APC #2

October 11, 2016

 

Today we will be looking at how to conclude a question. Again it may seem simple, but many trainees do not conclude based on the information that they have provided. Also, there is a big difference between providing an answer and concluding. Here are some examples:

 

1. If a question enquires whether or not certain services can be accepted, the conclusion should be quite simple after providing relevant content that relates to the scenario. You should be able to conclude by simply stating: “Based on the information provided, I believe that we can accept the engagement” or “Based on the familiarity threat, I advise that it is not appropriate for us to accept the engagement.” Your conclusion should always explain why you recommend that the company can or cannot go ahead with the relevant services. Whilst compiling the content, you would have identified items such as familiarity, self-review, or lack of technical knowledge, as threats. Thus, when you make the decision to go ahead, or not go ahead, you need to explain your decision, especially when threats exist, for instance, “Although the team does not have specialist knowledge with regards to value-shifting agreements, a member from the tax team will be able to assist with an opinion on the matter and thus the engagement can be accepted.”

 

2. When asked to calculate a number or percentage, it is not sufficient to just provide the number or percentage. For example, if you are asked to calculate the break-even percentage and your calculation shows 50% as the break-even percentage, then you still need to tell the examiner / line manager what that number means and what to do with it. Thus: “Based on the current fixed and variable cost, the break-even percentage of the guest house is 50%. That means that, of the twenty rooms available, at least ten need to be occupied though-out the year in order to break even. The industry average is 40% which shows that we need to attract 25% more clients per day than the industry average, in order to break even. This is due to the fact that the guesthouse’s variable cost is higher, as it provides supper as well as breakfast to guests. It is not common-practice to provide supper, thus the profit per night, per guest, is lower. This should, however, not be a problem as industry research has shown that, by including supper, we will have a clear competitive advantage that should increase occupation rates by as much as 30%.” Simply stating that the break-even percentage is 50% does not mean anything if it is not compared to the industry, or explained in terms of occupation levels.

 

3. You can include your conclusion after your calculations in the conclusion paragraph, or you can start your report with a cover page that has an introduction, a conclusion and then the calculations, or content, as an appendix. It is entirely up to you, but what is important is that you conclude in a clear and concise manner. Many trainees provide the information, or the calculations, but seem to want to leave it to the line manager to decide on the way forward. This is not acceptable. A question was asked to you and you need to decide on /recommend a way forward. If there are three parts to a question you have to conclude on all three parts separately. In real life, if your line manager gives you a task to complete, he / she expects an answer / recommendation, based on the content that you provide for each scenario.

 

The point is that, based on the information available to you at that point in time, you have to make a decision. It is good practice to mention items that are relevant to the decision and how these have an influence on your recommendation. For example, if the current economic cycle shows that interest rates are increasing, then you will know that your WACC and thus NPV, will be influenced by interest rates. It is thus worth mentioning that although the project is currently viable, should interest increase by more than 2%, the project will not have positive returns. This shows the examiner / line manager that you fully understand what you have calculated and that you have also considered what is currently happening in the world as per your Professional Skills requirements PA(C)1: Identifies and evaluates critical factors in the economic, social, legislative, regulatory and political environment that impact on business and the financial decisions of an entity.

 

Have a look at the papers you have written this year. Have you provided a clear and concise conclusion, or have you just provided numbers? Or even worse, have you left it for the examiner to decide the way forward?

 

Until tomorrow,
Francois and the Atcor team

 

 

 

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