M plc is an IT company that bids for large contracts to sell computer systems and also to service existing systems. M plc’s senior management has always set budgets which are hard to achieve and have made no allowances for the recession.
The economy has improved and M plc’s senior managers have made the budget even more optimistic. The budgeted sales target has been increased by 40%.
In the past, sales staff have not tried to achieve the budget sales because it was generally believed that the targets were impossible to reach.
M plc has recently appointed a new Sales Director who has decided that sales staff will be dismissed if they fail to meet sales targets for three successive months. He is also looking for higher sales margins than were achieved before.
What are the likely consequences of the new Sales Director’s policy?
- A . Sales staff will be happier in their jobs.
- B . Sales staff will tender for riskier contracts.
- C . Sales staff will encroach on other sales staff territories to get more work.
- D . Sales staff will look for new jobs.
- E . Sales staff will feel more settled and secure in their jobs.
DRAG DROP
The internal audit department should always give a report at the end of its audit. This report is intended to be useful and help the company going forward. The report should always include any recommendations for improvements.
Which of the following statements are true and which are false?
SDF is a quoted company.
Which of the following matters should normally be dealt with by SDF’s audit committee?
- A . The external auditor has requested a higher fee than normal for the forthcoming financial year because new legislation will require additional audit work.
- B . The Head of Internal Audit is concerned that a recent internal audit investigation may have revealed serious compliance failures.
- C . The external auditor is concerned that an accounting policy selected by the Finance Director does not comply with the spirit of the relevant accounting standard.
- D . The external auditor has identified a material error, due to a clear miscalculation, in the draft financial statements.
- E . The Finance Director will be retiring within the next year and a replacement will have to be found.
Risk management involves all parties in an organisation.
Which of the following describe the Board’s responsibilities for risk management?
- A . The Board is responsible for choosing the least risk products to promote.
- B . The Board is responsible for maintaining a robust system of internal controls.
- C . The Board is responsible for addressing any weaknesses in internal controls.
- D . The Board is responsible for considering whether weaknesses in internal controls need to be addressed.
- E . The Board is responsible for safeguarding the company’s assets.
You have just been appointed Financial Controller of Y, a marketing consultancy.
You are in a meeting with the Chief Executive Officer (CEO) of Y, and have been discussing the need for a major upgrade of all the information systems throughout Y, as they are all very old.
Knowing that major change should be managed effectively, you have suggested that Y should have a ‘systems steering committee’.
Advise the CEO which of the following should be included in the terms of reference of the steering committee.
- A . Plan for new systems
- B . Develop new systems
- C . Manage the project
- D . Consider the competitive issues raised by the new system
- E . Ensure the new system will meet the company’s goals
YGH has recently completed a post completion audit on a five year contract that has only recently come to a conclusion. The main finding was that the project delivered most of the expected benefits, but that it cost significantly more to implement than had been anticipated at the project appraisal stage. YGH would not have proceeded if the true cost had been known at that stage.
The project was the responsibility of the production department, which is presently managed by G.
When the project was proposed, the production department was managed by H. H is now YGH’s Director of Operations.
How should the finding from this post completion audit be interpreted?
- A . YGH should consider introducing more detailed checking of the assumptions underlying the costs of future projects.
- B . The production department should not be granted funding for future projects unless there are compelling reasons to proceed.
- C . G should be held accountable for the overspend on the project.
- D . H should be held accountable for the overspend on the project.
A
Explanation:
Calculation_F0
W plc is a large international supermarket chain. It has many thousands of suppliers and many thousands of others competing for "shelf space" in its supermarkets.
Which of the following would be appropriate provisions for W plc to include in its Ethical Code in relation to its suppliers?
- A . W plc shall not use its buying power unscrupulously.
- B . W plc shall endeavour to adhere to the terms of its contracts with its suppliers at all times.
- C . W plc shall keep confidential all information received from suppliers and potential suppliers.
- D . W plc shall continuously remind suppliers that it always has several alternative suppliers to choose from.
- E . W plc shall endeavour to take as high a percentage of each supplier’s output as possible.
- F . W plc shall insist on an exclusivity agreement with each supplier so that identical products are not available from other outlets.
Which TWO of the following are reasons for a company to comply with the Committee of Sponsoring Organisations of the Treadway Commission 2017 Enterprise Risk Management Framework (COSO Framework)?
- A . Complying with the COSO Framework will mean all employees of a company will comply with internal controls
- B . Complying with the COSO Framework will mean that a company’s internal controls will work properly
- C . Complying with the COSO Framework will mean there is a good structure to a company’s risk management system
- D . Complying with the COSO Framework will mean that all staff will understand a company’s risk management system
- E . Complying with the COSO Framework will improve a company’s reputation
A Firewall is an element of a company’s Information Technology infrastructure.
Which THREE of the following are characteristics of a Firewall?
- A . A Firewall determines the boundary of the "Trusted" components of the company’s Information Technology infrastructure.
- B . A Firewall protects sensitive data against accidental or malicious damage.
- C . A Firewall protects the computer suite against physical attack.
- D . A Firewall protects against unauthorised network access.
- E . A Firewall protects against viruses.
- F . A Firewall can screen every message coming into or out of the company network looking for key words, or attachments.
A Firewall is an element of a company’s Information Technology infrastructure.
Which THREE of the following are characteristics of a Firewall?
- A . A Firewall determines the boundary of the "Trusted" components of the company’s Information Technology infrastructure.
- B . A Firewall protects sensitive data against accidental or malicious damage.
- C . A Firewall protects the computer suite against physical attack.
- D . A Firewall protects against unauthorised network access.
- E . A Firewall protects against viruses.
- F . A Firewall can screen every message coming into or out of the company network looking for key words, or attachments.
A Firewall is an element of a company’s Information Technology infrastructure.
Which THREE of the following are characteristics of a Firewall?
- A . A Firewall determines the boundary of the "Trusted" components of the company’s Information Technology infrastructure.
- B . A Firewall protects sensitive data against accidental or malicious damage.
- C . A Firewall protects the computer suite against physical attack.
- D . A Firewall protects against unauthorised network access.
- E . A Firewall protects against viruses.
- F . A Firewall can screen every message coming into or out of the company network looking for key words, or attachments.
