A common error in preparing for exams is neglecting to practise your explanations. This results in omitting questions, and, sadly, you score no marks for any explanations you don’t attempt. Many of those missed marks are easy. Often they are points that candidates know, but don’t write down. Writing explanations needs your structured practice. This article provides a reliable three-step structure, a recent example and encouragement to practise it.
Explanation, in plain language, is an essential skill to sharpen as part of your treasury training. Technical concepts are difficult for most non-specialists to understand. So every qualified treasury professional needs to master the skill of providing clear explanations about technical issues. For this reason, technical explanations are frequently examined, with significant marks available for your answers.
As in previous diets, candidates are reminded that it is important to be able to explain the tax implications of a transaction and not simply to carry out calculations. In addition, a working knowledge of the tax system and its administration is required. Candidates continue to perform less well in parts of the paper focused on these topics.” Examiner, Corporate Tax, April 2013
The April 2013 Corporate Tax exam asked candidates to ‘explain’ no fewer than eight times in an all-compulsory paper. Looking more broadly at Corporate Tax papers, there were more marks for narratives than for computations in every sitting from April 2011 to October 2013. Yet, as noted by the examiner, it was on their narratives that many candidates scored relatively poorly.
‘Explain’ means three things:
Some candidates explain technical issues brilliantly and their scripts are a pleasure to mark. Sadly, many candidates don’t explain so well. A substantial minority omit explanations entirely, throwing marks away.
To explain well, we need to understand. This is the reason why ‘explain’ appears so often in exam questions. It’s testing our understanding of important practical issues. Once we understand the reasons for things, they’re much easier to explain. Examples include detailed rules in tax, law, accounting and other regulations, and their practical application to commercial situations.
All rules are made by people, with a purpose. To remember, explain and apply any rule we need to know:
Let’s apply our three-step structure above to the US tax instalment rules.
Let’s look more closely at a recent question:
“Scott Inc is a US-resident company. The directors have calculated a taxable profit of $17,500,000 for the year ended 31 December 2012. In the previous year, the company had taxable profits of $14,000,000.
(Part (a) required a calculation of the US corporate income tax on the profit for the year to 31 December 2012. The answer is $6,100,000.)
(b) Explain and state when the tax for Scott Inc will be payable.”
(Question 2, Corporate Tax, April 2013)
Let’s see how candidates handled this exam question:
“Many candidates appreciated that four instalments of US corporate income tax would be required. But few gave an explanation as to why this was the case or of how each instalment was calculated. Instalment dates were often noted as months four, six, nine and 12, without giving the actual dates in Scott Inc’s circumstances. Companies are looking for information specific to their own situation, rather than purely theoretical details.” Examiner, Corporate Tax, April 2013
With so many marks on offer for explanations, and so many candidates not attempting them, it’s useful to identify the possible reasons why they didn’t:
Explanations are often easy, once we’ve noticed that they’re needed. Many candidates who missed the marks here would have scored all of them if they had simply invested time in careful reading of the very first word of the question: ‘Explain…’
Now, let’s recap and expand the rules about tax instalments, having already clarified their important general purpose.
These large companies must pay instalments of 25% of the current year’s estimated tax liability. This rule will bite Scott Inc as well.
To summarise, here is a model exam answer, explaining these rules and applying them to Scott Inc:
Winning words are worth many marks. Now, practise your three-step structures to make your explanations count.
“The greatest achievement of AMCT is that it has increased my confidence. I am now comfortable coaching my team through issues and having complex discussions with my clients about their methodology and approach.” Lucia Hudakova AMCT
Download the previous articles from this series and other useful study information from the Exam tips area of the student site at study.treasurers.org/examtips
Doug Williamson FCT is an examiner, tutor and coach who is uniquely qualified to help you pass your ACT exams, having read and carefully marked thousands of students’ exam answers