4% / M&M 21.1% v 21.6%
(B) Analysis of GOF/Mistify (B) I: up £3,178k / 20.5% >

/ construction £1,210k/62.2% AND other £1,968k/14.5%
(C) Analysis of staff costs eg direct labour, HO staff costs (C) U: up £1,167k / 44.3% >
(D) M&M: 608 net inc in sites >
(E) Tender success rate down: >

by volume 33.0% v 38.9% / value 31.7% v 34.5%
(F) GOF/Mistify: revenue £320k below forecast

/ £160k v £480k for Other clients
R1.AUI.2 R1.SPS.2
AI/CSE information (appendix/report) COS/GP by activity/cost area (report)
(A) Overall revenue: up £5,358k / 23.2% (A) GP%: maintained / 33.2% v 33.3%
(B) I&U revenue: up £4,345k / 24.0% AND (B) GP I&U: up £1,407k / 29.0% / GP% 27.9% v 26.8% >
M&M revenue: up £1,013k / 20.3% / COS I&U: up £2,938k / 22.2%
(C) Overall COS: up £3,593k / 23.3% (C) GP M&M: up £358k / 12.6% / GP% 53.0% v 56.6% >
/ COS M&M: up £655k / 30.2%
(D) Overall GP: up £1,765k / 22.9% (D) Purchases: up £1,426k / 21.2%
(E) Overall admin exps: up £1,166k / 19.4% (E) Direct labour: up £1,875k / 25.4%
(F) Overall OP: up £599k / 35.4% (F) Subcontracted labour: up £292k / 22.1%
R1.AUI.3 R1.SPS.3
Business issues / wider context Admin Expenses and OP (report)
(A) Impact of COVID-19 on the business / fragile economy (A) HO staff: up £798k / 20.1% >
/ rising concerns about crime
(B) Industry averages: growth 3% / false alarms 10% (B) Sales staff: up £85k / 19.0% >
/ KUAS response time 120min target
(C) KUAS: 'Be My Guide' eg 4th from 50, value for money (C) IT/Other: up £328k / 34.3% >
/ good reputation / new tech alliances
(D) Headcount up: direct labour 292 v 259 (D) Mktg: up £338k / 55.8% >
/ HO staff 107 v 93 / 112 v 98 / sales staff 14 v 12
(E) R&D: down £298k / 64.1% >
(F) OP%: 8.0% v 7.3%

APPLYING JUDGEMENT CONCLUSIONS AND RECOMMENDATIONS
R1.AJ.1 R1.CR.1
Evaluation of revenue analysis Draws conclusions (under a heading)
(A) Total revenue: slower growth 23.2% than last year 39.5% (A) Qualitative comment on overall revenue with fig
/ 2022 is not comparable with reason
(B) I: inc due to eg site numbers/ave rev/Bowen with fig (B) Qualitative comment on I&U/M&M revenue with fig
(C) U: inc due to eg site numbers/ave rev with fig (C) Qualitative comment on COS/GP/GP% with fig
/ delay from prior year / more expensive technology
(D) M&M: continuing trend of terminations / due to RVU (D) Qualitative comment on admin expenses/OP/OP% with fig
/ inc due to more installations
(E) Tenders: fall in success rate worrying

/ losses to Ostrin cause for concern
R1.AJ.2 R1.CR.2
Evaluation of COS/GP analysis Makes recommendations
(A) Change in COS compared to change in revenue (A) Investigate M&M client terminations of contracts
(overall or by activity or by cost area) / address RVU concerns
(B) I&U: more high margin (40%) construction sites (B) Review tender pricing strategy
/ Bowen has higher (45%) GP%
(C) M&M: increased call-outs/false alarms/response times (C) Address staff sickness / 'Secret Executive' staff issues
(D) COS incs: RVU costs (£76k) / GOF/Mistify costs (£30k) (D) Investigate why GOF/Mistify below forecast
/ review impact of reduced R&D
(E) COS incs: promotions/pay-rises/sickness (3.5% v 2.7%) (E) Address issues from 'Be My Guide' survey / SSAA audit
(F) COS incs: comment on ave direct labour pay with fig (F) Other commercial recommendations
R1.AJ.3
Evaluation on Admin Exps/OP analysis
(A) HO staff: promotions / pay-rises / ave pay / directors' pay
(B) Sales staff: impact of new staff on revenue

