Study tips: Accounting principles and why you should understand them

Posted by & filed under Advanced Diploma, Students.

“I skipped that chapter in the textbook as it was all words.”

“I just need to know how to do it not why.”

Have you ever made a statement like either of these? I’ve heard them repeatedly over my years as an AAT tutor, especially when we reach the theoretical part of the syllabus. But I’m passionate about the fact that in order to be competent accounting technicians, we need to understand why we do what we do.

In fact, I believe there’s too much to remember when it comes to accounts, so the only way to be successful is to understand what you’re doing and use the theory to work out the practical application.

The accruals or matching concept

The accruals or matching concept is a classic example as so many students find it hard to understand. The theory is:

Matching income generated with expenses incurred, to a financial period, regardless of when the money is paid or received.

But what does it mean in practice?

Let’s split it up into three sections:

Theory: Matching expenditure incurred with income generated

Practice: We match up the accounts on the Statement of profit or loss (SPL).  We can only include ‘Expenses’ in the bottom half that have been spent to generate the ‘Net Sales’ at the top.

Theory: To a financial period 

Practice: The figures on our financial statements have to be for the accounting period i.e. month, quarter or year.

Theory: Regardless of when the money is paid or received.

Practice: The banking date of a transaction does not matter, other than to indicate if it is in the right period or requires adjusting.

The accruals concept is responsible for the majority of year-end adjustments:

Closing inventory

We adjust the inventory on the SPL as we can’t match what is left in the stock room at year-end to this year’s sales because we haven’t sold it.

Therefore it’s deducted as closing inventory at year-end and added on as opening inventory the next year. We’ve matched the expense to the year it generated sales income.

We’ve probably already paid for it but that doesn’t matter.

Depreciation

If we buy machinery that will manufacture products for us for five years, we’ll be able to generate five years’ worth of sales income from the acquisition.

If we pay for the machinery after 30 days, the full cost of the expense is deducted from our bank account in the first financial year. One year’s worth of expense does not match five years’ worth of income.

Therefore, we split the capital expenditure up into five depreciation charges and match one a year for the five years we expect to generate income.

Again it doesn’t matter that the original invoice was paid in full during the first year.

Adjustments for Pre-payments and Accruals

The fact that one of our practical year-end adjustments has the same name as the theory is confusing. However, like all the other examples above, the reason we make adjustments for prepayments and accruals is because of the concept.

For example, when we pre-pay an expense there is a mis-match between the financial period and the invoice period. The financial period will end before the invoice period so we’ll need to reduce this year’s expense and increase next year’s to match them correctly.

As ever the expense’s payment date is only relevant in so far as it enables us to see when the funds changed hands.

Accruals and depreciation

The accruals concept is a fundamental theory that underpins modern accounting but it’s by no means the only one and does not work in isolation.

Whilst we adjust our SPL for inventory to comply with the accruals concept we value it according to IAS 2, which states that inventories should be valued at the lower of cost or net realisable value. Deprecation is also governed by IAS 16, which gives guidelines for the appropriate selection of methods and rates.

Whilst IASs (International Accounting Standards) are part of the practical system of rules, the accruals concept is part of the Conceptual Framework for Financial Reporting along with going concern and materiality.

The going concern theory

The going concern theory assumes ‘that a business will continue to trade for the foreseeable future’. Imagine we are considering running our own business. We could either start from scratch or buy a ‘going concern’ that is already trading.  If we consider an existing business we need to see that it’s financially viable as we’ll be buying its assets and taking on its liabilities.

The going concern concept ensures that accounts are prepared to accurately reflect the viability of businesses.

Materiality

The concept of materiality deems that ‘information is material if omitting, misstating or obscuring it could be reasonably expected to influence decisions that the primary users of the general purpose reports make on the basis of those reports.’  However, it is applied differently to different organisations and items.  For example, a large building firm and sole trader might both spend £500 on a drill.  It is the same item and has the same value to both businesses.  However, the concept of materiality means that the purchases can be treated differently.  Within the large firm it might not be deemed an expensive or irregular purchase, whereas for the self-employed builder, it could be one off capital expenditure on an asset that will be retained for a number of years.  The large firm could decide to write off the purchase as revenue as opposed to capital expenditure, as the value is immaterial to it, whereas the sole trader could treat it as an asset, showing it on the SoFP and deprecating its value accordingly because, in this context, it is material.

The accounting equation

Finally, we need to think about the accounting equation. It’s fundamental to how accounting systems and double-entry bookkeeping work but often overlooked once we get into the practical swing of accounting.

Assets – Liabilities = Capital

what we own less what we owe leaves what the business is worth and therefore owes the owner(s).

In summary

Being able to categorise accounts into their basic types and know how to increase and decrease them is the key to understanding how the theory of the equation is affected by different transactions.

You may not like it, but the reality is that if you work in accounts then you are using accounting theory on a regular basis. And if you understand the theory it can’t fail to improve your practical skills.

Read more study tips on AAT Comment: 

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Chancellor expected to reveal new MTD road map

Posted by & filed under Making Tax Digital, News.

After an eighteen month wait, the Government is expected to announce new milestones in its Making Tax Digital initiative in next week’s budget.

Boris Johnson’s Government has a big majority and is thought to want to make a bold statement in the country’s first budget for eighteen months.

MTD for VAT was introduced in April 2019. But amid all the uncertainties of the UK’s departure from Europe, other aspects of MTD were put on the back burner.

Income tax for the self employed

With Brexit out of the way, it is widely expected that the Government will announce a hard deadline for Making Tax Digital for Income Tax.

The industry expects digital record keeping to be made mandatory for the self-employed starting from April 2023.

This will mean a two-year implementation window giving software companies much-needed time to deliver robust income tax MTD-compliant products.

Software development

According to HMRC, at present there are only six suppliers of software to handle income tax.

One of the learnings from the introduction of MTD for VAT was around the late development of the software. This made life  difficult, as accountants weren’t able to visualise how they would need to work would change, creating confusion and resistance.

MTD for income tax will apply to the self-employed, partnerships and trusts, and anyone who receives income from property. Although if the rollout assumes the same route as previously intended an exemption will apply to those with turnover below a certain threshold, possibly £10,000 total turnover from all sources of self-employment and property income.

An exemption might also apply to larger partnerships with a turnover exceeding £10m.

Corporation Tax consultation

The industry will be looking out for a commitment to begin consultation over MTD for Corporation Tax .

Despite promising to consult on the shape of MTD for Corporation Tax some years ago the Government has yet to issue consultation document.

Consultation could take a number of years, so implementation is even further out. The results are needed to clarify the form that MTD for Corporation Tax will take and enable software companies to start product development.

More  work on VAT

MTD for VAT has been mandatory since April, but is now moving out of the ‘soft-launch’ phase. The industry now has to deliver end-to-end dynamic data. For some companies, particularly with complex IT systems, this could mean a new level of challenge in the coming months.

At some point HMRC is likely to revist MTD for VAT and will want to include businesses below the VAT threshold. It is possible to register now on a voluntary basis.

Political uncertainties

Prior Boris Johnson’s Cabinet reshuffle in February industry pundits felt sure the Budget would include a major announcement over MTD.

However, the replacement of Sajid Javid as Chancellor with Rishi Sunak has increased uncertainty and puts a caveat on predictions.  

Rumours circulating since Sunak took over have indicated that the March budget might be more cautious that previously expected. It may be the new Chancellor defers some or all announcements until the Autumn. Or he could be required to mirror the bolder mood of Downing Street and move ahead with change.

AAT viewpoint

Brian Palmer, tax policy adviser for AAT, comments:

“It’s in everyone’s interests to get a clear statement from the Government regarding its intentions for Making Tax Digital. We want to see a long-term roadmap that will make it clear to software developers what to expect so they can prepare products accordingly.”

AAT CEO Mark Farrar has given this assessment of prospects for digitisation:

“I think the focus for the 2020s will be to make all of the big ticket taxes digital by the decade’s end, then mop up the smaller taxes after that.”

Read more on making tax digital

Study tips: applying the Level 2 Certificate in Accounting to a business scenario (part 4)

Posted by & filed under Foundation Certificate, Students.

This is the final article in this series, where we are exploring some of the trickiest areas at level 2.

Study tips: Applying the AAT Level 2 Certificate to a business scenario series

We’re working through a business scenario to illustrate how the AAT Level 2 Certificate in Accounting can be applied, in practice, to the typical day-to-day tasks of an accounts assistant. Up to now, Zairah has been busy with financial accounting but her challenge today is to write a report, which will explain a change in JDB Supplies’ bonus system to its production department staff.

What details must go in the report?

Currently production staff work a 35 hour week, are paid £16 per hour and are expected to make 25 units an hour. For any excess production, employees are paid a bonus of 25p per unit. The new system will change the hourly rate to £17 and production works will be expected to make 28 units an hour. For excess production, employees will be paid a bonus of 20p per unit. The working week will stay the same. She has been told that the report must be a formal document which is clearly written, appropriately structured and includes examples. She has been asked specifically to:
  • Describe a bonus and bonus system
  • Explain how bonuses are calculated in both the current and new systems
  • Compare the systems showing the effect on gross wages for a typical employee
  • Signpost employees to the HR Manger if they require further information

How should a report be structured?

Zairah has therefore researched how a business report is supposed to be structured and found out that it should include sections such as an introduction, findings, conclusion and recommendations. She already knows that it must be free from grammatical and spellings errors so she plans to pay close attention to this as she writes the report and to proof-read it once it is complete. She starts with:

Make sure you understand the definitions

Before Zariah moves onto the findings section she checks what the difference is between a description and an explanation and finds: Describe – Give the main characteristics, details and qualities of something Explain – Give the purpose or reason for something; describe how and why Zariah can now see why using examples will help with the explanations of how the bonuses are calculated as they will add the extra detail needed to turn a description into an explanation.  Here’s what she wrote:

The report

Findings A bonus is a financial reward paid to an employee over and above their normal wage or salary. A good bonus system will incentivise workers, by paying them a bonus for production in excess of the quantity expected, or the completion of tasks in less time than expected. For example, if workers are expected to produce 10 items per hour but produce 11, they would get a bonus for the extra item produced. Or, if they are expected to produce 10 items per hour but produced them in 50 minutes, they would get a bonus for the 10 minutes saved. JDB Supplies’ currently incentivises its production workers by using a bonus system and will continue to do so under the new system. Currently production workers are paid £16 per hour and are expected to make 25 units an hour. For any excess production, employees are paid a bonus of 25p per unit. The working week is currently 35 hours. The bonus is calculated by comparing actual production with expected production, and applying the bonus rate to any excess units. This is because it’s a system based on excess production rather than time saved. The expected production currently is 35 hours x 25 units = 875 units per week, therefore workers must produce more than 875 units to earn a bonus. For example, if an employee actually produces 1,050 units in the week, then they have made 175 units more than expected. They are therefore paid a bonus for these extra 175 units (175 units x £0.25 = £43.75) Under the new bonus system production workers will be paid £17 per hour and will be expected to make 28 units an hour. For excess production, employees will be paid a bonus of 20p per unit. The working week will be 35 hours. The new system will see expected production change to 35 hours x 28 units = 980 units per week. Now if a worker actually produces 1,050 units in the week, they have made 70 units more than expected. They are therefore paid a bonus for these extra 70 units (70 units x £0.20 = £14.00) An employee’s gross wage, before tax and other deductions, is a combination of their basic wages plus any bonus payments. In the example of an employee producing 1,050 units a week under the two system they would be paid: The differences are:
  1. the increased hourly rate
  2. the increased in the number of units expected to be produced per hour
  3. the reduction in the bonus rate per unit
The similarities are:
  1. the length of the working week
  2. the method of calculating bonus payments
The result is an increase in the gross wage of £5.25 for a worker who produces 1,050 units per week.

What is left?

