Unit 7 guidance notes Preparing reports and returns (May 2008) Registered as a charity. No. 1050724 Introduction This unit consists of three elements. 1. Element 7.1 is concerned with the preparation of reports for internal use. The reports in question are those that assist managers in evaluating and controlling organisational performance. 2. Element 7.2 is concerned with reporting to external bodies. The information may be required in accordance with industry regulation, or in pursuit of grant finance, or simply to facilitate information gathering by bodies such as trade associations, or for inter firm comparison. 3. Element 7.3 is concerned with the preparation of periodic VAT returns for submission to customs and excise. How do the 2003 standards differ from the 2000 standards? Apart from stylistic changes, the new standards are almost the same for this unit as they were previously. The one slight technical change is in item 13 of the knowledge and understanding, where the words ‘using spreadsheets’ have been added to ‘tabulation of accounting and other quantitative information’. Guidance on element 7.1 – prepare periodic performance reports Performance criteria A. Information derived from different units of the organisation is consolidated into the appropriate form. B. Information derived from different information systems within the organisation is correctly reconciled. C. When comparing results over time, an appropriate method that allows for changing price levels is used. D. Transactions between separate units of the organisation are accounted for in accordance with the organisation’s procedures. E. Ratios and performance indicators are accurately calculated in accordance with the organisation’s procedures. F. Reports are prepared in the appropriate form and presented to management within required timescales. Guidance There is a point that needs emphasising regarding ratio formulas. It is essential that students are not taught that a single formula is the correct one to use when calculating a ratio. The concepts underlying the ratios need to be understood - for example, the return on capital employed. It must also be understood that both return and capital employed can be measured in different ways, and the different ratios thus calculated may be used for different purposes at different times. Specific ratios are quoted for the first time in the range statement. Guidance on element 7.2 – prepare reports and returns for outside agencies Performance criteria A. Relevant information is identified, collated and presented in accordance with the conventions and definitions used by outside agencies. B. Calculations of ratios and performance indicators are accurate. C. Authorisation for the despatch of completed reports and returns is sought from the appropriate person. D. Reports and returns are presented in accordance with outside agencies’ requirements and deadlines. Guidance In element 7.2, there is a performance criterion ‘authorisation for the despatch of completed reports and returns is sought from the appropriate person’. In practice, of course, it is an important part of the Accounting Technician’s task to observe defined authorisation procedures in this area as in others. Skills testing should incorporate this requirement in the tasks to be performed. Guidance on element 7.3 – prepare VAT returns Performance criteria A. VAT returns are correctly completed using data from the appropriate recording systems and are submitted within the statutory time limits. B. Relevant inputs and outputs are correctly identified and calculated. C. Submissions are made in accordance with current legislation. D. Guidance is sought from the VAT office when required, in a professional manner. Range statement The performance criterion ‘guidance is sought from the VAT office when required, in a professional manner’ is reinforced by the knowledge and understanding for this element ‘an understanding of the basis of the relationship between the organisation and the VAT office’. Students should understand that it is advisable to seek written clarification of doubtful issues, and this is likely to feature as a task in AAT simulations for the unit. Under knowledge and understanding for element 7.3 ‘special schemes: annual accounting, cash accounting, bad debt relief’, students are expected to show a broad understanding of the issues. In each case, the emphasis is on testing the ability to deal with practical procedures; exact knowledge of the detailed rules relating to eligibility for these schemes is less important. Similarly, students do not need to know the VAT rules for imports and exports in detail but should know that exports are normally zero rated. Assessment strategy The unit will be assessed entirely by means of a skills test. Skills tests are a means of collecting evidence of student’s ability to carry out practical activities and to operate effectively in the conditions of the workplace to the standards required. Evidence may be collected at the students place of work or at an approved assessment centre by means of simulations of workplace activity, or by a combination of these methods. If the approved assessment centre is a workplace, students may be observed carrying out accounting activities as part of their normal work routine. Students should collect documentary evidence of the work they have done, or contributed to, in an accounting portfolio. Evidence collected in a portfolio can be assessed in addition to observed performance or where it is not possible to assess by observation. Where the approved assessment centre is a college or training organisation, skills testing will be by means of a combination of the following: documentary evidence of activities carried out at the workplace, collected by the student in an accounting portfolio realistic simulations of workplace activities. These simulations may take the form of case studies and in tray exercises and involve the use of primary documents and reference sources projects and assignments designed to assess the Standards of Competence. Students who are unable to provide workplace evidence will be able to complete the assessment requirements by the alternative methods listed above. The AAT has developed a bank of simulations to cover the performance criteria for students who are unable to provide workplace evidence. These simulations should not be used in isolation, but as part of an assessment strategy. Approved assessment centres may devise their own simulations once an example has been approved for use by the AAT. Possible assessment methods The AAT recognises the paramount value of workplace evidence and believes that, where possible, evidence should be collected in the workplace. It appreciates that this is not a practical prospect for some students. Equally, where workplace evidence can be gathered, it may not cover all elements/units. The AAT regards performance evidence from simulations, case studies, projects and assignments as an acceptable substitute for performance at work, if they are based on the standards and, as far as possible, on workplace practice. There are a number of methods of assessing accounting competence. The list below is not exhaustive, nor is it prescriptive. Some indication is given on the suitability of each method for assessing particular aspects of accounting competence, such as analysing information, giving advice or dealing with contingencies. Some methods have limited applicability, but others are capable of being expanded to provide challenging tests of competence. Performance of an accounting task either in the workplace or by simulation For example, preparing and processing documents, posting entries, making adjustments, balancing, calculating, analysing information, etc by manual or computerised processes. This is a suitable method of assessing basic task competence. Adding supplementary oral questioning may help to draw out underpinning knowledge and understanding and highlight the student’s ability to deal with contingencies and unexpected occurrences. The AAT maintains a bank of simulations that aim, as far as possible; to cover the majority of performance criteria but that will require some supplementary questioning. Approved assessment centres may devise their own simulations once an example has been approved for use by the AAT. General case studies These are broader than simulations. They include more background information about the system and business environment, etc. This is a suitable method for assessing the student’s ability to analyse a system and suggest ways of modifying it, etc. It could take the form of a written report, with or without the addition of oral or written questions. Accounting problems/cases For example, a list of balances that require adjustments and the preparation of final accounts. This is a suitable method for assessing a student’s understanding of the general principles of accounting as applied to a particular area or topic. Preparation of flowcharts/diagrams To illustrate an actual (or simulated) accounting procedure. This is a suitable method for demonstrating an understanding of the logic behind a procedure, of controls, and of relationships between departments and procedures. Questions on the flow chart or diagram can provide evidence of underpinning knowledge and understanding. Interpretation of accounting information The information may be from an actual or simulated situation. The assessment could include non financial information and written or oral questioning. This is a suitable method for assessing interpretative competence. Preparation of written reports on an actual or simulated situation This is a suitable method for assessing written communication skills. Analysis of critical incidents, problems encountered and achievements Reflective analysis can provide evidence of whether an individual is competent or not yet competent. This is a suitable method for assessing a student’s ability to handle contingencies. Listing of likely errors The preparation of a list of the main types of errors likely to occur in an actual or simulated procedure. This is a suitable method for assessing the range of contingencies likely to be encountered. Oral or written questioning would be a useful supplement to the list. Outlining the organisation’s policies, guidelines and regulations This is a suitable method for assessing performance criteria relating to these aspects of competence. It also provides evidence of competence in researching information. Objective tests and short answer questions These are suitable methods for assessing specific knowledge. In tray exercises This is a suitable method for assessing the student’s task management ability as well as technical competence. Supervisors’ reports This is a suitable method for assessing general job competence, personal effectiveness, reliability, accuracy and time management. Reports need to be related specifically to the Standards of Competence. Analysis of work logbooks/diaries This is a suitable method for assessing personal effectiveness, time management, etc. It may usefully be supplemented with oral questioning. Formal written answers to questions This is a suitable method for assessing knowledge and understanding of the general accounting environment and its impact on particular units of competence. For example, legal understanding could be tested by assigning the student a mini case study. This method is also useful for gathering supplementary evidence across the required range. Oral questioning This method may be used in conjunction with others. It may also be used to test knowledge and understanding across the range of competence, including organisational procedures, methods of dealing with unusual cases, contingencies and so on. Simulations and what they will test The AAT maintains a bank of simulations that aim to assess most of the performance criteria. Each simulation will be based around a single scenario containing information relevant to all three elements of the unit. Students will need to select the items of information relevant to each task. Although a VAT, return may be regarded as an example of ‘reports and returns for outside agencies’, the preparation of such a return will not be regarded in itself as evidence of competence in element 7.2. Simulations will instead require students to prepare a VAT return in order to satisfy element 7.3, while requiring a different type (or types) of return in relation to element 7.2. The types of return that may be required in this context are indicated in the knowledge and understanding included in element 7.2. In element 7.1 the term ‘consolidate’ is used not in its technical (group accounts) sense, but in the sense of amalgamating information, usually by simply adding up figures relating to different divisions. Thus, there will be no question of students having to calculate minority interests, goodwill on consolidation or any of the other special techniques associated with group accounts. The ‘information’ that students are required to consolidate is information relating to costs and revenue (as specified in the range statement). Typically, this will mean that students are presented with profit and loss accounts, balance sheets or similar financial statements and are asked to consolidate them (in the limited sense already described), and then to calculate ratios etc. To cover performance criterion 7.1D there will invariably be transactions between the organisational units (for example, inter divisional sales). These will always occur at cost price, so students will not have to deal with unrealised profit. Students will always be required to prepare a report on some aspect of the figures presented. Completely open ended tasks will be avoided. Instead, students will be directed along reasonably restricted lines. For example, they may be told that certain specific ratios are to be included in the report, and/or that comment is required on specific ratios or trends, and/or they may be told that the report is to contain a diagram of a specific type (for example, a bar chart, line graph, pie chart or similar). In element 7.2, students will usually be required to complete a standard form prepared by an external agency. The form will always refer to the consolidated figures, never to the figures relating to individual organisational units. Typical forms that might feature in a simulation include the following (but are not limited to these): a loan application form to be submitted to a bank an interfirm comparison form to be submitted to a trade association a statistical collection form to be submitted to a government or other regulatory body. To cover performance criterion 7.2A the form will invariably contain definitions of the ratios and statistics required. Students must observe these definitions carefully, and should be advised that they may not coincide with the definitions used in tasks relating to element 7.1. For example, the organisation may, for its own internal purposes, calculate ROCE in a particular way, and this may be specified in a task relating to element 7.1. In a later task, relating to element 7.2, students may be required to calculate ROCE according to a different formula. In element 7.3, students will invariably be required to complete a VAT return. The information they need may come from, say, a printout of totals generated by computerised cash book, sales ledger and purchase ledger systems. There may also be instances where actual invoices or similar documents (for example, a proforma invoice) are presented, and students will be required to determine whether it is appropriate to account for the related VAT. The level of technical understanding students are required to display is specified in the knowledge and understanding. In relation to point seven of the knowledge and understanding, students will not be expected to know the detailed rules entitling organisations to use annual accounting or cash accounting. However, they may be required to understand the effects of these schemes on completion of the periodic VAT return. In addition, they should be aware of the conditions that must be satisfied before bad debt relief may be claimed. With regard to performance criterion 7.3D, students will typically be required to seek guidance from the VAT office on some aspect of the organisation’s affairs. The point at issue may be something very simple, or it may be more complicated or obscure. In the former case, the task may require them to provide a brief explanation, as well as seeking more detailed guidance from the VAT office. In the latter case, the student will only be required to ask for guidance in an intelligent and professional manner, not to understand the sometimes very complex provisions of VAT law.