/ commissions inc with fig
(C) IT/Other: trade receivable impairment up
(D) Mktg: inc due to rebranding (£225k)

/ comparison with LKT (£150k) rebranding
(E) R&D: critical for maintaining market position
(F) GOF/Mistify: not at B/E over the two years

REQUIREMENT 2 - Evaluation of request from Tully
ASSIMILATING AND USING INFORMATION STRUCTURING PROBLEMS & SOLUTIONS
R2.AUI.1 R2.SPS.1 (appendix)

Appendix 2 Calculation for Installation - direct labour
(A) Numbers clearly derived (A) 50 person days per venue / 1,000 person days in total
(B) Calculations for alternatives (A) AND (B) (B) Payroll: £30,000/240 working days
(C) Sensitivity analysis (C) Overtime premium: 50%
(D) Total direct labour: (A) £9,375 AND (B) £9,375 per venue
OR (A) £187,500 AND (B) £187,500
R2.AUI.2 R2.SPS.2
Calculation of total fee (appendix) Calculation for M&M (appendix)
(A) Equipment: (A) £7,200 AND (B) £7,200 (A) Expected no of visits: 1.8
OR (A) £144,000 AND (B) £144,000 (1 x 40% + 2 x 40% + 3 x 20%)
(B) Subcontractors: (A) £1,200 AND (B) £1,200 (B) Purchases: (A) £200 AND (B) 1.8 x £100
OR (A) £24,000 AND (B) £24,000
(C) Venues: 20 (C) Direct labour maintenance: (A) £1,000 AND (B) 1.8 x £800
(D) Mark-up: Installation 40% AND M&M 100% (D) Direct labour monitoring: (A) £1,200 AND (B) £0
(E) Discount: (A) 10% AND (B) 0% (E) Figures for 3 years
(F) Total discounted fee: (A) £707,130 AND (B) £692,100
R2.AUI.3 R2.SPS.3
Business issues / wider context Commercial, ethical, business trust issues
(A) Inflation: currently high/8% / future uncertainty (A) First time KUAS has signed a 3-yr contract >
/ first time giving discount
(B) Request came from existing client (B) Work may take more/less time than estimated >
(C) KUAS has previous experience with Nile (C) Contract: must clarify responsibility for faults/delays >
/removal of old equipment
(D) FG venues have had security issues previously (D) FG directors/Alan Frith/Isla George have personal agenda
/ unspecified profit improvement to achieve large bonus
(E) FG a/cs: small profit / increasing O/D / falling revenue (E) Tully/Ultrafit media coverage about abuse of CCTV >
(F) Start date 1 Oct 2023 / tight timescale (F) FG may not be able to pay / no mention of payment terms >
ix) R2.AJ.1 R2.CR.1

Evaluation of total fee calculations Draws conclusions (under a heading)
(A) Gives total fee for (A) AND (B) with figs (A) Compares total fee under (A) AND (B) with figs
(B) Increasingly unusual for KUAS not to do monitoring (B) 3-year contract high-risk eg inflation, cost uncertainty
(C) Calc of relative rev size with fig / not a major contract (C) Concludes on commercial/ethical/business trust issues
/ similar size to Bowen / ave rev per site v existing
(D) Compare figures to Nile / Nile may not be comparable (D) Concludes on way forward with non-financial reason
eg labour cost, contract terms, sizes, mark-up, GP%
(E) Figs are for 'average site' / sites will all vary
eg size, activity, local crime rates, footfall
(F) Any changes in assumptions will impact calc/profit