In the purchasing department, the purchasing manager selects and approves all suppliers, as they are the only person with sufficient experience to do so. They use a very limited number of suppliers because they can rely on these suppliers to provide goods of the quality required at a competitive price. They do not keep any documents in relation to negotiations with other potential suppliers or other quotes obtained.
In relation to the above, which of the following statements are valid?
- A . The fact that the purchasing manager uses a very small number of suppliers is, in itself, a sign of poor internal controls.
- B . It is acceptable for clerks in the trade receivables section to make journal adjustments without authorisation provided the amounts involved are not material to U’s financial statements.
- C . It is acceptable for clerks in the trade receivable section to make journal adjustments without authorisation, provided they have no access to cash receipts.
- D . The fact that the purchasing manager does not keep documentation relating to negotiations with suppliers, or potential suppliers, is evidence that they are involved in fraudulent activity.
- E . Clerks making journal adjustments without reference to their supervisor is evidence of inadequate separation of duties.
- F . The way the role of purchasing manager is carried out in U increases the chance that the company will fall victim to fraudulent activity.
K has several subsidiary companies. The directors of K’s subsidiaries are paid an annual b onus based upon their particular subsidiary’s reported profits.
The directors of one of K’s subsidiaries are considering the choice between two models of a machine.
Which of the following is most likely to explain the decision to choose model X over model Y?
- A . Model X has a better combination of investment and running costs.
- B . Model X is the less risky investment.
- C . Investing in model X will mean the subsidiary will show a higher profit.
- D . Investing in model X will lead to a higher share price.
DRAG DROP
Z is a multinational pharmaceuticals company with operations across Europe, America and Asia.
It is currently investigating the possibility of setting up a chemical and specialist production facility in South America. This would be a multi $billion investment.
What steps should Z take to manage the following risks in this long term venture.
VBN’s home currency is the V$. On 1 January, VBN must make a payment of C$2 million on 31 March of that same year.
On 1 January the spot exchange rate was V$1 = C$0.4.
On 1 January VBN paid $180,000 for a call option to buy C$2 million for V$5.5 million on 31 March. VBN’s cost of borrowing was 8% per year.
On 31 March the spot rate was V$1 = C$0.45.
What was the total cost, including the cost of the option, of settling the payable?
- A . V$4.628 million
- B . V$5.684 million
- C . V$4.444 million
- D . V$5.5 million
DFG’s home currency is the D$.
DFG is heavily exposed to the exchange rate between the D$ and the L$, country L’s currency.
DFG’s treasurer has noted the following:
• Inflation has been running at 5% in DFG’s home country and 8% in country L
• Interest rates are 7% in DFG’s home country and 11% in country L
• The spot rate is D$1.0000 = L$2.1000 and the three month forward rate is D$1.0 = L$2.1196
Which of the following statements is consistent with these figures?
- A . Interest rates are expected to continue unchanged, but country L’s inflation rate will increase in proportion to the inflation rate in DFG’s home country.
- B . Interest rates are expected to continue unchanged, but country L’s inflation rate will decrease in proportion to the inflation rate in DFG’s home country.
- C . Country L’s interest rate is expected to decline relative to that of DFG’s home country and inflation rates are expected to continue unchanged.
- D . Country L’s interest rate is expected to increase relative to that of DFG’s home country and inflation rates are expected to continue unchanged.
MNB is a multinational IT company with headquarters in Asia and with operations in all continents.
MNB is attempting to expand its operations in Europe. This is seen as a major challenge as the European market is very well developed and highly competitive.
MNB develops and manufactures its own products. Parts and assemblies are sourced across Asia, America and Europe. These are sometimes purchased locally as a condition of a contract, but MNB aims to include as much of its own equipment as possible. Transfer prices between MNB’s subsidiaries can be set in YEN, USD, EURO, GBP. Transfer prices are revised every month in line with production times as most goods are made on short order with sales cycles running at 3-4 months.
What types of risk are being presented here?
- A . Political risk
- B . Currency risk
- C . Economic risk
- D . Environmental risk
- E . Fraud risk
- F . Legal risk
Which of the following summarises Purchasing Power Parity Theory (PPPT)?
- A . Government intervention cannot affect the inevitable rise or fall of its currency in the short-term.
- B . The difference between the spot and the forward exchange rates is equal to the differential between the inflation rates in the two countries.
- C . PPPT predicts that the country with the lower inflation rate will see the currency devalue accordingly.
- D . The difference between the interest rates in the two countries is equal to the differential between the spot and the forward exchange rate for the currency in the two countries.
A project has a net present value of $2 million.
Total cash outflows of this project have a present value of $14 million, which includes staff costs of $10 million.
What is the project’s sensitivity to staff costs?
- A . 20%
- B . 63%
- C . 71%
- D . 14%
GHY is a listed company. Tom is GHY’s CEO and Peter is its non-executive Chair of the Board. Tom and Peter both have substantial relevant business and industrial experience and both are believed to have considerable integrity. Tom and Peter quickly developed a good working relationship after Peter’s appointment. They have become close friends.
Tom briefs Peter on every aspect of the business. Tom and Peter jointly agree the agenda for every board meeting and both agree on the manner in which matters will be presented to the board.
Taking account of the principles of good corporate governance, which of the following statements is correct?
- A . It is entirely appropriate that Tom and Peter have this kind of relationship and both are acting in the best interests of the company.
- B . Non-contentious board meetings show how well Tom and Peter are running the company and shows that the management is cohesive.
- C . The relationship between Peter and Tom may have a detrimental effect on company decision making as the Board is not always being informed about matters in an unbiased manner.
- D . Since the non-executive chair clearly has a significant role within this company there is little danger that any individual will become excessively dominant.
JC is a car manufacturing company in country C and manufactures diesel cars It is facing a number of serious risks .
Which TWO of the following nsk factors are external?
- A . JC’s marketing director is considering an attractive job offer from one of J’s main competitors
- B . Country F, JC’s main market, is threatening to impose tariffs on car imports
- C . JC is facing court action arising from injuries to customers caused by an alleged brake failure in one of its cars
- D . Diesel cars are being criticised by experts because it is believed they cause more harmful pollution than petrol
- E . JC’s production staff are complaining that their wages are too low compared to wages paid to other employees.
Company M has lost 25% of its revenue in the last three months due to bad debts. One of the receivables written off was from a long standing customer and the other three were from new customers. The management accountant has warned the sales team that the company cannot survive any more substantial bad debts.
Which of the following internal controls should be put in place to try and prevent further bad debts?
- A . A credit check should be carried out on each new customer.
- B . Credit limits should be set for all customers. However, if the credit limit will cost a sale then sales staff can override this limit.
- C . Two sales staff must authorise new customers and sign a form stating that they have done so.
- D . An aged analysis of customer balances must be reviewed every month.
- E . As soon as a customer payment is overdue they should not be allowed to purchase more until their balance has been reduced.
T is an accountant who has been accused of professional incompetence T agreed to advise a client on currency management and the client lost a great deal of money when a large foreign currency trade receivable declined in value without having been hedged.
Which of the following factors strengthens the case that T has been incompetent? Select ALL that apply
- A . T had been too busy to stay up to date with continuing professional development requirements
- B . Since the loss the client’s chief executive has spoken to her business contacts m the industry and all had hedged against a decline in this currency
- C . T had studied all relevant economic forecasts and had concluded that it would be too expensive to hedge this receivable
- D . T had offered the client two alternatives showing the costs and benefits of hedging the position, but did not strongly recommend either alternative
- E . T had never offered advice on foreign currency management before
DFR is an online retailer that sells picture frames The software running on DFR’s website enables customers to log in and make purchases by inputting an email address as a user name and a password that must contain at least eight characters, including upper and lower case letters, numbers and punctuation marks (e.g. £, $ or!) Once logged in, customers can check previous orders that they have placed.
Customers can also use DFR’s website to change personal details, including credit card numbers and delivery addresses Whenever they wish to use those facilities, the software sends a text message containing a six-digit number to their mobile phones They must input that number before the system will accept changes to their personal details
Which TWO of the following statements are correct?
- A . It is illogical to have different security measures in place for orders and for access to personal details.
- B . The software treats customers’ personal details as being more sensitive than their ordering histories
- C . The arrangement with the text message will have no effect on the security associated with changing personal details
- D . Customers should be able to update the mobile phone numbers in their DFR accounts using only their email addresses and passwords for access
- E . The software should never show the whole of a customer’s credit card number on screen, even if the customer has logged in and input the six-digit number.
CORRECT TEXT
A project has an NPV of £1,200,000. The present value of material costs which are included in the NPV calculation are £8,000,000.
What is the sensitivity of the project to changes in material costs? Give your answer to the nearest whole percentage.
The treasurer of IOK is considering entering into a money market hedge in order to hedge a payable.
Which of the following might be valid explanations for the use of a money market hedge for this purpose?
- A . There are no forward contracts available for the purchase of the payable currency using IOK’s home currency.
- B . The timing of the payable does not permit the use of a forward contract.
- C . The relevant currency markets are very thinly traded and the treasurer believes that forward contracts are mispriced.
- D . A money market hedge is easier and less expensive to organise than a future or forward contract.
- E . Money market hedges can be unwound whereas positions in derivatives cannot.
DFG’s call centre budgets four minutes for its operators to deal with a customer’s enquiry and conclude the call. Team leaders are evaluated on the basis of the average call length.
Simone is a team leader. Her team’s average call length is five minutes and 30 seconds. Simone accepts full responsibility. She encourages her team members to check that the customer is satisfied before concluding the call.
On investigation, it was discovered that 2% of the customers who dealt with Simone’s team had to call DFG again within seven days. Other teams had an average of 25% of customers call back within seven days because their first call had not fully resolved their problem.
Which of the following statements are true?
- A . The use of average call length may be leading to dysfunctional behaviour.
- B . Simone is in breach of call centre policy.
- C . It would be better to evaluate team leaders on the basis of multiple criteria.
- D . Team leaders should be responsible for setting policy on performance measurement within the call centre.
- E . Average call length should be replaced with the average rate of return calls as the primary performance measure for team leaders.
DRAG DROP
Identify, from the list provided, which category of business risk most accurately describes the events detailed below.
A UK manufacturing company has simultaneously:
• purchased a put option to sell USD 1million at an exercise price of GBP1.00 = USD1.65
• sold a call option that grants the option holder the right to buy USD 1million at a price of GBP1.00 = USD1.61 (this option has the same maturity date as the put).
Which of the following is a valid explanation for entering into these option positions?
- A . The company expects to receive USD 1million from a customer and wishes to offset the cost of the put option by the premium on the call option.
- B . The company expects to pay USD 1million to a supplier and wishes to offset the premium from the call option against the cost of the put option.
- C . The company expects to receive USD 1million from a customer and wishes to obtain an additional benefit if the USD strengthens beyond GBP 1.00 = USD 1.61.
- D . The company expects to pay USD 1million to a supplier and wishes to obtain additional protection against the USD strengthening beyond GBP 1.00 = USD 1.65.
A project has been evaluated on the basis that it will cost $14 million and will have a net present value of $2.3 million.
The project has commenced and $3 million of the initial $14 million has been invested. A problem has been discovered that will cost an additional $2.5 million to rectify. The $2.5 million will be payable immediately.
What is the NPV of continuing with this project?
- A . -$3 million
- B . -$0.2 million
- C . $1.8 million
- D . $2.8 million
James owns a small company which sometimes suffers from credit risk.
Which of the following measures should he put in place to help reduce this risk?
- A . Introduce credit checks for new customers.
- B . Reduce the company bank loans.
- C . Pay suppliers’ invoices quicker.
- D . Look for a loan with a lower interest rate.
Which risks should be given the highest priority?
- A . Risks which have a high impact and have a low likelihood of arising.
- B . Risks which have a low impact but which arise frequently.
- C . Risks which have a low impact and a low likelihood of arising.
- D . Risks which have a high impact and which may arise occasionally.
Amber selects appropriate suppliers and places purchase orders.
Brian passes invoices for payment and submits payment instructions to the bank.
Chris checks incoming inventory and unpacks goods from their containers.
Dirwan posts purchase invoices and files invoices and supporting documents.
Which member of staff could most easily commit fraud?
- A . Amber
- B . Brian
- C . Chris
- D . Dirwan
The long-term prospects for interest rates in the UK and the USA are 2% and 6% per annum respectively.
The GBP/USD spot rate is currently GBP/USD1.71.
Using interest rate parity theory, what GBP/USD spot rate would you expect to see in six months’ time?
- A . GBP/USD = 1.74
- B . GBP/USD = 1.78
- C . GBP/USD = 1.65
- D . GBP/USD = 1.67
The long-term prospects for interest rates in the UK and the USA are 2% and 6% per annum respectively.
The GBP/USD spot rate is currently GBP/USD1.71.
Using interest rate parity theory, what GBP/USD spot rate would you expect to see in six months’ time?
- A . GBP/USD = 1.74
- B . GBP/USD = 1.78
- C . GBP/USD = 1.65
- D . GBP/USD = 1.67
The long-term prospects for interest rates in the UK and the USA are 2% and 6% per annum respectively.
The GBP/USD spot rate is currently GBP/USD1.71.
Using interest rate parity theory, what GBP/USD spot rate would you expect to see in six months’ time?
- A . GBP/USD = 1.74
- B . GBP/USD = 1.78
- C . GBP/USD = 1.65
- D . GBP/USD = 1.67
In the purchasing department, the purchasing manager selects and approves all suppliers, as they are the only person with sufficient experience to do so. They use a very limited number of suppliers because they can rely on these suppliers to provide goods of the quality required at a competitive price. They do not keep any documents in relation to negotiations with other potential suppliers or other quotes obtained.
In relation to the above, which of the following statements are valid?
- A . The fact that the purchasing manager uses a very small number of suppliers is, in itself, a sign of poor internal controls.
- B . It is acceptable for clerks in the trade receivables section to make journal adjustments without authorisation provided the amounts involved are not material to U’s financial statements.
- C . It is acceptable for clerks in the trade receivable section to make journal adjustments
without authorisation, provided they have no access to cash receipts. - D . The fact that the purchasing manager does not keep documentation relating to negotiations with suppliers, or potential suppliers, is evidence that they are involved in fraudulent activity.
- E . Clerks making journal adjustments without reference to their supervisor is evidence of inadequate separation of duties.
- F . The way the role of purchasing manager is carried out in U increases the chance that the company will fall victim to fraudulent activity.
JNH is a major corporation that stores its customer database in the Cloud JNH has suffered a data breach that has led to customer credit card details being made available for sale on the internet JNH’s Head of Security wishes to analyse network traffic at the cloud-based server in order to gain a better understanding of the manner in which the data was intercepted, but has been refused access.
Which of the following is the most likely explanation for the third-party owner’s refusal to assist JNH’s Head of Security?
- A . The Cloud is impregnable and so the breach must have been elsewhere
- B . The network data will not have been stored by the server’s owner
- C . The server will contain data belonging to other clients
- D . Admitting the breach would harm the reputation of the Cloud
Which of the following are threats to the control environment?
- A . Directors not producing receipts for their expenses.
- B . Internal auditors not following up on internal control problems.
- C . Directors ignoring unethical practices that increase sales.
- D . Regularly changing procedures to comply with legislation.
- E . Allowing staff to follow unwritten policies.
Which of the following risks should be given highest priority?
- A . Risks which have a high impact and which may arise occasionally
- B . Risks which have a low impact but which arise frequently
- C . Risks which have a high impact and have a low likelihood of arising
- D . Risks which have a low impact and a low likelihood of arising
The managers of a company are agents for the shareholders tasked with increasing shareholders’ wealth.
Which of the following will usually increase shareholders’ wealth?
- A . Investing in projects with the shortest payback period.
- B . Investing in projects with positive net present value.
- C . Investing in projects with the greatest level of risk.
- D . Not paying a dividend for several years in order to invest in new projects.
H Ltd is a logistics company which is likely to be seeking a Stock Exchange listing shortly.
The directors wish to strengthen the company’s internal controls.
Which of the following statements are valid?
- A . The Board should take direct responsibility itself for all organisational control and avoid delegating.
- B . The Board should ensure that the internal accounting system provides accurate and relevant information.
- C . The Board should ensure that there is regular assessment of the financial impact of contingencies.
- D . The Board should communicate organisational policies only to members of staff who are part of the management team.
- E . Internal Audit should be used to check on the detailed operation of controls in the
operating departments.
P Ltd, a manufacturing company, is considering a new capital investment project to set up a new production line.
The initial appraisal shows a healthy net present value of $6,465 million at a discount rate of 10% as shown in the table below:
However, management is unsure about the demand for the product which will be produced and has insisted that the future revenues should be reduced to certainity equivalents by taking 70%, 65% and 60% of the years 1,2, and 3 cash inflows respectively.
What should P do?
- A . Proceed with the project, it has a healthy net present value.
- B . Stop the project, it has considerable risk.
- C . Put pressure on sales and marketing to re-verify their forecasts.
- D . Re-appraise the project using other capital appraisal techniques to get a more balanced view.
DRAG DROP
G plc has decided to move its production plant to overseas Country
- A . This would make the product cheaper to produce. The technology used to make the product is very advanced and some of the staff would have to move to Country A.
The Production Director has identified that there are some political risks in moving to Country A.
Match the methods of reducing the political risks associated with the move to Country A with the corresponding risks.
An electricity company owns and operates a nuclear power station located ten miles from a large city. A recent and very extensive engineering examination of the power station concludes with the estimate that the probability of a major nuclear disaster within the next 20 years is 0.2%.
Which of the following best explains the relevance of quantifying the risk in that way?
- A . There is no acceptable level of risk for a major nuclear accident and so the probability has little information value in itself.
- B . The probability is so low as to be ignored.
- C . The directors will be able to argue that they were not negligent in the event of a major disaster within the 20 year period.
- D . The calculation of a precise probability demonstrates that the engineers who conducted the inspection are experts in their field.
A project requires a capital investment of £2.7million. The project will save £450,000 each year after taxation. Assume the savings are in perpetuity. The business risk of the venture requires a 15% discount rate. The company has to borrow £1million to finance the project at a rate of 9% and the net tax shield is 30%, the project supports debt which generates an interest tax shield of 0.30 x 0.09 x £1million, which is £27,000 per year in perpetuity.
Calculate the project’s adjusted present value.
