IAI CAFB - Certificate in Accounting, Finance and Business common mistakes
IAI CAFB - Certificate in Accounting, Finance and Business · Understand the traps and how to avoid them.
When a question gives a trial balance and asks for profit, the candidate totals the credit column, subtracts the debit column, and reports that difference as profit without building an income statement or separating revenue, expense, and closing-stock figures.
Trial balance arithmetic feels like a single verifiable step, so candidates stop as soon as the columns agree or a difference appears, skipping the classification that actually produces profit. The balance check gives false confidence.
What to do instead
Before calculating, rewrite the trial balance into three lists: revenue and gains, expenses and purchases, and balance sheet items including closing inventory. Profit equals revenue minus expenses after the closing-stock adjustment; if your answer equals the raw column difference, you have not done the question. Practise ten trial balance to profit conversions until the three-list habit is automatic.
The candidate prepares consolidation workings by adding parent and subsidiary figures line by line and ignores intra-group sales, unrealised profit in inventory, and the subsidiary share of post-acquisition reserves.
Additive arithmetic is quick and looks tidy, so the adjustments feel like optional refinements rather than the point of the question. Candidates under time pressure treat consolidation as summation.
What to do instead
Adopt a fixed consolidation worksheet order: combine, then eliminate intra-group balances and transactions, then remove unrealised profit, then split post-acquisition reserves by ownership percentage, then compute non-controlling interest. Write the order at the top of your workings before touching numbers and tick each step off.
The candidate computes a variance as actual minus standard using whichever order the numbers appear in the question, so the sign of the variance and whether it is favourable or adverse is arbitrary.
Variance formulas differ by variance type (material price versus usage, labour rate versus efficiency) and candidates memorise them as strings of letters rather than as a logic about prices and quantities.
What to do instead
Derive each variance from a physical story before calculating: price variance uses actual quantity purchased, usage variance uses the standard price, and the sign convention is standard minus actual for cost items. State the direction in words (favourable or adverse) in the answer, not just a number, so a sign error is visible.
Asked to choose between absorbing fixed overhead using direct labour hours or machine hours, the candidate picks the method that gives the higher product cost or the one used in a previous question, without checking which cost driver actually causes the overhead.
Absorption questions look like arithmetic exercises, and candidates optimise for a clean number rather than for causal validity. Exam pressure rewards any defensible-looking calculation.
What to do instead
For every overhead absorption question, first name the dominant activity (labour-intensive versus machine-intensive) and justify the driver in one sentence. Then compute under- and over-absorption as absorbed overhead minus actual overhead, and comment on the pricing consequence of the choice.
The candidate computes net present value by discounting each year's cash flow at the cumulative rate for that year (for example dividing year three by 1.10 three times over) or by including depreciation and interest as cash flows.
Compounding and discounting notation is confused under time pressure, and accounting training makes depreciation feel like a real cost that belongs in the model.
What to do instead
Write the discount factor for each year explicitly as 1/(1+r)^n and check year one against a known value. Build the cash flow list from operating cash (revenue minus cash costs minus tax), then capital expenditure, then working capital changes; exclude depreciation and exclude financing flows because the discount rate already prices them.
When asked whether a company can pay a dividend, the candidate answers from the profit figure alone and never checks distributable reserves, the solvency test, or the company's constitution and any loan covenant restrictions.
Profit and cash are conflated in everyday thinking, and candidates treat dividend capacity as an accounting question rather than a legal and contractual one.
What to do instead
Answer dividend questions in three layers: accumulated realised profits available for distribution, the statutory or constitutional restrictions on distribution, and the practical liquidity and covenant position. State explicitly that profit does not equal distributable reserves when there are accumulated losses.
The candidate describes a director's duties by listing abstract headings such as act in good faith or exercise care and skill, without applying them to the facts given and without identifying who the duty is owed to and what remedy follows breach.
Duties are learned as a memorised list for recall questions, and candidates do not practise converting them into an applied analysis of a scenario.
What to do instead
For each scenario, write one sentence per relevant duty naming the decision, the duty engaged, the interest at risk, and the consequence (for example personal liability, transaction voidable, or disqualification). Practise converting a list of duties into a short applied paragraph so the habit carries into the exam.
The candidate treats a price change as if demand were unit elastic, or computes percentage changes using the new value as the base instead of the original, producing elasticity figures with the wrong magnitude and sign.
Percentage change is taught early and rarely revisited, and the midpoint convention is confused with the base convention. Sign conventions for demand curves are also dropped.
What to do instead
Use the standard formula (change divided by original) unless the question specifies the midpoint method, and write the base value next to the calculation. State elasticity as an absolute number plus a label (elastic, inelastic, unit elastic) and connect it to the revenue effect of the price change.
Asked to recommend a strategy, the candidate lists generic options such as cost leadership or diversification without linking them to the organisation's stated resources, the competitive environment, or a measurable implementation step.
Strategy frameworks are memorised as labels, and candidates reproduce the label instead of performing the analysis the question asks for.
What to do instead
Structure the answer as analysis, choice, implementation: identify the two or three facts in the scenario that constrain the choice, select one option and justify it against those facts, then give one implementation action and one measure of success. Never name a generic strategy without tying it to a specific scenario fact.
In an ethics scenario, the candidate states that the accountant should 'act ethically' or 'follow the code' without naming the specific threat (self-interest, self-review, advocacy, familiarity, intimidation), the safeguard available, and the escalation route.
Ethics answers feel like opinion, so candidates write reassurance rather than analysis. The threat categories are known but not practised in application.
What to do instead
Use a four-step template for every ethics scenario: identify the facts creating pressure, name the threat category, state the safeguard (decline the engagement, disclose and recuse, obtain independent review), and state the escalation path including resignation and reporting where required. Write the template out once and reuse it.
The candidate answers a data analytics question by describing the tool or the chart type instead of stating the question the analysis answers, the data quality limitation, and the decision the output supports.
Tool familiarity is mistaken for analytical judgement, and candidates default to describing software features because that is what they have practised.
What to do instead
Answer in the order: decision to be supported, data required and its known quality limits, analysis method and why it fits, interpretation with a stated caveat. If the answer contains a software name but no decision, rewrite it.