One of the most common questions asked to our team is – which AAT optional units should I choose for level 4? It is an important choice for all students on level 4 to make.

My initial response to this question used to be, do tax because I don’t like marking auditing mocks.  However, I am a big believer that people should choose optional units based on what is going to benefit them in the long run. So if you see your future in auditing then you should choose audit.

So in this blog, I am going to look at each AAT optional unit, in turn, detailing what it covers and what it is useful for

AAT students need to choose two from a choice of five optional units.  The five to choose from are:

Personal Tax

Personal Tax is a favourite among the tutors here at FI.  It is also quite relevant to most people as pretty much everyone pays tax at some point. Even if you get to the end of your studies and decide accountancy isn’t for you and become a flower arranger, it will still be relevant to you.  The personal tax unit covers income from employment, including benefits in kind such as company cars.  It also covers pensions, property income, tax planning and national insurance; all real-world things.

There are other things which perhaps you don’t realise might have a tax implication that you are not aware of.  For example, if you sell a grandfather clock that you inherit from your great aunty Mabel you may find yourself with a capital gains tax bill. Finally, it also covers inheritance tax, which, given the price of houses today, is something everyone should be aware of.

If you plan to, or currently do work in an accountancy practice, this is a really good choice.

Business Tax

This unit is effectively split into two, the calculation of corporation tax for limited companies, and the taxable profits for sole traders and partnerships.  This links really well with personal tax.  So in this unit, you will calculate a sole trader’s income. Then in personal tax, you will calculate the tax due on this income.  It is a large unit, however, there is a lot of cross-overs from personal tax. So if you do personal tax first, you will have already covered share pools, and some of the capital gains topics.

This is another good unit for those wanting to work in practice.

Audit and Assurance

This entire unit is about making sure that a client’s accounts are correct, and they don’t contain any serious errors (accidental or intentional). You will look at planning an audit; the requirements given what you know about the client. You will also look at what tests you can do to make sure that figures in the accounts are correct. For example, any money the client claims is owed to them is accurate and genuine. Then finally, making a decision on if the accounts are correct or not.

Many tasks in the exam require a robust application of knowledge or the explanation of key points. Basically ensuring you can use your knowledge in context. Clearly, if you work in an audit, this is the unit for you!

Cash and Financial Management

Cash management as a unit is really relevant for ALL businesses.  There is no point in making a profit if you aren’t solvent.  A major part of this unit is preparing cash budgets. For example, making £100,000 of sales, of which half will be paid in two months, 25% in three months, 20% in four months, then 5% will never be paid, but your materials and staff will need paying this month. What will your monthly cash balance be? As one of the oldest sayings in accountancy goes “cash flow is king!”. You really need to read the question carefully in this type of question.  It also covers what is a good source of finance if you are a business looking to borrow money. And where is a good place to invest your money if you are a business with some spare money?

This is a very useful unit for those who are looking to work in the industry.

Credit and Debt Management

This is not just a unit based on how to get money from people who owe you money.  Although there is a lot on this as you would expect.  There is also a lot on how to make sure you don’t need to need to be chasing people for money.  So there is a lot on who you should grant credit to and how much of a limit we should impose. Those of you familiar with credit control already will likely be aware of the age-old conflict between the accountant and the sales rep!  This unit also covers the credit scoring and ratio analysis of potential customers.  There is a lot of law in it, so it is quite theoretical.

Clearly, this is a good unit for those who want to work in credit control.  Credit control is of huge importance for most businesses and can make or break a company. As my old manager said, “A sale is never a sale until it is paid for”.

Hearing the thoughts and opinions on these units from people who have already sat them can also be beneficial when making your decision.  However, all too often units will be recommended because they are “easier than others”. Pass rates do vary depending on the exam. I would encourage you to look past that and reflect on your own strengths and weaknesses alongside your career aspirations. Another student may have found Credit and Debt Management to be a difficult unit but this is not a guarantee that you will!  The other thing to remember is that your choice of optional units may affect any possible exemptions you may get from further studies, especially if you are going on to study ACA or ATT.