- A . £(30,000)
- B . 0
- C . £570,000
- D . £600,000
DRAG DROP
Select the most appropriate level of responsibility for managing each of the following risks.
An electricity company owns and operates a nuclear power station located ten miles from a large city. A recent and very extensive engineering examination of the power station concludes with the estimate that the probability of a major nuclear disaster within the next 20 years is 0.2%.
Which of the following best explains the relevance of quantifying the risk in that way?
- A . There is no acceptable level of risk for a major nuclear accident and so the probability has little information value in itself.
- B . The probability is so low as to be ignored.
- C . The directors will be able to argue that they were not negligent in the event of a major disaster within the 20 year period.
- D . The calculation of a precise probability demonstrates that the engineers who conducted the inspection are experts in their field.
N, a large company in the food production industry, has grown over the years by the acquisition of several smaller rivals. The company has ten branches located in its home country and has just opened a foreign branch for the first time. It has recently made some changes to the structure and implementation of its control system.
Which TWO of these would be most likely to improve the overall control system?
- A . Establishing an Internal Audit department.
- B . Purchase invoices are now approved for payment at branches and a list of approved invoices are sent to head office for payment. The invoices, supporting documentation and suppliers’ statements are retained at the branches.
- C . Excess funds are now invested, by the Finance Director, in short-term securities. The Finance Director initiates buy and sell transactions and she also receives and retains all correspondence relating to the investments.
- D . A policy has been initiated to complete a physical inventory of all non-current assets at least annually. This is then reconciled with the non-current asset register.
- E . N has just opened a bank account in the currency in which the newly opened branch is now operating.
DRAG DROP
The list below has duties performed by risk managers and internal auditors. Show who would carry out the duties assuming the company has both risk managers and internal auditors.
M, a manufacturing company, has had some problems with defects in one of the main products it produces. This product has been made by the company for many years and is very profitable. Last month it had over 300 defects reported by customers which is more than 15% of products sold. This is a reputation risk for M and is also affecting profitability.
Which of the following controls could M introduce to reduce defects and also increase profitability?
- A . M could increase the number of quality control staff.
- B . M could introduce a procedure where quality control staff sign a form at the end of each day to say they have examined 1 in 10 products for defects and they are satisfied with the quality.
- C . The production director could examine one in every 10 products and sign a form to say they are satisfactory.
- D . M could service machinery at least once a month as recommended by the machinery supplier.
- E . M could check all employees qualifications to ensure they are qualified for their jobs.
CW is a large company in the food production industry. It has grown over the years by the acquisition of several smaller rivals CW has ten branches located in its home country and has just opened a foreign branch for the first time It has recently made some changes to the structure and implementation of its control system.
Which TWO of the following changes would be most likely to improve the overall control system?
- A . CW has just opened a bank account in the currency in which the newly opened branch is now operating
- B . Establishing an internal audit department
- C . Excess funds are now invested, by the finance director, in short-term securities The finance director initiates buy and sell transactions and she also receives and retains all correspondence relating to the investments
- D . Purchase invoices are now approved for payment at branches and a list of approved invoices are sent to head office for payment. The invoices, supporting documentation and suppliers’ statements are retained at the branches
- E . A policy has been initiated to complete a physical inventory of all non-current assets at least annually This is then reconciled with the non-current asset register
ZZ is a data security company that is responsible for cyber security m a large shopping mall 21 uses Network Configuration Management (NCM) to assist it in meeting the various needs of the mall’s user community.
Which THREE of the following are advantages provided by NCM?
- A . NCM allows ZZ to prevent data corruption for different user groups in the mall
- B . NCM allows ZZ to provide different service levels for different user groups in the mall
- C . NCM allows ZZ to segregate traffic for different user groups in the mall
- D . NCM allows ZZ to prevent scanners being used on the public WiFi for different user groups in the mall
- E . NCM allows ZZ to restrict traffic for different user groups in the mall
- F . NCM allows ZZ to stop malware from being spread for different user groups in the mall
Achieving the budget is often used as a good performance measure. However, there are problems with budgets which may mean they are not always good measures of performance.
Which TWO of the following statements about budgets suggest that they should not always be used to measure performance?
- A . Budgets may deliberately be set too low by managers so they are easily achieved and make the manager look good.
- B . Budgets are a commitment. They therefore act as a constraint on doing anything different.
- C . Budgets can be used to motivate staff if they are set correctly.
- D . Budgets can give people goals to achieve and if everyone strives to achieve these goals the whole organisation will benefit.
Which method of quantifying risk exposure can be used to calculate the maximum loss on a portfolio occurring within a period of time with a given probability?
- A . Value at Risk
- B . Regression analysis
- C . Simulation
- D . Expected value
Rio owns an architects business which employs 12 skilled architects and four administrative staff.
The Office Manager has just attended a workshop on internal controls and the way in which they can improve organisations. He intends to implement some internal controls as soon as possible.
What are the limitations of an internal control system in Rio’s business?
- A . Internal controls are only suitable for large businesses.
- B . Employees could ignore the internal controls.
- C . If Rio does not support the internal control system then the controls may not be adhered to.
- D . Internal controls may slow down the speed with which the architects can respond to enquiries.
- E . Internal controls will usually mean hiring more staff.
Which of the following represents the greatest risk associated with introducing a system of post-completion audit for investment projects?
- A . Decision makers may be deterred from taking responsible risks.
- B . The entity will realise that its approach to project appraisal is flawed.
- C . The audit itself will waste time.
- D . The entity may withdraw from a project without good cause.
UJK manufactures garden machinery. The company is dependent upon another manufacturer for the motors that power its products.
One of the factors that is being considered in a stress test requested by UJK’s Board is the possibility that the motor manufacturer increases its selling prices by 10% The motor accounts for a significant proportion of the overall manufacturing cost of UJK’s products
Which of the following are correct?
- A . The motor manufacturer should be contacted and told that a substantial increase in selling prices would have a drastic impact on UJK
- B . The possibility of an increase in selling prices due to increased costs should be noted in the stress test report
- C . UJK should estimate the impact on demand of increasing selling prices to pass on the increased cost of the motors.
- D . The impact of absorbing the increased cost of motors on UJK’s profits should be calculated.
- E . UJK should identify an alternative vendor of suitable motors as part of its stress test
The board of OKN is considering an investment opportunity that will require the company to borrow a large amount in month 10 of the current financial year and to invest it immediately in property, plant and equipment. This investment has a positive net present value that justifies the risk, but the directors are reluctant to invest in the project.
Why might the directors be reluctant?
- A . The return on capital employed for the year will be reduced if the investment is made.
- B . The return on capital employed for the year will be increased if the investment is made.
- C . The year’s profit will be depressed by the amount of the investment.
- D . Future profits will be depressed.
Which THREE of the following are principles of good corporate governance according to the UK Corporate Governance Code?
- A . Leadership
- B . Reliability
- C . Remuneration
- D . Honesty
- E . Accountability
The internal audit department has just completed an investigation into the HR department’s procedures relating to new staff appointments The head of HR is unhappy with the draft report prepared by the lead internal auditor The report lists several cases in which appointments were made despite the fact that one or more of the entity’s formal procedures were not followed
The head of HR has complained that the internal auditor’s comments do not allow for the fact that the HR department’s staff members are often very busy and do not always have time to conduct every check.
The internal auditor’s comments also reflect a failure to complete documents None of the omissions have led to the appointment of an unsuitable member of staff
Which TWO of the following statements reflect an appropriate response by the board of directors to this report?
- A . Ignoring a compliance error altogether may undermine the control environment
- B . The procedures should be removed if the HR department staff believe that they are unnecessary
- C . The board should be seen to support the internal audit
- D . The errors are immaterial because they did not lead to an inappropriate appointment
- E . The members of staff responsible for these omissions should be subjected to disciplinary action
Which of the following are the Committee of Sponsoring Organisations (COSO) key principles of enterprise risk management? Select ALL that apply.
- A . Consideration of the main risk only which is financial risk
- B . The creation of a risk aware culture
- C . Risk management is the responsibility of the risk committee
- D . Consideration of risk management in the context of business strategy
- E . A comprehensive and holistic approach to risk management
Kate is a management accountant. Her immediate superior plans to apply for a promotion and his strongest competitor is the sales manager. Kate’s superior has ordered her to set unattainable sales targets in a sales budget in order to reduce the sales manager’s promotion prospects. He told her not to tell anybody.
Kate asked the finance director for advice. He told her that he wanted her immediate superior to get the promotion and so she should set the unattainable budget as instructed.
Kate set the budget as instructed.
Which THREE fundamental ethical principles has Kate breached?
- A . Integrity
- B . Objectivity
- C . Professional competence and due care
- D . Confidentiality
- E . Professional behaviour
DFG is the largest bridge-building company in its home country, H. DFG works exclusively for the government of country H and the government awards DFG 80% of the contracts to build new bridges.
DFG’s directors are considering using the big data approach to identify opportunities to increase sales revenues and profit.
Which of the following statements are true?
- A . Big data has the potential to identify ways in which DFG can reduce construction costs.
- B . DFG should supplement its existing databases in order to enhance the benefit from big data.
- C . The big data approach may help DFG to price contract bids more accurately.
- D . Big data has the potential to identify ways in which DFG can increase sales.
- E . It would be unethical for DFG to use big data in order to compete even more effectively with its rivals.
The senior manager in the accounts department is going on annual leave for three weeks and Jo, a supervisor is being put in charge of the department for that time.
Which TWO of the following statements are correct?
- A . Authorisation of exceptional overtime due to the year end which takes place while the senior manager is on leave should be postponed until the senior manager returns
- B . The annual staff appraisals should be postponed until the senior manager returns
- C . Authorisation of expenses should wait until the senior manager returns.
- D . Jo should not have all of the same authority as the senior manager
- E . Job interviews for an office junior should be cancelled until the senior manager returns.
C is a large international supermarket chain. It has many thousands of suppliers and many thousands of potential suppliers competing for shelf space m its supermarkets.
Which of the following provisions would be appropriate for C to include m its ethical code in relation to its suppliers? Select ALL that apply
- A . C shall insist on an exclusivity agreement with each supplier so that identical products are not available from other outlets
- B . C shall endeavour to adhere to the terms of its contracts with its suppliers at all times
- C . C shall continuously remind suppliers that it always has several alternative suppliers to choose from.
- D . C shall not use its buying power unscrupulously.
- E . C shall keep confidential all information received from suppliers and potential suppliers
- F . C shall endeavour to take as high a percentage of each supplier’s output as possible
You have just been employed as a management accountant in a small business with an annual turnover of $0.5 million.
You have a wide range of duties because the business is small.
Which of the following is an ethical risk?
- A . Being asked to buy very small gifts for key clients.
- B . Being asked to work weekends, playing golf with clients.
- C . Being asked to work weekends, taking clients to night clubs making sure they have as much alcoholic drink as they want so that they will sign contracts.
- D . Being asked to work weekends working out tenders for new contracts.
The Committee of Sponsoring Organisations (COSO) outlined six key principles of Enterprise Risk Management (ERM).
Which of the following are COSO key principles?
- A . The creation of a risk aware culture.
- B . A comprehensive and holistic approach to risk management.
- C . Risk management is the responsibility of the risk committee.
- D . Consideration of risk management in the context of business strategy.
- E . Consideration of the main risk only which is financial risk.
Which of the following statements are correct?
- A . It is always possible to remove all risks when undertaking large projects.
- B . If a project has high risks it should always be accepted as the rewards will always be high.
- C . If a project has low risks it will usually have relatively low returns.
- D . Risk can always be transferred to someone else.
- E . Risk should be carefully considered when evaluating possible future projects.
GHJ makes large export sales to customers in Country A, whose currency fluctuates significantly against GHJ’s home currency. GHJ also makes large purchases from suppliers in Country A. All of these transactions are in Country A’s currency.
GHJ’s Treasurer does not actively hedge currency risks because there is a natural hedge in place due to the company making both sales and purchases in the same currency.
GHJ’s Board has instructed the Treasurer to put active hedging measures in place because the Risk Report would otherwise have to disclose the fact that GHJ has a currency risk which is not actively hedged.
Which of the following statements are correct?
- A . The Board may be concerned it will be criticised if it does not hedge.
- B . Risk reports can change behaviour.
- C . The Board does not want to be blamed for ignoring a risk.
