ACCA changed the progression rules for the exams in 2015. Although exams must be taken in line with following module order, candidates will be permitted to attempt the papers within each module in any order:
What this means for the Professional level is that candidates will have the choice to attempt the Options exams before the Essentials exams. This choice will potentially influence the studying approach taken for some of the exams as some of the Options exams are connected to the Essentials. One instance of this is between P3, Business Analysis, and P5, Advanced Performance Management. The P5 exam develops a number of topics from the Skills exam F5, Performance Management, but also draws on aspects of the material covered from a more strategic and operational planning perspective in P3.
The purpose of this article is to draw a distinction between P3 and P5 because although both exams share some common topics the approach which is taken in both exams is different and this should be made clear to all students. In addition we want to draw attention to specific areas of the P5 syllabus which will require more focus in a P5 programme of study because if P5 is attempted before P3 then these areas cannot be assumed knowledge.
The aim of P3 as defined in the syllabus is to apply relevant knowledge, skills and exercise professional judgement in assessing strategic position, determining strategic choice and implementing strategic action. This aim, which is supplemented by a wide range of topics, is demonstrated by an ability to assess an organisation’s current and future strategic position by taking into account external and internal factors and developing and implementing future strategies to position the organisation competitively. Strategic planning and implementation requires financial analysis to assess viability and so uses key management accounting techniques such as forecasting, benchmarking and performance measures.
The aim of P5 is very different. Although knowledge of how strategy is evaluated and implemented is necessary, P5 focuses on selecting and applying appropriate management accounting techniques for a range of business contexts to ensure an organisation achieves its mission and objectives. The purpose of P5 is to evaluate the choice of performance management systems and performance measures for an organisation to ensure that they are fit for purpose and if necessary make alternative recommendations.
This distinction is vital for exam purposes as the areas of the syllabus that are included in both P3 and P5 should be approached in a different way ensuring that the aims of the exam are being achieved. In this article we will endeavour to highlight that difference alongside identifying the areas in P5 which would have benefited if P3 was studied first and so will subsequently require more attention if the Options exam is prioritised.
The focus in P5 is for students to understand how management accounting has evolved into a discipline that has a strategic role. It contributes to planning and controlling performance so that strategic objectives can be set, monitored and kept on track.
As mentioned it will be necessary to spend more time on certain areas in the P5 syllabus if students have not previously attempted P3. The following areas have been identified:
Strategic management accounting
When introducing the concept of Strategic Management Accounting (SMA) students should be aware of the different methods that can be used to set strategy – for example, the rational model, emergent strategy etc. and how these are influenced by the organisational context. It is important to note that for P5 this is background knowledge only and the focus for teaching in this area should be on the role of management accounting in the choice, implementation of strategy and objectives, and how the progress of those objectives is measured and checked. This is also affected by the business context.
From a teaching perspective it could be useful to consider the role of management accounting at each stage of the rational model, for example what information and analysis will be required at the strategic option stage, what systems will be needed for implementation or what factors will need to be measured in order to control and feedback. This will ensure that students are thinking about management accounting and not about developing a business strategy.
P5 shares the concepts of mission, objectives, critical success factors and key performance indicators with P3. P5 does address each of these areas in more detail; however the basic knowledge from P3 will need to be learned first before the performance hierarchy in P5 can be studied. What is key to P5 is the flow and connection between these concepts – mission leading into objectives, what CSFs are required to meet those objectives and what KPIs are needed to measure those CSFs. This connection was examined in Q1 from the sample questions published from the September and December 2016 exams.
Students will also need to understand the different types of organisational structures which are covered in P3. From a P5 perspective the focus though is to understand how these structures influence the information requirements of an organisation and the choice of performance management systems. This will also affect the choice of management accounting techniques that are required – for example, an organisation which operates in dynamic, customer focused environment may find that traditional costing methods are less applicable and so may need to consider alternative methods like activity-based costing or life-cycle costing.
