acca p5 revision notes_v2

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Mahmood RezaFRSA, MCMI, ATT, FCCA, DMS, PGCE, BSc (Hons)

ACCA P5 Exam Support Notes

Pro Active Resolutions - Mahmood Reza


Introduction Examiners guidance, approach & exam Exam Reports: examiners comments SYLLABUS SECTION A Strategic analysis, choice and implementation Benchmarking Risk and uncertainty Activity one Budgeting ABC, ABB, ABM BPR PESTLE and SWOT

3 4 7

11 11 12 13 14 16 19 19

SYLLABUS SECTION B Pricing Stakeholder analysis 22 24

SYLLABUS SECTION C Responsibility Accounting Systems 25

SYLLABUS SECTION D Mission and Vision Aims and Objectives Rewards and Values The Strategic Triangle Divisionalisation and transfer pricing Activity two: transfer pricing Porter: industry analysis - the five forces Boston Box or the BCG Matrix 27 27 27 28 28 32 32 35

ACCA P5 Exam Support Notes


Pro Active Resolutions - Mahmood Reza

Ansoff product matrix Performance measures o o o o o o Return on investment (ROI) Residual income Economic value added Net present value Internal rate of return EPS

35 36 36 37 37 38 38 39 39

Activity three: performance measures SYLLABUS SECTION E Performance management & evaluation Establishing a performance management system Criteria for designing performance indicators Types of performance measures Performance Pyramid, Lynch and Cross (1991)

41 41 42 43 43 45 48

Balanced scorecard Table of potential scorecard measures

SYLLABUS SECTION F Target costing Performance prism Total Quality Management (TQM) 49 50 50



Activity one: solution Activity two: solution Activity three: solution

53 54 56

ACCA P5 Exam Support Notes


Pro Active Resolutions - Mahmood Reza

INTRODUCTIONThese ACCA P5 exam support notes are based on my experience, not only in respect of teaching ACCA P5 but over 25 years of teaching business and management. These notes are not meant to be a comprehensive overview of the syllabus but focus on selected parts. The notes are provided to supplement existing texts and focus on areas that, in my experience, students find more challenging. Any feedback regarding the notes (positive or negative) would be greatly welcomed. I have adopted a sectional approach to the notes, i.e. notes are provided by syllabus section, some sectional notes being greater than others. ACCA P5, in common with the other option papers does not enjoy significantly high pass rates. However, people do pass the exam; a structured and focused approach to studying is highly recommended, as well reading around the subject. It is worth remembering that are an abundant level of support resources available to assist you in passing your exams. However, unless you have a photographic memory you will need to apply conventional techniques to passing your exams, e.g. question practice, question practice, question practice you get the picture.

ACCA QualificationThe current ACCA Qualification syllabus was first examined in December 2007; a review of the pass rates for the option papers is shown below. Paper Dec 07 Jun 08 Dec 08 Jun 09 Dec 2009 P4 31 36 36 30 41 P6 P7 28 33 36 33 41 39 37 37 39 39

The ACCA Professional syllabuses are being updated with effect from June 2011, these notes are based on the existing syllabus and study guide for the December 2010 exam diet. The strategic planning process was examined in detail in the P3 paper. In P5 the focus is more on the performance management aspects of strategic planning and the role of strategic management accounting.

ACCA P5 Exam Support Notes


Pro Active Resolutions - Mahmood Reza

EXAMINER'S GUIDANCEThe examiners approach article, originally produced in Student Accountant February 2007, provides guidance on how to tackle paper P5. The examiners approach interview complements the approach article and is very useful when tackling the paper for the first time, giving you a real insight into what the examiner is looking for in terms of exam performance. It covers the main themes of the paper, information on how the exam is structured, advice on exam technique, tips on how to succeed and potential pitfalls to avoid. The examiners analysis interview builds on the approach interview and looks at student performance in the December 2007, June 2008 and December 2008 exam sessions, highlighting where students are performing well, where students are performing less well, and how they can improve their performance. The analysis interview is related to the examiners reports, which are published after each exam session and are another very useful resource.

Examiners approach: Paper P5Paper P5, Advanced Performance Management, is one of four papers in the Options module at the Professional level of the new ACCA Qualification. While not a completely new paper, it should be remembered that Paper P5 is not the previous syllabus Paper 3.3 with a new title. Indeed, Paper P5 is a challenging and innovative paper that aims to improve students understanding of performance management a subject which touches on all management activity in todays business organisations. Candidates who pass the Paper P5 exam will be able to: v Evaluate the strategic performance of an organisation and recommend appropriate performance measures v Assess the impact on organisational performance of macro-economic, fiscal and market factors, and key external influences v Identify the information needs of management and contribute to the development of appropriate systems in order to improve organisational performance v Understand the significance of the relationship between financial and nonfinancial indicators of organisational performance v Identify where current developments in management accounting and performance management may be used to improve organisational performance. As Paper P5 builds on Paper F5, Performance Management, students are expected to have a thorough understanding of the Paper F5 syllabus. In addition, students will also be required to apply the principles and techniques covered in Paper F2, Management Accounting. Paper P5 has a strong relationship with Paper P3, Business Analysis, in the areas of strategic planning and control and performance measurement. The syllabus and relational diagram The syllabus contains six sections designed to provide the comprehensive knowledge necessary to enable students to make a significant contribution to todays business organisations. All sections are interconnected, and the syllabus, as a whole, focuses on

ACCA P5 Exam Support Notes


Pro Active Resolutions - Mahmood Reza

the issues that are essential to the understanding of how performance management contributes to organisational performance. Section A of the syllabus focuses on strategic planning and control. This involves a detailed examination of the role that strategic management accounting should play in todays organisations. This section also requires students to appraise alternative approaches to budgeting in order to facilitate better control of business organisations. We live in an ever-changing business environment and Section A considers the effects of both evolving business structures and information technology on modern management accounting practices. Section B of the syllabus considers the impact of world economic and market trends, as well as the impact of national fiscal and monetary policy on the performance of business organisations. This section also explores other environmental and ethical issues facing business organisations. Section C is focused on performance measurement systems and their design. Particular consideration is given to management accounting and information systems, and the sources of internal and external information available to business organisations. In addition, Section C considers the recording and processing methods and management reports used in business organisations. Section D of the syllabus is focused on the need for strategic performance management in both public and private sector organisations. This section considers strategic performance issues in complex organisations as well as divisional performance and transfer pricing issues. Consideration is also given to behavioural aspects of performance management. Section E of the syllabus is focused on the evaluation of business performance and corporate failure. Consideration is given to alternative views of performance measurement and the use of non-financial performance indicators. This section also considers the prediction and prevention of corporate failure. Section F, is focused on current developments and emerging issues in management accounting and performance management. In an area as fast moving as management accounting, the importance of keeping abreast of current developments is essential for management accountants across the globe.

STUDY GUIDE AND INTELLECTUAL LEVELSThe Study Guide, which breaks the syllabus down into separate subject areas, is available on the ACCA website. The superscript numbers at the end of each outcome in the Study Guide indicate the level at which students should understand a particular subject or topic area. These levels of understanding, known as cognitive levels, are important as they indicate the depth to which each part of the syllabus may be examined. Because Paper P5 is at the Professional level, higher cognitive challenges represented by the number 3 are prominent. This means that this paper is much moreACCA P5 Exam Support Notes


Pro Active Resolutions - Mahmood Reza

likely to use higher levels of questioning. Whereas level 1 ta