ACCA FM Common Mistakes & Examiner Insights
FM has a sub-50% pass rate, and the examiner's reports keep naming the same calculation errors — most of them avoidable with care over signs, timing and consistency. Here are the recurring ones.
1. IRR interpolation: watch the double-negative sign error
When the higher-rate NPV is negative, NPV_L ÷ (NPV_L − NPV_H) trips candidates up on signs. Work it carefully — the dramatic, obviously-wrong IRR usually signals a sign slip.
2. Real vs nominal: keep cash flows and rate consistent
Discount money (nominal) cash flows at the money rate, and real cash flows at the real rate. Mixing the two is one of the most common and costly FM errors.
3. Tax timing: get both the amount and the year right
Tax on operating cash flows and capital allowance effects are often one year in arrears. Get the amount and the timing right — a correct figure in the wrong year still loses marks.
4. Balancing allowance or charge on disposal
On disposal, compare proceeds to the tax written-down value and recognise the balancing allowance or charge. Don't forget it, and don't confuse it with the accounting profit on disposal.
5. Sensitivity: smallest percentage is most sensitive
Sensitivity = NPV ÷ PV of the variable tested. The variable with the smallest percentage change to breakeven is the most sensitive — candidates often pick the largest by mistake.
6. WACC: use market values, not book values
Weight the cost of equity and debt by market values unless the question tells you otherwise. Book-value weightings give the wrong WACC.
7. Early settlement discounts and factoring
Evaluate early settlement discounts (on both receivables and payables) against the short-term borrowing rate, and compare factoring against invoice discounting on cost. These are regularly examined.
8. PPP and IRP: get the ratio the right way round
Under purchasing power parity and interest rate parity, the higher-inflation or higher-interest currency is expected to weaken (trade at a forward discount). Inverting the ratio reverses the answer.
9. EMH: semi-strong is the usual assumption
Semi-strong form efficiency (all public information already in the price) is the level most often assumed. Under it, window-dressing and timing a share issue to "beat the market" don't work.
Practise these in context: every FM question on GoQualified is mapped to the syllabus with a full worked explanation, so you can see exactly where the marks are. Switch to Exam Sim mode for a timed FM mock exam under real exam conditions. Free, no login.