If students haven’t studied P3 then a SWOT analysis will need to be covered in more detail for P5. To understand a SWOT for P5 it would be useful to choose a well-known organisation and create a basic SWOT. However, it is important to stress that how a SWOT is examined in P5 would be to consider how the criteria in each of the four quadrants should be managed and measured and so these questions should be posed for the SWOT which has been created. There is also the option to use the SWOT in Q1 from the June 15 P5 exam which is based on a sportswear manufacturer.
The methods of benchmarking are covered in P3; however if P5 is being attempted first then the methods will require more study. When explaining the methods of benchmarking to students it would be useful to consider examples of organisations that have or could use these different methods. Think about the benefits and problems of the different methods and consider how the results of a benchmarking exercise will impact performance management – for example, will new processes be needed, will staff need more training, will performance measures need to change, will information needs change etc. This approach could be illustrated with Q1 from the December 2014 exam.
P5 includes Porter’s Value Chain and it will be necessary to review this model in detail. It would be beneficial if students could see a practical example of the value chain so, like with the SWOT, work through the activities that make up the value chain for a well-known company. It is vital to ensure that students understand that the value chain in P5 is used differently to P3. In P3 the focus is on its use for competitive advantage, whereas in P5 the model focuses on how all of the elements integrate together to deliver performance and then in turn how this integration influences the choice of management systems and measures. This can be seen in Q1 from the June 2015 exam.
Stakeholders are examined in both syllabuses, including stakeholder mapping, and both consider the impact of stakeholder responses on strategy, however P5 extends further into the impact they will have on business performance also. P5 will address how the stakeholders will need to be managed which was examined in Q1 in the December 2014 exam.
P5 recognises the influence of external factors on organisational performance and assesses how those factors can be managed effectively. Key models like PEST and Porters 5 forces are examinable and if P5 is being attempted first the detail of these models will need to be reviewed. A P3 exam could require a student to perform an analysis using one of these models; however in P5 it would be more focused on how the analysis from the model will influence performance management – for example, how would an organisation measure the threat of new entrants into the market and how could it then manage that force? Will the organisation require new performance measures?
Operations and information systems
In addition it should be recognised that management accounting still has a key operational role and as such the design and choice of performance measurement systems is vital. P3 and P5 both focus on information technology and information requirements. Much of the basic systems knowledge – for example, types of systems and practical system controls are also covered in F5. It is important to emphasise that P5 is focused on how these systems will help an organisation, in terms of the information they provide, what is required by users, how they connect the different aspects of the business and how they can assist in the management of operational plans and projects to facilitate the achievement of strategic objectives. Integrated reporting is also examinable in P5 but again it focuses on the role of the management accountant in providing key information to stakeholders. This ties back into the concept of Strategic Management Accounting and the evolution of modern management accounting.
Management accounting techniques
In P3 there is a lot of coverage of management accounting techniques – for example, risk and uncertainty methods, budgeting, relevant cash flows, costing, ratio analysis and so on. All of these techniques are covered at the Skills Level and many of them are included in the P5 syllabus anyway so should not require any more additional attention in the study programme than usual; however it worth noting that these techniques in P5 are used as methods to manage performance or are selected as performance metrics and so students should be prepared to apply these methods practically through numerical analysis and also be able to evaluate the appropriateness of these methods for an organisational context.
Human resource management
P5 includes a section on performance measurement and Human Resource Management (HRM). HRM is introduced in P3 and so the basics of how HRM developed and its scope in an organisation should be recapped, although for P5 the key aspects here are appraising performance, selection of measures and relevant reward schemes. P5 will expect students to evaluate the methods by which staff are managed, assessed and remunerated, and whether those methods will create adverse behaviour.
It should also be noted that reviewing the article on assumed knowledge for P5 from F5 would also be a beneficial exercise for students.
Links to P5 exams referenced in this article can be found below: