Requirement one, two and three in the Case Study exam

This series of Case Study exam resources will cover everything you need to know to prepare for the Case Study exam. This includes:

• Introduction to the Case Study exam
• How to approach the advance information
• Using the advance information during the Case Study exam
• A guide on Requirements one, two and three
• An overview of the Executive Summary
• How to prepare to retake the Case Study exam

The examiners refer to this as the 'financial statement analysis' section of the exam. In broad terms you are required to provide a financial commentary, eg, explaining to a non-financial audience how the business has performed over the last year, how this compares to past performance and current expectations, and, what this means for the future.

In terms of approaching Requirement one bear this in mind; you are trying to 'make the numbers talk'. Remember your audience are not financial experts, they will not understand for example why a growth in sales does not result in growing profits, or why profits do not translate into cash. It is your job to communicate this analysis in plain terms.

The marking key informs us how each of the four professional skills are rewarded in Requirement one (A marks plan can be found here):

• Assimilating and using information (AUI) - basic financial analysis, using relevant facts to support your analysis.
• Structuring problems and solutions (SPS) - granular financial analysis eg explaining how the movements in  individual revenue and costs lines resulted in the overall movements seen on the face of the Profit or Loss account. Identifying 'other' issues points of discussion eg why profits do not equal cash.
• Applying judgement (AJ) - explain why the movements in individual revenue and cost lines occurred, and what these movements mean for business as a whole. Evaluating 'other' issues points of discussion eg, what steps the company can take to improve cashflows.
• Conclusions and recommendations (C&R) - concluding on the main Profit or Loss account movements, and recommending the steps the business should take to deal with immediate issues and to improve its financial performance in the future.

Requirement one is the section of the report that is best-answered, due largely to the consistent approach of the examiners, and its closeness to the core competencies of an accountant, eg, you will always be asked to commentate of the profit and loss performance year-on-year. However, you will note that the final SPS and AJ mark boxes are reserved for 'other issues' and while these issues can always be found in the advance information, it is not possible to know which of these issues in the advance information will be tested in the exam.

The examiners refer to this as the 'financial data analysis' section of the exam. In most cases this will require you to re-model a 'set-piece' calculation in the exam under a new set of assumptions. You will then be asked to evaluate the assumptions you have been asked to make, assessing the impact that these assumptions will have if they are unreliable. Finally, you will need to consider any commercial, and possibly any ethics and business trust issues that abound. 

The marking key informs us how each of the four professional skills are rewarded in Requirement two (A marks plan can be found on the Case Study exam resources webpage):

• Assimilating and using information (AUI) - basic financial analysis, using relevant facts to support your analysis.
• Structuring problems and solutions (SPS) - completing your financial analysis, identifying assumptions behind the calculations, identifying relevant commercial (and possibly EBT) issues.
• Apply judgement (AJ) - evaluate the financial impact on the business, evaluate the impact on the viability if the assumptions are not reliable, evaluate the impact that practical, commercial or EBT issues may have.
• Conclusions and recommendations (C&R) - concluding on the financial impact, assessing the impact that the main assumptions may have, concluding on the main commercial issues, and recommending whether to accept or not. Recommendations on how to proceed must be practical, eg, gather more data on the assumptions that are unreliable.

Requirement two is written to reflect the uncertainty of the real world eg, when confronted with key decisions there is rarely an obvious right or wrong choice at the time the decision is taken. This means that whatever options are in front of you if your financial analysis is accurate there will not be an obvious way forward eg, there is no 'right' or 'wrong' option. Instead you are expected to proceed with caution.

The examiners refer to this as the 'commercial analysis including business trust and ethical awareness' section exam. Here you will typically be provided with new information and then be asked to evaluate the:

• Financial impact
• Strategic and operational issues
• Ethics and business trust issues

This is the least well-answered part of the report, though this may also be due to candidate fatigue and time pressure at this point in the exam, as much as any inherent difficulty.

The marking key informs us how each of the four professional skills are rewarded in Requirement three, and here there is a lot of overlap with Requirement two, though some notable differences (A marks plan can be found on here):

• Assimilating and using information (AUI) - basic financial analysis, using relevant facts to support your analysis.
• Structuring problems and solutions (SPS) - completing your financial analysis, identifying the strategic logic and the practical (operational) issue to overcome, identifying EBT issues.
• Applying judgement (AJ) - evaluate the financial impact on the business, evaluate the strategic impact and operational difficulties and the impact these may have on the proposal, evaluate the impact that EBT issues may have, and how to resolve these.
• Conclusions and recommendations (C&R) - concluding on the financial impact, assessing the strategic and operational impact, and recommending whether to accept or not. Recommendation on how to proceed must be practical eg, negotiate terms and conditions, perform due diligence.

As with Requirement two, Requirement three is written in way that means there is no obvious right or wrong answer. This means that whatever options are in front of you, if your financial analysis is accurate there will not be an obvious 'right' or 'wrong' option. Instead you are expected to proceed with caution.

The greatest challenges for most candidates in passing the Case Study are (i) producing a complete report within the time allowed (4 hours) and (ii) producing an answer to a pass standard by demonstrating the skills needed to pass across the whole script. To overcome these you need to do four things:

1. Come up with a plan as to how to manage you time. See the example below.
2. Practise with past Case Study exams. Before receiving your advance information, at which point your focus will shift to you real exam, you should attempt at least four recent past Case Study exams. For this you will need to (i) spend at least half a day familiarising yourself with the advance information (ii) complete the exam within the time allowed, using the blank exam software available (iii) having your script reviewed or, self-marking using the marking keys.
3. Reflecting on your performance, making notes as to where you time management was good or poor, and noting on your mark key which areas you are scoring well in, and where you are consistently not performing well. Your reflections can be aided by reviewing the examiners' reports and sample scripts for all past Case Study exams. Detailed reflection and reviewing good quality answers should help you identify areas of self-improvement.