Relevant to candidates sitting Performance Management from September 2019
The aim of the Performance Management exam is to develop knowledge and particularly skills in the application of management accounting techniques to quantitative and qualitative information for planning, decision making, performance evaluation, and control.
Syllabus structure, rationale and relational diagram
Relationship between MA, PM and APM exams
The syllabus for Performance Management, builds on the knowledge gained in Management Accounting (MA). It also prepares students for the more specialist capabilities covered in Advanced Performance Management. This mid position is always a challenge for an examiner because such exams must represent a step up from the lower exam but a step down from the more advanced exam. Stepping up from MA, it is important to note that this is not simply a costing exam. Costing is obviously a key part of the syllabus but it sits amongst many other equally important key areas.
Where an area of the Performance Management syllabus covers a topic already covered in MA as well, such as performance measurement, for example, there is twice as much reason to assume that candidates will be able to tackle such a question.
Previous articles and presentations at conferences have referred to the metaphorical toolbox that is required for Performance Management. This is the set of management accounting techniques that should have been learnt and practised for the exam. Many of these were first introduced in MA, so anyone that was exempt from this exam needs to make sure that they do in fact have the assumed knowledge that gained the exemption in the first place.
Everyone must go into the exam with these metaphorical tools in their bags. A builder wouldn’t turn up to a job with only some of the tools he needs. He doesn’t empty out his toolbox after one job on the basis that he doesn’t need those tools anymore. He knows that he could require a particular tool at any time on a job, depending on what he is doing, and he must be fully prepared at all times. Accountancy is no different, particularly management accounting.
As mentioned at the beginning of this article, MA topics that arise again in Performance Management may be examined in a more challenging way in order to reflect the difference between the two exams. Also, by the time a candidate reaches this exam, they may sometimes be expected to work out which tool they need to take out of their toolbox in order to answer a question, rather than always being told which technique they will need to use. This is another step towards the skills required for Advanced Performance Management and for the workplace itself, where accountants must act as advisors in many situations. Please remember that PM is an Applied Skills exam whereas MA is only an Applied Knowledge exam, although the PM exam would usually be expected to contain a small proportion of pure knowledge marks too.
Format of the exam
PM contains three sections: Section A, Section B and Section C.
Section A is comprised of 15 objective test questions. Each question will be worth two marks and questions may be either narrative or calculative in nature. This mix of questions and the nature of objective test questions per se mean that some questions will take longer to answer than others.
Section A will include questions from the whole Performance Management syllabus. This means that, more than ever, it is important that candidates make sure that they cover the whole syllabus when preparing for the exam. The practice of ‘question spotting’ – i.e. trying to predict what will come up in the exam – has always been a dangerous one and the inclusion of objective test questions should put a stop to this for good. This means that candidates who have passed the PM exam should demonstrate the good core knowledge that one would expect from a part-qualified accountant. Also, these core skills will help candidates when they come on to the Strategic Professional exams, where this core knowledge is always assumed and sometimes re-examined.
As always, it is important that, in Section A, candidates do not spend too much time on any one question that they may be struggling with. It is important to remember that each question is only worth two marks.
This second section of the exam contains three questions comprising five objective test items worth two marks each; therefore, each question is worth a total of 10 marks. These questions will be based around a common scenario ‘case’ and can come from any area within the five main syllabus areas. There will be a mix of calculative and narrative marks. Similar to the approach to Section A, some of the objective test items within these questions will take longer to answer than others, so candidates should focus on spending 18 minutes each on the three ‘case’ questions, rather than trying to allocate time to the individual objective test items.
The third section of the exam will comprise two questions worth 20 marks each. These questions can be either one full 20 mark requirement or broken down into several requirements. These questions will come mainly from syllabus areas C, D and E but may include requirements centred on the learning outcomes in syllabus area A. Unlike Sections A and B which are auto-marked the Section C questions will still be manually marked and so it continues to be absolutely vital that all workings are shown and assumptions are stated. These questions will lend themselves to a larger written element and will test student’s ability to apply their answer to the context given in the question.
It is important for accountants to be able to interpret the numbers that they calculate, and to ask what they mean in the context of performance. It will often be the case here that the requirement asks for some kind of interpretation on the numbers that have been calculated in an earlier part of the question. Candidates should rest assured that full follow-on marks are given for discussion that follows a candidate’s own numbers. If a candidate has been unable to do the calculations, they will still usually find that they can make some valid observations simply from the data given in the question anyway.
The proportion of numbers to words will vary slightly from exam to exam. It is not possible to make it exactly 50:50 in every exam, nor is it deemed necessary to do this. The mix will change slightly depending on the topics being examined, among other things.
A formula sheet is provided with every Performance Management exam. However, the extent to which you may need to use this will vary from exam to exam depending on what is being examined.
The syllabus and study guide for exams from September 2019 onwards
The Syllabus and Study Guide for PM from September 2019 has undergone some changes.