- D . Risk reporting is a bad thing.
- E . Risk reporting drives the whole risk management process.
You are the Management Accountant for a company which supplies baked food to a string of retail outlets; biscuits, cakes, savoury snacks etc.
You discover that a trainee employee, who is responsible for cleaning out the delivery vans has been taking damaged goods and packets which have reached their sales expiry date and has been selling them to friends. These products would otherwise have been discarded as waste.
The trainee in question is the nephew of one of the senior managers.
What is the correct course of action?
- A . Have a quiet word with the trainee and ask him to stop.
- B . Have a quiet word with the senior manager, the trainee’s relative and ask them to deal with it.
- C . Document the facts and escalate to the trainee’s manager.
- D . Do nothing, the product was designated as waste anyway.
VBN is a multinational company that has 60 subsidiary companies that operate in 11 countries. VBN evaluates the performance of each subsidiary as an investment centre, using residual income to measure performance.
Which THREE of the following threats of dysfunctional behaviour may arise from VBN’s use of residual income to measure subsidiaries’ performance?
- A . Subsidiary boards may actively hedge translation risks.
- B . Subsidiary boards may take a short-term view to investment projects.
- C . Subsidiary boards may waste time by arguing over transfer prices.
- D . Subsidiary boards may waste time and incur unnecessary fees in order to recognise gains on the revaluation of property.
- E . Subsidiary boards may be motivated to spend heavily on capital expenditure in order to ensure that budget allocations are maintained and even increased.
DRAG DROP
Match the descriptions shown in the boxes below with the method of quantifying risk exposure it best describes.
The long-term prospects for inflation in the UK and the USA are 2% and 6% per annum respectively.
The GBP/USD spot rate is currently GBP/USD1.71.
Using purchasing power parity theory, what GBP/USD spot rate would you expect to see in three months’ time?
- A . GBP/USD1.69
- B . GBP/USD1.73
- C . GBP/USD1.77
- D . GBP/USD1.65
M, a manufacturing company, has had some problems with defects in one of the main products it produces. This product has been made by the company for many years and is very profitable. Last month it had over 300 defects reported by customers which is more than 15% of products sold. This is a reputation risk for M and is also affecting profitability.
Which of the following controls could M introduce to reduce defects and also increase profitability?
- A . M could increase the number of quality control staff.
- B . M could introduce a procedure where quality control staff sign a form at the end of each day to say they have examined 1 in 10 products for defects and they are satisfied with the quality.
- C . The production director could examine one in every 10 products and sign a form to say they are satisfactory.
- D . M could service machinery at least once a month as recommended by the machinery supplier.
- E . M could check all employees qualifications to ensure they are qualified for their jobs.
Systems Development Lifecycle (SDLC) is used to manage risk within the development of new computer systems.
Which THREE of the following are appropriate controls to manage risk within the SDLC Process?
- A . When planning the new system, a clear business case must be approved specifying functionality, data transformation, expected costs and benefits.
- B . When designing the new system, controls must be put in place to ensure that all the functionalities of the old system are replicated.
- C . When developing the new system, the developers must follow defined programming standards and carry out component test to specified test harness outputs.
- D . When doing the analysis for the new system particular care should be taken over the data specification, transformation and manipulation, ensuring that expected outputs are defined and that such output meets the needs and expectations of the business users.
- E . When the implementation of the new system is taking place, parallel running must be undertaken to ensure the output for the new system exactly matches that from the old system.
- F . The Post Completion Review should take place immediately after the implementation while all the facts are still fresh in everyone’s minds.
Company H operates a fleet of lorries. The Internal Auditor recently conducted an investigation into the transport needs of the company. Their report recommended that the lorries be disposed of, the drivers made redundant, and the distribution of the company’s products be outsourced.
The type of investigation carried out by the Internal Auditor is best described as a:
- A . Compliance Audit
- B . Economy Audit
- C . Efficiency Audit
- D . Effectiveness Audit
A project has been evaluated on the basis that it will cost $22 million and will have a net present value of $4.3 million The project has commenced and $5 million of the $22 million has been invested. A problem has been discovered that will cost an additional $4.5 million to rectify. The $4.5 million will be payable immediately.
What is the NPV of continuing with this project?
- A . -$5million
- B . -$0.2million
- C . $1million
- D . $4.8million
CORRECT TEXT
A US company enters into a five year borrowing with bank A at a floating rate of USD Libor plus 2%.
It simultaneously enters into an interest rate swap with bank B at 3.5% fixed against USD Libor plus 1%.
What is the hedged borrowing rate, taking the borrowing and swap into account?
Give your answer to 1 decimal place
Zia is an accountant and wishes to take out a Forward Rate Agreement (FRA) as a hedging instrument. The company treasurer has advised that a short-term interest rate (STIR) future would be better.
Which of the following is true of an STIR?
- A . A STIR can be tailored to the exact needs of the company.
- B . A STIR is flexible and the position can be closed quickly and easily.
- C . A STIR must be kept for the whole duration of the contract.
- D . If interest rates have gone down the price of the future will have fallen.
DRF is a manufacturing company
The internal auditor is conducting an investigation into the operation of the payroll system and has discovered a compliance error
The Head of Human Resources (HR) is required to add any new names to the payroll, using a specific computer password The Head of HR was absent for a month because of ill health During that period a senior member of the Wages Office, who is normally responsible only for organising wage payments, was issued a temporary password in order to add new names to the payroll The password was cancelled when the Head of HR returned to work
Which TWO of the following statements are correct?
- A . The senior member of the Wages Office should be disciplined for being in breach of the rules
- B . The senior member of the Wages Office could have committed fraud
- C . The compliance error should be overlooked because it was as a result of staff absence
- D . The internal auditor should ignore the error because it only lasted for one month
- E . The payroll should be checked thoroughly to ensure that only authorised staff are present
The interest rate on EUR deposits is 7%. The interest rate on GBP deposits is 5%. The spot rate is EUR/GBP0.8500.
What is the one year forward rate predicted to be assuming interest rate parity holds true?