eg no. of call-outs under (B), daytime installation
R2.AJ.2 R2.CR.2
Evaluation of estimates and assumptions Makes recommendations
(A) Subcontractors: more due to sickness rate increase (A) Get back-up for all estimates
/ fewer due to headcount increases
(B) No accounting for inflation eg purchases, salaries (B) Negotiate T&C eg flex for delays, payment terms, faults
/ due diligence on FG
(C) Calculates days for maintenance call-out labour (C) KUAS must visit all sites to assess security needs
eg (A)=8 days / (B)=6.4 days / prepare individual costings
(D) Compares (£30k) annual salary to (£31.5k) actual payroll (D) Learn lessons from first 5 FG sites
(E) Call-out costs may vary over 3yrs eg up as equipment ages (E) Discuss cost implications of self-monitoring with FG
/ profit may decline in years 2/3
(F) Call-out probabilities: hard to predict / discussion of 1.8 (F) Other commercial recommendations
R2.AJ.3
Eval/recs: commercial, ethical and BT
(A) Benefit of assured work / potential for future work after 3yrs
/ reduces terminations / need for discount unclear
(B) Need to ensure other clients not disadvantaged

/ ensure sufficient staffing capacity
(C) Tully/FG: may seek to limit number of call-outs

/ limit liability for faults/delays
(D) Consideration of positive/negative impact on reputation
(E) Investigate media article with Tully/FG
(F) Need for payment guarantee from Tully

/ consider impact on KUAS cashflow
REQUIREMENT 3 - Evaluation of proposed strategic alliance with ST
ASSIMILATING & USING INFORMATION STRUCTURING PROBLEMS & SOLUTIONS
R3.AUI.1 R3.SPS.1
Appendix Calc of Costs (appendix)
(A) Numbers clearly derived (A) Purchases: £0 AND £93k AND £280k
30% x gross rev
(B) Calculation of incidental expenses (B) R&D: £150k AND £126k AND £102k
(60% x £250k/£210k/£170k)
(C) Calculation of GP%/OP% (C) Mktg: £12k AND £51k AND £75k
(60% x £20k/£85k/£125k)
(D) Incidental: £18k AND £18k AND £6k
(E) Total KUAS costs £931k OR

Total KUAS OP £1.8k
R3.AUI.2 R3.SPS.2
Calc of Revenue (appendix) Operational and strategic issues
(A) DCCS: £0 AND £240k AND £384k (A) Forecasts based on discussions / no firm orders yet
(£8k x 0/30/48) / information provided by ST
(B) Parking: £0 AND £70k AND £175k (B) Launch dates "estimated"/"tentative"/may be delays >
(£7k x 0/10/25)
(C) Alarm: £0 AND £0 AND £375k (C) Lack of add'l labour may be optimistic for new products
(£5k x 0/0/75) (KUAS treating installations as an upgrade)
(D) 75% of revenue for KUAS (D) Need for extensive testing of new products >
/ unknown manufacturing capacity for products
(E) Total KUAS revenue: £933k (E) AI security market is huge opportunity for KUAS >
(F) KUAS has sufficient cash to fund this project

/ upfront costs in 2024 before any revenue earned
R3.AUI.3 R3.SPS.3
Business issues and wider context Comments on ethical/trust issues
(A) Inflation: currently high/8% / future uncertainty (A) Potential breach of OECD principles
(B) KUAS strategic aim of using more new tech/AI (B) KUAS has limited control over R&D >
eg much already incurred/£10k approval limit
(C) ST also involved in manned guarding/cybersecurity (C) ST claims STManager will improve efficiency 50% >
/ ST products not yet ready for sale / STManager is ST's main focus at present
(D) KUAS has previous experience with GOF/Mistify (D) DCCS could lead to racial profiling or prejudicial decisions
(E) Cash available £1,203k (E) Parking system could lead to use of misleading stereotypes
/ possible misuse of personal data
(F) Alarm system could penalise innocent people

R3.AJ.1 R3.CR.1
Evaluates financial issues Draws conclusions (under a heading)
(A) Qualitative comment on forecast OP with fig (A) Concludes on forecast OP with fig
(B) GOF/Mistify figs well below forecast / unreliable forecasting (B) Concludes on operational/strategic impact
(C) Compares terms with GOF/Mistify: revenue / product costs (C) Concludes on ethical/business trust issues
(D) Compares terms with GOF/Mistify: R&D costs / mktg costs (D) Concludes on way forward with reason
(E) B/E over 2.5 years may not be best way to evaluate this
(F) Any assumption changes will impact calc/decision