Zariah has described, explained and compared in her report so far. She now has the conclusions and recommendations sections to write, but she has not been asked to analyse or evaluate the bonus systems, or to make any recommendations so these sections are not really appropriate in this case. Zariah has just been asked to present the information in a clear and appropriately structured way. Reading back over her work so far, she is happy that she has provided what is required apart from the final signposting. Therefore she finishes with:

Proofreading

Now Zariah has finished the report and is happy with the structure she needs to proof-read it and double check her calculations. Her work must be free from spelling mistakes, grammatically correct with the right punctuation and written in full English, without any slang or inappropriate abbreviations. Her calculations must be accurate. In this case Zariah was not asked to work to a specific number of decimal places but if she had, then she would need to ensure she followed the instructions given.

In summary

Tips on how to write in a more professional way are available to help you polish your skills, as are professional writing tips for accountants, which includes a great section on common spelling and grammar mistakes. There is also a good e-learning unit on writing skills which clarifies what’s expected when you’re asked to identify, analyse or discuss, for example.  Knowing what these verbs mean and the difference between them will help you write reports that provide correct information in the required way. Read more study tips for level 2:

Government review heeds AAT call for IR35 soft landing

Posted by & filed under IR35.

AAT’s suggestion of a soft-landing landing period for IR35 is one of three changes announced to the off-payroll working rules.

The Government published its review findings this week. As expected, it confirmed the rules will come into force in the private sector from 1 April.

However, pressure from contractors, businesses and recruiters and professional bodies did lead Government to make three key changes:

  • Customers will not have to pay penalties for inaccuracies relating to the off-payroll working rules in the first 12 months unless there is evidence of deliberate non-compliance.
  • HMRC will amend the legislation so wholly overseas organisations with no UK presence do not need to consider the off-payroll working rules.
  • New legislation will be passed to make it a legal requirement for clients to provide information about their size to an agency or worker.

AAT guide to IR35

AAT has produced a technical guide to IR35 determinations, payroll and tax, which can be accessed in AAT Knowledge Hub.

View guide

“It is widely accepted that the rules introduced in 2000 have not been fully effective,” the Treasury admitted.

“The Government has listened to the concerns raised by stakeholders, and is changing its approach where appropriate to better support affected businesses and individuals.”

However, with the prospect of collecting extra taxes, it was not persuaded to postpone the extension of IR35. Instead it agreed to “a light touch approach to penalties” for the first twelve months.

AAT has welcomed the changes, not least because the soft landing was a proposal championed by the organisation.

Brian Palmer, AAT Tax Policy Adviser, said:

“With the government having already previously postponed the extension of off-payroll working to the public sector and with just weeks remaining until implementation, AAT believed that further delay had little realistic chance of being delivered. We’re therefore pleased that the government has instead confirmed that there will be a soft landing period until April 2021.

“If employers or contractors have taken reasonable steps to comply but get something wrong, HMRC will not be pursuing them with fines and penalties. This should provide some much needed reassurance.”

There has been many high-profile IR35 fines in the private sector causing much controversy, as this AA Knowledge Hub review of tribunals reveals.

The Treasury review promises that HMRC will commission external research six months after the changes looking at their impact and how status determinations are being made.

Regarding the changes relating to overseas organisations and clarity on the size of employers, Brian Palmer added:

“The issue with overseas organisations had the potential to create significant complexity and bureaucracy so today’s clarification that they will be exempt is welcome.”

With the extension of the scheme confirmed for 1 April, AAT members are advised to get up to speed with IR35 requirements.

A recent survey of 1400 contracting companies found that they are most likely to turn to accountants to help them through the changes.

To help prepare AAT has provided a Knowledge Hub guide to tax and IR35 determinations.

Tricky Topics Deciphered: Cost benefit analysis

Posted by & filed under Professional Diploma, Students, Tricky topics.

Our AAT study guide dives into the tricky topic of cost benefit analysis for AAT students doing the Professional Diploma in Accounting.

Cost benefit analysis is a useful decision making technique when used effectively. It allows you to measure the costs and benefits, both tangible and intangible, of a decision, to help you decide which action to take.

Run through an example scenario in the downloadable PDF below where we look at the various tangible and intangible costs and benefits. The intangible are harder to calculate, and include things like employee motivation, but cannot be ignored.

Remember, it’s only if the calculated benefit is higher than the cost that you should go ahead with your decision.

