Case Study August 2020 Examiners Report and Mark Plan

CASE STUDY – AUGUST 2020
EXAMINERS’ COMMENTS AND MARK PLAN
Contents
Page
Part 1: Executive summary
Introduction 2
Overview of performance 2
Part 2: The Case Study examination
Scenario for the paper (Advance Information) 4
Analysis of Advance Information (AI) 4
Information provided in the Case Study Exam (CSE) 10
Exam requirements 10
Analysis of Case Study Exam information 11
Summary of grades available 12
Part 3: Commentary on candidates’ performance
Overview of professional skills 13
Overall Assessment Criteria 14
Executive summary 14
Requirement 1: Review of Scour’s financial performance 14
Requirement 2: Evaluation of product suppliers 15
Requirement 3: Evaluation of proposal from Edna Jones 16
Part 4: Appendices
Appendix 1: Financial statement analysis: Scour’s financial performance 17
Appendix 2: Financial data analysis: Calculation of cost of product supplies 20
Appendix 3: Commercial data analysis: Calculation of revenue and profit from Edna Jones 20
Part 5: Marking key
© The ICAEW 2020 Page 1 of 20

PART 1: EXECUTIVE SUMMARY
Introduction
This report covers the August 2020 Case Study (CS) exam. It is issued in conjunction with two sample answers
and related Examiners’ commentaries. The first of these was within the top 10% of all assessed scripts; the
second failed the exam. In reviewing these documents, it is important to be aware that it is rare for a script to be
uniformly ‘bad’ or uniformly ‘good’: a successful script will often present detailed coverage of all requirements
but include errors of calculation, spelling or logic; an unsuccessful script may contain one or two strong sections
or several excellent points but be let down by poor or incomplete text elsewhere. Unsuccessful candidates will
also find helpful guidance in the ICAEW Learning Materials.
Attached to this report are three appendices giving examples of the sort of analysis that candidates did or
might have done. The two sample answers offer further insights into this area.
Overview of performance
The pass rate was 75.7% (November 2019 – 75.9%; July 2019 – 76.5%). Successful candidates showcased
their higher skills and used the four hours effectively. They produced methodical, well-balanced, relevant
scripts that answered each element of each requirement and contained high-quality financial analysis; sound
judgement; commercial recommendations; and succinct, focused executive summaries. They were able to
assimilate the case material into a report, demonstrating business awareness and appropriate professional
scepticism. They had clearly prepared well, making the necessary effort to master the Advance Information for
themselves and to hone their exam technique.
The subject of the case is Scour Limited, a company providing commercial cleaning services for a wide range of
customers across the West and South West of England. These ‘owned operations’ face pricing and other
competitive pressures, with an increasing need to achieve efficiencies through enhanced use of technology.
Scour also has a fast-growing network of franchisees (‘franchised operations’) providing commercial cleaning
services to customers across the rest of the UK. The candidate is in the role of Hilary O’Keeffe, a final-year
trainee ICAEW Chartered Accountant reporting to a partner, Paul Croxley, in the business advisory unit of Young
& Walsh, a firm of ICAEW Chartered Accountants with offices across the West of England.
The exam requirements comprised:
1. A review of Scour’s revenue and gross profit for the year ended 31 May 2020 in comparison with 2019,
mainly focused on the two individual streams (owned operations and franchised operations).
2. An evaluation of competing bids for the supply of cleaning products, from Scour’s existing sole supplier,
Thom, and an up-and-coming rival, Violetta. Candidates had to undertake calculations; assess the
adequacy of assumptions; compare and contrast the key terms being offered by the two suppliers; discuss
any ethical and business trust issues; and recommend, with reasons, which bid Scour should accept.
3. An evaluation of the approach from a prospective franchisee, Edna Jones, who was currently a member of
Scour’s head office team. Candidates were required to evaluate the financial, operational, strategic, ethical
and business trust issues; and advise, with reasons, whether Scour should accept Edna as a franchisee.
Reasons for failure were largely familiar. The quality of weaker candidates’ answers, especially with respect to the
skill of Applying Judgement, was similar to the examiners’ previous experience. Similarly, recommendations were
poor – characterised by an inability, across all three requirements, to offer appropriate, commercial advice (which,
after all, is what the client would ultimately be paying for) based on their work.
Candidates did better than is sometimes the case on Requirement 3, showing good understanding and analysis of
the scenario. However, this was offset by a poorer performance than usual on Requirement 1, with weaker
candidates not doing justice to the franchised operations.
Review of professional skills
Assimilating and Using Information (A&UI): A&UI was the strongest skill on this exam, reflecting the use of
effective appendices in all three requirements. The vast majority of candidates achieved passing grades for
their numerical work. The main reasons for not gaining a CC grade were poor labelling of calculations for
Requirement 2 and not flexing the numbers at Requirement 3 to reflect Scour’s standard fee rates. Candidates
demonstrated the ability to articulate the business issues and wider context in Requirements 1 and
(particularly) 3, but fewer did so for Requirement 2. Candidates almost universally heeded the ICAEW’s
advance message to refer only briefly to the impact of the pandemic.

Structuring Problems and Solutions (SP&S): Candidates generally displayed good SP&S skills, though overall
they were a little weaker than usual. At Requirement 1, box 1 (owned operations revenue) was answered well,
with candidates methodically commenting on the individual customers. Box 2 (franchised operations revenue)
was less well done: while most candidates discussed some aspect in detail, many did not cover the whole
statement of profit or loss. Analysis of cost of sales and gross profit was also patchy. At Requirement 2, the vast
majority scored a passing grade for boxes 1 (total costs) and 2 (assumptions). However, only around half did so
for box 3 (ethics/business trust issues): most covered some points, but there was a tendency to focus on one or
two issues rather than to consider the wider picture. In Requirement 3, candidates were better on box 2
(operational/strategic issues) than on box 1 (financial) and box 3 (ethics/business trust).
Applying Judgement (AJ): AJ was poor in all three requirements and a differentiator among marginal candidates.
At Requirement 1, judgement on owned operations revenue was better than on franchised operations revenue
and cost of sales and gross profit. For Requirement 2, candidates covered the issues well at box 1. For box 2,
they were good at assessing Violetta’s concentration claim, but weak at critiquing the purchase forecasts – a
fundamental assumption. Performance at box 3 (ethics/business trust) reflected coverage in the corresponding
SP&S box, with candidates not paying enough attention to the new media articles in the exam. For Requirement
3, box 1 (evaluation of overall financial impact) was not well covered. Candidates did not focus sufficiently on the
ambitious growth implied for Year 2 or consider how their outcome would change using Scour’s usual fee rates.
Results for box 2 (evaluation of operational/strategic issues) were poor: candidates discussed the risk for the
whole network if Scour were to adopt Edna’s proposed fee rates, but overlooked the other, ‘big picture’, factors.
Conclusions and Recommendations (C&R): For Requirements 2 and 3, candidates did well on the Conclusions
boxes but only a minority gained a passing grade for Recommendations. For Requirement 2, most candidates
concluded on most aspects, following from their analysis and judgement work. Among recommendations, they did
best in telling Scour to negotiate on terms and conditions, but otherwise struggled to offer pertinent advice.
Requirement 3 was similar: they concluded on the key points, and the most frequent advice was to do due
diligence on Edna. For Requirement 1, grades were poor in both boxes: many candidates did not address
changes in cost of sales and/or gross profit, and they also found it hard to make commercial recommendations
(for example, the need to investigate or stem the loss of customers).
Review of requirements
Requirement 1: The vast majority of candidates produced good-quality analysis of the main numbers in their
appendix and report. Where lower grades were awarded, it was usually in relation to the franchised operations.
The analysis and evaluation of these were key areas for differentiation: those who understood the dynamics, by
looking at the relative figures for each element, could add real value to their commentary. For owned operations,
as often in the past, discussion of costs and profit was not as good as that for revenue. Better candidates were
able to draw together several strands of the scenario, integrating the AI with new exam material.
Requirement 2: Appendices were generally well done, with most candidates gaining passing grades by producing
a methodical calculation and covering the other parts of the requirement. Where they did less well, it was mainly
through errors (eg, deducting the wrong concentration effect). Candidates worked through the key contract terms
and commented sensibly on them. They were generally good at analysing the assumptions, but less good at
evaluating them. It was the same with ethical and business trust issues, where those who felt under time pressure
tended to overlook the new media articles.
Requirement 3: This had a similar profile of marks as Requirements 1 and 2, if slightly lower. A majority followed
the AI templates for their calculations and scored well for them. However, they often did not then go on to
evaluate them effectively. Candidates analysed the operational/strategic and ethics/business trust issues
adequately but were poor at evaluating them: this was a significant differentiator at the pass/fail margin. In
general, they did not sufficiently question the variations in agreement terms being put forward by Edna or their
potential wider impact on Scour’s franchise network. Stronger candidates were able to demonstrate sound
judgement and professional scepticism.
In summary, the Scour case dealt with an understandable and topical industry, with an appropriate level of
numerical content for students on the verge of qualifying as ICAEW Chartered Accountants. As one tutor
noted, “Overall the content of the exam requirements was clear and not unexpected. There was detailed
guidance to candidates on how to structure their answers to all three requirements. Those that had prepared
well, and made use of all the information provided in the Exam in their discussions, should have found this
Case Study well within their capabilities”.

PART 2: THE CASE STUDY EXAMINATION
Scenario for the paper (Advance Information)
The case relates to Scour Limited, a company formed in 2010 and based in Bath, a city 160 km west of London. It
provides commercial cleaning services for a wide range of customers across the West and South West of England
(‘owned operations’). Scour also has a recently-launched and fast-growing network of franchisees which provide
commercial cleaning services to customers across the rest of the UK (‘franchised operations’). Scour and its
franchisees carry out standard interior cleaning for their customers.
Scour’s current revenue and gross profit are dominated by its owned operations, which represent 96.2% and 94.7%
respectively. However, the franchised operations are growing rapidly and are more profitable. They were launched
on 1 December 2017, with four franchisees. A further 11 joined in the year to 31 May 2019: Scour’s target is 50 by
31 May 2021.
Prior to the examination, candidates were provided with a package of information, containing a series of exhibits
relating to Scour and the industry, comprising:
1 About you (Hilary O’Keeffe), your employer (Young & Walsh) and your client (Scour Limited)
2 The commercial cleaning industry
3 An introduction to franchising
4 Scour: An introduction
5 Scour: Review of the management accounts for the three years ended 31 May 2019
6 Scour: Management accounts for the three years ended 31 May 2019
7 Scour: Business model
8 Scour: Customer profiles
9 Scour: Franchising operations and franchisee profiles
10 Scour: Supply chain
11 Scour: Staffing (owned operations)
12 Scour: Strategic plan
13 Recent media coverage
Analysis of Advance Information (AI)
By carefully studying and analysing the 36 pages of the AI, candidates should have formed a detailed picture of
Scour and the industry, using facts and figures from across the material. Candidates should be aware of the main
contents so that they can easily locate key topics in the exam. Key points are summarised below. (Additional
examiner commentary is given in this font, highlighting links between exhibits.)
Exhibit 1 introduces the candidate’s role: Hilary O’Keeffe, a final-year trainee ICAEW Chartered Accountant
reporting to a partner, Paul Croxley, in the business advisory unit of Young & Walsh, a firm of ICAEW Chartered
Accountants with offices across the West of England.
Exhibit 2 states that while some businesses use in-house cleaning staff, many others outsource cleaning. Some
companies provide just cleaning; others also offer other facilities management (FM) services. FM companies –
which can achieve scale economies – dominate the sector, but there are many small players too. Competition is
fierce; barriers to entry are low. Customers recognise the importance of hygienic workspaces but cut back on
cleaning in uncertain economic times. Companies use various performance metrics, eg, staff turnover (often high),
customer retention (often low) and efficiency. Good account management and quality of work are paramount. Staff
costs can account for over 85% of the cost base. Technology is key, both for cleaning itself (eg, robotic machines;
inventory management) and operationally (eg, staff scheduling software; online training). Sustainability is evident in
‘eco-friendly’ cleaning products and containers. Many cleaning companies operate under a franchising model –
which is then developed in Exhibit 3.
In a franchise arrangement, a franchisor authorises proven methods of doing business to a franchisee for a fixed
initial fee (one-off lump sum); and variable ongoing fee (typically 6-8% of the franchisee’s revenue). Franchise
agreements set out the territory covered; rights/obligations of both parties; and duration (generally several years).
Before taking on any franchisees, a franchisor must be satisfied about their financial stability. The franchisee is
responsible for the day-to-day running and must comply with the franchisor’s operating terms. The franchisor may
impose quality control measures to protect its brand, eg, surprise inspections. Franchising enables franchisees to
start up a new business quickly, and franchisors to expand rapidly, but problems can arise. Agreements can be
terminated early, eg, if the franchisee fails to pay fees or the franchisor fails to provide the stipulated support.
Exhibits 2 and 3 provide the context in which the remaining case material can be understood.

Exhibit 4 documents Scour’s development. Originally a one-person business created by Sally Frith in 2001, it
evolved via her three children into a limited company in 2010. It built up a customer portfolio and in 2016-17 won
several accolades that raised its profile. The directors capitalised by expanding through franchising – a model
used by several competitors. Scour’s motto (Excellence & Efficiency) reflects its quest for professionalism,
sustainability and health and safety. It monitors performance using three business measures (all improving)
against targets set in 2016: customer satisfaction, customer retention; revenue per employee. Sally’s children
are all directors: Leonora Monk, CEO; Joy Lyons, Finance & HR; Adam Frith, Product & Purchasing; together
with Parthiv Shah, Marketing, Sales & Customer Relationships; and Maria Andreou, Franchising.
This sets the scene for Exhibit 5 (business review) and Exhibit 6 (May 2019 management accounts, with 2017
and 2018 comparatives). The analysis below is a synthesis of these two exhibits, together with some additional
calculations based on their contents. It should be readily apparent that the two documents are to be reviewed in
conjunction with each other; looking at either of them in isolation would tell only part of the financial story. Exhibit 5
makes clear that although an overview is useful, a review of performance to gross profit should focus on the two
individual streams because of their different revenue and cost structures.
Statement of profit or loss – revenue, cost of sales and gross profit
Revenue – overall
• After rising by 2.0% to £11,411k in 2017 and 4.0% to £11,867k in 2018, total revenue grew by a further 10.4%
in 2018, to reach a total of £13,097k.
• Cost of sales went up from £10,295k (2017) to £10,647k (2018) and £11,688k (2019).
• Gross profit rose from £1,116k (9.8% margin) in 2017 to £1,220k (10.3%) in 2018 and £1,409k (10.8%) in 2019.
• Revenue and gross profit have increased across both streams, but with a larger proportionate rise in
franchised operations, taking their share up to 3.8% of revenue and 5.3% of gross profit in 2019.
Revenue, cost of sales and gross profit – owned operations
• After growing by 2.0% in 2017 to £11,411k and then by 3.0% (£344k) to £11,755k in 2018, revenue was up a
further £850k (7.2%) to £12,605k in 2019.
• Cost of sales was £10,295k in 2017, £10,538k in 2018 and £11,270k in 2019.
• Gross profit was £1,116k (9.8%) in 2017, £1,217k (10.4%) in 2018 and £1,335k (10.6%) in 2019.
• The 2017 result was due to several new customers, including two local firms of surveyors just acquired by an
existing customer that wished to retain Scour (showing the ‘multiplication’ effect of a strong relationship), but at a
lower price per hour. For some other contracts at renewal, the length of cleaning visits was increased with no
commensurate rise in price per visit. Both of these reduced gross margins, explaining the low figure of 9.8%.
• The customer gains just outweighed customer losses – hence the low revenue growth (2.0%) and also an
unimpressive retention rate of 66%. Costs of rectifying the causes of customer losses kept operating profit low.
• 2018 saw more new customers and fewer customer losses, higher contract prices where possible, and better
cost control, resulting in strong gross margin growth. Customer satisfaction reached a new peak of 94%.
• 2019 revenue growth arose from several key new customers. One, a group of three sports venues, began in
December 2018, with projected annual revenue of £1.0 million, making it collectively Scour’s largest single
customer. In other words, revenue in 2019 was £0.5m, which should double in 2020 with the full-year effect.
• Customer retention rose to 68% in 2019, a new record but still lower than the 70% target.
• Customer satisfaction beat target for the first time – but “we remain conscious that this is not translating into
higher customer retention and we need to understand why.” (See Exhibit 12.)
• Cost of sales comprises personnel; product purchases; and transport. Personnel is by far the largest element,
being 87% of total cost of sales (down from 89% in 2017) – this is consistent with the industry (Exhibit 2). Product
purchases represent most of the remainder; transport costs are directly related to these and are around 5%, consistent
with the figure charged by Thom (Exhibit 10) but allowing for higher costs from other suppliers (of equipment etc).
• The 2019 business review provides and enables further analysis of revenue and personnel costs by stating
that FTE headcount grew from 340 to 359. This can be proved: we know from Exhibit 4 that revenue per employee
for 2018 and 2019 was £34.6k and £35.1k: with revenue of £11,755k and £12,605k, FTE headcount is 11,755 / 34.6 =
340 and 12,605 / 35.1 = 359. Furthermore, if FTE hours per year are 1,820 (Exhibit 11), it is possible to work out the
total number of cleaning hours in a year and hence also the revenue per cleaning hour, both potentially useful extra
efficiency metrics:
o Total cleaning hours: 340 x 1,820 = 619k (2018); 359 x 1,820 = 653k (2019)
o Revenue per cleaning hour: £19.0k (2018), £19.3k (2019) – allowing for roundings, this ‘proves’ the assertion:
“… average revenue per cleaning hour was up 1.4%.”
• The review adds: “Personnel costs per FTE grew only slightly …” The actual figures can be shown to be £9,265k /
340 = £27.25k (2018) and £9,803k / 359 = £27.31k (2019). This suggests that wages have remained constant.

Revenue, cost of sales and gross profit – franchised operations
• The franchised operations were launched on 1 December 2017 – halfway through the year to 31 May 2018
(2018) – generating total revenue of £112k and a gross profit of £3k (1.5% margin) for Scour.
• In 2019, with 11 new franchisees, these figures rose to £492k and £74k (15.0% margin) respectively – very
sharp growth reflecting the success of the decision to start the franchised operations.
• Revenue comprised: £40k (2018) and £110k (2019) initial fees; £29k/£154k ongoing fees; £41k/£219k
product sales; £2k/£9k associated recharged transport costs. The proportions of these inevitably vary between
years but a correlation would be expected between product sales and ongoing fees (which are a function of the
franchisees’ own activity). Currently this ratio is around 1.4:1 for both years.
• Cost of sales were £109k for 2018 and £418k for 2019. These comprised: set-up costs (£53k/£145k);
continuing obligation costs (£19k/£82k); product purchases (£35k/£182k) and transport (£2k/£9k).
• The business review and other information in the AI, notably Exhibit 9, should enable candidates to prove
and understand the components of revenue and cost of sales:
o Initial fees simply represent £10k from each franchisee.
o Ongoing fees extrapolate to £29k/£154k divided by 7% (ongoing fee rate) = £414k/£2.2m revenue
earned by franchisees from their customers – the commentary for both years gives this revenue.
o Product sales generate a steady margin of around 17% – showing the value of the mark-up that Scour
charges franchisees on its bulk purchases from Thom and the importance of this revenue source generally.
o Recharged transport costs cancel out the costs themselves, in line with Scour’s policy – Exhibit 10.
• The new 2018 franchisees’ “joining dates were spread evenly across the year”. This is significant and is
developed further in the commentary:
o “The combined revenue earned by the 15 franchisees was £2.2 million, of which £1.2 million was
attributable to the 11 new franchisees (almost £220k each if extrapolated for a full 12 months
[emphasis added])”. In other words, £1.2m/11 = c £110k for 6 months on average; so 12 months = 12/6 x
£110k = £220k.
o We are further told that “this was in line with their combined revenue forecast, but with variations
between individual franchisees” – see Exhibit 9.
o By deduction, the original four franchisees earned £1.0 million, or £250k each, compared with £414k or
£103.5k each (£207k annualised) in their first year, an encouraging average increase of over 20%.
o “Of the £82k continuing obligation costs, £54k related to the new 11 franchisees (ie, nearly £10k
each if annualised).” This can be proved as £54k/11 x 12/6 = £9.8k. It also means that the costs for the
original four franchisees were £28k or £7k each, compared with £19k or £4.8k each (£9.6k annualised) for
them in 2018. This reinforces the statement, “… we incur extensive set-up and continuing obligation
costs to support new franchisees during their first months: the level of support reduces thereafter”.
o “Staffing issues … gave us impetus to streamline the induction process … and the choice of systems
to help us run the network more effectively.” This suggests possibly further efficiency savings in future.
o It can also be seen that the average set-up cost per franchisee was almost unchanged: £13.3k (£53k/4) in 2018
and £13.2k (£145k/11) in 2019. By their nature, these costs relate only to new franchisees and they are
expensed on launch, so they do not need to be annualised or otherwise adjusted for analysis purposes.
o It can also be seen that Scour makes a loss (the difference between initial fees and set-up costs) on set-up. It
can tolerate this if it earns a higher profit on ongoing activity (the difference between ongoing fees and
continuing obligation costs), which is indeed the case for 2019: set-up loss of £37k, ongoing profit of £72k.
As the network grows, with new franchisees joining each year, and potentially some leaving, such a detailed dissection of
the results is critical for recognising trends and problems.
Statement of profit or loss – administrative expenses and operating profit
• There are three lines of administrative expenses: personnel; premises and IT; marketing and advertising.
In total, these correspond to 7.9% (£1,037k) of 2019 revenue, down from 8.2% (979k) in 2018 and 8.7%
(£992k) in 2017 – indicating steadily improving cost control.
• Personnel costs represent the largest component, around 55% of total expenses. Unlike for the cleaners, no
information is given about staff numbers but it should be apparent that the head office operation (including directors)
is small. These costs rose by 6% from £538k to £571k in 2019 because “towards the end of 2018, we replaced
two staff who had left several months earlier” – ie, the full-year impact occurs in 2019.
• Premises and IT costs broadly reflect changes in depreciation, which accounts for around 40% of the total – £110k
(2017), £127k (2018), £125k (2019) – and ongoing use of technology, flagged throughout the AI.
• Marketing and advertising costs comprise promotion, tenders and the joint initiative with Thom (Exhibit 10).
• As a result of all the changes at gross profit level and in administrative expenses, operating profit increased
significantly over the period, nearly doubling from 2017 (£124k) to 2018 (£241k) and then going up by more
than 50% again in 2019 to £372k. Margins were 1.1%, 2.0% and 2.8%. Scour looks in very good shape.

Statements of financial position and cash flow
• The statement of financial position mainly relates to owned operations and is straightforward to understand.
• The notes to the accounts provide a general indication of what is included in PPE but from the fact that there is
no split by category, it should be apparent that PPE is not a major feature of a business whose key assets are
its staff. It has remained consistent at around £200k over the three years. This reflects the roughly offsetting
effects of additions/disposals and depreciation. The business review refers to some of the specific activity in
the period, eg, “We also purchased energy-efficient equipment, including the two new vans bought in 2018”.
• Trade receivables are split between amounts due from (i) owned operations customers and (ii) franchisees.
The latter is explained (footnote to Note 4) as comprising both fees and for product purchase reimbursements.
• Thus, in order to compute debtor days, it is necessary to look at each part of the business separately.
o For owned operations, it is a case of dividing the balance (£958k/£1,048k/£1,190k) by revenue for
each year £11,411k/£11,755k/£12,605k) and multiplying by 365. This shows debtor days rising from
30.6 in 2017 to 34.5 in 2019 – an acceptable level but the rate of increase gives some concern.
o For franchised operations, debtor days are of a similar scale but actually show a small decline from
36.1 in the first year (2018) to 34.9 in the second. Without further detail, this could reflect a number of
factors, notably the proportion of revenue represented by initial fees, most of which would have been
settled before the year end. If that is the case – as it will be for 2018 as all franchisees launched on 1
December, but less clearly for 2019 when new starters were “spread across the year” – debtor days
(ongoing fees and product purchases only) would be 11/72 = 55.8 for 2018, 47/382 = 44.9 for 2019.
• Trade payables relate to product purchases for both owned and franchised operations. It can be shown that
payables days have risen slightly over the period, from 30.4 in 2017 to 32.6 in both 2018 and 2019.
• The main component of trade and other payables is actually other payables. These relate to all other costs
incurred by Scour, payroll (“wages are paid monthly in arrears” – Exhibit 11) and administrative expenditure.
• Inventory is not a major balance for Scour (“Scour keeps a small inventory at Bath” – Exhibit 10).
• The cash balance has grown steadily over the period: 2016: £188k; 2017: £264k; 2018: £394k; 2019: £631k.
This broadly reflects the modest increases in operating profit, as other movements on the statement of cash
flow (eg, changes in working capital balances and PPE) have not fluctuated materially across the three years.
• Financial income (interest) has gone up to mirror the build-up of cash balances.
As always, time spent prior to the exam on the management accounts and commentary would have been invaluable. Exhibit 5
highlighted the issues likely to be important, especially in relation to the two operations individually. As one tutor remarked:
“The opportunity to perform financial analysis on the data provided in the AI was plentiful. The commentary … allowed
candidates to practise attaching business changes and issues to what they were seeing in the financial results.”
Exhibits 7, 8 and 9 expand and explain important operational and financial points about the business model that
reinforce material in the management accounts and elsewhere in the AI.
Owned operations
• There is a steady flow of work throughout the year and there are no individually dominant customers.
• Scour wins work through promotion (including joint advertising with its Thom), tenders and referrals.
• Keeping customers is vital as they can provide extra work in future. Scour’s retention rate exceeds the
industry benchmark (60%), but in 2017-19 it has been consistently below target (70%) – see Exhibit 3 above.
• All customers sign contracts (‘SLCs’) for one year or less. Most are renewed automatically. Reliance on a
steady flow of renewals is critical – with an important link to the customer retention measure.
• SLCs specify minimum cleaning hours (hours x number of cleaners per week or month), enabling Scour to
determine the price to charge. The main element is staff costs, but the price must also cover equipment,
products and materials (including transport), and give an acceptable margin. An illustration is provided for
one customer, Tonto: candidates should use this to help their understanding of the accounts and to link to their work
on staffing (Exhibit 11, below). They should establish that Scour achieves a higher than average margin on Tonto.
• Scour complies with all relevant health and safety legislation and takes seriously its environmental commitment.
The three customer profiles in Exhibit 8 show the range in size/type of Scour’s customers, scope of work carried
out for each, the fees that it earns and how it won each contract. With the vignette for the local supermarket chain
Tonto, candidates should be able to work through the earlier fee calculation. For both Tonto and Upson College,
there are also suggestions about possible future work – to bear in mind for any financial analysis in the exam.

Franchised operations
• The existing (at 31 May 2019) 15 franchisees each earn annual revenue in the range £0.1m - £0.5m.
Scour aims to have 50 franchisees by 31 May 2021, with combined annual revenue of £15m, generating
ongoing fees of over £1m (£15m x 7%) for Scour, plus initial fees and revenue from cleaning product sales.
• Scour is seeking franchisees for parts of the UK where it sees a market opportunity.
• Scour mainly sources new franchisees at franchise fairs. It does due diligence on their financial acumen,
overall capability and ability to pay fees. It does not offer financial help towards the initial fee.
• Scour expects to make a loss on the initial fee, but then to make profits (ongoing fees > continuing obligation
costs) as the business develops (reflected in the financial performance – see above). Including cleaning product
sales, it looks to break even in a franchisee’s first full year (see examples below).
• Franchisees sign a three-year agreement (thus the first four expire on 30 November 2020), containing clauses
on territory, fees, obligations of both parties, purchasing of products/equipment, pricing and ‘non-compete’.
o Large towns/cities may be divided into several territories. This minimises competition between
franchisees, but cannot prevent it: in such cases, Scour works with them to manage the situation.
o Franchisees pay an initial fee of £10k, to cover set-up costs, including upfront training and marketing.
They then pay ongoing fees (7% of revenue) every month.
o Scour’s continuing obligations cover training and technical, operational and financial support (invoicing,
HR, IT, bid support, etc). Scour allocates the costs to franchisees based on time spent and actual outlays.
o All franchisees undertake to maintain Scour’s reputation by adhering to its documented standards.
• Franchisees must not use cleaning products from any supplier other than Thom.
• Scour specifies a minimum and maximum hourly rate that franchisees must charge to customers.
This analysis should be reviewed in conjunction with the earlier Exhibit 3 to compare and contrast with industry norms. It
should then be viewed as the context for understanding the detailed information about individual franchisees that follows.
Tracy Harris – Scour (Leicester 1) Ltd: Tracy was a cleaner at Scour. Required to move to Leicester (160 km from
Bath) for personal reasons, she asked if she could set up a franchise there. After meetings with senior management
and due diligence by Scour, she became a franchisee (‘Leicester 1’) on 1 December 2017 – ie, one of the first wave
of four. In Year 1 (to 30 November 2018), she easily beat her own revenue budget (£175k vs £120k), so revised her
Year 2 estimate from £180k to £230k. Despite various issues (staff, equipment), she is on course to achieve this. A
table is presented showing Scour’s results from Tracy Harris, in the same format as the results from all franchised
operations in the management accounts, including sale/purchase of cleaning products and related transport costs.
Candidates must make the effort to understand how these numbers build up: eg, ongoing fees for Year 2 of £12.6k (budget) and
£16.1k (forecast) correspond respectively to 7% of Tracy’s own revenue; and profit on cleaning product sales is 20%, broadly in
line with Scour for May 2019 overall. (Note that Tracy’s results are for her own accounting periods and thus straddle Scour’s
year ends.) The figures shown that Scour expected to break even on Leicester 1 for Year 1 – in line with its normal objective –
but actually made a small profit: Year 2 is anticipated to be even better.
Mark Linton – Scour (Oxford 1) Ltd: With a background in FM and aspiration to run his own business, Mark became
a franchisee in Oxford (85 km from Bath) on 1 June 2018, after meeting Scour at a franchise fair. He set a revenue
target of £250k for Year 1 (to 31 May 2019) but fell well short (£195k). Unforeseen costs and issues (eg, overuse of
cleaning products; unbudgeted staff costs) resulted in extensive hands-on input from Scour, increasing continuing
obligation costs. Near the end of Year 1, Mark prepared a revenue budget of £225k for Year 2. In the first quarter,
actual revenue was £52k – suggesting that, with the business still growing, he should come close to meeting the target. A
table in identical format to that for Tracy is presented: candidates must again study this to ensure that they can link the
explanations given to Scour’s results. In this case, Scour had projected to make a £7k profit but in fact made a small loss.
Simon Oliver: The third example is of a failed applicant, Simon Oliver. After considering his likelihood of success
(he had no experience of the industry) and assessed his financial position (he wanted to pay his initial fee in
instalments, against Scour’s policy of not offering financial help – see above), Scour declined his application.
From their detailed work here, candidates should be able to compare and contrast Tracy and Mark to appreciate the factors
affecting the financial performance of franchisees, as well as the issues to be considered when appointing a franchisee.
Exhibit 10 emphasises Scour’s dependence on a single company, Thom (based in Bristol, 20 km from Bath), for the
supply of all its cleaning products (detergents/bleaches, dusters/mops, protective clothing) to both owned and
franchised operations. Scour and Thom have a good relationship and do some joint advertising. The contract, signed
on 1 December 2017, specifies £1.0 million minimum purchases per year; transport costs as being 5% of Scour’s
cost of product purchases; payment terms of 30 days from delivery; and a delivery time of 36 hours from order.
There are 70 available products. Delivery can be a challenge because of the range of items and number of locations.
A table is provided showing the level of purchases, split by owned and franchised, for the last three 6-month periods
– these are consistent with the management accounts: candidates should take the time to ensure that they can reconcile them.

Thom could seek to increase the minimum; if Scour ever fell short, it would order extra and store off-site. All products
are rigorously tested and ethically manufactured, and meet strict health and safety and environmental criteria.
Dilution rates are crucial: a formula is given to show how to calculate the cost of a product claimed to be ‘10% more
concentrated/efficient’ – as with the table of purchases and any other numerical illustration in the AI, candidates must be sure
that they understand this.
Exhibit 11 describes the staffing of Scour’s owned operations. Staff are the key asset: personnel costs represent
over 85% of annual cost of sales, consistent with competitors – and with the industry generally: see Exhibit 2 above.
• Cleaners’ employment contracts specify minimum (25) and maximum (45) weekly hours. When calculating full-
time equivalents (FTEs), Scour assumes an average of 35 weekly hours or 1,820 annual hours. This is
important for understanding some of the data in Exhibit 5 and for further analysis of the accounts – see above.
• For larger customers, a supervisor leads the Scour team. For those with larger sites (eg, Tonto), a supervisor
may be present at each site throughout each visit – see earlier Tonto calculation (Exhibit 8).
• Scour’s bespoke app, JobScour, and other software assist with staff scheduling; clocking in/out; reporting of
issues; training. This links with material throughout the case about the growing importance of technology in the sector.
• Most cleaners receive the same hourly wage (supervisors get 25% more). Wages are paid monthly in arrears.
Scour has always had equality at the forefront of its decision-making and especially in its policy of equal pay.
• Scour’s cleaners sign a code of conduct to maintain confidentiality – a potential ethical issue.
Exhibit 12 (July 2019) sets out Scour’s strategic challenges: technology; sustainability; competition. It refers
specifically to three companies (Crocus, Goodglow, Y4) which compete with Scour either geographically, in
business structure or both. The focus is “to build on the successful start to franchising and to learn the lessons of
our existing franchises ... We must … not neglect our owned operations …”. Under franchising, three specific
issues are identified: letting more employees become franchisees; allowing franchisees to operate in more than
one territory; and possible changes to fee rates. The document also lists potential new business opportunities –
specialist cleaning services – and other initiatives “to improve quality and profitability”, including a review of
equipment purchasing policy, renewal of product supply contract with Thom and extended use of technology across
all activities. Finally, it highlights the need to reassess the usefulness of the three existing business measures,
especially the lack of correlation between customer retention and satisfaction.
As with any Case Study, the company’s strategy and future plans should be digested carefully as they will inevitably be a
reference-point in the exam. Candidates should have found that they link back to other case facts – whether in relation to the
wider industry, Scour itself or both – or that they are logical extensions of these facts.
Exhibits 13a-d are a series of four media articles dealing with: the abuse of automated registration systems used
by many cleaning companies; a profile of a new cleaning product supplier, Violetta, based near Bath, currently
serving the domestic cleaning market but looking “to break into the huge industrial cleaning market”; the excessive
hospitality offered by a detergent manufacturer (Rinko) to win prestigious supply contracts; and the findings of new
research on franchising, highlighting common problems such as ‘sole trader risk’, ‘overreaching’ and the problems
of employees leaving a company to become franchisees and taking staff and intellectual property with them.
Collectively, these articles highlight topics clearly relevant to Scour, offering a different perspective on issues mentioned
elsewhere – especially supplier relationships and franchising. There will always be some marks available in the exam for
appropriate reference to AI media coverage, and this should therefore be treated as a serious part of preparation and not simply
light reading to gloss over once the detail of the rest of the AI has been mastered.
Overall, in one tutor’s words: “The AI provided candidates with the opportunity to develop a comprehensive
understanding of the company and its industry. [Exhibit 3] will have helped plug any gaps in technical knowledge
on [franchising] … and created an even playing field ... Overall, candidates should have been able to become
very familiar with the nature of risks in the industry and in franchising and avoided a need for any extensive
external research.”

Information provided in the Case Study Exam (CSE)
The Exam contained seven new exhibits comprising new information:
14 Email dated 22 July 2020 from Paul Croxley to you: Scour: Draft management accounts and business
developments
15 Scour: Draft management accounts for the year ended 31 May 2020
16 Note dated 22 July 2020 from Joy Lyons: Additional information relating to the management accounts
17a Email dated 21 July 2020 from Adam Frith to Paul Croxley: Cleaning product suppliers
17b Recent media coverage
18a Email dated 20 July 2020 from Maria Andreou to Paul Croxley: New franchisee
18b Recent media coverage
Exam requirements
Please draft for my review a report addressed to the Scour board. The report should comprise the following.
1. A review of Scour’s management accounts for the year ended 31 May 2020 in comparison with the year
ended 31 May 2019.
Your review should be based on the management accounts as set out in Exhibit 15 and the additional
information in Exhibit 16. It should cover, separately for (a) owned operations and (b) franchised operations:
revenue, cost of sales and gross profit. Please also provide brief comments summarising the performance of
the overall business.
2. An evaluation of the proposal for the supply of cleaning products, as set out in Exhibit 17a.
Using the information in Exhibit 17a and Exhibit 17b, you should evaluate the bids from the existing
supplier, Thom, and the potential new supplier, Violetta. For each supplier, you should calculate the total
expected cost of purchasing cleaning products (including transport and distribution costs) for the two
years ending 30 November 2022. You should assess the adequacy of the assumptions; compare and
contrast the key terms; and recommend, with reasons, which bid Scour should accept. You should
include in your evaluation the ethical and business trust issues that Scour should consider when making
its decision.
3. An evaluation of the approach from the prospective franchisee, Edna Jones (Exhibit 18a).
You should evaluate the financial, operational, strategic, ethical and business trust issues, including
those arising from Exhibit 18b. You should advise, with reasons, whether Scour should accept Edna as
a franchisee.
Candidates were also told to include an executive summary and to balance their report across the three main
requirements, with other familiar guidance on time allocation; inclusion of ethical issues; and the need to cover at
each requirement all four skills areas: Assimilating and Using Information (A&UI), Structuring Problems and
Solutions (SP&S), Applying Judgement (AJ) and Conclusions & Recommendations (C&R).
On this occasion, they had additionally been given advice prior to the exam about the extent to which they should
refer to the Covid-19 pandemic in their answers. They were also to assume that they were sitting the exam on the
date on which it had originally been scheduled (22 July 2020), rather than the actual date (26 August 2020).
They should have spent time studying Exhibit 14 carefully so as to understand the key elements of each
requirement; digest the other new exhibits; and identify the related AI exhibits to integrate into their answers.
For Requirement 1, they should then have begun a more detailed review, enabling them to assess Scour’s
2020 results in light of their analysis of 2019 carried out in preparation for the exam and the new information
(Exhibit 16). For Requirement 2, it was essential to read Exhibits 17a/17b carefully to identify all critical
assumptions and other issues to be discussed. Finally, for Requirement 3, candidates had to relate Exhibits
18a/18b to relevant material within the case – notably Scour’s strategic plans and the AI media coverage.

Analysis of Case Study Exam information
From an initial reading of the new exhibits, candidates should have established that:
• The main focus for the analysis of performance was on the two streams individually; only a “brief”
discussion was needed for the overall business. Scour had achieved good growth again in 2020,
particularly in the franchised operations, with the number of franchisees more than doubling to 34.
• The results for owned operations are impacted by issues at specific customers; the information on
franchised operations needs to be worked through methodically.
• The supplier evaluations depended on a range of factors, both financial and non-financial, and required an
appreciation of the importance of reliable cleaning products for both owned and franchised operations.
• The discussion on Edna involved a good understanding of the basis on which new franchisees are
selected and their performance monitored, as well as the ethical issues.
A more detailed review of the CSE should then have elicited the key facts to be addressed in the exam.
Candidates should have recognised the importance of making relevant use of the additional information at Exhibit
16 and how it linked to both the accounts themselves and the foregoing AI material. A comparison of the 2020
management accounts and ‘additional information’ against the original 2019 management accounts (Exhibit 6)
and business review (Exhibit 5) would then reveal that:
• Franchised operations now account for 8.9% of revenue (up from 3.8%), reflecting the fact that they are still in a
growth phase.
• Owned operations also registered a strong increase, albeit slightly less than in 2019 (6.7% vs. 7.2%), to
reach revenue of £13,451k.
• The movement in mix is more marked at gross profit level: franchised operations now account for 19.2% of
total gross profit, compared with 5.3% in 2019. Their gross profit has gone up by 350% (£259k), from £74k to
£333k, while owned operations gross profit is up by a more modest 5.2% (£74k), from £1,335k to £1,409k.
• GP% is down from 10.6% to 10.4% for owned operations; up from 15.0% to 25.2% for franchised operations.
• Of the three business measures, customer retention is down from 68% to 66%; the other two have improved.
Candidates will have expected to analyse the 2020 management accounts and to make use of information on numbers of new
franchisees and business measures: these were all well signposted in the AI and were clearly key business drivers. There was
plenty of new data to analyse.
For Requirement 2, in Exhibit 17a Adam Frith (Product and Purchasing Director) explains that Scour is seeking to
reduce its costs of purchasing cleaning products. The contract with Thom expires on 30 November 2020 and there
is now the need to choose between Thom and Violetta, a new supplier (subject of an earlier media article, Exhibit 13c).
Candidates are presented with the key terms (minimum annual purchase, payment periods, etc) for both suppliers,
following the format used for Thom in Exhibit 10. Information and assumptions are also given about actual and
expected product purchases; pricing; concentration factors; IT capability and delivery processes. A number of
issues of business trust and eco-friendliness are also raised in two media articles (Exhibit 17b).
These exhibits gave candidates a clear set of data with which to work for each part of the requirement: calculation;
assessment of assumptions; evaluation of key terms; discussion of ethical and business trust issues. It should have been
apparent that: a logical approach was needed for the calculation; there were numerous assumptions to query; and a decision
was needed which involved weighing up the financial outcome with a range of qualitative criteria. As well as the
calculation, many of the points raised should have echoed other exhibits in the case material, including the media articles.
Exhibit 18a is an email from Maria Andreou (Franchising Director), supplemented by a media article (Exhibit 18b).
These provide candidates with the following facts for Requirement 3:
• Edna Jones, a long-serving employee, has approached Scour with a view to becoming a franchisee.
• As part of the head office team, she is very familiar with the activities of Scour’s existing franchisees.
• She is proposing to start on 1 September 2020 with four separate operations in four territories in Leicester –
close to Tracy Harris, one of Scour’s founding franchisees.
• She wants a two-year franchise agreement and has prepared forecasts for the two years, showing fast
growth in all four territories.
• She already has oral agreements for a number of prospective customers, including two of Tracy’s whom she
is planning to undercut.
• To reflect her knowledge of Scour, she is seeking a single initial fee of £25k and ongoing fees of 7% of
revenue. She is currently recruiting eight cleaners from Scour’s competitor Goodglow (Exhibit 12).
• Maria estimates £11k set-up costs per territory; continuing obligation costs of £10k and £7k for Years 1 & 2.

• The article reveals the results of a survey earlier in the year showing a growing demand in Leicester for
cleaning, with opinion split as to whether a dedicated cleaning company or an FM generalist is preferable.
With proper preparatory work on the AI, candidates should have been able to respond to a requirement of this type. The
challenge lay in integrating the new information with that previously seen, primarily in Exhibits 9, 12 and 13, and planning
the structure of their answers so as to cover all parts of the requirement, including calculations.
The CSE develops a number of features of Scour’s business from the AI, each needing a different technique for
advising the board. Exhibit 14 sets out the route to be followed in writing the report:
• Requirement 1 entails a clear focus on financial statement analysis for each set of operations individually.
• Requirement 2 involves financial data analysis, along with professional scepticism and commercial awareness.
• Requirement 3 comprises strategic, operational, financial and ethical analysis. To do justice to this,
familiarity with Scour’s strategy and the wider scenario is needed.
With proper time allocation, careful planning and a logical approach, candidates should have been able to
complete all the requirements within the four hours.
Summary of grades available
Grades were awarded under five topics: Review of Scour’s financial performance; Evaluation of product suppliers;
Evaluation of proposal from Edna Jones; Executive summary; Overall Assessment Criteria. For each of the three
main requirements, under each of the four Professional Skills, there were two or three ‘boxes’ representing specific
areas in which the skill was to be demonstrated. At each box, one of five available grades was awarded: CC
(Clearly Competent); SC (Sufficiently Competent); IC (Insufficiently Competent); ID (Insufficiently Demonstrated);
NA (Not Attempted). The number of boxes per topic and skill (below) reflects an even balance between the three
main requirements, as indicated in the CS Exam rubric.
A&UI SP&S AJ C&R Total

Review of Scour’s financial performance 3 3 3 2 11
Evaluation of product suppliers 3 3 3 2 11
Evaluation of proposal from Edna Jones 3 3 3 2 11
9 9 9 6 33
Executive summary 6
Overall Assessment Criteria 1
40

PART 3: COMMENTARY ON CANDIDATES’ PERFORMANCE
Overview of professional skills
Assimilating and Using Information (A&UI)
A&UI was the strongest skill on this exam, reflecting the use of effective appendices in Requirement 1 and, to
a lesser extent, Requirements 2 and 3. For each requirement, there were three boxes, the first two for use of
numerical information in the case and the third for referring to Scour’s business issues and wider context.
For boxes 1 and 2 at Requirement 1, many candidates achieved strong passing grades by going beyond the
basic financial statement analysis to include more detailed calculations for the franchisees. For Requirements
2 and 3, the appendices were less well done: in the case of Requirement 2, they were often poorly labelled, so
it was not possible to work out what figures were being used and why; for Requirement 3, only a minority
attempted to rework the numbers under Scour’s normal criteria (eg, 7% ongoing fee rate).
Box 3 was well answered for Requirements 1 and 3, with candidates identifying the main contextual points for
their answers. For Requirement 2, a few candidates made a brief, appropriate reference to the current economic
circumstances or to the pressure on Scour to keep its costs down. The marking key had one point in AU&I box 3
at each requirement for referring to Covid-19; and in this connection, candidates almost universally heeded the
ICAEW’s advance message: “It may be relevant to mention briefly in your answer the implications of coronavirus.
However, you should not dedicate substantial time or focus on these implications.”
Structuring Problems and Solutions (SP&S)
Candidates generally displayed very good SP&S skills, although overall they were a little weaker than usual.
Box 1 at Requirement 1 (revenue for owned operations) was answered well, with candidates methodically
commenting on the individual customers mentioned in Exhibit 16. Only the better ones commented on the
sports venue operator that was mentioned in the AI as a major new customer but for which there was no further
reference in the exam itself. Box 2 (revenue for franchised operations) was less well done. While most
candidates discussed some aspect in detail (eg, ongoing fees), many did not cover the whole statement of profit
or loss. Few considered the fact that the new franchisees had underperformed against forecast. Analysis of cost
of sales and gross profit was also intermittent: most correctly focused on the scale of personnel costs and the
effect of the franchising expansion on total gross profit, but only the better candidates looked at the components
of the franchised operations (see ‘alternative presentation’ in Appendix 1 below).
At Requirement 2, the vast majority of candidates scored a passing grade for boxes 1 (calculation of total costs)
and 2 (assumptions). However, only around half did so for box 3 (ethical / business trust issues): most covered
some points, but there was a tendency to focus on one or two issues rather than to consider the wider picture.
In Requirement 3, candidates tended to be better on box 2 (operational/strategic) than boxes 1 (financial) and
3 (ethics/business). In box 1, a majority included figures for product sales/purchases and the related transport.
The main omission was in not assessing the size of Edna’s franchise in relation to Scour’s current business. In
box 2, the most common gaps were in not appreciating the short time (6 weeks) before Edna’s planned launch
or her request for a two-year agreement compared with Scour’s normal three years. At box 3, discussion of
the issue of encroachment on the existing Leicester franchisee (Tracy Harris) was generally satisfactory. Good
candidates explored the specific point that Edna was proposing to undercut Tracy.
Applying Judgement (AJ)
AJ was again poor across all three requirements and was a differentiator among marginal candidates.
At Requirement 1, there was a close correlation with the equivalent SP&S boxes. Thus judgement on owned
operations revenue was better than that on franchised operations revenue or cost of sales and gross profit. For
owned operations, candidates often did not think through the reasons for higher revenue. For franchised
operations, they tended not to look at the revenue mix for the different components and thus, eg, failed to identify
the connection between product purchases and ongoing fees. Likewise at box 3, they did not reflect sufficiently on
the figures for product sales/purchases. Only the very best appreciated that the new franchises were profitable for
the first time (Appendix 1, W9).
For Requirement 2, candidates covered the issues well at box 1. The main omission was in not commenting on
the impact of the transport costs on franchisees. For box 2, candidates were good at assessing the impact of
Violetta’s concentration claim, but few critiqued the purchase forecasts – the most fundamental assumption of

all. Performance at box 3 was a function of coverage for the corresponding SP&S box, with candidates not
paying enough attention to the new media articles in the exam (Exhibit 17b).
For Requirement 3, box 1 (evaluation of overall financial impact) was not well covered. Candidates were
good at evaluating their results for Edna against those previously achieved by other franchisees and with
Scour’s standard breakeven target, but they did not focus sufficiently on the ambitious growth implied in the
Year 2 figures or consider how their outcome would change using Scour’s usual fee rates. Results for box 2
(evaluation of operational/strategic issues) were very poor: candidates discussed the risk for the whole
network if Scour were to adopt the fee rates being proposed by Edna, but the other, ‘big picture’, factors here
(eg, not appointing new franchisees just to meet Scour’s arbitrary target of 50) were overlooked by most
candidates.
Conclusions and Recommendations (C&R)
As often in the past, there was a polarised performance here. For Requirements 2 and 3, candidates did very
well on the Conclusions boxes but only a minority gained a passing grade on the Recommendations boxes. For
Requirement 1, the grades were poor in both boxes.
For Requirement 1, many did not cover changes in cost of sales and/or gross profit. As often for Requirement
1 – and particularly so on this occasion, without a request for advice or other additional task – they also found
it hard to make commercial recommendations (eg, the need to investigate or stem the loss of customers).
For Requirement 2, most candidates concluded on most aspects, following from their analysis and judgement
work. There was a mix in terms of which supplier was favoured: some opted for Violetta because of the price
differential, but others advised Scour to remain with Thom because of the large number of uncertainties with
Violetta. Among recommendations, candidates did best in advising Scour to negotiate on terms and conditions,
but otherwise they struggled to offer sound commercial advice.
It was very similar for Requirement 3. Candidates again concluded on the key points (achievability of forecasts
was the one most usually excluded – a consequence of not discussing it earlier). The most frequent advice was to
do due diligence on Edna.
Overall Assessment Criteria (OAC)
Once again, fewer than half of the cohort achieved passing grades for OAC. Layout was adequate: the main
failing here was in not structuring their report with enough headings. Most candidates correctly included a
disclaimer of liability. Under language, there was perhaps less informality and tactlessness than in the past.
However, the vast majority of candidates failed to gain the mark for ‘reasonable spelling and grammar’: this
has been a common issue since the start of CBE and it is a cause of continuing concern for the examiners and
markers.
Executive summary
Performance was unusually, poor at both Requirement 1 boxes. This was mainly a consequence of candidates’
failure, within the requirement itself, to conclude on cost of sales / gross profit or to apply due judgement to their
analysis of the franchising operations. This meant that, although most candidates did comment on Scour’s overall
results, their executive summaries were not a properly rounded synopsis of the company’s management
accounts. At the bottom of the cohort, there was an alarming number of ‘NA’ grades. In both Requirements 2 and
3, the vast majority did well on both boxes. For Requirement 2, most discussed assumptions and/or key terms and
came to a decision. Similarly for Requirement 3, they brought their principal financial, operational/strategic and
ethics/business trust findings into their summaries and advised Scour on whether or not to proceed with Edna.
The marking key offered considerable flexibility (eg, any cost at Requirement 1; any assumption or key term at
Requirement 2; any operational/strategic issue at Requirement 3). It also included specific points the examiners
considered critical, eg, profitability of new franchisees at Requirement 1. Overall, candidates achieved the
‘Appropriate summary of report section’ bullet at each requirement, producing a summary of the requisite length.
Requirement 1: Analysis of Scour’s financial performance
On initially reading Exhibit 14, candidates may have been surprised that there was no additional task (‘twist’) to
Requirement 1, as there has been in most recent sessions. However, they will have soon realised that this was
not such a blessing as there was scope for a considerable amount of financial statement analysis, with quite a
bit of information to assimilate for each set of operations. Another unusual feature was the reduced emphasis on
the overall business – though they should have expected this from Exhibit 5. The challenge was to integrate the

additional financial and non-financial information at Exhibit 16 into a coherent narrative on Scour’s performance
by working through it systematically and without spending time on excessive – or irrelevant – analysis.
The vast majority produced good-quality analysis of the main numbers in their appendix and report. Appendix 1
was mostly well done and at a sufficient level of detail, showing key movements, with both absolute and %
figures. Where lower grades were awarded, this was usually because candidates had not delved into the detail
of the franchised operations. Presentation was mostly clear, indicating that candidate had taken the time to
hone their CBE technique.
As well as the management accounts themselves, candidates were presented with a set of facts about Scour’s
performance for the year, together with updated business measures, which (in the words of one tutor) they “will
have been expected to weave into their analysis”. If they had spent the necessary time studying Scour’s
performance in previous years, they should have come to the exam fully equipped to tackle a requirement of
this nature. “[The split in Exhibit 16] … should have … allowed for a clear assessment of each individual part”
(same tutor).
Almost all of the owned operations issues (Tonto, colleges) should have been familiar – and even predictable –
from the AI, but the exact figures involved and their impact on the results needed careful thought. The exam
material will always introduce changes in the year, and this was no different. Similarly, the new facts about the
franchisees were in a style that should not have been a surprise: those who had taken the trouble to practise
their calculations and model a range of scenarios were best prepared to grapple with these facts.
As often in the past, discussion of costs and profit was not as good as that for revenue. Better candidates were
able to draw together several strands of the scenario, integrating the AI with new information, for example:
linking personnel cost ratios or the customer retention rate with industry benchmarks; commenting on revenue
earned from last year’s new sports venue customer (Exhibit 5); querying the small change in product mark-up;
appreciating the interaction between FTE staff numbers, payroll costs and number of cleaning hours worked. A
good example is this candidate, who developed basic numerical analysis into a full review of staff expenditure: :
“Personnel costs remain the largest cost, representing 86.9% of COS, remaining in line with the industry … Personnel costs
have increased significantly by £668k (6.8%), in line with revenue. FTE headcount has increased by 6.4% (23 people) to
382 and therefore there has been a marginal (0.1%) increase in personnel costs per employee from £27.3k to £27.4k”.
Analysis of the franchised operations, and the related evaluation, was a key area for differentiation. Those who
had prepared well and understood the dynamics, by looking at the relative figures for each of the three sub-
streams and their profitability (see Appendix 1, W5-8), were able to add real value to their commentary.
Requirement 2: Evaluation of product suppliers
Requirement 2 produced the best results at this session. Appendices were generally good, with most candidates
gaining passing grades. They produced a methodical calculation with the intended outcome – namely, that Violetta
was cheaper than Thom. In general terms, this should in any case have been easy to determine from the data
provided: the 5% price differential was clearly outweighed by the 15% concentration effect and the other
differentials were minor. Thus anyone whose calculations showed that Thom was cheaper should have reviewed
their figures to see where they might have gone wrong.
Where candidates did less well, it was mainly because they had not considered flexing their figures, eg, to reduce
or even eliminate altogether Violetta’s concentration effect. Presentation was poor among weaker candidates,
with unclear labelling that expected too much knowledge and understanding from the reader. Coupled with
Scour’s strategic option (Exhibit 12) – ‘renewal of product supply contract with Thom’ – a summary of the existing
contract was given in Exhibit 10, with the suggestion that Thom might seek to change some terms. However, if
candidates had not processed this, they would have found it a challenge to decide how best to present their work.
There were a number of valid approaches all equally rewarded in the marking key, which was deliberately flexible.
By far the most common was that set out in Appendix 2 below – namely, to work through the figures provided for
both companies and both years. Candidates could also have adopted a different treatment for the franchised
operations and adjusted these for the mark-up (roughly 20%) on the grounds that this was the net impact for
Scour; or adjusted for the fact that the transport costs would be recharged at zero mark-up to franchisees. Errors
were quite frequent, which may be a consequence of candidates not planning properly before they launched into
their number-crunching or changing tack part-way through. The most common were to deduct 15% rather than
15/115 (which in fact equates very closely to 13%) for the concentration effect; to apply a discount for Year 2 as
well as Year 1; or to apportion across Scour’s financial years rather than the specified periods to 30 November.

As one tutor noted, the contract terms “were very clearly listed in a very useful table provided to candidates,
which should have given them a clear focus on what to discuss in this part of their answer.” This was indeed the
case, with candidates working through the key terms and commenting sensibly on them. Better ones did some
additional analysis, such as gauging the cashflow effect of a 15-day difference in payment terms or modelling the
purchase forecasts to assess the headroom on the minimum purchase criteria. The best candidates distinguished
themselves in their evaluation of these criteria: they would adjust for the £50k shortfall in Year 1 under Thom
(though few then made an equal and opposite adjustment in Year 2) and assess the sensitivity of the thresholds.
Candidates were generally good at analysing the assumptions but less good at evaluating them. In particular,
they did not focus sufficiently on the fundamental base data – the purchase forecasts. There was a lot that could
have been said about these, for example: the growth trends implied for both owned operations (higher than recent
increases – without even factoring in the adverse impact of Y4 from Requirement 1) and franchised operations
(how do the figures link to the May 2021 target of 50 franchisees?) For both, it would be important to see the level
of purchases for the period since 31 May 2020 as an indication of whether the projections are likely to be met.
As well as the main scenario facts about the two alternative contracts, candidates were given two recent press
articles highlighting ethical and business trust issues. Here too, there was good analysis but weak evaluation.
Candidates who felt under time pressure tended to overlook the new media articles and in so doing they missed
the opportunity to pick up some straightforward marks. The top scripts thought through the issues logically: “[The
Crocus problems in Exhibit 17b] have resulted in loss of customers and complaints … It is important that Scour avoids this,
which would cause damage to their customer retention, satisfaction and reputation. There is increased risk of this happening
with Violetta, as Violetta’s products are unknown to franchisees, with a more limited range and more concentrated”.
Requirement 3: Evaluation of proposal from Edna Jones
Requirement 3 had a similar profile of marks as Requirements 1 and 2, if slightly lower. There were several
parts here: candidates had to address the financial, operational, strategic and ethical and business trust issues
relating to a proposal for a new franchise in Leicester launching on 1 September 2020. The franchisee was (i) a
Scour employee and (ii) seeking to take on multiple franchises at the same time. As one tutor commented,
“these were both risk factors identified in the AI, so there was plenty of opportunity to score well with the wider
business issues here”. Given the coverage of the franchised operations in the AI, candidates may well have
expected to advise Scour on a prospective new franchisee (or perhaps the renewal of an existing agreement),
and there was ample information in the AI on which they could practise such an evaluation.
The task here was to work out Scour’s revenue and gross profit from Edna’s franchise. Two templates had been
given in the AI (Exhibit 9): well-prepared candidates were able to make good use of these to produce the required
calculation. A logical pathway would have led to a clear, accurate appendix – which most managed. Lower down
the cohort, candidates did not read the question properly and so did not use the figures (fee rates, etc) supplied.
Although there was no information about products in Exhibit 18a, most candidates – correctly adhering to the
Exhibit 9 examples – did attempt to include sales and purchases in their calculations. Better ones used their work
in Requirement 1 and made sensible assumptions; others got muddled and their product purchases were
significantly misguided, sometimes out by a factor of 10.
It was disappointing that having produced good calculations, many candidates were unable to evaluate them
effectively. As with Requirement 2, they did not scrutinise in appropriate depth the underlying revenue figures.
Candidates analysed the operational / strategic and ethical / business trust issues adequately but were very poor
at evaluating them. Well below half of the cohort achieved a passing grade for the relevant AJ boxes and so this
was a significant differentiator at the pass/fail margin. As a tutor stated, “There were lots of issues that candidates
would have been able to link together given the exhibits provided in the exam as well as … the AI.”
In general, candidates did not sufficiently question the variations in agreement terms being put forward by Edna
or their potential wider impact on Scour’s franchise network if they were to become the norm. Similarly, they did
not consider the effect of Edna’s actions (price-cutting; poaching of customers; hiring disaffected staff from a
Scour rival) on the Scour brand. Stronger candidates stood back and viewed the situation from the standpoints of
all three main stakeholders – Scour; the existing Leicester franchisee, Tracy Harris (whose agreement would
soon be coming up for renewal); and Edna: “The model is based on a 5% ongoing fee rate. Currently Scour offers 7%
and the industry range is 6-8% … There is a risk that other franchisees would find this unfair and request that their fee be
lowered to 5% also, especially since the initial 4 franchisees are due for renewal.” In doing so, they were able to
demonstrate sound judgement and professional scepticism – vital qualities for anyone aspiring to qualify as an
ICAEW Chartered Accountant in 2020.

PART 4: APPENDICES
APPENDIX 1: FINANCIAL STATEMENT ANALYSIS: Scour’s financial performance

(a) Overall summary
2020 2019 Change Change 2020 2019
£000 £000 £000 % Share % Share %
Revenue
Owned 13,451 12,605 846 6.7% 91.1% 96.2%
Franchised 1,320 492 828 168.3% 8.9% 3.8%
14,771 13,097 1,674 12.8% 100.0% 100.0%
Gross profit
Owned 1,404 1,335 69 5.2% 80.8% 94.7%
Franchised 333 74 259 350.0% 19.2% 5.3%
1,737 1,409 328 23.3% 100.0 100.0%
Gross profit %
Owned 10.4% 10.6%
Franchised 25.2% 15.0%
11.8% 10.8%
(b) Owned operations

2020 2019 Change Change
£000 £000 £000 %
Revenue 13,451 12,605 846 6.7%
Cost of sales (12,047) (11,270) (777) 6.9%
Gross profit 1,404 1,335 69 5.2%
GP% 10.4% 10.6%
Measures Target 2020

Customer satisfaction 97% 96% 95% Met
Customer retention 66% 68% 70% Not met
Rev per employee (£000) 35.2 35.1 35.0 Met
2020 2019
Analysis of cost of sales Share % Share %
Personnel 10,471 9,803 668 6.8% 86.9% 87.0%
Product purchases 1,491 1,391 100 7.2% 12.4% 12.3%
Transport and distribution 85 76 9 11.8% 0.7% 0.7%
12,047 11,270 777 6.9% 100.0% 100.0%
(c) Franchised operations
(i) Accounts presentation – revenue, cost of sales and gross profit
2020 2019 Change Change 2020 2019

£000 £000 £000 % Share % Share %
Revenue 1,320 492 828 168.3%

Cost of sales (987) (418) (569) 136.1%
Gross profit 333 74 259 350.0%
GP% 25.2% 15.0%

Analysis of revenue
Initial fees 190 110 80 72.7% 14.4% 22.4%
Ongoing fees 455 154 301 195.5% 34.5% 31.3%
Sale of products 648 219 429 195.9% 49.1% 44.5%
Recharged transport 27 9 18 200.0% 2.0% 1.8%
1,320 492 828 168.3% 100.0% 100.0%
Analysis of cost of sales
Set-up costs 229 145 84 57.9% 23.2% 34.7%
Cont. obligation costs 196 82 114 139.0% 19.9% 19.6%
Cost of product sales 535 182 353 194.0% 54.2% 43.5%
Transport 27 9 18 200.0% 2.7% 2.2%
987 418 569 136.1% 100.0% 100.0%
(ii) Alternative presentation – by category of revenue

£000 £000 £000 %
Initial fees 190 110 80 72.7%

Set-up costs (229) (145) (84) (57.9%)
(39) (35) (4) (11.4%)
Margin (20.5%) (31.8%)
Ongoing fees 455 154 301 195.5%
Cont. obligation costs (196) (82) (114) (139.0%)
259 72 187 259.7%
Margin 56.9% 46.8%
Sale of products 648 219 429 195.9%
Cost of product sales (535) (182) (353) (194.0%)
113 37 76 205.4%
Margin 17.4% 16.9%
Prod. sales:ongoing fees 1.42 1.42
Note: Above figures exclude transport and distribution recharges and costs as these cancel out.
WORKINGS
W1: Calculation of FTE employee numbers (using ‘revenue per employee’ measure)

No. No. No. %
2020: £13,451k / £35.2k
2019: £12,605k / £35.1k 382 359 23 6.4%
W2: Estimate of total cleaning hours for the year (using W1)
000 000 000 %

2020: 382 x 52 x 35
2019: 359 x 52 x 35 695 653 42 6.4%
W3: Estimate of average revenue per cleaning hour (using W2)
£ £ £ %
2020: 13,451 / 695
2019: 12,605 / 653 19.3 19.3 - -
(This 'proves' the initial assertion (Exh 16) that revenue per cleaning hour was unchanged.)

W4: Estimate of personnel costs per FTE

£000 £000 £000 %
2020: 10,471 / 382
2019: 9,803 / 359 27.4 27.3 0.1 0.4%
W5: Franchisee numbers
2020 2019 2018

At start of year 15 4 -
Additions 19 11 4
At end of year 34 15 4
Average 24.5 9.5 2
W6: Average revenue by franchisee (using W5)
£000 £000 £000

Franchise revenue (note) 6,500 2,200 414
Analysed as:
2018 joiners 1,300 1,000 414
2019 joiners 2,900 1,200 -
2020 joiners 2,300 - -
6,500 2,200 414
Annualised average
2018 joiners 325 250 207
2019 joiners 264 218 -
2020 joiners 242 - -
Note: Ongoing fees grossed up at 100/7. Forecast for 2020 joiners was £2.6m/19 x 2 = £274k.
W7: Average set-up cost by franchisee (using W5)
Average cost 12.1 13.2 13.3
W8: Continuing obligation cost by franchisee (using W5)
Existing franchisees 103 28 -

New franchisees 93 54 19
196 82 19
Annualised average
Existing franchisees 6.9 7.0 -
New franchisees 9.8 9.8 9.5
W9: Breakeven calculation for new franchisees (collectively)
New Existing Total

£000 £000 £000
Initial fees 190 - 190
Ongoing fees (= £2,300 x 7%) 161 294 455
351 294 645
Set-up costs (229) - (229)
Continuing obligation costs (given) (93) (103) (196)
29 191 220
Average (annualised for 2020 joiners) 3 13 9
Figures show breakeven achieved without product sales, for which no split is provided

APPENDIX 2: FINANCIAL DATA ANALYSIS: Calculation of cost of product supplies

Thom Violetta
Year 1 Year 2 TOTAL Year 1 Year 2 TOTAL
£000 £000 £000 £000 £000 £000
Purchases
Thom 2,400 3,000

Violetta (= Thom + 5%) 2,520 3,150
Less: concentration effect (15/115) (note 1) (329) (411)
2,400 3,000 2,191 2,739

Less discount:
1st month free (200)
Items included free (100)
Total purchase cost 2,200 3,000 2,091 2,739
Minimum order 2,250 2,250 2,000 2,000
Shortfall: adjusted in 2022 (note 2) 50 (50)
Product purchase cost 2,250 2,950 2,091 2,739

Transportation & delivery (6%/4%) (note 3) 135 177 84 110
Total cost (Thom) 2,385 3,127 5,512 2,175 2,849 5,024
Total cost (Violetta – adjacent) 2,175 2,849 5,024
Difference 210 278 488
Note 1: 15% concentration translates to 15/115 x purchase cost (see Exhibit 10)
Note 2: Extra bought in 2021 to reach threshold can be deducted from 2022, as threshold comfortably met
Note 3: Transportation & delivery is calculated on purchase cost after discounts
APPENDIX 3: COMMERCIAL DATA ANALYSIS: Calculation of revenue and profit from Edna Jones
Edna fee Scour
rates fee rates
Scour's results from Edna's franchise Year 1 Year 2 Year 1 Year 2
Initial fees 25 - 40 -
Ongoing fees (revenue x 5% / 7%) 45 68 63 95
Sale of products (say) (Note) 90 132 90 132
Revenue – total 160 200 193 227
Set-up costs (44) - (44) -
Continuing obligation costs (40) (28) (40) (28)
Cost of product sales (Note) (75) (110) (75) (110)
Gross profit/(loss) 1 62 34 89
Note: Product sales revenue/costs roughly pro rata 2020 accounts; transport excluded (recharged at 0% mark-up)

AUGUST 2020 - Scour Ltd
First Marking
DATE CANDIDATE NO.
TIME MARKER NUMBER
ES Req 1 Req 2 Req 3 TOTAL
CC
SC
IC
ID
NA
Total 7 11 11 11 40
Own/Owned Owned operations

Fr Franchised operations/Franchisees
ee employee
FM Facilities Management
TEAM LEADER CHECKER

SIGNATURE SIGNATURE
Changes made?
EXECUTIVE SUMMARY
R1 - Review of Scour's financial performance
ES.OAC ES.R1.1
w Appropriate layout: headings AND paragraphs/sentences (HA) w Overall: qualitative comment on revenue AND GP/GP% (fig)
w Appropriate disclaimer of liability AND report from firm (K) w Revenue: qualitative comment on owned AND franchised (fig)
w Suitable language: formal AND tactful AND ethical (FT) w COS: qualitative comment on an individual cost (fig)
w Reasonable spelling and grammar (S) w GP/GP%: qualitative comment on owned AND franchised (fig)
NA ID IC SC CC NA ID IC SC CC
ES.R1.2
w Now making profit from new franchisees
w Owned still by far the bigger stream by revenue/GP
w Other commercial recommendations
w Appropriate summary of report section
NA ID IC SC CC
R2 - Evaluation of product suppliers R3 - Evaluation of proposal from Edna Jones
ES.R2.1 ES.R3.1
w Gives total cost Thom AND Violetta (figs) w Gives Scour revenue/GP/GP% for yr1 AND yr2
w Evaluates/questions key terms and assumptions w Concludes on achievability of forecasts
w Violetta is cheaper / decision shouldn't be on price alone w Concludes on main operational/strategic issue
w Concludes on way forward w Concludes on way forward
ES.R2.2 ES.R3.2
w Continuity of supply is essential for Scour w Edna would be high risk eg 4 territories/no experience
w Concludes/recommends on ethical/business trust issues w Concludes/recommends on ethical/business trust issues
w Other commercial recommendations w Other commercial recommendations
w Appropriate summary of report section w Appropriate summary of report section
CC
SC
IC
ID
NA
Total 7
REQUIREMENT 1 - Review of Scour's financial performance
ASSIMILATING & USING INFORMATION STRUCTURING PROBLEMS & SOLUTIONS
R1.AUI.1 R1.SPS.1
Appendix 1 Financial analysis: Owned revenue (report)
w Presents 2019 figures w Revenue growth: lower than last year (6.7% v 7.2%) >
w Presents 2020 figures w Increase in staff nos (+23 / 6.4%) / cleaning hrs (+42k / 6.4%) >
OR inc in revenue per employee
w Analysis of owned AND franchised figures w Inc cust satisfaction / dec cust retention / v Scour targets >
w Analysis per franchisee / business measures / staff nos/hrs w Y4: caused £150k lost revenue (in final quarter) >
NA ID IC SC CC w Colleges: up £90k/10% (closed April/May) >

OR Sports venues: up £500k (full year)
w Tonto: up £315k/46.3% (3 new stores) / 7.4% of revenue >
R1.AUI.2 NA ID IC SC CC
AI/CSE information (report/appendix)
R1.SPS.2
w Overall revenue: up £1,674k / up 12.8% Financial analysis: Franchise revenue (report)
w Overall GP/GP%: up £328k / up 23.3% / 11.8% v 10.8% w Ave no of franchisee up 24.5 v 9.5 / y/e nos 34 v 15 / 19 new >
w Owned rev: up £846k / up 6.7% w Initial fees: up £80k/72.7% / in line with new franchisees >
AND
Owned GP: up £69k / 5.2% / 10.4% v 10.6%
w Ongoing fees: up £301k/195.5% >
w Franchised rev: up £828k / up 168.3%

AND w Budget of £2.6m/£274k each for new franchisees not met >
Franchised GP: up £259k / 350.0% / 25.2% v 15.0%
w Product sales: up £429k / 195.9% / largest stream (49.1%) >

w Revenue Mix: Own 91.1% v 96.2% / Fr 8.9% v 3.8%
OR
GP Mix: Own 80.8% v 94.7% / Fr 19.2% v 5.3% w Transport: linked to product sales / recharged at 0% mark-up
R1.AUI.3 R1.SPS.3
Business issues / wider context Financial analysis: COS/GP (report)
w Covid-19: may have positive or negative impact on Scour w COS: Owned up £777k/6.9% / Fr up £569k/136.1% >
w Scour: competitive market / Y4 undercutting w Owned personnel: largest cost / unchanged at 87% of COS
OR low barriers to entry / market is price sensitive
w Industry benchmarks: 60% retention / 85% staff costs w Fr set-up: still not covered by initial fees (£10k v £12.1k) >
OR still making a loss (-£39k v -£35k / -20.5% v -31.8%)
w No inc in initial/ongoing franchising fee / still £10k/7% w Fr continuing: £9.8k new v £6.9k existing / < ongoing fees >
OR improved profit (£259k v £72k / 56.9% v 46.8%)
w Scour: Fr margins (25.2%) > Owned margins (10.4%) w Fr product purchases: up £353k/194.0% >
OR improved profit (£113k v £37k / 17.4% v 16.9%)
w Overall revenue growth (12.8%) > 2019 growth (10.4%) w Own/Fr revenue mix: positive impact on GP/GP%
OR GP growth (23.3%) > 2019 growth (15.5%)
NA ID IC SC CC
NA ID IC SC CC
APPLYING JUDGEMENT CONCLUSIONS AND RECOMMENDATIONS
R1.AJ.1 R1.CR.1
Evaluation of owned revenue analysis Draws conclusions (under a heading)
w Revenue growth due to volume increase (not price) w Overall: qualitative comment on revenue AND GP/GP% (figs)
w Inc in staff efficiency / inc in rev per ee without inc fee w Revenue: qualitative comment on owned AND franchised (figs)
w Retention: v satisfaction rate / Y4 losses / focusing on Fr w COS: qualitative comment on an individual cost (fig)
w Y4: problem next year as full-year effect/maybe other losses w GP/GP%: qualitative comment on owned AND franchised (figs)
w Colleges: summer opening / closure due to external factors NA ID IC SC CC
w Tonto: new stores expected / extra cleaning per store
NA ID IC SC CC
R1.CR.2
R1.AJ.2 Makes recommendations
ort) Evaluation of Franch revenue analysis
w Reassess/update business measures/targets
w Franchise growing in importance / still a small part of total
w Further analysis of Owned/Fr results / allocate HO costs to Fr

w Initial fees: falling % of total revenue (14.4% v 22.4%)
w Consider increasing initial/ongoing fee / Owned hourly rate

w Ongoing: driven by inc in ave rev per existing franchisee
(£325k v £250k, £264k v £220k)
w Analyse customer losses / exit questionnaires / CRM system
w Ongoing: driven by inc in ave rev per new franchisee
(£242k v £220k)
w Emphasise quality v Y4 / marketing
w Product: consistent % of franchisee rev
(still 142% of ongoing / 195.5%v195.9%)
w Target of 50/£1m by 2021 seems achievable
R1.AJ.3
Evaluation of COS/GP analysis
w COS: costs controlled / compares to revenue growth
w Own product purchases: higher % used / extra cleaning
w Fr set-up: lower cost per franchisee / reflects online training

(£12.1k v £13.2k) CC
w Fr continuing: declines as franchisees grow in experience SC

OR Franchises become more profitable going forward
IC
w Fr product: reason for change in mark-up (21.1% v 20.3%) ID
NA
w Making a profit from new franchises for the first time Total 11
NA ID IC SC CC
REQUIREMENT 2 - Evaluation of product suppliers
ASSIMILATING AND USING INFORMATION STRUCTURING PROBLEMS & SOLUTIONS
R2.AUI.1 R2.SPS.1
Appendix 2 Calculation of total costs (appx or report)
w Numbers labelled AND clearly derived w Consideration of any shortfall to meet minimum order >
w Calculation of Thom's proposed contract w Calculation of transport costs at 6%/4% >
w Calculation of Violetta's proposed contract w Thom cost: yr1 AND yr2 / 2-year period (own fig)
w Considers flexing numbers in calculation w Violetta cost: yr1 AND yr2 / 2-year period (own fig)
R2.AUI.2 R2.SPS.2
AI/CSE information (appx or report) Assumptions
w Purchase projections: 2021 £2,400k AND 2022 £3,000k w Volumes based on Scour's 2019 figures + growth forecasts >
w Assumes no price rises from Thom >

w Opening discount: Thom 1mth £200k AND Violetta £100k
AND yr1 only
w Violetta claims products are more concentrated >
w Price: Thom unchanged AND Violetta +5%

w Violetta claims quicker/eco-friendly delivery/cheaper >
w Concentration: Violetta 15/115 (13%) adjustment w Products: Violetta 40 v Thom 70 / Violetta quality unknown >
NA ID IC SC CC w Compares min order levels for Thom (£2.25m) v Violetta (£2m) >
NA ID IC SC CC
R2.AUI.3 R2.SPS.3
Business issues / wider context Comments on ethical / business trust issues
w Covid-19: may have positive or negative impact w History of trading with Thom / successful relationship >
w Scour in competitive market / pressure to reduce costs w Violetta claims to have new 'smart' reordering system >
w Thom contract ends Nov 2020 w Thom claims 'most eco-friendly' / audited / no ind standard >
w Violetta: just 2 commercial customers / limited experience w Customer satisfaction % indicates Thom products effective >
w Continuity of supply essential for Scour w Franchisees cannot buy from other suppliers >
w Scour's y/e bank balance £996k / Violetta 45days terms NA ID IC SC CC
NA ID IC SC CC
R2.AJ.1 R2.CR.1
Evaluation of key terms Draws conclusions (under a heading)
w Minimum order levels: can advance purchase to meet these w Gives total cost Thom AND Violetta (figs)
OR consideration of stockpiling costs
w Transport 6%/4%: impact of recharging to franchisees w Evaluates key terms/assumptions
w Delivery time: is 24hrs achievable / past issues with Thom w Concludes on ethical/business trust issues
w 45day terms: gives CF benefit / Scour has no CF problem w Concludes on way forward
w Violetta cheaper overall than Thom NA ID IC SC CC
w Any changes in assumptions will impact calculations
NA ID IC SC CC
R2.CR.2
R2.AJ.2 Makes recommendations
Evaluation of assumptions
w Negotiate T&C with Thom/Violetta
w Forecast volumes: lower if competition / higher if Fr grows
OR growth (25%) may be over-optimistic in 2022
w Due diligence on Violetta
w Questions what Violetta means by '+5% on average'
w Revisit staff training on dilutions / verify dilution claims

w Concentration claim: significant / depends on correct usage
OR Crocus has had issues with over-dilution
w Review Violetta product list for price/range
w Claims of cheaper/more eco-friendly delivery not verified
OR helps meet Scour meet carbon-neutral target
w Verify transport claims
w Depends on Scour needs / may require another supplier

w Min order shortfall sensitive to lower purchase levels
R2.AJ.3
Evaluation/recs: ethical/business trust
w Give appropriate notice / loyalty to Thom / lose joint adverts
w Check whether/how 'smart' reordering system works
CC
w Consider supplier eco-credentials / safety of eco-products SC
IC
w Violetta products need to be tested for quality/efficacy
ID
NA
w Scour should continue to monitor where Fr get products
Total 11
w Decision shouldn't be based on price alone
NA ID IC SC CC
REQUIREMENT 3 - Evaluation of proposal from Edna Jones
ASSIMILATING & USING INFORMATION STRUCTURING PROBLEMS & SOLUTIONS
R3.AUI.1 R3.SPS.1
Appendix Financial calculations (appx or report)
w Numbers labelled AND clearly derived w Set-up costs: yr1 £44k AND yr2 £0k
w Calculations for yr1/yr2 w Continuing costs: yr1 £40k AND yr2 £28k
w Calculates GP/GP% for Scour from Edna w Calculates product costs: Edna's revenue x appropriate %
OR Scour's ongoing fee x %
w Considers flexing numbers eg use Scour figs (10k/7%)

w Transport costs: cancels out/recharged/states ignored
NA ID IC SC CC
w Calculates GP% AND compares to Scour (25.2%)
NA ID IC SC CC
R3.AUI.2 R3.SPS.2
AI/CSE information (appx or report) Operational and strategic issues
w Initial fee: yr1 £25k AND yr2 £0 w Risk: sole trader / overreaching / no experience / >
multiple franchises are new
w Ongoing fee: yr1 £45k AND yr2 £67.5k w Reduction in initial/ongoing fees (change in strategy) >
w Product sales: product cost x appropriate mark-up w Edna wants to launch 1 Sept 2020 >
(20%-22% mark-up)
w Calculates total revenue for Scour from Edna w Edna wants 2-year agreement >
NA ID IC SC CC w Edna will help Scour reach target of 50 franchises by 2021 >
w Edna recruiting cleaning staff from Goodglow >
R3.AUI.3 NA ID IC SC CC
Business issues / wider context
R3.SPS.3
w Strategy: +/- of ees as franchisees / multiple areas Comments on ethical/trust issues
w Edna has potential for unethical use of insider knowledge >
w Edna: wants to start 4 territories simultaneously (eg knowledge of mark-ups, Tracy's pricing/customers)
w Edna planning to take 1/3 of Tracy's revenue/2 customers >

w Edna: does not have capital / intends to get a loan
w Fr contracts try to define areas / Tracy meeting targets >

w Leicester: cleaning market expected to grow
OR competition from FM providers / Covid-19
w Edna has oral agreements only from customers >
w Leicester1: franchise terminates in Nov 2020
w Edna plans to reduce price (10%) for Tracy's customers >

w Target is for all franchisees to B/E in yr1
R3.AJ.1 R3.CR.1
Evaluates overall financial impact Draws conclusions (under a heading)
w Significant franchise / 12% of 2020 franchised rev/GP w Gives Scour revenue/GP/GP% for yr1 AND yr2
w Yr1 achievability: compares v Leicester1/ other new Fr w Concludes on achievability of forecasts

(£175k/£240k/£242k)
w Yr1 achievability: new Fr often don't meet targets w Concludes on main operational/strategic issue
w Yr2 achievability: forecast of 50% looks optimistic w Concludes on ethical/business trust issues
w Compares yr1 calculated GP to Scour yr1 target of B/E w Concludes on way forward
NA ID IC SC CC
w Any changes in assumptions will impact calculations
NA ID IC SC CC
R3.AJ.2 R3.CR.2
Evaluation: operational/strategic issues Makes recommendations
w Could be template for future expansion / warning if fails w Further evidence needed for Edna's forecast figures
w Difficult precedent to set / others may want reductions / w Negotiate T&C with Edna (eg initial/ongoing fees)
OR Edna will not need training / mentoring (cost saving)
w Short start-up period: may cause problems / w Due diligence on Edna / formally interview Edna
OR achievable as Edna understands the processes
w Questions why normal 3-year agreement is not used w Consider impact of change of product supplier
w Should not take on poor applicants just to reach target w Consider succession planning for HO if people leave
w Possibility of lower standards of non-Scour trained staff w Other commercial recommendations
NA ID IC SC CC
R3.AJ.3 NA ID IC SC CC
Evaluation/recs: ethical/trust issues
w Remind Edna of confidentiality clause/ethical behaviour
w Discuss situation with Tracy / offer her more territories
w Mediation needed / favouring Edna? / contract breach CC

SC
w These customers may not materialise / forecasts not met IC
ID
w Agreement breach: prices should be within allowable range
NA
w Reputation: Edna may have positive or negative impact Total 11

eg poor work due to squeezed margin
eg lowballing by Edna
NA ID IC SC CC

Case Study August 2020 Examiners Report and Mark Plan

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CASE STUDY – AUGUST 2020

EXAMINERS’ COMMENTS AND MARK PLAN

© The ICAEW 2020 Page 1 of 20

PART 1: EXECUTIVE SUMMARY

The exam requirements comprised:

Review of professional skills

© The ICAEW 2020 Page 2 of 20

© The ICAEW 2020 Page 3 of 20

PART 2: THE CASE STUDY EXAMINATION

Scenario for the paper (Advance Information)

Analysis of Advance Information (AI)

© The ICAEW 2020 Page 4 of 20

Statement of profit or loss – revenue, cost of sales and gross profit

Revenue, cost of sales and gross profit – owned operations

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Revenue, cost of sales and gross profit – franchised operations

Statement of profit or loss – administrative expenses and operating profit

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Statements of financial position and cash flow

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Information provided in the Case Study Exam (CSE)

The Exam contained seven new exhibits comprising new information:

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Analysis of Case Study Exam information

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Summary of grades available

A&UI SP&S AJ C&R Total

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PART 3: COMMENTARY ON CANDIDATES’ PERFORMANCE

Overview of professional skills

Assimilating and Using Information (A&UI)

Structuring Problems and Solutions (SP&S)

Applying Judgement (AJ)

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Conclusions and Recommendations (C&R)

Overall Assessment Criteria (OAC)

Requirement 1: Analysis of Scour’s financial performance

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Requirement 2: Evaluation of product suppliers

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Requirement 3: Evaluation of proposal from Edna Jones

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APPENDIX 1: FINANCIAL STATEMENT ANALYSIS: Scour’s financial performance

(b) Owned operations

Measures Target 2020

(c) Franchised operations

(i) Accounts presentation – revenue, cost of sales and gross profit

2020 2019 Change Change 2020 2019

Revenue 1,320 492 828 168.3%

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(ii) Alternative presentation – by category of revenue

2020 2019 Change Change

Initial fees 190 110 80 72.7%

2020 2019 Change Change

000 000 000 %

W3: Estimate of average revenue per cleaning hour (using W2)

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W4: Estimate of personnel costs per FTE

2020 2019 Change Change

2020 2019 2018