ACCCA P4

Advanced Financial Management (P4) June & December 2013 This syllabus and study guide is designed to help with planning study and to provide detailed information on what could be assessed in any examination session. THE STRUCTURE OF THE SYLLABUS AND STUDY GUIDE Relational diagram of paper with other papers This diagram shows direct and indirect links between this paper and other papers preceding or following it. Some papers are directly underpinned by other papers such as Advanced Performance Management by Performance Management. These links are shown as solid line arrows. Other papers only have indirect relationships with each other such as links existing between the accounting and auditing papers. The links between these are shown as dotted line arrows. This diagram indicates where you are expected to have underpinning knowledge and where it would be useful to review previous learning before undertaking study. Overall aim of the syllabus This explains briefly the overall objective of the paper and indicates in the broadest sense the capabilities to be developed within the paper. Main capabilities This paper’s aim is broken down into several main capabilities which divide the syllabus and study guide into discrete sections. Relational diagram of the main capabilities This diagram illustrates the flows and links between the main capabilities (sections) of the syllabus and should be used as an aid to planning teaching and learning in a structured way. Syllabus rationale This is a narrative explaining how the syllabus is structured and how the main capabilities are linked. The rationale also explains in further detail what the examination intends to assess and why. Detailed syllabus This shows the breakdown of the main capabilities (sections) of the syllabus into subject areas. This is the blueprint for the detailed study guide. Approach to examining the syllabus This section briefly explains the structure of the examination and how it is assessed. Study Guide This is the main document that students, tuition providers and publishers should use as the basis of their studies, instruction and materials. Examinations will be based on the detail of the study guide which comprehensively identifies what could be assessed in any examination session. The study guide is a precise reflection and breakdown of the syllabus. It is divided into sections based on the main capabilities identified in the syllabus. These sections are divided into subject areas which relate to the sub-capabilities included in the detailed syllabus. Subject areas are broken down into sub-headings which describe the detailed outcomes that could be assessed in examinations. These outcomes are described using verbs indicating what exams may require students to demonstrate, and the broad intellectual level at which these may need to be demonstrated (*see intellectual levels below). Learning Materials ACCA's Approved Learning Partner - content (ALP- c) is the programme through which ACCA approves learning materials from high quality content providers designed to support study towards ACCA’s qualifications. ACCA has one Platinum Approved Learning Partner content which is BPP Learning Media. In addition, there are a number of Gold Approved Learning Partners - content. 1 © ACCA 2013 All rights reserved. For information about ACCA's Approved Learning Partners - content, please go ACCA's Content Provider Directory. The Directory also lists materials by Subscribers, these materials have not been quality assured by ACCA but may be helpful if used in conjunction with approved learning materials. You will also find details of Examiner suggested Additional Reading which may be a useful supplement to approved learning materials. ACCA's Content Provider Directory can be found here– http://www.accaglobal.com/learningproviders/alpc/c ontent_provider_directory/search/. Relevant articles will also be published in Student Accountant. INTELLECTUAL LEVELS The syllabus is designed to progressively broaden and deepen the knowledge, skills and professional values demonstrated by the student on their way through the qualification. The specific capabilities within the detailed syllabuses and study guides are assessed at one of three intellectual or cognitive levels: Level 1: Knowledge and comprehension Level 2: Application and analysis Level 3: Synthesis and evaluation Very broadly, these intellectual levels relate to the three cognitive levels at which the Knowledge module, the Skills module and the Professional level are assessed. Each subject area in the detailed study guide included in this document is given a 1, 2, or 3 superscript, denoting intellectual level, marked at the end of each relevant line. This gives an indication of the intellectual depth at which an area could be assessed within the examination. However, while level 1 broadly equates with the Knowledge module, level 2 equates to the Skills module and level 3 to the Professional level, some lower level skills can continue to be assessed as the student progresses through each module and level. This reflects that at each stage of study there will be a requirement to broaden, as well as deepen capabilities. It is also possible that occasionally some higher level capabilities may be assessed at lower levels. LEARNING HOURS AND EDUCATION RECOGNITION The ACCA qualification does not prescribe or recommend any particular number of learning hours for examinations because study and learning patterns and styles vary greatly between people and organisations. This also recognises the wide diversity of personal, professional and educational circumstances in which ACCA students find themselves. As a member of the International Federation of Accountants, ACCA seeks to enhance the education recognition of its qualification on both national and international education frameworks, and with educational authorities and partners globally. In doing so, ACCA aims to ensure that its qualifications are recognized and valued by governments, regulatory authorities and employers across all sectors. To this end, ACCA qualifications are currently recognized on the education frameworks in several countries. Please refer to your