ACCA optional papers - best combinations

Throughout the ACCA qualification, candidates have to decide which papers they will attempt at which sitting. But throughout the Fundamental and Essential stages, no real choice is necessary: you may sit a paper in winter or in summer, but ultimately you will have to sit the paper one way or another in order to progress. 

That changes when it comes to the Optional stage, at which point students must choose which two of four papers they will complete. This is an important and often stressful decision for candidates to make, and so it is surprising that nowhere on the web gives a comprehensive review of each combination of Optional exams. What follows, then, is such a review. 

As a reminder, there are four papers to choose from:

1. P4 Advanced Financial Management

2. P5 Advanced Performance Management

3. P6 Advanced Taxation

4. P7 Advanced Audit and Assurance

This means that there are six possible combinations. 

Combination 1: P4 and P5

Ideal for: aspiring management accountants and financial managers

One of the great things about ACCA relative to CIMA is that candidates have the option to specialise at the end of the qualification. This combination allows students to cover the bulk of the meatier areas of the CIMA program without committing to management accounting too early in their qualification.

As a bonus, candidates who complete this combination will be able to...

Combination 2: P4 and P6

Ideal for: aspiring technical specialists

With all due respect to management accountants, after a certain knowledge base is mastered, you can't delve in too much further (this is not to suggest that management accountants and strategy advisors are not important - on the contrary!).

The tax and treasury worlds, however, offer rich opportunities for specialism. Compared to management and statutory accountants, the supply of these professionals is limited and so employees armed with this knowledge have lots of bargaining power. On the other hand, tax and treasury teams often tend to be smaller and niche, so may have fewer direct career paths to managing a large team and having direct reports. 

This paper combination will serve you well if you intend to do an additional qualification after your ACCA journey - there are a number of tax and treasury (or treasury-related) professional qualifications out there, and these papers can help you get exemptions for parts of these. 

This paper combination will also suit candidates who feel more comfortable with computations and calculations (though be aware that there are still considerable descriptive/discursive portions of the papers).

Combination 3: P4 and P7

Ideal for: externally-oriented finance professionals 

What do both financial management and audit have in common? Much of the work financial managers and corporate reporters working with auditors do is externally focused. Treasurers deal with banks and the capital markets; corporate reporters deal with auditors and externally published accounts. If you want to be involved with how your organisation is viewed by and interacts with the outside world, this is a good combination.

If you are going the auditor route, this combination can also give you the necessary knowledge to audit complex areas such as financial instruments, including derivative/hedging instruments. 

During the studying phase, this combination will also allow you to divide your time between a number crunching paper (P4) and a largely discursive paper (P7). 

Combination 4: P5 and P6

Ideal for: those who can't make up their mind

This combination straddles the division between generalist and technical a bit, and would likely make for a well-rounded accountant (rare is the management accountant who truly understands a tax computation). 

Career-wise this should keep the tax door open upon qualification, but also leave you conversant with the management accounts whenever you need to work with them. 

Like the P4/P7 combination, during the studying phase candidates will get a nice mix of number crunching with P6 and discursive practice with P5.

Combination 5: P5 and P7

Ideal for: accountants who are strong writers

Some finance professionals are Excel masters, but most of us have met accountants who seem surprisingly weak in this area. Well, that's because the accountant as Excel guru is a myth - many accountants make their careers in writing-heavy roles, preparing narrative reports for board committees and strategic advisory documents. 

Content-wise P5 and P7 have very little in common, but both will require strong writing and reporting skills so the practice phase of exam prep should help you improve those.

Unfortunately with this combination, there is little to no overlap so you will not get much help for one when studying the other.

Like the P5/P6 combination, these two taken together should make for a well-rounded accountant. 

Combination 6: P6 and P7

Ideal for: the accountant's accountant 

Tax and audit - this is surely the most conventional pairing of optional exams, and indeed, these are the subject areas that the wider public expects you to know when you say you are an accountant.