eg change in cost of materials, launch delays
R3.AJ.2 R3.CR.2
Operational and strategic impact Makes recommendations
(A) Potential for other new products from ST (A) Clarify basis of costs / use different appraisal method
/ potential bias by ST
(B) KUAS has no control over launch dates (B) Market research needed to establish demand
(C) M&M costs: unknown / may be significant (C) Negotiate T&C eg succession, costs of delays, R&D
(D) Product failure would damage KUAS reputation (D) Due diligence on ST
(E) 5-yr exclusivity would prolong competitive advantage (E) Discuss status of product development
/ risk of losing out to forward-thinking competitors / assess manufacturing capacity
(F) Possible impact of AI on other products/jobs/ARCs (F) Other commercial recommendations
R3.AJ.3
Evaluation/recs: ethical/trust issues
(A) Possible reputational damage for KUAS
(B) R&D needs auditing / needs separate accounting
(C) KUAS will need evidence for any mktg claims from ST
/ STMgr focus may distract ST from KUAS work
(D) Work closely with ST to protect innocent/privacy
(E) AI only as good as its programming / programmer bias
(F) Potential claims of unfair dismissal/false accusations

Case Study 2023 Examiners Report and Markplan

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Case Study 2023 Examiners Report and Markplan

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CASE STUDY – JULY 2023

EXAMINERS’ COMMENTS AND MARK PLAN

© ICAEW 2023 Page 1 of 32

PART 1: EXECUTIVE SUMMARY

The exam requirements comprised:

© ICAEW 2023 Page 3 of 32

PART 2: THE CASE STUDY EXAMINATION

Regulation affects the sector in a variety of ways:

© ICAEW 2023 Page 4 of 32

Statement of profit or loss – revenue

Statement of profit or loss – cost of sales and gross profit

Statement of profit or loss – administrative expenses and operating profit

Statements of financial position and cash flow

© ICAEW 2023 Page 7 of 32

Other features of the business:

© ICAEW 2023 Page 8 of 32

Exhibits 14a-e are a collection of five media articles:

© ICAEW 2023 Page 9 of 32

Information provided in the Case Study Exam (CSE)

The Exam contained eight exhibits comprising new information:

• revenue for each activity and in total

• For each of Alternative A and Alternative B:

© ICAEW 2023 Page 10 of 32

Analysis of Case Study Exam information

© ICAEW 2023 Page 11 of 32

Summary of marks available

© ICAEW 2023 Page 12 of 32

PART 3: COMMENTARY ON CANDIDATES’ PERFORMANCE

Assimilating and Using Information (AUI)

© ICAEW 2023 Page 13 of 32

Structuring Problems and Solutions (SP&S)

Applying Judgement (AJ)

© ICAEW 2023 Page 14 of 32

Conclusions and Recommendations (C&R)

Executive summary (including OAC)

© ICAEW 2023 Page 15 of 32

Overview of performance by requirement

Requirement 1: Analysis of KUAS’s financial and operating performance

© ICAEW 2023 Page 16 of 32

Requirement 2: Evaluation of request from Tully

© ICAEW 2023 Page 17 of 32

Requirement 3: Evaluation of proposal strategic alliance with FT

© ICAEW 2023 Page 19 of 32

© ICAEW 2023 Page 20 of 24

Direct labour (£000) 9,251 7,376 1,875 25.4%

2023 2022 Change Change

Sales staff costs (14 / 12 staff) 665 526 139 26.4%

© ICAEW 2023 Page 21 of 24

Monitoring and maintenance

Working 1: Direct labour

Number of days per site 5

Cost of purchases per venue = 1.8 x £100 180

© ICAEW 2023 Page 22 of 24

© ICAEW 2023 Page 23 of 24

I&U Installations and Upgrades

(C) Qualitative comment on admin expenses/OP/OP% with fig

(D) Tenders: fall in success rate worrying / review pricing strategy

(A) Investigate client M&M contract terminations

(B) Investigate why GOF/Mistify below forecasts

(C) Address staff sickness / 'Secret Executive' staff issues

(D) Appropriate summary of report section

Column total Column total

(C) Concludes/recommends on commercial/ethical issues (C) Concludes on ethical/business trust issues