Paper 17: Management Accounting - Decision Making (One Paper: 3 hours: 100 marks)
- Basic concepts in decision making - relevant costs and benefits; Joint cost allocations and common costs; qualitative factors; sales mix, quantity, market size and market share variances. Transfer pricing, negotiated prices, dual pricing, external pricing strategies - premium pricing, penetration pricing, market skimming, loss leaders, product differentiation, International transfer pricing - taxation, currency, remittance of funds. Profit maximisation, Pareto analysis, risk and uncertainty, decision trees, learning curve, alternative costing systems. Applications of Operation Research techniques (linear programming, Transportation, simulation, PERT, CPM etc.) in decision-making.
- Costing and accounting systems - activity based costing and activity based management; customer profitability analysis; direct product profitability; just-in-time and back flush accounting; theory of constraints and throughput accounting; behavioural aspects of alternative costing systems; target costing; life cycle costing, Parametric cost control.
- Investment appraisal - capital budgeting process; investment appraisal techniques - pay back, discounted pay back, accounting rate of return, net present value, IRR, benefit-cost ratio.
Taxation, inflation, replacement, unequal lives, sensitivity analysis.
Divisional performance - return on investment; residual income. Post completion appraisal.
Paper 18: Management Accounting - Financial Strategy and Reporting (One Paper: 3 hours: 100 marks)
- Financial strategy formulation - Modelling annual cash flow forecasts and other financial statements based on expected changes in values e.g. inflation, volume, margins and probabilities, expected values and sensitivity analysis. Hire purchase and leasing.
- Measurement of income and capital - The problems of profit measurement and the effect of alternative approaches to asset valuation. The principle of Substance over Form.
The accounting treatment of goodwill, intangible and tangible assets.
Inflation and its effect on financial statements.
Impairment of fixed assets, brands and goodwill.
Provisions and contingent liabilities and contingent assets.
Foreign currency translation to include overseas transactions and investments in overseas subsidiaries.
- Analysis of Financial Statements - Advance topics on interpretation of financial statements via the analysis of corporate reports. Ratios in the areas of performance, profitability, financial adaptability, liquidity, activity and gearing of business, segmental analysis; inter firm comparison.
- Advanced investment appraisal - Capital investment real options (i.e. option to make follow-on investment, the option to abandon and the option to wait). Weighted Average Cost of Capital and its use; adjusting the WACC for changes in capital structure. Single period capital rationing for divisible and non-divisible projects.
- Capital Asset Pricing Model (CAPM) - Advanced aspects of arbitrage pricing theory; risk adjustment using the certainty equivalent method; investment controls in practice.
- Financial analysis and reporting - disclosures, productivity and profitability reporting, performance measurement/development reports. Current issues in financial analysis and reporting.
Paper 19: Cost Audit and Management Audit (One Paper: 3 hours: 100 marks)
Aim: To provide an in-depth study of the body of knowledge comprising of the techniques and methods of planning and executing a Cost and Management Audit assignment.
Section I : Cost Audit (50 marks)
- Provisions relating to maintenance of Cost Accounting record under the Companies Act; recording and audit compliance of cooperative societies Act, Customs & Excise Act, WTO, Antidumping processing, export-import policy & special provisions of sick industries Act (SICA) etc.
- Nature, objects and scope of Cost Audit - The concepts of efficiency audit, propriety audit, management audit, social audit.
- Appointment of Cost Auditor -Procedure for appointment, his rights, responsibilities, status, relationship and liabilities - professional and legal under the Companies Act, 1956 (1 of 1956), the Cost and Works Accountants Act, 1959 (23 of 1959)
- Planning the audit - Familiarisation with the industry, the organisation, the production process systems and procedures, list of records and reports, preparation of the audit programme.
- Verification of records and reports - Utilisation of statistical sampling methods - verification of performance and statements maintained under the Cost Accounting (Records) Rules.
- Evaluation of Internal Control Systems - Budgetary Control, capacity utilisation, inventory control, management information system.