Like P4/P7, this is a solid combination for those who like dealing with the outside world (namely, the tax authorities and auditors). 

It is worth noting, however, that Paper P3 explicitly added content on management accounting because the ACCA worried that candidates taking P6 and P7 would have no exposure to management accounting at the professional level.

This combination could be said to be the least like CIMA - up to you to decide whether that's a good or bad thing.

Conclusion

There is a dearth of resources on the web helping students select their optional ACCA paper combinations; I hope this helped provide some food for thought. 

Should the ACCA release the numbers behind their pass rates?

The ACCA releases its global pass rates every six months following the release of exam results. There is a breakdown by exam paper, but no further disaggregation. Should the ACCA give students more information about the numbers behind the pass rates? My answer is an emphatic yes.

For instance, pass rate per paper by geographic location. ACCA exams are all written in English, so it is reasonable to assume that pass rates for the more discursive papers (e.g. F8, P3, P5, P7) are on average lower in countries in which English is not a common native language. If this is indeed the case, shouldn't students be aware of this when they are selecting their exams? Rightly or wrongly, many students may opt not to sit an optional paper (say, the largely discursive P5) due to a low pass rate. It should be up to the ACCA to make sure that these students are aware what is driving the trends behind the pass rates (e.g. language skills) so that decisions can be made in an informed manner.

A second proposal is that salient facts about the pass rates as they relate to other papers should be released. What I mean by this is that the ACCA ought to provide statistics about which exam combinations lead to success, and which to failure. Surely the ACCA has the resources to let students know that, say, candidates who sat F8 with F7 were more likely to pass F8 statistically than those who sat F8 with F5. Similarly, the ACCA can indicate the variance in student success between students who sit 1, 2, 3, or 4 papers during an exam sitting. Offering students the statistics on the best paper combinations and presenting the realities of how much taking an additional paper on affects the chances of success is surely in students' best interests. So why not provide it?

A third proposal is that note only should pass rates be released, but averages should be published (and perhaps quintiles) so students have a better idea of where they measure relative to their peers. Pass rates are a black and white measure and can mask the true realities behind how challenging or simple a particular exam diet was. Especially if there is not a lognormal distribution of results, then class averages might be very informative.

The ACCA files away the results of thousands of students every six months, ignoring that they sit on a treasure trove of data in those results. It is about time they analyse and present the results to provide the insights that will help ACCA students become ACCA members sooner. 

P4 book review: A. Chisolm's An Introduction to Capital Markets

Andrew M. Chisolm's An Introduction to Capital Markets: Products, Strategies, Participants appears on the old P4 Advanced Financial Management examiner's list of recommended readings. Is it worth introducing to your P4 study plan?

This is a comprehensive textbook covering the capital markets and ambitious P4 students will be rewarded if they choose to use it to enhance their studies. There are very detailed chapters on the money markets and bond markets which should be useful when covering the sections of the syllabus on cost of capital and raising finance. There is also an exceptionally detailed chapter on options which should help a well-prepared candidate ace any question on them.

The main benefit that students will get out of this textbook, however, is its thorough coverage of FX and interest rate swaps, forwards and futures. These provide almost all that is necessary to know for the risk management section of the syllabus, and indeed Chisolm devotes the most time and space to these topics.

The book isn't perfect, and some students may find it too long-winded and too detailed for the likely depth at which certain P4 syllabus areas are examined. That may be a fair criticism, and so for that reason the text should be used more as a reference piece than as something they must read start to finish. The topics are approached in an accessible style suitable for undergraduates with some knowledge of financial markets. It is easy to read but denser than most ACCA-specific texts.

If a student were to use this text selectively (i.e. only for a few topics), it would make sense to use it for options and risk management/hedging; it beats most approved learning providers' texts in both these areas.

