business planning: banking

Business Planning: BankingICAEW PARTNER IN LEARNING CONFERENCE

24 JANUARY 2020

Overview of BPB slides

• Outline of the BPB paper

• Exam setting process

• 2020 syllabus changes

• 2020 learning materials

• Recent exams

• December 2019 paper – candidate performance

• Key messages for 2020

• Marking

Business Planning: Banking (BPB)

• Professional Level module

• 2.5 hour computer-based exam

• 3 written test questions (question 1 is approximately 40 marks)

• 55% pass mark

• Open book

• Students are strongly advised to complete FAR and AA before

attempting BPB

Business Planning: Banking (BPB) (cont)

• Not a banking exam per se

• Focus on the role of an ICAEW Chartered Accountant in the banking

industry

• Role may be external (eg audit or assurance) or working within a bank

(eg risk management, credit analyst, financial accounting role or

internal audit)

• Key areas in the syllabus provide focus for questions (eg FR, audit &

assurance, risk management, financial services products, ethics)

• Scenario based questions

• Banking industry, markets and products set the context for questions

• Need to know key industry terminology, operations and procedures.

Exam setting process• Examining team consists of question writers, moderators, reviewers

• Questions in an exam paper may be written by different members of

the team

• Background of examining team includes:

- Industry practitioners

- Trainers

- Academics

- Members of regulatory bodies (Bank of England, PRA)

• Question setting process:

Examining team

write exam

Exam is

moderated by

recent student

and industry

specialist

Exam is

scrutinised by

ICAEW Exam

Review Board

2020 syllabus changes

• Institutions, markets and products 1m:

- demonstrate an understanding of the opportunities and threats to

traditional banking models created by digital technologies, including data

analytics, and distributed ledger technology eg, blockchain, and peer-to-

peer arrangements

• Risk management 2i:

- explain in outline how the increased awareness and use of

cryptocurrencies, distributed ledger technology eg, blockchain and artificial

intelligence affects banks

• Risk management 2j:

- explain how a bank might manage risks arising from FinTech

2020 syllabus changes (cont)

• Financial and regulatory reporting 3g:

- Duplication of impairment in two learning objectives so one removed

• Financial and regulatory reporting 3k:

- Enhanced Disclosure Task Force removed

• Financial and regulatory reporting 3k:

- demonstrate an understanding of the proposals of the Task Force on

Climate-related Financial Disclosures (TCFD) and explain the fundamental

principles of its requirements for banks

• Audit and Assurance 4g:

- Auditing of benchmarks removed

2020 learning materials

• The 2020 question bank contains eleven past exams, the sample exam

and 29 exam-standard questions (65 in total).

• Please continue to feedback any comments about the learning

materials.

Responding to feedback

© ICAEW 2018

Examining team

Employers

Tutors

ICAEW members’ interests

Regulators

2019 exams

2019 exam summary

• June 2019 (247 candidates)

- Pass rate of 64.4%. Mean average 55.8%.

- Q1 external audit in the context of IFRS 9 implementation, Q2 analysis of

divestment and acquisition, Q3 interest rate risk and cryptocurrency

• September 2019 (124 candidates)


- Q1 external audit focus on classification and measurement, Q2 foreclose

on loan, convert loan into shares or offer forbearance, Q3 market risk

• December 2019 (401 candidates)


- Q1 FR treatment of derecognition, FV and IFRS 15, Q2 credit assessment,

Q3 audit risks in stressed credit environment

December 2019 exam

December 2019 – Question 1

• Candidate works in financial planning and analysis at FreshBank, a new

bank

• The newly qualified head of the financial control department needs

advice on:

- Non-performing loans held within a securitisation arrangement

- The derecognition of collateral posted to a central clearing house

- The valuation of investments in unquoted bonds

- Fee income

• The candidate is also asked to provide advice on the use of blockchain

in its syndicated loans process.

1.1 – Financial reporting treatment

Strengths

• Candidates attempted all four

issues

• Derecognition criteria was applied

well to issues 1 and 2

• Fair valuation considerations were

discussed appropriately (issue 3)

• Good knowledge of IFRS 15

Weaknesses

• Very brief responses in some

cases

• Impairment of purchased credit-

impaired loans dealt with

incorrectly in approximately half of

the scripts

• Common error that haircut was

applied to collateral incorrectly

• Classification criteria for issue 3

was not required

1.2 – Documentation for external auditors

Strengths

• The majority of scripts provided

reasons why each piece of

documentation was required

• It was rare for scripts to simply list

items of documentation

Weaknesses

• Some candidates provided a list of

audit procedures which did not

necessarily address the

requirement

• An audit procedure often stated

‘gain assurance over…’ without

stating how this would be done

and what documentation would be

needed

1.3 – Blockchain in syndicated loans process

Strengths

• Candidates were well prepared for

this requirement

• A number of different advantages,

risks and practical concerns and

implications for external audit

were provided

Weaknesses

• Candidates did not always

consider the context of the

syndicated loans process by

stating that the use of blockchain

would attract customers and

increase the number of loans

advanced. Syndicated loans are

very large and fewer in number

than, for example, retail loans.