Syllabus area A
The syllabus begins by focusing on the information needs, technologies and systems required by organisations to manage and measure performance in the modern, competitive environment. It is vital for an accountant to understand how information systems and developments in technology influence the management accounting techniques employed and how vital information systems are in the mechanisms of managing and controlling an organisation.
Syllabus area B
The syllabus then moves on to introducing more specialised management accounting topics. There is some knowledge assumed from MA, primarily overhead treatments using absorption and marginal costing. The objective here is to ensure students have a broader background in management accounting techniques. Again, the emphasis is on the implications of the calculations, not just the calculations themselves.
Syllabus area C
The syllabus then considers decision making. Students need to appreciate the problems surrounding scarce resources, pricing, and make-or-buy decisions, and how these problems relate to the assessment of performance. Risk and uncertainty are a factor of real-life decision making; students need to understand risk and must be able to apply some basic methods to help resolve the risks inherent in decision making.
Students should never forget that management accounting provides information partly so that decisions can be made. This area of the syllabus is important and will be a rich source of future questions.
Syllabus area D
Budgeting is an important aspect of many accountants’ lives. The syllabus explores different budgeting techniques and the problems inherent in them. The behavioural aspects of budgeting are important for accountants to understand, and the syllabus includes consideration of the way individuals might react to a budget. Abuse of the budgeting environment is common and damages businesses more than is often realised. Candidates need to appreciate the problems inherent in budgeting and must be able to suggest how these problems can be overcome.
Standard costing and variances are included in syllabus area D. All of the variances previously examined in MA are assumed knowledge here and, while these basic variances would not be expected to be the basis of a complete question in Section B or C, their inclusion in either part of a Section B or C question or as a Section A question would be reasonable.
Syllabus area E
The syllabus concludes with performance measurement and control. This is the core of the syllabus. Accountants need to understand how a business should be managed and controlled. They should appreciate the importance of both financial and non-financial performance measures in management. Hence, the syllabus explicitly states in E1c that candidates may be required to ‘analyse past performance and suggest ways for improving financial and non-financial performance’, although this skill was assumed previously in PM anyway.
The requirements in subsection 2 of syllabus area E reflect that accountants should also appreciate the difficulty of assessing performance in a divisionalised business, and the problems caused by failing to consider external influences on performance. This section therefore leads very directly to Advanced Performance Management.
It can be concluded that Section E is potentially the most important section of the Performance Management syllabus. As the relational diagram illustrates (see the Syllabus on the ACCA website), all other aspects of the syllabus lead to this area. The point is that this is a performance management exam and not a pure management accounting exam. Students must understand this and prepare accordingly.
Preparing for the exam
This is not an exclusive list, but it gives an indication of some of the examining team’s motivations:
- Organisations seem obsessed with financial performance measures, but the future is determined equally by non-financial performance. Both are important. Candidates should be prepared to answer questions on financial performance measures and non-financial performance measures, in both divisionalised and non-divisionalised business contexts; in both private sector and public sector/not for profit sector contexts; and in both manufacturing and service sector industries.
- The ability to perform management accounting calculations is important, and being able to determine the implications of those calculations is also essential for an accountant. It is worrying to see so many candidates sitting the PM exam while seemingly having forgotten the basic skills that were tested at MA (or the equivalent exam giving rise to an exemption). Topics that are in the PM syllabus as well as the MA one will continue to be examined, albeit it in a more challenging context.
- The world around us has changed and is changing. Management accounting is unlike some subjects such as tax and financial reporting, which change from year to year. However, because the world around us is changing, the context of management accounting questions must change too and our knowledge has to adapt accordingly. Techniques such as target costing are used in service industries so you should not be surprised to see them examined in this way. The days of management accounting exams containing questions solely about companies manufacturing widgets are gone. PM questions will aim to reflect the real world, albeit it in a simpler way than you would expect to see in such questions at the advanced level. Without this, the step up to Strategic Professional exams and the workplace itself is unacceptably great.
- Information systems and developments in technology underpin what organisations are doing and are able to do in the future. These changes influence the role of accountants and it is vital that this is recognised. This will be an area which will only grow in importance.
You need to prepare thoroughly for this exam, as follows:
- Read the Syllabus and Study Guide. These give a good indication of the style and content of future exams. Any exam is bound by its Study Guide, as it represents what the examining team is allowed to cover.
- Study thoroughly – this exam is a significant step up from MA. Application and implication will be examined.
- Practise as many past exam questions as possible. Review the PM specimen exams and sample past questions available on the website.
- Read all the articles that are relevant to PM in Student Accountant. They are a very useful study resource. Never think, however, that just because an article has been published in the run-up to the exam, it is indicative of what will be examined in the next exam. It is the ACCA’s policy that this is absolutely not the case. However, bear in mind that when a question is being written about a topic covered in a previous article, it is assumed that candidates will have read that article, whether the article is six months or three-years old and whether it has been written by a member of the Performance Management examining team or somebody else. It is only a few hours’ work to go back through all the articles written in the last few years, print them out and read them.
- Develop business awareness. Many business problems – and Performance Management questions – can be solved using common sense. Actively seek out experiences involving the assessment of performance as these will be invaluable in the exam room.