An introduction to CIMA F2 Financial Management
CIMA’s F2 Financial Management paper is the higher level financial accounting paper. The format of the exam is 5 x 10 mark questions in section A and 2 x 25 mark questions in section B.
I think of the syllabus as being made up of three equally important topics – analysis, groups and other.
Analysis is 35% of the syllabus. Typically exams will contain 1 x 10 mark question and 1 x 25 mark question on this area of the syllabus. The 25-marker typically requires students to analyse the financial performance and position of the entity (or entities) in the question. You tend to be given the SFP and SCI for either one entity, this year and last year or two different entities. The question usually states that up to 8 marks are available for ratio calculations, indicating that you can calculate 8 ratios. Having calculated the ratios, you are then required to write and analyse what your ratio calculations show you in conjunction with the rest of the information in the scenario.
Tip – weaker students simply state that ratios have gone up / down or are higher / lower. This does not achieve any marks as you are not analysing. You must try to explain why the ratios have changed or are different. You must also try to link your explanation to information in the scenario.
The 10 mark question may also be on ratio calculations / analysis of ratio’s. We have also seen questions requiring you to comment on a statement of cash flows.
The analysis area of the syllabus also contains two accounting standards – IAS 33 Earnings per share (EPS) and IFRS 8 Operating segments which are also normally tested in section A. EPS questions will normally require you to calcuate earnings per share and perhaps comment on the ratio. Questions on operating segments tend to be discursive and require you to consider the benefits and limitations of segmental information.
Group accounts is another 35% of the syllabus and again is typically examined via 1 x 10 mark question and 1 x 25 mark question. Whilst the majority of the syllabus is about being able to prepare consolidated financial statements and so is numerical, questions can also ask you to explain the accounting treatment of group issues – so be prepared to write as well as number crunch.
There is a huge amount on the syllabus in relation to group accounts. Firstly it is necessary to revisit what was studied at F1 but with the introduction of non-controlling interest shareholders. In other words, in F2 the subsiadiary is not always 100% owned by the parent. For example, if a parent owns 80% of the sub, the NCIs own the other 20%. As well as being able to prepare a consolidated SFP and SCI, F2 can also test the consolidated SOCIE.
Then F2 also requires knowledge of more complicated issues such as changes in group structure, complex groups and foreign subsidiairies. And if that weren’t enough, you must also be able to do a consolidated statement of cash flows!
The volume of technical content makes this syllabus area very challenging.
Tip – make sure that you are well prepared on the core areas of group accounts such as calculating goodwill and dealing with NCIs and that you can cope with consolidation adjustments that were covered in F1 such as fair value adjustments, intercompany and PUPs. Then learn how the complication of changes in group structure or a complex group structure or a foriegn sub will impact, but do not get too bogged down in the nitty gritty of these complications.
The remaining 30% of the syllabus is made up of several smaller elements. However, there’s a danger that if you think of them as smaller topics, you will think they are less important and so not learn them as well. Collectively, these topics are really important and can often be the difference between pass and fail for students.
The topics are:
- Developments in external reporting
- Financial instruments
- Share based payments
Developments in external reporting is usually tested in a 10 mark question. The convergence project or advantages / disadvantages of additional disclosures such as an environmental report are the type of thing you might see here.
The remaining topics are also primarily tested in 10 mark questions, sometimes for all 10 marks and sometimes for 4- 6 marks in conjunction with another topic from the list. However, financial instruments in particular also tends to appear within the group 25 mark question so don’t rule these topics out from section B.
Tip – make sure you spend as much time preparing yourself for questions on these elements of the syllabus as you do for analysis and groups. These topics will make up 30% of your paper and it will be very difficult to pass overall if you cannot attempt these questions.
F2 is a great paper (in my opinion at least!) and the exam is a consistent and fair test of the syllabus. If you have reasonable knowledge of all parts of the syllabus and prepare well by practising past exam questions, with a touch of exam technique thrown in, you will pass. What can be fairer than that?