Magazine article CMA - the Management Accounting Magazine

Will the 1992 FAEs Be Easier?

Magazine article CMA - the Management Accounting Magazine

Will the 1992 FAEs Be Easier?

Article excerpt

Of course not! But that may have been the impression held by many candidates writing the June 1991 offering of the FAEs.

Following the June writing, The Society of Management Accountants entered the last year of the FAEs. With only two exam sessions remaining, candidates should take some lessons from the June results.

In each examination--Management Accounting, Financial Accounting, and Comprehensive--the June 1991 pass rate was lower than the January 1991 rate (Table 1). In the Financial and Comprehensive, the drop was significant. Couple this with the increased number of candidates (Table 2) and one can hypoth-size that candidates are rushing to complete the FAEs without preparing as well as past experience and the Society's standards would dictate.

               Management    Financial   Comprehensive
                Accounting  Accounting
January 1991       56.8        66.8          60.0
June 1991          54.0        57.5          52.0

Rather than reinventing the wheel, I refer candidates to the article, "Basic skills for FAE success" by Dr. John Williams, past chairman of the Accreditation Examinations Board (AEB), which appeared in the November 1990 CMA. Remaining candidates can be sure the AEB will be vigilant to the end of the FAEs in maintaining the standards of admission into our Society. Candidates who assume the last two offerings of the exams will be less demanding than previous offerings or who feel they can be less diligent in their preparations do so at their peril.

The June 1991 FAE results (Table 3)

The Management Accounting exam consisted of three questions worth 40, 10 and 50 marks respectively.

Question 1 was a directed, integrative case requiring a knowledge of transfer pricing, decentralization, responsibility accounting, and performance evaluation. It contained detailed questions which facilitated a structured solution approach. Candidates who followed this approach were more successful than those who were less organized.

Most candidates recognized that, in the international context, the general rule for transfer pricing is minimization of duties and taxes to maximize after-tax income. Performance on the issue of sourcing was fair but failure to consider differential tax rates and only relevant costs caused many candidates difficulty. Few candidates based their analysis on an overall company perspective and instead looked only at the Chip Division's point of view. Failure to recognize a systems approach to the management of the firm resulted in poor performance on the section concerning responsibility centres because of incompatible transfer pricing and performance evaluation mechanisms. Candidates "dumped" inapplicable material and presented many casual observations and possible alternatives, but very few supported recommendations. Where quantitative analysis was required, many candidates used the appropriate model but didn't apply it to the facts of the case or were unable to draw a conclusion from their analysis.

Question 2 was a small, directed case requiring a working knowledge of responsibility accounting, performance evaluation, decentralization, and pricing.

Candidates were required to identify the operational reasons for poor divisional performance and recognize that conflicts between the responsibility centre structure and head office policies were the root causes of the company's poor performance. Candidates were also required to calculate the impact of alternative pricing policies on overall company profits.

Performance on this question was surprisingly poor. It appears that many candidates did not allow enough time to attempt this question seriously. On the other hand, some candidates who did the question wasted time with irrelevant discussion.

Question 3 was a large directed case which required an in-depth knowledge of capital budgeting, performance evaluation, and control in automated manufacturing systems. …

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