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by Pippa Riley 14 Nov 2001 Diploma in Financial Management Relevant to All Papers

From June 2002, ACCA is replacing the Certified Diploma in Accounting and Finance (CDipAF) with a new qualification: the Diploma in Financial Management (DipFM) will be examined for the first time. The new qualification is based on the Certified Diploma, and is aimed at the same section of middle and senior management with financial responsibility, who want to obtain a valued financial qualification related to their own expertise and work experience over a period of a year or so. It will also provide the same stepping stone to a more advanced qualification, such as an MBA.

The new scheme has been explained in detail in the last issue of the Diploma Newsletter. The purpose of this article is to explain the similarities and highlight the differences between the current and the new syllabi. The article will be particularly useful for students who are part way through the Certified Diploma and will therefore need to transfer from the current scheme to the new. The article concentrates on the formal exams rather than the project, which will be discussed in a separate article at a later date.

Subject area 1: Interpretation of Financial Statements
This is almost identical to the current Paper D1, Interpretation of Financial Statements and the Examiner remains the same. He has taken the opportunity to carry out some fine-tuning of the syllabus, and to provide a detailed analysis of its requirements in the study guide.

These are the main differences:

Additions

• The syllabus specifically requires you to be able to draft a simple Statement of Total Recognised Gains and Losses.
• Specific documents such as the five year summary, Operating and Financial Review, interim accounts and preliminary announcements are mentioned in the syllabus: you need to be aware of their major features.
• You need to be aware of the basic features of accounting for public sector organisations.

Reductions and removals

• The syllabus no longer requires the detailed content of value added statements, although they are still included under the heading ‘the major features, but not detailed contents of other elements of corporate annual reports’ (new syllabus area 3(b)(vii)).
• Taxation is no longer defined as a key area in the syllabus; it is now included as ‘the accounting implications of taxation, in particular current and deferred taxation’ and there is no longer a reference to the operation of the taxation system as such.
• The role of the auditor has now been included under the heading of Regulation of Financial Statements, and is no longer a key area in its own right. It is now limited to ‘the role of the auditor and the meaning of a true and fair view’, and there is no mention of internal audit.
  

Examination style
A feature of the current Certified Diploma Paper D1 is the use of a supplement, containing a set of accounts, on which the compulsory first three questions were based. The Examiner has indicated that he would like to continue with this format, but since it will not fit easily into the new Module A exam, where subject area 1 will be combined with subject area 2, Performance Management, he will apply this format in the project. The pilot project for subject area 1 contains a set of real accounts and you are required to critically evaluate and discuss certain issues arising from them. This will require a higher standard of analysis than is expected in the examination itself.

The multiple choice questions in the DipFM exam will tend to concentrate on the core areas such as accounting ratios, stocks and debtors, whereas the longer written questions will tend to be more discursive and expect the application of knowledge rather than pure calculation.

Subject area 2: Performance Management
The equivalent paper under the Certified Diploma scheme is Paper D2, Management Accounting. The Examiner (who remains the same) has said that management accounting may be regarded as an area within performance management, so that students transferring from the current to the new will be studying a much broader syllabus. The new syllabus changes the emphasis of the paper and brings in a wide interpretation of performance management. Although there is still an accounting slant, many non-accounting aspects of performance management are now included, such as information systems strategy, responsibility centres and mission statements.

There has been some overlap between Paper D2, Management Accounting, and Paper D3, Financial Management, and some aspects of the latter have now been brought into the new Performance Management paper.

If you are now required to sit Performance Management, having previously studied for Paper D2, you would be well-advised to review the new paper’s study guide in some detail, as it sets out exactly what is expected of students. The Examiner has also indicated that he regards the syllabus as constantly evolving, and you should therefore make sure that you read the Diploma Newsletter carefully for any announcements or syllabus clarification. Additionally, the Examiner has stated that he regards new developments in the field of management accounting and performance management as being of particular significance, and you should make sure that you watch out for those too.

Additions
The central management accounting core of the syllabus remains in the new syllabus areas 2, planning and decision-making, and 3, performance measurement. There are, however, two completely new syllabus headings:

• General issues for performance management (new syllabus s.1).
• Performance management (new syllabus s.4).

The Examiner has indicated that the section on general issues may be regarded as background, setting the scene for the detailed techniques and concepts covered in the other three parts of the syllabus. It is consequently unlikely that there would be specific exam questions on this area: they are more likely to be covered in the context of questions on the main syllabus topics. The main topics mentioned are mission statements, responsibility centres, information systems and costing systems and organisational strategy as a whole.

The new syllabus section on performance management is more key to the syllabus, and is a significant departure from the old management accounting syllabus. It includes these main topics:

1. Purchasing and production management, including:
   
   1. supply chain management
      
   2. e-procurement
      
   3. just-in-time production and purchasing
      
   4. target costing and kaizen costing
      
   5. out-sourcing, joint ventures and partnerships
2. Activity-based management and business process re-engineering
3. Techniques for ensuring value-for-money, particularly re not-for-profit organisations
4. Techniques to ensure continuous improvement
5. Use of performance measurement techniques to manage performance
6. Management of divisional performance, including transfer pricing issues
7. Behavioural and organisational consequences of performance measures, particularly budgeting and other accounting system data
8. Understanding of practical issues that may affect an organisation’s ability to manage performance effectively, including: actions of competitors, price movements, foreign exchange movements, labour disputes, supply problems etc.
9. Incentive schemes linked to performance measures.

The Examiner has indicated that students must ensure that they keep up to date on these topics. A review of the new Performance Management Study Guide will show also that the examiner regards the non-financial aspects of performance management and management accounting to be of increasing importance.

Reductions and removals
The Examiner has said that there will not be questions on:

• Process costing;
• Total absorption costing;
• Partial differentiation.

Examination style
In general terms, the multiple choice questions for subject area 2 will tend to test the basic management accounting techniques and pure knowledge, while the longer written questions will be more discursive. The examples used in questions will be drawn from a wide variety of organisations, including manufacturing and service industries, multinational and financial services companies and not-for-profit organisations. Questions will be similar in style to those seen in the old management accounting paper, such as:

• Calculations plus analysis
• Mini case studies with analysis
• Reports or memos to discuss issues within the syllabus

Subject area 3: Financial Strategy
This paper has a direct equivalent in the current Paper D3, Financial Management, and there is very little change to the syllabus content.

Additions
Under the heading of Raising Finance the Examiner has introduced:

• Private finance initiatives (PFIs) and public-private partnerships (PPPs);
• Securitisation;
• The capital asset pricing model (CAPM) including the formula and betas, but not complex calculations;
• Financing and the small business (on which there is a very useful article by the examiner, Dr. Peter Atrill, in Issue 50).

The Examiner has said that he wants students to understand the growing move towards private sector involvement in issues of raising finance.

Under the heading of Capital Markets the examiner has introduced:

• Market efficiency (including its meaning, levels of efficiency, the implications for managers and investors and ‘real world’ market efficiency).
• International capital markets.

Under the heading of working capital management, greater importance is attached by the examiner to working capital and the small business.

Reductions and removals

• Dividend policy (which has moved to the new subject area 4, Risk Management).
• Capital structure and gearing (as in traditional theories of gearing versus Modigliani and Miller, which are now covered in subject area 4, Risk Management).
• Risk analysis (although you should note that sensitivity analysis remains within the syllabus).

Examination style
The style of the longer written questions will be similar to those seen in current paper, although in the new Financial Strategy exam they will each be worth 20 marks rather than 25 as previously. There will be a mixture of computation and discussion. The Examiner (who remains the same) has suggested that students should look at the current Certified Diploma Paper D3 questions for an indication of his likely approach in the new paper.

Subject area 4: Risk Management
Unlike the three subject areas discussed above, subject area 4, Risk Management, is a completely new paper in the DipFM qualification. One or two aspects, such as corporate governance, were included to a lesser degree in the Certified Diploma paper D4, Business Analysis, but there is very little overlap. You would be best advised to treat this as a completely new subject and to study it from scratch.

The core syllabus areas are:

• General risk management (including policy, identification and reporting).
• The management of financial risk (including debt versus equity, dividend policy, which was in the current paper D3, Financial Management, hedging and derivatives).
• Corporate governance (including frameworks and codes, the role of executives, internal control and implementation).

There is additionally much underpinning knowledge from the new subject area 3, Financial Strategy, and it would probably be sensible therefore to study that paper before or in tandem with subject area 4. The Examiner has indicated that this new paper will be concerned very much with modern topics and current issues and their criticism and evaluation. There will be a balance between calculations and theory in questions, although the basic calculations will tend to be tested in the multiple choice questions.

Overall approach
If you are a student who has completed part of the CDipAF and are now transferring to the DipFM, you should ensure that you obtain the syllabus and study guide for the new papers which you have still to sit. Review them carefully, so that you are familiar with the syllabus, style and format of the new exam.

Where there are topics which you have not studied before, you should consider attending a tuition course or buying some of the material published for the new qualification.

Study materials
The Examiner for each new subject area will be issuing a reading list of suggested textbooks. In addition the ACCA’s approved publisher for the DipFM, BPP Publishing, has published a Study Text and a Practice and Revision Kit for each of the new subject areas.

Telephone BPP on +44 (0)20 8740 2211 for further information or to place an order, or visit their website, www.bpp.com

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