Download your cost benefit analysis study guide

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Tricky Topics Deciphered: Break-even analysis

Posted by & filed under Advanced Diploma, Professional Diploma, Students, Tricky topics.

Our AAT study guide dives into the tricky topic of break-even analysis within decision making techniques, for our Level 3 and 4 AAT students.

When a business breaks even, there is neither profit not loss. So it’s not an ideal scenario, but it’s better than a major loss.

We use break-even analysis to work out how many of each product we must sell in order to:

  • cover the variable cost of producing it
  • and contribute towards the fixed costs of the business.

When enough units have been sold to cover all of the fixed costs within the business, the product has ‘broken even’.

Until the break even point is reached, the business is not making any profit, so it’s an important analysis to run in order to see where you stand. We can manipulate the break-even equation then to predict potential profits if the variable cost of the product is adjusted.

Run through an in-depth example with our study guide below.

Download your break-even analysis study guide

Read more on decision making techniques:

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AAT calls on members to put their skills to work in fighting climate change

Posted by & filed under Climate change, News.

AAT is joining other leading accounting bodies in calling on accountants to put their skills to work to help businesses address climate change.

14 accounting bodies have published a declaration to put sustainability at the forefront of the profession’s work.

What do accountants offer?

Professional accountants are at work in every sector of the economy and dealing with companies and organisations that will need to implement measures to counter the effects of climate change.

The transition to a net-zero carbon economy will rely on adapting economic policy and associated market mechanisms – both of which involve accountants in a central role.

They also have expertise in advising companies on how to manage risk. And they are bound as professionals to act in the public interest. All of which makes them powerful agents of change.

What is the call to action?

Organisations including AAT, ACCA, CIMA, ICAS, and ICAEW have worked with Prince Charles’ Accounting for Sustainability
(A4S) project to mobilise the accounting profession.

The result is an international call to action that requires accountants to :

  • Integrate climate change risk into organisational strategy, finance, operations, and communications.
  • Support sustainable decision-making.
  • Provide sound advice and services.

The signatory bodies will also need to play their part. So the chief executives who signed the document also pledged their organisations to the following actions.

  • Provide members with the training, support and infrastructure they need to apply their skills to the challenge.
  • Support relevant market-based policy initiatives and incentives, consistent and well-considered regulation, and more useful disclosure.
  • Provide sound advice to help governments to create the policy and regulatory infrastructure necessary for a just transition to a net-zero carbon economy.

 “As influential members across every sector in society, professional accountants are in a unique position to help effect positive action in a collective effort. We have both a responsibility to act in the public interest, and the skills and expertise to help deliver meaningful change,” says Mark Farrar, Chief Executive of AAT.

“We encourage AAT’s 130,000 members worldwide to play their own part in taking action, helping the organisations they work with to respond to climate change with the urgency and scale required.”

Practical steps

Some actions to mitigate climate change will require progress at government or regulatory level. But there are things that can be done now.

AAT  is working to include sustainability in its qualifications with the development of AQ21. We will also be running a session on accounting for sustainability at our annual conference, AAT Future Finance 2020, and following up with a content theme to help members explore opportunities.

Individual organisations can ensure their own house is in order by looking at their carbon footprint and opportunities to use resources better. This is something AAT has also embarked upon.

Another wise action is to start researching changes in integrated reporting. Here are some areas to investigate:

  • Environmental social and governance information is increasingly being sought by stakeholders in addition to pure financial data. The London Stock Exchange has put together some guidance and good practice information which is available to view here.
  • Climate-related financial reporting – the Task Force on Climate-related Financial Disclosures Work has been working on disclosure practices.
  • Prince Charles’ Accounting For Sustainability Project (A4S) – which brokered the call to action – has a knowledge hub of case studies and guides.

Members making a difference
George Kyriacou MAAT went from trainee at Midland Bank to Deputy CFO of the United Nations’ global development agency.

Learn more

Making a difference

George Kyriacou MAAT became Deputy-CFO of the United Nations Development Programme.
Read his story here.

Read the call to action

The full text of the call to action can be read on the A4S website.

In all, 14 global bodies have signed up from the Accounting Business Network within A4S. They represent some 2.5 million accountants.

  • Association of Accounting Technicians (AAT)
  • Association of Chartered Certified Accountants (ACCA)
  • Association of International Certified Professional Accountants (the unified voice of AICPA and CIMA)
  • Chartered Accountants Australia and New Zealand (CAANZ)
  • Chartered Accountants Ireland (CAI)
  • Consiglio Nazionale dei Dottori commercialistie degli Esperti Contabili (CNDCEC)
  • CPA Australia
  • CPA Canada
  • Institut der Wirtschaftsprüfer in Deutschland e.V. (IDW)
  • Institute of Chartered Accountants in England and Wales (ICAEW)
  • Institute of Chartered Accountants of Scotland (ICAS)
  • International Federation of Accountants
  • Japanese Institute of Certified Public Accountants (JICPA)
  • Regnskap Norge/Accounting Norwayd

Image by Aline Dassel from Pixabay

Video commentary

Watch this video for additional commentary and insight from the UK’s leading accounting bodies.

What to expect from AAT Level 3

Posted by & filed under Advanced Diploma, Foundation Certificate, Students.

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:

Browse the full range of AAT study support resources here

From AAT to Deputy-CFO at the UN Development Programme

Posted by & filed under Climate change, Inspiring stories.

George Kyriacou MAAT, Deputy-CFO of the United Nations Development Programme (UNDP), started out with AAT.

“There’s a dawning realisation that sustainability is not just an issue for governments, but key to the future success of business too,” he says. “Our Global Goals have established a blueprint to work towards a more sustainable future for all society” says George.

UNDP is the United Nations’ global development agency which works to eradicate poverty, reduce inequality and help enable people to help build a better life for themselves. It has a turnover of $5 billion and works in 177 countries.

Starting out with AAT

George had a fairly humble start to his career as a management trainee at Midland Bank, where he also took the Institute of Bankers exams, which helped fuel his interest in accountancy. When he left the bank for HM Treasury, he wanted to carry on studying and an old college professor recommended AAT.  He has never looked back.

Inspiration for the future

During his career he has been inspired by a number of people, from colleagues to high-profile industry names. 

“A few notable ones include Professor extraordinaire and Judge Mervyn King, who continues to make a huge impact on society and corporate governance, both in South Africa and beyond,” he says. “Charles Tilley has also impressed me with his dynamic leadership of CIMA and I’ve been inspired by Paul Druckman’s trail-blazing improvements to sustainability in business strategies,” he notes.

George also been awed by a number of women who are leading the way for the next generation, including Gillian Fawcett and Barbara Grunewald, who recently established Public Finance by Women, a network to help empower women in careers in public finance. 

Developing business and strategy skills

After attaining MAAT status, George studied for membership of the Chartered Institute of Management Accountants (CIMA).  “The AAT had helped me hone my areas of interest and CIMA was an ideal way to follow on,” he says. 

He went on to take an Executive MBA in International Business from the University of Southern California’s IBEAR programme, which, he says helped broaden his business and strategic skills and gave him develop a more global and multi-cultural perspective. 

“We are at the cusp of another technological revolution – Industry 4.0 – which is transforming the way we live and work. Many of the things I had been trained to do as a 20 year old have been replaced by automation and self-service, so I’d tell myself to harness technology as much as possible and enjoy the ride.”   

After a three year stint at PriceWaterhouse (now PwC) and completing his Executive MBA, George joined the United Nations as the Chief of the Financial Business Analysis Unit.

The UNDP and sustainability

George is justifiably proud to work for an organisation which tries to provide people with the skills they need to build a sustainable and environmentally-friendly future.

After ten years working within finance transformation and data analysis, George moved to the United Nations Development Programme (UNDP) as the Deputy Chief Financial Officer.

“I’m delighted to be able to play my part in helping UNDP adapt to the changing development sector, and support the public and private sectors with making themselves more sustainable,” he says.

