Here is the summary of what the AFM September 2019 exam was all about including some recent comments made by the examiner on the performance of candidates in this sitting.
The AFM Examiner Report will highlight strengths and weaknesses in candidates 2019 performance and therefore offers constructive advice for future candidates including those who are planning to re-attempt this paper in December 2019.
The main reasons for candidates performing less well were:
- Lack of detailed knowledge of parts of syllabus areas and consequently not answering all parts of questions fully.
- Many candidates were not able to answer some questions comprehensively because they had not studied that area of syllabus and study guide in sufficient depth;
- Poor time management, which was less evident in this exam.
- Some candidates spent too much time discussing same issue differently,
- without considering a range of other relevant issues or take too long to carry out relatively straight forward calculation tasks;
- Failing to respond fully to question requirements or take account of details in question scenarios that established the parameters of the answer.
- Candidates must read question scenarios carefully and pay particular attention to the wording in question requirements. These are the kind of skills that question practice will help develop;
- Computational answers that are poorly structured.
- A sequential and logical approach with clear and easy to follow workings is particularly important for computational elements. Candidates whose approach are disorganized often missed out stages that would have gained marks;
- Not taking account of the marks available allocated to written question parts,
- resulting in providing detailed answers for relatively minor parts, but very brief answers for those parts where more marks are available;
- Not reading the requirements of the question properly and therefore answering the question incorrectly.
- It is also important that answers should be relevant to the question asked. General answers which do not directly relate to the scenario are unlikely to be awarded many marks;
- Focusing more on either the discursive or computational parts of the exam.
- Candidates need to be aware that a balanced approach is required to achieve a pass.
Reviews from Question 1
Scenario focused on evaluating and justifying the choice between two potential investment projects that a company wants to undertake, using the adjusted present value method and duration.
Part (a) required discussion why a company may prefer to use the adjusted present value (APV) method, rather than the net present value (NPV) method.
This question part was not done as well as expected.
A number of candidates described how the APV method is carried out, not why it is preferred to the NPV method.
There is also the misconception by some candidates that the cost of debt is not accounted for under the NPV method.
Candidates did well when they discussed that the APV method separates out investment from financing cash flows and applies a specific discount rate to the appropriate cash flow to determine the value added or destroyed, whereas the NPV method uses a single rate (the weighted average cost of capital) to discount all the cash flows arising from the potential investment project.
Reviews from Question 2
Reviews from Question 3
Scenario focused on evaluating whether a clothing retailer should change its budgeting system to an activity based one and then to complete some figure work for an activity based budget, offering an explanation for any variances.
Consideration of advantages & disadvantages of both current system (incremental) and activity based budgeting (ABB) before offering a justified conclusion as to what company should do
worth 13 marks
Candidates generally performed well in this part, if not in all parts of the evaluation.
Candidates would rarely undertake all of these requirements: some, for example, would focus exclusively on ABB and not refer in any detail or level of analysis to the current system whereas others might suggest disadvantages of the current system without explaining the advantages.
It was evident from the scenario that advantages must have existed as the company had been successful over the 18 years it had used the current budget method.
Most frequent of all, however, was the lack of any conclusion or, alternatively, the suggestion of a conclusion the company should adopt ABB, for example, without any justification offered.
This highlights an area where candidates should be more prepared. The use of the word evaluate , as has been highlighted in previous Examiner Reports for this examination, means that candidates should assess the strengths and weaknesses of the arguments that arise, in relation to the scenario that is detailed, before coming to a justified conclusion as to what the company should do. Seen in that light, this should have been a question where most candidates were scoring at least ten marks.
Both budgeting methods would have been well known to from Performance Management and the issues that arose from them were very clear from the scenario.
One other area where candidates did not score as well was in offering definitions of terms such as incremental budgeting and, in particular, on ABB without directing the comments that they made towards answering the questions requirement. It is always worthwhile offering a very brief definition of any technique or technical term to demonstrate comprehension but candidates should be aware that such comments are not worthy of many, if any, marks and that it is evaluation of those techniques with regard to the specifics of the scenario that the examining team wish to see.nCandidates also tended to bring in other techniques that were not relevant to requirement here and such practice is generally to be avoided as examining team has focused candidatesu2019 attention on specific areas that they wish to examine.nIn this part of the question, for example, candidates frequently commented on zero-based budgeting (ZBB) or rolling budgeting. An analysis of such techniques may have been relevant had the question requirement been more open u2013 u201cevaluate whether the company should change its current budgeting systemu201d, but the requirement in this case was to evaluate a prospective change from the current system to ABB.nIn terms of examination technique, candidates should focus their responses on what they have specifically been asked to address and, in this case, discussion of any other budgeting technique is irrelevant and represents a waste of time which candidates could have deployed better elsewhere.n
Advice for the Future
There were a number of issues that arose which, while not common to all answers, would certainly represent broad generic areas where candidates should be able to improve upon their performance in the future:
- Failing to read the specific requirement around the question, particularly appropriate to Questions 1(i) and 2b).
- Spending a great deal of time giving definitions – Questions 2a), 3a) and 1(ii) in particular – rather than in evaluating the scenario as requested.
Understand from previous Examiner’s Reports that APM is an examination based on justification and analysis. Writing almost exclusively in single sentence paragraphs is not conducive to justification and analysis as such a style tends to introduce a point and does not offer anything further by way of analysis or justification. It is important in APM that points made are supported and justified and it is clear that a single sentence paragraph, bullet-point style, is the very antithesis of this.
- Not sticking to specific question requirements – Question1(i) asked for two key performance indicators only per critical success factor and many candidates offered three or sometimes four.
- Offering unjustified, commercially naive suggestions which demonstrate a lack of understanding of the scenario – for example, the suggestion of adopting an ERP system for both questions 1(iv) and 3a).
- Making the same point repetitively. This was evident particularly in 2a) where the issue of service being different every time it was delivered was made on several occasions by many candidates.
- Trying to ensure both handwriting and layout of answers is as clear as possible.