national education framework regulator for further information. Each syllabus contains between 23 and 35 main subject area headings depending on the nature of the subject and how these areas have been broken down. GUIDE TO EXAM STRUCTURE The structure of examinations varies within and between modules and levels. The Fundamentals level examinations contain 100% compulsory questions to encourage candidates to study across the breadth of each syllabus. The Knowledge module is assessed by equivalent two-hour paper based and computer based examinations. The Skills module examinations are all paper based three-hour papers. The structure of papers varies from ten questions in the Corporate and Business 2 © ACCA 2013 All rights reserved. Law (F4) paper to four 25 mark questions in Financial Management (F9). Individual questions within all Skills module papers will attract between 10 and 30 marks. The Professional level papers are all three-hour paper based examinations, all containing two sections. Section A is compulsory, but there will be some choice offered in Section B. For all three hour examination papers, ACCA has introduced 15 minutes reading and planning time. This additional time is allowed at the beginning of each three-hour examination to allow candidates to read the questions and to begin planning their answers before they start writing in their answer books. This time should be used to ensure that all the information and exam requirements are properly read and understood. During reading and planning time candidates may only annotate their question paper. They may not write anything in their answer booklets until told to do so by the invigilator. The Essentials module papers all have a Section A containing a major case study question with all requirements totalling 50 marks relating to this case. Section B gives students a choice of two from three 25 mark questions. Section A of both the P4 and P5 Options papers contain one 50 mark compulsory question, and Section B will offer a choice of two from three questions each worth 25 marks each. Section A of each of the P6 and P7 Options papers contains 60 compulsory marks from two questions; question 1 attracting 35 marks, and question 2 attracting 25 marks. Section B of both these Options papers will offer a choice of two from three questions, with each question attracting 20 marks. All Professional level exams contain four professional marks. The pass mark for all ACCA Qualification examination papers is 50%. GUIDE TO EXAMINATION ASSESSMENT ACCA reserves the right to examine anything contained within the study guide at any examination session. This includes knowledge, techniques, principles, theories, and concepts as specified. For the financial accounting, audit and assurance, law and tax papers except where indicated otherwise, ACCA will publish examinable documents once a year to indicate exactly what regulations and legislation could potentially be assessed within identified examination sessions.. For paper based examinations regulation issued or legislation passed on or before 30th September annually, will be assessed from June 1st of the following year to May 31st of the year after. . Please refer to the examinable documents for the paper (where relevant) for further information. Regulation issued or legislation passed in accordance with the above dates may be examinable even if the effective date is in the future. The term issued or passed relates to when regulation or legislation has been formally approved. The term effective relates to when regulation or legislation must be applied to an entity transactions and business practices. The study guide offers more detailed guidance on the depth and level at which the examinable documents will be examined. The study guide should therefore be read in conjunction with the examinable documents list. 3 © ACCA 2013 All rights reserved. © ACCA 2013 All rights reserved. Syllabus MAIN CAPABILITIES On successful completion of this paper, candidates should be able to: 4 AFM (P4) PA (P1) CR (P2) A Explain and evaluate the role and responsibility of the senior financial executive or advisor in meeting conflicting needs of stakeholders AIM To apply relevant knowledge, skills and exercise professional judgement as expected of a senior financial executive or advisor, in taking or recommending decisions relating to the financial management of an organisation. B Evaluate the impact of macro economics and recognise the role of international financial institutions in the financial management of multinationals C Evaluate potential investment decisions and assessing their financial and strategic consequences, both domestically and internationally D Assess and plan acquisitions and mergers as an alternative growth strategy E Evaluate and advise on alternative corporate re-organisation strategies F Apply and evaluate alternative advanced treasury and risk management techniques G Identify and assess the potential impact of emerging issues in finance and financial management. RELATIONAL DIAGRAM OF MAIN CAPABILITIES RATIONALE FM (F9) MA (F2) Role and responsibility towards stakeholders (A) Treasury and advanced risk management techniques (F) Corporate reconstruction and re-organisation (E) Advanced investment appraisal (C) Economic environment for multinational organisations (B) Acquisition and mergers (D) Emerging issues in finance and financial management (G) This syllabus develops upon the core financial management knowledge and skills covered in the F9, Financial Management, syllabus at the Fundamentals level and prepares candidates to advise management and/or clients on complex strategic financial management issues facing an organisation. The syllabus starts by exploring the role and responsibility of a senior executive or advisor in meeting competing needs of stakeholders within the business environment of multinationals. The syllabus then re-examines investment and financing decisions, with the emphasis moving towards the strategic consequences of making such decisions in a domestic, as well as international, context. Candidates are then expected to develop further advisory skills in planning strategic acquisitions and