Advanced Financial Management – examiner approach

An outline of the aim of Advanced Financial Management, its structure and how the syllabus is tested

Advanced Financial Management is one of the four options exams in Strategic Professional in the ACCA Qualification. This article highlights the overall aims of, and main capabilities required for, the exam and it recommends the study approach that candidates should adopt (and the bad habits to avoid) when preparing for the Advanced Financial Management exam to increase their chances of success.

Aim and capabilities

The aim of Advanced Financial Management is to enable candidates to demonstrate application of relevant knowledge, techniques and skills, and to exercise professional judgment, in recommending or taking decisions relating to the financial management of a business. The overarching aim of such recommendations and decisions is to add value to a business, paying due regard to the impact on the reputation of the business; and to ethical, environmental and stakeholder concerns.

The exercise of professional judgment in making sound decisions requires the need for careful weighing up of evidence that is often partial and incomplete. The right decision must often be made without the help of a simple algorithm, and in the face of an array of criteria – some technical and some ethical – which may be in conflict and not entirely clear cut. As such, candidates are required to display analytical and evaluative skills, skills of judgment where alternatives are considered, and discuss the limitations of techniques used. Communication skills are also important and answers should be professional, clear and well structured.

Analytical techniques and discussion should be applied in relation to the context of the scenario in the question and related to the real world where applicable. It is not sufficient to apply techniques or to conduct discussions without considering whether or not these apply to the question asked. It is also important that candidates are up-to-date in their knowledge and understanding of the current global economic and financial environment.

The principles underpinning Advanced Financial Management are introduced and developed in Financial Management. In Financial Management, the following essential areas are introduced and developed: financial environment; investment appraisal; cost of capital; alternative ideas of, and impact of changes to, the capital structure; sources of finance; dividend policy; working capital management; risk management and business valuation.

Advanced Financial Management explores these same areas, but at a more advanced level, and considers problems and issues (many derived from real situations) relevant to the highest-level financial management of an organisation.

New areas specific to Advanced Financial Management include responsibility towards stakeholders, acquisitions and mergers, corporate reconstruction and re‑organisation, the international business environment and multinational organisations, and emerging issues. Finance managers need more than a battery of theories and techniques to succeed – they also need a deep understanding of the context in which they work. As a consequence, candidates will be expected to demonstrate up-to-date understanding of the international macroeconomic environment and the operation of those international institutions that govern both trade and the operation of the financial markets. This is especially important in the current global economic climate of uncertainty.

To be successful at this level, candidates must be able to demonstrate an integrated understanding of the subject. Therefore, it is essential that candidates are able to draw upon the knowledge, techniques and skills gained in Financial Management, and apply these to Advanced Financial Management. Also knowledge gained from the other ACCA exams will be useful in helping candidates demonstrate an integrated approach.

Advanced Financial Management syllabus

The relational diagram, Syllabus and Study Guide give comprehensive detail of the Advanced Financial Management syllabus. The intention is to test the entire range of the Advanced Financial Management syllabus topic areas. It is important that candidates have a sound knowledge of all the parts of the Syllabus and Study Guide, and are able to apply the knowledge to a variety of different business situations. It is also important that candidates bring forward their knowledge of Financial Management and understand how the Advanced Financial Management syllabus develops these areas.

All the questions in the exam may require candidates to draw on knowledge and techniques from different parts of the syllabus. It is unlikely that 50-mark questions will relate to only one part of the syllabus. 25-mark questions will usually focus on one part of the syllabus, but may also contain topics from other parts as well.

On the other hand, it is likely that exams will continue to contain questions which are substantive and analytically complex. The scenarios in questions are likely to be detailed and require in-depth analysis, evaluation and discussion. Candidates’ ability to relate their answers to the actual question scenario is vitally important.

In the main, the Syllabus and Study Guide areas are clarified, with sections being added as necessary.

Please refer to the relational diagram, Syllabus and Study Guide for further detail on topic areas.

Structure and layout of the Advanced Financial Management exam

Section A contains one compulsory 50-mark question. This question is scenario-based and the requirements come from different areas of the syllabus. The question normally requires candidates to perform complex computations, evaluate and analyse information, discuss and assess various options, apply scepticism and make judgments or commercial recommendations, possibly based on explained and justified assumptions. The question is substantive and analytically complex. The question will contain ten professional skills marks, and will test communication, analysis and evaluation, scepticism and commercial acumen.

In terms of earning professional skills marks, the examining team will be looking for that skill to be evident in respect of the technical points you make. So, it is important that you understand what these professional skills are in more detail for the Advanced Financial Management exam. This detail can be found in the syllabus and study guide. 