Overall, this book is recommended for candidates who would like more in-depth knowledge on hedging and options, and for those whose ambitions are to achieve significantly higher than 50% on the exam. If you're just looking to pass and move on, then indeed, move on away from An Introduction to Capital Markets as well. 

P2 wider reading: international convergence of accounting standards

The current issue in P2 Corporate Reporting to which all other current issues at times seem subservient is the international convergence of accounting standards. Capital markets are more global than ever, and global capital itself very agnostic – it is ever seeking its investors desired sweet spot of risk/returns. However, transaction costs may stop capital from migrating to those places where it can do the most good. Interpreting and comparing investment opportunities prepared under different sets of accounting standards is not easy, and often represents a cost that investors are not willing to incur. Hence the demand for standardisation and international convergence of standards.

Many countries have adopted IFRS as the required reporting standards for their listed firms, but in the United States (the world’s largest single capital market) US GAAP reigns supreme, and this situation does not seem likely to change in the near term. In the absence of the US adopting IFRS, the FASB (the US accounting body) and the IASB instead work jointly on amending their standards to make them more similar to one another when the need is pressing.

In any P2 examination question that asks why changes to an existing IFRS are being discussed and/or proposed, it is a safe bet that referencing the IASB and FASB’s convergence project will earn a candidate some marks.

Wider reading

Any accountancy publication will feature stories on international convergence and progress thereto (or lack thereof) quite regularly. The more mainstream media will feature these less frequently, although they occasionally pop in the Business pages of The Economist. For your reading pleasure: an article about the new head of the US’s FASB, who is tasked with helping with the convergence project; and two articles about the challenges that still face the global harmonisation of accounting standards.

With regards to your exam preparation, I would only recommend delving deeply into this topic if you are quite certain you will attempt the current issue question of your P2 examination – the topic is unlikely to feature in any great detail elsewhere on the paper.

F9 wider listening: Essentials of Corporate Financial Management podcast

Sometimes you want to fit some studying but can’t (or don’t want to) read or write. You could be commuting to work, or just be exhausted after a day of it. It may be worth fitting in an audio podcast to your study plan in such instances. This is definitely a more passive way of studying and cannot replace proper studying, but can be used as a good supplement.

Wider listening

For F9 Financial Management, the podcast Essentials of Corporate Financial Management is very useful. The content in many places overlaps with the F9 syllabus and the episodes follow a logical order. Perhaps enticingly, they are short episodes (about 10 minutes each), so they are easily digestible in short chunks when you only have a few minutes of spare time. The podcast is meant to accompany the Pearson textbook of the same name; however I do not believe this needs to be purchased in order to find value in the freely available podcast. The textbook is well reviewed so it might be worth consideration, however it would appear to be at the same intellectual depth as the ACCA F9 syllabus and so one might be better off sticking to the approved learning provider texts.

If you have access to Apple podcasts, definitely download/subscribe to this one.

P1 wider reading: boardroom diversity

Diversity in the boardroom is a topic that is relevant both to your P1 studies and, of course, to the wider corporate world. The P1 syllabus asks students to contemplate the value of a diversified board and also to keep diversity in mind when it comes to board member nominations. Diversity can refer to many things – diversity of race, age, sexual orientation, religion – but inarguably the most discussed issue in corporate governance diversity is gender. In short, there is a push to get more women in the boardroom. Some jurisdictions (particularly in continental Europe) have gone as far as imposing quotas and targets percentages of women in executive and non-executive positions. Opponents to such quotas are those who believe the most senior positions should be reserved for the most qualified personnel, and they suggest that unfortunately a historical lack of women in the management pipeline means that there are fewer eligible female candidates for these positions. 

Wider reading

This is a topic worth reading around, not least because there is an ACCA examiner’s article on the topic. This should indicate to you that the topic is a highly examinable one. That article, of course, should be the starting point for wider reading. Further reading comes from a couple of articles published by The New Yorker, the first of which examines board diversity quotas in Germany and the second of which looks at the lack of diversity in Twitter and other tech firms’ boards. The first linked article in particular looks at the controversial claim that board diversity might improve corporate performance. Be sure to read this in concert with the section in the examiner’s article on the costs of diversity.

The Economist has also published relevant articles in the past few years, one of which also deals with diversity in Germany, and another two that examine women in business.
  
Both articles on Germany are also relevant when it comes to P1’s focus on varying board structures, namely the two-tier board system that is popular in Europe.

P1 wider reading: Crane and Matten Blog

Interested P1 Corporate Governance, Risk and Ethics candidates should have no trouble finding wider reading materials to supplement their exam preparation. The unfortunate reality is that corporate governance failures are commonplace and so make the headlines with quite regular frequency.

To spare you from searching the headlines, however, I’d like to bring your attention to a blog that should be perused during your studies:  the Crane and Matten Blog. I’m recommending this blog in particular because it’s updated regularly and more importantly is written by the authors of Business Ethics, which is one of the P1 examiner’s recommended readings! Reading through the blog regularly may well spare you purchasing the book while bringing your attention to different corporate governance current events.

P2 wider reading: lease accounting articles

When it comes to the P2 Corporate Reporting exam, wider reading will mostly be helpful when it comes to tackling Question 4, which is typically the “current issue” question. Accounting standards that are in the process of being updated, or which are being debated, are those which are likely to feature in this question.

Lease accounting has been the subject of much debate recently, largely to remove inconsistencies between IFRS and US GAAP. P2 candidates will (hopefully!) be aware of the current different accounting treatments for finance leases and operating leases. However the IASB and FASB (US) have proposed removing this distinction in an effort to further combat off-balance sheet financing. The result would be that operating leases would also be capitalised rather than merely expensed to the income statement. Users of financial statements would gain a better understanding of the financing commitments and gearing of entities when examining their balance sheets.

Wider reading
The Economist has recently printed a succinct and accessible article on the changes, and it should be considered very helpful reading for any candidates planning on attempting Question 4 – lease accounting may well come up in your exam! There is also an older article on the topic that may give some historical context but should be considered secondary.

P1 wider reading: shareholder activism articles

The P1 syllabus has a small section on shareholder activism – that is, shareholders who take an active (rather than passive) role in corporate governance, and use their position as owners of the company to make demands on an entity’s management. Pressure tactics they can use include voting for the removal of directors or disposing of a large amount of shares (in the process hurting the share price).

Shareholder activism may largely seem a theoretical area of the syllabus: individual shareholders don’t often attend AGMs, much less propose resolutions, and indeed most shareholders own a wide variety of investments in their portfolio and will not reasonably track the management and governance issues at each company in which they hold a small interest.

However, in the world of ACCA exams the theoretical is occasionally tested in a case study as reality, so it shouldn’t be a surprise if you encounter a shareholder activist in your three hours in the examination hall. It is useful, then, to put a face to the theory, and there is no activist shareholder more famous than Carl Icahn. Icahn is a seasoned investor who has made a habit of building large shareholdings in publicly listed entities (often anonymously at first), and then demands management to make significant decisions, ostensibly to benefit other shareholders. Such demands have included spinning off parts of companies, and buying back shares.

Wider reading 

The Economist has in the past months printed a number of articles about Icahn, and they are well worth a read to help you better envision a shareholder activist when you are preparing for your exam. For those of you interested by the personality (and with significantly more time on their hands that they needn’t devote to studying!), there is a longer piece in the New Yorker about the man from several years ago. 

The Economist also has a number of articles on shareholder activism more generally. These should provide more than enough wider reading on the topic. In the context of P1 the topic is a relatively small one, however this background reading should be quite helpful with memory recall. Also, the P1 exams often take inspiration from current events for papers set one or two sittings later. With Icahn and other shareholder activists more frequently in the news as of late, there is a non-negligible chance that the topic will be examined in a sitting shortly!

P4 wider reading: Financial Markets on iTunes U

ACCA candidates at the professional level are often reminded by the examiner that they can't rely solely on course notes - "wider reading" is necessary to form a deeper, more robust knowledge base with which to tackle studying and, ultimately, the exam.

In terms of the paper P4 Advanced Financial Management, wider reading ought to include the Financial Times and the Finance and Economics section of The Economist. There are also a number of textbooks recommended by the previous examiner, reviews of which will be posted here in due course. In this post, however, I'd like to bring your attention to a free course that includes readings and lectures and is absolutely free.

Owners of iPhones and iPads can download Apple's iTunes U app for access to thousands of free online university courses. One which is particularly insightful for P4 (or very ambitious F9) students is Yale University's Financial Markets course (link for those reading this from an iOS device).

This full course offers an Ivy League, Nobel laureate professor's introduction to financial markets, how they operate both in theory and in practice. Robert Shiller is a legend in finance and economics, and that Yale and Apple are giving this away for free is certainly to be commended.

This is an undergraduate course at Yale, however it often goes to much higher levels intellectually than P4 does (even though ACCA suggests the professional level papers are set at postgraduate degree levels).

How does it fit into my P4 studying?
This course certainly does not replace materials produced with the explicit intention of helping you pass P4. However, driven students may enjoy it as a means of providing greater context and intellectual depth to their P4 studies. In particular, I recommend checking out this course at two stages:

1. Upon completion of F9. If you enjoyed studying F9 but are unsure whether P4 is the right paper for you, I'd suggest that if you find Robert Shiller's introductory lectures interesting you are the type of candidate who will enjoy P4.

2. Upon completion of P4. P4 is a demanding exam, however if you truly want to work in treasury or financial management, a sound grounding in financial markets and economics is necessary and this course will go some way to filling in the gaps left after the ACCA exams. The course is entirely free so there is really no reason not to. 

Study resource review: MAPIT Accountancy

MAPIT Accountancy is an online tuition resource that provides videos and course lectures for a number of ACCA and CIMA papers. It's a relatively new (and seemingly low-staffed) provider, and as such it's offering is currently limited to 10 of ACCA's 14 papers. It also offers revision courses but these are at the time of writing only available for the fundamentals papers.

Concept
MAPIT Accountancy is built around the use of mind maps (hence the name). Mind maps are visual representations of information, and research has shown that their use may improve memory recall. Lots of tutors will have students build mind maps when conceptually organising the topics in a session, and indeed the ACCA itself makes use of (albeit limited) mind maps on its syllabuses when it shows the relational diagram of the papers and syllabus areas. In short, mind maps as a learning tool are not bunk pseudoscience, so on that basis MAPIT holds some promise. However, I'd suggest it takes the concept too far.

MAPIT suggests that students can prepare for ACCA exams by replacing text books with their mind maps. I'd consider this a risky proposition, as mapping something out is merely one way to help master knowledge, but I'd be wary of using this in isolation. There's a reason more conventional study texts (e.g. those by Kaplan Financial) include mind maps at the end of each chapter - they may be a good way to reiterate what has been covered, but not the best tool for covering material in the first instance.

Nevertheless, MAPIT disagrees with my proposition and hopes you will too. It offers its mind maps for free once you've registered with your email, so it is at least worth checking out to see if the free downloads help with your study at all.

Pricing
Alas, this is not OpenTuition - the full content is not available free of charge. MAPIT does not only provide the mind maps themselves but also recorded lectures which go over them - the tuition, as it were. I took advantage of a promotion and got free access to the P3 lectures - they were solid if not exceptional. They definitely did cover the entire syllabus, so in that sense it is more comprehensive than OpenTuition.

In the absence of a promotional code, the cost is £50 per paper, an additional £50 for the revision course (for fundamentals papers only), or £90 as a bundle.

Recommendation
Download the free mind maps at MAPIT Accountancy after registering, and assess for yourself whether it's a way you life to learn. Also check out some of the sample lectures (I've included a generic ACCA one below). If you're not happy with the content on OpenTuition, but don't want to pay the fees at the larger more conventional tuition providers, perhaps it's worth parting with £50 to give MAPIT a try. I'd just personally be apprehensive about not reading a text at all.

Study resource review: OpenTuition.com

You've probably heard of this site by now, but in case not: OpenTuition is a website that provides "free resources to accountancy students" - these include study notes, video lectures, and a message board to discuss with fellow students and tutors. The site is heavily frequented and by virtue of the traffic they receive, they generate the necessary ad revenue to cover the hosting costs and keep the site running free of charge.

For a free website that contains no illegally pirated material, the quality is quite high. Based on some of the discussions on the site's message board it would appear many students opt to use OpenTuition exclusively, especially if tuition costs are a concern. Personally I'd advise against using their resources as one's primary learning materials if personal finances permit it. The value for money is great, but the study notes in particular do not scratch the surface of those produced by the leading tuition providers (e.g. Kaplan Financial, BPP Learning Media).

What follows is a quick review of OpenTuition's study notes, video lectures, and message board. 

Study notes

I've used the study notes, to varying degrees, for the following papers: F6 Taxation (UK), F9 Financial Management; P1 Corporate Governance, Risk and Ethics; P2 Corporate Reporting; P3 Business Analysis; and P4 Advanced Financial Management.

I will say unequivocally that the P1 notes are poor, designed only to be used with the lectures (and presumably jotting one's own handwritten notes on the vast white spaces on them), and note for, say, reading on the train. I wouldn't waste time on these unless it was for quick reminders of what's actually on the syllabus, because they don't go much further than this. P3's are much better in this regard. 

F6 and F9, both quite number-churning papers, had the most useful notes in my estimation, and students can get quite a lot of mileage out of these in terms of learning and practicing the calculations and computations required.

P2 and P4's notes were acceptable, but definitely only as supplements to more detailed texts - the content in those papers is too wide and too deep to trust only these notes. Again, they are better when it comes to the number crunching, e.g. the P2 notes provide good coverage of share-based payments, the P4 notes of option pricing.

Video lectures

The video lectures for all the aforementioned courses are worth a watch, especially if you were unable to attend a tuition course. I did attend in-person tuition courses, but occasionally I preferred OpenTuition's lectures (and lecturers!) to those I was attending. Still, it could be quite time-intensive to watch all the lectures for each paper, so if you don't think they're right for you after a handful of lectures, it might be time to stop watching and focus your study plan elsewhere. 

Perhaps it's because I enjoy being in a classroom, but I find the OpenTuition lectures that are actually recorded in classrooms to be more engaging than those recorded in a studio. For that reason I wasn't too fond of F6 and P4, but that may just be my preference. 

It is very important to note that note all syllabus areas are covered in the video lectures (for instance, the P4 lectures contain nothing on mergers and acquisitions), so students should beware being misled into thinking they've covered the whole syllabus just through completing the lectures. Also, the lectures aren't continually updated, hence P1 is still referred to its old name Professional Accountant rather than the updated Corporate Governance, Risk and Ethics.

Message board

To the best of my knowledge, the message board on the site is the most active of all ACCA message boards. Unfortunately, the signal-to-noise ratio is really low and the board is inundated with low-quality posts. It's not so much a community centred on discussion of accountancy and studying - it's really a bit of a mess. In short, it looks like the very lightly moderated message board that it is. The fact that there are few if any alternatives might be a failing of the ACCA, or may just reflect the fact that accountancy and finance discussions happen on the web if non-ACCA-specific fora.

Recommendation

There is little reason not to check out OpenTuition's free lecture notes and video lectures for whichever papers you are sitting. Ideally the notes should be used to supplement other published study materials. Steer clear of the forums and the comments if low-quality posting/moderation bother you. Or, more helpfully, register and try to help make it into a community of better discussion!