Examiners' approach
Paper 6, Drafting Financial Statements replaces Paper C1 on the previous CAT scheme. In this article I describe the main changes that have been introduced for Paper 6 and explain my approach to setting the examination papers.
The most significant change incorporated into Paper 6 is that there are UK and International versions of the examination paper. This means the examination questions are more likely to resemble those accounting problems you encounter in your local situation. However, the comments in this article refer to both versions.
Syllabus objectives
The syllabus for Paper 6 has two main aims. Firstly, to enable students to understand and apply the techniques used to prepare year-end financial statements of partnerships and companies and secondly to ensure students are able to analyse and interpret the financial statements.
The paper builds on the core skills and techniques acquired from Paper 1, Recording Financial Transactions and Paper 3, Maintaining Financial Records.
The Study Guide for Paper 6 expands the syllabus into those ‘outcomes’ that I expect you to have achieved after studying for this paper.
Students who previously studied for Paper C1 will notice that the preparation of sole trader financial statements are no longer part of this syllabus. Your knowledge and understanding of this topic area will have been thoroughly tested at a lower level. At this level, I intend to concentrate on your ability to prepare the financial statements of companies and the more complex aspects of accounting for partnerships.
Key areas
If you are to be successful in this examination you will need to have thorough knowledge and understanding of how to draft financial statements and the application of the underpinning accounting techniques. The key topic areas you will need to be aware of are as follows:
- preparation of financial statements for partnerships and companies
- basic group accounts – consolidated balance sheet and profit and loss account for a simple group
- elements of financial statements and the interaction between the elements
- accounting conventions and concepts
- interpretation of financial statements
- cash flow statements.
Format of the examination
The syllabus is wide ranging and therefore it is impossible to test every subject area in a single examination. Questions will therefore tend to focus on specific areas. However, a question that requires the preparation of a financial statement may also be used to test other aspects of a candidate’s understanding of accounting principles.
The examination paper consists of four compulsory questions and requires candidates to study all aspects of the syllabus. In the pilot paper the marks for each question are split 40:25:20:15. However, this is for illustrative purposes only. Question 1 could be 30 to 40 marks, Question 2 could be 25 to 30 and Questions 3 and 4 could be 15 to 20 marks each.
It would be unusual for the examination paper not to include the preparation of a profit and loss account and/or balance sheet for either a partnership or a company. Another fundamental area of the syllabus is the analysis of an organisation’s financial performance. Candidates should not only know how to calculate accounting ratios, but also be able to interpret them within the context of the information they have been given.
The format and presentation of your answers is important. When drafting financial statements you will be expected to apply appropriate accounting standards and conventions in your answers. Remember that there is a six-month cut-off rule for examinable accounting standards prior to the exam. If you are sitting exams in June the cut-off date is 30 November.
Conclusion
I want you to pass this examination, but to do so you must demonstrate that you have acquired the necessary technical skills needed to draft financial statements that comply with relevant standards and that you understand the underpinning accounting concepts. In addition, you need to demonstrate that you can analyse financial statements and that you understand them.
In preparing for this examination, students are advised to: read a suitable study manual, practise exam standard questions and read relevant articles, particularly those published in student accountant. You are strongly advised not to try and question spot based on the advice in this article. If you want to be sure that you will pass the examination you must have a sound knowledge of all aspects of the syllabus.
Christopher Pyke is examiner for Paper 6