- A . 0.8662
- B . 0.8341
- C . 0.7500
- D . 0.9633
DRAG DROP
A’s directors do not believe that they always get value for money from their investment in capital projects. Over the past decade the company has invested in 55 projects that have cost more than $1m. They are considering introducing a system of post completion audit to see if this will help them to understand any problems they have had with projects in the past. They hope to use the results of the post completion audits to significantly improve the results of their capital investments
State whether you agree or disagree with the points raised by A’s directors.
CORRECT TEXT
M plc has a $2 million loan outstanding on which the interest rate is reset every 6 months for the following 6 months and the interest is payable at the end of that 6-month period. The next 6-monthly reset period starts in 3 months and the treasurer of M plc thinks that interest rates are likely to rise between now and then.
Current 6-month rates are 7.2% and the treasurer can get a rate of 7.7% for a 6-
month forward rate agreement (FRA) starting in 3 months’ time. By transacting an FRA the treasurer can lock in a rate today of 7.7%.
If interest rates are 8.5% in 3 months’ time, what will the net amount payable be?
Give your answer to the nearest thousand dollars.
Under the COSO Enterprise Risk Management Framework, who is responsible for risk management?
- A . Every member of the entity.
- B . The board of directors only.
- C . Managers and directors only.
- D . The shareholders.
Which of the following is the major advantage of Cloud storage for an enterprise?
- A . It provides unlimited free use for the enterprise
- B . The enterprise has complete control over it
- C . in-house staff are not required to maintain the infrastructure
- D . Sharing storage space with others
Z plc has recently undertaken a SWOT analysis. The SWOT analysis identified two main threats to Z plc:
• The threat that the currency of Z plc’s main overseas competitor weakens compared to Z plc’s home currency.
• The threat that there will be a military coup which will overthrow the government in the country that Z plc purchases most of its raw materials from.
Which TWO of the following categories of risk correspond most closely to the above threats?
- A . Financial risk
- B . Political risk
- C . Business risk
- D . Economic risk
Which TWO of the following are benefits of carrying out a post-completion audit of capital projects?
- A . A post-completion audit can help find out who was to blame for a project exceeding the budget.
- B . A post-completion audit can help management understand what went wrong with a project in order to try and prevent the same problem occurring in the future.
- C . A post-completion audit can help find out where a project went wrong so it can be fixed immediately.
- D . A post-completion audit can investigate variances from the budget on completed projects.
M, a manufacturing company, has had some problems with defects in one of the main
products it produces. This product has been made by the company for many years and is very profitable. Last month it had over 300 defects reported by customers which is more than 15% of products sold. This is a reputation risk for M and is also affecting profitability.
Which of the following controls could M introduce to reduce defects and also increase profitability?
- A . M could increase the number of quality control staff.
- B . M could introduce a procedure where quality control staff sign a form at the end of each day to say they have examined 1 in 10 products for defects and they are satisfied with the quality.
- C . The production director could examine one in every 10 products and sign a form to say they are satisfactory.
- D . M could service machinery at least once a month as recommended by the machinery supplier.
- E . M could check all employees qualifications to ensure they are qualified for their jobs.
P has decided to invest in a new warehouse at a cost of $2,000,000. The discount rate of the project is 18% and the present value of the tax shield is £26,000.
What is the minimum acceptable Internal Rate of Return of the project?
- A . 18%
- B . 17.77%
- C . 18.23%
- D . 16.50%
Company W produces mobile phone components and has recently tendered for a substantial contract. The results of the tendering process will not become available until three months from now. If the company is successful it will require 2,000 units of a commodity which is currently traded in an open commodity market for $740 per unit.
However, there has been speculation that this commodity could increase substantially in price over the next three months and so the company is considering purchasing the commodity now and storing it for three months.
The funds to buy the commodity would be borrowed at an annual interest rate of 7% and the storage cost of the product would be $5.40 per unit per month. The storage costs would be paid at the end of the three month storage period.
Which of the following represents the gain or loss (to the nearest thousand dollars) that will accrue to Company W assuming that the price of the commodity rises to $800 in three months’ time?
- A . $62,000 gain
- B . $95,000 gain
- C . $88,000 gain
- D . $16,000 loss
UIO sells mobile phones through a cham of 100 shops spread across the country Shop managers have considerable discretion over pncmg and the incentives offered to sales staff Shop managers are evaluated on the monthly contribution from completed sales.
Those who exceed targets by more than 10% for three successive months are promoted Those who fail to achieve monthly targets in two successive months lose their jobs
Which of the following statements are true of the performance management of UIO’s shop managers?
Select ALL that apply
- A . LHO’s shop managers have an incentive to offer excellent customer service
- B . UIO’s shop managers are encouraged to take risks that may harm UIO
- C . UIO’s shop managers have an incentive to develop attractive sates promotions for their shops
- D . UIO’s shop managers are encouraged to sell phones at a loss
- E . UIO’s shop managers may have very little sense of loyalty to the company
DRAG DROP
As part of risk assessment exercise for a low-cost airline you are requested to match the risks listed below with the most approriate method of minimising or dealing with each risk.
DRAG DROP
As part of risk assessment exercise for a low-cost airline you are requested to match the risks listed below with the most approriate method of minimising or dealing with each risk.
DRAG DROP
As part of risk assessment exercise for a low-cost airline you are requested to match the risks listed below with the most approriate method of minimising or dealing with each risk.
In the purchasing department, the purchasing manager selects and approves all suppliers, as they are the only person with sufficient experience to do so. They use a very limited number of suppliers because they can rely on these suppliers to provide goods of the quality required at a competitive price. They do not keep any documents in relation to negotiations with other potential suppliers or other quotes obtained.
In relation to the above, which of the following statements are valid?
- A . The fact that the purchasing manager uses a very small number of suppliers is, in itself, a sign of poor internal controls.
- B . It is acceptable for clerks in the trade receivables section to make journal adjustments
without authorisation provided the amounts involved are not material to U’s financial statements. - C . It is acceptable for clerks in the trade receivable section to make journal adjustments without authorisation, provided they have no access to cash receipts.
- D . The fact that the purchasing manager does not keep documentation relating to negotiations with suppliers, or potential suppliers, is evidence that they are involved in fraudulent activity.
- E . Clerks making journal adjustments without reference to their supervisor is evidence of inadequate separation of duties.
- F . The way the role of purchasing manager is carried out in U increases the chance that the company will fall victim to fraudulent activity.