Most marks in the Case Study go to issues you notice and handle well, not to facts you recall. Candidates who miss the key issues cannot recover with neat writing. This topic gives you a method you can repeat on any case pack, a list of red flags that past cases have planted, and a worked example.
In 30 seconds
Fix your frame first: your role, the reader and the purpose. Place the business in its lifecycle. Sort the exhibits by how much you will use them. Mark the movements in the numbers. Check who wrote each exhibit and why. Look for conflicts, ethical problems and missing information. Then link every issue to a requirement and a tool, and drop what the requirements do not need.
A seven-step issue-spotting method
- Fix the frame. Note your role (in practice or in a company), the person who will read the report and what the report is for: to inform, advise, direct or persuade.
- Place the business in its lifecycle. Start-up, transition, maturity and decline bring different issues, and the stage shapes the right framework for strategy and finance.
- Sort the exhibits. Some give background, such as industry overviews and letters. Some need close use, such as the financial statements. Others sit in between, such as a client list or an operating schedule.
- Mark the numbers. Note what moved from year to year and by how much. Compare with any industry figures. Ask whether the movements agree with the story in the narrative.
- Check provenance. Ask who provided each piece of information, what their expertise is and why they produced it. A person with a stake in the outcome may colour the facts.
- Hunt for red flags. Look for conflicts between exhibits, ethical and legal problems and information that is missing.
- Link and prune. Tie each issue to a requirement and to a tool. Leave out anything the requirements do not ask for.
Red flags to look for
| Red flag | What to look for | Example from past cases |
|---|---|---|
| Unreliable source | Information from someone with a stake in the outcome, or unaudited figures | May 2015: unaudited statements and an unresolved dispute with the auditors |
| Numbers that contradict the story | Performance falling while stocks and receivables rise | November 2014: falling profit, rising inventories and debtors |
| Ethical problems | Pressure on staff, pay below legal limits, undisclosed fines, personal bonus motives | May 2015, November 2015 and May 2016 |
| Legal and regulatory issues | Possible breaches, protests, strict labour rules | November 2015: a regulatory fine not disclosed to the firm |
| Unrealistic targets | Savings or growth far above what the evidence supports | May 2016: a call to raise role cuts by another 60 to 70% |
| Confidentiality and control | Sensitive data passed to third parties | May 2016: outside firms managing robot security |
Worked example
Scenario. You are an analyst at Adeyemi and Co. The finance director of Kano Foods Ltd writes that sales rose 12% this year, but cash is tight. Profit rose because closing inventory is valued at a “market opportunity price”. The statements are unaudited because the auditors “misunderstand the business”. He adds that staff have agreed to accept pay below the legal minimum wage. Identify the issues.
- Profit up, cash tight. This points to working capital: inventory or receivables may be absorbing cash.
- Inventory valuation. International Accounting Standard (IAS) 2 requires inventory at the lower of cost and net realisable value. A higher “opportunity” price overstates profit.
- Provenance and reliability. The figures are unaudited and the director disputes the auditors, so the statements are less reliable and his integrity is in doubt.
- Legal and ethical issue. Pay below the legal minimum is unlawful, and consent from staff does not change that.
- Link to requirements. The first three feed a financial statements requirement. The fourth belongs in your reservations and recommendations.
Common mistakes
- Starting with the first exhibit and never noting the reader or purpose.
- Accepting a director’s view as fact.
- Listing every issue instead of those the requirements need.
- Treating ethical issues as an afterthought.
- Spotting an issue but never naming the tool or the action.
Quick revision
- Method: frame, lifecycle, sort exhibits, mark numbers, provenance, red flags, link and prune.
- Red flags: unreliable sources, contradictions, ethics, law, unrealistic targets, confidentiality.
- Every issue needs a requirement and a tool.
Practice questions
These are original questions in the style of the Institute of Chartered Accountants of Nigeria exam. Try each one before you open the answer.
Question 1. A board paper praising a new machine was written by the machine supplier. The key point to raise is:
- The paper is probably correct
- The supplier has a stake in the outcome, so the claims need testing
- The paper should be copied into the report
- Suppliers never give figures
Show the answer
B. Provenance matters. Ask who wrote it and why.
Question 2. Sales fall 5% while inventory rises 50%. This most suggests:
- A strong future
- Slow-moving or obsolete stock and pressure on cash
- Lower tax
- Higher revenue next year
Show the answer
B. Numbers that move against the story are a red flag for working capital and valuation.
Question 3. Unaudited statements and a dispute with the auditors suggest:
- Greater reliability
- No issue at all
- Lower reliability and a possible integrity concern
- A reason to ignore the figures
Show the answer
C. Use the figures with care, state the reservation and say what further information you need.
Question 4 (8 marks). Delta Textiles Ltd’s board paper says a new machine will raise output by 40%. The supplier prepared it. The plant manager earns a bonus on output. The bank wants these figures to support a loan. Inventory rose 50% while sales fell 5%. Identify four issues and say how you would deal with each.
Model answer
Show the model answer to Question 4
1. Source bias. The supplier gains if the machine is bought, so the 40% claim may be optimistic. Ask for evidence, test the assumptions and flex the output figure. (2 marks)
2. Conflict of interest. The plant manager’s bonus depends on output, which may influence the forecast. Seek independent figures and state this as a reservation. (2 marks)
3. Reliance by the bank. A lender will rely on the figures, so errors carry legal and reputational risk. Include a disclaimer and be open about limits. (2 marks)
4. Inventory against sales. The mismatch points to slow stock, valuation risk and cash pressure. Analyse inventory days and test for write-downs. (2 marks)
The next topic covers how the marking key works: boxes, grades and marks.
Pathfinder on Reading a case and spotting issues: a method you can repeat on any case
These are the ICAN Pathfinder questions that test this topic. ICAN owns the questions and the suggested solutions, so we point you to them and do not copy them. Open your Pathfinder, attempt each question under exam conditions, then check your answer against the notes above.
Both keys reward spotting unreliable information and ethical issues, such as unaudited statements, an unresolved dispute with auditors and an undisclosed regulatory fine. Use them to check what you would have spotted.
Revise first: Red flags to look for
The email pushes for bigger savings and mentions a personal bonus. The marking key rewards seeing weak governance, staff welfare and confidentiality issues.
Revise first: A seven-step issue-spotting method
Source: ICAN Pathfinder, Case Study. Diets covered: November 2014, May 2015, November 2015 and May 2016.
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