What to expect from AAT Level 3

Our AAT tutor gives you the inside scoop on how to prepare for moving into AAT’s Level 3.

So you’ve completed the Level 2 and are now moving on to the Level 3; an exciting but slightly scary prospect.

Maybe you breezed through your first taste of bookkeeping and found your introduction to costing straightforward. Or were you one of those students who struggled with debits and credits because they just didn’t make sense, until after months of frustration it suddenly clicked?

Either way, you probably want to know what to expect from the next chapter. We look at how the various units evolve at Level 3, so you can even squeeze in some prep before starting your new studies.

Financial Accounting

Your financial accounting journey started with Bookkeeping Transactions and Controls at L2.

Here you learnt about the building blocks of accounting systems, both manual and electronic. Not only did you learn about how systems are organised, individual transactions processed and key accounts reconciled, you learned to see all of this financial activity from a business’s point of view. 

This is essential groundwork for the L3 Advanced Bookkeeping unit, which starts at the trial balance stage of a set of accounts, where bookkeeping controls finished, and teaches you to make year end adjustments.

In effect, you stop being a bookkeeper and start becoming an accounting technician!

The pass rates

Pass rates can provide an insight into which units students are generally excelling at, or struggling with. But keep in mind that even in units with low pass rates, you might do well because you really know the subject and have focussed your revision on this area.

Arguably, the L3 Bookkeeping unit is the one to look out for, as we see the pass rates drop as students progress into level 3. Pass rates* for the L2 Foundation units are 88% and 71% respectively, which is fairly high.

The Controls unit includes journals and the correction of errors. This is the first significant test of whether you’ve really grasped Debits and Credits, which is reflected in the drop.

The L3 Bookkeeping pass rate is 61.5% (a 9.5% drop from level 2). This is partly because the accounting concept of Accruals is introduced at this point. Happily, we saw 78% of students passing the Preparation of Final Accounts unit, where all four units conclude with you producing Statements of Profit or Loss (SoPL) and Statements of Financial Position (SoFP).

Top tips for financial accounting

1. Remember what you’ve learned at L2 on how accounting systems work, especially credit sales and purchases.
2. Don’t ignore accounting theories and concepts. It’s worth putting the time in to try and understand these at L3, as it will pay dividends at L4.

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Management Accounting

Management Accounting only has one unit per level and is generally seen as an easier topic initially than Financial Accounting.

The L2 unit introduced you to classifying costs by element, nature and behaviour. You learnt to calculate costs related to the elements of:

• materials
• labour
• and overheads.

The Foundation unit also looked at how, within each of these elements, a cost can behave differently if it is fixed or variable, and that it’s used differently, in terms of it being included in the cost of a product, if it’s direct or indirect by nature.

These topics are developed in the L3 unit, which builds on your ability to compile and understand information, so that you begin to analyse it as well, and feed that into a business’s internal planning, control and decision making cycle. 

Top tips for management accounting

1. Reflect back on what you learned at L2 about the relationship between costing and financial accounting systems. It’s only a small part of the unit but gives fundamental context to this topic in general.  If you don’t know what I’m talking about, then it would be a good idea to dig out your L2 study resources!
2. Revise cost classifications. L3 doesn’t refer to classifications by element, nature, behaviour and function but understanding these distinctions underpins everything. These are Management Accounting’s equivalents of debits and credits.
3. Don’t underestimate Management Accounting at L2 and L3 as the progression to L4 is significant.

Supporting topics

Both L2 and L3 include a synoptic assessment, and at both levels it incorporates Financial and Management accounting, as well as additional topics. 

At L2, this was the Working Effectively in Finance unit, and at L3 you’ll be assessed on your understanding of Professional Ethics, as well as having to demonstrate spreadsheet skills.

At L2 you learnt how to use accounting software but there isn’t a L3 equivalent of this unit. However, at L3 you’ll study Indirect Tax (VAT) but it isn’t included in the synoptic assessment.

Whilst these supporting topics don’t flow between the levels in the same way as Financial and Management Accounting, the study skills required do.

Top tips for supporting topics

1. Don’t assume that it’s just common sense! Especially when it comes to Professional Ethics and Indirect Tax. You’ll be assessed on whether you can do what’s required in a particular situation, not what you think is the sensible thing to do, even if they’re the same.
2. Practice written answers. You don’t have to do a lot of written work at L3, but you will at L4 so get into the habit now.
3. Familiarise yourself with spreadsheets as soon as possible, even if you aren’t going to be taught it until later in your course. Try using the Excel study tips on AAT Comment to help you replicate financial and management accounting questions when studying at home.

In summary

So that gives you an idea of what to expect at Level 3, in comparison to Level 2 With regards to general differences, I would say it’s harder and more time consuming but you’re probably expected that anyway!

The total qualification time is 520 hours. For a 30 week course, this means you should be studying for 17 hours a week. My final tip for L3 therefore, is if you didn’t get into good study habits at L2, then do it now so you regularly keep on top of your work.

There are lots of Level 3 study tips on AAT Comment which will provide further, more specific, reading plus a new three part series on Common mistakes at level 3 (coming soon) to help you familiarise yourself with each unit.

*  AAT published pass rates to June 2019 based on CBAs only and not achievement rates for the qualification.

Read more on perfecting your study method:

• Common mistakes students make at AAT Level 3 #1
• Choose the best study method for success
• How AAT study support materials helped me pass my exams

Gill Myers is a self-employed accounts consultant. She has taught AAT qualifications since 2005 and written numerous articles and e-learning resources.