Some typical tasks that George undertakes at the UN

  • Leading a number of teams that deliver Financial Business Partnering services globally, including developing new business opportunities and corporate relationships.
  • Establishing financial policies to optimise financial performance; providing financial management and performance monitoring and advisory services.
  • Delivering business analytics to support decision making; developing the corporate financial and Internal Control Frameworks; managing financial risks; and monitoring of the financial situation of UNDP.

Advice for AAT students and members

What would George advise other AAT members and accountants who may wish to emulate his success?

“I’d suggest finding an employer with values that align to your own, and that is willing to invest in your ongoing development,” he advises. “And remember, even the best plans may be laid to waste! Time stands still for no-one, so be open to new opportunities, and willing to adapt to whatever changes come your way.”

In summary

George combined studying for AAT, then CIMA and an executive MBA, with climbing the career ladder, first at a bank and then at the UN. He believes gaining qualifications along the way helped increase his confidence and prospects.

Further reading:

Study tips: Balancing a trial balance and correcting errors with journals – Part 2

Posted by & filed under Foundation Certificate, Students.

This series focuses on balancing a trial balance, and correcting errors with journals, for AAT students working on the AAT Foundation Certificate in Accounting.

Study tips: Trial balance and correcting errors series

In part one of this article we looked at the context of account categories linking it to the picture on the box lid of a jigsaw.

We built up an image of the five account types with their expected account balances. We then made the connection between the expected balance and the posting required to increase that category of account, noting that once we’d learnt how to increase then we automatically knew how to decrease, as it’s just the opposite.

We also saw that the account categories work as pairs and opposites, so we only needed to learn half of them to know them all.

Finally, we completed the wider context by relating the categories to financial statements.

A business’s transaction must legally be accounted for and this is done through accounting systems which organise each transaction into an account in the general ledger.

Because each account can be categorised into one of the five, and then all the income and expenditure goes on the Statement of Profit and Loss (SPL), everything else must go on the Statement of Financial Position (SFP). 

Here is a visual reminder.

Remember, we said that drawings and capital are technically within the equity category.  Drawings reduce capital which is the amount owed by the business to its owner(s).  They are posted into separate accounts so work as an opposite and pair.

If that doesn’t ring bells with you, then it’d be a good idea to look over the first article before continuing, as we’re going to use this context to look at an imbalanced trial balance (TB), then see what thought process we need to use to find out why, and what is required to correct it.

Imbalanced trial balance scenario

The TB is for a small VAT registered company called E&J Consultancy and the debit column totalled £568,453 whilst the credit column totalled £568,459.

As the TB needs to balance, we have to open a suspense account. However, it doesn’t fit into any of our six categories, as a suspense account just acts as a temporary ‘holding’ account. 

It must end up with a nil balance once we’ve made our corrections, so therefore has no balance to go on either of the financial statements.

This means it doesn’t have an expected balance, so we just need to post the value of the difference between the TB columns to the side which is the same as the smaller column total. In this case that’s £6 on the debit side, like this:

The source of the trial balance imbalance

After some investigation, the imbalance in the TB has been traced to an error in the cash-book where the VAT column has been incorrectly totalled.

Note: the analysis columns are just shown on the credit side of the cash-book and explain what the expenditure was for.

Our thought process here is based on three questions:

  1. What’s happened?
  2. What should have happened?
  3. What correction(s) are needed?

Understanding the trial imbalance

Using our understanding of account categories, we can work out what’s happened, even though we already know some of it will be wrong.

Capture

Note: it may be helpful to read Understanding the cash-book or Posting the cash-book if you need to brush up your knowledge.

Now let’s look at what should have happened.

By comparing the two we can see what corrections we need…

If we need to show our corrections as journals we can easily now take the information from our ‘T’ account workings.

Ensure the journal balances and the total debits match the total credits.

In summary

Correcting errors is a challenging area to work in as we can be dealing with anything, mistakes are mistakes after all. Therefore, understanding the account categories and using a strategic thought process to tackle them, gives us the context and manageable steps to pretend we’re doing a jigsaw instead.

Note: Drawings are technically within the capital category as they reduce to amount owed by the business to its owner(s) but are posted into a separate account and work as the opposite and pair to capital.

Read more study tips from AAT: