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ACCA P4 Advanced Financial Management Study Guide

ACCA P4 Advanced Financial Management Study Guide

ACCA P4 Advanced Financial Management Study Guide : This is the main document that students, learning and content providers should use as the basis of their studies, instruction and materials. Examinations will be based on the detail of the study guide which comprehensively identifies what could be assessed in any examination session. The study guide is a precise reflection and breakdown of the syllabus. It is divided into sections based on the main capabilities identified in the syllabus. These sections are divided into subject areas which relate to the sub-capabilities included in the detailed syllabus. Subject areas are broken down into sub-headings which describe the detailed outcomes that could be assessed in examinations. These outcomes are described using verbs indicating what exams may require students to demonstrate, and the broad intellectual level at which these may need to be demonstrated.

ACCA P4 Advanced Financial Management Study Guide

ACCA P4 Advanced Financial Management Study Guide :


1. The role and responsibility of senior financial executive/advisor

a) Develop strategies for the achievement of the organisational goals in line with its agreed policy framework.

b) Recommend strategies for the management of the financial resources of the organisation such that they are utilised in an efficient, effective and transparent way.

c) Advise the board of directors or management of the organisation in setting the financial goals of the business and in its financial policy development with particular reference to:

i) Investment selection and capital resource allocation

ii) Minimising the cost of capital

iii) Distribution and retention policy

iv) Communicating financial policy and corporate goals to internal and external stakeholders

v) Financial planning and control

vi) The management of risk.

2. Financial strategy formulation

a) Assess organisational performance using methods such as ratios and trends

b) Recommend the optimum capital mix and structure within a specified business context and capital asset structure.

c) Recommend appropriate distribution and retention policy.

d) Explain the theoretical and practical rationale for the management of risk.

e) Assess the organisation’s exposure to business and financial risk including operational, reputational, political, economic, regulatory and fiscal risk.

f) Develop a framework for risk management, comparing and contrasting risk mitigation, hedging and diversification strategies.

g) Establish capital investment monitoring and risk management systems.

h) Advise on the impact of behavioural finance on financial strategies / securities prices and why they may not follow the conventional financial theories.

 3. Ethical and governance issues

a) Assess the ethical dimension within business issues and decisions and advise on best practice in the financial management of the organisation.

b) Demonstrate an understanding of the interconnections of the ethics of good business practice between all of the functional areas of the organisation.

c) Recommend, within specified problem domains, appropriate strategies for the resolution of stakeholder conflict and advise on alternative approaches that may be adopted.

d) Recommend an ethical framework for the development of an organisation’s financial policies and a system for the assessment of its ethical impact upon the financial management of the organisation.

e) Explore the areas within the ethical framework of the organisation which may be undermined by agency effects and/or stakeholder conflicts and establish strategies for dealing with them.

f) Establish an ethical financial policy for the financial management of the organisation which is grounded in good governance, the highest standards of probity and is fully aligned with the ethical principles of the Association.

g) Assess the impact on sustainability and environmental issues arising from alternative organisational business and financial decisions.

h) Assess and advise on the impact of investment and financing strategies and decisions on the organisation’s stakeholders, from an integrated reporting and governance perspective

 4. Management of international trade and finance

a) Advise on the theory and practice of free trade and the management of barriers to trade.

b) Demonstrate an up to date understanding of the major trade agreements and common markets and, on the basis of contemporary circumstances, advise on their policies and strategic implications for a given business.

c) Discuss how the actions of the World Trade Organisation, the International Monetary Fund, The World Bank and Central Banks can affect a multinational organisation.

d) Discuss the role of international financial institutions within the context of a globalised economy, with particular attention to (the Fed, Bank of England, European Central Bank and the Bank of Japan).

e) Discuss the role of the international financial markets with respect to the management of global debt, the financial development of the emerging economies and the maintenance of global financial stability.

f) Discuss the significance to the organisation, of latest developments in the world financial markets such as the causes and impact of the recent financial crisis; growth and impact of dark pool trading systems; the removal of barriers to the free movement of capital; and the international regulations on money laundering.

g) Demonstrate an awareness of new developments in the macroeconomic environment, assessing their impact upon the organisation, and advising on the appropriate response to those developments both internally and externally.

5. Strategic business and financial planning for multinationals

a) Advise on the development of a financial planning framework for a multinational organisation taking into account:

i) Compliance with national regulatory requirements (for example the London Stock Exchange admission requirements)

ii) The mobility of capital across borders and national limitations on remittances and transfer pricing

iii) The pattern of economic and other risk exposures in the different national markets

iv) Agency issues in the central coordination of overseas operations and the balancing of local financial autonomy with effective central control.

6. Dividend policy in multinationals and transfer pricing

a) Determine a corporation’s dividend capacity and its policy given:

i) The corporation’s short- and long-term reinvestment strategy

ii) The impact of capital reconstruction programmes such as share repurchase agreements and new capital issues on free cash flow to equity.

iii) The availability and timing of central remittances

iv) The corporate tax regime within the host jurisdiction.

b) Advise, in the context of a specified capital investment programme, on an organisation’s current and projected dividend capacity.

c) Develop organisational policy on the transfer pricing of goods and services across international borders and be able to determine the most appropriate transfer pricing strategy in a given situation reflecting local regulations and tax regimes.

ACCA P4 Advanced Financial Management Study Guide :


1. Discounted cash flow techniques

a) Evaluate the potential value added to an organisation arising from a specified capital investment project or portfolio using the net present value (NPV) model.

Project modelling should include explicit treatment and discussion of:

i) Inflation and specific price variation

ii) Taxation including tax allowable depreciation and tax exhaustion

iii) Single period and multi-period capital rationing. Multi-period capital rationing to include the formulation of programming methods and the interpretation of their output

iv) Probability analysis and sensitivity analysis when adjusting for risk and uncertainty in investment appraisal

v) Risk adjusted discount rates

vi) Project duration as a measure of risk.

b) Outline the application of Monte Carlo simulation to investment appraisal.

Candidates will not be expected to undertake simulations in an examination context but will be expected to demonstrate an understanding of:

i) The significance of the simulation output and the assessment of the likelihood of project success

ii) The measurement and interpretation of project value at risk.

c) Establish the potential economic return (using internal rate of return (IRR) and modified internal rate of return) and advise on a project’s return margin. Discuss the relative merits of NPV and IRR.

2. Application of option pricing theory in investment decisions: ACCA P4 Advanced Financial Management Study Guide

a) Apply the Black-Scholes Option Pricing (BSOP) model to financial product valuation and to asset valuation:

i) Determine and discuss, using published data, the five principal drivers of option value (value of the underlying, exercise price, time to expiry, volatility and the riskfree rate)

ii) Discuss the underlying assumptions, structure, application and limitations of the BSOP model.

b) Evaluate embedded real options within a project, classifying them into one of the real option archetypes.

c) Assess, calculate and advise on the value of options to delay, expand, redeploy and withdraw using the BSOP model.

3. Impact of financing on investment decisions and adjusted present values: ACCA P4 Advanced Financial Management Study Guide

a) Identify and assess the appropriateness of the range of sources of finance available to an organisation including equity, debt, hybrids, lease finance, venture capital, business angel finance, private equity, asset securitisation and sale and Islamic finance. Including assessment on the financial position, financial risk and the value of an organisation.

b) Discuss the role of, and developments in, Islamic financing as a growing source of finance for organisations; explaining the rationale for its use, and identifying its benefits and deficiencies.

c) Calculate the cost of capital of an organisation, including the cost of equity and cost of debt, based on the range of equity and debt sources of finance. Discuss the appropriateness of using the cost of capital to establish project and organisational value, and discuss its relationship to such value.

d) Calculate and evaluate project specific cost of equity and cost of capital, including their impact on the overall cost of capital of an organisation. Demonstrate detailed knowledge of business and financial risk, the capital asset pricing model and the relationship between equity and asset betas.

e) Assess an organisation’s debt exposure to interest rate changes using the simple Macaulay duration and modified duration methods.

ACCA P4 Advanced Financial Management Study Guide

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