How does the book fit in with SAICA’s competency framework for financial management?

THE SA COMPETENCY FRAMEWORK AND THE COMPANIES ACT, 2008The South African Institute of Chartered Accountants (SAICA) has introduced a Competency Framework, which sets out the required competencies of Chartered Accountants at entry point to the accounting profession. SAICA has also produced a Detailed Guidance for Academic Programmes report, which sets out the competencies required for Part 1 of the Qualifying Examination. These competencies will be applicable to the Part 1 of the Qualifying Examination, with effect from 2013.

In writing the 7th edition of Financial Management, we have as far as possible included the changes arising from the introduction of the SA Competency Framework. We have firstly matched the specific Financial Management competencies, set out on pages 85-90 of SAICA’s Detailed Guidance for Academic Programmes report with the relevant chapters in the Financial Management textbook. We have highlighted new sections, if these represent significant new additions to the book in order to ensure that the 7th edition complies with the SA Competency Framework.

The Detailed Guidance for Academic Programmes report includes a Knowledge Reference List, which sets out the content and levels of knowledge required to acquire the specific Financial Management competencies. This list is set out on pages 90-95 and we have matched each topic indicated by SAICA on the Knowledge Reference List to the relevant chapter in the Financial Management textbook.

Ethics & ProfessionalismSAICA has set out the pervasive skills required of all Chartered Accountants, being Ethics and Professionalism, Personal Attributes and Professional Skills. We have included a new section (see Appendix 1.1) on Professional Ethics which follows the Code of Professional Conduct of SAICA. The Chartered Financial Analyst (CFA) Institute has issued a Code of Ethics and Standards of Professional Conduct to guide the actions of investment professionals. We have included a summary of this in Appendix 1.1. Over time, we expect a greater integration of ethics and financial management.

Integration of Information and Information TechnologyThe SA Competency Framework requires the integration of IT within the specific competencies as information and IT have become pervasive in the tasks undertaken by Chartered Accountants. The SA Competency Framework mainly refers to IT competencies found in Professional Skills, Strategy, Risk Management and Corporate Governance, Auditing and Assurance and Management Decision-Making and Control. Yet IT is critical for financial management and without the advances in IT, both in terms of software, models and systems, the functioning of capital markets would be severely curtailed and the design of financial instruments would be compromised.

The focus on IT in a financial management environment is highly dependent on financial models. Applications such as option pricing models, bond pricing, loan amortisations and Monte Carlo simulation is dependent on programs such as Excel and Excel-based models and programs such Crystal Ball©. Capital budgeting, mergers and acquisitions, and valuations are highly dependent on setting up detailed cash flow forecasts in Excel and the use of tools such as Tornado graphs, data tables, Scenario Manager and Monte Carlo simulation.

In the 7th edition of Financial Management, we have focused mainly on the use of Financial Modelling and the use of Excel to solve financial management applications. We also refer to the strategic importance and role of IT in a company’s business model.

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We employ financial models throughout the textbook, to solve time value of money applications such as loan amortisations, in risk and return and portfolio theory to determine such aspects as standard deviations and efficiency frontiers, in capital budgeting to set out project cash flows and compute NPV and IRR as well as undertake Monte Carlo simulations. We employ Excel in determining the cost of capital, valuations of bonds and equities, the determination of yield-to-maturity (YTM), Free Cash Flow models, and we use of Excel models to apply the Black and Scholes option pricing model.

In the 7th edition, we have gone further by placing financial modelling in a separate chapter, where we focus on the proper design and layout of financial models to optimise flexibility and reduce the potential for errors, set out model documentation, apply audits of models, and explain the application of such tools as data tables, goal seek and scenario manager. We have included a section on the use of financial modelling to forecast financial statements, determine free cash flows and financing flows and determine the value of a company. The focus is on the use of financial modelling skills to solve real world corporate finance applications.

Strategy, Risk Management and GovernanceThe SA Competency Framework refers to Strategy, Risk Management and Governance as a broad competency framework. Whilst many areas of this competency are beyond the scope of the Financial Management textbook, we have addressed specific issues in the 7th edition relating to this competency. Firstly, the current section on corporate strategy in Chapter 10 has been expanded. We have included aspects of risk assessment in Chapter 5 on financial analysis. A new section has been included in Chapter 1 on corporate strategy which includes Porter’s Five Forces model, SWOT and PEST analysis.

The focus in the 7th edition relates to financial risk management and Chapter 18 has been expanded to include refinancing, liquidity and credit risk. The section on interest rate swaps has been expanded and includes caps, floors and collars. A new section has been included in Chapter 1 on Risk Management and the introduction to Chapter 18 includes an overview of risk management. A new section on aspects of Corporate Governance and King III has been included in Chapter 1.

The Companies Act 71 of 2008The new Companies Act has been passed by Parliament and will take effect from a date to be fixed by the President. This is expected to be 1 April 2011. The 7th edition of the Financial Management textbook has included the changes arising from the introduction of the Companies Act 71 of 2008 to the extent that this is relevant to Financial Management. This is line with the requirements of the SA Competency Framework, which states that knowledge of the Companies Act is determined by the extent required by the specific competency, in this case being Financial Management. The main areas of the Companies Act that have been included in the 7th edition are:

Types of companies – differences between private and public companies; ■

Share Capital – the use of no par value shares; ■

Solvency and liquidity tests; ■

Financial assistance for the purchase of shares; ■

Distributions to shareholders; ■

Share Buy-backs; ■

Issue of shares to the public; ■

Sale of the greater part of a company’s assets; ■

Mergers and fundamental transactions; ■

Scheme of arrangement; ■

Takeovers, mandatory offers, and the Takeover Regulation Panel; and ■

Business rescue as an alternative to liquidation (see also, section in the SA Competency ■

Framework relating to financially troubled companies).

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SAICA’S SPECIFIC COMPETENCIES IN FINANCIAL MANAGEMENT AND KNOWLEDGE REFERENCE LIST

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