Interesting question! It's similar, of course, to 2014.Spring Q34c where they asked you to compare the materiality level for DCAT versus valuation work. The answer provided was quite short and indicated very generally that valuation work would have a tighter (lower) materiality level, meaning that a smaller change might cause a change in decision-making.
Regarding your question of DCAT versus MCT, it isn't the kind of question that has a definitive answer. The first thing you'd have to decide is the basis of materiality.
For DCAT, you might choose surplus and set the materiality level as a % of surplus. The syllabus doesn't provide much guidance for how to do this, however.
For MCT, the options might be to use capital available or capital required, or maybe the MCT ratio itself. For example, if you had an MCT ratio of 200%, you might decide that a change of 20 percentage points would cause you to do take a new course of action. Now, that choice of 20 percentage points would change if the MCT ratio was already close to 150%. If, for example, it was 160%, the change you would tolerate would be much smaller.
Despite the fairly simple answer they provided for that question in the examiner's report, it can be a complicated question. Unless you had specific information on the state of the company, it would be hard to say anything very precise.
If you got a question asking you to compare the materiality for DCAT and MCT without any further information, I would mention these things:
different possibilities for materiality standards (surplus, net income, MCT capital available)
the purpose of DCAT (planning) and MCT (solvency monitoring) and which is more likely to indicate an existential threat to the company
Although the materiality levels chosen for each may not be directly comparable, I would probably pay closer attention to the MCT ratio. It's true that DCAT involves calculating MCT, but it's broader because it also involves studying a range of adverse scenarios and then creating plans to mitigate the effects of those scenarios. MCT is more directly focused on the question: Do I have enough money?!
If you were given specific information about the company, then you may be able to use that give to a more precise answer. You could bring in knowledge about company characteristics, which is something that does sometimes show up on the exam.
After all that, if I had to say which would have a tighter (lower) materialty level, whatever that might mean in the specific circumstance, I would say MCT.
The overall point when answering an exam question like that is to demonstrate that you understand the relevant concepts. Even if there is no single correct answer, they want to see that you can make an intelligent argument.
Comments
Interesting question! It's similar, of course, to 2014.Spring Q34c where they asked you to compare the materiality level for DCAT versus valuation work. The answer provided was quite short and indicated very generally that valuation work would have a tighter (lower) materiality level, meaning that a smaller change might cause a change in decision-making.
Regarding your question of DCAT versus MCT, it isn't the kind of question that has a definitive answer. The first thing you'd have to decide is the basis of materiality.
Despite the fairly simple answer they provided for that question in the examiner's report, it can be a complicated question. Unless you had specific information on the state of the company, it would be hard to say anything very precise.
If you got a question asking you to compare the materiality for DCAT and MCT without any further information, I would mention these things:
Although the materiality levels chosen for each may not be directly comparable, I would probably pay closer attention to the MCT ratio. It's true that DCAT involves calculating MCT, but it's broader because it also involves studying a range of adverse scenarios and then creating plans to mitigate the effects of those scenarios. MCT is more directly focused on the question: Do I have enough money?!
If you were given specific information about the company, then you may be able to use that give to a more precise answer. You could bring in knowledge about company characteristics, which is something that does sometimes show up on the exam.
After all that, if I had to say which would have a tighter (lower) materialty level, whatever that might mean in the specific circumstance, I would say MCT.
The overall point when answering an exam question like that is to demonstrate that you understand the relevant concepts. Even if there is no single correct answer, they want to see that you can make an intelligent argument.