Pancyprian Accounting common mistakes
Pancyprian Accounting · Understand the traps and how to avoid them.
Preparing the statement of financial position without adjusting for accrued and prepaid items, so expenses are recognised on a cash basis and profit is overstated or understated.
Candidates learn the layout of the statement first and treat the trial balance as final. Under time pressure they post the obvious adjustments (depreciation, closing stock) and skip the accruals and prepayments because these require reading the additional information line by line.
What to do instead
Before writing any figure, list every item in the additional information and tag it to a double entry. Build a short working schedule for each accrual, prepayment, provision and depreciation charge, and tick each one off as it is posted. Then reconcile the net profit to the change in capital as a final check.
Treating a revaluation surplus, a rights issue premium, or a bonus issue as part of the year's profit in the statement of changes in equity.
Candidates conflate 'increase in equity' with 'profit for the year'. The statement of changes in equity has several columns and candidates fill them mechanically without asking which items pass through profit or loss.
What to do instead
Memorise the rule that only transactions with owners and total comprehensive income enter the statement of changes in equity, and that revaluation gains go to other comprehensive income (or the revaluation reserve) while bonus issues are capitalised reserves, not income. Practice by classifying a list of ten equity movements into profit or loss, OCI, and owner transactions before drafting the statement.
Computing over- or under-absorption of overheads using budgeted rather than actual activity, and mixing absorption bases within one cost centre.
Candidates memorise the formula 'overhead absorbed = actual hours x predetermined rate' but then substitute budgeted hours, or they switch from labour hours to machine hours mid-question because the data offers both.
What to do instead
Write the predetermined rate as a fraction with the base clearly labelled before starting, and use actual activity for absorption and budgeted activity only for the rate. State the base in a one-line heading and apply it consistently; then compute over/under-absorption as absorbed minus actual overhead and state whether it is over or under in words.
Valuing closing inventory at full cost including fixed production overhead in a marginal costing question, or using absorption profit in a marginal costing reconciliation.
Candidates revise both systems close together and the formats look similar. They also forget that the fixed overhead in closing inventory is the only reconciling item between the two profit figures.
What to do instead
Under marginal costing, value inventory at variable production cost only. For the reconciliation, compute the difference as the change in inventory units multiplied by the fixed overhead absorption rate per unit, and check the sign: if inventory rose, absorption profit exceeds marginal profit. Always present the reconciliation as a separate schedule so the two systems cannot be blended.
Applying the wrong VAT treatment to zero-rated versus exempt supplies, and claiming input VAT on exempt or non-business expenditure.
Both categories carry 0% output tax in the sense that no VAT is charged, so candidates treat them as identical and miss that only zero-rated supplies give a right to recover input VAT. Partial exemption and the capital goods scheme are often skipped in revision.
What to do instead
Build a two-column table: zero-rated (recover input VAT, e.g. exports and most food) versus exempt (no recovery, e.g. certain financial and medical services). For mixed businesses, compute the recoverable proportion using the standard partial exemption method and remember the capital goods scheme adjustment for land and buildings above the threshold. Cite the principle, not just the number.
Calculating corporation tax on accounting profit without adding back disallowable expenditure and without applying the correct rate band and temporary exemptions.
Candidates treat the financial statements as the tax computation. They forget that depreciation, entertainment, and certain donations are added back, and they apply a single rate to all profits instead of checking the band structure and any exemptions available to the company.
What to do instead
Use a standard pro-forma: accounting profit, add back disallowable items, deduct capital allowances and exempt income, then apply the rate to the taxable profit with the band split shown. Keep a personal checklist of the most common add-backs and always show the workings for the rate applied rather than a single final figure.
Concluding that an audit opinion is unmodified because the client's records are complete, without testing whether the going concern assumption is appropriate when there are loss-making years and net current liabilities.
Candidates focus on the mechanical evidence-gathering steps and treat going concern as a narrative point to mention at the end rather than a judgement that can change the opinion. They also confuse a material uncertainty disclosure with a qualified opinion.
What to do instead
Treat going concern as a separate evidence objective: obtain cash flow forecasts, check the adequacy of disclosed assumptions, and confirm the availability of financing. Then map the conclusion to the opinion: adequate disclosure with material uncertainty gives an unmodified opinion with a material uncertainty paragraph, inadequate disclosure gives a qualified or adverse opinion. Practise writing the opinion paragraph in full.
Describing audit procedures as 'check the invoices' or 'review the ledger' without stating the assertion addressed, the population, and the direction of testing.
Candidates answer procedure questions in everyday language and lose marks because the examiner wants assertion-linked, specific procedures. They also test only for existence and forget completeness, valuation, and rights and obligations.
What to do instead
Write each procedure in three parts: the assertion, the action, and the evidence. For example, for completeness of trade payables, select a sample from post year-end payments and supplier statements and trace back to the payables ledger. Cover at least two assertions per balance and state the direction of testing (from source document to ledger, or ledger to source document).
Advising on a share transfer or dividend without checking the company's articles, the statutory capital maintenance rules, and the required directors' and members' resolutions.
Candidates answer company law questions from general principle and skip the procedural steps. They forget that distributable profits, capital maintenance, and the articles can each block a transaction that looks commercially sensible.
What to do instead
Use a fixed sequence for every company law scenario: capacity and authority, articles and any special resolution requirement, statutory formalities (board meeting, notice, filing), capital maintenance and distributable profits, then consequences of breach including director liability. State the section or principle relied on and name the resolution type explicitly.
Presenting an NPV or investment appraisal answer as a single figure without showing the discount factors, the treatment of working capital and tax, and the sensitivity of the decision to the cost of capital.
Candidates rush to the final number and omit the workings that carry most of the marks. They also forget that working capital is recovered at the end of the project and that tax is usually paid in arrears.
What to do instead
Lay out the appraisal as a year-by-year table with separate rows for operating cash flow, tax, capital expenditure, and working capital, and show the discount factor used each year. Finish with a short sensitivity note, for example the percentage change in the cost of capital or in annual cash flow that would make NPV zero, and state the decision rule in words.
Treating a computerised accounting system as automatically accurate and failing to describe the controls over master files, access rights, and audit trails.
Candidates assume the software prevents error and so describe few controls. They also confuse general IT controls with application controls and cannot give examples of either.
What to do instead
Learn the split: general controls cover access, change management, backup, and physical security; application controls cover input validation, batch totals, sequence checks, and exception reports. For any scenario, name at least two controls of each type, state the risk each addresses, and mention the audit trail and the review of the master file amendment log.
Identifying an ethical threat by name but failing to state the safeguard and the course of action, or misclassifying a self-interest threat as self-review.
Candidates memorise the five threat categories as a list and then match keywords rather than analysing the actual relationship. They also stop at naming the threat and omit the required response.
What to do instead
For each scenario, state the relationship, the specific threat category with a one-line justification, whether it is at an acceptable level, and then the safeguard or action (decline, rotate, disclose, obtain independent review). Practise with short scenarios where two threats overlap, and always distinguish self-interest (a financial or other interest) from self-review (evaluating your own work).