We’ve switched our classes to live online. For more Covid-19 updates, click here

Understanding Requirements and Question Context

Understanding Requirements and Question Context

Many years ago, I set an ACCA Management Accounting exam. One sitting, I decided to test inventory control, First in, First Out (FiFO) and Last in, First Out (LiFO) etc. and how management accounting should reflect how inventory is stored and used by a company.

I spent a week trying to come up with a company where LiFO would be consistent with what the company actually did, finally settling on a company that framed pictures to be hung on office walls.

To make this absolutely clear, the exam question stated that new deliveries of glass went on the top of the pile, and these top sheets were the ones issued first for production.

One exam question simply asked for stock valuation using FiFO, LiFO and weighted average, but the second part asked which method would be appropriate and why. I was really pleased with myself as the question demonstrated why LiFO should be used in management accounting for this company, since the glass is physically being received and issued using LiFO.

Of course, I did not stay pleased with myself once I started marking the scripts. I got extremely fed up reading ‘the company should use FIFO since that matches with financial accounting principles.’

300 students sat the paper, of these, how many do you think identified LiFO as being appropriate? Well let’s just say it was a nice round number (zero to be precise).

Because of the above, I have a great deal of sympathy with examiners (particularly at the professional level) who complain that exam answers ignore the context of the question, i.e. what size is the company? What is important in the industry they operate in? What is their competitive advantage?

From marking mock and real-life scripts, I know that many answers are exactly the same whatever the company is like, this means a lot of the advice given in exam answers is irrelevant or wrong and I cannot tell you how many exam answers include suggestions which would bankrupt the company!

The scripts I mark also suggest that people learn about topics and then just repeat what they have learnt without thinking about its relevance. For example, September 2018’s Strategic Business Leader paper asked how using big data could benefit a company; most answers discussed how having more information about customers would allow the company to predict what products customers would want in the future, meaning higher future sales. This is the example most study manuals use and is correct, unfortunately, the exam was about a company building roads, so these explanations were irrelevant.

Most examiners will do what I did (hopefully a bit more successfully) and start with the topic they want to test, then work backwards for a context/situation where that topic would be important.

So, read the requirements and then consider why this topic will be important for this company, in this industry and in this situation - the details given in the scenario often guide you. You are likely to gain higher marks by relating your knowledge to the context.

This article was written by David Laws.


Other Opinions and Features

Top 5 Benefits of Cloud Computing for Accountants

The world of accountancy has welcomed new innovations and technology within the last few decades, with each addition making the…

Moving from an AAT qualification to ACCA

There are numerous accountancy qualifications and certifications that allow accountants to enhance their subject expertise and progress their career. Two…

How can Data Science Help Accountants?

Data has become a buzzword in business, impacting every job role including accountancy. In accounting, a basic knowledge of technologies…

Back to top