• A minority of candidates

discussed cryptocurrency rather

than blockchain


• Candidate is a credit analyst at Serpent Bank, analysing a loan

application from Boomslang, an online fashion retailer

• Details were provided of the term of the proposed loan, Boomslang’s

financial information and preliminary financial ratios

• Ethics was tested in the scenario that the candidate’s father, the partner

on the Boomslang audit, gives them information about Boomslang in an

informal setting

2.1 – Quantitative and qualitative analysis

Strengths

• Answers were detailed and

comprehensive

• Appropriate headings were used

which helped answers to be well

structured

• Reasoned recommendations were

provided

Weaknesses

• A tendency to copy information

from the question without adding

further analysis or explanation

• Loan structure section should

include a discussion of whether

the loan seems appropriate to

Boomslang’s needs

• Unjustified statements

• Security is not yet built so can not

be valued

• Retained earnings are not cash!

2.2 – Additional risks to Serpent

Strengths

• Candidates made a fair attempt at

this requirement

Weaknesses

• Candidates did not read the

question carefully and focused on

risks to Boomslang rather than

Serpent. If these risks were

related to credit risk they were

awarded marks

• The prepayment option mentioned

in the requirement was not always

discussed

2.3 – Ethical issues and actions

Strengths

• Key issue of confidentiality was

identified in all but the weakest

scripts

• A number of responses gained

very high marks

Weaknesses

• A significant minority of

candidates did not outline

appropriate responses to the

ethical breach

• Some candidates suggested that

the information should be used in

evaluating the credit risk of the

loan to fulfil their responsibilities to

their employer (which is incorrect!)


• Candidate works as a Chartered Accountant for the external auditors of

Rillo Bank

• A significant proportion of Rillo’s lending is in the country of Leku where

the economic environment has changed considerably since the prior

year affecting:

- Impairment allowances

- Risk appetite

- Hedging arrangements

• Regulatory supervisory powers were requested and an explanation of

the change to the AIRB approach to credit risk

3.1 – Audit risks

Strengths


candidates identified appropriate

audit risks and explained them

well

Weaknesses

• A lack of consideration of the

information provided to candidates

in the question

• Answers were copied from the

question bank. Marks could only

be awarded where the risks were

relevant to Rillo Bank

• Marks were missed by ignoring

the issues specific to Rillo Bank

• Audit procedures were provided in

a significant minority of scripts for

which no marks were awarded

3.2 – Strategic report analysis and impact on audit approach

Strengths

• Many candidates linked the

strategic report to the economic

situation in Leku and identified

disparities in the information

• Appropriate responses were made

including increasing professional

scepticism and reducing

materiality

Weaknesses


candidates provided audit

procedures for this requirement

which is not the same as

identifying the impact on the audit

approach

3.3 – Regulator supervisory powers and move to AIRB approach

Strengths

• Good knowledge of regulatory

issues was demonstrated

Weaknesses

• None, despite being the last

requirement on the exam

Candidate performance in 2019

Overall candidate performance in 2019

• Better time management is being demonstrated

• Open books are still heavily relied upon but there is less duplication of

question bank answers where they are not relevant to the scenario

• Alternative question formats and scenarios have been examined and

candidates appear able to deal with these

Key messages for 2020

Key messages for 2020

• Application of technical knowledge to the scenario provided accesses more marks

• Technology continues to increase in importance

• Knowledge of financial markets and instruments will continue to be examined in the context of scenario-based questions

• Professional skills:

- Multiple information sources

- Techniques inferred rather than specified

- Question styles and content will vary to ensure syllabus coverage

• Business Planning papers develop skills used at Advanced Level:

- Understand the situation and requirements

- Identify and use key information

• Candidates must be fully prepared before sitting the exam

Marking

• Markers’ meeting is held a few days after the exam date – the mark plan is scrutinised and refined

• Standardisation scripts are completed by markers before live marking starts

• Seeding scripts are completed throughout the marking process

• Second marking of 53%, 54%, 55% scripts

• Tutor mark plan (not for distribution to students) indicates how marks are allocated for each question

• Example scripts are available

© ICAEW 2018

business planning: banking

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