These professional marks are awarded on the basis of the clarity and structure of the answer. They may also be awarded for answers that are presented in the required format. So, for example, if a report is required, in order to gain the professional marks, the answer should be in a report format and consist of a title, an introduction, other features as appropriate, a conclusion, and make appropriate use of appendices.

Section B consists of two compulsory 25-mark questions each with five professional skills marks, testing at least two of the following professional skills: analysis and evaluation, scepticism and commercial acumen. Although these questions and the requirements are not as substantive as the 50-mark question in Section A, it is nevertheless possible for the requirements of the questions to come from different parts of the syllabus.

Questions in Section B may require candidates to perform computations, interpret and analyse information, discuss and evaluate various options, make judgments and explain assumptions, apply scepticism and provide reasoned commercial recommendations, to varying degrees. Questions will be a mix of computations and discursive requirements. It is also possible for candidates to be provided with incomplete or incorrect data and information, for which they need to provide further computations and amendments, and then provide analysis and evaluation. Additionally, it is also possible that candidates are provided with numerical data and information, which they need to analyse and evaluate in order to reach reasoned recommendations. Section B questions will be scenario-based as well.

Given that candidates are asked to consider information-intensive scenario-based questions in both sections, it is imperative that they effectively plan their answers first.

Recommendations when preparing for and doing the Advanced Financial Management exam: forming good habits

The Advanced Financial Management exam is challenging. Adopting these recommendations and good habits will give you a good chance of being successful in the examination.

Develop a sound knowledge of the entire Advanced Financial Management syllabus. Augment studying the manuals with wider consumption of financial media, finance textbooks, articles in Student Accountant and financial journals.

You should expect and be prepared for questions from a range of syllabus areas and more than one area may be tested in a single question. Be prepared for questions that require you to consider a number of areas of the syllabus within one question.

Use your exam time effectively. The questions may contain a substantial amount of information that you will need to sort out and apply properly and you should plan your answer before beginning to write it.

In your exams, good time management techniques and habits are essential in ensuring success. Make sure that you are able to answer all parts of each question and manage your time effectively so that you make a reasonable attempt at each part of each question. Good time management skills are essential.

Often parts of a requirement may ask for more than one aspect. Make sure that you can answer, and do answer, everything each part of each requirement is asking for.

Make sure you answer the requirements correctly. For example, if the question asks you to explain, it is not enough just to list. If the question asks you to discuss, it is not enough just to explain.

For the written parts of any question, remember it is generally a mark for each relevant point. Repeating a point does not get you any extra marks and it wastes time. Avoid repetition.

Your answer must relate to the scenario in question. Context is very important for higher-level exams. General answers will gain fewer or even no marks.

The presentation of your answers is critical. It is very important to pay regard to neatness, organisation and structure of your answers. Professional exams are extremely time-pressured but giving your answers a structure will help you organise your thoughts and work more effectively. Make sure that your answers are constructed in a logical way because markers may not be able to award marks for something that they are unable to follow.

Work through the past exam questions under exam conditions and to time. Doing past questions will help you build efficiency in answering questions and help you build knowledge of how to make your answer relevant to the scenario in the question.

For time management purposes, candidates should allocate time based on the technical marks available, as the professional skills marks should not be thought of as separate requirements, and should be addressed throughout the entire answer.

Professional skills marks are earned by providing comprehensive and relevant responses to the technical requirements.

Three things to avoid: do not form bad habits

Don’t use past exam questions to try to pick topic areas from the syllabus or rely on certain areas coming up, for two reasons: first, you may get it wrong; second,  the topic you picked is part of a question but the rest of the question relates to a topic you decided not to study. Trying to question/topic spot is not recommended.

Don’t disregard what you learnt in Financial Management and other exams. You will probably need the knowledge (and techniques) from the other stages.

Don’t use incomplete sentences when making a point. Marks are awarded for complete points made in full sentences. However, you can use bullet points and numbered paragraphs, and headings when appropriate, to structure an answer to a question. Points made should be in complete sentences, in order to properly constitute a discussion or an explanation.

In the future

The Syllabus and Study Guide will continue to be reviewed, updated and changed periodically, and major changes will be explained in articles in Student Accountant.

In summary, applying correct techniques and knowledge to differing and complex scenarios, adopting an integrative approach, demonstrating sound analysis and evaluation skills, displaying good communication skills, and making considered judgments and commercial decisions, are the factors that will lead to success in the Advanced Financial Management exam.

Written by a member of the Advanced Financial Management examining team