mergers and corporate re-organisations. The next part of the syllabus re-examines, in the broadest sense, the existence of risks in business and the sophisticated strategies which are employed in order to manage such risks. It builds on what candidates would have covered in the F9, Financial Management, syllabus and the P1,Governance, Risk and Ethics, syllabus. The syllabus finishes by examining the impact of emerging issues in finance. DETAILED SYLLABUS A Role and responsibility towards stakeholders 1. The role and responsibility of senior financial executive/advisor 2. Financial strategy formulation 3. Conflicting stakeholder interests 4. Ethical issues in financial management 5. Impact of environmental issues on organisational objectives and on governance B Economic environment for multinational organisations 1. Management of international trade and finance 2. Strategic business and financial planning for multinational organisations C Advanced investment appraisal 1. Discounted cash flow techniques 2. Application of option pricing theory in investment decisions 3. Impact of financing on investment decisions and adjusted present values 4. Valuation and the use of free cash flows 5. International investment and financing decisions D Acquisitions and mergers 1. Acquisitions and mergers versus other growth strategies 2. Valuation for acquisitions and mergers 3. Regulatory framework and processes 4. Financing acquisitions and mergers E Corporate reconstruction and re-organisation 1. Financial reconstruction 2. Business re-organisation F Treasury and advanced risk management techniques 1. The role of the treasury function in multinationals 2. The use of financial derivatives to hedge against forex risk 3. The use of financial derivatives to hedge against interest rate risk 4. Dividend policy in multinationals and transfer pricing G Emerging issues in finance and financial management 1. Developments in world financial markets 5 © ACCA 2013 All rights reserved. 2. Developments in international trade and finance 3. Developments in Islamic financing APPROACH TO EXAMINING THE SYLLABUS The P4, Advanced Financial Management, paper builds upon the skills and knowledge examined in the F9, Financial Management, paper. At this stage candidates will be expected to demonstrate an integrated knowledge of the subject and an ability to relate their technical understanding of the subject to issues of strategic importance to the organisation. The study guide specifies the wide range of contextual understanding that is required to achieve a satisfactory standard at this level. Examination Structure The examination will be a three-hour paper in two sections: Section A: Section A will contain a compulsory question, comprising of 50 marks. Section A will normally cover significant issues relevant to the senior financial manager or advisor and will be set in the form of a case study or scenario. The requirements of the section A question are such that candidates will be expected to show a comprehensive understanding of issues from across the syllabus. The question will contain a mix of computational and discursive elements. Within this question candidates will be expected to provide answers in a specified form such as a short report or board memorandum commensurate with the professional level of the paper in part or whole of the question. Section B: In section B candidates will be asked to answer two from three questions, comprising of 25 marks each. Section B questions are designed to provide a more focused test of the syllabus. Questions will normally contain a mix of computational and discursive elements, but may also be wholly discursive or evaluative where computations are already provided. Total 100 marks 6 © ACCA 2013 All rights reserved. Study Guide A ROLE AND RESPONSIBILITY TOWARDS STAKEHOLDERS 1. The role and responsibility of senior financial executive/advisor a) Develop strategies for the achievement of the organisational goals in line with its agreed policy framework. [3] b) Recommend strategies for the management of the financial resources of the organisation such that they are utilised in an efficient, effective and transparent way. [3] c) Advise the board of directors or management of the organisation in setting the financial goals of the business and in its financial policy development [2] with particular reference to: i) Investment selection and capital resource allocation ii) Minimising the cost of capital iii) Distribution and retention policy iv) Communicating financial policy and corporate goals to internal and external stakeholders v) Financial planning and control vi) The management of risk. 2. Financial strategy formulation a) Assess organisational performance using methods such as ratios, trends, EVATM and MVA.[3] b) Recommend the optimum capital mix and structure within a specified business context and capital asset structure.[3] c) Recommend appropriate distribution and retention policy.[3] d) Explain the theoretical and practical rationale for the management of risk. [3] e) Assess the organisation’s exposure to business and financial risk including operational, reputational, political, economic, regulatory and fiscal risk.[3] f) Develop a framework for risk management, comparing and contrasting risk mitigation, hedging and diversification strategies.[3] g) Establish capital investment monitoring and risk management systems.[3] 3. Conflicting stakeholder interests a) Assess the potential sources of the conflict within a given corporate governance/ stakeholder framework informed by an understanding of the alternative theories of managerial behaviour. [3] Relevant underpinning theory for this assessment would be: i) The separation of ownership and control ii) Transaction cost economics and comparative governance structures iii) Agency Theory. b) Recommend, within specified problem domains, appropriate strategies for the resolution of stakeholder conflict and advise on alternative approaches that may be adopted. [3] c) Compare the different governance structures and policies (with particular emphasis upon the European stakeholder and the US/UK shareholder model) and with respect to the role of the financial mana