- Assessment of the adequacy of the internal audit function.
- Audit notes and working papers - audit reports to management.
- The Cost Audit Reports - contents of the Report, distinction between "Notes and Qualifications" to the Report. Cost Auditor's observations and conclusions.
- Professional Ethics and Code of Conduct.
- Relationship between the Statutory Financial Auditors, the Internal Auditor and the Statutory Cost Auditor.
- Cost Accounting (Records) Rules under clause (d) of sub-section (1) of section 209 (issued one year before the examination) and Cost Audit (Reports) Rules issued under section 233-B of the Companies Act, 1956 (1 of 1956). Critical study of the rules including the prescribed Annexure and Proforma applicable to the industries covered.
- Review of Cost Audit Report by the Government: Objectives, methods, follow-up actions and disposal of Cost Audit Reports by the Government company and other end-users of the Cost Audit Reports.
- Comparative Studies between cost audit and financial audit with special reference to disclosure of information to members, parliament and the general public.
- Penal provisions for Companies and Cost Auditors.
- Disciplinary proceedings.
Section II - Management Audit leading to other Services (50 marks)
A. Management Audit
- Meaning, nature and scope, organisational needs for Management Audit and its coverage over and above other audit procedures.
- Audit of the Management Processes and Functions, such as Planning, Organisation, Staffing, Co-ordination, Communication, Direction and Control.
- Evaluation of Management Information and Control Systems with special emphasis on Corporate Image and Behavioural Problems.
- Corporate service audit (Customer services): Product (Research and Development) and import substitution, customer’s channels (export), CRM
- Corporate Development and Management Audit, including operational and propriety aspects.
- Social Cost and Benefit of business enterprises with particular reference to developing countries.
- Audit of Social responsibility of management.
- Corporate governance and Audit Committees
B. Other Services
- Other service sector to the Management, Certification for various purposes - the records to be verified and the safeguards to be taken - the form and content of the certificates.
- Cost audit as an aid to management, Government, shareholders, other external agencies and the public voluntary Cost Audit.
- Productivity Audit - labour, material and capital.
- Audit of Energy Conservation and Environmental Protection.
- Efficiency audit - audit of sub-systems of an enterprise.
- Assessment and quantification of losses under marine, fire and accident insurance policies.
- inventory Audits for Banks and other agencies.
- IRDA, Insurance Act, CARC.
Paper 20: Valuations Management and Case Study (One Paper: 3 hours: 100 marks)
Section I - Valuations Management (70 marks)
- Principles and Techniques of valuation - asset valuation bases (e.g. historic, replacement, realisable); earnings valuation bags (P/E multiples, earnings yield). Cash flow valuation bases (i.e. DCF dividend yield, dividend growth model.
- Other valuation bases (e.g. earn out arrangements, super profits method). The strength and weaknesses of each valuation method and the suitability of each method.
- Application of the efficient market hypothesis to business valuation.
The impact of changing capital structure on the market value of a company
The different forms and methods of valuation of intellectual capital. The reasons for acquisitions (e.g. synergistic benefits, removing competitions)
The priorities of different stakeholders in terms of business valuation.
- Valuating bases for takeovers, mergers, amalgamation,
- Valuation of shares, debentures, inventory, brand and other tangible and intangible assets as well as different liabilities.
Section II - Case Study (30 marks)
- To apply strategic management accounting techniques to make and support decisions within a simulated business contact.
- The case study will be based on other final level papers and will draw upon material already covered in the previous levels.
( The case study will require the student to deal with material in less structured situations to integrate a variety of tools in arriving at a recommended solution. It is obvious that cannot be a single right answer.
The process that students undertaken in arriving at potential solutions are viewed as being more important than the recommendations.
The stages to case study -
- Analyse and identify the present position of an organisation.
- Analysis and identify problems facing an organisation.
- Appraise possible feasible courses of action available.
- Evaluate and then choose specific proposals.
- Identify and evaluate priorities related to the proposals.
- Prepare and present information in a format suitable for presentation to senior management.